Tuesday, January 31, 2017

Chelsea - The Band Wore Blue Shirts

This season has seen a return to form for Chelsea following the appointment of Antonio Conte. The former manager of Italy is famed for his passion, but also possesses much tactical astuteness, as evidenced by previously leading Juventus to three consecutive Serie A titles. Under his guidance, Chelsea are currently setting the pace and look a very good bet for the league title.

This demonstrates just how quickly things can change in football, as the 2015/16 season was Chelsea’s worst in the Roman Abramovich era with the club slumping to a disappointing tenth place in the Premier League, thus failing to qualify for Europe for the first time in 20 years. This inevitably resulted in the departure of José Mourinho, the self-proclaimed “special one”, with the reins handed to Guus Hiddink until Conte’s arrival.

This dismal performance was matched off the pitch with the 2015/16 accounts revealing a £70 million pre-tax loss, around £49 million worse than the previous season’s £21 million deficit.

In fairness, this was predominately due to £75 million of exceptional expenses, largely £67 million to terminate the Adidas kit supplier contract in favour of a significantly more lucrative deal with Nike, plus £8 million compensation to Mourinho and his team. Without these exceptionals, Chelsea would have reported a profit before tax of £5 million.

Revenue rose £15 million (5%) to a record level of £329 million, as commercial income increased by £9 million (8%) to £117 million following the new shirt sponsorship with Yokohama Tyres.

Broadcasting income was also up £7 million (5%) at £143 million with the higher UEFA deal increasing Champions League distribution by around £20 million, though this was partly offset by the £12 million reduction in Premier League TV money due to the lower league finish. Gate receipts fell slightly by £1 million to £70 million.

"U Got The Look"

In addition, profits on player sales increased by £8 million to an impressive £49 million, principally due to the sales of Ramires to Jiangsu Suring, Petr Cech to Arsenal, Mo Salah to Roma, Oriol Romeu to Southampton and Stipe Perica to Udinese.

In contrast, the wage bill rose by £7 million (3%) to £222 million, while player amortisation also increased £2 million (2%) to £71 million, though other expenses were £11 million lower at £71 million.

It is also worth noting the enormous £29 million loss that Chelsea made on cash flow hedges, as FX movements dramatically reduced the value of their forward currency contracts, presumably due to Brexit. This took their comprehensive loss to £99 million.

For comparison, Manchester United reported a similar £38 million loss on cash flow hedges, while this was not yet an issue for Arsenal or Manchester City, whose accounts closed on 31 May (i.e. pre-Brexit).

Chelsea’s £70 million loss is likely to be the worst financial performances in England’s top flight in 2015/16. The only other club to have announced a loss so far is Everton with £24 million.

In contrast, six of the eight Premier League clubs that have published their accounts to date for last season have reported profits, the largest being Manchester United £49 million, Manchester City £20 million and Norwich City £13 million, followed by Arsenal £3 million, Stoke City £2 million and West Bromwich Albion £1 million.

Although football clubs have traditionally lost money, the increasing TV deals allied with Financial Fair Play (FFP) mean that the Premier League these days is a largely profitable environment with only six clubs losing money in 2014/15. This group largely comprised clubs that have been badly run (Aston Villa, Sunderland and QPR), but also included Manchester United, Everton and, yes, Chelsea.

Chelsea’s loss would have been even higher without the benefit of £49 million profit on player sales, which will certainly be one of the highest in the Premier League in 2015/16, if not the highest.

Of course, Chelsea are no strangers to making losses in the Abramovich era, as they have invested substantially to first build a squad capable of winning trophies and then to keep them at the top of the pile.

Since the Russian acquired the club in June 2003, it has reported aggregate losses of £753 million, averaging £58 million a season, though there has been some improvement since the spectacular £140 million loss in 2005 with Chelsea posting profits in two of the last five years.

The first profit made under the Abramovich ownership was a small £1 million surplus in 2012, though this did owe a lot to £18 million profit arising from the cancellation of preference shares previously owned by BSkyB, while they were also profitable in 2014.

Chairman Bruce Buck has consistently maintained that the club’s objective is sustainability: “It has long been our aim for the business to be stable independent of the team’s results and we continue to reinforce that.”

Chelsea’s figures have consistently suffered from so-called exceptional items, which have increased costs by an amazing £202 million since 2005.

Leading the way are two early terminations of shirt sponsorship agreements £93 million and money paid as compensation paid to dismissed managers £69 million, though the list also includes impairment of player registrations £28 million, tax on image rights £6 million, impairment of other fixed assets £5 million and loss on disposal of investments £1 million.

On the bright side, Chelsea appear to be learning from their mistakes, as the recent pay-off to Mourinho and his coaching team of £8 million was around a third of the £23 million it cost in 2008.

It is not clear whether the £5 million reportedly paid to former club doctor Eva Carneiro following an employment tribunal was included in this year’s accounts or will only be booked next year.

However, it is profit from player sales that is having an increasing influence on Chelsea’s figures. In the nine years between 2005 and 2013, Chelsea averaged £13 million profit from selling players, but this has shot up to an average of £52 million in the three years since then.

Last year included the eye-catching £25 million sale of Ramires to China, while previous seasons featured some other big money moves: David Luiz (PSG) £40 million, Juan Mata (Manchester United) £32 million, Romelu Lukaku (Everton) £28 million, André Schürrle (Wolfsburg) £22 million and Kevin De Bruyne (Wolfsburg) £17 million.

It is notable how much more money Chelsea make from player sales than their direct rivals, e.g. over the last three seasons Chelsea earned £155 million, compared to just £38 million at Arsenal, £35 million at Manchester City and £21 million at Manchester United. Although Tottenham, Liverpool and Southampton also generate substantial sums from transfers, this is more understandable, given their revenue shortfalls.

"Put on your dancing shoes"

Next year’s accounts will be more of the same following the £60 million sale of Oscar to Shanghai SIPG. This trend of players making lucrative moves to China has clearly benefited the club financially, but it has not met with Conte’s full approval, “We are talking about an amount of money which is not right”, though fans of other clubs could be forgiven for thinking that this is a bit rich, coming from a Chelsea manager.

Indeed, led by Marina Granovskaia, one of Abramovich’s closest associates, Chelsea have perfected a model whereby they consistently make money from player sales. As well as the big ticket deals already mentioned, Chelsea have also made extensive use of the loan system with an incredible 35 players currently listed as being out on loan (though I may well have lost count).

Although the club argues that this strategy is simply aimed at giving players experience, it is difficult not to believe that this is primarily a money making exercise. Given that very few of these players have succeeded in establishing themselves in Chelsea’s first team, it would appear that the objective is to develop players for future (profitable) sales, while effectively placing them in the shop window.

