Minority Report 2019-20 Talking Finance 4

A few real questions


This is the fourth article in a series of 5 about football clubs and finance. The first article showed how football clubs are a separate legal entity from their owners and directors and shows how refinancing a football club which is losing money has to be done through share capital or loans (debt). The second article summarised the financial statements of all 24 Championship clubs and illustrated how much they are all in debt, how the owners are financing that debt, and how control of player pay is still not being exercised. The third article looked at the systems that the EFL has introduced to try to level the financial playing field, and how a significant gap has opened up between the top 2 leagues and the lower 2 leagues, partially because of the two different control systems that are being used. This fourth article looks at a set of real questions that have been posed by contributors to the BBS, and asks what you would do, given your new knowledge.


Basic Assumptions



You have bought the club for £7m and are prepared to invest another £3m of your own money in order to put your stamp on ownership. That money is currently earning you a return of 3% as a low risk investment with a bank. Therefore, when you invest your own money in the club, it costs you personally £3 per £100 invested each year. Mr Cryne invested over £6m in the club via loans, which he could have left in a bank with no attendant risk. He gave up a potential annual income of £180k less tax.

For investment beyond that £3m figure, the club would need to borrow the money or wait until it has a player valued at more than the usual fees paid by Championship clubs, and then sell him. That is, the player must be good enough to interest a Premier League club. Keeping things simple, the interest rate on any borrowings would be at the rate of 10% (£10 per £100 per annum) in order to reflect the risk involved. Although the sale of a player does not generate any interest, the money is payable over a period of 3 years (50%/25%/25%), so there are knock on effects to cash flow when investing in capital projects.

The academy costs the club £500k per annum (net of grants received), £1m gross.

The land currently occupied by the club ground, its car parks and its training pitches and academy is currently owned by a company which is jointly owned by the Cryne family and Barnsley MBC. It costs the club £150k per annum in rent, but would cost at least £6m if the club wanted to buy it back.

The club loses money at the rate of £1m per annum (based upon an average of the last two seasons in the Championship) before transfer fee write offs for incoming players and transfer fees received for players sold. It is this that dictates that the club regularly trades in the transfer markets, why it needs to regularly buy and sell players profitably.

A new West Stand would cost £10m and would hold 7,500 paying customers, an increase in ground capacity available to home supporters of 6,000 (making 20,000 in total). The other 5,000 seats are reserved for away fans.

Building new accommodation for the young scholars at our academy who are a long distance from their homes and parents would involve the purchase of the land that Grove Street School once stood on and the building of appropriate low rise accommodation thereon. The total cost would be £2m, but it would save the academy the current cost of housing young players in rented accommodation (this is an oversimplification because scholars would still need to be fed and would still require some supervision). No costs for the development, or the additional overhead have been revealed. However, Mr Conway states that they did a similar thing at Nice and that they saw immediate benefits.

These notes assume players below the age of 23 are paid at a rate of 25% of their notional transfer value or actual transfer fee paid.

Players over the age of 23 are paid at the rate of 50% of their notional transfer value or actual transfer fee paid.

The current policy is to capitalise transfer fees paid and write off those fees against profits over the term of the player’s contract. Let us assume that this will not change.

Incoming and outgoing transfer fees are paid at the rate of 50% on signature, 25% one year later and the final 25% one year after that. This puts the club’s cash flow seriously out of step with financial performance. Let us assume that this will not change. Let us also ignore for now any retained interest in players sold.

When the club plays in the League 1, its turnover is reduced by £6m, but existing player contracts contain a clause that reduces their pay by 40%. This reduction is reversed when the club is promoted. In order to offset this major contract disadvantage, the players are given the right to seek a transfer earlier than their contract allows. This right extends to just 1 year following the invocation of the clause (2 transfer windows).


Please note that none of the numbers quoted above are actual fact. They are merely there to allow me to use them in the examples which follow. The purpose of this article is not to be factually accurate. It is to illustrate the process that is used by the directors/owners of the club when reaching their decisions. Whether the fans like it or not, all businesses will look for a return on monies invested. They are unlikely to commit large amounts of spending to any new idea unless they are convinced that there is a payback on that investment. I have assumed that they cannot expect a return on their investment until they improve and resell the club, and that they will be reluctant to increase their investment through share capital because that investment is permanently locked away, at least it is until the club can be sold.


The rest of the piece attempts to show how things work, and why.

