[Archived] The Philipl Report

[Alan75]

Once again this year we have to thank philipl for his expert analasys of the Rovers accounts.

Rovers Accounts for the Year ended 30 June 2004

When Jan sent me a copy, she wrote cryptically “not very impressed” by way of a header. As she is a lady of numbers, I bow to her judgement but my reaction is that these accounts are in the ball park of what I had expected. A £5m loss after a £7.7m profit on the player transfer account is only marginally outside of the £10 to £12m non-player trading loss I had been forecasting given the early cup exits, the marked decline in attendances and the big fall in Premiership placement monies (6th to 16th equals goodbye £5m- ouch!)

I know I was asked to review the numbers but for once I think the most significant elements in the Annual Report are in the words. Let me quote selectively from the superb (and I mean it- brilliantly written and easily the best season summary I have seen on 2003/4) Chairman’s Report signed by Rob Coar:

“Several players left before, during and after the campaign…(he details each one)…As ever, we were grateful to each and every player for individual contributions in Rovers’ cause and wish them well for the future.”

Two paragraphs later…

“In September 2004, Graeme Souness left the club to take over the managerial role at Newcastle United.”

Hmm. Dry ice or hemlock in your coffee, sir?

The really great news is buried in the Chief Executive’s report:

“The strategy underpinned by a healthy balance sheet that will be further strengthened by

the conversion of £14m of loans into capital during 2004/5.”

Let there be no doubt, the Will of Uncle Jack lives and is doing Blackburn Rovers very proud indeed. Not only is the great man providing a nice little earner equivalent to 5,000 bums on seats per match through the trust fund endowment (so 20,000 equates to 25,000 attendance when you look at how Rovers rank on attendance tables), but the Walker Trust is converting £14m of loans in the club into shares as well. We “only” paid £679K of interest on some pretty chunky borrowings so I guess the Walker Trust influence came in that direction as well.

At the end of last season, I pointed out that two more seasons of £10m plus losses would wipe out the club’s positive balance sheet. Now with this capital infusion we can afford to run at last season’s bottom line of minus £5m for another seven years. Not nirvana but Rangers, Leeds, Man City etc etc….. would all be slavering in the queue to swap places with us.

To the numbers. Turnover fell from £45.4m to £40.8m.

Within that drop, Matchday income decreasing from £8.5m to £6.8m is a real villain- the townsfolk of Blackburn take a black mark and write “I am undeserving of a Premiership football club” on every wall in Burnley this Sunday. Commercial income was remarkably robust- only sliding from £12.9m to £12.2m; Ken Beamish comes up trumps again and we’ll forgive him addressing Ewood like he’s talking to the public conveniences at every half time draw (“Ladies and Gents”?). Media income only dropped from £24m to £21.8m despite the £5m hit for loosing ten places in the Premiership. Perhaps strengthened by the media boys’ planning our early season coverage based on the previous 6th placement but much more buoyed up by the Premiership’s new £180m a year international TV rights deal kicking in. There had to be a good reason why there are so many Norwegians posting….

Of course, in the expenditure column, there is only one line that matters- Wages. The club managed Payroll costs down from £35.5M to £31.3m and as John Williams observed, that payroll was designed to sustain a 10th place budgeted finish. So although the club managed its outgoings to get wages below 70% of turnover, on the field performance meant that wages only dropped 1% in the share of revenue. Any nice words for new Manager of Newcastle?.. I’ll move on.

John Williams commented in his interview on Radio Lancashire recently that he detects a new sense of realism coming into Premiership wage structures. On that basis £70k a week plus a loan fee was never feasible for Rovers relieving Depor of Pandiani once Sullivan told Bruce “do what it takes to beat Blackburn for the signature”. Poor lad thought he was going to Florence as well.

Total direct employment by the Rovers actually increased by one despite the drop in wages overall. Not quite Animal Farm.