"Oh, sit down, sit down next to me"

The most recent example is Patrick Bamford, signed for £1.5 million in 2012, and sold to Middlesbrough this month for a fee of £6 million, potentially rising to £10 million with add-ons, even though he never appeared for Chelsea’s first team. During the last five years the England U21 international has been loaned out no fewer than six times.

From a financial perspective, this is a smart move that has helped Chelsea meet the Financial Fair Play (FFP) regulations, though the moral counterpoint was delivered by FIFA President Gianni Infantino, “It doesn’t feel right for a club to just hoard the best young players and then to park them left and right. It’s not good for the development of the player.”

However, even though some might complain that this policy smacks of treating players like commodities (“buy low, sell high”), not to mention ensuring that rival clubs cannot access promising talent, there are (currently) no rules against it and other clubs, such as Udinese, have operated in a similar way for many years without sanctions.

To get an idea of underlying profitability and how much cash is generated, football clubs often look at EBITDA (Earnings Before Interest, Depreciation and Amortisation), as this metric strips out player trading and non-cash items.

In Chelsea’s case this highlights their recent improvement, as it is has been positive for the last four years, rising from £16 million in 2015 to £35 million in 2016, though still lower than the £51 million peak in 2014.

However, to place that into context, this is way behind Manchester United £192 million, Manchester City £109 million and Arsenal £82 million. United’s amazing ability to generate cash means that their EBITDA (“cash profit”) is more than five times as much as Chelsea and helps explain the Blues’ focus on player sales.

Chelsea have increased their revenue by 29% (£73 million) in the last three years from £256 million to £329 million. The growth is split pretty evenly between broadcasting income, which has increased 36% (£38 million) from £105 million to £143 million, thanks to new TV deals in both the Premier League and the Champions League; and commercial income, which has nearly gone up by nearly 50% from £80 million to £117 million.

Match day receipts have actually fallen slightly from £71 million to £70 million, which underlines why Chelsea are planning to expand their stadium.

Although Chelsea’s £15 million (5%) revenue growth in 2015/16 took their revenue to a record level, it was not that good compared to their major rivals. Admittedly, Manchester United’s £120 million (30%) growth was influenced by their return to the Champions League, but the growth at Manchester City £40 million (11%) and Arsenal £21 million (6%) was also higher than Chelsea.

That said, Chelsea’s revenue should grow in 2016/17, despite a £60 million reduction from the lack of European competition, as they will benefit from the new Premier League TV deal including a higher league position (+£70 million) plus a new commercial deal with Carabao (+£10 million). That should mean a net £20 million increase to around £350 million.

Furthermore, 2017/18 will be boosted by the £30 million increment from the Nike kit deal. On the relatively safe assumption that Chelsea qualify for the Champions League, the 2017/18 figures should be close to £450 million.

As it stands, Chelsea’s revenue of £329 million was the fourth highest in England in 2015/16, though nearly £200 million lower than United’s £515 million. They were also a fair way behind Manchester City £392 million, but quite close to Arsenal £351 million.

Liverpool were within striking distance at £302 million, but there was a significant gap to the remaining Premier League clubs: Tottenham Hotspur £209 million, West Ham £144 million and Leicester City £129 million.

Chelsea remained in eighth place in the Deloitte 2016 Money League, only behind Manchester United, Real Madrid, Barcelona, Bayern Munich, Manchester City, Paris Saint-Germain and Arsenal. This is obviously excellent, but they face three major challenges here (in common with other English clubs):

  • The leading clubs continue to grow their revenue apace, e.g. Real Madrid and Barcelona have reportedly agreed massive new kit supplier deals worth north of £100 million a season.
  • The weakening of the Pound since the Brexit vote means that continental clubs will earn much more in Sterling terms, e.g. the latest Money League was converted at €1.3371, while the current rate has slumped to around €1.17. At that rate, the €620 million earned by Real Madrid and Barcelona would be equivalent to £530 million, taking them above Manchester United.
  • The Money League highlights the increasingly competitive nature of England’s top flight with no fewer than 12 Premier League clubs in the top 30 – even before the lucrative new TV deal.

Eagle-eyed observers will have noticed that the Money League figure for Chelsea’s revenue of £335 million is £6 million higher than the £329 million reported by the football club. This is because they have used the figure from the holding company, Fordstam Limited.

Although this company has not yet published its 2016 accounts, the £319.5 million reported in 2015 is exactly the same as the figure in last year’s Money League. The difference is entirely in commercial income.

If we compare Chelsea’s revenue to that of the other nine clubs in the Money League top ten, we can immediately see where their largest problem lies, namely commercial income, where Chelsea are substantially lower than their rivals that have traditionally been more successful in monetising their brand: Manchester United £150 million, Bayern Munich £134 million (£244 million minus £113 million), Real Madrid £80 million and Barcelona £99 million. The £106 million shortfall against PSG is largely due to the French club’s “innovative” agreement with the Qatar Tourist Authority.

On the plus side, Chelsea look to be fine on broadcasting and not too bad on match day income, though there is room for improvement in the latter category.

The growth in broadcasting income in 2015/16 means that this now accounts for 43% of Chelsea’s total revenue, ahead of commercial income 35%, which has risen from 26% in 2009. As a consequence, the importance of match day income has diminished from 36% to only 21% in the same period, once again reiterating the rationale for the planned stadium expansion.

Chelsea’s share of the Premier League television money dropped £12 million from £99 million to £87 million in 2015/16, largely due to finishing tenth compared to winning the title the previous season. Nevertheless, they earned more three clubs finishing above them (Southampton, West Ham and Stoke City), as the smaller merit payment was more than offset by higher facility fees for having more games broadcast live.

The mega Premier League TV deal in 2016/17 will deliver even more money. Based on the contracted 70% increase in the domestic deal and an estimated 40% increase in the overseas deals, the top four clubs will receive £150-160 million, while even the bottom club will trouser around £100 million.

Although this is clearly great news for Premier League clubs, it is somewhat of a double-edged sword for the elite, as it makes it more difficult (or at the very least more expensive) to persuade the mid-tier clubs to sell their talent, thus increasing competition

The other main element of broadcasting revenue is European competition with Chelsea receiving €69 million for reaching the last 16 in the Champions League, which was €30 million more than reaching the same stage the previous season, partly influenced by the increase in the 2016 to 2018 cycle, namely higher prize money plus significant growth in the TV (market) pool, thanks to BT Sports paying more than Sky/ITV for live games.

In fact, Chelsea actually earned the sixth highest in the Champions League, more than semi-finalists Bayern Munich, because of how the TV (market) pool works. Each country’s share of the market pool is based on the value of the national TV deal, which means that English clubs have prospered from the huge BT Sports deal, though it should be noted that around half of this goes into the central pot, so they do not receive the full benefit.

