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[Archived] Rovers Finances


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It seems highly likely that 27 January will be the date on which the Rovers accounts will be in the public domain. For those of you who are impatient, here are a few thoughts about the club's finances ahead of when I can post a full analysis.

My guess (and a view I've held for a year now if anyone wishes to check my posts) is that this year’s numbers will in most respects not be that much different from last year’s results which showed a loss after player trading of around £5m. The club probably budgeted for crowds to stabilise at the 24,000 fgure they had dropped to following the previous season’s 26,000 but as we know the haemorrhaging of support from the club continued. Thankfully the FA Cup run would have helped cover that problem to keep the accounts relatively rosy.

However, that has not stopped the Walker Trust continuing to support the club very generously and in last year’s accounts, it was announced that the Trust would look to convert £14m of debt into new shares in the club. This is in addition to the annual £3m and other advances which have added up to an average £5m a year injection into the club both when Jack was alive and since his death.

This £14m vote of faith in the Rovers can be turned into cash by the directors as a new borrowing opportunity if they wish to take it- in other words, replace that debt the Walker Trust is turning into shares by new debt. However, any banker looking at the club today would see a decline in gates from 26,000 to 19,500 over three years and would inevitably assess the club’s credit worthiness based on a continuation of that downwards trend. The Rovers are certainly not good for another £14m but there is space for more debt as I have explained.

With the club now already having one point more than the 33 points which the 18th club accumulated last season, relegation is not an issue for Rovers this season. The fear of Championship football and contingency planning for it presumably dominated the previous two seasons’ transfer plans. Moving to the next level is now the agenda of the day and that refinancing of old debt is the reason why I feel that the key issue for buying a striker this January is much more a challenge of finding the right one who is available than it is a question of financing the transfer (within reason).

As Hughes has said, his challenge is not making mistakes with transfers; he is not saying he cannot buy players. If Ahn gets precious about a trial at Ewood, he can stick on the subs bench at Metz.

John Williams has in effect said the playing staff in future will comprising first eleven players mostly transferred in who will improve on what we’ve already got whilst the squad members will come from Academy graduates. I guess that the club’s financial modelling foresees eleven players earning between £1m and £3m a year with an original total transfer value of £20m or so and 14 squad players earning £250k to £500k each. This would broadly maintain the salary levels of two years ago whilst giving the club the ability to compete at the top end of the non-Champions League clubs for its first eleven.

However, the drop off in gates is now hurting the club another way as it very directly hits the Rovers’ ability to pay transfer fees. I estimate that the cumulative loss in income since the 26,000 average gates of three seasons ago must be upwards of £5m now. What would we give to have £5m available to snap up a striker on Monday morning? And how can the people of Blackburn look to the Walker Trust for cash when they are not willing to go along to consume the product they are trying to provide?

The other black cloud but this time with a silver lining is our dependence on Cup performance. The £2.5m or so the club was reported as pulling in from the FA Cup run last season must have made a critical difference to last year’s financial numbers. The League Cup run this year will not have been anywhere near as lucrative as the FA Cup until we drew Man U in the semi-final. But the trading performance for 2005/6 is critically dependent on Rovers not losing both the next two games (Man U and West Ham). If we lose those two games and the Premiership gates remain depressed then the £3.5m gain in place prize money for finishing in our current 8th position will be significantly offset by the reduction in Cup income and loss of gate receipts from league games- a sobering thought which again equates our attendance performance to free funds available for transfers.

Again, the Bank Manager could well say, let's see if you reach Cardiff and are still in the FA Cup before I extend that £x million line of credit.

Sorry for quoting Mark Hughes in the Lancashire Evening Telegraph last night again:

"My ambition is to go as far as I can, and take Blackburn as far as possible.

"We have got some way to go and hopefully we will get there quickly.

"Then we will need major investment to go to the next level.

"The club will have to decide how far they want to go. Chase the best or stay where we are?"

This clarity of thought and in speaking his mind is the greatest gift he could give to Blackburn Rovers Football Club. Mark is saying that his target is to manage a club in the Champions League and to do so soon. He has already transformed the club from one which has been worried about relegation to one which is chasing UEFA qualification on three fronts (perhaps only one front a week from now). But to be a Champions League contender requires a quantum shift upwards from the current financially and managerially well-run club the Rovers are now.

