Friday, February 20, 2015


The audited accounts of the club (and its owner Baton 2010 Ltd) were published on the Companies House website earlier today.

The accounts to 30 Jun 2014 reflect the final six months of the Jimenez/Slater regime and the opening six months of the Duchatelet regime (or more specifically Staprix NV, a company owned 95% by Roland Duchatelet). 

This division makes it difficult to draw very strong conclusions about what has changed financially but nonetheless some interesting observations are outlined below , with some additional interpretations of my own.

As has been the case for several years, a review of the accounts is complicated by the addition of the Baton 2010 Ltd entity which is owned by Staprix and in turn owns the club.  My comments below relate to the club’s accounts unless stated otherwise:

-          The ‘strategic report’ at the front of the accounts make reference to the lack of investment in the squad during summer 2013 and the problems with the pitch (caused by collapsed drainage) ;

-          Average attendances fell from 18,480 to 16,130 but this still placed us in the top half of the Championship attendance table – the report additionally notes it is the ‘priority of the Board’ to grow attendances to 20,000 in the Championship ;

-          The club aspires to achieve ‘Category 1’ status for its Academy ‘as soon as possible’, but this will require significant development of the training facilities etc. ;

-          Turnover increased from £11.9m to £12.7m – this was explained by an increase in Premier League ‘solidarity’ payments and matchday revenue £0.7m higher than the previous season, explained entirely by the FA Cup run to the Sixth Round  - indeed without the additional Cup revenues, matchday revenue would understandably have been down (given lower average attendances) ;

-          Commercial income was moderately higher at £1.5m as the result of ‘new sponsorship and preferred supplier contracts’ ;

-          The club made an operating loss (before transfers) of £7.2m (2013 : £7.4m) – profit from the disposal of players (which is not the same as ‘transfer fees received’) was again £1.7m, the same as the prior year ;

-          Staff costs were down slightly at £11.5m (2013 : £12.0m), of which £10.4m was wages/salaries - moreover this includes £0.3m of ‘severance costs’ relating to former employees  - once severance costs are added back, this implies staff costs equal to 88% of turnover ;

-          The above staff costs were spread across 161 employees (2013 : 146), of which 101 are on the football side – a quick ‘back of the envelope’ calculation would suggest that 75% of staff costs are accounted for by the first-team squad (say 25 players) and a further say five key coaching staff – on this basis it implies these 30 key playing staff earn approx £5k per week, which seems about right for a Championship club with no legacy Premier League ‘overhang’ ;

-          Non-staff costs (which must be approx £7m) are not broken down in enormous detail, but £2.8m relates to ‘matchday costs’ (presumably policing, stewarding, and maybe costs of goods sold), £2.2m to ‘site costs’ (presumably rates, power, security etc.) and £1.4m to ‘administrative costs’ ;

-          Intangible assets on the balance sheet (ie. The non-amortised portion of the cost of player registrations) increased by £3.3m, reflecting particularly the acquisition of Igor Vetokele just before financial year-end ;

-          Directors fees of £112.5k were paid (2013 : £150k), all of which was paid to a single director – since £150k is equivalent to £12.5k per month and 9 x £12.5k is £112.5k, then I’d be inclined to assume that this was paid to Martin Prothero for his six months work (with a further three months notice ?) – however this begs the question how Katrien Meire is being paid  since no other directors’ remuneration is disclosed ;

-          There is a new item in the accounts called ‘Interest payable on loans from ultimate parent company’ (ie. Staprix NV) – in other words the ongoing operating losses are being funded (as they must somehow) by the owner(s), but not on an interest-free basis  but at 3% ;

-          Although it does not seem very ‘exceptional’, the £89k for ‘pitch cover costs’ are included in ‘exceptional items ‘ ;

-          One of the most interesting issues concerns player transfers, or as they’re known in accounting circles ‘intangible fixed assets’ – the amount spent in fees during the year is very clear (£4.4m), and this relates mainly to the purchases of Messrs. Vetokele, Parzyszek, Nego and Ghoochannejhad.  As has been well-documented, the latter two were ‘in network’ signings and thus any fee (which may of course have been nominal) is effectively an intercompany transfer, however the rumoured fee paid for Vetokele (and to a lesser extent Parzyszek) really do appear accurate.  Whilst fans may question the long-term plan for these players within the network, £4m+ is a meaningful outlay by a Championship club without a Premier League parachute ;

-          The club only received £194k in transfer fees during the year which seems exceptionally low given it includes Stephens, Kermorgant, Button and Smith – admittedly as noted below there may be contingent payments to follow, but the sale (particularly of Stephens/Kermorgant) really does seem to have been driven by wages and a desire to earn at least some fee, rather than just let their contracts expire in the summer ;

UPDATE #2: The above instinctively felt wrong as much as it was clear from the accounts that £194k was the sum received on the sale of intangible assets.  Moreover I couldn't reconcile this amount with the 'profit on disposal of players' of £1,718k.

A review of the 2013 accounts shows a consistency of accounting treatment whereby the amount of the fees which offset any unamortised carrying value of the players sold (£194k for the year to 30 Jun 2014) is shown as cash received on the 'sale of intangible fixed assets' (because it is effectively only a balance sheet transaction), but any excess is accounted for as 'profit on disposal of players' (£1,718k) within 'cash from operating activities'.

I would thus (now) state with some confidence that instead transfer fees received (including an add-on relating to Jonjo Shelvey) were £1,718k + £194k = £1,912k.   Moreover it is likely some of this remained outstanding at year-end given the relatively large 'trade debtors' balance of £906k.  

Apologies for any earlier confusion! (the treatment really is not especially clear).