 

Possible New Policies


I have tried to think of all the issues that fans have discussed on the Bulletin Board over the years. These are the ones that I can recall, plus something brought up by Paul Conway at the recent public meeting attended on our behalf by Gally. If you can think of any others, I would be grateful if you would share them


1. Repurchase the ground.

2. Build a new West Stand.

3. Buy the land formerly occupied by Grove Street School and build an accommodation block and dining facilities for academy scholars.

4. Change the policy with regard to buying young and selling players who enter the final year of their contract and who refuse to resign, or when an offer is received that the board believes overvalues the player.

5. Change the policy to sign older players (over 24 years of age) with more experience.

6. Instead of building a new academy building, close the academy and acquire players for the U23 team at the age of 18 from other academies using the money saved.



Let us look at these options one by one


Repurchase the Ground

At a purchase price of £6m, it does not represent a profit for the current owners (Cryne family and BMBC). I assume the annual rental covers borrowing costs by the current owners. If the club repurchase the ground, it would save the £150k that it spends annually in leasing costs but it would have to finance the purchase by borrowings and the interest charges would be £600k per annum, and the club would be £450k per annum worse off.


Build a new West Stand

In all honesty, this would not be done unless the club already owned the ground. It would cost at least £6m to buy the ground, on top of the £10m that the new stand would cost.

Currently, Oakwell capacity is about 19,000, of which 5,000 seats are allocated for visiting fans in the North Stand, close to visiting fan parking areas. It has been pointed out to me in the past that the North Stand can be accessed by home fans via separate turnstiles, and that segregation could be arranged in the usual way, by creating a barrier and forfeiting several hundred seats down the centre of the stand, and by using many more stewards in order to keep the fans apart. I continue to believe that neither the club, nor the police would be that happy with that arrangement. So, I will assume that the remaining 14,000 seats are for the use of home supporters. Furthermore, I will assume that home support is about 10,000.

Personally, I would like to see more of a demonstration of demand before I would be tempted to build a 7,500 capacity stand, to increase capacity by 6,000 seats at a cost of £10m, excluding the cost of buying the ground. You can only use standard techniques to calculate payback if the revenue being raised from the sale of those seats is additional revenue. If people are simply moving from different areas of the ground to occupy seats in the new stand, it is not new money.

Assuming we could sell 75% of those additional seats on a regular basis (4,500), which would represent an increase of 45% in home attendance figures, at £300 per seat per season we would generate an additional income of £1.35m per season. Interest charges on the £10m required to build the stand would eat up £1m per season. It seem a pretty big risk over a very long term to me because assuming the balance is being used to repay the initial loan, it is going to take 30 years, even on my extremely favourable figures. This is exactly the sort of calculation that should have been done in respect of the North Stand, and it pains me to see it 90% empty most weeks.


Building new accommodation for academy scholars

Paul Conway seemed pretty convinced on this one as the new owners had done it in Nice. Nevertheless, £2m is a lot of money, and I would presume that there would also be a small increase in overheads as well, which may be worthwhile if it provides supervision of the out of hours activities of academy scholars, as he has suggested. If indeed, those were the costs, assuming the club gets the money from the bank, then that is an additional interest cost of £200k per annum. Everyone but me seems totally convinced that the academy is worth doing, and I propose to look at the subject again in a later piece to see if I can convince myself. However, the club must eventually recover all the money that it spends on the academy, and that can only be done when academy students graduate to first team football. Academy costs, including the new capital cost and the interest that it attracts amount to yet more pressure to recover that investment by selling players. The fans hate it when players are sold, but the pressure to sell comes from a need to break even, a need to meet a cash flow deficit, increased costs or increased debt. All increase the pressure to sell. No owner sells players because he wants to. Owners would love to be popular with the fans all the time. They sell because of the pressures that they face to do so, and most of the time, there is just no alternative.


Changing the policy for player sales

Many have suggested that the big sale of players 3 years ago was Patrick Cryne’s fault. That it would have been different if he had signed the players to longer contracts. That he should have tried to renegotiate those contracts earlier. I did not believe it at the time, and the player sales this summer have reinforced that belief. Players pay their agents to keep them well informed as to their current market value, and they go into any contract negotiation with their eyes and ears open. The transfer market is as sophisticated as any, and if a player is willing to take a lower salary than he has been told to expect, it will be as an investment in his future prospects, an investment that one day he is going to want to cash in on. He will want to cash in on his investment when his contract ends, and the club’s only hope of recouping their investment is to sell before his contract ends.


