IT’S BUDGET Day and everyone is talking austerity, spending cuts and the toxic legacy of a millstone deficits. In tune with the zeitgeist Boro’s 2012 accounts are out. And it doesn’t make pretty reading.
We all know – or should know – that the economic backdrop at Boro is bleak. It always is for relegated clubs that don’t get straight back up. Especially once the parachute payments run out. We have discussed the harsh post-Premier League financial landscape and the club’s controlled downsizing before. Most recently in this bit
The accounts for the year to the end of June 2012 released today put some flesh on the bones. Firstly, hands up, I’m no accountant. Most journalists are arty-farty humanities graduates who do words, not numbers. We will hand the full report to someone more financially literate and attuned to the nuances of company balance sheets rather than league tables and the Gazette will do a fuller report later in the week.
Here are the highlights though, expertly and quickly delivered via the excellent Swiss Ramble blog, forensic football accountant to the masses. He is a Zurich-based high end financial analyst with a mission to demystify the balance sheets of clubs to arm supporters with the facts. He crunches the numbers so you don’t have to.
Here are his main points of the numbers, plus a bit of context with comparisions of other Championship clubs who have already declared their own results.
* The 2012 loss before tax was £13.5m (2011 loss £18.7m). The loss after tax was smaller at £10.0m (2011 loss £13.8m), mainly thanks to tax credits.
* There are many large losses currently being recorded in the Championship: Leicester £29.7m, West Ham £25.5m, Bristol City £14.4m, Cardiff £13.6m, Forest £11.6m all lost more than Boro at £10m.
* Boro’s 2012 revenue of £18.1m down was from the previous accounts figure of £40.8m, due to the 18 months accounting period in 2011 and also a significant stepped reduction in the PL parachute payment in that time. Those payments have now ended.
* Boro ‘s 2012 revenue of £18.1m (2011 – £40.8m) breaks down as: gate reciepts £4.8m (2111 – £6.8m), cup income £0.8m (2011 – £0.2m), media payment £7.4m (2011 – £26.1m), commercial activity £5.1m (2011 £7.7m). The high media payment for 2011 includes two years enhanced solidarity “parachute” payments of £12m and £8m, 2011 just one years’s much reduced £4m solidarity payment).
* Boro 2012 profit on player sales much reduced at £2.8m (the 2011 figure was £15.2m including sales of Adam Johnson, Brad Jones & David Wheater).
* The biggest expenditure in the period was the £1.2m purchase of Lukas Jutkiewicz.
There were no significant sales (although several big earners players left on free transfers). The main exit from the squad came after the reporting period and the £3.25m sale of Joe Bennett (plus increments up to an additional £1m) will go into next year’s figures – although the income has been very welcome in a difficult year that followed.
* The 2012 staff costs were £21.5m, giving a very high wages to turnover ratio of 119%.
* High wages to turnover ratios are not unusual in the Championship, eg Bristol City 157%, Leicester 130%, Boro 119%, Forest 119%, Cardiff 103%.
* In the previous 18 month reporting period staff costs were £32m (£1.77m per months). The 2012 figure works out at £1.74m per month. However in the following period there have been significant reductions with current wage levels widely reported as standing at £16m per year (£1.33m permonth) with further reductions expected.
** In 2012 Boro’s gross debt was £70m – owed to Steve Gibson (interest-free). During the reporting period ALL external debt was repaid & replaced with owner loans. in addition to replacing external debt, £50m of inter-company debt was converted into equity during 2012.
That has saved the club over £4m a year – £10,958 per day – in interest payments to the banks that held charges against the loans and credit facilities – and has also released the club of a duty to get the banks’ permission to make any significant financial commitments – that is buy players.
All the above numbers should bring home the reality of the situation to those who have convinced themselves that Steve Gibson is not putting his hand in his pocket, is holding out on Tony Mowbray, making a profit from the club, that he has some intricate fiancially beneficial reason for staying at this level, that he is failing to “show ambition”. He is “showing ambition” to the tune of £10m a year.
In fact, through his company and his personal largesse, the chairman – who has diescribed his own position as “absolutely crackers” – is supporting a club through a period of post-Premiership toxic shock of the type that has proved fatal for some clubs.
The wage bill remains high. At £16m it is the third highest in the division… but it remains unbalanced with too much of that money concentrated in a handfull of players, the legacy of an ill-judged spending spree under Gordon Strachan. Most of those high earners will leave in the summer reducing the overall wage costs, reducing the wild anomolies and giving Mogga a bit – that’s a bit – of leeway. But it won’t herald a new golden age of recruitment. It will still mean shrewd scouting and hard bargaining.
Boro are spending far more than they are earning and are supporting a wage bill that eats up 119% of the turnover. That is unsustainable. Plenty of other owners in similar sitautions have pulled the plug and walked away leaving the club to plunge down another level and go into administration in order to shed the debt and regroup shell-shocked on a far lower base (look at Sheffield Wednesday or Leeds for example).
It also shows that the current controlled financial down-sizing is, in the immediate future, the only show in town. There is no money to throw at a promotion bid. There is no leeway to bring in “the one or two players that will make the difference”.
Recruitment is the key to the future but that will need to be tightly controlled in terms of expenditure, wage levels and also the structure of contracts with more emphasis on bonuses for success on the field.
“The company’s performance depends largely on the team manager and his staff and players,” the report says. “The ability to recruit people with the right experience, skills and potential is a major key to performance.
“To manage these requirements the company is constantly analysing its market place and has performance reviews together with performance related remuneration in place to retain key individuals.”
Next season will be more of the same. Yes, costs are falling but the parachute money has run out, players sales are unlikely to bring in much (even if they are desirable at all) and there has been no marked upturn in gates, despite the club’s well intentioned and well priced ticket initiatives. With Football Financial Fairplay looming and set to restrict how much Steve Gibson can put in, gates are the only real variable in revenue terms.
“The company continually faces the risk of the team underperforming against crowd expectations which can have a significant impact on revenue streams and cash generation,” the report notes. That is the key.
A lot now rests on season ticket renewals.
BORO chief executive Neil Bausor gave his own response to the accounts in the Gazette, stressing the continued support of the chairman to fund the club to the maximum level allowed under Financial Fair play and reiterating that the club’s ambition remains to achieve promotion to the Premier League as soon as possible from a solid financial platform.