Tuesday, July 12, 2016

Huddersfield Town - New Rose


In the end, Huddersfield Town comfortably avoided the drop in 2015/16 by finishing 19th, three places and 11 points above the relegation zone, thus continuing their fight to consolidate their position in the Championship, albeit in the lower reaches.

On the one hand, this could be viewed as effectively running to stand still, given that the Terriers also finished 19th in their first season back in the Championship in 2012/13, while they similarly struggled in the intervening seasons: 17th (2013/14) and 16th (2014/15).

On the other hand, this has represented something of a recovery for Huddersfield, as their promotion from League One in 2012 was the first time that the Yorkshire club had graced England’s second tier for 11 years. They defeated Sheffield United in the play-off final after winning a nerve-wrecking penalty shoot-out 8-7 despite missing their first three penalties.

Furthermore, the club that had been “thrice champions” of the old First Division in the 1920s needed to bounce back after going into administration in 2003 with debts of almost £20 million. As chairman Dean Hoyle observed in Town’s centenary season in 2008/09, “It is all too easily forgotten that six years ago the club which had existed for over 90 years was in ruins with no infrastructure, just eight players and debt ridden.”

"Mr. Hudson"

Ken Davy, the chairman of rugby league club Huddersfield Giants, lead a consortium that saved the club, though it is fair to say that he divided opinion among supporters. Although his cash undoubtedly prevented Town’s demise, some fans felt that this was more to do with ensuring that the Giants would not have to bear the burden of the (shared) stadium costs on their own.

This feeling was exacerbated when Town’s share in the stadium was transferred to one of Davy’s companies, leaving the football club as mere tenants. Either way, Davy sold his ownership in Huddersfield Town to local businessman and fan, Dean Hoyle, a few years later.

Hoyle, the founder and previous owner of Card Factory, had bought a 30% shareholding and joined the board in April 2008, before increasing his stake to 70% in June 2009, when he became Chairman. In February 2010 he acquired the remaining shares for 100% ownership.

As part of the deal, Town finally managed to secure an interest in the stadium in September 2013 when they bought 40% of Kirklees Stadium Development Limited (KDSL) for a nominal consideration of £1, though they also settled £2 million of Davy’s outstanding loans.

"Tommy, can you hear me?"

Since Hoyle took control, Huddersfield have made solid progress, though the promised “managerial stability” in the “New Era” has been something of a mirage. After long-serving manager Lee Clark was sacked in February 2012, Simon Grayson guided the club to promotion from League One, but he was then dismissed a year later, as Mark Robins was brought in to avoid relegation.

Just one game into the 2014/15 season, Robins was shown the door, to be replaced by Chris Powell, who survived until November 2015 for “failing to meet the club’s objectives”.

This paved the way for the arrival as head coach of David Wagner, the former manager of Borussia Dortmund’s second team. A retired German-American footballer, Wagner is the first person born outside of the British Isles to manager Huddersfield Town. He is a close friend of Liverpool manager, Jürgen Klopp, and his teams play in the same energetic, progressive style.

This attempt to find a competitive edge is typical of Town’s strategy: the club needs to find innovative ways to compete, as they suffer from significant financial constraints. Hoyle summarised the approach as “over-achieving (compared to our rivals) through focusing on player coaching, player recruitment and development and using the resources we have as best we can.”

"I'm in love with a German film star"

Hoyle continued, “The club has shown it can compete and make some progress in the Championship.” However, he is now aiming higher: “Everyone at the club is ambitious to do much better than just survive in this division. That means being more positive and being prepared to take a few more risks in implementing our plans.”

The hiring of Wagner is the clearest evidence in support of this modified stance, as Hoyle observed, “We don’t just want safety, but to push on and to excite our supporters. We were looking for a new style of organization, fitness and play.”

Hoyle added that Wagner “understands and believes in the club’s plan of producing and developing its own players. He has trust in young players, which is attractive to us.”

Something needs to change at Huddersfield Town if they want to reduce the club’s reliance on cash support from Hoyle, who at the last count had pumped in around £45 million in loans and share capital, and become financially self-sufficient


Huddersfield Town’s pre-tax loss slightly increased in 2014/15 from £6.8 million to £7.0 million, as “off-the-field, the economic trading conditions remained difficult.” This was reflected in revenue falling by £0.4 million (4%) from £10.8 million to £10.4 million, very largely due to match day revenue dropping by £0.3 million (9%) from £3.4 million to £3.1 million. Commercial income also fell slightly to £3.1 million, while broadcasting revenue was flat at £4.2 million.

Although the wage bill was unchanged at £13.3 million, other expenses were £0.9 million (20%) higher at £5.6 million. In terms of player trading, profit on player sales showed a small increase to £1.8 million, while player amortisation was £0.5 million lower at £1.8 million.

Income from participating interests, mainly from the share in KSDL, rose £0.2 million to £1.1 million, though the notes to the accounts suggest that much of this came from the amortisation of negative goodwill created on consolidation.

Of course, as Hoyle noted, “Most Championship clubs suffer very heavy losses subsidised by their owners”, adding, “Professional football at the Championship division has intense rivalry. The impact of the Premier League and willingness of Championship owners to inject ever-increasing amounts of cash into their clubs is significant and wide-ranging.”