Lot’s of things which Jan would no doubt find as interesting as a hooped jersey in the detail but I will simply skip to some numbers that caught my eye. John Williams and Tom Finn are worth every penny of the modest increase which took their combined packages to £429K and anyone who disagrees is a dingle (or a drog). Nice to see £500K being invested in new fixtures and fittings- presumably training equipment and the like but perhaps a contribution to the new catering regime at Ewood. Plenty of evidence of strong cash flow management in the movements of several balance sheet items- it has the look of a well managed business if you forgive it for being involved in football.

To three conclusions:

-Had Duff not been sold for £17m, these numbers would have been truly horrible but your’s truly would also have been spared the loosing battle on the message board with Dado Prso when the ###### ran hame to his mammy rather than face the big boys from Colchester. (didn’t I write skip? Sorry)

-If anyone wants to know what our long term annual transfer budget might be? Here is a hint- we have now had two consecutive years of £11m amortisation on the player account.

-“Our business strategy remains the same. We are in the business of winning football matches and staying in the Premier League.” Amen to that and John Williams.

[Blackburn Ender]

An excellent summary, Philip. Thanks.

JW said a couple of weeks ago the club was working out the summer transfer budget and that MH would have a decent wedge to spend. £11m looks like being pretty accurate.

Getting wages down as a % of turnover is a key goal.

And once, again, despite being shadowier than the Decameronists, Illuminati & the Priory Of Sion put together, The Jack Walker Trust appears to be fulfilling the late man's prophesy and Uncle Jack's ghost continues to look over Ewood Park.

Thanks be to that.

[Oklahoma]

Great summary.

Thanks, Philipl.

It's nice to know that John Williams is taking good care of the club.

[philipl]

Please note, I am making a big assumption in equating annual ammortisation (an accounting "number") to actual budgetted transfer fees.

Also, I must stress the word annual- we have already spent £3.5m in January and £1.5m+ in August.

John Williams in his Radio Lancashire interview talked in terms of seeing transfers in an annual cycle and club preferring to get it right in the summer rather than being forced into the January market.

[LeftWinger]

If anyone wants to know what our long term annual transfer budget might be? Here is a hint- we have now had two consecutive years of £11m amortisation on the player account.

Excellent summary Philip. Just one thing though, the transfer budget hint doesn't mean anything to me!

[thenodrog]

Now with this capital infusion we can afford to run at last season’s bottom line of minus £5m for another seven years. Not nirvana but Rangers, Leeds, Man City etc etc….. would all be slavering in the queue to swap places with us.

Strange timing but some report that I heard yesterday put Man City at 16th wealthiest club in the world. Guess I just dont understand accounts.

[LeftWinger]

I thought they judged the wealthiest clubs on their turnover rather than the strength of their overall financial position. Ie. You could be classed as the wealthiest club in the world because your turnover is huge, yet have less money to spend than say Charlton because your costs are a lot higher. Seems stupid, but thats how I understand it.

[RevidgeBlue]

Given our financial situation, have to strongly disagree that John Williams and Tom Finn merit a combined salary of £429k.

This has gone up from an already too high £361k last season.

At a time income has dropped so substantially, whilst it might be unrealistic for them to have taken a proportionate reduction in salary, there can be no justification whatsoever for this sixteen or seventeen per cent increase.

Other than that wonderful to see the continued and dedicated support of the Trust Fund which is obviously allowing players and officials alike to continue to wallow in the comfort zone.

[James No. 7]

If anyone wants to know what our long term annual transfer budget might be? Here is a hint- we have now had two consecutive years of £11m amortisation on the player account.

Excellent summary Philip. Just one thing though, the transfer budget hint doesn't mean anything to me!

I would also like to know what that means. Can't a clear-cut estimate of the summer transfer budget, rather than a hint, be given for dummies like myself?

[philipl]

Apples and oranges Revidge- you are not comparing like with like. The reality is that their percentage increase is well sub 10%.

When there are CEs in football earning seven figure salaries (Manu and Chelski to name two), I think we get superb value from Messrs Williams and Finn.

They have handled several very trickly situations superbly and I think your comment is churlish and stupid.

