The finances facing Joyce

Photo courtesy of Wigan Athletic FC.

Photo courtesy of Wigan Athletic FC.

Just nine days ago Warren Joyce left a comfortable position at Manchester United to join a club struggling to avoid relegation whose budget ranks them at 19th in the Championship division.

Why would Joyce sever the link with Manchester United, a giant club where he had been held in high standing for more than eight years, to take over Wigan Athletic? How did David Sharpe sell the move to him?

A three and a half year contract probably helped, but what vision did Sharpe give him of where he expected the club to go in that time? What financial backing would the chairman be willing to provide to help Joyce compete for new players on an even keel against other clubs in the division?

Joyce has a fine reputation for developing young players, but it was at a club where funding was plentiful. If Wigan Athletic’s wage bill is already low compared with the majority of clubs in the division, what is it going to be a year from now when the inflow of parachute payments will have dried up?

It was Jonathan Jackson who mentioned the budget ranking at a recent Fans Advisory Board meeting, according to a reliable source. But how can this be the case when Latics are still receiving parachute payments?

Getting accurate financial data from football clubs is never easy and what you can get applies to years well gone by. But Jackson’s alleged statement certainly gives food for thought.

If a business were run like a typical Championship club it would soon find its way to bankruptcy. In 2014-15 Bournemouth spent lavishly on their ascent to the Premier League, making a loss of £39 million. From a financial point of view it could be said that the Cherries’ gamble came off and that the loss could be written off by the huge increase in revenue in the Premier League. But Fulham lost £27 million in finishing in 17th position, with Nottingham Forest losing £22 million and Blackburn Rovers £17 million only to hover around mid-table.

In fact 18 of the 24 clubs made losses that year. Of those in the black, Birmingham City and Wolves used their £10 million parachute payments to keep their heads above water, each making a profit of around £1 million. Three other clubs showed profits through transfers, revaluation of assets and owners writing off debt. Only Rotherham United, who made a tiny profit, did so without such inputs. They did well to narrowly escape relegation.

Wigan Athletic are one of 8 Championship clubs receiving parachute payments. The clubs that are newly relegated from the Premier League will receive around £28 million in their first season, whereas Latics are in their final parachute season and will receive around £10 million. Next season they will receive a solidarity payment of around £2.5million due to clubs in the division who are not in receipt of  parachute payments.

Last season in League 1 the parachute payments gave Latics a huge advantage over the other 23 clubs who did not have them. They were able to pay out major transfer fees and offer lucrative salaries to players who had completed their contracts at other clubs. The result was a squad too strong for the third tier.

However, the tables have now turned. Wigan Athletic find themselves in a division loaded not only with other clubs buoyed by parachute payments, but others whose owners are splashing out major money in a bid for promotion. In contrast Latics’  recruitment policy has had to be adapted according to the constraints of its finances.

Five players have been brought in on loan, another nine for either economical transfer fees or on free transfers. When Latics last started a Championship season under Owen Coyle the salary budget was around £30m.  The current budget could be as much as 40% less. The main factor is the reduction in the parachute payments from around £25m in the first year and £20m in the second to £10m in the third and fourth years. However, knowing that there will be a major drop in revenue next season, the club has had to be careful in offering long term contracts with lucrative salaries. One half of the players recruited this summer have contracts that expire before and or at the end of the season.

In a recent visit to Brentford to watch Latics fight I spoke at length with a group of their fans about their chances of reaching the Premier League. On paper it does not seem impossible. On coming up from League 1 the Bees finished 5th in 2014-15, reaching the playoffs. Last season saw them finish 9th. However, the Brentford fans were not optimistic about their club’s ability to reach the top division. They pointed out that they have a salary cap for individual players and have to sell off their top assets if realistic sums are offered. They surmised that owner Matthew Benham has put in over £90m into getting the club where it is today. Without his support they would surely flounder.

Brentford provides a model for comparison. Their average crowd last season was 10,700 which is close to what we can expect at Wigan this season. But in gaining promotion they made a loss of £7.7 million, which rose to £14.7 million that first season back in the Championship, with wages going from £10 million to £17.7 million.