Indeed, no fewer than ten Championship clubs reported losses larger than Huddersfield’s £7 million in 2014/15, with Bournemouth £39 million, Fulham £27 million and Nottingham Forest £22 million “leading the way”.

So, hardly any clubs are profitable in the Championship with only six making money in 2014/15 – and most of those are due to special factors.

Ipswich Town were top of the profit league with £5 million, but that included £12 million profit on player sales. Cardiff’s £4 million was boosted by £26 million credits from their owner writing-off some loans and accrued interest. Reading’s £3 million was largely due to an £11 million revaluation of land around their stadium. Birmingham City and Wolverhampton Wanderers both made £1 million, but were helped by £10 million of parachute payments apiece.

Actually, the only club to make money without the benefit of once-off positives were Rotherham United, who basically just broke even – and ended up avoiding relegation to League One by a single place.


That said, losses are nothing new for Town, as the last time they made a profit was way back in 2006 – and that was less than £100k. In fact, since Hoyle came on board, the club has suffered higher losses, amounting to more than £36 million in seven years.

However, even though 2015/16 is expected “to be another challenging year commercially, especially in terms of ticket sales”, Hoyle has forecast the club’s losses to dramatically reduce, partly due to a reduction in the wage bill, but largely due to higher player sales.


Profits from player sales can have a major impact on a football club’s bottom line, but it’s not an enormous money-spinner outside the Premier League with the most profit made by Norwich City £14 million, followed by Ipswich £12 million, Leeds United £10 million and Cardiff City £10 million.

Huddersfield only made £2 million from this activity in 2014/15, largely from the transfers of Adam Clayton to Middlesbrough (part of a swap deal with Jacob Butterfield) and Oliver Norwood to Reading.


In fact, the only lucrative transfer Town have made in recent years was the £8 million sale of Jordan Rhodes to Blackburn Rovers in 2012/13, which generated a £7 million profit.

However, the club has stated that “a key part of our strategy is to buy and sell players for profit to reinvest and contribute to our total football expenditure, viability and FFP (Financial Fair Play) compliance.

To that end, the 2015/16 figures will be boosted by £6.1 million of profits from player sales of £7.6 million, mainly thanks to selling Jacob Butterfield to Derby County (£5 million) and Conor Coady to Wolves (£2 million), though the cash will only be received over the next three financial years. Given that the loss excluding player sales is anticipated to be around £6 million, the club is well-placed to break even next year.


This is just as well, because Huddersfield’s underlying profitability has been getting worse. Most clubs use EBITDA (Earnings Before Interest, Depreciation and Amortisation) as an indicator of financial health, as this strips out once-off profits from player trading and non-cash items. This has been consistently negative at Huddersfield, but has declined from £0.4 million in 2006 to minus £8 million in 2015.


The size of Huddersfield’s negative EBITDA was far from uncommon with 15 clubs generating cash losses between £4 million and £12 million. In fact, only three Championship clubs had a positive EBITDA in 2014/15 (Wolves, Birmingham City and Rotherham) and none of those clubs generated more than £1.5 million. In stark contrast, in the Premier League only one club (QPR) reported a negative EBITDA, which is testament to the earning power in the top flight.


Although Hoyle has said, “We are building a robust financial model by growing our recurring income”, the last time this happened was following promotion from League One, when revenue surged from £7.4 million to £11.3 million in 2013. However, since then revenue has declined by £0.9 million (8%), falling each season in the Championship.

Even after adjusting for the once-off impact of cup runs and play-off matches, underlying revenue (as defined by the club) fell £0.3 million (3%) over that period. In this way, 2013 was boosted by a 4th round FA Cup match with eventual winners Wigan Athletic and 2001 by a narrow 3rd round defeat to Arsenal.


In this way, Huddersfield had the second lowest revenue in the Championship in 2014/15 with £10 million, only ahead of Brentford, but behind the likes of Rotherham United, Millwall and Charlton Athletic. To place this into perspective, four clubs enjoyed revenue higher than £35 million (more than three times as much as Town): Norwich City £52 million, Fulham £42 million, Cardiff City £40 million and Reading £35 million.

As Hoyle noted, “Many Championship clubs benefit from receiving significant and increased parachute payments from the Premier League”. In fact, eight clubs received parachute payments ranging from £10 million to £25 million in 2014/15, which creates a major imbalance in resources.


However, even if we were to exclude this disparity, Town would still find themselves near the bottom of the table, though the revenue differentials would be smaller. As Hoyle admitted, “A large number of our competitors are far bigger than us in scale and ability to grow and generate cash from off-the-field business activities”, examples being Leeds United and Brighton and Hove Albion, who generated £24 million apiece without the benefit of parachutes.

This substantial revenue disparity drives Huddersfield’s strategy, as explained by Hoyle, “This gulf in spending power underlines the need for us to recognise our inability to compete based on the level of finance but instead focus on being smarter and more effective.”