There are still those who cling doggedly to the idea that if Patrick Cryne had not sold that team, then we would have been promoted to the Premier League and would have been on easy street. It has to be admitted that there was a very, very small chance of promotion. We were in 7th position when the sales took place, one place outside a play-off position. We would have had to finish in the top 6 and then been promoted via the play offs. It was better than a chance in a million, but not much, because in my opinion, we did not have sufficient strength in depth for the run-in. But should Patrick Cryne have taken the risk. Should he have put everything on 3 and spun the wheel. Of course he shouldn’t. Business does not work by gambling at long odds. They work by careful assessment of risk and reward, by looking at payback and by measuring all possible strategies before choosing one that offers a risk and reward profile that is appropriate. It does not bet the farm, no matter what fans who have invested no more than the price of a season ticket may argue.


Signing older players.

The point about signing young players is not just that they offer a chance to us to improve the player and then sell him on at a profit, it is also that young players have achieved very little in the game and their pay expectations are lower as a result. They are willing to trade a place in our ‘shop window’ against a potential for higher future pay. When you sign older players, you are buying experience, but experience cost more, both in transfer fee and in pay. The question is not just, can the club afford the transfer fee. It is not even, can the club afford the player’s pay demands. It is also, should the club pay a player more than the wage structure allows, and what effect does that have on the morale of younger players who might be capable of contributing more in some aspects of the game (running). Is it worth all the risks involved?


Closing the academy.


The academy produced John Stones, and there is no doubt that John Stones made the club a lot of money. However, the academy costs at least £500k per year. Therefore, if the academy produces just 1 player per season who goes on to play for the first team, his inward transfer fee is effectively £500k. If in some seasons, the academy fails to produce any player that makes the first team, the notional transfer cost of the players who do make the first team increases. If a player is sold at the age of 22, the player has been paid by the club for 4 years. He will be on his second contract, and will be playing in the shop window (the first team). It is only right that the profit on the player is allocated not just to the academy (as a separate profit centre), but also to the first team squad (as the main profit centre). The question is, when the fee received is divided between the various claimants, is the amount attributable to the academy sufficient to pay all academy costs? After that question is answered, is the profit/loss sufficient to justify keeping the academy open, or does it make more sense to pay fees to other clubs for their most promising 18 year old graduates?

 

Summary


There are those who criticise the decisions of the professionals that run our club. It is a release valve, and the professionals know it. They are taught from an early age how to respond respectfully, how to make no commitment and how to respond at length, and say nothing. It is all a long drawn out attempt to upset no-one, leaving the complainant believing they have contributed something and that their contribution has been noted and will be included in any future changes in strategy. But the majority of contributions from us fans are either obvious but undoable, or already thought through and rejected. You see, like any business, the customers see things very differently from owners and the CEO, who must find a way of doing everything they do profitably. I respect the professionals, and my automatic response is to assume that they have good reasons for doing things in the way that they do them. With a little effort, I can usually find some reasoning in everything they did, and most of the time, that reason is cost.


Repurchasing the ground would cost at least £6m, assuming the current owners do not wish to see a profit on their investment. It is the first step toward the club deciding to rebuild the aging West Stand. The annual cost saving on overhead would be £150k, the interest on the money that the club has to borrow in order to finance the purchase would be £600k. That is an increase of £450k, which would increase losses before player trading to £1.45m. And that is before the club attempts to locate the cash that it would need for loan repayments, because if there is no permanent investment via share capital, that is what it would be required to do.


As I have already pointed out, no board would elect to build something on land they do not own. Therefore, the above transaction would have to be done before the rebuilding of the West Stand could be considered with annual player net sales already increased to £1.450m, as a result. What the directors would have to decide before committing to another investment is, where is the payback? In my notes above, I state that with the new stand at 75% capacity, we would need to sell an extra 4,500 seats to give us just £350k per year over and above interest charges. Just what are our chances of increasing home attendances by 45% reliably and over the long-term? Long term investment needs long term guarantees of revenue, and football is a typical example of a business whose income reacts to short term events (wins and losses). This is exactly why ground improvements often land clubs in deep trouble. Capital investment reduces cash available for the purchase of players and the funding of their pay. This is why in the past I have questioned the investment in the North Stand, which is virtually guaranteed to be 80% empty for most games. Indeed the average occupancy rate over a season would be less than 20%. Compare that to the 75% occupancy rate that the new West Stand would need to have a barely adequate payback, including a chance to repay the loan over the long term. In the past, John Dennis solved the problem by only building from proceeds of player sales, and we fans used to name each project after the player that was sold to finance it. These days, fans seem to expect 100% of fees to be immediately reinvested in new players. That is just not possible if the club is building a new stand.


