Tuesday, October 31, 2006

Subscribe To The MCFC Supporters Trust Newsletter

Our web counter has been going crazy for the last few days so for those of you who are new to this blog here's a few things to draw to your attention.

If you want to subscribe to our newsletter please e-mail mcfcsupporters@hotmail.co.uk

Our Mission Statement best sums up the reasons why we feel a Supporters Trust is required and will work. We first published this on 25 September 2006 and it can be found on this blog in the archive section.

If after reading the Mission Statement or any other part of the blog you have any questions, feedback or queries please e-mail mcfcsupporters@hotmail.co.uk Your input is welcomed.

Sunday, October 29, 2006

Interview On BBC Radio Manchester

As you might have seen in yesterday's article, our very own Colin Savage is appearing on BBC Radio Manchester tomorrow evening before the game when he will be talking about the Club's recent results and the progress being made with reference to the formation of the Supporters Trust. If you're able to, please take the time to listen in.

Any comments, questions or issues gratefully received, please send them to mcfcsupporters@hotmail.co.uk

Saturday, October 28, 2006

Last Week's City Share Price Movements

This is the first in a future weekly article charting Manchester City Plc's share price movements during the last week. The price doesn't move very much and not many shares are usually traded, so you can pick up here at the end of each week our summary of the week gone by.

Last week:-
Finishing price (mid): 22.5p
Bid price: 21p
Offer price: 24p

Share price movement for the week:-

23/10 300
24/10 0
25/10 25
26/10 225
27/10 1,000

Total volume for the week: 1,550

All information taken from Plus Markets Group

City's 2006 Accounts Summary

The headline results for the financial year to 31 May 2006 were published on Friday 27 October.

- Total turnover is up £0.9m to £61.8m

- Ticket income up £1.5m due mainly to our FA Cup run

- TV money is down due to the loss of £3.4m compared to the
previous season

- Commercial income is therefore presumably up significantly

- Wages are down to £34.3m (2005 - £37.7m)

- Operating profit is up to £5.1m (2005 - £3.5m)

- There is a £19.1m profit on the sale of players (due to SWP

- This gives a bottom line profit of £10m (2005 - loss of £15.6m)

- Net external debt has been reduced to £32.2m (2005 - £38.5m)

- This does not include Wardle/Makin loans, which were £19.2m
in 2005

- No mention made of these loans in this press release

The detailed annual report will be published shortly, when a more detailed analysis will be posted. However, if you want to hear Colin Savage’s initial reaction to these figures and the latest news on the trust then listen to BBC Radio Manchester from 7pm on Monday night, before the Middlesborough game.

Monday, October 23, 2006

City's Finances (Part Seven)


This is (thankfully, you may say) the last in the series on the finances and accounts. I will summarise the position and give you some pointers to what to look for this week when the accounts are published. Before I get into the bones of this final article I'd just like to re-iterate why I did them. There was clearly a desire within parts of the City supporting community to understand the real financial state of the club. Much of this was due to a lack of detailed knowledge of financial issues. Published accounts of public companies are supposed to give investors relevant information on those companies' finances but that only works if you understand what you're looking at. I also understand that many people couldn't care less. I never claimed to be an expert but I admire people that have the ability to simplify a complex subject.

In the first article I talked about the share structure of the club and who the major shareholders are. There are four holders of more than 3% of the company and many smaller shareholders. Since then the price has drifted and you can now buy shares for 24p each and sell for 21p. Anyone can buy the shares, via a stockbroker. The Supporters Trust have had enquiries about buying the shares and we plan to publish contact details of a stockbroker that has indicated that they will not require a minimum contract value (although there will be a small minimum commission charge). There have been no significant changes in shareholdings or the composition of the board since then.

The next article covered the structure of the annual report and the business of the AGM. I expressed concerns about aspects of the club's corporate governance, namely that our chief executive is a member of the audit committee, in contravention of the major guidelines on the subject. The board had a very easy ride at the last one and while I don't want a return to the friction of the latter days of Peter Swales' reign, the board are there to be challenged.

Next up was an article about the stadium and the debts. The stadium is leased from Manchester City Council and the term of the lease is 250 years. We pay the council on a formula based mainly on attendances in excess of those achieved at Maine Road and the estimated total liability under the terms of the lease is shown in the balance sheet. The stadium is shown in the accounts as though we own it and this is correct under the applicable accounting standard. However, there are many unanswered questions about this topic and neither the club nor the council seem in a hurry to expand our knowledge.

I told you that we have two main sources of borrowing. The first is two long term loans secured on our future income streams and these are being paid back over 15 and 25 years. It was interesting to note that in his recent podcast, Alistair Mackintosh was saying that we have used the stadium for securitisation in contrast to what the accounts say. So there's a question for the AGM.

The other source of borrowing is the loans from John Wardle & David Makin, totalling £19.2m. These attract interest but we don't pay it. John Wardle had to introduce an additional £7m during the previous year and the suggestion is that this was required to replace the season ticket money that had to be ring-fenced and therefore we couldn't use for operational purposes. This ring-fenced money was offset against our total debt but I would query whether this was really appropriate as much of the £7m would be used to pay interest, rather than capital. So apart from a repayment of £2.2m, being the first of two repayments of another outstanding debt, and £700k paid off the one of the secured debts our debts weren't reduced. In fact they effectively increased with the introduction of the extra £7m by John Wardle.

The fourth article looked at the Profit & Loss account and analysed the three main sources of income. Ticket receipts are actually third, behind TV and commercial income. Our wages were £37.7m and around 62% of turnover. This is generally regarded as on the high side of acceptable in the crazy scheme of things in modern football but this was the sixth highest figure in the Premiership and we certainly didn't see that translate into top six performance. I also explained the difference between cash and accounting transactions and tried to explain the concept of depreciation/amortisation. I also explained how we calculate the profit or loss on the sale of players and that, although we showed a large loss, this is not necessarily disastrous in the larger scheme of things.

In the fifth article on the Balance Sheet, I showed how the different types of assets and liabilities were set out and what some of the figures meant. The nature of how assets and liabilities were accounted for, which may not relate to their "true" value. Football clubs assets don't reflect the market value of players so this can be misleading. Also the treatment of the stadium as though we own it tends to skew the balance sheet. Ideally, I would like the club to give us a clear and unequivocal statement about the actual value of the lease to us and what we can and can't do with it. This could have a crucial bearing on our true financial position and as whether our actual asset value was greater or less than the value of our liabilities.

Finally, there was the cash flow situation. I explained that despite our huge £60m income we struggled to generate any net cash and therefore this prejudiced our ability to sign players where the deal involved large cash payments. In a very speculative piece, I also made the assertion that I believed our day-to-day cash flow meant we had to renew season tickets so early as we were short of cash by that time and, if I was right, this could be a major problem if we were in trouble at that time and many people were reluctant to renew.

If you want a really good bullet point summary of the 2005 figures, please read David Hamer's report in MCIVTA 1186 http://www.uit.no/mancity/mcivta/11/86.html

So that's a brief look back but what about the accounts we should see this week? I hope they're better than the performance against Wigan.

2006 Pointers

I will be doing something on these when they see the light of day but would encourage everyone to have a good look themselves and ask questions, based on what you hopefully now know. What should you be looking for?

Read the Chairman's Statement carefully. He talked about the proceeds of the SWP sale in 2005 (even though it was in the following financial year). There were clues even then that investment in the squad and reduction of the unsecured debt were not high on the list and that much of the cash might well be spent on more mundane purposes. He should be spelling that out in detail this year, as well as telling us what the board's strategy is going forward.

Something else to look for will be in the Directors' Report. Look for the make up of the Audit Committee, which should consist of two, suitably qualified, independent non-executive directors. If one of those is still Alistair Mackintosh then serious questions need to be asked of the board and our auditors. I know I am not alone in being concerned about this. I have heard that the board consider that they have sufficient numbers and experience to do their job but if they can't find a suitably qualified non-executive to sit on the Audit Committee then they clearly haven't.

The accounts should show an overall profit but this will be mostly due to the sale of SWP for a guaranteed £21m. This is pure profit as he cost us nothing. Take that out and see where that leaves us. Look at operating profit and the breakdown of income and the level of wages. Fowler, McManaman, Bosvelt, Tarnat & Anelka all left before or during the financial year and you would expect the wage bill to have been reduced significantly. But comments from Mackintosh recently suggest it hasn't, so where's the money going?

Compare gate and commercial income to the previous year. It wouldn't surprise me if gate income has fallen. Now any normal business seeing their receipts fall would reduce prices or otherwise offer better value to attract customers. But what do football clubs do - increase prices, that's what. City also angered season ticket holders like me by stopping our exclusive period for claiming cup tickets.

The level of debt is clearly a key item of concern. What we need to know is how much we still owe Wardle and Makin. Last year it was £14.7m to Wardle and £4.5m to Makin. The big question is whether any of the SWP money has been used to repay any part of these loans. This can be easier said than done but the answers can be found in the note on Borrowings listed under Shareholder Loans so read these carefully.

Finally, look at the cash flow statement. We had a huge influx from the SWP sale so take that out to see how we actually did over the year. It is a complicated statement to read but you need to work out how much cash we have generated (and it should include the SWP money so take that out) and how much of that has been because we managed our money well or because it had to be introduced via loans or other external financing.

I hoped you have enjoyed these articles. I've had direct and indirect feedback from a great number of people. That has ranged from the "So what" camp (thank you Mr Heavis) to some that claimed my articles were too simplistic. The latter charge has a ring of truth to it but I don't have the knowledge to satisfy people in that camp and it wasn't aimed at them anyway. But most has been supportive and appreciative and if I've helped just a few people to cast a more informed eye over our accounts then I've achieved what I set out to do. I may well have got things totally wrong or missed something obvious and, in one case at least, I jumped to an incorrect conclusion until corrected but I never promised you that I was a financial wizard.