Although he is a relatively new arrival, Wagner is fully on board: “Huddersfield isn’t one of the biggest fishes in the Championship and to get bigger you have to find new ways. We can’t forget we’re Huddersfield. Our long-term aim is to attack the top ten, but we won’t do it with the most money. We have to get our decisions right.”

Huddersfield have a fairly even revenue mix, though match day’s share fell from 32% to 30% in 2014/15. As a consequence, commercial was slightly higher at 30%, while broadcasting continued to lead the way with 40%.


Town’s match day revenue fell £0.3 million (9%) to £3.1 million in 2014/15, partly due to better supported and more attractive clubs being promoted or relegated away from the Championship. In addition, there was no decent cup run: “Early exits and lack of windfall income from cup competitions was again disappointing and frustrating. It reduces our ability to fund exceptional expenditure and investments.”

This is one of the lowest match day revenues in the Championship, only above Wigan £2.4 million and Rotherham £2.1 million. In terms of attendance, it’s a little better with Town’s average of 13,542 more than six clubs in 2014/15.

However, after an initial surge, attendances have fallen every season in the Championship, dropping by 16% from 15,071 in 2012/13 to 12,631 in 2015/16. As Hoyle put it, “The downward trend in attendances and total ticket sales is the major business issue facing the club.”


Although acknowledging that “under performance was damaging”, the club admitted that “it is clear that gates remain under pressure despite value for money season card prices, many match day offers and a relatively recent Championship promotion.”

As a result, Town have taken “radical action to reverse the trend” by introducing incredibly cheap season tickets: adults £179 (around £7.80 a game), under-18s £69 and under-8s £23. The initial run of 10,000 sold out within four days, so the offer was extended to 15,000, after which more “normal” prices would be applied. This is an echo of the £100 season ticket in the centenary season of 2008/09.

Some might consider this initiative as a sign of desperation, but it is clearly also a positive step for the fans, as Hoyle explained: “We decided that with new TV money coming in we would reduce season card prices. Prices have been going northwards, but we want to try a different way. Let’s get the stadium fuller and see where it takes us.”


The stadium itself has been another major issue for Huddersfield with the annual cost and cash drain being “a very heavy burden on the club.” In 2014/15 they paid £918k in rent and other contributions, primarily to repay debt incurred to fund the initial stadium construction cost and subsequent improvements (Riverside stand extension and North Stand build). This debt is forecast to be repaid by 2021, after which the club’s contribution is expected to be “immaterial”.

As part of the 2013 deal, Ken Davy’s company (Huddersfield Sports Pride Limited) transferred back to the football club a 40% share in KSDL, the company that operates, manages and develops the 24,500 seat stadium and its 54 acre site. HSPL, representing the rugby league club Huddersfield Giants, still has a 40% share, while the remaining 20% is held by Kirklees Metropolitan Council.

The participating interest in KSDL contributed £1 million, comprising £1.4 million of income less £0.9 million rent and other expenses, £0.3 million depreciation and £0.1 million interest and tax, which was then boosted by a £1 million credit for amortisation of negative goodwill created on consolidation.

"Episode of Blonde"

That’s a little technical, but this is undoubtedly an important step in the right direction for Town, as Hoyle observed: “When I arrived as chairman in 2009, the club had no share in the John Smith’s Stadium and earned nothing directly or indirectly from the food and drink bought by supporters on its match days either.”

The 2013 deal also allowed the club to renegotiate the catering contract, so from August 2015 there is a new deal with Sodexo, meaning that every penny spent at John Smith’s Stadium on food and drink on a Town match day or event now brings a direct cash benefit.

The stadium is now known as the John Smith’s Stadium, after Heineken bought the naming rights in a five-year deal (2012-17). Originally, it was called the McAlpine Stadium, as the construction company accepted a 10-year deal (1994-2004) as part of its payment. In between, the ground was named the Galpharma Stadium following a sponsorship agreement with a local healthcare firm.

There is the possibility of KSDL developing the land via “The HD One” project. If this is successful, the club claims that it “could have a material positive financial impact”, though others believe that this is more like the proverbial “pie in the sky”.


In the Premier League, the vast majority of all but the elite clubs’ income is derived from broadcasting, but this is not the case in the Championship. Here, most clubs receive just £4 million of central distributions, regardless of where they finish in the league, comprising £1.7 million from the Football League pool and a £2.3 million solidarity payment from the Premier League.

However, the clear importance of parachute payments is once again highlighted in this revenue stream, greatly influencing the top eight earners, though it should be noted that clubs receiving parachute payments do not also receive solidarity payments.

Nevertheless, it should be noted that these payments are not necessarily a panacea, for example Middlesbrough secured promotion last season, even though their broadcasting income of £6.2 million in 2014/15 was less than half the size of those clubs boosted by parachutes.


Looking at the television distributions in the top flight, the massive financial chasm between England’s top two leagues becomes evident with Premier League clubs receiving between £67 million and £101 million, compared to the £4 million in the Championship. In other words, it would take a Championship club more than 15 years to earn the same amount as the bottom placed club in the Premier League.

