SkyBet Chumpionship

With relegation for Charlton virtually assured and bad feeling towards the owner highly elevated, I thought it was about the right time to stand back and provide some high level context to what it means to own a club in the Championship. 

Specifically for Charlton I also wanted to understand better to what extent we had underachieved versus reasonable finance-based expectations.

An analysis of the accounts of all 24 clubs currently in the Championship follows below. The accounts were all for the year-ended 31 May 2015 or 30 Jun 2015, with the exception of Bolton whose accounts remain outstanding and are thus analysed to 30 Jun 2014 only.

Some minor assumptions or estimates may have been required due to certain complexities, and these have been noted below where material.

It is important to bear in mind that direct comparisons between clubs is challenging given the impact of recent spells in the Premiership (and thus parachute payments), but there are ways to deal with this as noted below.

TURNOVER (£m)

A league table of turnover follows - in order to equalise for Premiership-related turnover (recipient clubs marked **), matchday turnover only is shown in brackets too:

QPR** 85.9 (8.1)
Hull** 84.1 (9.0) - matchday income estimated due to insufficient disclosure
Burnley**  78.8 (6.0)
Fulham** 43.3 (7.0)
Cardiff** 37.6 (5.7)
Reading** 35.0 (5.7)
Bolton** 30.6 (3.4)
Wolves** 26.4 (5.6)
Leeds 24.4 (8.7)
Brighton 23.7 (9.8)
Blackburn** 22.4 (4.1)
Derby 21.5 (7.9)
Birmingham** 21.0 (4.0)
Middlesbrough 20.5 (9.8)
Forest 17.4 (8.2)
Ipswich 16.4 (6.5)
Sheff Weds 14.9 (6.0)
Charlton 11.8 (5.1)
Huddersfield 10.4 (3.1)
Brentford 10.0 (3.1)
Preston 7.3 (3.5)
Bristol City 7.1 (3.7)
Rotherham 5.2 (1.2)
MK Dons 5.2 (2.6)

Unsurprisingly the clubs with the highest turnover are those that spent last year in the Premiership (QPR/Hull/Fulham) or are in receipt of Premiership parachute payments. 

The disproportionate impact of TV money on turnover meanwhile is emphasised by the fact that for example Burnley generated less matchday income than say Ipswich which had similar attendances in a division below.

The dire position of Bolton is emphasised meanwhile by the fact that with parachute payments ending at the completion of this (relegation) season, they will operate with just £2-3m of matchday income (and modest income from elsewhere) in League One.

Amongst the clubs with the highest 'normalised' turnover (excluding Premiership-related), it should be no surprise that Brighton, Middlesbrough and Derby are performing well whilst conversely Leeds and Forest are notable underachievers.

With regard to those clubs fortunate enough to be in receipt of Premiership-related revenues, it is clear that (so far) they range from the seemingly 'well managed' (eg. Burnley, Hull) to the veritable 'basket cases' (eg. Bolton, QPR, Birmingham). 

From Charlton's perspective as the 18th and 15th ranked club respectively for overall turnover and matchday turnover, our base expectations at the start of the season ought to have been modest but clearly relegation would not have been predicted in this simple model.

Although not likely to be significant either way (and not outlined here in detail), somewhat oddly despite our attractive London location we are ranked 21st for 'commercial' income, ahead of only Brentford, Bolton and Preston. 

WAGES (£m)

The analysis below shows total wages and salaries (for all club employees) but obviously playing staff receive the significant majority. 

Several studies have shown the clear correlation between payroll and success so notwithstanding the need to take into account the impact of recent spells in the Premiership, this ought to have served as a better 'predictor'.

In order to better assess 'sustainability' and to thus understand which clubs are taking a short-term gamble on success, the figures in brackets show wages and salaries as a percentage of overall turnover.

QPR** 60.8 (70.8%)
Hull** 50.1 (59.6%)
Cardiff** 36.9 (98.1%)
Reading** 33.3 (95.1%)
Fulham** 32.1 (74.1%)
Blackburn** 26.4 (117.9%)
Forest 26.0 (149.4%)
Burnley** 25.3 (32.1%)
Bolton** 23.6 (77.1%)
Derby 19.3 (89.8%)
Brighton 18.3 (77.2%)
Middlesbrough 18.1 (88.3%)
Leeds 17.8 (73.0%)
Brentford 15.8 (158.0%)
Wolves** 15.7 (59.5%)
Ipswich 14.3 (87.2%)
Birmingham** 12.8 (61.0%)
Sheff Weds 11.9 (79.9%)
Huddersfield 11.7 (112.5%)
Charlton 10.2 (86.4%)
Bristol City 8.7 (122.5%)
Preston 7.8 (106.8%)
MK Dons 4.4 (84.6%)
Rotherham 3.0 (57.7%)

Again the analysis is skewed by those clubs which have recently been in the Premiership.  As expected however the speed with which they have ratcheted down their wage bill is generally a function of how long ago they were relegated (ie. Birmingham 2010/11, Wolves/Blackburn/Bolton 2011/12, Reading 2012/13, Fulham/Cardiff 2013/14, Hull/Burnley/QPR 2014/15 etc.).

However it is notable that Burnley had a lower wage bill in 2014/15 than their arch rivals Blackburn despite playing one division higher - unsurprisingly perhaps this self-control (just 32.1% of turnover) left them in a strong position to mount a successful campaign this season. 

Meanwhile with Blackburn's parachute payments ending at the end of this season, their financial position becomes extremely perilous.