The reality is that, without major input of funds from the owners on par with those of competitor clubs, Latics will not be able to compete on an even keel in the division.

Following a dire 3-0 home defeat to Reading, Wigan Athletic’s place in the Championship remains in jeopardy. There were always going to be questions over the ability of players from last season’s squad to replicate such form in a higher division. Moreover a more cash-strapped  recruitment process involved  a number of the players brought in have been short of first team exposure in the past year. This is not to suggest that those players do not have sufficient quality for the division, but it was always going to take them time for their match sharpness and overall fitness to reach a competitive level.

It is once more a period of transition for Wigan Athletic. For so many years Dave Whelan’s  financial backing, together with good management and terrific spirit, helped the club eclipse so many of the others currently in the Championship division. But times have changed and we will have to wait and see how the club will cut its cloth over the coming 12 months.

The first priority is for Joyce to get his new club out of the relegation zone and consolidate its place in the division. Should that happen we will then be looking at how the club is going to stay competitive in a division when the financial odds will have turned against their favour.

In his first full season David Sharpe brought back vitality and optimism to Wigan Athletic. His positivity shone through in his communications with the media and in his willingness to spend big in bringing players into the club who could help ensure promotion back to the Championship. When he appointed Gary Caldwell he talked about bringing back football played “The Wigan Way”, suggesting that the Scot would be there long-term. The chairman’s positivity was to be rewarded with a League 1 championship title.

But times and circumstances have changed.

In the summer of 2015 Sharpe had splashed out close to £1 million to bring a central striker, a hefty fee for a club about to begin anew in League 1. Moreover in the January transfer window he finalized the transfer of a player on loan for around £600,000. Without Will Grigg and Yanic Wildschut Latics would have been hard pressed to get promotion, let alone win the division.

This summer saw players brought in for modest fees, others being free agents or loanees. Granted Sharpe did stick his neck out to offer contracts which one assumes were close to the market rate for players like Jordi Gomez, Adam Le Fondre, Nick Powell and Stephen Warnock. Moreover a three year contract was offered to the 31 year old Jake Buxton who arrived on a free.

Sharpe’s recent comments about Joyce’s appointment and the club’s immediate future suggest that the Whelan family is unwilling to put in the kind of financial investment that is the norm in so many other clubs in the division. The chairman has made it clear that he is not going to throw money around in the style of clubs like Derby County, whilst emphasising the new manager’s skills at developing players. Put simply there is not the same vibe coming from the young chairman that we had a year ago.

The main aim for the current season must be consolidation in the Championship. It is to be hoped that Sharpe will avoid the kind of fire sale that we witnessed in January 2015 that led to relegation. It was an exercise based on cutting the wage budget by at least 30%. Significant money was saved in the short term, the club eventually losing £3.9 million for the season, substantially less than it would have been. But relegation was to mean that the club would only have one more year of a parachute buffer even if it were to regain Championship level status. With hindsight the scale of the clear out was a major mistake. But will history repeat itself this coming January?

In the meantime Joyce will try to get the best out of a squad that has enough quality to get out of the relegation zone. In the long-term, assuming he is given the longevity denied to Caldwell, he will most likely be working on a budget that will be dwarfed by those of the vast majority of clubs in the division. The strategy will involve selling off the pick of those young players the manager has developed in order to stay afloat.

Joyce’s immediate task of consolidation in the division is his most immediate challenge. Should he manage to do that he will face a more difficult task: that of achieving miracles on a shoestring budget.

Like us on Facebook, or follow us on twitter here.

Moving up a tier? Wigan and the Premier League financial league table

Over the years, Wigan Athletic have delivered performances ranging from the majestic to the downright nightmarish — none more so than the 2010 season opener against Blackpool. A 4-0 home defeat to anyone would have been bad enough, but to a team who the pundits had already condemned to relegation even before a ball was kicked? It was to prove a difficult season for Latics, only securing safety on the final game of the season. It also went down to the final game for Blackpool, who put up an amazing fight before eventually succumbing to Manchester United.