I also started these well before I got involved with the attempt to form a supporters' trust and these articles are 5 totally separate from that activity. However there is a clear connection between the two. As a supporter and shareholder I want to understand what the board are doing to bring success (or avoid failure) and how we are building for the future. If I believe that the board is doing the best it can for my club then I will support them wholeheartedly and so should we all. I would love to be able to walk away from the AGM thinking that the board had been giving a good grilling but had succeeded in convincing us that they were on the right path. So December 7th (as I hear the AGM will be) should be interesting.

My sincere thanks to those who took the time to read and disseminate them and also to the handful of people who really helped me to understand what I was looking at. And, of course, to MCIVTA for publishing them.

Colin Savage

Sunday, October 22, 2006

How Do I Buy Shares In Manchester City Plc?

Manchester City Plc is quoted on Plus (previously known as OFEX). Plus is the third UK stockmarket coming after the London Stock Exchange and AIM. It can be a little harder to purchase shares on Plus with some banks/ brokers unable to provide the service at all and when they can the cost can be prohibitive and the minimum number of shares they stipulate must be bought prove costly.

We have managed to find a stockbroker based in Bury who would be happy to open accounts for City fans to purchase shares in City. Their name is James Sharp & Co and their website is http://www.jamessharp.co.uk The contact names there are Ian Bolton and Martin Entwistle (who is away from the office this week) and their telephone number is 0161 764 4043. Before you call please note that you you will have to complete their account opening documentation and adhere to their client registration and money laundering regulations. By the way, this criteria would be the same for any bank or broker that you would open an account with.

James Sharp & Co have confirmed that once the account is opened they will acquire any amount of City shares you want and their minimum charge for this is £22.

During our research I did come across two online stockbrokers cheaper than James Sharp & Co who claimed to deal in Plus shares but what their level of service would be or their experience of dealing in City shares is I could not find out. If you want details of these two brokers please e-mail me on mcfcsupporters@hotmail.co.uk

Finally, a fellow supporter contacted me to inform me of a company called Framed Share (thank you Richard). Framed Share can arrange for one share in City to be purchased and then the share certificate framed. You or the person you have bought this for would be a shareholder with the full rights that come with this. Framed Share charges £34.95 for this service and the link to the City share purchase info is http://www.framedshare.co.uk/Product.asp?shareid=308

PLEASE NOTE that we do not receive any commission or inducements with reference to the information provided, we have simply tried to find a cost effective way for City supporters to become shareholders in City. If you would like to acquire shares in City, I suggest that your bank or existing stockbroker should be your first port of call.

Saturday, October 21, 2006

Supporters Trusts On The Increase

I attended Supporters Direct's annual conference last week. There was a record turnout with 226 registered delegates (76 Supporters Trusts were represented) with another 33 organisations also present. If you don't know already, there are currently 147 Supporters Trusts in existence in England, Scotland and Wales and one thing I didn't know was that all Scottish Premier League clubs have a Supporters Trust.

There was an impressive array of speakers and the first to speak/ open the conference was Stephen Birch of NTL: Telewest Virgin who were sponsoring the event. Although American he professed to being a big football fan and made it clear that NTL: Telewest Virgin were "big supporters of Supporters Trusts" and "eager to help".

Next to speak was an equally enthusiastic Richard Caborn the Minister for Sport. Whilst enthusing about Supporters Direct and the Supporters Trust movement he confirmed that Supporters Direct had managed to secure a three year £1.8m deal to carry on their work and expand into other sports. He commented in particular that sport had "a value above and beyond business" and that "commercialisation has over taken governance". He went on to say that he was concerned that the main stakeholders (the supporters) had been overlooked. He also mentioned the Independent European Sports Review ("IESR") which I was unaware of at the time.

The IESR is an independent review set up to evaluate various issues affecting modern-day European football including; the central role of the football authorities; the ownership, control and management of clubs; the level of expenditure in respect of players; activities of agents; the system of player registration and movement; the distribution of revenues within European football; the provision of funding to generate opportunities for all people to participate in football; and investment in football stadia with a focus on safety and security. For more information please go to http://www.independentfootballreview.com/

The next speaker at the conference was William Gaillard the UEFA Director of Communications. He was impressive and passionate underlining the importance of the Supporters Trust movement in the United Kingdom and Europe. He confirmed that one of the recommendations from the IESR was "to examine the feasibility of a European Supporters Direct body" and that Supporters Direct would be employed in this respect. He also made it very clear that UEFA fully supported the Supporters Trust movement commenting that "football fans are a key stakeholder group in football" and reaffirming that "football is the people's game and at UEFA we want to keep it that way".

William Gaillard also made some interesting comments saying that "UEFA deeply believes in bringing football closer to the grass roots (the rank and file)" as well as "the principles of subsidiarity". He echoed these two points throughout his speech. In his closing words he said that he hoped that "the IESR would go a long way to protect sport from commercialism".

Phil French the Chief Executive of Supporters Direct wasn't able to take the stage due to him being on crutches following a parliamentary football game! He did however comment on the funding saying "This funding will enable us to start building on the success and growth of the 140 Supporters Trusts in the UK and looking at ways of expanding our work across Europe." He went on to say "We are extremely grateful to UEFA for having the vision to back this initiative, which will enable supporters to play a responsible part in improving the financial stability and governance of their clubs".

If ever there was a "call to arms" then this conference was it. I was totally impressed by the government and UEFA's stance and continue to be impressed by Supporters Direct and all that they are trying to do. Supporters Trusts are definitely on the rise and the movement has some very important and influential backers.

Friday, October 20, 2006

Points Of Blue Meeting On 18.10.06

For those who are not aware Points of Blue is a Supporters meeting, held at the club every few months, where Supporters can air their views from the standard of catering at the ground to the price of ticketing.

The meeting was held in one of the fine corporate boxes over looking the centre circle in the Colin Bell Stand and the club, very generously, laid on tea and coffee (but forgot the biscuits – my missus must have rang in advance and informed them of my diet!).

The turn out wasn’t large, with only 9 people in attendance, but the people who did turn up seemed to have the supporter’s interests at heart and they made me feel very welcome (although I already knew a few of them from various away grounds).

The agenda is mostly raised by fans emailing in queries which they would like addressed to the club and the things that were talked about were:

- Catering in the Ground,
- Ticket Pricing,
- The numerous away shirts we seem to have,
- Club advertising,
- A very funny debate on City being a Gay friendly club.

The last item on the agenda was the formation of the Trust, about which I said a few words. I outlined the theory of a trust, how it can bring a voice to the fans, and made them aware that a large amount of shares in the club are held by ordinary fans that have no representation on the board. I told them we had been in touch with the club and that things were progressing nicely and that hopefully we could announce more soon. Everyone at the meeting was in favour of the Trust and they will raise this issue with the club to find out their stance on it.

A few of the supporters who attended the meeting on Wednesday will be meeting with Alistair Mackintosh shortly to put forward the issues raised and then the minutes of this meeting will be published in the fans section of the clubs official website – www.mcfc.co.uk.

Any fan who has an issue that they would like addressing at the next meeting should email Points of Blue at the following address – pob@mcfc.co.uk or I would be happy to raise the issue for them at the next meeting if they would prefer to use – mcfcsupporters@hotmail.co.uk.

Keep the Faith

Colin Howell

Correction To Stadium Naming Article

Following my personal article published on Sunday 15 October I wish to clarify that although the information provided to me by two separate individuals was given in good faith and my article was meant to be read in a positive light, the Club have confirmed to me that the information provided is "100% incorrect". I am therefore pleased to hereby set the record straight in that respect.

A Game Of Two Trusts

On Tuesday October 17th I was a guest of the Supporter Director of Northampton town at their cup match against Brentford. These two clubs are very significant in the history of supporters trusts as Northampton were the first to go down that route in 1992 and Brentford are one of the four clubs controlled by their supporters trust, who hold 51% of the shares.

Northampton was in financial trouble in the early 90’s and the supporters trust was formed and forced the club to disclose the true position. Once this became known the group raised money to keep the club going but was persuaded that the best hope of ousting the then current chairman was to wind the club up. They worked closely with the council during this time and established their credentials as a serious and committed group. Eventually a winding-up petition was brought by a fan and creditor and eventually the club went into administration. The chairman thought he had bought some time to get the debts written off and start again with a blank sheet. However the supporters group gained the trust of the administrator, who formed a new board and got rid of the chairman. With the help of former directors, fans and the council, they came out of administration and moved to Sixfields in 1994, which was leased from the council. The terms of the lease mean that the club must have a supporter director until 2019.

The club have since bought the lease off the council and are looking to develop the site to support a significant expansion of the ground. This is dependent on the council building a district centre but the decision has been delayed a number of times. The Trust now holds about 3% of the shares. It was more but they had to dilute their holding when their current chairman took over a couple of years ago. The supporter director is accepted by the rest of the board and fully involved in the decision-making process.

Brentford have four supporter/directors on a nine man board. Their chairman is Greg Dyke, former BBC Director General and he is a passionate advocate of supporter involvement in the running of their football clubs. They were given the shares for a nominal sum but had to take on about £9m of debt. I was speaking to one of their supporter directors and mentioned that some people felt fans should not be in the boardroom. His reply was simple and eloquent. "Who better!"

Incidentally, the Cobblers (managed by John Gorman) lost on penalties. They played some great football, mostly on the floor, but couldn’t put the ball in the net.

Colin Savage

Wednesday, October 18, 2006

What Is An Open Meeting?

We are planning on holding an Open Meeting in Manchester in January 2007 but this is subject to availability of a suitable venue. If discussions progress well with the Club then we would ask the Club for permission to hold it at the ground. If that is not possible we will find an appropriate venue on a day which we feel would attract the most amount of supporters possible.

All supporters whether they are shareholders, season ticket holders or not will be invited to attend. The meeting will be used to introduce Supporters Direct and the principles and philosophy behind the Supporters Trust movement. It will also be used to provide examples of other trusts in existence. A guest speaker or two will also be present.