[nottsrover]

I couldn't agree more. The executive of any other organistaion which has the turnover of Rovers would be on a similar salary at the very least. Robert Coar and John Williams have done Rovers proud over the last 5 years, without them it could probably be argued that Rovers would not be in the relatively good current position.

[Scotty]

First of all, thanks once again to Philipl for providing us non-accounting folk with a lowdown on what the accounts are saying. I know that if I looked directly at our accounts I wouldn't have a clue what they meant!

The problem is though that sometimes it's difficult to work out what's fact and what's Philip's interpretation of the facts. A few points / questions.

Within that drop, Matchday income decreasing from £8.5m to £6.8m is a real villain- the townsfolk of Blackburn take a black mark and write “I am undeserving of a Premiership football club” on every wall in Burnley this Sunday.

This is the sort of statement that winds me up more than anything on this messageboard. Without getting into a huge debate again, let's just say I don't agree. The club are an entertainment business and we are not morally obliged to turn up no matter what. It's up to the club to make it worth our while.

Let there be no doubt, the Will of Uncle Jack lives and is doing Blackburn Rovers very proud indeed. Not only is the great man providing a nice little earner equivalent to 5,000 bums on seats per match through the trust fund endowment (so 20,000 equates to 25,000 attendance when you look at how Rovers rank on attendance tables), but the Walker Trust is converting £14m of loans in the club into shares as well.

Could you let me know just how much the trust are giving us each year please Philip? And am I right in thinking that by converting £14m of loans into shares we have effectively wiped out £14m of our debt? If so, how much is the club's debt now?

At the end of last season, I pointed out that two more seasons of £10m plus losses would wipe out the club’s positive balance sheet. Now with this capital infusion we can afford to run at last season’s bottom line of minus £5m for another seven years.

I don't understand how you've reached this conclusion (I'm sure it's just me being thick). Please could you explain further?

John Williams and Tom Finn are worth every penny of the modest increase which took their combined packages to £429K and anyone who disagrees is a dingle (or a drog).

Well, I'm not sure I agree. I used to think the board were doing a fantastic job, and they probably still are, but a couple of recent things have led me to question them a bit. The sacking of Tony Parkes was handled appallingly, the communication between the club and its supporters regarding matters such as ticketing and merchandise is poor at best, and the constant public moaning by John Williams about our attendances suggests he and the board don't have the necessary nouse and innovation to try and turn this trend around.

When Jan sent me a copy, she wrote cryptically “not very impressed” by way of a header. As she is a lady of numbers, I bow to her judgement but my reaction is that these accounts are in the ball park of what I had expected.

I'd be interested to hear why Jan wasn't as impressed as Philip.

Had Duff not been sold for £17m, these numbers would have been truly horrible

Had Duff not been sold our league position would have been better, we may have generated more money from the cups, we'd probably get higher attendances, and we'd have a huge asset on our books.

[RevidgeBlue]

Apples and oranges Revidge- you are not comparing like with like. The reality is that their percentage increase is well sub 10%.

When there are CEs in football earning seven figure salaries (Manu and Chelski to name two), I think we get superb value from Messrs Williams and Finn.

They have handled several very trickly situations superbly and I think your comment is churlish and stupid.

You're entitled to your opinion philip as I am to mine but in any other commercially run organisation, officials awarding themselves substantial salary increases on the back of large losses would attract severe criticism.

Your Chelski/ManUre comparison is frankly ridiculous. Their turn over is four times ours.

That however is largely irrelevant. The point is that they are making large profits as opposed to our large losses.

If we were consistently turning in healthy profits then there would be no objection whatsoever with the figures in question rising steadily on an annual basis.

[stuwilky]

Let there be no doubt, the Will of Uncle Jack lives and is doing Blackburn Rovers very proud indeed. Not only is the great man providing a nice little earner equivalent to 5,000 bums on seats per match through the trust fund endowment (so 20,000 equates to 25,000 attendance when you look at how Rovers rank on attendance tables), but the Walker Trust is converting £14m of loans in the club into shares as well.

