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'?


At 11:16 PM, Anonymous Chris said...

Great summary NYA

At 11:45 PM, Anonymous Blucher said...

Very interesting and thank you for an excellent summary.

No surprises and, in one sense, the minuscule increase in turnover is the most disappointing figure. It's hard to get additional people through the gate these days ( unless you charge them a fiver ) and the League 1 level of away support obviously didn't help. At least the bigger away followings in the Championship are bringing in additional revenue, as is the extra TV money, although I expect they will be gobbled up by higher wages and costs generally,

A similar level of loss next year, I expect. Probably not untypical for the Championship.

At 8:56 AM, Anonymous Anonymous said...

For the benefit of someone who doesn't really understand all this financial jargon.
Can you answer these questions.

1) were we skint and in danger of administration? (as certain other CAFC posters have been saying for months)

2) Are we skint?

3) Assuming we remain in the Championship this season. Will we be financially strong enough next season to mount a promotion challenge?

And to finish. Our 'product' at home has been pretty dire so far. So it's not surprising that gate revenue has not improved, sadly.

Thanks ...Daggs...

At 9:30 AM, Anonymous Airman Brown said...

The reduction in ticket revenues in 2011/12 is caused by two things - the typical £50 cut in season-ticket prices, which suddenly looked very necessary when the team collapsed in the back-end of 2010/11, and a fall-off in away numbers. Over two years we'd lost Norwich, Southampton, Leeds, Brighton and Millwall from the fixture list, plus the League One fans had had their first trip to The Valley. Another factor was the number of poorly attended evening matches.

At 10:16 AM, Blogger New York Addick said...

Daggs, see opinions below:

1) were we skint and in danger of administration? (as certain other CAFC posters have been saying for months) - if you define skint as losing money then we were skint then and are skint now. If your definition additionally requires great difficulty in funding those losses, then we were certainly skint then (the former directors including RM were tapped out), and it's not clear frankly if we are skint now (entirely depends on the ability and willingness of CAFC Holdings to fund the club, and/or others to step in instead). I have never thought administration was a big risk, either then or now because of who the debts are owed to (how would the lenders benefit? - this was especially true when the bulk of the debt was owed to directors - would they really put their club into administration to get back say 20p in the pound? - the same applies now).

2) Are we skint? See above

3) Assuming we remain in the Championship this season. Will we be financially strong enough next season to mount a promotion challenge? - again all depends on the above - our turnover has probably increased to £11m or so (thanks to TV money and slightly higher ticket revenue), but our payroll has probably increased proportionally or even more. Given there's no realistic near-term scope to increase turnover, our ability to mount a promotion challenge depends on the above ability to finance ongoing losses and/or CP and his staff making the playing squad worth more than the sum of their parts (I would argue Norwich, Blackpool, Reading, Burnley etc.) achieved promotion this way in recent seasons.

And to finish. Our 'product' at home has been pretty dire so far. So it's not surprising that gate revenue has not improved, sadly - agreed though whilst I'd like to think that playing prettier football would win back the crowds, I'm not sure there's a real correlation between the two. Winning is all that seems to count on this score.

Thanks ...Daggs...

At 10:32 AM, Anonymous Anonymous said...

The point about dire home 'product' wasn't essentially about the way we play. Because winning ugly is acceptable. Though winning beautifully would be better.
However we have only won four home games so far with well over half the season gone, which doesn't really attract the occasional supporter. Daggs

At 10:37 AM, Blogger New York Addick said...

But when the club has lowered the prices, they turned up in droves (eg. Barnsley) suggesting the casual supporter is more incentivised by price than performances.

At 10:41 AM, Anonymous Airman Brown said...


While you're right in general about the scope to increase turnover, you won't be entirely right about gate revenue this year.

We put on 2,000 season tickets this season, which is probably worth about £400k. The home match ticket receipts actually went up in 2011/12 and should be steady at worst. But there will be a sgnificant uplift in away ticket receipts. An extra 1,000 away fans on average is a reasonable estimate and that should be worth up to £500,000. This is all there to read from what's in the public domain, BTW, in case someone wants to argue confidentiality against me.

My guess would be that overall ticket receipts will be £1m higher this season than last. Not a game-changer and you'd expect some corresponding cost increases, e.g. policing and stewarding, but certainly an improvement.

At 10:45 AM, Blogger New York Addick said...

Airman, you obviously know the ins and outs far better than I do but wouldn't most of those additional season ticket holders be fans who probably attended a majority of the games anyhow (on a match-by-match basis)? If so it is just a cashflow timing issue not a revenue issue?

Either way, you are no doubt right that it will be £1m or so higher and thus I may well have been wrong to say it hasn't 'materially improved' this season.