At the meeting, we will present our aims and proposals for the trust as well as allow time for a "question and answer" session to ensure that supporters have their say and can raise points that are important. This part of the meeting is crucial and will ensure that the views and concerns of the supporters are known which can then be used/ addressed in the next phase.

At the end of the meeting the supporters present will vote on the proposal to establish a working group to go ahead and register the Trust. If the vote is successful that working group will work towards the formal launch of the trust and will work on areas include the drafting of the constitution of the trust, registering it with the appropriate authorities, open bank accounts, draft membership forms, dealing with the media etc.

If the vote is successful the numbers in the current working group will need to be increased. There will be a place at the Open Meeting for supporters to sign up as additional members to the working group where those supporters will be asked to confirm their availability and the skills they have to offer. We have been e-mailed with offers already and have kept these on file to be added to the list compiled at the Open Meeting. We understand that it may not be possible for all interested supporters to make the meeting and with that in mind we will accept at that time offers by post & e-mail.

We are currently finalising a "Roadmap" document setting out our plans to the Open Meeting. The first draft has been accepted by Supporters Direct and is subject to minor change. We expect to finalise the Roadmap within the next seven days and will publish a condensed version here for your information.

As normal, all queries, input and feedback are welcomed please e-mail us on mcfcsupporters@hotmail.co.uk If you do not currently receive our newsletter please also e-mail us.

Tuesday, October 17, 2006

City's Finances (Part Six)

This is the next part in a series of articles written by Colin Savage first published in MCIVTA's newsletter with reference to City's Finances. With the permission of Colin and MCIVTA (thank you Heidi) it is re-published here.

Cash Flow

This was going to be the last in the series but my original draft, including a summary, proved too long. Also it was suggested that I did a separate article giving some pointers as to what to look for in the 2006 accounts. So I’m going to combine that with a summary of the finances in one final article. In this one, I’ll talk about the last of the three financial statements and what it says about our ability to finance major player purchases. I’m also going to summarise the overall cash flow situation as I see it, as this seems to me to be the most illuminating evidence about our real financial state.

The Cash Flow Statement

The Cash Flow statement seems the most obscure of the financial statements. The P&L Account shows our income and expenses, the Balance Sheet shows our assets & liabilities. But what does this show?

In Article 4 (the P&L Account) I said that this was a mixture of cash items and non-cash, accounting transactions (such as amortisation of players). The resulting profit or loss is meaningless to a large degree in a football club as the most important element is actually pure cash. The Cash Flow statement removes those non-cash items so we can see how much actual cash we have either generated or spent overall. So we need the cash flow statement to show us whether we have surplus funds available for transfers or whether we can only finance incoming transfers by selling or borrowing.

Any business (or individual) that consistently spends more cash than they earn will eventually end up in deep trouble. They will need to borrow more and more money just to keep going day-to-day, which becomes more difficult to repay. So, as I said, profits alone are meaningless unless they generate cash as well. Football clubs tend to operate to different rules, with chairmen and directors expected to pump funds in to keep them going.

The first figure in the statement shows something called Net Cash Inflow from Operating Activities. That is the amount of cash left over after we’ve paid all our operating costs from the income we’ve received. This is calculated in Note 25 and starts with the Operating Loss after player amortisation of £8,060 (£8m). The non cash items, such as amortisation and depreciation are added back and some other figures are added or subtracted relating to the overall change in stock, debtors (money we are owed) and creditors (money we owe). This gives us a cash inflow of just over £6.6m.

So can we spend this on players? Unfortunately not as it didn’t include interest paid so we have to knock off this. The P&L will show what we should have paid but you already know that we don’t actually pay the interest on the Wardle & Makin loans. So only the actual interest paid is taken into account, less any interest received. In total this comes to just under £6.7m and this wipes out the surplus from operating activities.
So here’s conclusive proof that there’s no money for new players unless we sell first. It’s not the board being skinflints and holding onto a big pile of cash to reduce the debts, it’s not lack of ambition, it’s simply lack of cash.

The next section shows this, with the cash element of the purchase and sale of assets (players and fixed assets). You will see from the Cash Flow that we received just over £8m for players and paid out £6.2m, with just under £1m paid for other fixed assets.
This gives us a small overall surplus of £899,000, so you might think that there’s nothing too wrong with the finances overall, except that we’ve still got more cash to pay out. We’ve taken into account the interest paid on loans but not the capital element and this comes to just over £4m. So the overall position is that we are over £3m short of the cash we need to get by, even when we’ve balanced our player sales and purchases. New debt issued of £10.7m, includes two things. The first is certainly the extra £7m lent by Wardle while the second, as far as I understand it, has to do with the increase in the value of the stadium lease in our accounts, due to a recalculation of the overall liability. But it could be something else entirely.

So, overall, the cash position has increased by £7.6m over the year but pretty well all of this has been introduced by the chairman, via his additional £7m loan. This means that we have actually generated no cash by our own efforts. This is a pretty similar story to the last couple of seasons. The outcome in all this is that we need to increase income and/or reduce costs. Increasing income involves consistently high league finishes, cup success and European football. Reducing costs means reducing wages and that’s certainly one part of the board’s current strategy but there’s always the risk that they get reduced to the point where we find it difficult to continue to compete at the top level. And if we lose the level of income that comes with our Premiership status then we really are in a downward spiral. So who would swap places with Wardle and Mackintosh knowing this?

Our General Cash Flow

The Cash Flow statement summarises the movement of cash over the whole year but in doing these articles I became interested in the month-by-month cash flow. Saying we have come out even over the year is one thing but what happens during the course of that year? There were a number of things that puzzled me such as why do we have to renew our season tickets in February and March, well before the current season has even finished. Why did John Wardle have to introduce a further £7m when, according to the Alistair Mackintosh interview in Accountancy Age “…the business generates significant amounts of cash…”?

Apply this to your personal finances. If you earn £2,000 a month on the 1st and spend £2,000 over the same month then your cash flow looks OK, if not particularly inspiring. However, if you’re £2,000 in the red at the start of the month and your £2,000 just puts you level before you even spend a penny then you could be on thin ice if you have an unexpected bill or the income stops for some reason. So which one is City?

It’s a trick question actually as the answer is neither of these. We appear to be like the person who starts with nothing in the bank, gets £2,000 in every month and spends £3,000. However, we also know we’ll get commission but that is paid annually, in arrears, based on what we’ve sold. So at the end of the year we’ve built up a £12,000 overdraft but we get a £12,000 bonus to clear it. And so we start again, relying on the fact that we’re going to get another £12,000 in a years time so, instead of cutting our spending to £2,000 a month and putting the bonus in the bank, carry on regardless. Clearly there are even more dangers in this scenario.

Our bonus is called Sky’s money. I’m indebted to the poster on one of the City forums who gave me the information I needed, relating to Sky payments. As far as Sky is concerned, we get the bulk of the income in a lump sum in August, as the season starts. There is an equal payment to all clubs then totalling around £15m, with the so-called merit money being paid in May, depending on league position at the end of that season. Other payments are made per game televised.

Then there is ticket income and commercial income. Much of the ticket income (an estimated £12m) is in season ticket renewals and therefore will mostly come in February, March & April. The rest of the ticket income is spread over the season. The commercial income will probably be higher in the season but we will still get some in the close season as well.

As far as expenses were concerned these will probably be higher per month in the season than the close season, as we employ more staff as well as paying appearance and (occasionally) win bonuses.

Putting all this together showed that, starting from June we were at our worst position by April and significantly in the red. My figures, I have to stress are intelligent guesswork without access to the books but would indicate that we would be overdrawn by possibly well over £10m, ignoring any season ticket income. This would therefore explain why we were so desperate for fans to renew season tickets then, when most clubs ask for renewal in July. It also explains why John Wardle had to pump in more money, after we had to keep secured assets separate (see last article).
Quite simply, if I’m anywhere near right we desperately needed that additional £7m at that time.

This begs one intriguing question; suppose in February and March we are in, or close to, the bottom three places. Would you renew your season ticket at Premiership prices if you thought there was a reasonable chance of watching Championship football? I’m not sure I would and if most people thought the same way then the impact could be potentially disastrous, with little cash coming in at the time we needed it most. Let’s face it there were a few thousand who didn’t renew at Premiership prices to watch Premiership football this season.

While I was looking at my crude cash flow forecast, I looked at what the impact would be if we renewed in June & July. This was a bit of a “Eureka”
moment as the impact of the merit money in May, added to season ticket income in June & July, with the main Sky payment coming in August, transformed the picture and produced a substantial cash pot that lasted throughout the financial year, going just overdrawn in April. It was the equivalent of getting your bonus at the beginning of the year and gradually spending it throughout the year. But at the moment it looks like we’ve effectively run out of cash by Easter. So to ensure we were on a sound financial footing, any investor would probably have to provide something like an extra £15m in working capital, on top of any funding for new players, any debt repayment and purchase of shares.

At the beginning of this series I said I had no smoking gun or insider knowledge about City’s finances. However, when I started them I firmly believed that the board were actively managing City’s finances over the next few years so that we could be in a position to compete, after a few seasons where we had to settle for mid-table mediocrity. However if the above is anywhere near correct, then I have to conclude that we’re merely running to stand still and hoping, like Dicken’s Mr Micawber, that something turns up. The new Sky

In the positively final article in this series, I’ll summarise everything and try to give you some pointers to what to look out for in the 2006 Annual Report.


Monday, October 16, 2006

Manchester City Are Interested In A Supporters Trust

We are pleased to confirm that we have received a formal response from Alistair Mackintosh which we feel is a positive step forward. We intend to correspond with Manchester City Football Club and meet them at an appropriate time. We will keep you fully informed of all progress.

Sunday, October 15, 2006

COMS To Be Given A Name

I've just come back from my trip to London where I attended the Supporters Direct conference on Friday before flying up to Manchester for the weekend to take in the Sheffield game. The less said about the game the better!