The next proposal was suggested by Paul Conway, concerned by the rising costs of accommodation for academy scholars whose homes are long distances from the club. On very little evidence, I have suggested that the cost of accommodation for academy scholars would be £2m. To be honest, I have no idea what accommodation for academy students is costing currently, but we can work out what those costs need to be if we are to have a payback on our investment. Let us assume that the club finance the investment with a loan. That would cost £200k per annum in interest charges, but let us also assume that we want to repay the loan over 20 years, a further £100k per annum. Let us also assume that the cost of a housekeeper, a cook plus food a night watchman and other running costs is £100k per annum. That is a total cost of £400k per annum. The question is whether that is more or less than current costs. I know that it is not quite that simple, but as I said, accuracy is not the purpose of this article.


As I have already pointed out, the club loses an average of £1m annually on trading (excluding player purchases and player sales). It has to trade in players simply to cover those losses whether it wants to or not. Having invested share capital in buying the club from Patrick Cryne, the new owners have shown no interest in investing again in order to chase that Premier League dream. They prefer to improve the club by trying to manage it better, according to their own vision of how that can be achieved, and requiring that the club generate its own capital for reinvestment. This is different to what many expected, but it accords with what they said when they took over. So why would they make changes in their philosophy. Why would they dump, buy young, improve and sell on. Why would they choose to ignore an offer for a player that they believe exceeds his current market value? We need an example.


Player A, a 21 year old joins the reds on a 4 year contract for a fee of £800k. His contract provides for a salary of £200k per year (25% of his fee). Therefore, at the end of 4 years, the player will have cost the club £1.6m. At the end of his 3rd year, (he is now 24 years of age) the club receives an offer from another club of £3m. The player knows that because of his improvement and also his age, his market rate for salary has risen to £1.5m per annum (50% of his current transfer value). He knows that he would be offered a 3 year contract. He would obviously like to start earning at that rate now, rather than wait for another year until his current contract expires, potentially losing £1.3m in career earnings. He is an honest lad and is willing to play out his contract if the club require him to do so, but he thinks that it is unlikely, because whilst he would lose £1.3m in career earnings, the club loses the chance to recoup a fee of £3m. Both club and player stand to be out of pocket, and there is no way that he is going to sign another contract, not even at his market rate because the club cannot increase his potential earning any further and he has gone beyond getting any value from the shop window the club offers. Of course, the club could offer to renegotiate his contract immediately (1 year before it is due), but it is unlikely that their pay structures will allow them to offer the market rate (cost £4.5m over 3 years), and in any event, a transfer to a higher profile club is going to put him in a more up market shop window, which is bound to increase his earning potential and chances of an even more lucrative move later on.


What would you do in the player’s position?


Should the club buy older players? Well, let us compare the costs over the same 4 year contract for a 21 year old versus a 28 year old, both purchased for a fee of £800k, and sold 1 year before their contract expires.

21 year old

Cost £800k

Wages £600k

Total cost £1,400k

Selling Price (aged 24) £3,000k

Profit over 3 years £1,600k


28 year old

Cost £800k

Wages £1,200k

Total cost £2,000k

Selling Price (aged 31) £400k

Cost over 3 years £1,600k


The above example is just that, an example, but it uses principles laid down in the Basic Assumptions. If you do not like the assumptions, then simply create your own, but try to ensure that your assumptions follow some logic, just as mine do. My assumptions lead me to the conclusion that it would cost £3,200k less to employ the young player, over the same 3 year period.


Closing the Academy


If we close the academy, obviously there would be no reason to go ahead with the accommodation block. Furthermore, we would save £500k per year in costs, and perhaps we could use that money more effectively elsewhere in the business. Nevertheless there is an emotional attachment towards players born and raised in the town who go on to play for the town. It is part of the strong links between the football club and the town whose name appears on the shirt. It would be a very difficult decision to drop that link, but it is worth reflecting on the cost of maintaining that link in today’s climate where loyalty to the town and the club no longer exists.

