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.