-          Contingent assets on players sold (if certain hurdles are surpassed eg. appearances) increased significantly from £3.0m to £4.2m – it is easy to assume this relates to part of Diego Poyet’s move to West Ham, but this may have been infeasible (he was out of contract after all) and anyhow belong in the following year’s accounts – instead the difference as suggested above may simply relate to the aforementioned four in-contract players who were sold for a fee ;

-          Contingent liabilities on players purchased are however only £0.4m ;

-          Between 30 Jun 2014 and the date of the accounts, player sales generated a further £891k – this in my view is more likely to relate to Poyet and Michael Morrison ;

-          £755k was added to the value of tangible fixed assets (stadium, offices etc.) which presumably includes some combination of new seats, undersoil heating, training ground improvements etc. (dependent upon the date of the works) ;

-          Amounts owed in bank loans/overdraft fell from £4.8m to £2.7m which must be seen as a positive development  - Richard Murray continues to personally guarantee an overdraft up to £650k (it’s not clear why he is still obliged to do so) ;

-          However as expected this was more than offset by an increase in ‘amounts owed to parent company’ which increased by £12.9m during the year – if my maths is correct, this can be explained in terms of : Cash outflow from operations £4.8m, Net transfer fee outlay £4.2m, Purchase of tangible fixed assets £0.8m, Bank loan repayment £2.1m, Interest £0.6m, Other/Rounding £0.4m – who’d be a football club owner ?;

-          The legacy loans owed to former directors remain at £7m as per the previous year ;

-          Finally between 30 Jun 2013 and the date of the accounts, agents fees of £327k were paid on new signings (this would include the likes of Bikey, Gudmonsson, Henderson etc.).

 A very brief summary for the less financially literate would thus be as follows :

-          The club continues to generate substantial losses ;

-          These losses are being financed by low-interest parent company loans (with no fixed repayment schedule) ;

-          The amounts owed to the bank have been cut substantially;

-          The average first-team player earns approx £5k per week;

-          Substantial transfer fees have been paid out for new players (£4m+ in the last fiscal year, which does not include Gudmonsson and others) ;

-          Transfer fees received for Stephens, Kermorgant, Button and Smith (plus an add-on for Shelvey) amounted to just under £2m.

Thursday, April 03, 2014

Red Army

“How did you go bankrupt?"
Two ways. Gradually, then suddenly.”

(Ernest Hemingway)

The audited financial statements of the club were finally posted to the Companies House website this week.

My summary follows with personal thoughts and interpretations in italics. 

All references are actually to the financial statements of Baton 2010 Ltd, the 100% owner of both Charlton Athletic Football Company Ltd ("the club") and Charlton Athletic Holdings Ltd ("the property investment subsidiary").

As a reminder the accounts are for the year ended 30 Jun 2013 and thus effectively comprise a summary of the first season back in the Championship.

  • The accounts were signed off by the auditors on 17 Jan 2014 - thus it seems the club waited until the last possible moment to file them  (31 Mar deadline) for reasons unclear.

  • The accounts confirm that Staprix NV acquired Baton 2010 Ltd (from CAFC Holdings Ltd) on 3 Jan 2014 - interestingly they note that Staprix NV is owned only 95% by Roland Duchatelet suggesting a 5% minority owner may exist (although it may well be a related party such as a family member or trust).  Nonetheless this is potentially a curious observation.

  • Turnover was 39.3% higher at £11.9m - this was explained as expected by a substantial 257% increase in 'central income' (ie. TV), even though the accounts additionally note that this was the first year of a new three year Sky deal which was valued 26% lower than the previous one.  Clearly the dwindling TV revenues in the Championship (as Premiership TV revenues skyrocket) provides a further challenge to any second-tier club seeking to break even.

  • Within turnover, matchday income was only 10% higher than the prior League One season - the average attendance was only 6% higher at 18,481 which must be a disappointment given the 9th place finish.  Indeed there seems a reasonable likelihood that matchday income in 2013/14 may be lower than the League One 2011/12 title season given current (lower) average attendances of only 16,248.

  • Within turnover, commercial income was 23% lower at £1.4m but this is explained by a change in the way the retail operation is managed (now outsourced to Just Sport), and is thus not meaningful.

  • The loss on ordinary activities was £6m, down slightly from £6.8m in 2011/12 - the failure to reduce the loss significantly in the Championship is simply explained by an increase in adminstrative expenses almost identical to the increase in turnover (both £3.3m).  The largest component of administrative expenses is of course staff costs which rose by £3.1m to £12.0m (including national insurance of £1.3m).  As a result, staff costs remain higher than turnover in 2012/13 just as they were in 2011/12 although the ratio has fallen slightly to 100.5% of turnover from 103.7%.  Either way this is a wholly unsustainable situation and perhaps pours some water on the idea that we were being run on a shoestring last season.  Moreover whilst promotion took us one step closer to the promised land of the Premiership, from a purely financial point of view promotion did not really improve the club's situation at all.

  • The average total number of employees (excluding temporary matchday staff) rose by 18 to 146 during the year, almost entirely on the playing, training and football management side (rising from 73 to 90) - the wage bill is not categorised separately between those on the playing side and those on the operational side, but if one assumes that those 90 playing staff (representing 62% of total staff) take a 80% share of total staff costs, then it implies average wages per individual of £95k although of course there will be considerable divergence between say the top ten or so best players/management and the rest.  A better interpretation may thus be as follows - to use some round numbers, if one assumes that there is a first-team squad of 15 'senior pros', 10 'junior pros' plus 5 key management personnel (Powell, Dyer, Hart etc.) and if one assumed that the 15 senior pros earn say £300k, the 10 junior pros earn say £100k and the 5 key management personnel earn an average of say £150k then these 30 earn a total of £6.25m.  If so this would leave £4.4m to be spread amongst the remaining 116 total staff (146 - 30) implying an average wage of £38k for the remainder.  Given this includes some well-paid operational staff like Martin Prothero, as well as a myriad of coaches, Academy pros, medical staff, commercial staff etc. (In addition to less well-paid admin staff) this doesn't appear an unreasonable set of 'guesstimates' to me.

