Sustaining the future

[PurpleCanary 5,562]

In March 2011 I posted a look at the economic and financial changes in postwar English football. Crudely, football used to be based on the economics of an area. So when sectors of British manufacturing, such as the Lancashire cotton industry, declined or even disappeared  "middle-class" clubs - the likes of Norwich City - filled the gap. But that economic era was replaced - to our disadvantage - by the financial era, with the TV-bankrolled sexification of the game and the influx of owners with enormous personal wealth that started 25 years or so ago.We are still in that personal-wealth phase but a fair bit has happened in those six years and a half years, including, despite that disadvantage, four years out of seven in the Premier League. So there is a valid question as to whether (assuming rich people continue to be obsessed with football and fans want to keep watching it wall-to-wall on TV) Norwich City can prosper while while its owners are paupers.When even rock-solid ultra-Smith and Jones loyalists such as Highland Canary and Big Vince voice doubts then you start to wonder. And a couple of years ago a well-informed observer questioned if our self-sustaining model could be viable much longer and whether outside money might be needed.This is to an extent a companion piece to Parma''s latest masterclass, examining the footballing implications of where the club is, financially, which included this relevant comment:Personalities are inevitably formed via experiences and such experiences influence decision-making and the weight afforded to factors used to influence decisions. Near administration may well make one financially risk-averse, very survival may then be considered a valid operational aim and achievement. Success may be viewed via a prism of sustainability, the cavalier methods of others may be dismissed and looked down upon, morals - politically or religiously influenced - may come to the fore and be used to mitigate or validate strategic approaches that are in reality more definitely influenced by finances or the lack thereof. So, with the usual health warning, that this is a long post, and may not be of interest to all, is the model still viable and could it be replaced? Starting with some facts (trusting to wiki and the odd educated guess):The rich are always with usEvery owner in the Premier League is wealthier than Smith and Jones (based on what is probably the high point of their wealth some years back of £24m. Only Burnley, Huddersfield Town and West Ham United have owners who are not worth billions, as opposed to mere hundreds of millions.In the Championship only the Burton Albion owner is poorer, and six are billionaires. In League One six owners are listed as richer, although I suspect the number is higher, and four in League Two.Within those figures there are three trends that have developed in the last two and a half decades, from when the archetype was local boy Jack Walker pouring his home-grown fortune into the club he loved. Firstly, the money has not just gone into Premier League clubs and a few fallen giants slumming it below. Secondly the money is coming from overseas as much as from the UK. Thirdly some of it is corporate/state- or semi-state-based (fortunately there is not enough space to go into the intriguing Chinese takeover of Midlands football, which may already have reached a peak).In terms of money, leaving aside scruples about the suitablity of the new breed of owner, those trends, especially if continued, are bad news for Norwich City, potentially throwing into question the viablity of our self-sustaining model in the Championship, let alone the PL.A tilted pitch?But Financial Fair Play is supposed, at least in the Championship, to level the playing-field. Some quick research suggests FFP has been (note the tense) working reasonably well in the Championship. The initial review of the 2015-16 season, the latest for which figures are available, showed all 24 clubs had complied (significantly, a first, as it happens). What tends to get the publicity are not the majority that comply but the few that do not, and particularly those that cheat their way to promotion, such as QPR and Bournemouth, in a cold-blooded calculation that either they won''t get relegated, and so avoid any penalty, or that the profit will outweigh the fine.Whether Championship clubs will carry on keeping to the rules is a question, given the trend outlined above to mega-rich owners, some of which are corporate. A Jack Walker-style fan would understand and accept that their money might not guarantee success. I am not sure some of the new mega-rich owners in our second tier, from a different business culture, will be equally phlegmatic. I am not suggesting Brighton cheated their way up last season (they have a history of complying with FFP) but there was a very pointed quote from their multi-millionaire owner Tony Bloom last autumn, in unveiling a  £25.9m loss for the season  before (clubs can only lose  £39m over three seasons but some bits of losses are allowable) when they got beaten in the play-offs:"Our ambition remains for the club''s teams to play at the