More on the Money Trail
Neil Wolstenholme further explains some harsh fiscal realities.

27 May 2002

I know people just want to moan, bury their head in the sand and otherwise deny reality but ffs it is time people got their head around our problem. EFC refinanced recently to the tune of just over �30m. Basically that rescheduled �18m of overdraft into long-term debt, provided something like �5m for the academy (with more from the sale of Bellefield and Netherton in due course), �2.5m to get Moyes and lose Smith . The remainder (about �5m) is Moyes' transfer kitty. On top of that we do have an overdraft type facility wecan draw upon but it isn't prudent to do so unless we can improve our revenue stream.

Whether we raise money by issuing shares (PJ did this) or by borrowing long-term (the refinancing) it is all just pissed away unless you can generate a long-term sustainable revenue improvement.

Man City are replicating what Leeds did - borrowed to push for Europe. That is fine whilst it works but Leeds now have to sell to ease their debt burden having 'ONLY' qualified for the UEFA Cup. Unless you get very lucky this is boom and bust.

Sheffield U are having to issue new shares to refinance their existing debt - effectively we've done this once with PJ. EFC still have a share issue as a future possibility but if we are to sell to fans the current directors will want enough success to justify an inflated price and if it is outside investors coming in we need to be able to offer them a commercial return - hence the importance of things like KD. Either way, the benefit only lasts if the club has the infrastructure and growth profile to exploit the new funds.

What the board are doing isn't sexy and I'm sure it isn't what the spend, spend, spend mentality of most fans want but it is the sound commercial thing to do and, particularly with the ITV Digital fiasco so fresh in our minds, it is also the approach that risks least re the long-term future of the club. We've spent big, racked up debts and fought relegation. Now we are spending small, looking to gradually reduce debt, and build a longer-term platform for the club.

Given the choice between the ambition shown by effectively investing over �20m in a contract for a proven trouble-maker or that shown by looking to sort out the infrastructure and base of the club I know what I'd prefer. Sod teh Jam today, lets try and make sure we actually have a tomorrow eh.

it really isn't hard, all you have to do is e.g. look at the accounts from say 1990 to 2000 and the Deloitte & Touche football surveys over the last 5 years or so. These show a relatively consistent pattern of trading losses (particularly mid 90s onwards) as wages grew faster than the (admittedly fast growing) revenue streams. We've never fully capitalised on the tv boom as we haven't been successful, had few stars and been unable to drive our own merchandising and sponsorship income streams. We've under-performed the field commercially. The accounts also show over that period a substantial net investment in transfers and signing on fees (about �25m net until the fire sales last summer). *******These two things - trading losses and net transfer investment explain ALL of the debt the club got into.*******

Basically we've been mismanaged buying players we couldn't afford, investing in some duffers on whom we took baths (Bilic and Williamson between them cost �12+m in fees and wages). We've also overpaid some players badly (the most recent cases being Dunc and KC but they are hardly isolated). Despite the relatively high expenditure we've not had success on the pitch. D&T's surveys show we have consistently beenin the top 8-10 wage bills but equally consistently finished around 14th. We've under-performed in football terms.

I've lost count of the times I've written about this over the last 5 years but everyone still wants to believe in conspiracy theories, hidden pots of gold under the rainbow, the tooth fairy...whatever. The truth is simple, EFC has been a badly run business.

However, the other point that many people fail to pick up on is that many other PL clubs are just the same. City have been in and out of debt and seem intent on maintaining the cycle. In recent seasons Sheff Wed, Forest, Bradford, Derby, Coventry and Leicester have gone down taking their substantial debts with them. Leeds, Newcastle, Chelsea etc. are all massively in debt. Even a relatively cautious club like Villa are not as robust financially as either they or the shareholders want them to be. Even clubs we think of as well run (Charlton, Southampton etc.) have extended themselves more than they wished to do to stay in the PL, expand their stadia etc.).

Basically the finances of almost all of the PL are held together by a combination of PR, sleight of hand, luck and wishful thinking. A friend of mine, Simon Banks, who is one of the leading experts on football finance in the country is finishing his book at the moment that will deal in depth with this question. It looks to me like it should be compulsory reading for just about every fan, and football club director, out there!

After a prolonged period of stupidity and incompetence the directors of EFC have finally decided to try and manage the club in the real world rather than pretending all remains rosy in the bizarre fantasy finance world of football and many thanks for that I say.

Given the track record of the Board over the last ten years it is hard not to have misgivings. A net transfer investment of �25m over a decade followed by a net recoup of �10m forced by the bank (hence fire sale - although they'd rather have kept Jeffers and sold elsewhere I think) for little or no discernible success is not a great record. We were mid-table on net transfer spend and above mid-table in wages until these forced sales and had effectively lost control over the business. However, some lessons do seem to have been learnt. I'm not suggesting we should automatically assume the Board know what they are doing etc. but I do think all the signs are that they are beginning to take a more prudent approach to fiscal management whilst trying to generate longer-term opportunities. Time will tell if they can maintain this strategy and deliver on the academy, KD + incremental progress on the pitch but I do think it is a better way forwards than the one we've taken before.

To my knowledge BK has tried to explain the debt etc. twice in the last 12 months in big press interviews but partially because he isn't that natural covering this topic and partially because lots of people glaze over whenever overdrafts etc. get mentioned it doesn't seem to be getting through. Basically EFC have spent money they didn't ahve down the years for no reward and now we have to gradually clear that historic debt whilst trying to do better than before. Of course, we could borrow more and spend but if we balls it up again there would be no way back given the existing state of our finances (stable, manageable but hardly healthy).

Neil Wolstenholme

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