 

Closing Remarks


As I have said all the way through this exercise, my purpose is not necessarily to be accurate. It is to try to show why things happen in the way that they do, using logic and reason. I know that we are all fans, and that we become emotionally attached to the team, its management and the players that comprise the team, especially when the team has had some success. But behind the team is a business, and the business can only survive if it is profitable and can generate cash from player sales to cover the losses it makes in normal trading (fans turning up and paying money to watch). Selling players is part of the trading plan, and we must all get used to transferring our affection to new players when the old ones move on. After all, we support the team, and whilst the individual players that comprise that team will move on, and always have done, it is the team and its ongoing plan to compete profitably that is important. When Patrick Cryne sold up, the process that many fans went through was to blame him for all the perceived errors and injustices of the previous 10 years. The new owners were wealthy, and therefore they would be better. They would invest. They would spend. Our team was headed for the big time. I was never sure how that worked. Theirs was an investment company. A company that has the same plan for businesses as our club has for players. Invest. Improve. Sell on for profit. Of course, that could involve promotion to the Premier League, but it does not have to do. Even if it does, a long term approach to investment may just involve running the business well, doing the right things most of the time and being patient. In the long term, that strategy will create a more stable future for the business. A future that is based upon a good commercial and business plan, rather than an insatiable demand for more and more investment. Fans might not like the real world, after all, football sometimes does not seem to live there. But the real world offers a more stable future, free from the periodic brushes with extinction. There is more to football than throwing loads of cash in a particular direction and hoping that some of it hits the target.


In the euphoric wake of a transfer window that Paul Conway described as the club having better players at the end than it had at the start, I am bound to ask, better in what sense. The players are generally even younger. They have been signed to long contracts on terms that the club can afford, principally because the players are younger. As investment vehicles, these players offer a chance of providing a good return on that investment, and as a businessman who judges his own success by Profit and Loss Account and Balance Sheet, he thinks that he has done well. I cannot argue. My own scales of judgement weigh heavily in that direction too, as anyone who has read my stuff will readily recognise. But I am not an average fan, in that respect. Most contributors to the BBS judge success by entirely different criteria. They make their judgements purely on the win/loss ratio, and on our league position. Admittedly, I am prejudging here, but my analysis of our playing squad is that it is far too young and has far too little experience and know how within it to compete effectively over a long season on the basis that the BBS uses for its scales of judgement. The individual players have a great deal of promise. They will improve. They may well have a higher notional value at the end of the season, than they did at the start, but that may not result in the team winning games and accumulating enough points to stay up. How will the BBS come to regard Paul Conway and his fellow directors if that scenario pans out? How will they regard them when they sell our best players, either because some club offered more than they thought they were worth, or because their current contract is nearing its end, and the player will not extend it?


You see, I see both points of view, and your average owner does likewise. Each owner draws the balance in a slightly different place though, but it is true that in the modern game, the fans are becoming less and less important as a source of revenue. In the Premier League, the fans are a decoration, an adornment, merely a source of atmosphere for the most important audience, the TV audience. We have not quite reached that point in the Championship just yet, but Paul Conway seems to regard keeping the paying fans happy as a less important priority to trading players and making money from that exercise. Our last Accounts provided an analysis of turnover. Trading in players is not recognised as turnover for that analysis, but it showed Football League Distributions to be £7.9m, whilst Income from those of us who turn up every week and pay to watch was just £3.6m. Profit from player transfers was £3.8m. That is right. In the year to 31 May 2018, our hard earned cash contributions were less than the net contributions from player sales. You would have to agree that on that basis, it makes more sense to trade in players than it does to keep the fans happy and have to build more stands simply to house them. A sobering thought. As a businessman, who sees Barnsley Football Club purely as an investment, how can I argue that he has his priorities wrong?


Personally, I do not have a problem with it, but then my priorities are firmly towards avoidance of risk and keeping my club stable and beyond the grasp of the administrator. But there are many on the BBS who clearly have different priorities, and if you want Premier League football, it is not obvious how buying young players, improving them and selling them on for profit can get you there, particularly the buy young bit. There is a fundamental difference in the way that much of the support sees the business aims, from the way that the owners see it. That fundamental difference is bound to end in an irreconcilable disagreement eventually. I expect the owners to sell up before that irreconcilable difference of opinion begins to lower the value of their investment. It is a cynical view I know, but it is perhaps an accurate one. It is certainly more honest than treating an owner as a hero one minute because the team is winning, and as a devil the next minute it is not. Remember, the owner is making his decisions on entirely different criteria, and because of that, you are never going to agree with all of them.