highest level possible. As chairman (and lifelong supporter of the club), I will do everything I possibly can to achieve that and remain fully committed. Any Championship club without parachute payments wishing to compete for promotion will inevitably make significant losses. It remains a delicate balancing act for the board as we strive to achieve our ultimate aim."Brighton of course then got promoted, automatically. That may well - seriously - just be a coincidence, given how close they were before. The owner, having contemplated the dilemma he highlighted, may have decided to stay the right side of the law. And I cannot foresee Smith and Jones doing otherwise. But given some of the clubs and their new ownership that are straining to get promoted from the Championship I would not bank on that recent total-compliance record being replicated this season or in those to come.A virtuous worldLeaving Norwich City to one side for a moment, why not have a self-sustaining model? It is playing within the rules. It is keeping the club tied to its roots. It does not exclude the chance of success. It is also potentially prudent, given that the prime duty of the owners of any business, including football clubs, is not to be successful. It is to stay afloat. Only then is success (which is not defined only by being in the PL) possible. If you have little to spend there is probably less temptation to spend what you don''t have than for a club owned by someone with  pots of money who will always want to go that bit further than they can afford.This is particularly true for clubs similar in size to Norwich City, where the clamour from fans is to achieve that mythical status of "established Premier League club". Spending only what you earn is the best way of avoiding the kind of trouble all too many clubs have got into chasing that chimera.In any event, while the trend is away from such a model, Smith and Jones have recently confirmed they intend to keep it that way, by annointing Tom Smith as their successor, with some kind of trust (referred to obliquely) in the background, although they did row back from what seemed like a blanket refusal to contemplate any investment/new ownership.Any assessment of this plan is impossible without knowing whether Tom Smith will make a good owner and what exactly is this trust and what might its role and powers be. The impression was that this would only at best have an overseeing role in the short-term, possibly in the interregnum between Smith and Jones departing and Tom Smith taking full control, like a kindly Dickensian uncle handling the inheritance until the orphan comes of age and can marry the tediously virtuous heroine. If it was more than that then it would be a step towards fan participation in the running of the club.The voice of the peopleJust supposing, though, to cut short a Dickensian analogy that could take on a life of its own, a mysterious and seemingly stupendously rich and handsome stranger arrives on the scene as a rival and starts courting our blushing heroine...Simple investment - ie putting in some money without becoming the owner - can be discarded. In practice anyone who wants to invest will want to take over. Is that possible, given Smith and Jones'' seeming opposition to new ownership and with them having a majority shareholding?Firstly, no serious buyer would be put off by a Not-for-sale sign. To turn it round, would fans want the club owned by someone so wussy they just took No for a final answer?As to the chances of success, Norwich City is not a listed company, so a would-be buyer cannot manipulate the share price on the stock market to win a takeover battle. However they could make a very generous offer for the 46.9 per cent of shares Smith and Jones do not own. That would put pressure on them. Unless it has changed, the official price is £100 (valuing the club at a bit over £61m) while most - almost certainly including Smith and Jones, paid much less. Most fans, I imagine, would not want to sell, having bought for sentimental rather than financial reasons, but there would be a symbolic force to such an offer.However the real pressure would be the weight of public opinion. Cullum got many fans on his side despite only half-heartedly selling what was a lousy plan. If our would-be owner and their takeover plan were road-tested to death, financially and in every other way, so that not just the fans but the whole county - Norwich City being part of the heritage of Norfolk - were on board then Smith and Jones would find it hard to hold out. As it happens if the offer was that good - providing extra money and cast-iron guarantees about preserving the soul of the club - I don''t believe they would stand in its way.And it all ends...?There is not a simple answer to "Sustainability" good or bad or "Rich owner" good or bad.  The heroes and villains are not as easy to spot as in Dickens. The latter is riskier than the former, which has safety and old-fashioned virtue on its side. But if, to one well-informed observer, the former was looking two years ago like becoming unviable (at least as far as the Premier League is concerned) it is certainly not looking less unviable now.