The size of the prize goes a long way towards explaining the loss-making behaviour of many Championship clubs, given the riches on offer in the top flight. This is even more the case with the astonishing new TV deal that starts in 2016/17, which will be worth an additional £30-50 million a year to each club depending on where they finish in the table.


As an example, I have (conservatively) estimated that the club finishing bottom in the Premier League next season will receive £92 million, which is £87 million more than a Championship club not receiving parachute payments. The TV deals in the Premier League have risen to stratospheric levels, so many Championship clubs have opted to spend big money to improve their promotion possibilities, but it’s a high risk strategy.

Town’s approach was encapsulated by former chief executive, Nigel Clibbens: “There are some clubs taking the view that they will try to get promoted and worry about the consequences later. Get out the other side and you can recoup a lot or all of what you have spent. If not, you are left with very big debts and a problem.”


From 2016/17 parachute payments will be even higher, though clubs will only receive these for three seasons after relegation. My estimate is £75 million, based on the percentages advised by the Premier League (year 1 – £35 million, year 2 – £28 million and year 3 – £11 million). Up to now, these have been worth £65 million over four years: year 1 – £25 million, year 2 – £20 million and £10 million in each of years 3 and 4.

There are some arguments in favour of these payments, namely that it encourages clubs promoted to the Premier League to invest to compete, safe in the knowledge that if the worst happens and they do end up relegated at the end of the season, then there is a safety net. However, they do undoubtedly create a significant revenue disadvantage in the Championship for clubs like Town.


Town’s commercial income in 2014/15 was flat at £3.1 million, comprising commercial £1.6 million, shops £0.6 million, development association £0.4 million, Huddersfield Canalside Limited (a members sporting club) £0.4 million and communications £0.1 million.

This is one of the smallest in the Championship, only above five clubs: Nottingham Forest £3.1 million, Charlton Athletic £2.5 million, Brentford £2.4 million, Millwall £1.9 million and Wigan £1.5 million.

Their shirt sponsor is Pure Legal, a law firm, who replaced Rekorderlig, as Swedish cider brand, initially only for the 2015716 season, though they have since extended for a further three seasons until May 2019. This covers the home shirt, while Radian B (a muscle rub) sponsor the away shirt. From the 2013/14 season Puma have been the club’s kit supplier.


A key element in Huddersfield’s strategy is to increase the amount of football expenditure, including scouting, recruitment, medical, preparation, sports science and analysis, as they “seek to gain every competitive advantage investment in these areas can bring.”

Consequently, since 2008 football expenditure has grown by over 400% from £2.5 million to £12.9 million, while revenue only rose by 119% in the same period. Other expenditure also grew far more slowly: other trading costs 138% and stadium costs 31%.


Town’s wage bill in 2014/15 was unchanged at £13.3 million, though the wages to turnover ratio rose slightly to 128% following the revenue decrease. Interestingly, since promotion to the Championship, wages and revenue have both grown at exactly the same rate, i.e. 40%.

The last time that Town had a wages to turnover ratio below 100% was 2011 (88%). Of course, wages to turnover invariably looks terrible in the Championship with no fewer than 10 clubs “boasting” a ratio above 100%, but Town’s 128% was the sixth highest (worst), only behind Bournemouth 237%, Brentford 178%, Nottingham Forest 170%, Millwall 135% and Blackburn Rovers 134%.


That said, Town’s wage bill of £13 million was the third lowest in the division, only above Charlton £11 million and Rotherham £5 million. To place that into perspective, the highest wage bills were at least £20 million more than Town, namely Norwich City £51 million, Cardiff City £42 million, Fulham £37 million and Reading £33 million. As Hoyle put it, Town are “significantly below many rivals – especially those clubs operating with the benefit of increased Premier League parachute payments.”


Clibbens had argued that the wage bill did not always dictate a club’s finishing position: “The Championship continues to demonstrate year in, year out, that there is much more to achieving success and promotion than simply spending more on player wages than the next club.” That is undoubtedly true, but a larger budget is clearly advantageous.

In fact, Hoyle expected a reduction in the 2015/16 wage bill (estimated at £2 million), while also having a dig at some of the club’s deadwood: “With a number of senior and high-earning, but non-performing player contracts expiring in June 2015 and again in June 2016, this gives an opportunity to both improve and reshape the squad and achieve the most effective use of our available playing budget.”


Another aspect of player costs that has been steadily rising at Town is player amortisation, which is the method that football clubs use to expense transfer fees. In line with the higher sums spent on bringing players into the club, player amortisation has grown under the current ownership from just £60k in 2008 to £1.8 million in 2015, albeit down from £2.3 million the previous season.


As a reminder of how this works, transfer fees are not fully expensed in the year a player is purchased, but the cost is written-off evenly over the length of the player’s contract via player amortisation. As an illustration, if Town were to pay £5 million for a new player with a five-year contract, the annual expense would only be £1 million (£5 million divided by 5 years) in player amortisation (on top of wages).


Despite the growth, Town’s player amortisation of £1.8 million was still one of the lowest in the Championship, especially compared to those clubs relegated from the Premier League in recent times, i.e. Norwich City £13.2 million, Cardiff City £11 million and Fulham £10.7 million.


