[Archived] Rovers Finances

[philipl]

Sheffield United boss Neil Warnock has revealed he was closing to signing Stephen Warnock. "We also had talks with Stephen Warnock after agreeing a fee of £1.5million along with Blackburn," said Warnock. "He's a good young, English player who warranted an offer.

"That was a disappointment but under the circumstances you can't blame him for chosing Blackburn. We're not at their level yet financially."

That was lifted from Tribal Football- not the most likely of sources with which to start a review of Rovers' 2005/6 accounts. However, it does show that despite Sheffield United raising between £5m and £10m (depending on reports) to spend in the January transfer window and being a club from a big city (not forgetting the only Prem club in the eastern half of the country north of Watford and south of Boro), Rovers do have significant financial muscle, even in comparison to other Premiership clubs.

Once again, Rovers' accounts give all the signs of a well-run financially prudent operation within the confines of something as inherently unstable and risky as a football club.

The headline news is that the steady decline in attendance is biting. If we had maintained the average gates we were getting in the Premiership of over 26,000- just four short years ago, Rovers' cumulative financial base would be healthier today by at least £7m adding the four seasons together. It is a moot point whether some or all of that would have been recycled into transfer expenditure.

Match revenue actually declined only slightly whilst average ticket spend per head at league games (this seems to exclude executive seats otherwise it doesn't calculate to the total matchday revenue figure) has risen from £12.77 to £13.64. Attendances fell from an average of 22,294 when we came 15th in 2004/5 to 21,015 when we came 6th in 2005/6. At least the rate of decline halved from the 2,000 a year of the previoustwo seasons.

Somebody knowing nothing about football looking at these numbers would conclude:

- the people turning up at Ewood paid higher prices to compensate for the losses from the stay aways in 2005/6, and

- the Blackburn public finds coming higher up the league a big turn off in terms of wanting to go to matches.

To the numbers themselves. Because it is difficult to tabulate within the messageboard, I am presenting the numbers in the following way:

2005/6 - 2004/5 - 2003/4. All figures are in £ millions unless otherwise specified.

Total income 43.4 - 41.3 - 40.8 includes

Matchday 7.1 - 7.3 - 6.9

Media 25.7 - 21.4 - 21.8

Commercial 10.7 - 12.4 - 12.2

So a modest increase in turnover driven completely by the £4.4m increase in place prize money from rising up the league from 15th to 6th. For the third season running, the number of matches covered by live TV dropped (down from 12 in 2004/5 to 11 in 2005/6- a further indication of concentration on the big 4 who bored us up to 24 times). 2004/5 income had been boosted by £2.5m from the FA Cup run to the semi-final. Commercial income which I commented had done well to hold up in 2004/5 is now suffering despite the Bet24 deal which itself is possibly under threat from possible new rules about promoting online gaming and the American debacle affecting the sector. Apart from the £1m a year Sportsworld and £2m a year Bet24 deals, commercial is very much driven by matchday attendance/attractiveness. A 20% decline in attendance over four years must be reflecting in a commensurate fall in unit sales of food and beverage, programmes etc. The "prawn sandwich" briggade in the Executive boxes are not increasing sufficiently to offset the decrease in raw attendance numbers and the 2005/6 figures suggest that they are in retreat as well.

Operating profits were 0.7 - 1.0 - (1.4) (brackets denote an operating loss in 2003/4)

The final bottom line losses were 6.9 - 5.0 - 5.1

So despite coming 6th losses could not be effectively contained, again that decline in attendances impacting.

The other villain of the piece are wages of 33.4 - 31.3 - 31.3.

£1.5m of the £2.1m increase in payroll costs was occaisioned by Performance Related Pay so that in itself is a good thing. Wages as a proportion of turnover rose from 76% in 2004/5 to 77% in 2005/6. John Williams comments that the new Media deal means that wages SHOULD drop back to a more sensible 65% of turnover but we are subject to Premiership going rates. To be realistic, only perhaps two or three Rovers players need to be paid to prevent them being easy prey to the CL 4 (after all their squads totalling 100 players are already stuffed with world class quality) but the stupid pay levels paid by clubs such as Boro and Newcastle have now been joined by Pompey, possibly Villa, and as we have just seen West Ham. It is probably very important for the financial health of the Premiership that West Ham do get relegated to clear a mid range money no object club out of the system. Rovers can refuse to go with the flow if Chelsea want to pay Michael Ballack £130,000 a week but it is quite another thing if the mark for Lucas Neill-type players gets raised to £60,000 a week because that is where we have to compete.