Half of the TV pool then depends on the position that a club finished in the previous season’s domestic league: the team finishing first receives 40%, the team finishing second 30%, third 20% and fourth 10%. As Chelsea won the title in 2014/15, compared to finishing third the year before, they received a higher percentage in 2015/16 for this element.

The other half of the TV pool depends on a club’s progress in the current season’s Champions League, which is calculated based on the number of games played (starting from the group stages). In this way, Manchester City reaching the semi-final last season adversely impacted Chelsea’s share.

Although some have played down the value of Champions League qualification in light of the massive new Premier League TV deal, it is evident that it is still financially beneficial.

It has clearly helped Chelsea, who have earned €253 million from Europe in the last five seasons, more than any other English club. It has thus become a major revenue differentiator against their domestic rivals with Chelsea earning substantially more than them in this period: City €32 million, Arsenal €77 million, United €95 million, Liverpool €176 million and Tottenham €212 million.

Commercial revenue rose by 8% (£9 million) to £117 million in 2015/16, which was a little disappointing, given that this year included the first year of the five-year shirt sponsorship deal with Yokohama Tyres. The implication is that some of the commercial deals include success clauses, so the lower league place and failure to qualify for Europe bit hard.

In fact, since 2014 Chelsea’s commercial growth of £8 million (7%) has been smaller than all their rivals, notably Manchester United £79 million (42%) and Arsenal £30 million (39%).

Currently, Chelsea’s £117 million is less than half of United’s astonishing £268 million, £90 million below Manchester City’s £178 million and even behind Liverpool’s £120 million.

However, Chelsea’s commercial revenue will increase substantially in the next couple of years. First, they agreed a three-year deal worth £10 million a year with Carabao, a Thai energy drink company, to sponsor training wear from 2016/17.

They then signed “the largest commercial deal in the club’s history” with Nike, which is worth £60 million a year (15-year deal for £900 million), i.e. twice as much as the current Adidas £30 million contract, from 2017/18.

"Boy from Brazil"

The Adidas deal was due to run to 2023, so the six years from 2017 would have brought in £180 million, compared to £360 million from Nike over the same period, meaning a £180 million increase. Although this is reduced to £113 million after considering the £67 million termination fee, it still represents a tidy improvement.

In addition, the Yokohama Tyres shirt sponsorship of £40 million a year is worth more than double the £18 million previously paid by Samsung. All in all, these three kit deals will be worth £110 million per annum, which is £62 million more than the previous £48 million.

These deals will leave Chelsea only behind Manchester United for the main shirt sponsorship and kit supplier deals – and it’s difficult to compete with their massive agreements with Chevrolet £56 million (at the June 2016 USD exchange rate) and Adidas £75 million.

However, the £40 million shirt sponsorship is well ahead of Arsenal – Emirates £30 million, Liverpool – Standard Chartered £25 million, Manchester City – Etihad £20 million and Tottenham Hotspur – AIA £16 million.

Similarly, the £60 million Nike kit supplier deal will be much better than those signed by Arsenal and Liverpool, respectively £30 million (PUMA) and £28 million (Warrior), though these will be up for renegotiation before Chelsea.

Looking further afield new kit agreements reportedly signed by Barcelona (Nike) and Real Madrid (Adidas) are worth £125 million and £115 million respectively (at the current exchange rate), so the bar is continually being raised.

Match day income was £1 million (2%) lower at £70 million, partly due to only staging two domestic cup games, compared to three the previous season. This revenue stream peaked at £78 million in 2011/12, thanks to the victories in the Champions League and the FA Cup.

Chelsea’s match day revenue is at least £30 million lower than Manchester United and Arsenal, though is still pretty good, considering that their grounds are much larger.

This is reflected in the average attendances with Chelsea’s 41,500 miles behind United (75,000) and Arsenal (60,000). It is also lower than Manchester City, Newcastle United, Liverpool and Sunderland.

The reason that Chelsea’s revenue is higher than clubs with higher attendances is that they earn a healthy £2.8 million a game, compared to, say, £2.0 million at Liverpool and £1.8 million at Manchester City. This is partly due to their ticket prices, which, according to the BBC Price of Football survey, are the third highest in England, only surpassed by Arsenal and Tottenham.

That said, Chelsea have again held ticket prices at 2011/12 levels, which means that general admission prices have remained unchanged in nine of the past 11 years. In addition, supporters attending away games in the Premier League over the next three seasons will pay no more than £30 a ticket.

Nevertheless, Chelsea’s revenue shortfall compared to United, Arsenal, Real Madrid and Barcelona helps explain why the club has spent so much time searching nearby locations for a new stadium.

After a couple of false starts, including possible moves to Battersea Power Station, Earls Court and White City, the good news is that planning permission has recently been granted by Hammersmith and Fulham borough council to build a new 60,000 capacity on the Stamford Bridge site.

This will be a complex build with the plan being to dig down to lower the arena into the excavated ground, while the club will also need to demolish Chelsea Village buildings that surround the ground and build walkways over the two rail lines that flank the stadium.

The assumption is that Abramovich will cover the costs, which have been estimated at £500 million, though it could be much higher, e.g. Tottenham’s new stadium will reportedly cost £750 million.

"Hair, he goes, there he goes again"

Chelsea Pitch Owners (CPO) still have to vote on whether to grant Chelsea a longer lease on Stamford Bridge and to give them permission to move away temporarily while the new stadium is constructed, but it would be surprising if they did not give the green light.

The aim is to have the new stadium ready for the 2021/22 season, which would mean Chelsea having to find a temporary home for three years. The club is in discussions with the Football Association to play at Wembley (as are Tottenham), but nothing has been decided. This would cost up to £15 million rent a year, though income might be higher if the crowds increased.

Chelsea have previously highlighted “the need to increase stadium revenue to remain competitive with our major rivals, this revenue being especially important under FFP rules.” In particular, the doubling of corporate seating to 9,000 seats could deliver significant additional revenue with more potentially coming from naming rights or other sponsorship opportunities.

Wages rose by £7 million (3%) to £222 million, driven by a massive increase in headcount, up 104 from 681 to 785. Playing staff, managers and coaches increased by 45 to 137, while administration and commercial staff were 59 higher at 648. The increase would have been even higher if bonuses had been paid at the same level as the league-winning season in 2014/15.

As a technical aside, note that these wage figures have been corrected when they have included exceptional items, e.g. in 2013/14 the reported staff costs of £190.6 million included a £2.1 million credit for the release of a provision for compensation for first team management changes, so the “clean” wage bill was £192.7 million.

Following the revenue growth, the wages to turnover ratio dropped from 69% to 68%, significantly better than the recent 82% peak in 2010. Interestingly, since the start of the new Premier League TV deal in 2013/14, revenue and wages growth is identical at 29%, implying a degree of control.