The other side of that coin is player values on the balance sheet have also increased from £149k in 2008, when the ownership structure changed, to £2.6 million in 2015, though Hoyle emphasised that the actual market value was “well in excess” of the book value in the accounts.

Town’s approach in the transfer market appears to be changing. Hardly anything was spent in the four-year period between 2008 and 2012 (according to the Transfer League website), though the club stated that their spending on transfer fees was the highest in League One in the promotion season of 2011/12.


However, in the four years following promotion to the Championship Town have increased their expenditure to £4 million, though this has been more than offset by £16 million of sales (largely Rhodes, Butterfield and Coady) to give £12 million of net sales.

Hoyle explained the approach: “We plan to focus on introducing new players both with proven Championship experience and leadership qualities to strengthen the first team starting group and must maintain a core group of younger players and developing players, coming from our academy or purchases, with value and potential to increase in value, but also an ability to make us better immediately.”


In fairness, many Championship clubs have net sales, but it is striking that last season the two automatically promoted clubs and the four clubs that qualified for the play-offs filled six of the seven top places in the net spend league. As a comparison, Town were comfortably outspent by the likes of Derby County £29 million, Middlesbrough £23 million, Burnley £14 million and Sheffield Wednesday £10 million.

So it is perhaps no surprise that Town have loosened the purse strings a little this summer, making good use of Wagner’s contacts in Germany to bring in several new faces, including Christopher Schindler, the club’s record signing at £1.8 million, from 1860 Munich, Michael Hefele from Dynamo Dresden, Chris Löwe from Kaiserslautern, Jon Gorenc Stankovic form Dortmund II, Ivan Paurevic (a former Dortmund player) from Russian club FC Ufa  and Elias Kachunga (on loan) from Ingolstadt.

In addition, they have signed Southend’s player of the year Jack Payne and signed two internationals on loan from top Premier League clubs, Australian Aaron Mooy from Manchester City and Welsh goalkeeper Danny Ward from Liverpool, while Rajiv van La Parra’s loan deal has been made permanent. This is a clear statement of intent, part of the so-called #WagnerRevolution.


Town’s net debt increased in 2015 by £4.8 million from £37.4 million to £42.2 million, as gross debt rose from £38.4 million to £42.2 million and cash fell from £0.9 million to just £0.2 million. Actually, the debt would have been even higher without the conversion of £3.5 million of loans into share capital in 2014/15 (with another £3 million converted after the accounts closed in November 2015).

Since the change in ownership, debt has risen significantly from £2.9 million in 2009 to £42.4 million in 2015, but the good news is that virtually all of the debt is owed to the club’s owners (Hoyle £41.4 million). It is long-term, unsecured, interest-free and without a repayment date, so this is just about the “softest” debt a club could get.


Even after the steep growth, Town’s was nowhere near being the largest debt in the Championship. In fact, four clubs had debt over £100 million, including Brighton £148 million, Cardiff City £116 million and Blackburn Rovers £104 million. Bolton Wanderers have not yet published their 2015 accounts, given their much-publicised problems, but their debt was a horrific £195 million in 2014.

That said, the vast majority of this debt is provided by owners and is interest-free, so the amounts paid out by Championship clubs in interest is a lot less than might be imagined.

In addition to the financial debt, Town had contingent liabilities of £3.3 million, up from £2.6 million, dependent on future success of the team and player appearances.


The cash flow statement is quite revealing: basically loans from Dean Hoyle are used to cover the operating losses. As the club noted, “it is critical to note the scale of funds injected into the club in recent years”, which amounts to £43 million since 2009.

That has been used to cover £38 million of losses, while a further £5 million has been invested into infrastructure, mainly the academy and the training facility at PPG Canalside. There has been minimal net spend of £0.6 million on players: £12.2 million of purchases less £11.7 million of sales.


The latest accounts bluntly explained the situation: “the club continues to be unable to afford its total football expenditure without shareholder support and cash from selling players”, which is patently not sustainable in the long-term.

More encouragingly, a few months ago Hoyle said, “We are in a really good financial state and I am personally happy, because while the club is very reliant on me, it is becoming less reliant, which is where we need to get to.”

It is equally true that Town have complied with the Financial Fair Play (FFP) regulations in both 2013/14 and 2014/15, having excluded allowable deductions such as infrastructure and academy investment. Each club was allowed a maximum loss of £6 million, assuming that £3 million was covered by shareholder investment. However, from 2015/16 new rules allow losses to more than double to £13 million, funded by a maximum of £8 million equity.

"Schindler - Blue Lines"

This will damage Huddersfield’s prospects, as acknowledged by Hoyle: “Whilst the initial FFP rules had started to reduce losses, the relaxation from 2015/16 will see a marked spike in spending and we expect a very significant increase in player wages and losses at Championship clubs when results are reported after June 2016. This change will widen the gulf in spending and underlines the need for us to focus on being smarter, innovative and more effective and operate in our own way.”

Amongst other things, this means investment in the academy, where the annual cost has increased from £0.95 million in 2012/13 to £1.6 million in 2014/15, though this is offset by £0.8 million of grants from the Premier League and others.