The problems of QPR are well understood, but the failure notably so far of Cardiff, Reading or Fulham to bounce back to the Premiership puts considerable pressure on them to put their houses in order next season.

With wages at around 150% of turnover, both Nottingham Forest and Brentford are the standout teams in terms of 'having a gamble' despite no Premiership-related revenues.  The latter may be adopting a 'Moneyball' approach to scouting but it is ironically backed by real money too.

As noted in the turnover analysis, the relatively successful campaigns of Brighton, Middlesbrough and Derby this season should be little surprise given they each spend 75-90% of their high turnover on wages.

At the other end of the scale, Rotherham seem to be extremely efficiently run with a wage bill of just £3m on turnover of £5.2m, yet it would appear to be enough for a second consecutive season of survival in the Championship. 

Similarly Sheff Weds have likely outperformed wage-based expectations, although their payroll in 2015/16 is likely higher than the accounts from last season imply.

Charlton are 20th in the payroll league which perhaps should have served as the single most realistic predictor of where we ought to have finished this season (in other words we failed to meet expectations which however should not have been very high to begin with). 

Indeed with payroll as a percentage of turnover right around the 88% average for all 24 clubs, we are neither taking any reckless Forest or Brentford-esque gambles nor putting much aside for the proverbial 'rainy day' (which unfortunately is firmly around the corner).  More about that at the end.

DEBT  (£m)

The majority of football club debt is owed to controlling shareholders (as opposed to banks etc.) and has thus been termed 'friendly debt' since they have virtually nothing to gain from pushing the club into bankruptcy.

However it does require the ability to continue funding ongoing deficits and/or the ability to find another 'greater fool' to step in and do so going forward.

To analyse debt levels, I show below the total of all creditors (which also includes some other minor non-debt items like deferred season ticket income). 

The total is an extraordinary £1.75billion:

Rotherham 3.1
MK Dons 14.3
Sheff Weds 15.6
Burnley 16.4
Birmingham 18.7
Bristol City 22.3
Preston 32.4
Fulham 33.8
Derby 34.2
Wolves 39.2
Leeds 43.8
Huddersfield 47.4
Brentford 55.9
Charlton 58.8
Reading 68.0
Brighton 85.1
Forest 91.9
Middlesbrough 105.2
Ipswich 106.3
Hull 111.2
Blackburn 120.3
Cardiff 165.0
Bolton 226.8
QPR 236.7

The predictable 'basket cases' are at the bottom of this particular table with some eye-watering amounts of debt, most of it accumulated in recent seasons. 

Again the likes of Rotherham and Burnley are highlighted as amongst those which are run on more sensible lines, whilst Sheff Weds again screens well. 

Conversely the viability of the likes of Forest, Ipswich, Middlesbrough and Brentford will surely be called into question unless promotion to the Premiership is achieved in the next couple of seasons. 

Charlton are in the middle of the pack but debt levels have accelerated meaningfully since relegation in 2007 and will continue to do so in League One - Duchatelet is firmly at a crossroads regardless of his stated commitment to ownership of the club.

PROFITS/LOSSES (£m)

Below I have put the most recent year's net profit/loss which is somewhat insightful as a single year's snapshot, but is nonetheless potentially impacted by significant one-off transactions like transfers (eg. MK Dons and Dele Alli). 

Again I have marked the clubs in receipt of Premiership-related payments as **:

Burnley** 29.9
Hull** 11.5
Ipswich 5.5
Cardiff** 3.8
Reading** 2.6
Wolves** 2.4
MK Dons 1.6
Birmingham** 1.3
Rotherham (0.6)
Leeds (2.0)
Preston (3.3)
Charlton (3.9)
Sheff Weds (4.4)
Huddersfield (7.1)
Middlesbrough (7.1)
Brighton (7.4)
Bristol City (8.2)
Bolton** (9.1)
Derby (10.1)
Brentford (14.7)
Blackburn** (19.8)
Forest (21.5)
Fulham**(27.0)
QPR** (45.7)

Again a familiar picture emerges with Burnley's sensible Premiership season earning them rich reward financially.

For those clubs in receipt of Premiership-related payments and still generating substantial losses (ie. Blackburn, Fulham, QPR, Bolton), the medium-term outlook is likely to be dire and it is no surprise that they have each struggled on the pitch this season.

Again the extent to which Forest and Brentford have gambled is apparent (the losses are obviously related to earlier analysis of wages), whilst Rotherham's sensible approach is again evidenced here with limited losses of £600k.

Charlton are in the middle of the pack with losses somewhat reduced from the prior season, but turnover in League One is likely to fall by 50% or so.  Keeping the losses at similar levels will require a hatchet job on the squad however.

SUMMARY

To bring it all together, I have put together a proprietary ranking index to list the 24 clubs in order of relative financial stability (the key word being 'relative' since in absolute terms none could be so described). 

In an ideal world the table below would reflect the actual one but in reality clubs must continually weigh up the potential upside of a short-term gamble versus the long-term security of the club. 

Moreover the ability of owners to make good rational decisions is highly questionable in many cases, as some towards the bottom of the table below have found out (or will likely soon do so).

Somewhat reassuringly Charlton are positioned firmly in the top half, although the downside of greater long-term sustainability is unfortunately the enhanced risk of near-term disappointment:

Rotherham
Burnley
-------------
Wolves
MK Dons
Birmingham
Leeds
------------
Sheff Weds
Hull
Ipswich
Charlton
Brighton
Bristol City
Preston
Middlesbrough
Cardiff
Reading
Derby
Forest
Fulham
QPR
Huddersfield
-----------
Bolton
Brentford
Blackburn