Finances, FFP and the long term future for Wigan Athletic

2012-moneyball

Leicester City were once again champions of the second tier of English football this year. No club has done that more than the Foxes, this being their seventh title.

Leicester were deserving winners of the 2013-2014 Skybet Championship. Manager Nigel Pearson had built up a squad that in terms of quality and depth was far superior to those of the majority of the other clubs in the division. His success was reflected in their tally of 102 points for the season, the joint highest since 2005-06 when Reading amassed an impressive 106 points.

But did Leicester buy their success?

Leicester lost £34 million in the 2012-13 season, beating what had been a record deficit of £29.7 million the previous year. However, the Financial Fair Play (FFP) rules came into play at the start of the 2013-14 season. FFP was to allow Championship clubs to lose no more than £8 million this season or they would face a fine or a ban on player transfers. Leicester’s Thai owners had lent £75 million, but facing FFP they drastically reduced the club’s debt by conversion into equity, as Dave Whelan did at Wigan. The Leicester Mercury  reports that the club can “effectively make a £13 million loss and still comply with these rules. This is because the rules do not include costs relating to the youth academy and various one-off losses.”

The FFP rules clearly have some loopholes and Leicester’s accounting team, like those at many other clubs, will be keen to manipulate them and not pay the penalties. Leicester still expect to meet that £13 million loss target.

In contrast with Leicester’s total losses of almost £64 million over the two seasons from 2011-13, Wigan Athletic actually made a profit in each. Reversing a spiral of losses spanning decades, Latics made total net profits of £4.3 million in 2011-12 and £822,000 in 2012-13. That was accomplished while they were in the Premier League.  Can they continue to make a profit – or at least break even – in the totally different environment of the Skybet Championship?

When Wigan Athletic were relegated from the Premier League last season it was clear that both revenues and attendances were going to drop. The question was going to be – by how much?

Latics’ gate money in the Premier League days was always dwarfed by the TV revenues they were receiving and from a purely financial viewpoint attendances were not much of an issue. Last year match day revenues covered no more than 10% of total revenue of £56.4m. Without the television revenues, the club could never have seriously competed in the Premier League.

However, relegation entailed a huge loss in TV revenue – an average Premier League club now receives around £60 million, while the average Championship club receives around £2.5 million. It was clear that the club would need to look at maximizing its other sources of revenue. However, parachute payments (£59 million over four years, including £23 million in the first) would help cover the shortfall  and give Latics a competitive advantage over the majority of the clubs who receive only the £2.2 million Premier League Solidarity payment.

Financial accounts for the season just finished are not yet available, but the likelihood is that the majority of the clubs in the Championship once again lost money. In 2012-13 only five clubs made a profit: Blackpool, Crystal Palace, Huddersfield, Peterborough and Watford. Most of those clubs did so through their business in the transfer market.

The Championship clearly has a long way to go in terms of marketing itself. Its television revenues are paltry in comparison with the Premier League. This despite the fact that  average attendances for the Championship division place it in eighth place of leagues in the whole of Europe.

With an average of 43,497 the Bundesliga once again tops the attendance charts in Europe ahead of the top flight leagues in England, Spain, Italy, France and the Netherlands. The second division of the Bundesliga had an average attendance of 17,888, with England’s second tier following with 16,605.

Wigan Athletic’s average league attendance of 15,177 this season was some 8% below the division  average. Brighton topped the attendance table with an average of 27,283. However, Latics ranked third in attendances away from home drawing an average crowd of 17,370, bettered only by Leeds and Burnley.

In the two years they had spent in the Championship division prior to promotion, Latics averaged 9,531 in 2003-04 and 11,563 in 2004-05 when they finished second. Latics now have a much bigger and younger fan base than they did then. That core of younger supporters will help attendances remain at least where they currently are at the moment unless the club is relegated.

On a local level their attendances remain above those of Wigan Warriors who averaged less than 14,000 in 2013.  Since Latics entered the Premier League in 2005 their attendances have been constantly superior. The challenge will be to hold them there whilst remaining in the Championship. Latics highest league attendance at home this year was 19,226 against Leeds United. The lowest was 12,970 when hosting Yeovil.