At 10:57 AM, Anonymous Airman Brown said...


You'd think that, wouldn't you? And to be fair the sluggish ticket sales at the start of the season gave it limited credence, but it's never proven the case before. I think this is because the casual purchaser pool grows and contracts for the same reason the season-ticket pool does, i.e. someone trades up to an ST because the team is doing well, but someone else starts going again on a casual basis for the same reason. And vice versa.

In any event, home match ticket sales would only average about 3,000, so they are not going to move by 2,000. They are so low precisely because the season tickets are such relatively good value, of course. You can make an argument for less value in STs, but it's high risk if you rely too much on match-by-match and the team then does badly.

At 11:04 AM, Anonymous Anonymous said...

But when the club has lowered the prices, they turned up in droves (eg. Barnsley) suggesting the casual supporter is more incentivised by price than performances.

Or, more willing to spend a fiver on what may turn out to be a dire home defeat, rather than £25.
We do, unfortunately have a habit of cocking-up those promotional days. Daggs

At 12:51 PM, Anonymous Anonymous said...

Analysis on radio 4 today highlights the fall in attendances with The Championship in particular. The proximity to the Premier league means fans expectations are higher so if you are mid-table and lower and fans do not turn up as frequently

At 4:02 PM, Anonymous Anonymous said...


Very good summary.

One question please.

I'm a little surprised at the level of "debt" of £38m at 30.6.12.

I would have thought it should be about £15m lower?

My reasoning for this is assuming the bulk of the "friendly" debt was eliminated/deferred when the company was sold, then what remained would be the other creditors (bank/HMRC/trade creditors etc.) and Richard Murray's rump of £4m.

So add the other creditors to Richard Murray's rump of £4m and my guess is that total debt on sale would have been around £8m.

Add to that £8m two years (2011 and 2012) of losses of (say) £15m and assuming the other creditors remain stable then this would mean £23m of debt.

Do you have a summary breakdown of the 30.6.12 debt?

At 4:10 PM, Blogger Blackheath Addicted said...

Great - and sobering - stuff NYA. Would be interesting next to set our likely operating loss this year alongside those of other Championship clubs. Are any of them run at a profit (one-off transfers aside) or do the owners accept a steady drain for the chance of the (financial) promised land?

At 4:17 PM, Blogger New York Addick said...

BA, without downloading the accounts of the other 23 clubs, it is hard to say (and obviously the information is lagged so will relate to Premiership seasons in some cases). Also some clubs have more complex corporate structures than we do, so it wouldn't necessarily be as clear as it is with ours.

I would imagine that most if not all Championship clubs run with a 'structural' operational deficit, with occasional annual profits driven by transfers as you imply.

The only clubs that might conceivably be running at profit I would be the former Premiership clubs with parachute monies, but the likes of Birmingham, Blackburn, Wolves and Blackpool look in pretty bad shape financially at first sight despite the extra revenues.

It's interesting to note that the top half of the Championship is made up entirely of teams without parachute money (Hull and Burnley's would have expired last season).

At 5:02 PM, Blogger New York Addick said...

The directors debt from 2010 wasn't eliminated but was restructured so it only became payable upon promotion to the Championship (Murray) or the Premier League (others).

You're also forgetting the bank loans and overdraft which never went away after the acquisition.

The breakdown of total debts are:

Bank loans/overdraft: $6.3m
Trade creditors: $1.3m
HMRC: $1.0m
Deferred income*: $4.1m
Directors loans: $8.3m
Loans from Baton/CAFCH: $9.9m
Intracompany debt**: $1.1m
Grants received: $3.9m
Other: $0.6m
TOTAL: $37.0m

(sorry I only 'eyeballed' it last night so I was a £1m or so out)

*Season ticket sales: not a true debt except in the sense that fans have paid in advance for football matches that you haven't yet incurred the expense to host!

**Owed to the other Baton subsidiary (Charlton Athletic Holdings Ltd) - thus cancels out at the Baton consolidation level.

At 5:03 PM, Blogger New York Addick said...

Sorry, all amounts should be sterling not dollars!

At 8:03 PM, Anonymous Gillis said...

Thanks, NYA. I rely on your blog for this summary every year! Keep up the good work.

At 11:45 AM, Anonymous Anonymous said...


Thanks for the debt breakdown

At 10:16 AM, Blogger Chris said...

Watford fan here. I too was curious with club debts in the Championship and with the help of one of our fan websites have put together a summary list of Championship accounts.

Suffice to say they make dire reading across the board.

In leaving, must congratulate you on a fine win at Vicarage Road this season.


At 3:32 AM, Blogger New York Addick said...

Thanks Chris, interesting and sobering stuff.

