Are there unanswered questions about the finances?

    The London Clarets AGM turned into an interesting afternoon, because as it progressed, one issue began to dominate: why are we so short of cash? So we thought we would try and analyse briefly where the club is at, using the accounts and the forecasts provided by Barry recently in his interview on the club website.

These are the figures we have from the previous seasons, all in millions of pounds

* includes promotion bonuses (quite what these amount to is unknown. We know that Coyle received a £1 million bonus, and John Banaszkiewicz said that some players received a bonus equivalent to a year’s salary. Assuming that the bonuses are included in the £13.4 million wage bill, we estimate bonuses of around £2.5m.)

** includes the purchase of both Eagles and Fletcher (£4.5m)

    To get the caveats out of the way, the turnover and wage bill for 2010-11 are based on the figures given by John Banaszkiewicz at the AGM. The parachute payment for the season was actually around £17.5 million, with slightly less – around £14.5 million – due in 2011-12, so the club’s core turnover (minus parachute cash) has gone back down to pre-Prem levels at around £11m.

      Note that the club did succeed last year in drastically reducing the wage bill, from £22.4 million to around £15 million. Given that Laws offered improved terms to senior players, and signed more senior pros in the shape of Iwelumo, Fox and Cort, and given also that we ended up paying compensation to Laws and to AFC Bournemouth, this strikes us as a very stringent cutting back on salaries. We presume that this is because most of the squad have gone back to Championship wages – evidence that the club did the right thing in offering one-off promotion bonuses rather than new contracts.

     But even with this inflated wage bill, the question a lot of Clarets are asking is how can we be predicted a £3.75 million loss on an estimated £27 million income and a small profit on transfers?

We think the answer lies in three things:

the repayment of directors loans during the 2009-10 season;
a subsequent lack of liquidity (just £2 million in the bank) and cash flow (necessitating further directors’ loans and a commercial loan);
the amount still owing to creditors.

    The issue of the directors receiving their money back wasn’t one which caused much concern at the time, Barry arguing that it was only right that those who had kept the club going during the lean times had the right to be repaid as a priority. Indeed, even season ticket holders were in on the action here, with only 500 accepting a share, the rest taking the free season ticket, which cost the club £1.75 million. But the precise amount paid back to the directors seems to be a mystery. We learnt at the AGM, for example, that Brendan Flood received virtually double the amount he lent due to the interest rates involved, with all the directors receiving very healthy rates of return on their loans.

     What is also the case is that from the accession of Flood to the board, the directors started to pump a lot of money into the club in an attempt to win promotion. The accounts from the 2007-08 campaign show that the directors put in £5.86 million during the year, including £1.5 million from Barry and £2.7 million from Brendan Flood. The following year’s accounts, the promotion season, has the figure at £3.74 million, which includes the famous Easter bailout when the club ran out of cash and needed more money to keep the show on the road – the sobering moment when the terminally-ill Ray Griffiths wrote a cheque for £1 million.

    So that makes £9.6 million over two seasons. But muddying the waters is the appearance during the promotion season of a further loan of £5.78 million, which appears on the balance sheet under the pseudonym of ‘Other loans’. A note in the accounts says that this includes £3.25 million that was lent to the club by Modus, which was being claimed back as a matter of urgency by the administrators. From what we can gather, this loan from Modus was in addition to the £2.7 million Brendan put in during the 2007-08 season.

     The interest on these directors’ loans – just for the 2008-09 accounting year – amounted to £425,000, and there is a potentially significant line in the accounts where it says “Some loans have additional interest payments based on promotion to the Premier League,” although these additional payments could be included in the £425,000.

     What is emerging is the sheer size of the payments that must have been made in order to settle with the directors. Just going off the £9.6 million lent over the previous two seasons, with interest and additional payments, would it be fanciful to suggest that the directors took back around £15 million in total, once older loans were taken into account? Don’t forget also that the administrators took a large chunk of cash over the Modus bankruptcy, and the fans reclaimed £1.75 million for the season tickets. And all this was done in the period up to January 2010, at precisely the moment that Coyle was agitating for more cash. With a wage bill of £22.4 million on top, it suddenly becomes clearer how we could have got through £40 million of TV money.

     And given that the Sky money arrived in instalments, it’s also less puzzling as to how the club was faced with a cash flow problem at the start of the Prem season. (At the AGM, Peter Pike related the story of Paul Fletcher asking the Clarets Trust and other equally bemused fans’ organisations if they had a spare £2 million to buy Turf Moor back.) But with £40 million guaranteed, the club could at least take out a short-term commercial loan, which it did.

      The addition of this loan increased the amount we owed to creditors, and this is another nagging question. In 2009, when we had yet to settle with the board and Modus, the amount we owed to creditors was £24.8 million. Yet by the end of the Prem season, with both the board and Modus paid, it was still £23.2 million. The figure owing under the catch-all ‘Other loans’ had gone from £5.78 million (which included the Modus money, quickly settled) to £8.7 million, meaning that the loan taken out must have been in the region of £6 million, repayable within 12 months.

   We should have paid this back during the course of last season using the parachute cash, meaning that the amount we owe to creditors should reduce in the forthcoming accounts. We are also owed £9 million and we had £2 million in the bank. But it seems startling that after £40 million had gone through the system, the amount owing to creditors had reduced by just £1.6 million. If we remember too that it is the stated intention to be debt-free by the time all the Sky money has gone, then some of the remaining parachute cash will unavoidably have to be diverted to paying off debt, which again explains why the club are being so careful with the income and have cashed in on Eagles and Mears.

    It’s still not clear how we’ve come to a £3.75 million loss on last season. The new accounts may reveal all, but that’s as much as we can say at the moment on the limited info and knowledge we have. We’ve obviously made some bad decisions under Laws with new contracts and the recruitment of players with no resale value, and there at least seems to be some common ground there with the new manager, who has the opposite approach.

    If you have spotted any mistakes or misunderstandings with how we have analysed the accounts, please e-mail in and we will be happy to give this another go in the next issue. We’d also like to acknowledge the use made in this article of Aggi’s analysis on TheLongside.co.uk

Phil Whalley http://londonclarets.com/