Re: Could the buck stop at Norwich City?

[The Huckerby Delusion 0]

Thought some of you may like to read Joe Kosich''s original blog:

Looking into clubs as potential acquisition targets, Norwich City FC Soccer News Topics lands

clearly in the center of our radar screen. The club spent a short run

in the Premiership as the 2004/05 season and was subsequently relegated

from the Championship to League One Soccer News Topics at

the end of last season. Even with the setback of last year, the club

appears to have bounced back where they now sit atop the league with a

strong record of 18-7-3 and not having dropped a single match at Carrow

Road this season. The following is a quick analysis of the Canaries and

why I believe they warrant potential investment at this time.

Support

With the exception of Leeds,

Norwich is the biggest draw in League One currently averaging 24,570

per match. While Leeds is averaging just 400 more supporters per match,

NCFC is enjoying 94.3% grounds capacity utilization at Carrow Road

(Leeds – 62.1%). Additionally, if the Canaries were competing in the

League Championship, the club would have the fourth largest average

attendance following Newcastle, Derby County Soccer News Topics and

Sheffield United. In terms of grounds capacity utilization, the club

would only rank second behind Cardiff (100.1%). While I’m speculating

that season ticket price reductions as well as complementary tickets at

matches might play a role, it is nonetheless amazing that Norwich is

still drawing over 24,000 supporters per match in League One.

Grounds

Carrow Road Stadium enjoys a

maximum capacity of 26,034. The size of the grounds, while not in the

top 10 or 11 in terms of capacity, could be expanded to over 35,000

with the expansion of the South and Watling Stands. While this may be

an impediment for future growth in turnover, the far more meaningful

statistic is the club’s ability to put bums in seats. Clearly, the

management at Carrow Road knows how to accomplish this task. It is

unheard of for any English club, outside the Premiership, to

demonstrate this level of support.

Leverage

It was reported by the board

earlier this month that indebtedness of the club stands at

approximately £23 million which may possibly be the largest amount of

any League One Club. The debt for NCFC jumped over £5 million for the

year ending 31/05/2009 in order to fund operating losses at the club

level of a like amount. On a relative basis, the debt levels for the

club would not be large when compared to other Championship clubs but

in today’s economic environment, exceed levels that may be considered

prudent or manageable for its current turnover.

Earnings

Earnings for the club were abysmal

for the FYE 31/05/09 when a number of different management issues

conspired to drive the club into an earnings deficit. The total wage

bill for the club over the 2007/08 fiscal year placed it among the

Championship laggards with a larger than average total wage bill of

nearly £14 million and performance in the relegation zone. Another club

which shared the same distinction during those same fiscal periods was Southampton FC Soccer News Topics (which

eventually went into administration). For the year ending 31/05/09, the

club also experienced a loss of £5.2 million inclusive of nearly £1.7

million of interest expenditures with amortization and depreciation in

excess of £3 million (EBITDA of -£500 thousand). From management

accounts, we project that losses will exceed £6-8 million due to a fall

in league revenues, an increase in club debt by £5 million (increased

interest costs) and our assumption that the club’s wage bill and

administrative costs remain at their same level (2007-08).

Pro Forma Changes

In anticipation of NCFC moving to

the Championship next season, raising additional equity capital and

managing the cost structure in a more determined fashion, we anticipate

the following:

Loss 2008-2009 £7.5 million

Add:

Media £3.0 million

Ticket Revenue £1.0 million

Loss from Operations £3.5 million

Add:

Reduced Interest Cost* £1.2 million

Wage Savings £3.0 million

Cost Savings £4.2 million

*Savings from capital injection/reduction of debt £13 million.

For the FYE 31/05/11, it is

reasonable to assume that turnover will increase by up to nearly £3

million due to increased media revenues for Championship clubs. It is

also reasonable to assume that with promotion to the Championship,

additional full-priced season tickets (less discounting and partials)

as well as a slight uptick in attendance will drive additional turnover

by £1 million.

Additionally, the club should

endeavor to raise at least £13 million which would be used to repay

approximately £13 million in indebtedness reducing the gearing on the

club to a more reasonable £10 million. We have also explained to our

blog readers that the wage bill for the club should be reduced to a

level of approximately 55% of gross pro-forma (2010-11) turnover or

approximately £10.5 million (over a £3 million reduction in wage cost

from the 2007-08 fiscal year). With these fundamental cost management

and capital structure changes, the Canaries should be able to generate

positive cash flow and manage a positive bottom line.