Town are one of the few EPPP Category Two academies, but they are yet to reap the benefits in terms of players progressing to the first team. While the club admits that this is “a long-term process with no quick fixes”, you can detect a hint of impatience when they state, “we now look forward to see the real returns on the investment.”

"At the height of the fighting"

The club’s objective is to “move up the Championship to challenge consistently in the top half and win promotion to the Premier League.” That’s evidently a big ask given their financial challenges, but Hoyle spoke positively, “There is nothing to fear and no need to look enviously at clubs about us. That simply means we must have our own approach.”

Wagner’s arrival has brought renewed hope that the club is moving in the right direction, especially after doing good business in the transfer market, while the return from injury of leading scorer Nahki Wells should also make a difference.

Certainly, Hoyle believes that the new coach is the right choice: “His approach is a winning one. He is up for the challenge of making Huddersfield Town a success on the pitch. I hope that this appointment will reinvigorate us, bring excitement and allow us to make a big stride forward.”

To quote The Specials, this does feel like it might the dawning of a new era for Town. There’s clearly an element of risk in hiring a relatively inexperienced foreign coach, particularly in the rough-and-tumble Championship, but the club’s willingness to find its own model in an attempt to punch above its weight should be applauded.

Tuesday, June 14, 2016

Nottingham Forest - From The Ritz To The Rubble


Nottingham Forest have enjoyed a glorious past, albeit largely relating to one magical period under the legendary Brian Clough and his assistant Peter Taylor. After gaining promotion from the old Second Division in 1977, Clough’s Forest become Division One champions at the first time of asking in 1978 and then proceeded to win the European Cup two years in succession. In the same purple patch, they also picked up two League Cups.

This was a remarkable achievement for a club of Forest’s size and was testament to the genius of the manager, as the team featured few superstars. These successes have been wonderfully chronicled in the superlative documentary and book, “I Believe In Miracles”, which is well worth the attention of any football fan.

However, recent history has not been so kind. Next season will be the 18th that Forest have spent outside the Premier League, which is a shocking indictment for a club that once scaled the heights . Chairman Fawaz Al Hasawi agreed with this downbeat assessment in his review of the 2014/15 season, which he described as “a time of missed opportunity”.

The Al Hasawi family purchased the club in July 2012 from the estate of former owner and lifelong fan, Nigel Doughty, after his sad and premature death. Initially, the Kuwaiti businessmen talked a good match, “We know there are challenging times ahead of us to bring the club back to its glory days and we look forward with excitement towards a new successful future.”

"Until I learn to accept my Jamie Ward"

The new owners were also boosted by Doughty’s estate only taking a £20 million repayment against the outstanding £86 million of loans, thus enabling the club to move forward with a relatively clean slate.

However, it is fair to say that the Al Hasawi era has not been a glittering success. While it is true that they have made a substantial investment into the club, amounting to £67 million of loans as at 31 May 2015, Forest are no nearer securing a return to the top flight, as they continue to struggle in the Championship.

Indeed, one damning statistic is that their league position has deteriorated every season under Al Hasawi: 8th in 2012/13, 11th in 2013/14, 14th in 2014/15 and 16th in 2015/16. In other words, they are now closer to League One than the Premier League, which is particularly disappointing, given that they reached the play-offs two seasons in a row as recently as 2009/10 and 2010/11.

The constant managerial upheaval surely cannot have helped matters. In the four years since the new owners took charge, Forest have had no fewer than eight people coaching the team, despite Al Hasawi claiming, “I don’t like to change managers. I like stability.”

"Do your best and don't worry"

They started as they meant to go on, i.e. shambolically, with four different managers in their first six months, as noted in a magnificent paragraph in the 2012/13 accounts: “The year started with Steve Cotterill as football manager. He was replaced in July 2012 by Sean O’Driscoll, who himself was replaced in December 2012 by Alex McLeish. Alex was only in the position until February 2013, when he was replaced by the current manager Billy Davies.” And breathe.

After alienating most people with his somewhat abrasive style, Davies was sacked after a year with Gary Brazil taking the role on a caretaker basis (though arguably that’s the only valid description of the position), before the arrival of fans’ favourite Stuart Pearce. After a promising start, the team’s form collapsed, so “Psycho” also failed to last a season.

Next on the chopping block was another former Forest player, Dougie Freedman, though he was given his P45 in the dreaded February/March period with coach Paul Williams stepping up to the plate until the end of the season. Incredibly, Forest are currently without a manager, though many would understandably think twice before accepting this poisoned chalice.

There has been similar turnover in the important Head of Recruitment role, while the brief experiment with an experienced chief executive ended with the resignation of Paul Faulkner, after the former Aston Villa man claimed that he was not allowed to do his job.

The owners’ strategy has essentially been to throw money at the problem, resulting in much higher wage bills and increasing debt. To be fair, the issue has not so much been a lack of investment, but the seeming absence of any sort of strategic plan, which has resulted in the money being largely wasted.

"Vaughan in a storm"

This impression has been reinforced by numerous financial glitches, including late payments to suppliers, failures to pay football clubs transfer fee installments (e.g. to Peterborough United for striker Britt Assombalonga) and five (yes, five) winding-up orders, including two this year alone for non-payment of tax.