Staff numbers make interesting reading: 223 - 231 - 244 people employed. There was reduction of 15 employees in the Academy which is partly offset by modest increases in staff in all other areas including the players and coaches in the senior squad.

For those interested in such things, pay to the individual Executive Directors remained broadly flat again although the appointment of the Financial Director to the board meant that there are now three Directors in the reported £491K as opposed to two in last year's £352K. For a business as large as Rovers and bearing in mind that John Williams was promoted to Chairman during the year, these are very modest numbers.

The player trading account shows the following:

Original transfer values 26.1 - 27.6 - 33.7

Net Book Value 10.7 - 9.1 - 14.7

Contingent Liabilities 4.3 - 4.7 - 4.8

Reported transfer spending (not net of sales) was £8.2m in 2005/6 and £6.3 in 2004/5.

Some explanations- original value is the sum of transfer payments paid for all the players currently at the club. Rovers in common with every other club amortises the transfer payment over their length of contract. So if a player was bought on a 4 year contract at the end of 2003/4 for £4m, he would be valued at £3m in 2004/5 and £2m in 2005/6. The sum of those residual values gives us the Net Book Value figure. In addition, many transfers have clauses which trigger additional payments IF players or the club achieve certain targets. Those amounts ONLY become payable if there is achievement and the total value of those clauses is the contingent liability figure (last year I speculated the club might have included a number for the hit if Newcastle lost their VAT case- this year the note explains the contingent liabilities are for transfer payment terms).

Now a look at the balance sheet items and their impact on the club's profitability. End of year bank borrowings are virtually unchanged at £10.8m but the timings of the borrowings and upwards drift of interest rates has impacted net interest payable: 740K - 532K - 668K

The club is still cash generative- just- net cash before financing dropped from £2m raised in 2004/5 to £40K in 2005/6. At least Rovers are not haemoraging cash.

However, there is a dramatic increase in net current liabilities from £13.7m in 2004/5 to £20m in 2005/6. Interestingly a lot of this is down to Rovers being very smart in their transfer payment terms. Fees receivable have dropped from £6m to £1.6m whilst transfer fees payable in over one year's time have increased from £866K to £2.25m.

When supporters bitch about transfers taking so much time, they should realise that John Williams and Tom Finn are screwing down these sorts of terms to Rovers' advantage.

Last year the Walker Trust converted £14m of debt into shares and an even more dramatic change in the club's balance sheet will come in the 2006/7 accounts when the redeemable preference class of shares (effectively debt) of £80m are converted into ordinary shares of the same value making it irrecoverable from the club's own resources. No doubt Mancs wish the Glazers would/could do the same! In total, the club's ordinary share capital is now £140m, £111m of which has been consumed by losses the Rovers have made over the years.

So to the future.

It is dominated by the new TV deal and the very real prospect that in 2006/7 Rovers will become a £50m+ turnover business. Putting that into a world context, Rovers would rank somewhere round about 25th in the Deloittes rich list of clubs and if we had a run to the FA Cup Final as well as a top 6 finish (and assuming crowds have not dropped below 20,000 in the meantime), Rovers could make it into the 20 highest earning clubs in the world without qualifying for the Champs League. This is mind boggling for us older supporters and would have Bill Fox speechless in amazement.

If Rovers keep wages at current levels, they will become profitable on a sustained basis for virtually the first time in their history and have the odd five millions available for net transfers each year. Wages hold the key which is why the Icelandic egghead's buy of Lucash is such bad news. But if we were in an equally perilous position as the WHammers, wouldn't we demand Rovers board do the same? And therein lies the rub.