That is the major investment he is referring to. Whether the Walker Trust (if they sell Flybe) or somebody else is in for that particular ride is the £100m question.

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And how can the people of Blackburn look to the Walker Trust for cash when they are not willing to go along to consume the product they are trying to provide?

Shout it from the rooftops philipl!!!........although not too loud as some sensative souls who reside on here like to ignore reality and have a tendancy to become upset at any criticism of the gode olde Blackburne public dry.gif

Chin chin

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And how can the people of Blackburn look to the Walker Trust for cash when they are not willing to go along to consume the product they are trying to provide?

Shout it from the rooftops philipl!!!........although not too loud as some sensative souls who reside on here like to ignore reality and have a tendancy to become upset at any criticism of the gode olde Blackburne public  dry.gif

Chin chin

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I don't think it upsets people. I just think it doesn't have to be said in every post.

Great work Phil, always interesting to read stuff like that.

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That is the major investment he is referring to. Whether the Walker Trust (if they sell Flybe) or somebody else is in for that particular ride is the £100m question.

376946[/snapback]

Good analysis Philip. I hope I am wrong but I'm not holding my breath on the Walker trust providing the required level of funding needed to compete with the top four in todays climate when the Prems popularity is on a downward trend.

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Review of Rovers’ Accounts year to 30 June 2005.

The publication of Rovers’ results has been a muted affair compared with Chelsea announcing a £140m loss. Abramovich has now publicly declared losses of £270m in addition to the reported £130m all up cost of buying Chelsea- still £100m less than the reported development value of the Stamford Bridge!

To the Rovers and my immediate reaction to this year’s accounts is that there are no big surprises- the numbers are what I suggested they would be a year ago. However, on closer examination there are lots of very pleasant little surprises all over the place which is a sign of an extremely well managed operation.

First of all, we need to understand that running a Premiership football club in Blackburn is a fundamentally uneconomic proposition. What Rovers make in matchday income in a season is what Arsenal will take from two home games at the Emirates Stadium. Thankfully, unlike Arsenal and Manchester United, we don’t have hundreds of millions of pounds worth of debt to service and repay so it will be many years (assuming that football remains in roughly its current format) before the massive disparity of earning power enjoyed by the Mancs and Arsenal really begins to squash us in the way that Abramovich has squashed them.

Of course, another way of looking at the Rovers’ numbers is to say that we are fundamentally a lot bigger than traditional rivals like the lot t’other side of Accrington who can only marvel at an operation getting on for four times the size of their own cash strapped meagre existence. Rovers are a lot more secure in our current economic fundamentals than currently embarrassed giants such as Citeh or Newcastle and lets not forget Leeds who have to find a £15m reward payment to old creditors should they go up this summer. Everton’s accounts this time next year will make interesting reading for those of a sadistic nature which will prove a warning to anyone thinking the golden gates open on arriving at 4th in the Premiership.

So let me guide you through the numbers. To save typing effort, numbers in (brackets) are the comparatives for the year to 30 June 2004.

The first pleasant surprise is that turnover was up slightly despite the 2,000+ drop in average home gates to c22,000 last season. The total £41.3m (£40.8m) is made up of Matchday income £7.3m (£6.8m), Media payments- read Sky- £21.4m (£21.8m) and Commercial £12.4m (£12.2m). So the FA Cup semi-final achievement really pulled the club through financially to offset the attendance decline. The Commercial figure is highly commendable particularly as Sky deemed us a less attractive club to cover on TV bearing in mind that we came 15th in both seasons so our placement money was pretty equivalent.

The next pleasant surprise is the club actually made an operating profit of £1m (loss of £1.4m in 2003/4) before the player trading was taken into account so although total wages remained constant at £31.3m in both years the, club is beginning to wash some of its face operationally. Within the £31.3m, the salaries of the two Executive Directors remained the same although with benefits they totalled to £352k (£347k). These figures will change next year with the Board restructuring including the addition of the Finance Director (I believe that is now a main board position).

Staff numbers have been slightly trimmed to 231 (244) mainly through the loss of 9 in commercial- presumably the impact of the Sports World contract. Playing staff and management is 109 (110) so essentially unchanged.

I am going to return to the players account but as expected, there was a dramatic drop in the cost of amortisation- the charge made for each player dividing the transfer fee paid by the length of contract- to £6.9m (£11.4m) but also the book profit on player sales (the difference between transfer fees received and the transfer fee paid less the total costs amortised over the time the player was with the club) also dropped to £1.4m (£7.7m). Presumably the homesick Scot damaged us there.