[Jim Smith 2,322]

Good post Purple. For me the crux of it comes down to that Bloom quote and whether fans will accept a future of effectively not competing for promotion because it is clear that incurring significant losses will not be (and cannot really be) an option under our current ownership.

I suspect many won''t which in time will see our much lauded season ticket numbers reduce which then will bring further challenges.

I may be wrong on this but believe the scum have been losing circa £8m a season which puts it into context.

[Highland Canary 76]

Without new equity we will continue our decline down the leagues. Home season ticket holders will drift away much like our away support which is already in retreat. Many will say diviision three south is our historic level. I wonder what the comparator would be for the likes of Swansea, Bournemouth and Southampton? A fiasco of our own making.

[BroadstairsR 2,173]

That very adequately sums up the finances of the matter and I was left hoping that our majority shareholders have visited this forum and read it.

They are probably well aware of the of it all in any case, although this might not appear to be the case for the most part.

Discontentment with the present set-up at NCFC has been gradually increasing for quite a few seasons now and will surely rise to a head if the club fails in it''s aims this season.

The bold new experiment might work but the cynic might view it as an attempt to put off the inevitable and is just a Canute-like attempt to gloss over the fact that the club is gradually being engulfed by the tide.

A lesson from the past, a lesson from Portman Road and a lesson from the obvious and inevitable is that if the club remains in the second tier for a period of time, and this is a genuine prospect, the the Smith-Jones set-up cannot survive for long.

Delia or eventually Tom Smith cannot sustain regular losses for long so a sale of the shares to a wealthier being will be inevitable. The potato will get hotter by the season and Delia Smith''s bequest to her nephew will will be a liability rather than an heirloom of any value.

So much is now reliant upon the new model bringing success.

However if this success is measured just by reaching the Premier League the basic problem will remain and promotion could even be seen as just a means to shelve the problem. Change is inevitable come what may.

[Graham Paddons Beard 2,431]

A very very good post Purple. So much so that this is my second post this season. I have to say that we don''t always see eye to eye, but this is spot on.

I still conclude that the path we are on it not sustainable , given the market in which we operate. Our competitive advantage due to our promotion and subsequent parachute resulted in our re - promotion (a new word perhaps) , but last year was largely wasted by poor decisions not least signings.

The Club , following the Huddersfield model almost line for line , misses one major factor - that of Dean Hoyle . According to the Huddersfield Examiner in 2015 had already "bankrolled" the club to the tune of £37m.

I cannot see how we can sustainably compete in a rapidly escalating market without such money . I do hope that Tom is either replaced by, or falls in love with, your Stupendously Rich Handsom Stranger (congrats on being suitably gender neutral by the way ) .

The whole idea that the Club is passed to Nephew Tom is quite a leap from standard business practice . Unlike many local businesses , for example the many Farms in E Anglia, family succession is clear and the inheritee is trained from an early age. This isn''t the case with NT. A vague James Bond -esque history, and something to do with taking photos doesn''t really cut it , even if he is a bloody nice chap. Indeed Delia once described her self as the custodian of the Club, but now apparently it is hers to keep for generation after generation.

We have debated Cullum before. You and I are in 100% agreement. My involvement was much closer than most. We''ll leave it at that.

On the subject of share value, again we can at times mix up a love for NCFC and hard nosed business. Yes, the majority share holders COULD be bought out with an offer they cant refuse. However, and with equal merit, if they do have the love of the Club , and its progression, at heart, they don''t have to . They could stand aside , sell for a modest figure and accept that by not being able to put extra money in, they in fact, stifling the potential.

Some of us were at Millwall. Plan A fell apart , as admitted by Steve Stone (who incidentally is top bloke) . The desire for patience in the self sustaining model got a reality check, and the board nipped off and signed an centre back . however stick with the nonsensical "zonal marking" and you could put Watson and Bruce back there and it still wouldn''t work.

A family , self sustaining business, with a successional plan based around Nephew Tom isn''t going to work in the current market place. There are just too many "Rich" folk entering the fray. That''s my opinion .

Thanks again Purple. The lawn mower beckons.

[TIL 1010 4,748]

Your last paragraph ( not about your lawn mower ) is spot on GPB and that is what concerns me. I have described him flippantly on other threads as potless,pointless Tom but he is exactly that coupled with zilch business experience of any note and that surely must be a big concern ?

[Faded Jaded Semi Plastic SOB 1,024]

Delia Out!!......

[nutty nigel 7,537]

"Any Championship club without parachute payments wishing to compete for promotion will inevitably make significant losses."

How will that that sustainable given that there are just 20 PL clubs but 24 Championship clubs and only 3 promoted every season?

