WOTMT
Accounting for the past and the future
Club accounts, FFP and all that

A few weeks ago I wrote a letter to Mr Chansiri in which I asked 8 questions that were related to that infamous survey question and the whole business concerning club strategy, finances and ticket prices, see article titled “That Survey” and published on WOTMT on 5th February. 3 of those questions related to FFP and the club accounts. I didn’t get an answer to any of the questions but I did receive an invitation to a meeting with Mr Chansiri that is to be arranged, although the current indications from the club are that Mr Chansiri will be out of the UK until towards the end of the season.

Anyway, the first question about financial loss for the 2016/17 year was answered on 1st March when the club published the accounts for the financial year ending May 2017. In 2015/16 the club had income of £22m, a wage bill of £19.3m and a loss of £9.7m – in that season we got to the play-off final after a 6th place finish. In 16/17 we had income of £23.4m, a wage bill of £29.3m and a loss of £20.7m. Despite a massive increase in the wages bill compared to the season before, and a consequent doubling of losses, we finished fourth but limped out of the play-offs. In 16/17 for every £100 of income we spent £125 on wages and £26 on amortised transfer fees; therefore we spent £151 on players for every £100 of income. Mr Chansiri funded a large part of this via a £20m loan, £2.3m in share purchases and £1.2m in sponsorship. For DC this was a massive personal commitment on a gamble (and an investment in CC) to achieve promotion which has not paid off. He, the club and fans now potentially face some consequences for that gamble, of course CC is now charming birds from trees and also beguiling PL journalists in South Wales.

The FFP (Profit and Sustainability rules in FL language) rules are that clubs must submit by 1st March each year the accounts for the previous 2 years and an assessment of the financial position for the current year. That allows for a rolling 3 year assessment to be made of a club’s position, (current rolling period 15/16, 16/17, 17/18), in that 3 year period a club can only lose £15m and have further losses of up to £24m that are funded by an owner, total maximum allowed losses of £39m over 3 years. Some elements of expenditure such as academy, women’s football, charity work, infrastructure etc can be excluded from FFP calculations which mean that FFP losses could be lower than actual losses. So, our headline losses are £9.7m for 15/16, £20.7m for 16/17 which is £30.4m plus whatever we may lose in 17/18. My second question to Mr Chansiri concerned the projected financial position for 17/18 – an answer was not forthcoming. I assume the loss must be in the region of £20m as we have not sold any players and cannot now do so before the financial year ends. It is possible that the club may somehow be able to demonstrate a loss of £8.6m or less for 17/18 which would be FFP compliant, and/or could be able to reduce FFP losses due to allowable excluded expenditure. The next rolling period would be 16-17 to 18/19 with a new assessment to be made in March 2019. As it stands we may well be in breach of FFP rules for the current 3 year period and might therefore face sanctions such as a transfer embargo and/or a fine as a result. We also face potential difficulties for the next 3 year period too. If things are otherwise could the club please tell us.

The unknowns at the moment are:

1. What legitimate expenditures does our club believe can be excluded from the FFP assessment in March 2018?

2. What assessment of anticipated losses for 17/18 has the club provided to the FL?

3. Can a FL sanction be applied on the basis of assessed potential losses for the third year in the period, or must application of the sanction be deferred until the actual financial accounts are published?

4. How much of DC’s financial input will be accepted by the FL as being ‘fair market value’ and therefore be allowable cash injection?

5. Does the club believe we are FFP compliant in the current period and why?

6. What increases in income or reductions in expenditure are needed for 18/19 to ensure FFP compliance over the next 3 year FFP period?

All these are legitimate questions which fans and journalists should be putting to the club and/or to the Football League.

What is clear is that the loss suffered in 16/17 cannot be sustained in 17/18 or 18/19 if we are to comply with FFP rules. What is also clear is that the strategy of signing older, experienced players, some with dodgy injury records, has not paid off. Those players are in receipt of high wages and long term contracts – their resale value is less than what we paid for them and clubs may not take them off our hands due to their wage levels. The club appears to be in a difficult position which would only be made far worse by being relegated to League One which is something we have to avoid if at all possible. Whilst the availability of multi-year season tickets is great for fans that have the cash available, it is also a concern in that we could be using income from future years to balance more current books – a form of mortgaging future income, which is a worry. Katrien Miere is going to be a very busy woman trying to sort all this out.

In the light of all this it would be really helpful if the club could set out their responses to the six questions above and also give us some sense of what the strategy is to deal with the business and financial challenges the club now faces. Is that too much to ask for in return for our commitment and our financial input to the club?

Credit is due to @KieranMaguire and @PeterLoehmann for their work on football and Wednesday finances. They are well worth a follow on Twitter.

 

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27.04.2018
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