Although the club described these problems as “purely administrative”, this sort of incompetence is never a good sign. One reason offered for slow payment of wages was “a national holiday in Kuwait”, which is only one step above “the dog ate my homework”.

Even if Al Hasawi wanted to spend more on the club, he would not have been able to do so, as the club’s losses resulted in Forest breaching the Financial Fair Play (FFP) regulations, thus being placed under a transfer embargo in December 2014.

This catalogue of woe means that it is not overly surprising that the owners are looking for others to come on board. Indeed, there are strong rumours that Greek shipping magnate Evangelos Marinakis, the owner of Olympiacos Piraeus, is poised to buy 80% of Forest.

Although Forest might seem like an attractive proposition, any new investor would discover a club in a fairly poor financial position, as seen by the 2014/15 accounts, which featured a loss of £21.5 million.


This actually represented a £2.5 million improvement over the previous season’s £24.0 million loss, though that included a £1.1 million restatement following the cancellation of a  sponsorship agreement with the Al Hasawi family (for the shirt and areas around the City Ground).

The main reason for the lower loss was a £4.3 million increase in profit on player sales to £6.1 million, largely due to the sales of Jamaal Lascelles and Karl Darlow to Newcastle United.

Revenue also rose by £2.1 million (14%) to £17.4 million, which Al Hasawi ascribed to “the dedication of the supporters and the work of the commercial department”. This was reflected in match day income increasing by £1.0 million (14%) to £8.2 million and commercial income rising by £0.5 million (18%) to £3.1 million.

However, another important factor was income from player loans climbing £1.0 million to £1.5 million, as a remarkable 12 players were loaned out, including Radoslaw Majewski, Jamie Mackie, Greg Halford, Dan Harding and Djamel Habdoun (amongst others). On the other hand, broadcasting income dropped by £0.4 million (8%) to £4.6 million.

There was another “significant increase” in the wage bill, which rose £2.5 million (9%) from £27.2 million to £29.7 million, while player amortisation was up £0.7 million (13%) to £6.4 million. Other expenses slightly increased to £8.2 million, while interest payable was £0.5 million worse, as the previous year included a credit after interest previously charged by the holding company had been waived.


Despite the improvement to the bottom line, only two Championship clubs reported larger losses than Forest in 2014/15, namely Bournemouth £39 million and Fulham £27 million. In fairness, hardly any clubs are profitable in the Championship with only six making money in 2014/15 – and most of those are due to special factors.

Ipswich Town were top of the pops with £5 million, but that included £12 million profit on player sales. Cardiff’s £4 million was boosted by £26 million credits from their owner writing-off some loans and accrued interest. Reading’s £3 million was largely due to an £11 million revaluation of land around their stadium. Birmingham City and Wolverhampton Wanderers both made £1 million, but were helped by £10 million of parachute payments apiece.

So the only club to make money without the benefit of once-off positives were Rotherham United, who basically just broke even – and ended up avoiding relegation to League One by a single place.


Of course, losses are nothing new for Forest, as the last time they made a profit was back in 2005 – and that was only £1.1 million. Since then the club has suffered a decade of losses, amounting to an extraordinary £126 million.

This was all meant to change with the arrival of the Al Hasawi family: “From the club’s perspective the new ownership represented the end of a period of uncertainty and has allowed the club to once again stabilize its finances.”

In reality, the deficits have increased with £63 million of losses being accumulated in the last three years, averaging £21 million a season. This is more than double the average annual loss of £9 million over the preceding seven seasons.


As we have seen, part of the 2014/15 improvement was due to profits made from player sales. These can have a major impact on a football club’s bottom line, but it’s not an enormous money-spinner outside the Premier League with the most profit made by Norwich City £14 million, followed by Ipswich £12 million, Leeds United £10 million and Cardiff City £10 million.

Forest made £6 million from this activity, which was boosted by the way that player values are accounted, as the major sales (Lascelles and Darlow) were both homegrown products, so had no value on the balance sheet (as no transfer fees had been paid). Against that, the club would have absorbed losses for the large number of players released on free transfers.


Over the years, Forest have made very little money from player sales. In fact, the last time that they registered a profit above £2.5 million from this activity (before last season) was 2005, when the £5.1 million (plus an exceptional £1.5 million gain on finance leases) helped produce the club’s last overall surplus.

In the nine years between 2005 and 2015, the club only generated a total of £11.5 million profits from player sales, i.e. just £1.3 million a season. In some cases, this can be considered a positive, as it means that a club is retaining its best players, but here it is more likely to be because Forest have not had many players that others clubs would want to buy.

There are a few signs that this might be changing, as the 2015/16 accounts will be boosted by the £7 million sale of Michail Antonio to West Ham, though accounting losses will also be incurred for the release of the likes of Jamie Mackie. In financial terms, this might be seen as “running to stand still”, as the reasonably good profits from player sales in 2014/15 did not prevent a thumping great overall loss.