Having said all that, I see merit in the way the new owners have chosen to do business, and the final part of this series goes on to examine the long term policy that they are pursuing.


Most of this article was written long before the recent furore over the sacking of Daniel Stendel, and the questioning of the owners’ motives. However, it does predict the eventual fall out because of the reasons given in the text. I have not given up. I still retain a belief in what I understand to be the plan. I have not resorted to cynical comments or insults. I wish that I could persuade others to view things in that way, and view each event as part of a long term plan. Sadly, at the moment that looks out of the question.

 

YOu are wildly out with your wages.

a 21 year old player on 12K a week?

24K a week for a mister?

 

I'm not going to go line by line.

I'd certainly suggest bite sized chunks that actually allow more debate rather than a dearth of subjective data that negates discussion and more forensic detail. There are huge amounts of subjective assumptions in there. An example, you assumed interest on lost savings of 3%, yet for costs of borrowing to acquire land, you're suggesting an annual interest bill of £600k.. That's a 10% borrowing cost. So immediately your sums don't add up by a long distance. Nor can you assume profit on a player to include wages. Basic accountancy considers a matching concept. If you're including cost, you have to consider income. We have turnover that inherently goes to the running costs of the club. That is predominantly wages. I'd suggest transfer fees are more capital in nature and we can see there is amortisation of transfer fees in the balance sheet. Not all clubs do that, and it does vary from club to club. So by all means consider the purchase and sale prices and infer profit accordingly. But the wages are not capital and should be matched with regular income.

There aren't many institutions giving 3% interest to a customer, nor are there very many at all at the level of 10% unless the riskiest of deals.

You've also assumed the site of Grove Street could be considered for rooms. What about the huge amounts of land included within the Oakwell area that is owned in part by the Crynes? I'd expect a residential wing to be included within an academy complex, if they ever did it, and to build on that area, I'm not sure that makes sense at first glance.

Sadly, just those few assumptions, really negate the whole tenet of the subjective opinion.

 

Oh, and i'm sure it will vary agreement by agreement, but transfer fees that I've seen haven't tended to be so front loaded as clubs struggle with big spikes of capital, so they are often more evenly paid over the lifetime of the contract. If they are front loaded to the selling club, the fee tends to be lesser, as the buying club is essentially helping the selling club with its liquidity.

 

Fascinating analysis RR, thank you for undertaking and posting it.

I have two questions:
1. In one of the earlier pieces did you suggest that the accounts showed a retained surplus from previous player sales? And if so, does that allow for a loss to be absorbed in the short term (or investment in one of the projects without the need for borrowing?)
2. I'm struggling with it the overall impact of relegation (which looks likely), in terms of the lower FL payment and associated fall in gates/ merchandising etc. Allowing for your assumed reduction in player wages and perhaps adding an assumption about the reduction in gate income and merchandising, what is the % reduction that would result in the figures turning negative and demanding greater player sales to balance the books?

 

An interesting read.

I think one thing I’d take issue with is the ‘buying’ a 28 year old. I don’t think I’ve seen anyone suggesting this, a lot us think we should be looking into free agents for experience but also in my opinion because we’re wasting lots of money on transfer fees for players that don’t play.

It seems madness to me that a club with one of the smallest budgets in the league has paid a transfer fee for almost all its squad.

Hedges, Davies & Jackson all recently went for nothing after we paid a fee for them.

Thiam looks likely to go next summer for nothing despite us paying a significant fee for him. Cavare probably the same.

None of Schmidt, Wilks, Thomas, Bahre, McGeehan, Styles, Green, Anderson & Odour are seen as regular starters yet we paid transfer fees for them all. It just seems a crazy way to go about things to be spending all these millions on transfer fees yet we supposedly can’t compete with Wigan, Reading, Millwall etc when it comes to wages.

 

Interesting post, cheers

 

To be fair, RR does say in his opening remarks that he's using assumptions as a means to an end. I for one don't mind that. Whether or not these articles stimulate any meaningful debate remains to be seen, but they've certainly made me think differently about the club, the owners motives, and the wider footballing world. The whole series should be made stickies IMHO.

 

He does. But if the assumptions are so wildly out from a more typified expectation, and all assumptions slant with biases in the same direction, the end outcome to try and base a viewpoint is massively skewed from any form of reality.

