The Huckerby Delusion 0 Posted February 18, 2010 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... Share this post Link to post Share on other sites
Canary_on_the Trent 0 Posted February 18, 2010 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? Share this post Link to post Share on other sites
The Huckerby Delusion 0 Posted February 18, 2010 [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. Share this post Link to post Share on other sites
Bill 1,788 Posted February 18, 2010 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 etcA 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, Share this post Link to post Share on other sites
SS 0 Posted February 18, 2010 101.1% utilization at Cardiff? Hmmmm...... Share this post Link to post Share on other sites
The Huckerby Delusion 0 Posted February 18, 2010 [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 etcA 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, welcomehunger, rags, tempest, and beggary! Mutual confidence will sustain usto the end? or were you going for the Micawber Principle? "Annual income twenty pounds, annual expenditure nineteen poundsnineteen and six, result happiness. Annual income twenty pounds, annualexpenditure twenty pounds ought and six, result misery"(I love Dickens) Share this post Link to post Share on other sites
singing canary 0 Posted February 18, 2010 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 . Share this post Link to post Share on other sites
PurpleCanary 5,557 Posted February 18, 2010 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. Share this post Link to post Share on other sites
Bill 1,788 Posted February 18, 2010 " 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"yepNot sure where you found the original stuff. Reads like some 12 year old''s business studies essay. Share this post Link to post Share on other sites
Nuff Said 5,126 Posted February 18, 2010 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. Share this post Link to post Share on other sites
The Huckerby Delusion 0 Posted February 18, 2010 [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. Share this post Link to post Share on other sites
dhickl 0 Posted February 18, 2010 [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. Share this post Link to post Share on other sites
Bill 1,788 Posted February 18, 2010 [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 ? Share this post Link to post Share on other sites
Howson is now! 0 Posted February 18, 2010 I can only assume that''s from the "Raise 13m and cut the wage bill by 3.5m"That''s nearly 10m :) Share this post Link to post Share on other sites