Nevertheless, Chelsea’s wages to turnover ratio is still the highest of the elite clubs, with the other members of the “Sky Six” much lower: Manchester United 45%, Manchester City 50%, Tottenham 51%, Arsenal 56% and Liverpool 56%.

That said, Chelsea have been overtaken by Manchester United, whose £232 million wage bill is once again the largest in the top flight. However Chelsea remain a fair bit higher than Manchester City £198 million and Arsenal £195 million.

There is then a big gap to the other Premier League clubs with the nearest challengers being Liverpool £166 million, Tottenham £101 million (both 2014/15 figures) and Everton £84 million.

This reflects Chelsea’s stated strategy: “In order to attract the talent which will continue to win domestic and European trophies and therefore drive increases in our revenue streams, the football club continually invests in the playing staff by way of both transfers and wages.”

In the last three seasons, Chelsea’s wages have increased by £50 million, which is in line with Manchester United £52 million and Arsenal £41 million. The anomaly is Manchester City, whose wage bill declined by £39 million in this period, partly due to a group restructure, whereby some staff are now paid by group companies, which then charge the club for services provided.

Although there is a natural focus on wages, other expenses also account for a considerable part of the budget at leading clubs, though there was an unexplained £11 million reduction at Chelsea in 2015/16 to £71 million.

Other expenses exclude wages, depreciation, player amortisation and exceptional items. They cover the costs of running the stadium, staging home games, supporting commercial partnerships, travel, medical expenses, insurance, retail costs, etc.

This means that Chelsea were also knocked off the top of this particular league table, with both Manchester clubs now ahead: United £91 million, City £86 million.

Another cost that has had a major impact on Chelsea’s profit and loss account is player amortisation, reflecting the significant investment in players. Chelsea’s initial wave of purchases under Abramovich saw player amortisation shoot up to £83 million in 2005, before falling away to £38 million in 2010 in line with less frenetic transfer activity. As spending kicked in again, player amortisation has steadily risen back to £71 million in 2016.

The accounting for player trading is horribly technical, but it is important to grasp how it works to really understand a football club’s accounts. The fundamental point is that when a club purchases a player the transfer fee is not fully expensed in the year of purchase, but the cost is written-off evenly over the length of the player’s contract, e.g. midfield dynamo N’Golo Kanté was reportedly bought from Leicester City for £32 million on a five-year deal, so the annual amortisation in the accounts for him is £6.4 million.

This helps explain why clubs like Chelsea can spend so much and still meet UEFA’s Financial Fair Play targets.

Unsurprisingly, this is one of the highest player amortisation charges in the Premier League, only surpassed by big spending Manchester City £94 million and Manchester United £88 million.

The value of Chelsea’s squad on the balance sheet increased to £241 million in 2016, though this understates how much they would fetch in the transfer market, not least because homegrown players are ascribed no value in the books. Chelsea are one of the few clubs to formally acknowledge this factor in the accounts, as they have valued the playing staff at a cool £399 million.

Chelsea’s activity in the transfer market is interesting. For the four years up to 2010 Chelsea’s average annual net spend was just £2 million, before rising to £67 million in the four years up to 2014, then apparently dropping back to £41 million in the last three seasons (excluding this January transfer window).

However, this is a little misleading, as it is partly a result of the increased player sales. If we look at gross spend, it tells a different story with Chelsea averaging around £100 million a season over the last seven years. Last summer alone they splashed £119 million on recruiting David Luiz, Michy Batshuayi, N’Golo Kanté and Marco Alonso.

Even so, their total net spend of £123 million in the last three seasons was comfortably beaten by Manchester City £299 million, Manchester United £275 million and (less predictably) Arsenal £165 million, though it was still a fair way above champions Leicester City £84 million.

Chelsea have no financial debt in the football club, as this has all been converted into equity by issuing new shares. That said, the club’s holding company, Fordstam Limited, does have well over £1 billion of debt (£1,097 million as of June 2015) in the form of an interest-free loan from the owner, theoretically repayable on 18 months notice.

There were some minimal contingent liabilities of £2.4 million, reflecting the fact that Chelsea, unlike most football clubs, pay all their transfer fees upfront, which must be an advantage in negotiations compared to other clubs that have to pay in stages.

Other clubs have to carry the burden of sizeable debt, notably Manchester United who still have £490 million of borrowings even after all the Glazers’ various re-financings and Arsenal, whose £233 million debt effectively comprises the “mortgage” on the Emirates stadium.

The advantage of having a benefactor like Abramovich is demonstrated by the annual interest payments at those clubs: £20 million for United, £13 million for Arsenal. Since 2010 United have paid out more than £400 million in financing costs, while Arsenal have paid £275 million in interest and loan repayments in that period. That is money that could have been spent on transfers or player wages – if their owner had acted like Chelsea’s favourite Russian.

Although Chelsea’s cash flow from operating activities has turned positive in the last four seasons (after adjusting for non-cash flow items, such as player amortisation and depreciation, plus working capital movements), they still require funding from the owner to cover player purchases and investment in improving facilities at Stamford Bridge and the training ground at Cobham.

That amounted to £90 million in the last two years: £43 million in 2016 and £47 million in 2015. In fact, since Abramovich acquired the club, he has put around £1 billion into the club, split between £620 million of new loans and £350 million of share capital. In that period £685 million of loans have been converted into share capital, including £12.5 million last season.

Most of this funding has been seen on the pitch with £753 million (77%) spent on net player recruitment, while another £140 million went on infrastructure investment. A further £46 million was required to cover operating losses with £12 million on interest payments, while the cash balance has increased by £23 million.

Indeed, Chelsea now have healthy cash at bank of £27 million, though this is still a lot lower than United £229 million and Arsenal £226 million. It’s a different approach: Abramovich puts his money into the club, especially the team, while United and Arsenal have to rely on cash generated from their own operating activities – though they do leave an awful lot of it in their bank account.

Given Chelsea’s several years of heavy financial losses, many observers had believed that they would fall foul of FFP, but that has not been the case with the accounts confirming that the club was compliant with both UEFA FFP and Premier League financial regulations.

The club has taken advantage of some of the allowable exclusions for UEFA’s break-even analysis, namely youth development, infrastructure and (for the initial monitoring periods) the wages for players signed before June 2010.

Even though Chelsea are compliant, it is clear that this legislation has been at the forefront of the club’s thinking. The accounts state: “FFP provides a significant challenge. The football club needs to balance success on the field together with the financial imperatives of this new regime.”

"Points of Authority"

Specifically, Chelsea will need to consider the Premier League’s Short Term Cost controls, which restrict the annual player wage cost increases to £7 million a year for the three years up to 2018/19 – except if funded by increases in revenue from sources other than Premier League broadcasting contracts, e.g. gate receipts, commercial income and profits on player sales.