If the subjective skew is so considerable rendering the data inaccurate and irrelevant to base true decisions and conclusions, then the whole article is a waste, sadly. I'm afraid the whole suggestion in much of these is that look at BFC, whatever else can they do, they cant compete etc etc

But as Django rightly says above, we've very few free transfers on our books. No loans at all. Yet most of a huge bloated (yet uncompetitive at this time) squad has cost significant amounts.

If you look at the overall budget, net of any sales fees, and then consider what our base expenses are, you can then assess shortfalls, impacts, what fees may have to be spent to top up the squad and what sales may be required.

To me, this whole approach by the club is an abject failure. Its hugely costly, it places massive attrition, not only on squad cohesion, but also on coaching time, while also impacting on supporter loyalty. When you consider the fees paid out that are then wasted on contract lapses, there seems little obvious upside. That's compounded with fees attained being under market value (I'm sure Woodrow will go for way less than market value in January... other players amongst the top scorers in this division would be attracting £10-£15m bids).

Its obviously impossible to have a sliding doors moment to compare variant decisions, but how much more successful may we have been with some free transfers and loans? You look at this time of Wilks and Schmidt, and though very early in their time, it current looks like around £2m has been deposited up the wall of the west stand bogs... that's without considering one may well go to jail if found guilty at his pending case.

As others have stated before, our focus is on keeping the conveyor belt of sales going... not if its actually cost beneficial both on the pitch and in the bank. I can easily see arguments that neither are especially beneficial at this point.

 

I think you are referring to the 3 year totals. The actual figures use come out at nearer £4k per week for the 21 year old and £8k for the 28 year old.

 

As I said at the start, the figures are there simply to illustrate the points that I am making. By all means use your own assumptions for interest rates.

 

1. The accumulated profit represents the total amount of past profits, less the total amount of past losses. It is there because it was not passed on to share holders through dividends or paid over to the government in corporation tax. That money belongs to the share holders, but they have elected to leave it in the business in order to provide more finance.
2. Can I recommend that you read Minority Report 2019-20 Talking Finance 3. The accounts for 2018-19 season will be out in March, and we will be able to look at the real impact of a season in League 1 then.

 

Transfer Fees are written off over the term of a players contract. For example, a player signed on a 4 year contract would have a quarter of his fee written off against profit each year. The fees of player are an investment. The club hopes to improve the player and sell him for more than they paid for him before his contract runs out.

 

It is true that I think that the club are right to operate their current policy, but I would not agree that my assumptions are biased to obtain the results I want to see. My guess is that you are also biased against the current policies. Can I suggest that you use the formula that I have put forward, but that you use your own assumptions. I can assure you that the logic of the calculations is correct, and provided you use that logic, your new assumption will provide you with a logical result.

 

There are very logical conclusions to be sustained without using inaccurate assumptions that skew the final outcome.

We aren't pursuing enough free transfers.
We aren't pursuing enough loans.
We aren't obtaining good value for many/all of our outgoing transfers.
We fail to renegotiate existing player contracts at the best time for the club.
We have significant failures that have incurred transfer fees and are written off.
Our squad is too big.
Allowing a coach to completely change the playing system very soon after the closure of the transfer window is essentially leading to the diminishing value of wide players who now no longer fit the system.

These are all choices made by the club. Each one is contributing to the loss of precious funds. And that's before we get into the realm of age profiling.

These are all highly logical conclusions to come to. None of which involve inaccurate mathematics based on highly subjective assumptions that skew any readers potential outcome.

Start with a pot of £10-12m. Rebuild everything from scratch, and see what you can get for your money and where you end up.

There are plenty of average players who are solid and wouldn't earn a fortune and could be a Leader and provide a little guidance and experience we're so sadly lacking.

 

I don't see merit in your formula to be quite honest. It doesn't make sense.

Just like our owners ideology doesn't. And lets call it an ideology, because it certainly isn't a plan and it absolutely most assuredly is not and never can be considered a strategy. Its an ideology. So far removed from sense it is a random outlier as t how to operate a football club. Sadly, the reckless debt mountains many others are using should also be considered outliers, rather than the norm they are.

 

If you structure a 3 year total on a players cost, you have to offset with 3 years of revenue. Matching concept.

You also need to reapportion and distinguish between capital cost and revenue cost. Its highly misleading and inaccurate otherwise.