Could you let me know just how much the trust are giving us each year please Philip? And am I right in thinking that by converting £14m of loans into shares we have effectively wiped out £14m of our debt? If so, how much is the club's debt now?

At the end of last season, I pointed out that two more seasons of £10m plus losses would wipe out the club’s positive balance sheet. Now with this capital infusion we can afford to run at last season’s bottom line of minus £5m for another seven years.

I don't understand how you've reached this conclusion (I'm sure it's just me being thick). Please could you explain further?

Last year the trust made an outright donation to the club of £3million pounds.

If the trust converts the £14m of debt into shares then you are correct, it effectively wipes £14m debt.

And as for the two more years losses wiping out the capital, my understanding goes a bit hazy at this point, but its to do with the club having £120m of called up shareholder funds, and currently having spent £96m ish of it. But Im not 100% sure of that.

[streakyb]

You're entitled to your opinion philip as I am to mine but in any other commercially run organisation, officials awarding themselves substantial salary increases on the back of large losses would attract severe criticism.

Your Chelski/ManUre comparison is frankly ridiculous. Their turn over is four times ours.

That however is largely irrelevant. The point is that they are making large profits as opposed to our large losses.

If we were consistently turning in healthy profits then there would be no objection whatsoever with the figures in question rising steadily on an annual basis.

As much as they could have done a better job, they also could have done a lot worse.

I think they have done a pretty fair job and are earning a market value for a fair job.

You will not be able to recruit a chief exec for a company with our turnover for much less than we currently pay (if ads in papers are anything to go by). As for then adding into it expereince of running a football club, well.......

Finally, some chief execs deserve pay rises even when the losses are huge if the losses are less than expected and the company looks to be improving its fortunes. Their salary is not just bases on the profitability of their company but far more on the direction they are taking it.

[happygilmore]

Your Chelski/ManUre comparison is frankly ridiculous. Their turn over is four times ours.

That however is largely irrelevant. The point is that they are making large profits as opposed to our large losses.

The same could be said about yours, Chelsea made a record loss for a Premiership team when they announced a £90m loss. Prior to that Leeds held the record when they posted a £50m loss.

I'm sure John Williams and Tom Finn do a decent job in probably one of the toughest business especially when the club is punching above its weight. 1 in every 5 who live in Blackburn is a ST holder- I don't think you'll find any other club in any league in the world, let alone the Premiership with a better penetration stat.

[Jan]

Hmn

Thanks Philip

My first comment is that the capitalisation of the £14m loan is purely cosmetic. It's interest-free (the accounts say that) so doesn't cost us anything wherever it sits on the balance sheet.

In fact- if it becomes share capital, it will presumably rank for dividends, so if we ever pay one (unlikely) it will have to be paid on these shares as well.

The reality of the situation is that last year our "real debts"- excluding the £14million, were £12.1m. At the end of the year for these accounts, they were £15.8m- and they'd been converted from a loan to an overdraft (anyone who's ever paid overdraft charges knows they're usually higher than loan rates.)

If you look at what we OWE in the short term (£31.7m) and what we're owed (£16.4m INCLUDING £12m for players- now are we subsidising Chelsea winning the league or what?) you can see that this £15.3m is basically the same.

On the amortisation front- this doesn't equate in any way to cash so saying that's out transfer budget isn't right. I'd accept Mr William's word that "Trading, Bosman free transfers and the successful graduation of Academy players are seen as the key elements of our ongoing squad development".

Sorry if this is a bit too accountant-speaky!

[jim mk2]

Who decided that Williams and Finn should be rewarded with such large increases in pay ? The other memebers of the board ? The trustees ? Or did they award themselves their inflation busting rise ?

Is there any mention in the report of the departure of the club's longest serving employee, Tony Parkes ? And if not, why not ?

Is there any hint at how Williams and Finn are going to justify their vast salaries by reversing the decline in attendances ? New marketing initiatives are needed desperately and it is their (well paid) job to put them into action.

[stuwilky]

Who decided that Williams and Finn should be rewarded with such large increases in pay ? The other memebers of the board ? The trustees ? Or did they award themselves their inflation busting rise ?