Sound familiar? That’s pretty much been Chelsea’s strategy over the last few years.

It obviously helps if you have an owner with pockets as deep as Abramovich, but that is no longer enough in a football world full of financial regulations, so Chelsea have had to follow a different path.

It might sound a little strange to say this after Chelsea just announced a £70 million loss, but there’s no doubt that there are some clever people at Stamford Bridge, who have found several ways to grow income and thus meet the demands of FFP. At the same time, they have  managed to put together a squad that is not only challenging for major honours, but is a good bet to win the Premier League for the second time in three seasons.

Tuesday, January 24, 2017

Ipswich Town - Stuck In A Moment

This has been a challenging season for Ipswich Town, as they have been poor in the league and recently suffered a humiliating, televised defeat in the FA Cup against non-league Lincoln City. Manager Mick McCarthy appears to retain the support of the board for the time being, but he has clearly lost many of the fans.

This feels a little harsh on the experienced Yorkshire man, who has arguably enabled Ipswich to punch above their weight during his tenure. When he replaced Paul Jewell in November 2012, Ipswich were bottom of the Championship, but McCarthy successfully guided the club out of the relegation zone to finish in a comfortable 14th place.

Since then he has registered three successive top ten finishes. His first full season in 2013/14 ended in a respectable ninth place, before he led them to the play-offs in 2014/15. Last season Ipswich came a somewhat disappointing seventh, but this was still ahead of many wealthier clubs.

As McCarthy pointed out, “This is the first year that it’s been a struggle.” To an extent, he has been a victim of his own success, as he reached the play-offs on a shoestring budget, getting the most out of a fairly average squad.

"Merry Christmas, Mr. Lawrence"

This reinforced the cautious approach of Marcus Evans, who has frequently spoken of his determination to take Ipswich to the Premier League since he bought 87.5% of the club in December 2007, but has equally often been accused of lacking the ambition to do so.

Evans summarised his philosophy last month: “My view, based on the finances available to us compared to those with parachute budgets and the small group with, often short term, huge owner investment, is for the club to maintain a sustainable and consistent strategy, which I firmly believe provides a foundation each season for a promotion challenge.”

He then outlined the key elements of his strategy, “In summary, a focus on the Academy; a competitive wage structure; careful use of our transfer budget on developing players and a stable management team are factors which I believe provide us with the best chance of promotion out of the Championship, which is one of the toughest - and getting even tougher - leagues in the world.”

Managing director Ian Milne was singing from the same song sheet: “Marcus has gone for sustainability and Mick understands that. You can achieve good things through getting the right people in your club and working as a team from top to bottom.”

"A Grant don't come for free"

While all this is undoubtedly true, the concern is that this conservative stance will mean a continuation of the 15-year groundhog day existence that Ipswich have held in the Championship (or equivalent) since relegation from the top flight in 2002. To paraphrase U2, it feels like Ipswich are “stuck in a moment – and they can’t get out of it.”

Initially, Evans provided his managers with enough funding to be competitive in the transfer market, but this did not achieve the desired objective, as first Roy Keane, then Jewell essentially wasted the owners’ cash with a series of poor choices. Not only did these expensive purchases not deliver on the pitch, but they ended up being offloaded for peanuts, leading to large financial losses arising from misplaced recruitment.

Having had his fingers burnt, Evans opted for a change in strategy: “I wanted to work with a manager who was going to try to and coach and make our players better, rather than give the manager the opportunity (to simply buy players).”

"Don't Luke back in anger"

The owner explained: “You would have hoped that money had resulted in better things, but look at Nottingham Forest – they lost £25 million last year and got nowhere. There are a lot of clubs out there that spent a lot more than Ipswich did and who ended up in exactly the same situation.”

The drive to more sensible cost management was also influenced by the introduction of the Financial Fair Play rules, which essentially aim to force clubs to live within their means.

As a result, in the past few years Ipswich have focused on free transfers, loans and swap deals, while trying to bring through young players from the Academy into the first team. As Milne explained, “We do have a very good scouting network and that enables us to get players at the minimum transfer fee.”

Consequently, Ipswich have averaged annual gross spend of only £0.5 million in the last four seasons (though the January 2017 transfer window has not yet closed), compared to £5.6 million a season in the first three years of the Evans era. In the same periods, average net spend of £4 million has flipped to average net sales of £4 million, an £8 million reduction.

Last summer’s spending was a good example of Ipswich’s policy: two promising young players were acquired in the shape of Grant Ward from Tottenham Hotspur and Adam Webster from Portsmouth at a combined cost of £1.4 million, while there were a couple of free transfers, including the veteran journeyman Leon Best from Rotherham United.

Evans argued that there was also money splashed out on loan fees and wages needed to tempt Premier League clubs to release players, including Welsh internationals Tom Lawrence (from Leicester City) and Jonny Williams (from Crystal Palace) and Conor Grant (from Everton), but Ipswich supporters would justifiably point out that the club failed to replace forward Daryl Murphy, who was sold to Newcastle United.

Ipswich’s parsimony can be seen by looking at the gross spend of Championship clubs this season, when only six clubs spent less than the Tractor Boys. These included two clubs with transfer embargoes (Blackburn Rovers and Nottingham Forest) plus a few “minnows”, i.e. Preston North End, Burton Albion, Rotherham United and Wigan Athletic.

The more meaningful comparison is with clubs seeking promotion, as Evans himself noted, “Newcastle and Norwich spent more than £100 million between them on transfer fees in the August window as they chase an immediate return to the Premier League.” Although this was actually factually incorrect, his point was still valid as Newcastle and Aston Villa have spent £55 million and £52 million respectively. Other big spenders include Fulham £22 million, Derby County £14 million, Wolverhampton Wanderers £11 million and Bristol City £11 million.

Many managers would use this low spending as an excuse for not meeting their objectives, but McCarthy is made of sterner stuff, saying that he won’t “stamp his feet” over the restricted transfer budget given to him by Evans. Instead, he sees it as his job to get more out of the players he’s got.

That said, he would like his achievements to be recognised: “I’ve done a bloody good job under the terms and conditions. I’ve sold Murphy, I’ve sold Mings, and others, and we’ve stayed competitive.”

Despite this prudent policy, Ipswich reported a £6.6 million loss in 2015/16, a £12.1 million deterioration from the previous year’s £5.5 million profit, though this was almost entirely due to a £11.5 million reduction in profits on player sales. These dropped from £12.2 million in 2014/15, due to the sales of Tyrone Mings to Bournemouth and Aaron Creswell to West Ham, to only £0.6 million.