With a modest decrease in net interest payments to £532k (£668k), the overall loss is almost identical to last year £5.0m (£5.1m).

Now let’s look at the Balance Sheet before rounding off with some comments about the future outlook.

The players’ net book value declined to £9.1m (£14.7m) which given the comparison in playing staff this last summer with the twilight of Souness just goes to show how misleading accounting values can be! If we ignore the impact of amortisation and look at the original transfer values, the players on the staff at 30 June 2004 had originally cost the Rovers £33.7m, transfer fees paid during the year totalled to £6.3m and the original transfer fees on players sold or retired were £12.3m giving an original cost value of the squad at 30 June 2005 of £27.6m. To help you understand how this works, the original cost figure will have dramatically dropped this January as the original transfer fees of Jansen £4.1m, Flitcroft £3.5m and Thompson £2.3m will be deducted. However all three players were fully amortised so the club will not show any loss on letting them go for free except for a small residual for the last six months of Thompson’s contract which will be more than compensated as an accounting loss by the actual cash saving in his wages.

Interestingly, off balance sheet, the contingent liabilities for transfer fees (debts we don’t have now but could have dependent upon players or the club achieving certain targets or onward sale values) are £4.7m (£4.8m). I wonder if this figure also allows for the possible loss of the Newcastle VAT case?

What I believe is clear is that the Rovers have derived no income from the Dahlin insurance case unless they have found a clever accounting way of spreading it over a number of years. Unlike contingent liabilities, contingent assets are not required to be reported so there is no way of telling if the Dahlin case is lost or still dragging on.

The improvement in the club’s trading position is also reflected in marginal improvements in the balance sheet. Net current liabilities are down to £13.7m (£14.3m) and so is net debt at £27.7m (£29.8m).

Within the balance sheet notes is one surprising and very welcome figure- especially considering how well appointed Ewood Park and Brockhall are but the club spent £738k last year on improving buildings and fixtures and fittings in addition to ordinary maintenance expenditure. This has to be a very positive sign and of course there was more expenditure this summer when Mark Hughes had the separation between the Academy and senior player facilities done away with.

The really sexy stuff in these numbers is the significant financial restructuring which the club is quietly going through.

The Walker Trust has again donated £3m. This figure does not change so if it were intended to bridge the gap between averaging gates of 26,000 and filling the 31,000 seat stadium, it now represents the difference between 19,500 warm bodies and a theoretical 24,500.

Supplementing the £3m donation, the Walker Trust increased its interest free loan to the club to £17m (£14m) which when combined with the improvement of the club’s trading position meant there was a significant improvement in the bank loan to £10.8m (£16.1m).

So the Walker Trust has put another £6m cash into the club.

It is worth pointing out that the total investment by the Walkers in the club since Jack first bought a significant shareholding in 1991/2 has averaged £5m per year so in cash terms there clearly is no lessening of commitment by the Walker family and their Trust to Blackburn Rovers Football Club. Unfortunately, it just doesn’t go as far in today’s Premiership.

Furthermore, there is an agenda item at the AGM to put into effect the pledge made last year to convert £14m of debt into equity. This forgiveness of the Trust’s previous non-interest bearing loan means that the net positive worth of the business will increase by £14m (before the current year’s trading performance) from its current £17.3m (£22.3m) in shareholders’ funds.

Bearing in mind that the club has been running with book borrowings of £30m+, this means that the club’s debt will now stand at £3m Walker Trust, £10m bank debt plus £4m funding for Bellamy. In other words, considerable borrowing head room has been created if the Board chose to use it.

Recurring player wage expenses are clearly being trimmed and the Board will use contract expiries in the summer to trim further (incidentally, I notice Amo is back on the long-term injury list).

Therefore, I see no need not to believe Hughes and Williams when they say the issue for Rovers in the transfer market is finding the right players who are available. I guess John Williams at least, is mindful of the late ‘90s when the club found a lot of wrong players who were available and effectively blew £50m of Jack’s money on bad transfers and the consequent relegation.

That experience alone will mean the Rovers’ hands will remain firmly in their pockets rather than bring in the likes of Earnshaw or Jeffers.

As for my longer term prognosis, I refer you to the first post on this thread.

