Friday, July 29, 2011

Investment Trust

In my last post, I sought to explain how the club might be financed and my thoughts on the likely strategy of the new owners.

Since then there has been considerable transfer activity which I would argue (albeit less than impartially) has generally been consistent with these predictions, although I will elaborate further below.

However amongst the understandable optimism at the direction in which the club is heading, one key question continues to trouble what extent has there actually been ‘significant investment’ so far?

If the answer (as I believe) is ‘to not much extent at all’ then should we be excited (because more investment must surely be coming), or disappointed (because it implies the new owners do indeed intend to try to have success by simply being ‘smarter’ than the rest, my initial conjecture)?

‘Investment’ in this context can be viewed in terms of both upfront net cash outlay in the form of transfer fees, as well as contractual commitments to pay wages over some period.

Regardless of the above, the new owners must also fund the ongoing operational deficit although this was by definition a 'given', and the significance of any investment must be seen as an addition to this.

Considerable estimation is inevitable given the extent to which our transfer fees have been ‘undisclosed’, but some reasonable assumptions can be made given comparable (disclosed) transactions, common knowledge about typical League One wage levels, and Richard Murray’s 2010 revelation that average wages were ‘£100k pa’ excluding the best-paid trio.

In terms of transfer fees, we have sold one player for cash (Carl Jenkinson). Media reports that we received £1million seem reasonable, especially when compared to the £1.7million received for the considerably more experienced Jonjo Shelvey.

In terms of fees paid for contracted players we have signed, I would estimate that we have paid the following fees upfront, with the usual add-ons presumably applying in due course:

- Dale Stephens £250k
- Danny Green £150k
- Rhoys Wiggins £250k
- Michael Morrison £250k

In other words, I believe that we have actually had a net cash inflow of a hundred grand, thanks to the sale of Jenkinson.

However given that Bradley Wright-Phillips was signed under the new ownership, then his fee would presumably take us moderately into the red in terms of transfer fees since the club changed hands.

If Paul Benson had joined Notts County however, then this would no longer have been the case.

With regard to wages, I would estimate that the wages of the players no longer on the payroll amounted to the following:

- Therry Racon £300k
- Jose Semedo £300k
- Kelly Youga £300k
- Christian Dailly £200k
- Jonathan Fortune £150k
- Kyel Reid £125k
- Michael Stewart £100k
- Tamer Tuna £40k
- Alex Stavrinou £40k
- Ross Worner £50k
- Carl Jenkinson £40k
- Joe Anyinsah £100k
- Miguel Llera £100k
- Alan McCormack £100k

To this list one can presumably also add Simon Francis who is likely to leave (£100k est.), resulting in a reduction in the total playing wage bill of £1.945million pa.

It is also worth remembering that the club had already seen Messrs Abbott, Fry and Martin leave the club somewhat prematurely, and their wages are not included above.

Meanwhile all but one of the loan players on the club’s books at the end of last season have left without re-signing, although it is quite likely that a similar number of loan players will arrive during August after the Premiership clubs finalise their playing squads, so I will ignore them for the purpose of this analysis.

In terms of players added to the payroll during the summer, I would estimate their wages to be as follows:

- John Sullivan £100k
- Danny Hollands £150k
- Bradley Pritchard £50k
- Nick Pope £35k
- Paul Hayes £150k
- Cedric Evina £150k
- Mikel Alonso £200k
- Matt Taylor £150k
- Ruben Bover £50k
- Dale Stephens £200k
- Danny Green £150k
- Rhoys Wiggins £200k
- Michael Morrison £200k

The above players would thus add only £1.785million pa to the wage bill, a saving of £160k pa compared to last season.

However it is again appropriate to include Wright-Phillips, whose wages are likely to be in excess of the above £160k pa, whilst it is reasonable to assume Johnnie Jackson has received a payrise in his new contract.

Again it is only Benson's personal decision to stay at Charlton which ensures the payroll is at best only marginally higher today.

Jeff Vetere is clearly a key player in all of this and he must be drawing a reasonable salary, but his remuneration is likely to be somewhat aligned with transfer market profits too.

In short, the extent to which we can judge whether ‘significant investment’ has been forthcoming, is somewhat distorted by the somewhat fortuitous emergence of Jenkinson as a Premiership target, as well as the ending of the three costly contracts struck during more heady times.

Both of these events would have occurred, regardless of new ownership although in fairness to Powell, he offered Jenkinson a more prominent role in the 'shop window'.

Thus I would argue that there has been only a marginal net increase in the playing wage bill, although under previous ownership it is likely that the decision would have been made to effectively ‘pocket’ the savings from Semedo, Racon and Youga.

Of course like everyone else I am excited by the fresh look of the squad for the forthcoming season, but I’m not yet ready to fawn over the financial might of the new owners, because frankly it hasn’t yet revealed itself.

At best they have so far stabilised the finances, enabling the squad to be greatly ‘refreshed’ without the continual pressure to make do with less.

This may in itself be a cause for considerable further optimism depending on their incentives from here.

Indeed one imagines they may be saving up some financial firepower for the January window if Powell has delivered us into a play-off spot at least, surely the minimum expectation.

As I postulated in my last post, I expect them to continue to try to be smarter than the competition, and the nature of some of the signings so far reflects this view, containing plenty of scope for further improvement and ‘value realisation’.

Indeed perhaps only Alonso, Taylor and Hayes might be deemed past their best, although hopefully with plenty still to give.

If one viewed the current squad as a diversified investment 'portfolio', then this trio are 'bonds' (alongwith the likes of Doherty and Jackson), whilst the others are 'equities' or even 'venture capital' (eg. Bover, Pritchard).

The former group should provide predictable returns with little upside, whilst the latter may be as likely to disappoint as surprise to the upside, perhaps explosively so.

In some ways if you accept the above analysis, then perhaps it takes some pressure off Chris Powell’s shoulders, suggesting he has been given a much changed squad, but not a more expensively constructed one.

It's his job from here to ensure the bonds don't become 'distressed', to leverage the equities to just the right degree to generate optimal returns, and to nurture the venture capital to ensure a positive return on investment (Jenkinson was the perfect example of how to achieve this).

Charlton’s odds to win League One have come in from approximately 14/1 to 8/1, which just goes to show just what impact some bustling transfer activity can have, even if it ultimately amounts to little more than window-dressing.

And this was pretty much the verbose point I tried to make in my last post, if you sit back and think about it.

Up the Addicks!