Conclusion

It is surprising how a club could

sustain financial deficits with the current level of support unless the

club had previously demonstrated inadequate cost management (especially

on the wage line). For instance, in the 2007/08 season, NCFC had the

fifth highest turnover in the Championship clubfollowing Charlton,

Sheffield United, Watford and West Brom who were all recipients of

relegation payments from the Premiership. Finally, wage costs have

eaten into margins where Norwich has been in the top quartile of their

respective league in terms of wage costs. In an environment where

credit is tight, expense discipline and wage cost containment should be

central to any club. Additionally, previous statistics contained in

Deloitte’s Annual Review of Football Finance shows little relationship

between wage costs and league table position (R-Squared of .12). This

essentially means that in the Championship, there is little statistical

relationship between wage costs and placement in the league table.

To the board’s credit, Norwich has

been very successful in maintaining its supporter base but has allowed

its cost structure as well as its indebtedness to become bloated beyond

a point where the long-term success of the club may be hampered. I

believe that any new investment should be targeted at repayment of this

debt and a refocusing of the board and management on cost structure and

expansion of the revenue base.

Given current trading of clubs at

this level, it is our opinion that the club should be valued at an

enterprise value of 1-1.30x trailing turnover. The data point we am

using for this valuation is Southampton FC which was sold out of

administration last spring at slightly over 1x trailing turnover. More

dated but still relevant data points would be Birmingham City or Derby

County which traded at between 1.0-2.0x multiple. In today’s credit and

economic environment, the club will tend to have a valuation on the

lower end of the scale. Finally, the board of NCFC has made recent

reference to the club having debts in excess of its turnover for the

first time in the club’s history. This valuation metric might

potentially be on the on the minds of Ms. Delia Smith and Mr.

Wynn-Jones as they and the rest of the board seek additional capital

investment for the club

Very Interesting Reading...

[Canary_on_the Trent 0]

Basically once we''re in the Championship, buy the club, pay off a large part of the debt, therefore reducing the large debt interest payments and along with a sensible wage structure we''re a very attractive club that has a very high turnover and will make a profit. It really makes you wonder what those running the club have done over the past 3/4 years, 1. how could we have such a high wage structure? and 2. How did we get relegated with such a high structure?

[The Huckerby Delusion 0]

[quote user="Canary_on_the Trent"]Basically once we''re in the Championship, buy the club, pay off a large part of the debt, therefore reducing the large debt interest payments and along with a sensible wage structure we''re a very attractive club that has a very high turnover and will make a profit. It really makes you wonder what those running the club have done over the past 3/4 years, 1. how could we have such a high wage structure? and 2. How did we get relegated with such a high structure?[/quote]1. I think that for all we like to bash  Delia and the board they do tend to back their Managers. Good for the club if it''s Lambert, not so good if it''s Grant, Roeder or Gunn (I know, I know, Gunn bought Holt!)2. Kosich takes a look at the Deloitte figures and examines the link between wage structures and success in the championship and finds that there isn''t one. A club is just a likely to fail with a massive budget as with a small one.

[Bill 1,788]

Nothing that was not already known otherwise it has much that is witless drivel.

" and not having dropped a single match at Carrow Road" I think the word you are looking for is lost -

"as well as a slight uptick in attendance" - given we are selling out the capacity where does this ''speaking clock'' think we are going to put this ''slight uptick'' - on the friggin'' roof !

" a refocusing of the board and management on cost structure and expansion of the revenue base." Spend less and bring in more ...wow !

" there is little statistical relationship between wage costs and placement in the league table." whatever next !

"It is unheard of for any English club, outside the Premiership, to demonstrate this level of support" err, Newcastle, Derby, Sheff Utd, Leeds etc

A report that contains such illiteracy as " " The data point we am using " " The size of the grounds" " club’s ability to put bums in seats" should demonstrate how little care has been put into cobbling together this pile of shyte.

For those that want a more concise appreciation of NCFC''s position and advice going forward from there I would suggest you read Mr Micawber''s view on debt,

[SS 0]

101.1% utilization at Cardiff? Hmmmm......