At 5:07 PM, Anonymous noel said...

sorry NYA just came back to this.
The most sobering thing from looking at the table on the watford site is that despite running a 6-8m/yr deficit, the wage bill we can afford is higher than just Posh and Barnsley (I guess that the numbers in this table are so 'disfigured' by the parachute payments and legacy prem contracts that it is difficult to get any sensible conclusions out of it other than the fact that a few individuals are bankrolling this division to the tune of £1bn).
So, where do we go from here? It's difficult to see what the motivation for owning a club is right now. Blind faith of the diehard fan with a small fortune to blow? I can't see many of them about (Steve Morgan is blowing his fortune on a club he doesn't even support!). If CAFC's real owners were big fans I think they would be out there living the dream in the directors box (think of it as a £7m/yr season ticket...). Asset strippers? - I'd be interested to hear what your thoughts would be on the break-up value of CAFC (I imagine RM has some kind of veto on that tho) or the sale and development of Sparrows Lane for example. I just can't see the point of running a £7m/yr deficit to maintain a squad that struggles to keep itself in mid-table. The alternatives are to try the 'shit or bust' approach of paying up for players for a couple of years to get to the prem (with consequences if you don't), or cut your cloth accordingly and try and hang on to Championship status through good management etc.
I don't see any signs of CAFC doing anything other than accepting the middle ground - hey ho, maybe we are just some giant dodgy tax-loss strategy or something....

At 2:31 PM, Anonymous Anonymous said...

newyorkaddick said:
Other than outright desperation, I'd love to know what persuaded Murray (presumably with the club's best interests at heart) to sell out to these characters. Did he do any due diligence?

Of course not just said I will only sell if I can be on board ,so they let him keep 10 % to shut him up.
He is as much to blame as anyone as guarantees overdraft but is not aware totally of what's going on and if he is then is bad as the other two.
The Banks £5mn and Ex Directors £7mn have all the security , the £15+ million of new crowd is short term and has no assets to back loans,thus the panic sales regime.

At 4:08 PM, Anonymous Anonymous said...

Slater has lost plot, telling all not for sale but then chasing buyers like a bitch in heat.
Club on the edge and with annual running losses of £5mn or more and £30 mn of unsecured and secured debt they will not capture a buyer unless stupid or blind to cover their losses. Club probably worth £20 mn at absolute best which means Slater and co without security over Stadium and Training ground which Banks and Ex DIrectors have has loans that are equal to the equity everyone lost last time club in trouble, sooner he realises that sooner a sale happens.
Biggest question is why all old staff being sacked and why Richard Murray who employed the majority of them is doing nothing and backing overdraft and sitting back while club sinks further into debt, unless he is holding a buyer back to repurchase for a £1.

At 4:20 PM, Anonymous noel said...

hmmm... I must admit I have not renewed this year. A few reasons...
partly I'm just disillusioned with football fullstop. Too much bullshit eventually becomes tiring. The prem is great for the prem but rubbish for everything else. Cheating players (and the general acceptance of that), unrealistic fans etc etc. On saturday there was a big chorus of boos on the final whistle for example. Why? - not because of a lack of effort or heart but because we were outplayed and lost 0-1 to a bit of a daft goal. So today's fan will cheer if we win, and boo if we get outplayed? regardless of the circumstances?. The general negativity/lack of perspective of the Valley crowd slowly eats into you.. the times I've sat there embarrased by the 'your support is fucking shit' chant wondering whether perhaps irony is in evidence (but knowing it isn't). I don't know who owns the club or what they want to do with it. I can identify with Solly and one or two others but otherwise a stream of loanees or one season wonders leaves me with little connection to the 1st team other than SCP himself (actually I don't blame CAFC for that, it's just a fact of life these days). And if somehow we got in the play-offs and won them this year, it would provide an exciting spring, but would leave me scared stiff for the future - where more revenue seems to lead to the opportunity to sign a new load of long-term silly money contracts and take a new load of debt, in a land where Scudamore has recently reminded referees that they are in the entertainment business (ie the punters just paid to watch Rooney so don't send him off if you want to work again...).
So I don't want us to go up or down, but I don't want a season of mid-table boredom either...

At 8:23 PM, Anonymous Anonymous said...

Are you ever coming back? :(

At 10:02 AM, Blogger New York Addick said...

Unfortunately I've run out of interesting Charlton-related things to write about (as well as just generally having less time for such diversions).

I will no doubt review the 30 Jun 2013 accounts when available though.

At 4:50 PM, Blogger Paul Regnier said...

Any thoughts on today's takeover?

At 4:55 PM, Blogger New York Addick said...

I may well pen something (it's been long enough!)

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