  • The highest paid director was paid £150k - others have suggested this was Martin Prothero and I've no reason to disagree.

  • The interest burden on the club's debt was £360k, down slightly from £384k - the interest burden is not especially significant at just 3% of turnover but this is a little misleading given the vast majority of the debt is not interest-bearing (so-called 'friendly debt' owed to the holding company and former directors).

  • During the year £813k was paid to acquire player registrations - these would appear to largely relate to Lawrie Wilson and David Button, and almost certainly also promotion-related add-ons relating to transfers from the summer of 2011.

  • There was profit on players sold of £1.7m arising predominantly from contingent fees relating to Shelvey/Elliott/Jenkinson/Richardson/Hudson/McCarthy and Academy players, Palmer and Huddart (to Chelsea and Arsenal respectively) - it is frustrating to learn that Academy players that most fans wouldn't have heard of are being poached by the big clubs though with the likes of Poyet and Cousins making such a big and public impact at first-team level, hopefully this trend will slow.

  • Subsequent to year-end, the disposal of player registrations has generated income of £570k -  given the date the accounts were signed, this can't relate to Kermorgant, Stephens and Smith.  However it may include the likes of Button and some contingency payments on prior sales.
  • The carrying value of the club's tangible fixed assets (freehold and leasehold property) was revalued upwards following an independent review by £9.6m - this is probably an irrelevant fact (certainly not offering any cashflow benefit) reflecting rising property valuations across the region, although cynics will no doubt point out that this may be interesting news should the club be considering a move someday from The Valley.  The flipside of course is that the value of the land we might have to purchase or lease to build a new stadium will have increased too!

  • Short-term debts (due in less than 1 year) fell slightly as a result of the repayment of £250k due to Richard Murray (as noted in the previous year's accounts).  Bank loans and overdrafts remain at £2.2m of which Murray has guaranteed up to £800k.

  • Longer-term debts (due in more than 1 year) rose as expected by nearly £6m simply reflecting the need to finance the ongoing operational deficit above of exactly £6m.  Total debts due in >1 year now total a somewhat shocking £29.7m of which £2.5m are bank loans, £7.7m are former director loans, £15.4m are loans to the parent company ('owner loans') and £3.8m are grants received - the majority of long-term debt remains 'friendly' in nature but the figure will simply keep going up unless either the club breaks even or the new owners perhaps choose to inject equity rather than more debt (or convert one to the other).  I continue to remind fans however that the specific nature of the club's debts both now and in the recent past renders administration a highly unlikely possibility (why would owners and/or former directors push the club into administration thus almost guaranteeing a near worthless return?) - this fact is very clearly misunderstood by many fans.  On a different note it was good to see that £1.6m of the longer-term (and 'less friendly') bank loans were repaid during the year, reducing the total outstanding to £4.2m (paying a floating rate of LIBOR + 2.5 to 3%). 

  • In addition to the repayment of Murray's £250k short-term loan above, a further £880k of longer-term loans to Murray were also repaid - per the previous year's accounts, £1.55m of Murray's loans became repayable upon promotion to the Championship and it appears that over half of this amount due was indeed repaid.  If my calculations are correct therefore, Murray was repaid a total of £1.1m during the year and moreover in Jan 2014 was of course relieved of his 10% stake in CAFC Holdings Ltd, the previous ultimate parent company of the club.  In short the club's financial obligations to Murray remain significant but reduced, whilst Murray's quasi 'obligation to the club' (via his equity stake) has been removed as of January.
So in short despite promotion to the Championship, limited investment in new players and a respectable 9th place finish, the club's finances remain perilous with a £6m running annual loss and long-term debt of £30m. 

It is not surprising therefore that Duchatelet might wish to adopt an alternative approach, and it is one which we ought to cautiously welcome if only because the approaches that came before have patently failed to deliver stability. 

Clubs like ours can deliver footballing success with a degree of financial stability (think Brighton, Burnley, Swansea) or without it (think Portsmouth, Leeds, QPR). 

As a fan with hopefully many more decades of support in front of me, I'd personally rather wait longer for a shot at the former than recklessly target the latter. 

Early signs suggest Duchatelet feels the same way.

Wednesday, March 12, 2014

Chris P. Chilly Beef

Reading some of the emotional outpourings of grief from a meaningful majority of Charlton fans yesterday, one might initially have concluded Chris Powell must have died rather than merely lost a relatively well-paid job.

He departed as one of the ten longest-serving managers out of the 92 clubs, a fact both remarkable and ridiculous for a manager still rightly described as a ‘rookie’.

At the time of his appointment, I vociferously considered his success as a Charlton player and his all-round good character as being obviously true but irrelevant when assessing his suitability for the job. 

However it was precisely those qualities which persuaded Tony Jimenez to take a risk, and although I thought him crazy at the time, with the full benefit of hindsight it was an inspired move.

His familiarity helped rally the fans at a difficult time whilst his likeability was key to motivating a newly-built team in 2011/12 to win 30 out of 46 matches.

