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.

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Attendances and finances at Wigan Athletic

2012-moneyball

“There was nothing like it. Running down the tunnel and hearing the roar of a 3,000 crowd. Springfield Park was the best place in the world for me.”

Meeting Harry Lyon in the early 1980s was like a dream come true. It had been a chance encounter with the man for whom the title “legend” would be an understatement for me.

My father had continued to live in the south of Wigan, then rugby league territory, so the pubs around us were steeped in that kind of nostalgia. One of those was ‘The Waterwheel’, run by ex-Great Britain rugby player, John Stopford. Although he never played for Wigan RLFC, Stopford would draw rugby enthusiasts to his pub. We mostly avoided such places, preferring to walk further afield to pubs that were more salubrious for Wigan Athletic supporters.

But one rainy night we succumbed, and tried ‘The Waterwheel’. Upon opening the door and the sight of the scrum surrounding the bar we started to think twice about it. There were some burly men there, faces like boxers, some with arms in slings. We were just about to walk out when my father said “Look it’s Harry Lyon over there.” It was indeed my hero from my teenage years. Chatting with Harry was easy. He just made you feel comfortable talking with him. Although he had left the club a decade before it was obvious that Wigan Athletic was his first love. He remains the club’s leading scorer of all time, with 243 goals to his credit.

Harry’s quote was straight from the heart, but the reality was that a 3,000 crowd was not the norm at the time. True, Latics had the best home attendances in the Cheshire League and their traveling support would so often ensure that clubs like Oswestry and Stalybridge would get their best crowds of the season. But for clubs at that level of English football it was a hand to mouth existence, but somehow most clubs survived.

Gate receipts were the main source of revenue, which gave Latics an advantage, given their stronger support. But the reality was that most of the time the attendances were not a lot above the 2,000 mark. The club survived through the efforts of the Supporters Club and the Board of Directors dipping into their pockets.

Financial survival has never been easy for Latics. In their inaugural season in the Football League, 1978-79, they averaged a healthy 6,701. The club’s attendances the season before, their final one in the Northern Premier League, had dropped to an alarming 1,334. The move up clearly had a major impact upon the town.

Since then Latics’ highest average league attendance was 20,160 in their first season in the Premier League. Ironically their second highest was 19,345 in the relegation season of 2012-13. But the gloss was to wear off and Latics slumped to their lowest attendance levels of their Football League era with just 1,748 in 1994-95.

If it had not been for the arrival of Dave Whelan in 1995 where would Wigan Athletic have been now? Attendances had been woefully inadequate and the club was sinking into a seemingly inexorable financial quagmire.

But ten years later Latics were playing in the Premier League against Chelsea and a crowd of 23,575 was present despite the game being broadcast. It was a taste of things to come as the club’s attendances eclipsed those of the local rugby club that season and have done ever since, even last season despite relegation to the Championship.

Football season Rugby season Wigan Athletic Wigan Warriors
2005-2006 2006 20,160 14,464
2006-2007 2007 18,159 16,040
2007-2008 2008 19,045 13,995
2008-2009 2009 18,350 14,080
2009-2010 2010 17,848 15,181
2010-2011 2011 16,976 16,125
2011-2012 2012 18,634 16,043
2012-2013 2013 19,375 13,556
2013-2014 2014 15,176 14,102

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. In their last season in the Premier League 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 for eight long seasons in the elite division.

In my article Finances, FFP and the long term future of Wigan Athletic, published in May 2014, I put forward figures needed to stay afloat in the Championship. To keep a team in mid-table would typically involve a wage bill in excess of £20 million. Whereas to get into the top six would cost around £30 million, which is precisely what it cost Latics last season.

With a significant drop in parachute payments to be received this season it looked likely that the club would start to trim its wage bill. The departures of ex-Premier League players Jean Beausejour, Jordi Gomez and James McArthur must have helped. However, manager Uwe Rosler was to bring in nine new players over the summer. Although some were younger players, probably not on relatively high earning contracts, the competition in the transfer market forced the club to offer more tempting salaries to the rest. The result was a squad that was larger than the club needed with a wage bill close to that £30 million of last year.