The wage bill rose by £0.6 million (4%) from £16.0 million to £16.6 million as “further funds were invested in the squad to challenge for the play-off positions.” Other expenses also increased by £0.3 million (6%) to £5.4 million, but player amortisation dropped by £0.5 million (74%) to just £0.2 million.

Revenue slightly decreased by £0.1 million (1%), mainly due to a £0.4 million (9%) reduction in commercial income to £4.4 million, offset by broadcasting income rising by £0.3 million (6%) to £5.4 million. Gate receipts were unchanged at £6.5 million, as the club’s share of receipts from the League Cup tie against Manchester United at Old Trafford compensated for a fall in attendances and the money from the previous season’s play-off appearance.

Although a £7 million loss might not sound  overly impressive, it has to be assessed in the context of England’s second tier, where the harsh reality is that most clubs are loss-making, largely as a result of their natural desire to reach the lucrative Premier League.

In this way, none of the Championship clubs that have so far published their 2015/16 accounts has been profitable with some reporting hefty losses: Brighton and Hove Albion £26 million, Hull City £21 million, Reading £15 million and Bristol City £15 million. As Evans lamented, “Wouldn’t it be nice… if you could turn a profit in the Championship, but I’m afraid that’s not the case.”

One way a football club can compensate for operating losses is via player sales, but Championship clubs have struggled to make big money sales with the highest amount reported so far last season being Hull City’s £13 million – and they had Premier League players to offload following relegation in 2015.

However, Ipswich’s profit on player sales of £0.6 million was one of the lowest in the division – in contrast to 2014/15 when their £12.1 million profit was only surpassed by Norwich City’s £14 million. Of course, next year’s accounts will be boosted by the £3 million sale of Daryl Murphy to Newcastle.

Ipswich have only reported a profit once in the Evans era, the £5 million in 2014/15, losing money in the other eight years. However, it is noticeable that the losses have been reducing, effectively capped at £7 million in the past three seasons.

As Milne explained, “In 2012 the annual losses peaked at £16 million and we started to go down a slightly different route.” That was actually the third worst loss in the Championship that year and served as a major wake-up call.

The reason for this large deficit were given by finance director Mark Andrews, “We brought in some experienced players in the 2011/12 season, Paul Jewell’s first season in charge, which kept the playing squad costs high.”

However, Ipswich’s best results in recent times have been boosted by large profits on player sales, as seen in 2014/15. Without the sales of Mings and Cresswell, the reported profit of £5.5 million would have been a loss of £6.7 million, i.e. in line with the £7 million losses in 2013/14 and 2015/16.

It was a similar story in 2011/12 when this activity contributed £10.8 million, largely due to the transfers of Connor Wickham to Sunderland for £8 million and Jon Walters to Stoke City for £2.75 million. Without these sales, Ipswich would have registered another big loss of £14 million.

The owner has said that his funding “would eventually be unsustainable without the benefits of transfer revenues from time to time to offset the club’s running costs.” Interestingly, the club has made more money from cheap, young players rather than experienced professionals. This was acknowledged by Evans: “We lost some good players in the past who were out of contract”, i.e. could leave for very little or even nothing.

To get an idea of underlying profitability and how much cash is generated, football clubs often look at EBITDA (Earnings Before Interest, Depreciation and Amortisation), as this metric strips out player trading and non-cash items. In Ipswich’s case this highlights the changed strategy after 2012, as EBITDA has improved from  minus £9 million in 2012 to minus £6 million in 2016 (though this was a million worse than the previous year).

This might not sound overly impressive, as it is still negative, but it has to be put into the context of the Championship, where very few clubs manage to generate cash. Apart from Blackpool with their “unique” approach to running a football club, no Championship has reported EBITDA higher than £1.5 million in the last two seasons (in stark contrast to the Premier League where in the same period every club enjoyed positive EBITDA, except the basket case that is QPR).

Revenue has fallen by £1 million (6%) from the recent £17.2 million peak in 2011, which was boosted by reaching the Carling Cup the semi-final and a profitable FA Cup match at Chelsea.

All revenue streams have fallen since then, especially commercial income, which is 13% (£0.7 million) lower, though this is partly due to a decision to outsource catering (and thus only including net royalty payments in revenue). Gate receipts have rebounded, even though attendances have fallen, partly due to ticket price increases.

Following the slight reduction in 2015/16, Ipswich’s revenue of £16 million remains firmly in the bottom half of the Championship, a long way behind the top three clubs, who all earned more than £40 million. Of course, to a large extent, this only demonstrates the importance of parachute payments for those clubs relegated from the Premier League.

This is clearly a sore point for Evans, “The average parachute club starts with a £20 million per season head start over the rest of us.” He added, “The lack of parity in the game certainly makes it harder to compete. This season there were nine clubs benefiting from parachute payments and there will be something similar next year. That gives them a massive financial advantage.”

If these parachute payments were to be excluded, the gap would obviously reduce, but Ipswich’s £16 million would still be a fair way behind many other clubs, e.g. Brighton £25 million, Leeds United £24 million and Derby County £21 million. Given these stats, Ipswich’s performance in the last three seasons is worthy of some praise.

The mix of Ipswich’s revenue has changed over the years with broadcasting rising from 13% in 2009 to 33% in 2016 and commercial falling from 41% to 27%. However, match day remains the most important revenue stream at 40%, even though it has declined from 46%.

Unsurprisingly, this means that Ipswich are one of the Championship clubs most reliant on gate receipts. In percentage terms only four clubs had a higher dependency in 2014/15: Nottingham Forest, Charlton Athletic, Brighton and Millwall.

Gate receipts were flat at £6.5 million in 2015/16, even though average attendance fell by 644 (3%), as this was offset by one additional home cup game. Nevertheless, Ipswich’s match day revenue is the 9th highest in the Championship, though still around £3 million lower than Brighton £9.4 million and Leeds United £9.2 million.

Ipswich’s average attendance of 18,959 was actually the 8th best in last season’s Championship, but a fair way behind clubs like Derby County (29,663), Brighton (25,583) and Middlesbrough (24,627).

Ipswich’s attendances had been on a declining trend for a number of years, but the charge to the play-offs resulted in an upswing in 2014/15. However, they have started to fall again since then with a further slump this season to 16,789, which means that Ipswich have lost a third of their crowd since the recent 25,651 peak in 2004/05.

Evans is acutely aware of the reduction in spectators: “We can’t deny that attendances have been falling away somewhat this season – an indication of the disappointing results we have had this year.”

He said that the club was “looking at creative ways of getting supporters back to Portman Road.” These include low prices for youngsters (e.g. the season ticket for under-11s has been held at just £10 for nine successive years), interest-free direct debit monthly payment scheme and discounts with local businesses. If Ipswich are promoted to the Premier League, the season ticket will be upgraded at no extra price plus the holder will be given a free season ticket.