Is there any mention in the report of the departure of the club's longest serving employee, Tony Parkes ? And if not, why not ?

Is there any hint at how Williams and Finn are going to justify their vast salaries by reversing the decline in attendances ? New marketing initiatives are needed desperately and it is their (well paid) job to put them into action.

The accounts are uptio June 30th, Parkes left after than

And attendance initiatives, thats marketing not accounting.

[broadsword]

what we're owed (£16.4m INCLUDING £12m for players- now are we subsidising Chelsea winning the league or what?

What?!

Other than Duff, what monies could we possibly be owed.

To get a club with a billionaire owner to pay us 17 mill at their leisure is disgusting. They're sat on the interest for a start, unless that's been factored in in the final payment.

Doesn't sound right to me.

[stuwilky]

what we're owed (£16.4m INCLUDING £12m for players- now are we subsidising Chelsea winning the league or what?

What?!

Other than Duff, what monies could we possibly be owed.

A fair proportion of the Dunn money wasnt paid up front either.

[streakyb]

Who decided that Williams and Finn should be rewarded with such large increases in pay ? The other memebers of the board ? The trustees ? Or did they award themselves their inflation busting rise ?

Is there any mention in the report of the departure of the club's longest serving employee, Tony Parkes ? And if not, why not ?

Is there any hint at how Williams and Finn are going to justify their vast salaries by reversing the decline in attendances ? New marketing initiatives are needed desperately and it is their (well paid) job to put them into action.

The board would have approved the increse to keep them in line with chief executive pay for companies with a multi-million pound turnover.

And as someone earlier mentioned, the way to increase attendances is not by marketing, its by on pitch improvement. Marketing will increase attendaces slightly, as would cheaprer prices (although this would be relatively revenue neutral).

Let them empoly a marketing person (which i expect they have) and concentrate on keeping our pemiership status.

I dont think anyone canhonestly say they have done a bad job, yes they could do better, but they could do an aweful lot worse. Stick with and pay the devil you know.

[CAPT KAYOS]

Finally, some chief execs deserve pay rises even when the losses are huge if the losses are less than expected and the company looks to be improving its fortunes. Their salary is not just bases on the profitability of their company but far more on the direction they are taking it.

Who says streaky b?

Normally shareholders etc and done on a vote and most are normally asked to stand down ( discreetly ) with a nice golden handshake though if performance is bad

Tend to agree with Scotty and Revidge on this though

[MCMC1875]

Finally, some chief execs deserve pay rises even when the losses are huge if the losses are less than expected and the company looks to be improving its fortunes.  Their salary is not just bases on the profitability of their company but far more on the direction they are taking it.

Who says streaky b?

Normally shareholders etc and done on a vote and most are normally asked to stand down ( discreetly ) with a nice golden handshake though if performance is bad

Tend to agree with Scotty and Revidge on this though

Have to say Streaky is spot on there.

[streakyb]

Who says streaky b?

Normally shareholders etc and done on a vote and most are normally asked to stand down ( discreetly  )  with a nice golden handshake though if performance is bad

Tend to agree with Scotty and Revidge on this though

Presume you are not a regular reader of The FT (it the only paper my place of work will buy for us :-( ) and just see the news stories about Fat Cats.

The majority of company shareholders are large investment firms. they are in for the long haul and are prefectly happy to have a cheif exec preside over a large loss IF the companies business plan stand up to examinationa nd they are turning the company around.

Yes, if performance is bad they will be asked to stand down, but a loss is not bad performance.

If i took over a company who lost 100mil in the last financial year and in my first year i turned the company round to make only a 50mil pound loss should I be disposed of as I have turned the company instantly profitable?

It a case of balancing expectations. Very few football clubs make money (ManU). Even Chelsea and Arsenal are currently loss making. Its just a question of ensuring sustainability and longevity.

For all those who want Finn and Williams to earn a lot less or be replaced. Please tell me where you will find people willing to do this job, do it better, have the expereince and want substaially less pay.

Edited February 18, 2005 by streakyb