The following season was something of a conundrum – investment in the team was limited but then again the recently accumulated squad had masqueraded as a Championship team in League One.

Our campaign threatened to drift into a relegation scrap much as the current one has, but two pivotal wins (Cardiff and Bolton at home) reversed the momentum completely at vital moments.

Whether you put those turnarounds from two goals behind down to luck, opposition incompetence, managerial genius (or likely some combination thereof), their impact was undeniable.

Those two games plus the seven games that followed each generated a total of 33 points, more than half of our entire season’s total from sixteen games.

It is nonsense to suggest we ‘almost’ made the play-offs – we accumulated 18 points from our final eight games and still finished effectively four points short.  It was a virtual mathematical impossibility several weeks before the season ended.

Importantly however the general consensus that we had almost done so worked against Powell’s best interests, implying to the now cash-strapped (former) owners that the squad was stronger than it really was in reality last summer.

Whilst the squad clearly wasn’t strengthened last summer, it is hard to argue it was materially weakened either – the ageing Fuller (who started only 20 games) and the usually crocked Haynes replaced by Sordell and Church, with the remaining ins and outs largely being insignificant ‘noise’ around the edges.

If one was being harsh therefore, one might suggest Charlton’s poor form this season (at least until the takeover) was entirely consistent with last season’s ‘conundrum’ ie. we rode our luck then, and we have now been ‘found out’.

Unfortunately for Powell overachieving this way (whether by luck or otherwise) again somewhat paradoxically did not serve him well in the eyes of Duchatelet given how things have subsequently transpired this season.

With a wage bill firmly in the League’s bottom half, an accumulation of 55 points would have represented a reasonable enough return last season.

However looked at with a fresh pair of eyes like Duchatelet’s (unaware that our points total last season almost certainly flattered us), it would not be hard to see why he would immediately have grave concerns about Powell’s abilities, even before any conversation about his plans for player recruitment etc.

The new owner may have been told (politely knowing Powell’s way) that the ‘players aren’t good enough’ but he might have looked at last season’s table and the virtually unchanged squad, and simply have disagreed. 

Even worse when handed a half-dozen new players in January, Powell continued to largely prefer the incumbents.  It’s not hard to see why the relationship became untenable.

The agricultural football dished out on a regular basis would not have helped his cause either, even if The Valley pitch is suitable currently only for agriculture.

Indeed it seems unarguable that Powell produced teams which were functional rather than stylish, even during the record-breaking 2011/12 season. 

It is unclear whether this was an approach designed to fit the squad at his disposal (implying he could adopt a passing style with different players), or whether it is the only approach he is comfortable with.

Notably during the disastrous second half to 2010/11, he clearly tried to get his newly inherited team to get the ball down and play but it was quickly apparent they weren’t able to effectively.

He certainly seemed trapped at times in his naturally risk-averse straitjacket, an observation which if true would represent an obvious weakness.  The very best managers are flexibly-minded.

However as an inexperienced manager he should be judged less severely than more seasoned peers, and it’s possible (as many believe) that he will flourish into one of the very best over time.

Some fans care little about style and only about points but speaking personally, as I get older I find the former is just as important as the latter if not more so. 

With my free leisure time away from work and family responsibilities extremely limited, I value seeing good football significantly more than I used to. 

I think a Board will naturally be more patient with a struggling manager adopting a more attractive progressive playing style, because the ‘optics’ are better (in short they can see what the manager is trying to achieve more readily).

The fans were patient because they understood the limited resources and because it was well, Chris Powell.

Unfortunately when a more direct or conservatively set-up team plays poorly, you risk performances like Sunday’s which are almost impossible to defend in the circumstances.  Even some of the most ardent Powell supporters must have had their heads turned.

I’m conscious of course that I haven’t yet mentioned Duchatelet’s plans for player recruitment yet, particularly those borrowed or acquired (perhaps temporarily) from his own network of clubs.

It seems strange to fear becoming a feeder club when so far we have only been fed by Standard Liege.  If it’s a problem, I think it’s only one for the distant future.

It's worth remembering we’ve always been a ‘feeder’ club, just for different clubs not one (Liverpool, Arsenal, Chelsea......)

Intereference in team selection is clearly unworkable, but I have no problem with a manager having only very limited input into recruitment given how short their average tenure is. 

This is the much-feared but actually quite sensible ‘European model’.

At the other extreme, an absolute managerial veto on sales (for example in the case of Stephens or Kermorgant), or an effective open cheque book for purchases is likewise unworkable.

In short there is a huge misalignment of interests – when was the last time you heard any manager state that he was happy with his current squad?

It’s certainly possible that Powell was denied any say (let alone veto) whatsoever which he may be have considered intolerable, but conversely being told to get on with coaching, preparing and selecting from the squad he is given is surely not entirely unreasonable either, even if it’s uncommon?

Fans who demand differently seem detached from the financial reality of the club losing perhaps £5-6m in the Championship. 

Berating the person who is stepping up and funding the deficit whilst daring to try an alternative model surely deserves some respect (even perhaps from Powell, though we aren’t privy to the exact nature of their conversations).

The club tried the ‘wealthy fan model’ and it ultimately failed, and then we tried the ‘wealthy non-fan fronted up by a couple of iffy geezers model’ and that clearly failed too.

There’s no guarantee the ‘club network’ model will work either but I at least am prepared to give it a try.

It’s a shame Powell isn’t coming along for the ride but there’s two sides to every story and I suspect it didn’t have to be like this. 

The relationship was clearly chilly and each party had its beef. 

Some mutual compromise might have gone a long way.