Anyway, you may have heard this already so please excuse me if you have. I heard from two separate reliable sources that the naming rights to the stadium had been sold for £3m a year to an old sponsor with the contract signed recently. How correct that is, only time will tell it could after all be total rumour. If true though then at least that would see a few more pennies into the club's coffers.

I understand that Arsenal sold their naming rights for £100m over a fifteen year period which would average out at £6.66m a year. I understand that the record deal for a European stadium before Arsenal's was £2.5m a year, so if we have managed to get £3m a year then it would seem a good deal.

This article is nothing to do with the trust group but I thought it was interesting enough to publish. There will be articles from the conference, the up and coming Points of Blue meeting and hopefully a little positive announcement to make over the course of this week.

Wednesday, October 11, 2006

Are You Thinking What I'm Thinking?

In Alistair Mackintosh's final part of his recent interview he sets out the criteria he expects to be met if the right people are to invest in Manchester City Plc. This guy knows what he is doing and has the best interests of the Club at heart, bearing in mind that the Club have been looking for investment for three years I was intrigued to know more.

Alistair Mackintosh says "We are always open to the idea of new, appropriate investment. We continue to look for appropriate parties that might contribute to this football club. Money is money, as long as it is from an appropriate individual who continues to be a custodian of this club, and who keeps in mind our links with the community and in particular our fan base."

He then goes on to say "If someone was just looking at a football club as a property play, I don’t think they would look at Manchester City as closely as other clubs. I don’t want someone who wants to look at this football club as a property play, I want them looking at this as a football club. This is our home, I want it to be owned by Manchester City Football Club, not an external investor who wants to sell it on."

Hang on a minute! Are you thinking what I'm thinking? I'll take us back through the statements and think it through before I jump to conclusions.

Any new investor has to be a "custodian of this club, and who keeps in mind our links with the community and in particular our fan base". Well who better than the actual supporters via a legally constituted democratic Supporters Trust? They are the fans, they are the community surely they would be the best custodian for their own club?

And, any new investor has to be "looking at this (the Club) as a football club" and "not an external investor who wants to sell it on". Errr, who better than the actual supporters via a legally constituted democratic Supporters Trust? They look at the Club as a football club and they would never ever contemplate selling.

On 15 August 2006 I was informed that Alistair Mackintosh said that there were no plans for a Supporters Trust. Could he have changed his mind or are there no investors willing to take a gamble?

There is one investor who as a group would invest in the club irrespective of risk and without wanting a return who would never desert the Club and who would love, cherish and nurture it as if it was their own flesh and blood...the Supporters.

The Supporters Trust will be formed next year of that I am certain, at the moment we continue to plan for that moment. We will publish here what progress has been made and our future plans shortly, in the meantime we hope to hear that the Club wishes to engage in positive dialogue so that we can work together towards a positive future and most importantly see the club, shareholders, supporters and community pull together as one.

MCFC Responds And Paul Tyrell Says Hello

For all of you who don't know the full history on 2 August 2006 I wrote to the Club enquiring about a Supporters Trust and they didn’t reply. At the same time I spoke to Supporters Direct who thought it was a great idea. As you know the Club charter says an answer to all enquiries will be sent within a maximum of seven days. I chased City and Karen Engel responded on 15 August confirming that the Chief Executive had "confirmed there are no current plans to be involved in setting up such a trust". I replied that day and my exact question was “Do you think that MCFC would ever entertain dealing with a properly constituted Supporter’s Trust formed by the supporters for the good of MCFC?”

Karen Engel replied on 17 August “I would need to consult with my colleagues and the board. Could you leave this with me for a couple of weeks to enable me to discuss internally. I will get back to you as soon as I have some feedback.”

From then onwards we have set about planning and researching towards the formation of the trust. On 29 September 2006 and after consulting with Supporters Direct we hand delivered a letter addressed to John Wardle confirming that we would be forming the trust, that we were working with Supporters Direct as part of the process and still wished to enter into dialogue with them. At this stage we also provided them with our mission statement.

I must point out that on 15 August and 29 September 2006 we confirmed that we were willing to meet a representative of the club in person or talk them through our positive move on the phone.

By close of business Monday 9 October we had not received a response. On Tuesday 10 October we contacted them reminding them of the club charter. Karen Engel (who I recently was informed is Alistair Mackintosh's right hand lady) came back and said that they were still discussing my original enquiry. OK we think, at least we have confirmation that they are still deciding how to respond it’s a mini breakthrough.

We then receive an e-mail shortly after Karen Engel’s from Paul Tyrell the Head of Communications at the Club. He confirmed that the Club charter means seven working days (which I have since thanked him for clarifying). He went on to say that "I envisage that Mr Goddard will receive a formal response from the club to his recent communications on Supporters Trusts by the end of this week."

I am sure that we would have received a response if we hadn't have chased them and am pleased that we finally appear to be making progress. As soon as we hear more you will be the first to know.

Tuesday, October 10, 2006

City's Finances (Part Five)

This is the next part in a series of articles written by Colin Savage first published in MCIVTA's newsletter with reference to City's Finances. With the permission of Colin and MCIVTA (thank you Heidi) it is re-published here. I think you'll find this to be another informative, interesting and factual article.


In the last article I looked at the Profit & Loss account and explained that this is a summary of our income and related expenditure over the financial year. Once the year is finished and the books are closed then we start again. The balance sheet however represents a snapshot of the financial situation at any point in time and is therefore far more revealing of the true state of the club's financial health. It details our assets (the things we own) versus our liabilities (the things we owe). When you hear about companies becoming insolvent and going into receivership or liquidation, it is generally because they owe significantly more than they could pay, even if they sold all their assets, and are never realistically likely to remedy the situation.

To give you an analogy, if someone earns £20,000 a year and spends £19,000, then you would think that they were OK. However if you then discovered that they owed £50,000 on credit cards and loans then you'd realise that they were actually in a mess, particularly if their expenditure didn't include any repayments or only included token ones. So, as I said in the previous article, profits or losses alone are not the be-all and end-all. You need to look at the full picture.

The balance sheet is split up into a number of different sections: There are sections on fixed assets, current assets, creditors (short term & long term) plus capital and reserves.


These are assets that have a life of a few years or more and are split between Tangible Assets and Intangible Assets. The former are the land and buildings, their fixtures and fittings plus any other equipment. The latter are the players. Now I know that the word "asset" when applied to some members of the playing staff makes strange reading but that's what they are.

The values shown for fixed assets (£11m Intangible Assets and £156.8m Tangible assets) represent their original cost less any accumulated depreciation, which I talked about in the last article. Notes 10 & 11 in the 2005 accounts give more detail. One bit of jargon to note - when costs are "capitalised" it means that cost is treated as a fixed asset rather than an expense. Therefore it will be added to assets in the balance sheet rather than being shown as an expense in the P & L account.

The note shows the original cost of the players as at 1 June 2004, plus the cost of any additions, less the original cost of any player sold in the period. As at 1 June 2004 our playing staff had cost a staggering total of just under £55m! That, you have to remember, is only players still on our books at that time, not every player we've ever bought. The next figure is the cost of any additions to the squad (£1.3m in this case) and then the original cost of any players sold during the year (£19.75m). Clearly, the man who hopes to play in the Champions League for Bolton (pause for rolling on the floor with laughter) is the major element of this.

The final figure in costs of £36,395 (that's £36m) is the original cost of the players we had left at 31 May 2005. I know what you're thinking - Fowler and Macken come to mind but how the hell is the rest of that made up? It's not about value, just about cost.

The next section shows the amortisation in a similar fashion so at the end of the period we have the total accumulated amortisation for players still on our books. Taking the latter from the former gives us £11m. This is the accounting value of all players that we have bought so SWP, Richards, Onuoha, etc, are not in this figure. If you look at Note 1 on page 21, you will see a paragraph on intangible assets. The last sentence talks about "impairment" and means that if the club believe a player's real value is less than their book value then this should be provided for. This would be shown as an expense in the accounts. Presumably this would relate to a career-ending injury or something similar, not the fact that no manager in their right mind would touch them with a bargepole even when fully fit. No manager, that is, apart from the one we had at the time.

The tangible fixed assets follow the same pattern but are split by type of asset. The major item here is the stadium lease under Land & Buildings (Long Leasehold) and I've covered this in a previous article.


Separate to the fixed assets, these are assets that are short-term. In the Balance Sheet they are split between stocks for re-sale (things like food and drink and the stock in the stores), debtors (money we are owed) and cash we hold, both in the tills and our bank. You will notice that our bank balance is seemingly much healthier than the previous year. That's nothing to do with the superb way the club's finances have been managed unfortunately. I've covered this in more detail under Creditors.

Note 14 on page 29 talks about prepayments and accrued income and this represents items we've paid for upfront during the year but relate partly to the following financial year or income we are due that has not been invoiced by the year end (e.g. rent the club may charge but isn't due until a later date). We still have to show that we have earned a proportion of this even if we haven't received a bean for it as yet.


The first figure (amounts falling due within one year) is our short term liabilities, i.e. monies we owe to others within the next 12 months. These are detailed in Note 15 (page 30) but the main items of interest are, once again, related to directors' and other loans and these have been covered previously.

The Balance Sheet then shows a total for Net Current (Liabilities)/Assets. (This means that, if the figure is in brackets it is a net liability and, if not, a net asset). It shows the gap between our stated assets and the stated liabilities and is calculated by adding the value of fixed assets to current assets and subtracting current liabilities (Creditors falling due within one year). In other words, if we sold all our fixed assets for their book value, collected all our debts, sold all our stock at cost and used this to pay our creditors then how much of a surplus, if any, would we have.

The second group of Creditors are our longer term liabilities, i.e.
those who are due to be paid in more than one year. Once again it's mainly loans, the lease and some longer term creditors. We can ignore the lease figure as it is purely notional but that still leaves over £50m of loans and trade creditors that have to be paid back.