By the very definition of that statement if these clubs wish to carry on competing for promotion season after season these considerable losses would carry on indefinitely.

[nutty nigel 7,537]

Sorry, that that should be that be.

[Dr Greenthumb 750]

Judging on the sales this season and lack of players in, I''d imagine the wages are covered next season too,.

There will be sales of big names of course, but I reckon nephew Tom will be in at the end of next season. The club will go to the dogs then and I really hope the fans backlash against the whole mess of the ownership

[Dr Greenthumb 750]

Was meant to say "money spent on players in"

[lake district canary 4,533]

[quote user="TIL 1010"]Your last paragraph ( not about your lawn mower ) is spot on GPB and that is what concerns me. I have described him flippantly on other threads as potless,pointless Tom but he is exactly that coupled with zilch business experience of any note and that surely must be a big concern ?[/quote]

My impression is that DS/MJW are more like figureheads than anything else, delegating responsibility to others to run the club.  They obviously have influence as majority shareholders, but do they use that influence greatly in the day to day running of the club? Probably not - they leave it t those tht know about football.  If Tom becomes majority shareholder, will he not be the same - a figurehead?  Things like managers, sporting directors etc etc are decided at board level - but then the board is bigger than just DS or MJW and the snippets of information that come out suggest that they do not enforce decisions because they are majority shareholders and are good at taking advice.  That may be right or wrong, I don''t know, but if Tom Smith takes over at some point, then with a trust in place to safeguard the club, he would be much more of a figurehead, with decisons taken by a knowledgable board as a whole.   It has taken some time to arrive at a place where the board and people answerable to the board are more knowledgeable and so able to take better fooballing decisions, but that is I believe where we are now. So the club in that way is in a better position than probably any time in the Delia/MJW era.  As for finances, we do have FFP and the other thing is that it is true that the more rich clubs there are, the less they will be able to find for their money and that will have some effect in evening out the disparity in the finances of different clubs.  Those with vast amounts of money will be stuck in the mould of spending ever more amounts of money to try and get success, a success which will become ever more elusive the more clubs that go down the speculator route. The rest - run on sustainable lines - will more likely to be able to pursue a more healthy approach to team building and building from within, especially those clubs like ours who have a strong youth aspect to their club.  Our success in the early 90''s was built on a youth team that grew up together and that allied to the excellent possession football that Stringer/Williams were developing lead to our best years as a club. We could be at the start of a similar journey with what has just been put in place - and money is not the key element of that, the same as it was not in Stringer''s day.  

[Nuff Said 5,142]

There is one huge assumption in all the replies here which no-one acknowledges, although Purple does allude to it in his post. That is - that the "mega-rich" owner trend continues. Even if the recent buyers of clubs are not doing so to make money, but for the kudos, not all of them can make it to the Premier League. Given that there are more clubs with "ambitious" wealthy owners than spaces in the PL, it seems like, sooner or later, an inevitability that some will tire of their expensive investments. What will happen then? We saw what happened at Villa when Lerner had had enough. Will there be a never ending supply of Chinese/Arabian/whatever investors to step in when an owner gives up?

When you throw in the possibility that the current TV riches may not last forever (I haven''t seen any evidence one way or the other, but does the ever growing investment Sky, and now BT, make still actually provide a return on their investment?), we may be at the back of the queue, clamouring to get into the glamorous club, only to find it closes five minutes after we get in, and we are suddenly outside in the cold and dark with everyone else and no taxis in sight.

Self-sustainability is by its nature, a guaranteed way to ensure survival. The downside will be that, as Purple makes clear looking at where our owners rank in the wealth table, it may be at the Championship level, or possibly even below that. Which ranks higher? A risky shot at the big time, on the back of someone with deep pockets but little affiliation to our club, or survival?

[Nuff Said 5,142]

At least, no-one had acknowledged until Nutty posted!

[Darth Vadis 151]

Possibly one of the most insightful threads in pink''un history? (Not being sarcastic).

[Parma Ham's gone mouldy 2,220]

Bravo Purple.

A question arises from an incomplete thought from the ''Philosophy/Company/Future thread:

''......Ironically - as someone who specialises in the reconstruction, investment and occasional sale of Companies - it may be that the nature of the reinvention we are going through may be coupled with an increased possibility of external investment interest.