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That has to be the two most throughly researched and non-biased posts i have ever had the honour of reading on ehre. They were both really enjoyable reads. Philipl=legend.

The one bit that struck me most was the fact that we are losing so much money for our attendences decreasing. I had an idea that it would cost us, but never as much as £5million per annum. The club and the BRISA need to come up with some plans to combat this. We cannot rely on our cup runs to save our accounts, were out of the League Cup, probably about to exit the F.A. Cup today, so where are we going to get the funds to balance out this 5million+ loss on our attendences?

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The cumulative loss through attendance reduction since 2002/3 is about £5m, not the annual loss.

22,000 average yielded about £6.2m excluding the FA Cup run, so 19,500 will yield about £5.5m this year whereas 26,000 would have earned the club about £7.5m (I am guessing there has been a skew away from the more expensive seats as well).

Another way of looking at it is that every man woman and child in Blackburn was paying £60 a year to Blackburn Rovers in 2002/3 of which they are not paying £15 in 2005/6. However, they are still paying about £45 a head to go through the turnstiles for Premiership matches each year.

Cup matches, commercial spending (memorabilia, replica shirts etc), Sky subscriptions, travel, food and beverage are all additional costs.

Edited by philipl
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Well done Phil...that will be one heck of a read! Just skimmed it for now and saw...

"The really sexy stuff in these numbers is the significant financial restructuring which the club is quietly going through."

Blimey...you accoutants can really let your hair down can't you? tongue.gif

Edited by FourLaneBlue
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Interesting read. Finances look well under control, a lot of which could be attributted to the great work of Mark Hughes in the transfer market.

Cold reality isn't welcome to the "head in the sand" rovers fan like me who wants us to blow a big wedge on top class front man, but I am confident under the management of Williams and Hughes that the club is probably better than most to survive should a crisis hit football (unlikley now due to savvy restructuring of TV deal with EU blessing).

But as your earlier post shows - Hughes wants the club to use the increased borrowing capacity to 'have a go' - heart says yes, head says no. Hope Hughes doesn't get frustrated if the answer is no.

Good Post.

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Review of Rovers’ Accounts year to 30 June 2005.

What I believe is clear is that the Rovers have derived no income from the Dahlin insurance case unless they have found a clever accounting way of spreading it over a number of years. Unlike contingent liabilities, contingent assets are not required to be reported so there is no way of telling if the Dahlin case is lost or still dragging on.

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Great Post Philipl! thumbs-up.gif

Has anyone heard anything further on the case? unsure.gif

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Philip - great post. I'm not an accountant but in my job have to make business cases. What sort of case do you think Hughesy would have to make in terms of the financial benefit of getting a European spot and a good cup run against the risk of say £5-6M on a good premiership class striker?

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1M profit, is that correct?  Did I understand that correctly?  (It's early) If so a big pat on the back for all concerned, that's good work indeed.

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The financial results for the year show revenue for the year at £41.3million an operating profit(pre player trading) of £1million. However when they take into account player trading, depreciation of player values, loan repayments etc there was a loss of £5million.

Hopefully Ive explained that correctly, if not I hope Philip will correct me.

For the uneducated, an accountants report full of figures can be a mine field, so I would like to express my thanks to Philip for putting this years figures, into a language that can be easily understood.

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For the uneducated, an accountants report full of figures can be a mine field, so I would like to express my thanks to Philip for putting this years figures, into a language that can be easily understood.

379159[/snapback]

Me too.

Another year, another user-friendly analysis for the financially illterate.

Well done that man.

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Phillip,

Thanks you for taking time to digest these numbers and put them into an understandable format.Based on MH's quotes last week on it being up to the board to decide how far they want Rovers to pursue the climb up the table on a longterm basis,I have a few questions:

1)Do you see anything in these figures that make us an attractive candidate for a takeover or even substantial investment(say 10-15 million pounds per year)?

2)Just thinking about it from a black and white, nuts and bolts perspective,why would anyone want to buy Rovers or make substatial investment?(as there aren't any Rover fans of Uncle Jack's financial stature floating around that we are aware of)

3)If crowds continue to hover at a 20 k average and all other things stay the same would you expect another 5 million pound loss for 3rd year running(or worse b/c FA cup run truncated)?

4) Could that 14 million forgiveness be turned into a transfer kitty for the summer?

Florida Rover

Edited by Florida Rover
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