The Rovers board and Walker Trustees have clearly decided that the interpretation of Jack's Will in terms of entertaining the public of Blackburn extends to cutting prices now that the new deal makes that possible.

Very quietly tucked away in the notes is a non-repayable, non-interest bearing non-term loan from the parent of £3m which I presume is in addition to the usual automatic top-up from the Trust Jack Walker settled for Rovers' benefit. So again, the Walkers have slipped Rovers yet another £6m. I speculated last year that the sale of Flybe might make the Walker Trust sufficiently liquid to enable even more largesse but Flybe has itself bought BA Connect and cancelled its flotation so that prospect is some way off. Also distant I believe is the prospect of any new owner of any nationality who could pass the tests of fitness to own Blackburn Rovers FC that Jack effectively imposed.

Other clubs and other potential owners will see the new TV windfall differently from Rovers but the new range of investors coming into the game are doing so with an eye on the profits to be made- huge returns given the inherent risk of relegation which has to be factored into any football calculation. In these circumstances, we can only say that Rovers are fortunate in having a non-profit seeking Trust as our owner. Perhaps we could see Rovers' style of ownership bearing out Neill Warnock's comments about other Premiership clubs not being in Rovers' league financially on a longer term basis.

[only2garners]

Thanks Philip for a very clear analysis of the numbers. As you say, given our circumstances with low attendances we are in a pretty good financial position overall and certainly better than many others in the Premiership. I hope that a number of our more excitable posters take time to read this so that we can cut down on the posts pleading for £10 players to be bought.

[ultrablue]

£10 million players?

[AussieinUk]

Thank you again Philipl!

Some very interesting reading..

[Paul Mellelieu]

Thanks Philip, excellent as usual. A couple of questions. Could you confirm the level of subsidy the trust has made to the club over this three year period, including the clearance of long-term debts. Second, are you saying that effectively the club has no debt now?

[Roversider]

Good analysis. Of course we should remember that contingent liabilities are a prudent accounting provision for potential costs which may not, hopefully crystallise.

John Williams and co. are doing an excellent job walking the tightrope of keeping the club viable whilst investing into the club as much as possible. We see the performances of players and tactics and comment accordingly. The board performance is only noticed when disaster occurs, we should be thankful for their careful stewardship, by that I mean fans should stop moaning if we don't rush off chasing ridiculously priced players (wages and transfer fees).

One plus is that the Rovers are not run for profit but for football. Don't underestimate that impact. The Icelanders are desperately throwing money at the bonfire known as West Ham because if they are relegated they will miss out on the bumper increases in income from TV next season and with that they will suffer huge losses on their investment. However, what is certain, is that they will eventually demand a return on that money.

You know the old joke? "How do you make a millionaire? Take a multi-millionaire and introduce him to football club ownership". That doesn't apply in the Premier League now but step into the Championship ......

So its very much a patient, long game approach but the extra funds next season, as pointed out, will catapult Premiership clubs to levels above most Serie A and La Liga clubs and dwarf Bundesliga and the Old Firm.

Well done to the unsung heroes of the Board and my continued appreciation of the Walker family as well as my undying thanks to our beloved (and much missed) Uncle Jack.

[philipl]

Thanks Philip, excellent as usual. A couple of questions. Could you confirm the level of subsidy the trust has made to the club over this three year period, including the clearance of long-term debts. Second, are you saying that effectively the club has no debt now?

In terms of cash put into the club, I think the Trust has put in £6m in each of the last three years making £18m in total.

At the same time, the way the Trust and the club have accounted for the past moneys put into the club has changed. Last year £17m of lending previously made was converted into new ordinary shares. This year £80m of redeemable preference shares (ie shares the Trust could have called back from the club) were converted into ordinary shares.

So anybody looking from the outside can see that there is only one class of shares with no special rights.

The club's debts are bank borrowings of nearly £11m and the new loan from the Trust of £3m (included in the £6m) for 2005/6 which carries no interest and has no repayment term.