[The Huckerby Delusion 0]

[quote user="City1st"]Nothing that was not already known otherwise it has much that is witless drivel.

" and not having dropped a single match at Carrow Road" I think the word you are looking for is lost -

"as well as a slight uptick in attendance" - given we are selling out the capacity where does this ''speaking clock'' think we are going to put this ''slight uptick'' - on the friggin'' roof !

" a refocusing of the board and management on cost structure and expansion of the revenue base." Spend less and bring in more ...wow !

" there is little statistical relationship between wage costs and placement in the league table." whatever next !

"It is unheard of for any English club, outside the Premiership, to demonstrate this level of support" err, Newcastle, Derby, Sheff Utd, Leeds etc

A report that contains such illiteracy as " " The data point we am using " " The size of the grounds" " club’s ability to put bums in seats" should demonstrate how little care has been put into cobbling together this pile of shyte.

For those that want a more concise appreciation of NCFC''s position and advice going forward from there I would suggest you read Mr Micawber''s view on debt,[/quote]Welcome poverty!..Welcome misery, welcome houselessness, welcome

hunger, rags, tempest, and beggary! Mutual confidence will sustain us

to the end? or were you going for the Micawber Principle? "Annual income twenty pounds, annual expenditure nineteen pounds

nineteen and six, result happiness. Annual income twenty pounds, annual

expenditure twenty pounds ought and six, result misery"(I love Dickens)

[singing canary 0]

letting managers take too many risks ,the loan policy clearly had a massive impact on us . not just the cost of bringing in loan players , the fact of shartage of players the following season .

we let players go that had some value ,and brought in players who failed and did not belong to us .

the whole situation of previous years has been poor management , seems like we have people at the helm who clearly have taken the bull by the horns at this club and pushing it in the right direction .

good post ,a very good read .

 

[PurpleCanary 5,554]

It''s perfectly true there are some, er, infelicities in Kosich''s blog. I thought the same when I read it when it was first published.However surely the point is not that there are some mistakes, but that Kosich is essentially making a "buy" recommendation to potential investors. Better that than a "don''t buy" recommendation. And if I have understood the chronology here, it was Kosich''s blog that prompted the interest from investors, rather than the other way round.

[Bill 1,788]

" or were you going for the Micawber Principle?

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness.

Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery"

yep

Not sure where you found the original stuff. Reads like some 12 year old''s business studies essay.

[Nuff Said 5,089]

1. Give the guy a break. It''s a blog, not a work of literature and aimed at (I think) an American audience.2. So the conclusion is that an injection of £10 milllion to pay down some of the debt would be the right plan. What about buying some players? When you see the club discussed in these terms, it does look like the main concern of the potential buyers it''s aimed at is to make money from the purchase, not to secure our long term future or ensure a return to the Premiership.Personally, I''d feel safer in Delia and Michael''s hands.

[The Huckerby Delusion 0]

[quote user="Nuff Said"]1. Give the guy a break. It''s a blog, not a work of literature and aimed at (I think) an American audience.2. So the conclusion is that an injection of £10 milllion to pay down some of the debt would be the right plan. What about buying some players? When you see the club discussed in these terms, it does look like the main concern of the potential buyers it''s aimed at is to make money from the purchase, not to secure our long term future or ensure a return to the Premiership.Personally, I''d feel safer in Delia and Michael''s hands.[/quote]I think therein lies the rub. The vast majority of people who have the clubs best interest at heart dont have the cash. So that only leaves people looking for investment oppertunitys. The best case is you end up with a Learner, the worst is having to ask the FA if you can sell players outside of a transfer window ala Pompey.

[dhickl 0]

[quote user="City1st"]"and not having dropped a single match at Carrow Road" [/quote]Looks like someone else has decided to wipe the Colchester game from their memory.

[Bill 1,788]

[quote user="dhickl"][quote user="City1st"]"and not having dropped a single match at Carrow Road" [/quote]Looks like someone else has decided to wipe the Colchester game from their memory.[/quote]

eh ?

I was commenting on the illiteracy of the writing... do keep up

" So the conclusion is that an injection of £10 milllion to pay down some of the debt would be the right plan"

Where does it say that ?

[Howson is now! 0]

I can only assume that''s from the "Raise 13m and cut the wage bill by 3.5m"

That''s nearly 10m :)