Dave Whelan clearly had promotion within his sights when he released some £8-9 million in transfer fees for Oriol Riera, Andy Delort, Emyr Huws and Adam Forshaw. Much of the outlay was covered by the fee received from Crystal Palace for James McArthur, but their arrivals put more pressure on the wage bill.

It was a gamble which was to fail, but Whelan is the shrewdest of businessmen and he knows if you don’t take risks you are likely to stand still. Huws was constantly bothered by an ankle injury and never reached top form, despite having moments of showing his true potential. He remains one for the future, despite being sidelined for the rest of the season with another ankle injury. Sadly Delort and Riera have been dispatched to their home countries on loan and Forshaw has been sold cut-price to Middlesbrough.

Whelan had made the gamble, backing a manager who had performed admirably in the previous season. After being criticised by fans for hoarding the cash from the James McCarthy transfer the season before he had stuck his neck out in allowing Rosler to bring in so many players and run the risk of expenses heavily outweighing revenue.

Following the departure of Rosler and the continuing downturn in results under Malky Mackay, the club made huge strides in getting its financial situation back on an even keel during the month of January. Just a few months before no one could have anticipated the fire sale that was to occur. Ten players were to leave, four of whom were members of the team that won the FA Cup Final.

That famous cup final man of the match, Callum McManaman, went to West Bromwich Albion for around £4.5 million. Putting back the clock, what might have happened if he had not injured his ankle in the Arsenal match that followed the Cup Final and put Latics down? Following his Wembley display he could well have gone to a big club for some £15 million, if he had been fit. Sadly it did not happen and the ankle injury had a major impact on his fitness the next season. The rest is history.

Such a fire sale would have brought huge protests from the fans under normal circumstances. But the “hatchet man” Mackay was able to do it with hardly a whimper from supporters who were thoroughly disillusioned with the lack of commitment shown by players whom many viewed as overpaid and overrated.

The fire sale has put Latics back on track financially. Apart from the transfer fees received they have cut the wage bill down significantly, to probably around £20 million on an annual basis. Mackay paid transfer fees for two players – Billy Mackay and Jason Pearce – but the outlay for the two was less than £1 million. The rest of his acquisitions are loanees or players on short term contracts.

For the coming season – no matter what division they are in – Latics will receive £8 million in parachute payments, plus around £2.5 million from TV money. The rest will need to come from gate receipts and commercial revenue.

The latter has not been a major factor over these years, so gate revenue becomes increasingly important.

Should they stay in the Championship, crowds of around 12,000 would most likely be the order of the day. That is providing a squad that will cost considerably less to maintain than those of the past two seasons can hold its own. Relegation would almost certainly mean a decrease in attendances, even if the team were to do well. Revenue from the visiting support would most likely nosedive.

Gate money will clearly play a more major role for Latics next year than it has for more than a decade. Put simply it is going to be a more proportionate part of revenue than it has been.

But then again, for Latics gate money does not correlate with attendance in the same way that it does for most clubs. The club had wisely kept admission prices relatively low during its most successful years and they remain so. It helped them compete for support within the town and build up a level of hard-core support that the club had never previously enjoyed. However, continuing the policy is not necessarily the right ploy for the club. At some time in the future it is going to have to start moving its prices more in line with that of its competitors, at the risk of losing some support.

For the coming season the revenue and spending numbers need to add up. A £20 million wage bill is out of the question. Austerity will be the order of the day, no matter which division the club is in.

However, the good news is that the club has become a model for others to follow in its financial management, which serves to safeguard its long term future. A profit of £2.6 million was announced for the 2013-14 season, following two previous campaigns in the black.

The big question regarding revenue streams is whether Latics will be able to afford to run the Charnock Richard facility, assuming it will be completed. If it dies a death it will be much harder for Latics to put in place an Academy that providesthe first team with players, the best of whom can be sold off to keep the club afloat. Should Latics suffer relegation it could be one of the cut backs.

Much will depend on the ability of Mackay’s current team to avoid relegation. If they can the outlook will be brighter.

Attendances and revenue remain inextricably linked, even if not as strongly as they were during the Harry Lyon era.

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.