However, fundamentally Ipswich’s ticket prices are among the most expensive in the second tier. According to the BBC’s Price of Football survey, no other fans in the Championship pay more for the most expensive season ticket, while Town’s prices for the cheapest season ticket are only surpassed by three clubs (Brighton, Newcastle and Norwich City).

From 2003 to 2013 season ticket prices had remained frozen for seven out of the 11 years. However, prices have gone up every year since 2014/15, including a 1.5% increase for the 2017/18 season (in line with the retail price index).

Ipswich’s broadcasting revenue rose 6% (£0.3 million) to £5.4 million in 2015/16, which was attributed to an increase in the Football League basic distribution. In the Championship most clubs receive the same annual sum for TV, regardless of where they finish in the league, amounting to around £4 million of central distributions: £2.1 million from the Football League pool and a £2.3 million solidarity payment from the Premier League. There are also payments for each live TV game: £100,000 home; £10,000 away.

However, the clear importance of parachute payments is once again highlighted in this revenue stream, greatly influencing the top nine earners in 2014/15. Nevertheless, it should be noted that these payments are not necessarily a panacea, e.g. Middlesbrough secured promotion last season, even though their broadcasting income of £6 million was less than half the size of those clubs boosted by parachutes.

Looking at the television distributions in the top flight, the massive financial chasm between England’s top two leagues becomes evident with Premier League clubs receiving between £67 million and £101 million in 2015/16, compared to the £4 million in the Championship. In other words, it would take a Championship club more than 15 years to earn the same amount as the bottom placed club in the Premier League.

The size of the prize goes a long way towards explaining the loss-making behaviour of many Championship clubs. This is even more the case with the new TV deal that started in 2016/17, which will be worth an additional £35-60 million a year to each club depending on where they finish in the table.

Even if a club were to finish last in their first season in the top flight and go straight back down, their TV revenue would increase by an amazing £95 million. They would also receive a further £71 million in parachute payments, giving additional funds of around £166 million. If they survived another season, you could throw in another £120 million.

Of course, if they did go up, Ipswich would also have to spend more to strengthen their playing squad, but the net impact on the club’s finances would undoubtedly be positive, as evidenced by the improvement in the bottom line for those clubs promoted in the past few seasons.

As we have seen, parachute payments make a significant difference to a club’s revenue and therefore its spending power in the Championship. From this season, these will be even higher, though clubs will only receive parachute payments for three seasons after relegation. My estimate is £83 million, based on the percentages advised by the Premier League (year 1 – 55%, year 2 – 45% and year 3 – 20%), including around £40 million in the first year. However, if a club is relegated after only one season in the Premier League, it will only benefit from parachute payments for two years.

There are some arguments in favour of these payments, namely that it encourages clubs promoted to the Premier League to invest to compete, safe in the knowledge that if the worst happens and they do end up relegated at the end of the season, then there is a safety net. However, they do undoubtedly create a significant revenue disadvantage in the Championship for clubs like Ipswich, as Evans has often stated.

It is worth noting that if Ipswich were to be promoted, then they are contractually bound to make additional payments to players, coaches, staff, players’ former clubs, season ticket holders and certain convertible loan note holders. This is not quantified in the latest accounts, but was given as £8.2 million in 2013.

Commercial income fell by 4% (£0.4 million) to £4.4 million in 2015/16, though this is a little misleading, as the match day public catering operation was outsourced whereby the club now receives a royalty based on turnover.

Corporate sales and sponsorship were also slightly down on last year, however merchandise sales exceeded 2014/15, further building on the success of the change of kit supplier to Adidas in 2014 (a four-year deal). This was the first time Ipswich had worked with the German supplier since the glory days 35 years ago when they won the FA Cup and UEFA Cup under Bobby Robson.

The shirt sponsorship is with the Marcus Evans Group, who originally signed a five-year deal in 2008 worth a reported £4 million in total and have subsequently extended this each season.

There is clearly room for improvement in the commercial area, though to be fair only two Championship clubs (QPR and Leeds United) generate more than £10 million a season. This is basically down to results, as Evans admitted: “We work very hard maximising revenues for the club on a commercial basis, but ultimately our product is about what the team delivers on the pitch. And, like any business, if your product is of good quality, you’ll make more money and sell more of your product.”

Ipswich’s wage bill increased by 4% (£0.6 million) to £16.6 million, as full-time headcount was up from 142 to 149, leading to the wages to turnover ratio rising from 97% to 102%.

This was the second year in a row that wages have climbed, a necessary evil for Town, as explained by Ian Milne when commenting on the 2014/15 figures: “The wage bill has gone up this season quite appreciably. People say ‘where has the Tyrone Mings and Aaron Cresswell money gone?’ Well that’s where it is being ploughed into.”

Nevertheless, wages are still 8% below the £18.0 million peak in 2012, when the wages to turnover ratio was as high as 119%. Milne again: “We’re not paying under the market value, but the important thing is that we’re not paying over the market value either – which is something we have done in the past. Back in 2012 (when the club made a loss of £16m) we were paying some very high salaries.”

Clearly, the business model is still not ideal if revenue is not sufficient to cover the wage bill, let alone any other expenses, but almost every club in the Championship has a dreadful wages to turnover ratio with over half of them being more than 100%. In fact, Ipswich’s 102% looks positively reasonable compared to clubs like Brentford 178%, Nottingham Forest 170% and Blackburn Rovers 134%.

The £17 million wage bill was also firmly in the bottom half of the league, underlining the challenge in reaching the play-offs. In particular, it was significantly lower than the likes of Cardiff City, Fulham, Reading, Hull City, Blackburn Rovers and Nottingham Forest, whose wages were all above £30 million. This season it will be even worse with the arrival of big spending Newcastle United and Aston Villa in the Championship.

As Milne observed, “We certainly aren’t the highest spenders in terms of wages. We are paying more than we were, but I suspect it is still quite a bit less than some of the clubs that surround us.”

Of course, a high wage bill is no guarantee of success and it is also true that clubs have been promoted with a low wage bill, e.g. Burnley, but Ipswich’s relatively low wages certainly do not make it any easier.

Other expenses rose by £0.3 million (6%) to £5.4 million in 2015/16, largely as a result of a restatement of the Football League pension fund deficit (in accordance with Financial Reporting Standard FRS102) and general cost increases, but this was still on the low side, compared to clubs like Brighton £16.0 million, Fulham £13.4 million and Leeds United £12.6 million.

The recent lack of spending in the transfer market has been reflected in Ipswich’s profit and loss account via player amortisation, which has fallen from £5.1 million in 2009/10 to just £0.2 million in 2015/16.

In the same way, the lack of big money buys from other clubs has impacted the balance sheet with the value of player (intangible) assets decreasing from £6.4 million in 2010 to £0.3 million in 2016.