Premier money has allowed our model to succeed and operate without significant shareholder or owner financial input in recent years. Many, manybothers now have this additional funding and the priceless ability to take repeated calculated risks with a safety net of further wealth beyond Sky''s television income. This allows for the amortisation of mistakes that may lead to Premier relegation or non-promotion years within the Championship.

As we return to living within our limited means, the theoretical nominal value of shares likely returns to a far lower level and losses are unlikely to be able to be sustained for more than a very few years. The Championship is not as cheap a place to fail as it once was.

Thus within a fairly short timeframe further investment may become more than a desirable addition, it may well become a necessity, unless we are to very severely reduce our playing staff and their remuneration. Just as prices and fees stepchange far beyond anything seen before. ....''

Whilst we know that share values are nominal for private entities such as Norwich City, the share ownership structure does create its own problems [assuming that continued, ongoing multi-million pound losses in the Championship are not indeed able to be amortised in even the short term], the Cullum scenario did at least indicate that any handover would need to involve the purchase of existing majority shares (+£30m by your calculation logic), which de-facto changes nothing for the Football Club itself, rather it merely swaps the figurehead. Thus the negotiation was for a minimum buyout of majority shares, plus (at that time) a minimum further cash injection of £20m for player recruitment.

In the current market £20m on player recruitment either equates to one Steven Naismith fee+wages for 4 years or 3 x Steven Naismith with wages accounted for elsewhere. Potentially pleasing, but not game-changing.

This would be for a c£60m investment including majority share buyout at nominal current market. So we are faced with a reasonably clear scenario for a potential sale or otherwise:

The club/majority owners find a way to sustain and amortise multi-million pound losses year after year. Player sales will only work for a reasonably limited period until worthwhile resources are exhausted and/or the Sporting capacity of the remaining assets falls below an acceptable competitive level.

Should either of both of these things occur, there would be an argument that expecting full market (or perhaps any) value for the shares no longer fits with the Custodian principle or thney may even be fiduciary questions if the business cannot be sustained to a reasonable level and high nominal values continue to be demanded (I agree with you that this scenario would be unlikely).

This to attract a suitable (ultimately economically necessary) buyer a further scenario comes into play: the virtual ''gifting'' of shares to a credible new investor. Such a scenario would then allow the new investor a cleaner run and a more exciting and worthwhile use of funds (£30m now not spent on shares that can go on players/infrastructure/loss amortisation), making such an investor more likely to be attracted.

The thought that self-sustainment is possible over the longer term means funding the business from ticket sales and commercial revenues and very, very few TV millions. £20m+£10m+£3m maybe.

Assuming that we wish to retain a wages to turnover ratio of 70% that leaves us with a £23m wage budget divided by 23 professionals at £20k per week average. Retain any £40k per week players by choice or otherwise (Naismith, Klose) then others must take less, 23 is a small squad and also implies that all u23 players are free (sic).

The culling thatbwill have to take place to arrive at this sustaining balance-point would be a remarkable achievement if it did not have a deleterious effect on Sporting success.

The logical consequence of this scenario would lead to an inevitable need for fresh investment, a serious dilution in current majority shareholding and further Corporate change. The timeframe could be as short as 2 or 3 years.

Parma

[hogesar 9,676]

The only real concern I have moving forwards is that not getting promoted this season would see us sell of more of our young talented players.

I had defended the transfer activity weve made over pre season and up until now, even January included on the basis we were preparing long term to keep talented players at NCFC. The fact that making a profit in recent windows isnt going to allow us to keep our best players next season begs the question of how much quality we will have in our squad in 12 months time.

[Jim Smith 2,322]

The irony may be that us going into decline may make us more likely to be taken over as presumably the value if the club will reduce and as the need for year on year losses starts to bite the owners may suddenly become less keen on retaining control.

[Jim Smith 2,322]

Mind you the indications are that "very severely reducing our playing staff and their remuneration" is the owners preferred route, in order to keep control of the club in the family.

[Jim Smith 2,322]

What will be interesting is to see what Delia and MWJ want for their shareholding should they ever change their mind and consider an offer. They have consistently said that they never expect to get back the money they''ve put into the club and they have acquired their majority shareholding for considerably less than what it is currently worth.