Sunday, January 05, 2014

Cup Double

With Charlton having already played Oxford at home then Huddersfield away in the opening rounds (for us) of the Capital One Cup this season, what are the ex ante chances (see Note 1) of the exact same thing happening in the FA Cup? 


Well if my maths is right, it can be estimated as follows:


- probability of Oxford reaching the Third Round: 0.25 (see Note 2)


- probability of Charlton drawing Oxford at home in the Third Round: 0.008 (see Note 3)


- probability of Huddersfield reaching the Fourth Round: 0.4 (see Note 4)


- probability of Charlton reaching the Fourth Round (having been drawn at home to Oxford): 0.73 (see Note 5)


- probability of Charlton drawing Huddersfield away in the Fourth Round: 0.016 (see Note 6)


Therefore a reasonable approximation of the probability of playing Oxford at home then Huddersfield away in the first two rounds of the FA Cup after it has already occurred in the Capital One Cup is:


0.25 x 0.008 x 0.4 x 0.73 x 0.016 = 0.00000934 or 107,065/1


To put this in perspective this is less probable than tossing a coin 16 times and getting consecutive heads, or less probable than selecting seven random cards from a shuffled pack and each card being from the same suit.


Indeed whilst the probabilities will obviously be different for any given three club combination, I wonder if it has ever happened before?



1.       ‘Ex ante’ in this context means the estimated probability before the First Round of the FA Cup (featuring Oxford) had been drawn.

2.       Given Oxford United are riding high in League Two, before the First Round draw is made (see Note 1), I estimate the probability of them winning their First and Second Round ties to be 50% respectively, and thus 50% x 50% = 25% or 0.25.

3.       There are 63 other teams in the FA Cup Third Round draw, and an equal chance of being drawn home or away to any of them ie. 1/(63 x 2) = 0.008.

4.       As a midtable Championship side, this is a simple estimate of Huddersfield’s ex ante probability of reaching the Fourth Round in any given season – given they were given a relatively straightforward tie (Grimsby away), their actual probability increased significantly but this is not relevant for the calculation which considers the position ex ante (see Note 1).

5.       Current bookmakers odds of approx 4/6 imply a 60% probability (ie. 6/10) that Charlton win the tie at the first time of asking, whilst draw odds of 14/5 imply a 26% probability (ie. 5/19) that the tie needs a replay.  If a replay is required, I estimate the odds that Charlton still win the tie from that position (possibly after penalties of course) to be 50%.  Thus the estimated probability that Charlton reach the Fourth Round is 60% + (50% x 26%) = 73% or 0.73.

6.       There are 31 other teams in the FA Cup Fourth Round draw, and an equal chance of being drawn home or away to any of them ie. 1/(31 x 2) = 0.016.

Friday, January 03, 2014

I'll Be Your Friend, Roland

"I'll be your friend, Roland." (Janet St. Clair, Grange Hill - circa 1985)

Perhaps the longest drawn out negotiation since the Louisiana Purchase in 1803 has finally been concluded.

The euphoria is such that I've been persuaded to post my own musings here for the first time in nearly a year. 

There are several reasons for my lack of blogs (many unrelated to the club), but it's fair to say that the approach of the previous owners was relevant also. 

They threatened to drain the club of its soul in much the same way as a succession of poor managerial appointments had done in the post-Curbishley era. 

However it had initially promised so much. 

As I espoused in a lengthy post in Jun 2011 ("CAFC: The Movie"), I think there was a viable and genuine plan to develop the club (which I loosely termed the 'Moneyball' approach). 

This plan was evidenced by an excellent set of summer 2011 signings (generally young, hungry and with potential resale value) combined with a continued investment in the Academy. 

I considered the appointment of Powell to be reckless but importantly it got the fans onside, a not insignificant consideration given what had come before. 

However as I wrote at the time, "We assume that the funder’s expectation is that this investment will make money at some stage and that means in real hard cash, not merely on paper.

Even a fool would surely understand that (barring a miraculous double promotion), an investment in a League One club would be loss-making on at least a 3-year view. 

Meaningful operational losses even at Championship level appear structural (for reasons admittedly I don't understand), and as perhaps they didn't fully appreciate at the time, the clubs we compete with aren't exactly standing still either. 

It's unclear whether the apparent breakdown in the relationship between owners and 'the funder' rested upon falsely presented assumptions at the outset. 

Either way with hindsight the plan was fundamentally unstable and liable to fail long before completion.

Tony Jimenez et al thus ended up akin to a homeowner with grand plans to extend and renovate a property, but with no means to finance said development amidst crippling outgoings. 

Meanwhile the garden doesn't drain properly. 

The plan thus having become untenable, a sale to what I might cynically describe as a 'greater fool' became unavoidable. 

Meanwhile the ridiculous lack of boardroom communication remained inexcusable - in a social media-driven world that seemingly can't stop talking, the owners remarkably never found their voice. 

Regardless of the challenges behind the scenes, this was illogical.

With a vicious cycle well under way (lack of investment in the squad leading to poor results), time increasingly became of the essence rather than price. 

In short they were trapped in a hole of their own making.

Mere fans like me are not privy to any implicit or explicit financial agreements that may exist between the owners and 'the funder' but today's announcement may well not signal the end of this saga for them (happily it's no longer our problem). 

We will perhaps never know if they were ultimately 'made whole again' by the transaction, but our best hope of knowing lies in the 30 June 2014 accounts, unlikely to be filed before Q1 2015. 

Likewise we will have to wait to learn about other important issues, such as the treatment of the loans to the previous directors (who despite their position as 'fans', would have been well within their rights to play hardball regarding their debt seniority). 