The figure for Deferred Income is very interesting. This relates to income we've received that doesn't relate to this year but a future year. Note 18 on Page 33 reveals that £4.5m of this relates to some grants we've received and are spread over a number of years. But what is the £16m? It took me a little while to work it out but I'm now pretty certain that most, if not all of it, is season ticket receipts. We have to renew our tickets by April at the latest, which is ludicrously early compared to other clubs. So the club has taken up to £16m in season ticket money but can't show it in this Profit & Loss account as it relates to the next financial year. (I also believe that it includes VAT, which is not included in the figure shown in the P & L Account).

You would expect, therefore, that our bank account would therefore be very healthy, having taken in this money on top of our usual income from ticket sales, TV and other activities just before our year end but it isn't. It certainly contains over £7m so that's not too bad, you might think. I said in the previous article that it was the obvious conclusion that this is the £7m introduced by John Wardle. However, some intriguing information I came across on an online forum leads me to believe that I was wrong. It would appear that, following a court decision in 2005, any assets that are pledged as security have to be "ring-fenced" (kept separate) from other assets.

In our case this refers to season ticket income that we use for security against the long-term secured loans. We have to keep the portion we need to pay the debts separate and can't use it to pay operating expenses or to buy players. Last year we were able to use that income but can't this year. Hence we have a large sum in the bank. The problem is that we need that money because (as I will show in the next article) our cash flow is probably at its worst around February and March, which is why we are heavily encouraged to renew season cards then. And, believe me, if my estimates are right, we need it badly. So to make up the deficit, it would seem that Wardle had to put in that "lost" £7m in order, presumably, to keep us solvent.

The final section of Creditors is Capital & Reserves and the first two figures in this should represent the total proceeds of any share issues. Note 19 on Page 33 shows that the face value of our shares is 10p and just over 54m of these have actually been issued. The note also shows that there are another 10m shares not issued. However the face value usually bears no relation to the issue price and the difference between the two is put in the Share Premium Account. Doing the arithmetic shows an average share issue price of just under 60p per share. The market price is less than half of that so anyone who paid 60p per share or thereabouts, is sitting on a significant loss.

The revaluation reserve relates to the stadium. This, I think, should mainly represent the difference between the current value of the stadium, less the value of Maine Road and the value of future lease payments on CoMS. So if we valued CoMS at £150m, Maine Road at £35m and the future value of lease payments at £35m, this reserve would be around £80m. The value of CoMS will change over time and this reserve will change in line with its value and the estimated value of future lease payments. It does not represent cash in the bank but it is purely an accounting transaction to cover the increase in value of CoMS, compared to Maine Road.

The final figure shows the accumulated profit or, in our case, loss over our financial history. The annual profit or loss in the year is added to the balance at the end of the previous year and you can see this in Note 20 on Page 34. The total of these figures under Capital and Reserves is the same as Net Assets (£28,527), which is why it is called the Balance Sheet as our assets should balance with our liabilities. Any surplus of assets over liabilities belongs to the shareholders in theory.

So if you or I sold our house, paid our mortgage off, cleared our credit cards and overdraft and paid our household bills then we would hope to have something left over. Clearly, the more we have left over, the better off we are. However, if we can't meet all these liabilities from the sale of our assets then, as I said earlier, we're in a mess.

Let's extend this to Manchester City and assume that it ceases to trade. We would have to sell all our assets and pay off all our liabilities. If we could do that then we could safely say that our financial situation is not too bad. If we can't then we have to be worried. So Manchester City should be alright as they've got net assets of over £28.5m.

Except it's not quite that simple (it never is where City is concerned of course). For one thing there is the lease and around £140m of those assets relates to the valuation of the lease on the stadium. However, as you saw if you read the article about the stadium, we don't own it. Therefore in practical terms it is difficult to put a practical value on it.

If we take this asset out then the net asset picture is not quite as healthy. However to balance this let's also assume that we would have no further liability to pay the lease and the total value of this is £42m. So we can take £98m out of our assets. Overall then we seem to be about £70m short of being able to pay our debts from our assets.

However football clubs are different to most other businesses in a few ways and the main one is how they value their players. As you've seen, we only put a financial value on players we've bought and that only relates to the amount we paid for them less amortisation. So we've only got £11m for players in the balance sheet but SWP (who wasn't part of this £11m) was sold for £21m a few weeks later. So let's value our players a bit more realistically. We could argue about this all day but including SWP, I've come up with a value of £61m.

So that's £50m more assets than we've accounted for. So without the lease we are probably £20m short of being able to meet our liabilities, although the lease may well have significant value, if we were able to sell it. However that will depend on whether we have the right to do that or whether the council simply takes it back. Now I don't know the answer to this and have seen a lot of postings on City forums giving many different opinions but nothing to confirm the situation one way or another. Interestingly, both the club and the council seem to be very coy about the exact terms of the lease. Hence the desperate need for the board to strengthen the Balance Sheet. * See note below.

The problem is that, to do this, we need to make profits and generate cash. This means that we need to increase income and assets or, more realistically, reduce costs and liabilities. Reducing costs means reducing wages and or debts and involves less money for transfers. This in turn, means less likelihood of achieving anything significant on the playing field. Another way of strengthening the Balance Sheet is to sell an asset for more than its book value. The only assets we have that we could use in this way are our young players who, because they cost us nothing, have no book value at all. But we wouldn't sell a good, young player just to strengthen our Balance sheet would we?

In the final article I'll look at the Cash Flow Statement. This is another way of looking at where the money goes but is more relevant to us than the P & L account. I'll also deal with what I see as our general cash-flow situation and why I believe we have to renew our season tickets so early.

* However, I have to stress that this is just a hypothetical and very simplistic scenario and does not mean that we are in imminent danger of going bust. What is does mean, however, is that if my analysis is correct, any major interruption to our cash flow could put us in trouble.

In the event that the worst were to happen then, if the pattern of other clubs was followed, a new company would probably be formed to buy the assets of the old one, which would include the lease and the football club. However, I couldn't say what the situation with the secured loans would be and whether the new club would need to repay them. Let's hope we never find out.

Monday, October 09, 2006

Serious Interest From Russia

You may recall that three years ago Alistair Mackintosh was tasked with finding and bringing in new investment into City and since then we've not heard or seen anything. Well it is with great pleasure that I can announce that we have been successful in receiving some serious interest from an individual based in Moscow and that we are currently considering his business proposition.

Before you go into overdrive I have to come clean and admit I haven't quite told you the full story so I better tell you the truth. In amongst our e-mail post bag and after throwing out the Nigerian scamsters telling us we've got a claim to US$10m and the other scamsters asking us to confirm our HSBC bank account details, we received an e-mail from Pavel who says "sorry for disturbing but if you really live in Guernsey you may give me a little help the matter is i collect postcards sent from all over the world, you can see my collection here
http://www.pawlick.ru/map/index.htm but i still don't have one from your country so if you could be that kind to send me a postcard with a local view please let me know". Pavel I really do live in Guernsey and I'll send you a postcard to add to your mightly collection. If there's anybody else out there who likes postcards take a look at Pavel's collection.

Sunday, October 08, 2006

An Example Of An Active Supporters Trust

As part of our research we are looking at other Supporters Trusts, what they do, how they operate, their aims & objectives, how active they are etc. Jacqui at Supporters Direct has mentioned many trusts to us to look at and I have taken some time to look Reading's Supporters Trust a little closer.

Before you jump to conclusions or think that we cannot draw comparisons with them, I realise that clubs, supporters, shareholders etc are all individual and have different agendas/ areas of concern but by looking at other Supporters Trusts connected to clubs inside and outside of the Premiership we can learn from their experiences, mistakes and successes and plan for a positive future for a Manchester City Football Club Supporters Trust.

STAR or given its proper name, Reading Football Supporters' Society Limited is an IPS (please read my recent article on IPSs). It was formed in March 2002 and is the successor to Reading Football Supporters' Club. Here's the first point to make, our group do not want a Supporters Trust to replace the current MCFC Supporters Clubs up and down the country and around the world. Our proposals will reflect this and nobody should make any presumptions until our proposals are finalised or made public.

STAR summarises it's aims as representing the interests of Reading supporters to the Club, the media, the local community and the football world, as well as encouraging football in the local community and strengthening the links between the local community and the Club.

STAR goes on to point out that "whilst financial resources are obviously very important in building and sustaining a successful football club, there also has to be a passionate, human and communal dimension. STAR is here to help build and sustain a well-supported and well-respected football club in Reading where the whole community feels involved".

STAR is run by a Board, currently with twelve members, eight of whom were elected by the membership and four co-opted to the Board. The Board has to meet at least four times a year but in practice meets monthly often with STAR Team leaders and is responsible for overall policy and financial direction of the Trust, its relationship with Reading Football Club, the local media etc. Elections to the Board take place every three years (voted on by the membership).

STAR does make an impressive claim that it is one of the best supported Trusts in the UK. Each member of the Trust owns a £1 nominal share in the trust which entitles them to vote at AGMs and stand for election to the Board.

STAR has managed to obtain benefits for its membership (please remember when reading this list that the trust is also the Supporters Club):-

1) A 10% discount voucher for use in the Reading Football Club megastore
2) Free entry to question and answer evenings with Reading FC's players, management and Chairman held three times a year
3) Ticket priority
4) STAR runs subsidised coaches to all away games exclusively for members
5) The members received a free newsletter three times a year as well as regular e-mail updates
6) STAR also operates a fairly busy social calendar including quizzes, football matches against other supporters' teams etc

One of the things that has impressed me about STAR is that even though they hold a very small shareholding in the Club (the Chairman owns 97%) they are still able to work closely with the board and would appear to have quite a level of support which in turn gives them an element of persuasion.

One recent incident involved the Club organising exclusive radio coverage of games with one commercial radio station which would not have been picked up outside of the Reading area. STAR issued a statement expressing their "extreme disappointment with the decision" on 23 July 2006. By 9 August 2006 and following discussions with the board and the BBC they managed to get the radio coverage moved to the BBC and therefore become available to Reading supporters far and wide. So a success for good and common sense. I'd certainly hope that when MCFC Supporters Trust is formed that they could work closely with the board and should some ill-thought out venture be announced that the Trust could do something about it or at least raise concerns straight to the people in the right places.