An old Bob Dylan song reminds us that “Money doesn’t talk, it swears.” The primary reason the pundits had tipped Blackpool for relegation that year was the perception that they did not have enough players of Premier League quality. Their Chairman, Karl Oyston, was not willing to splash money around like confetti and put the club at risk of insolvency. Blackpool’s salary bill that season amounted to just £14 million. Wigan’s was almost £40 million. During that 2010-11 season Blackpool were to do the home and away double over a team with a salary bill almost 10 times that of their own. That was Liverpool, at £135 million.

In the end Blackpool couldn’t quite avoid that relegation trap-door in the jungle of the Premier League, where clubs regularly make huge losses in an effort to keep up with the Joneses. You could say Blackpool got it right. Their salaries amounted to only around 25% of their income – compared with the league average of around 69% – and this helped them gain a positive cashflow for the season. They continue to be run on a sound financial basis in the Championship. Manchester City actually spent more on salaries than the revenues they had coming in, and even Aston Villa were leaking 92% of their revenue on salaries. No wonder Villa have since cut back, putting the emphasis on youth rather than established big-earners. It could be argued, however, that they have gone too far as the lack of quality and experience in this year’s squad makes them candidates for relegation.

Statistics show that the Premier League is financially tiered. In the 2010-2011 season club salary levels published by the Daily Telegraph ranged from £14 million to an absurd £190 million. The top three clubs in the table paid in the £150-£190m range. The teams finishing 4th and 6th paid in the £120-150m range, Tottenham bucking the trend by finishing 5th on a budget of “only” £91m. Fulham and Everton, with budgets around £58m managed to finish ahead of Aston Villa, who spent £84m on salaries. Then followed a clump of clubs paying between £40 and £60m, which included West Ham who were to be relegated despite a wage bill of £56m. Wigan Athletic, Wolves and West Bromwich had salary totals between £37 and £40 million, with only Blackpool below. It would be interesting to see salary levels for the current season, when these become available.

According to the Guardian “ The Premier League’s 20 clubs collectively made a loss of £361m last year, after spending all of their record £2.3bn income. Of the clubs which were in the Premier League in 2010-11, the year of most clubs’ latest published accounts, eight made a profit, of £97.4m in total.”  Dave Whelan wrote off Latics debts for £48m in August 2011. He advocated financial fair play to ensure that debt is maintained at “reasonable and sustainable levels”.

According to Alan Switzer,  of accounting group Deloitte, clubs with salary to revenue ratios of 70% and above are not likely to make a profit. He suggests that levels should go down to the low 60s. In 2010-11, Wigan Athletic were around the 80% level, according to the Daily Telegraph stats, which indicates a negative cashflow of £0.1 m.

The Daily Telegraph statistics show a clear correlation between salary levels and success on the field, although there are some exceptions. So how does a team stay afloat in a tiered Premier League? Do Wigan Athletic have to significantly increase salary levels in order to move up a tier in the league table? Would doing so make them financially less stable?

Last season both Mohamed Diame and Hugo Rodallega left at the ends of their contracts. A rough estimate might suggest that Wigan Athletic lost maybe £10 million in potential transfer money for the two. Whelan rightly insists that Wigan Athletic keep a lid on their salary payments so it is unlikely that either player was given an offer he could not refuse to stay on at the club. This season we have Franco Di Santo and Maynor Figueroa in their final year of contract. Both are key players. Figueroa has developed into an excellent left of centre defender in Martinez’ tactical system. He could prove costly to replace. Di Santo has now added goal poaching to his repertoire and could be worth in the region of £20 million on the open market if he continues to improve at this rate. When Roberto Martinez took over at the club various higher wage earners were sent packing to bring down the wage bill. He is now facing a dilemma in how to keep his top players from leaving at the ends of their contracts, given the total salary cap imposed by his chairman.

Given the factors above, is it possible for Wigan Athletic to consistently reach a mid-table position? Could they defy the stats on an annual basis, keeping a nucleus of good players, allowing a couple of stars to go for premium transfer fees each summer? In this way, the budget could be balanced. The first step would be to already have the replacements for the stars ready and in place. The second would be  to find a way to offer top players longer contracts at competitive rates, whilst maintaining a reasonable total salary cap. Food for thought for Bob and Dave.