As for Roland Duchatelet, we frankly don't know much about him but at least the source of his wealth seems clear whilst his political activism suggests someone unafraid of communication. 

Fans will be looking for evidence of his ambition in the January window yet with relegation a clear risk, he may well pull forward future investment, lulling us into a false sense of optimism.

 I can broadly identify four possible motives for the purchase: 

1. Ego or Fun:  He is probably too bright to do something crazy, but this potential motive is in my view the most dangerous scenario for the club. 

For every Tony Bloom or Steve Gibson, there's a Vincent Tan or an Assem Allam eager to create a different kind of legacy.

Premiership riches (and importantly the glamour) appear tantalisingly achievable yet we compete every year with similarly bankrolled clubs, some whose financial wheels are greased by parachute money.  

To give it some perspective Leicester City, Nottingham Forest and Sheffield Wednesday were last in the top flight 10, 14 and 13 seasons ago respectively. 

2. The 'multi-club' model: The concept isn't particularly new (for example ENIC owned stakes in multiple clubs), but it has been brought to the forefront again most notably by the Pozzo family which owns Watford, Udinese and Granada. 

The Watford experience would seem to suggest the potential use of effectively a large single pool of players, initially to benefit the 'junior' club in the arrangement (in this case Watford) for the longer-term benefit presumably of the two more senior clubs. 

Such an arrangement requires not only the judicious use of the loan system and 'fudged' permanent signings, but also a manager willing to agree to such an arrangement. 

In this sense Gianfranco Zola might have been considered a willing stooge (Powell might be less accommodating). 

However whether this model is preferable to utilising the existing loan/transfer system (albeit with a larger budget for fees and wages) is far from clear. 

Indeed it is notable that Udinese have fully 30 players out on loan, of which 24 are at 'non sister' clubs (including Matej Vydra now at WBA, having previously starred at Watford). 

In short maintaining such a large centralised squad is expensive, especially if some (like Vydra) are playing 'below their station' and demanding to be paid accordingly. 

Unfortunately for Charlton, with the exception of perhaps a few fringe Liege players, it's hard to imagine that any more of the players within Duchatelet's group would be playing 'below their station' at Charlton. 

Moreover the relative hierarchy of clubs within the club is by definition fluid - for example Watford get larger crowds than both Udinese and Granada, yet play in the second tier of its domestic league. 

The money available upon promotion however would dwarf both of their sister clubs. 

So the key therefore must be to understand the overall goal of the group owner - if it is to maximise group earnings then using the likes of Udinese/Granada/Liege to give Watford/Charlton a cheap way to be leapfrogged into the Premiership has some obvious merit. 

However what happens once they get there? A juggling act with each club's fans feeling entitled to special treatment no doubt. 

In terms of other potential synergies between group clubs, whilst I'm sure a management consultant would happily go wild with Powerpoint, in truth they are somewhat limited given cross-border complexity (despite the very high fixed costs of running a club). 

One might imagine the possibilities of say a centralised online operation for tickets/retail, or the benefits of a centralised scouting system for example. 

Negotiating power for commercial deals would be enhanced when representing several clubs, but it would hardly be formidable in the face of the type of global brands all owners crave. 

Yet if the owners wish to maintain the option to exit from any of the clubs if a suitable offer is received in short order, then does it make sense to make the clubs less independent operationally than they otherwise would be? 

3. Community: It is notable for example that Ujpest, Carl Zeiss Jena and now Charlton are clubs whose best days are in the past, yet they have a sufficiently proud history to tempt an old romantic like Duchatelet perhaps? 

His political activism and writings suggest he's a relatively cerebral type so perhaps he just loves football and will get a kick out of getting the respect from fans and the media for doing 'the right thing' (in this case putting each club on a stable footing in an inherently unstable industry). 

If so then this will most likely resemble the fondly remembered period roughly from the return to The Valley in 1992 to relegation from the Premiership in 2007, when Alwen/Murray/Simons et al pretty much did just that. 

This motive may be fanciful however - there are plenty more worthwhile causes for the philanthropic to support.

Then again children are demanding and stressful financial liabilities, yet it doesn't stop families from willingly accumulating several of them.  

4. A quick turnaround then sale: This was basically the Jimenez model until it was clear the promotion to the Premiership might take rather longer than expected. 

Given the 'structural' nature of the financial losses in the Championship, it is hard to see how even stabilising the club in midtable (which itself will require meaningful further investment), will suddenly make us an attractive proposition for the next potential buyer. 

The only way to engineer a profitable sale (ie. one in which the equity is valued materially above zero) is to achieve promotion but then immediately sell! 

As the extraordinary debts revealed at Bolton Wanderers demonstrate, being a supposedly well-run Premiership club for eleven consecutive seasons still rendered them a financial basket case. 

Richard Murray would probably concur (but he just never quite found the right moment to mention it).

Wednesday, January 23, 2013

Money for Nothing

"What We Gonna Do When The Money Runs Out?" (David Gray)

The audited accounts of the football club and its owner (Baton 2010 Ltd) to 30 Jun 2012 have been published on the Companies House website rather earlier than expected. 

As a reminder, the club (Charlton Athletic Football Company Ltd) is 100% owned by Baton, which in turn is 90% owned by CAFC Holdings Ltd (the mysterious BVI entity) and 10% owned by Richard Murray.

As a result the accounts of Baton consolidate the accounts of the football club (as well as those of Charlton Athletic Holdings Ltd, an additional and not very relevant property-related subsidiary).