For anyone to claim that the Trust is lessening its commitment to Blackburn Rovers is plain daft (Vinjay, if you are reading). I'd argue that other than Abramovich and probably temporarily, the new owners of Villa, WHam and Pompey, no other owners are making as big a financial commitment to a Premiership club as the Walker Trust do to Blackburn Rovers. Steve Gibson's largesse seems to be drying up at Boro, Al Fayed wants out of Fulham and Dave Whelan is in reality pretty parsimonious at Wigan. Over the long term, probably only Steve Gibson at Boro comes close to the £110m+ which the Walker family has ploughed into our club.

[Paul Mellelieu]

Thanks Philip. The last point you make is a sobering one. £110m, Good grief.

[Tyrone Shoelaces]

Thanks for your efforts Phil, you've made things very clear even to numbskulls like me.

[DavidMailsTightPerm]

Philip - as ever an excellent summary.

What is your impression of the money available to Hughes in this transfer window (based on the figures you have seen) ?

Just wonder whether we will see a surprise major purchase - or whether loan deals are the best we can hope for.

For anyone to claim that the Trust is lessening its commitment to Blackburn Rovers is plain daft (Vinjay, if you are reading). I'd argue that other than Abramovich and probably temporarily, the new owners of Villa, WHam and Pompey, no other owners are making as big a financial commitment to a Premiership club as the Walker Trust do to Blackburn Rovers. Steve Gibson's largesse seems to be drying up at Boro, Al Fayed wants out of Fulham and Dave Whelan is in reality pretty parsimonious at Wigan. Over the long term, probably only Steve Gibson at Boro comes close to the £110m+ which the Walker family has ploughed into our club.

Especially for Vinjay - for me the main reason that Rovers can no longer go for glory as they did when Jack was alive is more to do with the support of the Blackburn public than the Walker Trust. How can we compete with teams that often get gates double, triple or even quadruple our gates ? The Walker Trust is the only thing that protects us from that realism - and helps keep us abreast with far better supported clubs.

[Jan]

Two things:

The accounts are for the year to 30 June 2006, therefore there is no way to guess what money is available in this transfer window.

Contingent liabilities do not appear on the balance sheet, they are effectively a note to remind the company what their best estimate should be of money going out, IF certain conditions come to pass (and there is no way of knowing what those conditions are).

I will get a copy for distribution as soon as they are filed and therefore publicly availbale (at present they are not).

Non- interest bearing non repayable loans are actually better for the club than share capital. The loans are effectively frozen, shares can pay a dividend (and in most companies do)

[1864roverite]

if only other clubs had our operating sense eh ?

Talking about you N E W C A S T L E !!!

[SAS]

good read that phillip, cheers

[thenodrog]

If Rovers keep wages at current levels, they will become profitable on a sustained basis for virtually the first time in their history and have the odd five millions available for net transfers each year.

I'm not holding my breath with that option Philip! Top level football spending is like putting fuel on a bonfire. The more that you chuck on it the faster it burns away.

[Exiled in Toronto]

Several points strike me from Phil's summary.

We clearly still benefit from Jack's largesse. Phil doesn't mention capex, so I assume it is miniscule thanks to Jack's capital investments in the '90's. There will come a day however when stuff needs replacing/revamping, which is when our financial structure will creak at the seams.

If a 200k drop in gate income is headline news in a business turning over 45m, then it can only be because proof is finally there for all to see that BRFC's future is not in the hands of how many punters choose to watch in the pub, go shopping etc. The drop represented 0.45% of total income and we had a zillion page thread about the impending doom facing the club from declining crowds. Don't get me wrong, I support all the iniatives to boost crowds, but not because of the money. With a crap atmosphere the real hit will be on live matches (what kind of advert are we for the'Greatest League in the World'?) and commercial, which of course declined a far more calamatous 1.7million. Are we going to blame the punters for this as well? Are Blackburn's businessmen now treating their clients to the best seats in Horden's to watch the game for free? I expect Williams Fils to have a particularly gruelling annual appraisal from Williams Pere on this one.

Also, am I the only person not to have heard about a major clearout of Academy staff? 15 sounds a lot to me. Does this signify a change in priority being given to youth development, or did we just have fifteen loafers on the books?