Despite STAR not having a notifiable shareholding in their Club they are still well thought of and attend regular meetings with the Senior Management Board comprising of the Chief Executive and the heads of department who run the football club on a day to day basis. They say that the meetings are constructive and whilst they admit that there are vigorous disagreements as well as co-operation they genuinely feel that they are respected and listened too.

Whilst STAR have been involved in ticket price discussionss and other issues they also appear to have an active community project side. Since they were formed they've funded a scheme to coach disabled children to Football In The Community schemes, supported Reading's Under 15 team to go to a tournament in Holland, sponsored Unity FC, subsidised 50 tickets for children from United Reading Community Group to attend a match and financed the purchase of a set of goalposts for Reading Town FC. I've already mentioned that we are actively researching potential community projects for an MCFC Supporters Trust to support in both financial and non-financial terms and wish to confirm that whilst we support Manchester City's Football In The Community we would like a trust to become involved in schemes that will compliment the existing schemes or if possible work in areas not already covered by them. We plan to publish proposals in this respect when we have finished our research and spoken to as many people about this.

To finish, you might like to know what STAR's objectives are:-

1) To stengthen the bonds between the Club and the community which it serves and to represent the interests of the community in the running of the Club
2) To benefit present and future members of the community
3) To facilitate the participation of supporters of the club in activities promoting football in communities throughout the United Kingdom
4) To encourage the Club to take proper account of the interests of its supporters and the community it serves in its decisions and to honour the contribution made by the community in the past to the life of the club
5) To acquire and hold shares in the Club or any company controlling the Club and to be an active and growing shareholder thus giving supporters collectively the opportunity to have a stake in the Club
6) To promote the full, accountable democratic and constructive involvement of supporters in the running and direction of the Club, including the principle of supporter representation on the board of the Club
7) To continue the work of Reading Football Supporters Club, with particular reference to away travel, ticket priority and Fans Forums.

If you have some time and don't mind visiting another football club's supporters' website the link to STAR is here http://www.star-reading.org/index.pl

If after reading this (no pun intended) you feel that something similar is required at our great Club, well that is what we are working hard to try and establish. As is normal on here, all comments, questions, input and suggestions are welcomed please e-mail mcfcsupporters@hotmail.co.uk

Saturday, October 07, 2006

Corporate Governance

Corporate Governance is the promotion of corporate fairness, transparency and accountability.

In July 2003 a new Combined Code of Corporate Governance ("the Combined Code") was brought in and this is overseen by the Financial Services Authority. In short, the code specifies the distribution of rights and responsibilities of the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. If you find that confusing then don't worry, just concentrate on my first sentence in particular my words "fairness, transparency and accountability".

During my research I noted that one of the aims of a Premiership Club's Supporters Trust included "...to lobby the club and ensure that Corporate Governance is maintained". At the moment we are still putting together our proposals on the aims of the proposed trust and these will be presented at the Open Meeting (when all interested supporters meet to consider and vote on the formation of the Supporters Trust etc) however, in the meantime it got me thinking.

One of the reasons why I think a Supporters Trust will flourish is because it is totally democratic and above all will be fair, transparent and accountable to it's members, in other words it would employ good corporate governance. So how does the club deal with Corporate Governance?

Well in the 31 May 2005 accounts the Club issued a statement on this subject saying "The Directors have considered the principles of Corporate Governance ("the Combined Code"). The Board supports the highest standards in Corporate Governance and believes that the Code provides a statement of best practice, compliance with which offers opportunities for enhancing management focus as well as for delivering the principles of openness, integrity and accountability on which the Code itself is based".

Having read the board's statement, knowing that the Combined Code is overseen by the FSA and with the company being listed on OFEX you would think that there was nothing to worry about. Well normally you would, until you actually read the Combined Code, for those interested the link is here http://www.fsa.gov.uk/pubs/ukla/lr_comcode2003.pdf#search=%22fsa%20corporate%20governance%22

If I draw your attention to C.3.1 it states “The Board should establish an audit committee of at least three, or in the case of smaller companies two, members, who should all be independent non-executive directors. The Board should satisfy itself that at least one member of the audit committee has recent and relevant financial experience”.

Now you're losing us Ollie I hear you say? Well, when you look at the Club's accounts again you'll see that the two members of the audit committee are Alistair Mackintosh and Bryan Bodek. Come on Ollie what's your point? Well, Alistair Mackintosh is an executive of the company so under the Combined Code he should not be on that committee. In fact, you could argue that he is not independent either and if that is the case then he fails on two counts.

My guess is that he is on the audit committee because he is the only member of the board with the relevant financial experience having come from an accountancy background, it's only a guess though! But isn't Alistair Mackintosh also responsible for the club's finances? In the few interviews he has given to the media he certainly does give the impression that he has the club's finances under control. Good point. So if he is in control of the club's finances why is he also on the audit committee? Another good point, I can't answer that one.

My next guess is just a guess, and that is, that Alistair Mackintosh is the Chairman of the audit committee. Why do I say that? Well Bryan Bodek declares in the company's accounts that he is the Chairman of the Remuneration Committee but doesn't declare that he is the Chairman of the Audit Committee. OK, I have made an assumption here but it is something that the next set of accounts should clear up once and for all.

What is Bryan Bodek's position? I have heard from many sources that he is BSkyB's representative on the board but I have not been able to confirm this. I'll put this down to rumour and I'll give him the benefit of the doubt there but if he is (BSkyB's representative) then he too should not be on the audit committee.

If you have read Colin Savage's articles on the finances then you will know that he raised the above points with Alistair Mackintosh earlier this year. I understand that Alistair Mackintosh's reply was something along the lines of the auditors have no problem with the current audit committee. Well I for one believe him. If the auditors are happy, the FSA are happy and OFEX is happy then what do I know?

By the way, thank you to the many supporters and shareholders who picked this issue up independently of me and Colin's article and sent me an e-mail about it. I hope this article helps a little. Oh and one other thing, I would hope that when the Supporters Trust is formed it will ensure that important issues like these are raised at the appropriate level on the supporters and shareholders' behalf. I for one would not want to see the club I have loyally supported all my life and invested some of my hard earnt wealth in its shares fall foul of any legislation applicable to it.

As is normal, your comments, input and questions are always welcomed please send them to mcfcsupporters@hotmail.co.uk and if there are any other subjects you would like us to tackle here on this blog, please send them our way we will do all that we can to oblige. In fact, we've had a few questions arrive and will be answering them individually as well as via another FAQ to be published on here soon.

What Is An IPS And Why Is It Relevant To A Supporters Trust?

An IPS is an Industrial and Provident Society and one of two options available to a Supporters Trust when considering their set-up/ structure (the other being a CLG or Company Limited by Guarantee). Supporters Direct recommend that an IPS is used and I'll get into the reasons why a little later.

After the Open Meeting has taken place (when all interested supporters meet to consider and vote on the Supporters Trust proposals) one of the next steps will be to decide the set up/ structure of the trust. We are currently planning for the Open Meeting (more news to follow in about a week's time) but presuming the Supporters vote in favour of the formation/ proposal, the odds are that an IPS will be the most effective structure to be utilised. In advance of this event potentially happening, I thought you'd want to know a little more about ISPs.

The definition of an IPS by the Financial Services Authority ("FSA") is an organisation conducting an industry, business or trade, either as a co-operative or for the benefit of the community, and is registered under the Industrial and Provident Societies Act 1965. When an IPS is formed it must be registered with the FSA although IPSs are not regulated by the FSA unless they are undertaking an financial services business.

Once the IPS has been chosen as the way forward and a suitable constitution agreed upon Supporters Direct will oversee its registration with the FSA and will also cover the costs of the registration.

So why do Supporters Direct recommend an IPS? Well the vast majority of existing Supporters Trusts have opted for this form of structure because of its community orientation, democratic ethos and robust regulatory framework. The attributes of an IPS is:-

1) Community Orientation - intrinsically part of the framework of the Trust
2) External Regulation - the FSA will not register rule changes that conflict with the requirement to operate for the benefit of the community
3) Robust Constitution - crucial rules such as the Objects, Powers and Application of Profits, may only be altered if there is a 75% majority in favour
4) Effective And Versatile - expericne has shown IPSs to be adaptable and powerful in varied circumstances
5) Not For Profit Motive - safeguards against "carpet bagging"
6) Growing Supporters Trusts Movements - offers additional "political" weight and influence in the wider world of football
7) Community Of Mutuals - offers opportunities for additional funding and partnerships with other co-operatives. Provides affinity with other organisations committed to benefiting the local community; and offers reassurance to the supporters and the club of the community orientation and not-for-profit objectives of the Trust
8) Start-Up Grant Funding - as already mentioned Supporters Direct pay for legal costs and expenses subject to eligibility
9) Limited Liability For Members - no need to put your financial security on the line; members are protected
10) Financially Responsible - effective in circumstances where significant sums of money have to be raised by public offer

I am the first to admit that I had not heard of an IPS until a month or two ago. In my line of work I set up and adminster trusts, pension schemes, trading companies, investment companies, property companies and other vehicles both for individuals and corporte clients but I have never come across an IPS before; probably because they are "one man one vote" not for profit vehicle for the benefit of its members and the wider community where profits are ploughed back into the IPS. The clients I tend to work for are there to make a profit which can be extracted at some stage in the future and they would not need an IPS!

If anybody has an questions on IPSs please e-mail us on mcfcsupporters@hotmail.co.uk if we cannot answer them we'll speak to Supporters Direct! If you have any comments or input on this subject please also contact us.

Alistair Mackintosh Speaks! Ollie Reflects!

Alistair Mackintosh rarely gives interviews but this week he has spoken. Looking back through the archives I can only find two recent interviews. One given to The People and published on 6 February 2005 and the other given to Accountancy Age and published on 9 March 2006. Following his latest interview I thought that I would reflect on comments given in all three and what has happened since his first interview in The People.