Here is a summary of the accounts, with my personal observations in italics:

  • Turnover was only 2.4% higher than in 2010/11 at £8.5m, despite the record-breaking performances on the pitch - as I've mentioned here before, attendances were poor last season in my view and indeed ticket/matchday income was approx £600k lower in 2011/12 compared to 2009/10 (the 'play-off' season) despite near identical average attendances (the difference must presumably be explained by heavy discounting).  This aspect must be disappointing to the Board and does not seem to have materially improved in the Championship;
  • By comparison, operating expenses increased by 10.6% to £16.0m, of which wages/salaries accounted for approximately half (and which in turn increased by 17.8%) - as a result the operating loss increased from £6.1m to £7.5m, and this was only partially offset by £1m profit on the sale of players and other contingent payments relating to transfers (Elliott, Shelvey and Richardson) - in short, the operational finances remain a horror show even though the £16m expense line is lower than it was in 2009/10.  Whilst turnover will be higher in the Championship, so presumably will be the payroll (which at 100% of turnover in 2011/12 is eye-wateringly high).  Meanwhile the 17.8% increase in wages is indicative of the investment made in the playing squad to secure promotion, although given how much stronger the squad became perhaps this was actually indicative of how well the club 'wheeled and dealed' (ie. the increase wasn't even higher);
  • The increase in wages/salaries however can partly be explained by 'contractual bonuses' of £658k upon promotion - if one dared to suggest that 75% of this was paid to the players rather than management, then it implies an average of £20-25k per first-team squad member;
  • During 2011/12, £818k was paid to acquire players registrations (ie. transfer fees) - as we know, most of our transfers these days have 'undisclosed' fees but this provides some colour, although this £818k only includes the upfront cash elements of any transfer.  Meanwhile various websites show the transfer date of many of our 2011 summer signings as being either 30 Jun or 1 Jul, suggesting a degree of uncertainty over exactly which financial year they apply to.  However, my best guess would be that these fees relate to Messrs. Wiggins, Morrison, Hamer, Smith, Clarke, and Haynes ie. pretty good business;
  • Bank loans and overdrafts (payable within one year) increased by £700k - meanwhile bank loans payable in more than one year decreased by £1.5m - it was noted in the 2010/11 accounts that £1.0m of bank loans were payable in less than one year, so given this was indeed repaid then bank loans/overdrafts effectively increased by £200k.  This is perhaps curious given banks are reportedly no longer financing football clubs;
  • Totally unsurprisingly, amounts owed to the parent (ie. Baton) has increased materially by £7.3m, an amount roughly equal to the operational loss above (net of transfer fees) - this is perhaps the most important line in the accounts and at least partly confirms how the club is financing itself.  We don't know of course how Baton's parent (CAFC Holdings) is financing itself, suffice to say that it is rather important to the club that it does indeed do so!;
  • Of the aforementioned bank loans and overdrafts outstanding, £2.2m is at a fixed rate of 7.2% whilst £3.5m is at floating rates of 2.5-3% above base rate - if we can hopefully assume that the Baton/CAFC Holdings debt is 'friendly' debt then the bank loans and overdrafts are the debts to worry about, and they are all repayable within five years - during the year, £405k was paid in interest;
  • The club owes HMRC £1m within one year - this is not unusual given the lag between paying staff and paying PAYE/NI, but it is not hard to imagine a scenario where the ability for a company (losing over £500k per month) to actually write out the cheque when due becomes problematic (of course HMRC are hardly renowned for their patience);
  • Up to £778k might be payable if members of the squad reach certain milestones (appearances etc.) - conversely up to £3.8m might be receivable for the same reason - there has been some speculation whether Jonjo Shelvey's England cap in Oct 2012 might trigger a payment, but if so one imagines it might have been material enough to constitute disclosure as a 'subsequent event' (it wasn't).  It is not clear therefore on what basis the full £3.8m might be earned (hopefully not Arsenal or Liverpool winning trophies);
  • Of the £4.15m owed to Richard Murray at 30 Jun 2012, £1.55m has now become payable given promotion to the Championship (and of this amount, £250k is payable within one year) - he is also at 30 Jun 2012 personally guaranteeing the bank overdraft up to £800k - we will have to wait until next year's accounts to see whether this repayment was indeed made or perhaps deferred/restructured.  Meanwhile it is worth recalling that the loans from other former directors are not repayable until promotion to the Premier League - given the ongoing losses at the club and Murray's continued involvement, it is not entirely clear who had the better deal;
  • Whilst the term 'debt' on a football club's balance sheet is not entirely clear-cut (it is vital to understand who it is owed to and their incentives), it is worth noting that total amounts owed in 30 Jun 2012 of £37.0m compares to £30.8m two years earlier - thus to believe that the club is in a stronger position today than it was then (prior to the involvement of the current owners), then one must conclude that the structure of that debt is 'safer' from the club's point of view, because it is unquestionably materially higher.  Not surprisingly the accounts are only prepared on a 'going concern' basis subject to the ongoing support of the club's bankers and CAFC Holdings;
  • Since 30 Jun 2012, £661k has been spent acquiring player registrations (ie. transfer fees) - this was somewhat higher than I anticipated and is not easily explained.  Initially I thought it might relate to instalments due on existing squad players (perhaps by virtue of gaining promotion), but the note is not worded that way.  Instead I presume it relates to the transfers of the likes of Wilson, Button etc.  Either way, it seems high and if interpreted correctly rather flies in the face of the commonly-held view that no investment has been made in an already big squad.
So in short no huge surprises but important to have it confirmed how the club is financing its losses.  It would be wonderful to obtain the accounts of CAFC Holdings but alas the British Virgin Islands has rather different disclosure requirements to the UK.