[nutty nigel 7,537]

As a simple bog cleaner I need some help here. 

Below is a table showing the percentage of wages to turnover 2015/16

The following link shows the club''s turnover in 2015/16

https://www.insidermedia.com/insider/national/football-finance-championship-club-by-club-2015-16

Now if I''m reading this rightly, which I may not be doing, all these rich owners weren''t doing much to make their club''s competitive?

[Jim Smith 2,322]

Surely what it shows Nutty is that said owners are subsidising the wage bills (or at least in some cases securing/taking on the debt to sustain the wage bills) of their clubs given that over half the division are paying out more in wages than the clubs turnover.

Is that not the case?

As I''ve said before even the much maligned Evans enables the sc*m to run at a loss. Imagine how sh*t they would be if they actually had to operate sustainably!

[nutty nigel 7,537]

[quote user="Jim Smith"]Surely what it shows Nutty is that said owners are subsidising the wage bills (or at least in some cases securing/taking on the debt to sustain the wage bills) of their clubs given that over half the division are paying out more in wages than the clubs turnover.

Is that not the case?

As I''ve said before even the much maligned Evans enables the sc*m to run at a loss. Imagine how sh*t they would be if they actually had to operate sustainably![/quote]

Well like I said Jimbo. I''m dumb as feck. If it had have been possible to finish below bottom of the class I would have done so every school year.

However unless I''m missing something our turnover was 17m in our League One season. Which is more than the binners in 2016. What would our turnover be without parachute payments?

[Jim Smith 2,322]

About £25m I reckon Nutty. Maybe a bit more if the to money distributed to champ clubs has gone up a bit since we were last down with no parachute monies.

[Jim Smith 2,322]

Just under half of which is our season ticket sales I believe which shows how important they suddenly become to us in the future.

[nutty nigel 7,537]

Just shows the boycotters don''t really care[Y]

[nutty nigel 7,537]

But anyway, looking at those lists Jimbo, how many of those clubs have sustained the future? When you look at your example of the binners they already need another new owner to be competitive. It appears to me that after a couple of years of seeing their money go down the drain these high rolling owners revert to putting in enough to hopefully survive and certainly not enough to challenge.

[JF 694]

I believe potless Tom''s been buying up euro millions tickets at the rate of £10 a week, readying himself for the big takeover. Great days ahead, great days.

[ROBFLECK 132]

Very good and interesting post Purple, I am sickened by the money in football. I just don''t know if I would even want a rich Chinese investor at the club, although I am not really a fan of the Stowmarket two. They have not been decisive enough when it really mattered

[PurpleCanary 5,562]

Thanks for the posts. A few points by way of reply. I hadn''t seen that account of the meeting Steve Stone had with the Canaries Trust, and his comments about sustainability. But I don''t think he was saying anything new.As Nuff Said said (!) there is no certainty that the influx of mega-rich owners will continue (or that the TV bonanza will carry on) and I don''t assume either, but had to for the purposes of the post.Nutty made an important point, that every season some of these owners in the Championship are going to be disappointed, because only three clubs go up. More than that, in the longer run the numbers do not add up. Of the 20 clubs in the Premier League the big six (Man Utd, Spurs, Chelsea etc) are fixtures. There are some solid clubs, such as Everton and probably Southampton that look secure, the likes of West Brpm and Stoke, and every season a couple of plucky insurgents - Burnley or Huddersfield Town, for example - that don''t look as if they shouldn''t belong up there, but are anyway.Unless the top six troll off to some European super league there are never going to be enough places in the Pl for all those rich owners down below who are not used to being thwarted in business. How long their patience will last is a question.Parma''s specific figures on wages and the wages to turnover ratio starkly highlighted the likely effects of sustainability on the playing squad. I agree that, the succession plan notwithstanding, Smith and Jones - or Tom Smith - could find they have to seek investment, which almost certainly would mean a sale.The details of such a deal (buying out Smith and Jones or Smith, being gifted their shares, buying new shares and the price thereof etc) might well depend on how parlous (or not) our state was (including whether we had any debt) and the plans of the buyer. I mentioned £100 only because it presumably is still the official figure, not because I think it would necessarily be stuck to.