Most of you will remember that AM's interview with The People came shortly after Nicolas Anelka was sold at the end of the January '05 window leaving Kevin Keegan, the manager at the time, with no real time to bring in a replacement. Most fans feel that Anelka's goalscoring ability and pace on the pitch has still not been replaced. But if Stuart Pearce's comments at the time and more recently Shaun Goater's are to be believed Nicolas Anelka is not missed in the dressing room.

In early February '05 AM decided to comment publicly (something he doesn't do very often) following claims that the Club was near financial meltdown. AM said at the time "it is nonsense to suggest that we are on the verge of financial meltdown - our debt is in control and manageable". He went on to say "we have a main debt of £44m, which is serviced like a mortgage in that repayments are structured over a mostly 25 or 15 year period".

In the Accountancy Age interview in March this year AM is still talking along the same lines saying the same things. He mentions the debt being manageable and well structured. Interestingly he is directly quoted as saying "there are many ways for clubs to mitigate the risks they face, such as operating flexible contracts with players...monitor wages against turnover - where you finish in the Premiership should be reflected in the wage budgets. It's about being within a responsibly run business, of which accountancy is at the forefront".

Fast forward seven months to AM's recent interview and he appears to be returning to the same themes and same comments about the long term debt but appears to have changed his opinion about wages. He mentions that City has the seventh highest wage bill in the Premiership and is directly quoted as saying "In football you've got to be aware of what your competitors are doing and sometimes you have to take the extra risk" but he does return to form with his next line "Sometimes you've got to mitigate the risk wherever possible".

And then maybe he gives us a brief insight into what we can expect in the next set of accounts saying "we've invested heavily in our wage bill. And whilst the players may have come here on Bosman transfers, they generally have a high wage attached." He goes on to finish by saying "It's a strategic choice to have a high wage bill. But then you want performance that is commensurate to that as possible".

So what has happened since The People interview? If you want an in depth read of City's financial situation take a look at Colin Savage's articles he is publishing in MCIVTA which have been re-published here with their and his kind permission. Whilst I'll try and avoid too much financial detail I must pre-warn you that I will be comparing a few figures!

Looking back at the last eighteen months or so, it is clear that there has been a change in staff numbers. According to the Club's accounts as at the end of 31 May 2004 the playing staff had fallen from the previous year's 53 to 47 and the football & commercial staff had risen from the previous year's 184 to 199. By 31 May 2005 the playing staff had fallen further to 45 and the football & commercial staff had risen further to 204. When the 31 May 2006 accounts are published I will be interested to see what these figures are but it's clear to me that the playing staff is much reduced, in fact Stuart Pearce directly blamed the lack of numbers on the poor finishing position in the Premiership last season.

From AM's comments in early February '05 to date he has overseen a net 10 players leave. I won't list the comings and goings but I have obtained those figures from City's own website. The notables coming in include Darius Vassell, Georgios Samaras, Ousmane Dabo, Dietmar Hamann, Paul Dickov, Bernado Corradi, Andreas Isaksson & Hatem Trabelsi. The notables going out include Bosvelt, both Wright-Phillips, Fowler, Croft, Flood, James, Cole & Sibierski.

So what does this all tell us? Well quite clearly the amount of players on the books has fallen but the wage bill has not fallen in such a dramatic fashion. Despite AM's comments, the wage bill does not reflect the performances in the league last season. Who is to blame there? I don't know but clearly the manager is operating with one of the Premiership's smallest squads so there is little room for injury problems for example.

You can all draw your own conclusions from AM's comments I have one in particular which I will draw you to at the end of this article. By the way, a Supporters Trust, isn't there to have a hand in transfer dealings, set policies etc so please do not think this is a statement given out by us, it is not, it is simply me thinking personally about AM's comments in the media.

The one point I would like to make is this, AM has confirmed that the bosman signings are expensive (by being on high wages). Undoubtedly the older players bring with them experience but is this the correct policy bearing in my City's precarious financial position?

For my example I'll look at it in very basic terms by comparing two players Dietmar Hamman and Steve Sidwell. Hamann cost the club an estimated £300k in compensation to Bolton and is probably on a hefty wage say £30k a week. Sidwell almost came to City but the clubs couldn't agree terms. Let's say we sign Sidwell for £2.5m and give him a four year contract. I read at the time of the possible move that Sidwell had accepted a wage of £18k a week.

If we look at the cost (without bonuses, agent's fees and bungs - that last part's a joke!) over say a three year period then Hamann will cost a total of £4.98m. Sidwell over the same period will cost £5.3m. So over a three year period it would cost us an average £100k a year more to sign Sidwell. I admit that Hamann brings experience but on the other side of the coin Sidwell brings youth and the possibility of him continuing to improve. Perhaps most importantly and certainly whilst City operates a squad small in numbers, Sidwell statistically will be injured a lot less than Hamann, in fact Hamann and the rest of the older Bosman signings this summer (with the exception of Corradi) have had injury problems in the first six weeks of this season.

The most interesting thing though, is if we look forward three years. Hamann will be retired and will not earn City a penny (the club will therefore have to come up with finance to afford a replacement) and Sidwell will be in the final year of his contract (the club could still recoup a transfer fee to be used towards a replacement player) so at the end of the day it would actually be cheaper and more profitable to sign the younger man. Of course, the other thing to keep in mind is that if Sidwell excelled for the club in the first two or three years he could be sold for a profit which would help provide the balance in the books that AM requires.

I have looked at this in a very simplistic way and by all means drop me a line but my point is, that perhaps our transfer policy is a little flawed as it seems balanced too far toward older players on bosmans when actually the cheaper, more profitable and less riskier option (from an injury perspective) would be to sign a few more younger players.

As mentioned this is my personal point of view and not a statement by the group I am part of. As with all things published here I welcome comments, input etc to mcfcsupporters@hotmail.co.uk

Substance Recommendations Re Supporters Trusts

Much of what I am about to mention here has been taken from a report by Substance. Substance is a social research company with particular expertise in sport, young people, urban and popular culture. Fairly recently they published their report for the Football Foundation entitled Football And Its Communities which was funded by the Football Foundation and their Community and Education Panel.

The Football Foundation is the UK’s largest sports charity, to find out more about them and their aims (one of which is to strengthen the links between football and the community and to harness its potential as a force for good in society) please take a look at their website http://www.footballfoundation.org.uk/welcome

I understand that Supporters Direct, the Football Supporters Federation, the FA and the Football Foundation have endorsed their report. What I haven’t been able to find out is whether Manchester City Football Club has endorsed it. This is something that I would love the club to comment on publicly.

The report is substantial and for the purposes of this article I am concentrating on the Supporters section of the report in particular comments and recommendations made with reference to Supporters Trusts. The report as a whole is very interesting and another one of our group is reviewing it in its entirety as part of our research into Football In The Community.

In Substance’s preamble of the Supporters section they mention something which appears to be a reoccurring theme amongst many City supporters these days, especially those who have contacted us. Substance says that “football supporters are rarely seen by clubs as ‘communities’, and are now, in fact, more often identified as individual customers”. The report goes on to say that “our research suggests that one of the principal strengths of football clubs lies in match attendees’ collective definition of themselves as fans, supporters and followers who develop long-standing attachments to their clubs through neighbourhood and family connections, rather than their status as ‘customers’ attracted to a superior ‘product’”. That sums it all up really, as we all know a vast majority of City fans no longer feel a closeness to the club anymore instead feeling that they are required for their money and not much else, indeed you only have to look at the home and away crowds so far this season and compare it to three years ago to get a flavour for the problem.

Substance interestingly followed City for three years. When commenting directly about the clubs they researched they said “currently, none of the clubs considered by our research has a policy orientation which relates to their supporters directly as ‘communities’”. A little later on their report says “it is also surprising and unacceptable that where fans themselves formerly organise around specific interests (for instance, to organise travel to matches, as independent campaigning organisations, or as trusts with mutual shareholdings), some clubs still refuse to recognise or engage with them. For example, involving supporters’ trusts in owning and running clubs, in the development of independent community organisations, or in creating new partnerships to enable clubs to be more outward facing, can only benefit clubs’ engagements with their communities and the fans involved”. At the time of me writing this article Manchester City Football Club had not made any attempt to engage in dialogue with us despite several attempts stretching back to the beginning of August.

Substance does make an interesting point to the Football Foundation Community and Education Panel when it says “…in line with government support elsewhere, the Football Foundation C&E Panel could do more to encourage the inclusion of fan communities in the running of clubs by working in partnership with Supporters Direct to promote fan ownership and representation at board level and prioritising funding for clubs who demonstrate that they are building relationships which enhance the shared community of clubs and fans”. As you know we are working with Supporters Direct towards forming a Supporters Trust, also as you know opening dialogue with the club has proven impossible.

Substance does end the report by making a number of recommendations to Central Government, the Football Foundation C&E Panel, FA Premier League and Football League and Football Clubs. The nine recommendations they make to football clubs are:-

1) Work with Supporters Direct to encourage supporter investment, ownership and representation
2) Understand, consult on and acknowledge the role of supporters beyond their status as "customers"
3) Conduct digital and qualitative "supporter community" mapping exercises to understand better their supporter communities and develop new ways of working with them around community issues
4) Include fans in preparations for match days, allowing them the freedom to create the "spectacle"
5) Ensure greater communication and access between directors and supporters in informal and open access environments
6) Increase player commitments to attend supporters' meetings, social functions and other informal space on match days and non-match days
7) Provide organisational and material support for fan-led volunteering and community development programmes
8) Support fan ambassador/ mentor programmes
9) Develop more inclusive ticketing, atmosphere and match-day access policies

I have summarised Substance’s report with reference to Supporters so please take the time to go to their website and read it for yourself http://www.substance.coop/ I think (like me and the rest of my group) you will consider Substance's views of supporters trusts to be a positive step forward for the future of clubs, their supporters, shareholders and communities.