[mickygray316]

excellent analysis. gives me food thought whilst im at work this week

[Scotty]

Also, am I the only person not to have heard about a major clearout of Academy staff? 15 sounds a lot to me. Does this signify a change in priority being given to youth development, or did we just have fifteen loafers on the books?

Is this the year the academy structure changed from two teams - an under-17's and an under-19's team - to just the one under 18's team? If so, I would imagine that may be why a number of those staff left.

[pksrover]

Is this the year the academy structure changed from two teams - an under-17's and an under-19's team - to just the one under 18's team? If so, I would imagine that may be why a number of those staff left.

I think this is the 2nd season with just the one U-18 league

[philipl]

That would explain it- the comparison is for the numbers in July 2005 at the end of the two division structure with July 2006.

So nothing to do with loafers per se.

[92er]

I think this is the 2nd season with just the one U-18 league

In which case the first season this happened would have coincided with last year's accounts.

[Presty On Tour]

excellent read phillipl thanks, certainly fills the blanks.

[American]

If a 200k drop in gate income is headline news in a business turning over 45m, then it can only be because proof is finally there for all to see that BRFC's future is not in the hands of how many punters choose to watch in the pub, go shopping etc. The drop represented 0.45% of total income and we had a zillion page thread about the impending doom facing the club from declining crowds. Don't get me wrong, I support all the iniatives to boost crowds, but not because of the money. With a crap atmosphere the real hit will be on live matches (what kind of advert are we for the'Greatest League in the World'?) and commercial, which of course declined a far more calamatous 1.7million. Are we going to blame the punters for this as well? Are Blackburn's businessmen now treating their clients to the best seats in Horden's to watch the game for free? I expect Williams Fils to have a particularly gruelling annual appraisal from Williams Pere on this one.

But you can't discount the crowd decline leading to the decline in sponsorship dollars and in TV appearances (why would Sky want to broadcast a "half-empty" stadium?

[philipl]

The point to make about attendance loss is this- 21,000 average generated £7.1m. The 26,000 average gate of 2002/3 would have generated £8.8m matchday income pro rata if they had turned up last season.

[Exiled in Toronto]

The point to make about attendance loss is this- 21,000 average generated £7.1m. The 26,000 average gate of 2002/3 would have generated £8.8m matchday income pro rata if they had turned up last season.

It's not the point, it's your seemingly endless point. 26,000 was the high water mark of attendances in living memory, apart from the season after we won the league - it was even higher than the season we won the damned thing. 5,000 people aren't staying away just to spite BRFC; they have decided they have better things to do with their time/money. And even if by some miracle they were still coming, the cumulatiuve sum over the last 4 years would have paid for one decent first team squad player over that time(3m fee, 4m wages) - hardly transformational.

As you keep telling us that the executive management of BRFC fully deserve their pittances of salaries, I fail to understand why you do not see them as ultimately accountable for sales of their product, while you insist on blaming the customers. What kind of real business does that?

[Tris]

It's not the point, it's your seemingly endless point. 26,000 was the high water mark of attendances in living memory, apart from the season after we won the league - it was even higher than the season we won the damned thing. 5,000 people aren't staying away just to spite BRFC; they have decided they have better things to do with their time/money. And even if by some miracle they were still coming, the cumulatiuve sum over the last 4 years would have paid for one decent first team squad player over that time(3m fee, 4m wages) - hardly transformational.

As you keep telling us that the executive management of BRFC fully deserve their pittances of salaries, I fail to understand why you do not see them as ultimately accountable for sales of their product, while you insist on blaming the customers. What kind of real business does that?

I can't believe you keep banging this drum. What have the likes of John Williams and Tom Finn ever done to upset you??!

With the chaos at Charlton, many people would point at Rovers as the best model of how to run a small / medium sized football club at the top level.

Whilst half of the PL is being bought up by foreign investors looking for some of the TV revenue cake, whilst the likes of Freddie Shepherd and family manage to pay themselves millions from the Newcastle gravy train - Rovers remain steady away and remarkably well run.

Your last paragraph just displays how far removed you are from understanding the challenges Rovers face. This isn't Tesco v Asda ffs!!