Latics’ Lancashire rivals in the Championship are old clubs with fan bases built up over more than a century. Wigan Athletic were formed in 1932, got into the Football League in 1978 and the Premier League in 2005. Their average attendance in the 1993-94 season just twenty years ago – not a long time span compared with the age of those clubs – was 1,897, which is an eighth of what they had in this 2013-14 season.

This season their average attendance was higher than those of Burnley (13,719 – founded in 1882), Blackpool (14,216 – founded in 1877) and Blackburn (14,961 – founded in 1875), being bettered only by Bolton (16,140 – founded in 1874).

During their stay in the Premier League Wigan Athletic wisely kept their ticket prices well below those of most other clubs. The ticket prices  remain competitive in the Championship. In the 2013-14 season the lowest price for a ticket at the DW Stadium was £15, equal to costs at Blackburn, Leicester and Nottingham Forest. Such tickets were cheaper only at  Derby and Huddersfield at £10. Moreover Latics’ cheapest season ticket price of £280 was below average, being bettered only by Yeovil £273, Bournemouth £250, Derby £230, Blackburn £225, Blackpool £195 and Huddersfield £199.

Through playing successes in recent years, keeping admission prices low and an increasing involvement in the local community the club has built up a fan base that now rivals those of their venerable neighbours and competitors. Through Whelan’s actions of converting debt into equity, Wigan Athletic are currently close to being debt free. They are being run along sound financial lines and are not living beyond their means, as is the norm with most Championship clubs.

However, the Championship is a difficult environment in which to operate. It is the parachute payments that are currently keeping Latics afloat. In order to hold a mid table position a club typically carries a wage bill in excess of £20 million. But the total of match day receipts, television revenue and commercial revenue is unlikely to reach £10 million next season and they will be without the financial benefits of the Europa League.

The long-term future for Latics in this division appears bleak. Parachute payments will decrease by £5 million next season, when Latics really need to put in a concerted effort to get back to the Premier League where they would have the huge financial buffer of media revenues. They will face stiff financial competition from the relegated clubs – Cardiff, Fulham and Norwich – with their first year parachute money and Premier League squads. Moreover  there are other clubs, not long departed from the top tier, receiving such subsidies. What will happen if Latics do not get promotion within the next three years?

Over recent years there have been a lot of clubs who have maintained high wage bills, without the playing success to match it. However, the clubs near the bottom of the table have almost invariably tended to be those with the lowest wage bills.

In an interesting study of Championship club finances made by Kevin Messere he quotes that: “Typically to finish in the top six a cost base of £30M is required.” Given the figures we have already looked at, Latics are unlikely to be able to reach such a figure without making a loss, unless they use financial reserves or make a healthy profit in the transfer market. However, given the significant outlay to be made at Charnock Richard they are unlikely to have much in reserve. The inference is that Uwe Rosler will have to sell off some of his prized assets or to cut his squad size drastically.

Given the inability of the Football League to attract big money from the media there will continue to be a large imbalance in income in the Championship division for years to come. Parachute payments give a huge financial advantage to clubs coming down from the Premier League, although many have been weighed down by the salaries of players remaining on long-term contracts. In 2012-13 relegated clubs Bolton and Blackburn had costs amounting to around £50M, leading to big financial losses over the season, despite the first year parachute payments they received.

Given the precarious financial future ahead of the club, Dave Whelan has made a bold move in purchasing what promises to be an excellent venue for a youth academy. Put simply, Wigan Athletic needs to be a “selling club”. Selling one prized asset each year might well be enough to keep the club afloat over the long term, no matter which division they are in.

It is going to take some years for the club to be able to develop its academy sufficiently to provide potential first team players. In the meantime it will be a matter of making astute signings, of young players in particular, who can be nurtured and eventually sold on.

We can expect a lot of changes over the summer. Rosler will have to look at offloading players with high salaries and will have to reduce his squad size significantly. Changes might also be made within the coaching and backroom staff, with him bringing in people who have worked with him previously who know his philosophy and the style of play he seeks. Ex-Brentford assistant manager Alan Kernahan and coach Peter Farrell will surely be under consideration.

Next season promises to be a fascinating one for Wigan Athletic. Rosler will lose a number of quality players over the summer. The question will be whether he will be able to find quality replacements, given the financial resources at his disposal.

In the meantime Latics will strive towards long-term sustainability as a higher echelon team in English football.

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