By the way, I understand that Dr Adam Brown and his team from Substance are attending the Supporters Direct annual conference next week. I will be trying to track them down for a chat on their findings/ views.

Wednesday, October 04, 2006

Subscribe To Our Newsletter

We send out a brief regular newsletter when there is news or progress to report sometimes prior to articles or statements being published on this blog. If you want to receive this newsletter please subscribe by sending an e-mail to mcfcsupporters@hotmail.co.uk

Monday, October 02, 2006

City's Finances (Part Four)

This is the next part in a series of articles written by Colin Savage first published in MCIVTA's newsletter with reference to City's Finances. With the permission of Colin and MCIVTA (thank you Heidi) it is re-published here. I think you'll find this to be another informative, interesting and factual article.

The Profit & Loss Accounts

This is the fourth article in the series but the first to focus on the actual financial statements, again using the 2005 accounts for illustration.

However, before that I have to point out that I made an incorrect assumption in the previous article, when I mentioned that we had £7m in our account and that it was probably the extra £7m introduced by Wardle. It turns it I wasn't quite right and thanks to the person who pointed this out (I think you read MCIVTA so you know who you are). I will explain the actual scenario in the next couple of articles but it really highlights the true state of our current finances.

The P&L account, quite simply, is a statement of our income and expenses for the year in question. There's nothing terribly complicated about it - take the expenses from the income and that's our profit or loss for the year. We can all do the same, looking at our income and subtracting our expenses such as mortgage or rent, gas and electricity, etc.

The first issue is, however, what expenses can we take? The second is that making profits, although desirable, does not necessarily tell the whole story because some of the key items are accounting rather than cash transactions.

What does this mean? Well if you buy a pie and a pint at the ground and hand over £4, that's a cash transaction, as money has changed hands. You've got £4 less and the catering outlet has got £4 more. (You've also got a gassy pint of liquid and a lukewarm concoction consisting of some of the less appealing parts of a dead animal but that's by-the-by).

However, if the outlet runs out of pies and gets some from another outlet that has plenty, that doesn't affect the number of pies in total or the total takings but both outlets would have to account for these. Otherwise their takings would appear to be wrong as one would have appeared to have sold all their pies but didn't have enough money and the other would appear to have too much money. So the transfer of the pies would be an accounting transaction.

In addition, there are ways to make the profits appear larger or smaller, depending on the way you account for some things. One example is the value of any stock you have at the year-end. The higher you value this the higher the profit will be. However, stock is not a great factor in the City accounts.

Another thing to bear in mind is that these accounts, in common with most others, are prepared on an "accruals" basis. This means that a transaction that relates to this financial year is shown, even if we haven't paid for it at the year-end. Therefore it we take delivery on a van-load of pies close to the year end, they will still appear as an expense in the accounts even if we don't pay for them until after the year end.

This also applies to items we might pay for in advance so if we pay council tax in full in April, with our May year-end two months will be shown in the current financial year but most will belong to the following financial year.

The same applies to season ticket income. We collect most of that before the year-end but it isn't accounted for until the following year because it relates solely to the next season, which is covered by the next year's accounts. I'll talk about this in the Balance Sheet article.
But to get back to the 2005 accounts, you will see that a number of different figures appear for our profit or loss. There's the Operating Profit, the Profit or Loss after Amortisation, the Profit or Loss before Interest. Some show a profit and some show a loss. So which is the right one? Well they all are - there is a standard way of reporting these things that leads to all of these as I'll explain.

The first figure in the P & L Account is turnover of £60,864. This is actually £60 million, as the figures are shown in thousands to make them more readable. Next to it is last year's figure (£61,932) and if we look at Note 2 on Page 23, it tells us how these are broken down. In 2005 £15,073 (£15m) was gate receipts, £26,143 was TV income and £19,501 was described as Other Commercial Activities. This is probably match day hospitality, shirt and other sponsorship and income from both the other sporting and non-sporting use of the stadium. There is also a (relatively) small contribution from the development association.

The first thing that is clear from all this is that the ordinary supporter, either with a season ticket or paying on the gate, is the least important of the three major income streams. TV and other commercial income combined bring in three times more than gate money. However a good cup run or European football does make a difference as they can bring in well over £1m per home game before any TV money is taken into account. We had neither in the 2004/5 season and even though we had a decent league finish, our gate receipts were significantly lower because of that. TV income I believe includes the so- called Merit Money for league placement.

The next figure is Operating Expenses of £57,359. This is in brackets as it needs to be subtracted from the Income figure. It is pretty similar to last year and the first group of figures in Note 3 shows a more detailed breakdown, with a summary at the end.

The biggest single item is (surprise, surprise), staff costs of £37,677. Note 4 shows the split between staff and player numbers (but not wages) but you can clearly see that to reduce costs to any great degree involves reducing the wage bill. These wages include the cost of Keegan's departure and that could have been up to £2m. This, together with the loss of some higher earners at the end of the 2004/5 season should lead to a significant reduction in wage costs for this last year. I would be expecting just over £30m in the forthcoming accounts. The proportion of our income spent on wages is a key measure for football clubs. In our case, in this year it works out to 61.9% and in practical terms means that if you pay £500 for a season ticket then over £300 of that goes out in wages. This is about the average for the Premiership over the last few years.

There is plenty of football research suggesting that the higher your wage bill the better you do. This is hardly surprising as bigger squads of better players (who will be paid more) should out-perform smaller squads of less well-paid players over time. However, one club spectacularly bucked that trend last season and despite having one of the highest wage bills, finished in the bottom six. No prizes for guessing who it is!

Note that the Operating Expenses does not include any expenditure on transfers or debt interest. It only relates to the direct expenses of running the club and the stadium. This gives us an operating profit of £3,505 (that's £3.5m don't forget). This is fine, as the wage bill alone outstrips income at some other clubs. However, from a profit point of view that's not the end of the story.

The other part of our operating expenses comes under the heading of depreciation. You've all heard of this - if you buy a new car it depreciates as its value goes down year on year. Therefore depreciation can be summed as a measure of the loss of value of an asset over time. It's an accounting transaction as we don't actually put the cash aside and can be looked at as a charge for the use of that asset during the year. Note 1 shows the depreciation charge on various types of asset. So the 2% charge on Freehold Buildings means that we expect these to have a useful life of 50 years because it will take this long at 2% per year to write the whole cost off.

Similarly we allow only 4 years for Computer Equipment as we write off 25% of that each year. "Straight Line" means it is applied to the original cost so if we buy a computer for £800, we would charge £200 depreciation on that for each of the next four years. The depreciation on our business assets like buildings, fittings and computers is included in operating expenses.

The same concept applies to players, except it is called amortisation. It has a slightly different meaning in theory but for our purposes is the same thing. Therefore if we sign a player for £6m on a 3-year contract, we charge £2m amortisation to the accounts for each of those three years. The large figure of over £11.5m in the accounts reflects our high expenditure on players over the last few years. However, we only charge amortisation for transfers in and while the player is still on our books so the combination of Bosman signings and Academy players won't attract this level of charge in future accounts. However, adding in this charge in these accounts reduces a
£3.5 million profit to a loss of just over £8m. However, it's important to remember that we've not actually paid money out in respect of depreciation/amortisation, even though it's turned a profit into a loss.

The next group of figures include the profit or loss on disposal of fixed assets and players and it's important to be aware of how this is worked out.

The book value of a player at the time we sell him is not his cost but his cost less all amortisation charged on him (and this could include a part charge if we sell him part way through the financial year). Taking the example of a £6m player on a three year contract, we have already said we would charge £2m per year. Therefore if we sell him at the end of his second year for £3m it looks like, on the surface, we have lost £3m. However, in accounting terms we have actually made a profit of £1m. How come? Well, we've charged two lots of amortisation (2 x £2m) which totals £4m and this reduces his accounting value to £2m (£6m cost - £4m amortisation). So this explains how the club can claim we made a profit on the sale of a player even though we got a lot less than we paid for him. This means that the sale of SWP, who cost us nothing, will generate a huge profit in the 2006 accounts. The small profit we show in these accounts reduces our overall loss from £8,060 to £7,721.

The next group of entries relate to interest, both payable and receivable and something called Stadium finance lease charges. As we are in debt, we obviously pay more interest than we receive. It also, as far as I'm aware includes the interest that has been added to the loans from Wardle and Makin, whether or not we actually pay it to them. The charge for lease interest represents the interest that we believe would have been charged if we'd borrowed the money and is part of the actual payments we make during the year. The actual lease payments are not themselves expenses, just the interest element and likewise for other loan repayments and bank interest.

Notes 5 & 6 are not desperately illuminating as all they do is split out bank interest from total interest on our other loans.

The subject of tax is very complicated but suffice it to say that, with our losses, we pay no tax. The last figure of loss per share (or earnings per share if we make a profit) is explained in Note 8 and is a key measure used by financial analysts but is more useful for companies that pay a dividend on their shares.

What does all this mean at the end of the day? Well, we've made a loss of over £15.5m but that doesn't mean we've spent £15.5m more cash than we received in income. £11.5m of this, for example, was for the accounting entry relating to amortisation and no cash is involved. We can see what our income is, how it is split and how much we pay in wages. We can also see what our overall interest bill is. So we can get some idea of where all the money goes and it partly answers the question that people often ask "How come with one of the biggest incomes in world football we never seem to have any money?"

However, it doesn't tell us how much net cash we generate or what our overall financial state is.
In the 2006 accounts our profits will presumably be pretty impressive but much of this will be down to the £21m received for SWP, which should be pure profit. The salient figures will be our income, in which a decent cup run was negated by a fifteenth place finish. So there's probably not going to be much change there. The wage bill should be reduced and it will be interesting to see by how much. Amortisation of players should also be a lot lower. So even without the SWP sale, I would expect we should be close to an overall profit.

But that doesn't mean much in itself although the club PR machine will undoubtedly focus on it.
In the next article I'll attempt to explain the Balance Sheet and this, I think I can promise you, will make very interesting reading.

Colin Savage

Web Counters (Since 24.9.06)