Looking back, perhaps it was indeed true that the club could never have been sustainable in League One, but a wage bill of over £8m was several times the turnover of some of the sides we played last season.  With all due respect to our exceptional achievements last season, a degree of perspective is nonetheless due.

This season whilst matchday turnover will be moderately higher and TV revenue substantially higher (albeit from a base of just £1m), it is hard to envisage the 2012/13 operating loss being much smaller given no substantial increase in attendances and the presumed relatively high wages of the likes of Fuller, Kerkar and the Premiership loans.

A final thought: the important line just below 'operating loss' on the P&L account happens to be 'profit on disposal of players' - with a few days left in the transfer window and given the above ,will the owners 'stick or twist'?

Tuesday, January 01, 2013

Brave Herts

Vicarage Road is far from being the most attractive away ground, but for me it represents a rare chance to see the Addicks without spending at least two hours on the road.

In fairness it could actually be quite a pleasant modern stadium (not dissimilar from The Valley infact), if only they'd construct a perfunctory stand to replace the supporter-less eyesore which covers one entire flank.

Then again if they had more seats to fill the club might have to reduce the rather ludicrous prices (£26-£31 for adults), which puts our own much more favourable pricing scheme in perspective.

Nonetheless as I tend to do these days, I opted to sit amongst the home fans given a primeval dislike of the behind-the-goal view. 

Chris Powell is at heart a highly conservative manager and his team selection reflected it - this is not a criticism incidentally, but merely an obvious observation.

It's clear that his favoured players are not necessarily the 'best' players, but those that he trusts to obey instructions and to 'do a job'. 

Bradley Pritchard, Lawrie Wilson, and Johnnie Jackson for example will never win any footballing talent contests, but it's clear that he trusts them unquestionably.  

He may have been surprised however by Gianfranco Zola's team selection, the mercurial Fernando Forestieri and Alex Geijo preferred to Matej Vydra and Troy Deeney, despite an impressive win at Brighton on Saturday.

Having played under the original Tinkerman (Claudio Ranieri), it seems he can't help tinkering himself - surely he couldn't have prioritised the FA Cup tie at Man City over a far more important Championship game?

Either way, although Vydra and Deeney would enter the fray before the end, it smacked of 'Football Manager' style decision-making, ironic given the club's shirt sponsors.

Watford took the lead early on however seemingly justifying their manager's selection, a weak shot was strangely only parried by Ben Hamer into the path of Daniel Pudil who fired home.

Despite the soft goal, Charlton were firmly in the match and were dominating midfield (not a common occurrence in truth), the energy of Pritchard especially noteworthy, as well as neat interplay along the right flank between Wilson and the dependable Chris Solly.

A cheeky Johnnie Jackson handball was correctly spotted by the assistant referee before he fired home, but minutes thereafter Charlton were on level terms when the skipper's corner was inexplicably
finished by Tommy Hoban.

Seemingly shell-shocked, Watford were soon behind when a rampaging Cedric Evina fed Bradley Pritchard and his delicate chipped cross was nodded in by Yann Kermogant. 

An early second-half onslaught was understandable and indeed it was almost entirely one-way traffic between the interval and Geijo's delightful goal which seemed to put the game beyond the subdued Addicks.

One can inherently dislike Watford's use of the loan system and specifically its tie-ups with Granada and Udinese (as well as wondering how much freedom Zola really has in team selection), but for this brief period the technical quality on show was highly impressive and unmistakenly 'continental'.

Forestieri was involved in all of their best moves, and whilst he had not exactly won the hearts of the travelling fans with his first-half handball, he is a fabulous talent.

At 3-2 and with Ben Hamer having already intervened impressively twice, one feared a 5-2 or 6-2 hammering but a stroke of luck totally changed the momentum of the game, and Charlton's far greater team spirit ensured there would then only be one winner.

Some great work by the ever-impressive Fuller set up the pinball which led ultimately to the goal, and the degree to which Watford heads dropped was tangible. 

That's the problem with loan players as we know only too well - they're not so great when things aren't going their way.

Most Charlton fans would probably have taken a point at this stage but Jackson's bullet header from a corner he might ordinarily have taken was the icing on the cake.

There was still the best part of 20 minutes left (including injury time) but other than a tight offside decision against Vydra, Hamer's goal was rarely troubled again.

A massive win without doubt which leaves Charlton almost equidistant between play-off and relegation places.

Our home form hasn't turned as I hoped it would, so a season of midtable consolidation would represent a successful outcome from here. 

However just as the much-needed Cardiff win proved the catalyst to a nice run of results, perhaps this similarly crazy result will do the same.

Here are my ratings:

Hamer 8 - would have been 9 without his questionable handling on the first goal;
Solly 8 - possibly slow to react to the first goal, but rock solid otherwise;
Evina 7 - neat work for the second goal; a more dynamic option than Kerkar or Seabourne;
Cort 5 - not his most comfortable afternoon; Watford's movement pulled us part in that second half spell
Dervite 5 - given a torrid time by Forestieri after half-time and oddly not even yellow-carded for the penalty;
Wilson 7 - you can see why Powell's likes his athletic and dependable approach;
Stephens 7 - always tried to 'do the right thing' and generally battled away in somewhat uncharacteristic fashion;
Jackson 8 - Watford's midfield has surely had better afternoons, but he never made it easy for them;
Pritchard 8 - amazing energy (worth focusing on him solely at times as I did just to appreciate it); technique can be woeful at times though;
Kermogant 6 - didn't win his usual share of headers but his late defensive duties emphasised the role he plays, particularly away from home;
Fuller 8 - led the line brilliantly; his first touch can be sublime and his unpredictability riles defenders.