The accounting for player trading is fairly technical, but it is important to grasp how it works to really understand a football club’s accounts. The fundamental point is that when a club purchases a player the transfer fee is not fully expensed in the year of purchase, but the cost is written-off evenly over the length of the player’s contract, e.g. Grant Ward was bought from Tottenham for a reported £600,00 on a three-year deal, so the annual amortisation in the accounts for him is £200,000.

To place this into perspective, Ipswich’s player amortisation of £0.2 million is one of the lowest in the Championship, only ahead of Rotherham United. The highest player amortisation is obviously found at clubs recently relegated from the Premier League, namely Hull City £21 million, QPR £16 million, Cardiff City £11 million and Fulham £11 million.

Net debt fell by £0.7 million from £87.2 million to £86.5 million, as gross debt was reduced by £1.6 million from £88.2 million to £86.6 million, but cash also dropped by £0.9 million from £1.0 million to £0.1 million. Nevertheless, debt has shot up from the £36 million in 2008, which was largely taken on by Evans when he bought the club.

Almost all the debt is owed to various Marcus Evans’ companies, mainly through a mixture of loans and convertible loan notes. There are also £8 million of preference shares, which pay a fixed dividend of 7% per annum (provided there are profits available for distribution). To date, the club has accrued £4.8 million for these dividends. Against that, interest has not been charged on the Loan Notes 2026 from July 2014.

Of course, many clubs in the Championship have built up substantial debt, but Ipswich’s £87 million is only surpassed by five other clubs: QPR £194 million, Brighton £171 million, Cardiff City £116 million, Blackburn Rovers £104 million and Hull City £101 million.

The club has emphasised that it is not in debt to any financial institution, as explained by finance director Mark Andrews, “''Most Championship clubs are carrying debt but the majority of debt carried at Ipswich Town is not external, it is owed to the Marcus Evans Group.”

Milne added, “Marcus is very happy with the debt level – it’s all owed to him, none of it is owed to banks or anything like that. He, like a number of owners, doesn’t expect to get any of it back unless we get in the Premier League.”

This is indeed true, but there is still a degree of risk associated with such an arrangement, as the annual accounts noted: “the club remains dependent upon ongoing financial support from its principal shareholder.”

From a cash perspective Ipswich basically balance the books, but only because Evans increases his loan each year, as the cash flow from operating activities remains stubbornly negative. In the last decade Evans has provided £46.3 million via £32.8 million of loans and a £13.5 million increase in share capital. Financing has also come from £7.4 million of net player sales and a £1.5 million reduction in the cash balance.

However, the lack of investment over the last eight years is striking with just £0.2 million being spent on infrastructure improvements in the Evans era, i.e. virtually nothing on the stadium. Instead, almost all of the funding has been used to simply cover the club’s operating losses.

Former chief executive Simon Clegg explained Ipswich’s dependency on the owner a few years ago, “We only survive because Marcus Evans can afford to put in £4 million or £5 million of his own money every year to keep the club afloat”, while Evans repeated the mantra last December, “I am committing sums of £5 million and more per annum, at the start of each season towards the annual budget.”

That was certainly true in the past, but the cash flow statement shows that only around £400,000 of additional loans were received by the club in each of the last two seasons (net £250,000 after loan repayments), as the difference was largely compensated by player sales.

That may have changed this season, but Milne noted in a slightly worrying statement that, “You can’t keep expecting the owner to keep throwing money at things.”

Either way, Ipswich’s cash balance as at 30 June 2016 was down to just £91,000, one of the lowest in the Championship, though in fairness none of the clubs is sitting on a cash mountain.

One accusation against Evans’ ownership is that there has been a lack of transparency around the club’s affairs, epitomised by HMRC issuing a winding-up order in February 2016 for non-payment of tax, though this was subsequently dismissed – and described by Milne as “a storm in a tea cup”.

Yet the main charge is that the owner lacks ambition. The man himself has argued that this is not the case, effectively laying the blame at the feet of Lady Luck: “When I took over here I was hoping we would get to the Premier League in five years. I never had a firm expectation though. I realised that in football there are so many factors outside of your control.”

In fairness, Evans’ cautious approach has to be considered preferable to that applied by some owners (Bolton Wanderers, for example), especially for a club like Ipswich Town that experienced administration in the not too distant past.

"Hard to Berra"

In any case, he cannot simply buy success, as Ipswich need to comply with the Financial Fair Play (FFP) regulations. Evans had been a keen supporter of this initiative, “It is a key objective of the Board to reduce ongoing losses in order to meet the Football League’s FFP rules.”

However, he has become increasingly disillusioned, “FFP, which was brought in to level an increasingly uneven playing field hasn’t worked.” This is not just due to the advantage that parachute payments bring to clubs facing a cap on losses, but the application of the regulations.

Evans again, “At the moment it appears to be a total farce. However, let’s wait and see if the Football League does its job. I appreciate that legal wheels sometimes grind very slowly.”

Under the new rules, losses will be calculated over a rolling three-year period up to a maximum of £39 million, i.e. an annual average of £13 million, assuming that any losses in excess of £5 million are covered by owners injecting equity. A higher loss one year can be compensated in later years, e.g. via player sales, or might even become irrelevant (if the club is promoted).

"No Tears for Sears"

Basically, the allowable losses have increased, which is likely to encourage Ipswich’s rivals to spend even more, making the division even more competitive. For Ipswich to challenge, Evans would have to inject equity to maximise allowable losses.

It should be noted that FFP losses are not the same as the published accounts, as clubs are permitted to exclude some costs, such as depreciation, youth development, community schemes and any promotion-related bonuses.

These barriers help explain Ipswich’s focus on youth development, as explained by Evans: “I am 100% committed to the Academy and have recently invested over £1 million in new infrastructure and additional staffing. I believe our efforts of the last years are starting to pay off.”

Despite failing to secure the coveted Category One status, a number of talented players have emerged from the Academy over the last couple of years, e.g. Andre Dozzell, Teddy Bishop, Josh Emmanuel and Myles Kenlock. Furthermore, Town had three players in the England squad at last summer’s U17 European Championship.

"Teddy Picker"

Evans recently underlined his commitment, to Ipswich Town “I will continue to do everything I can to ensure that the success we want is just around the corner and that we are promoted.” However, he put his finger on the main issue in the very same statement, “There are those that feel my investment plan has no chance of success.”

This is a reference to the feeling that it is unlikely that a club like Ipswich could be promoted to the Premier League without the benefit of substantial investment, particularly in a world of ever more lucrative parachute payments to clubs relegated from the top flight.

It would indeed be a major surprise if Ipswich were to go up, especially given their current lowly position. Stranger things have happened, but not too often.
Related Posts Plugin for WordPress, Blogger...