This is because Forest’s underlying profitability is getting worse. Most clubs use EBITDA (Earnings Before Interest, Depreciation and Amortisation) as an indicator of financial health, as this strips out once-off profits from player trading and non-cash items. This has been consistently negative at Forest, but has plummeted from minus £2 million in 2005 to minus £20 million in 2015.

This was one of the worst in the Championship, only better than Bournemouth, whose minus £25 million was heavily influenced by large promotion bonuses. In real terms, Forest had the lowest EBITDA, which means that they are the least profitable club in the division.


To be fair, only three clubs had a positive EBITDA in the 2014/15 Championship (Wolves, Birmingham City and Rotherham) and none of those clubs generated more than £1.5 million. In stark contrast, in the Premier League only one club (QPR) reported a negative EBITDA, which is testament to the earning power in the top flight.

Revenue has only grown by £2.8 million (19%) in the three seasons since Al Hasawi arrived and even that is a bit misleading, as it includes £1.5 million of player loans income. This has only been included as gross income since 2013, as it had previously been netted off against expenses.


Excluding the effect of this accounting restatement, the real revenue growth is just £1.2 million (8%), which is a long way from the increases implied by the owners’ 3-5 year plan.

Part of the problem was actually highlighted by the club in the 2012 accounts, as it explained one of the reasons for the revenue reduction that year as being “the lower performance of the first team”.


Even after the rise in Forest’s income to £17.4 million, this is still on the low side and clearly bottom half of the table in the 2014/15 Championship. Although Blackpool and Bolton Wanderers are yet to publish their accounts, we can safely say that their revenue was higher than Forest, as they both received £10 million parachute payments.

Therefore, Forest only had the 16th highest revenue in the Championship, only above eight clubs, though one of these (Bournemouth) did manage to get promoted. To further place this into perspective, four clubs enjoyed revenue higher than £35 million (more than twice as much as Forest): Norwich City £52 million, Fulham £42 million, Cardiff City £40 million and Reading £35 million.


Of course, these revenue figures are distorted by the parachute payments made to those clubs relegated from the Premier League, e.g. in 2014/15 this was worth £25 million in the first year of relegation.

However, if we were to exclude this disparity, Forest would still find themselves back in tenth place. The revenue differentials would be smaller, though they would be behind different clubs, e.g. the top three would then be Norwich City £29 million, Leeds United £24 million and Brighton and Hove Albion £24 million.


The most important revenue stream for Forest is match day, which contributes 47% of total revenue, followed by broadcasting 26% and commercial 18%. Player loans accounted for as much as 9% of 2014/15 revenue.


In fact, no club has a greater reliance on match day revenue in the Championship than Forest’s 47%, ahead of Charlton Athletic 43%, Brighton and Hove Albion 42%, Millwall 41% and Ipswich Town 40%.


Forest’s match day revenue actually rose by £1.0 million (14%) to £8.2 million in 2014/15, even though they hosted four fewer cup games, as the average attendance increased from 22,630 to 23,492, largely due to having Forest legend Pearce at the helm.

This meant that Forest’s match day revenue was the fourth highest in the Championship, only behind Norwich City £10.7 million, Brighton £9.8 million and Leeds United £8.8 million.


In terms of attendance, it was a similar story, as Forest were the fifth highest, though it would have been somewhat galling to see that the league leaders were local rivals Derby County with 29,232.

However, to add to Forest’s concerns, attendances fell by a massive 3,800 (16%) in 2015/16 to 19,676, even though season ticket prices were frozen, due to a combination of several factors:  unhappiness with the owners, the poor football on display and high ticket prices.


Whatever the reasons, this is the first time that attendances have dipped below 20,000 since the club was in League One in 2007/08, which is clearly bad news, given how important gate receipts are to Forest’s business model.

Indeed, Forest have decided to cut ticket prices by 5% for the 2016/17 season with Al Hasawi explaining the rationale thus, “With loyal supporters making a financial commitment to support this club I feel it is our duty to extend the (early bird) offer.” Fair enough, but it could just as easily be a straightforward acknowledgment of the need to do something to prevent the crowds falling any further.


Of course, in the Premier League, the vast majority of all but the elite clubs’ income is derived from broadcasting, but this is not the case in the Championship. Here, most clubs receive just £4 million of central distributions, regardless of where they finish in the league, comprising £1.7 million from the Football League pool and a £2.3 million solidarity payment from the Premier League.

However, the clear importance of parachute payments is once again highlighted in this revenue stream, greatly influencing the top eight earners, though it should be noted that clubs receiving parachute payments do not also receive solidarity payments.


Nevertheless, it should be noted that these payments are not a panacea, so Middlesbrough secured promotion last season, even though their broadcasting income of £6.2 million in 2014/15 was less than half the size of those clubs boosted by parachutes.

Looking at the television distributions in the top flight, the massive financial chasm between England’s top two leagues becomes evident with Premier League clubs receiving between £67 million and £101 million, compared to the £4 million in the Championship. In other words, it would take a Championship club more than 15 years to earn the same amount as the bottom placed club in the Premier League.


The size of the prize goes a long way towards explaining the loss-making behaviour of many Championship clubs and to some extent justifies Forest’s profligacy. This is even more the case with the astonishing new TV deal that starts in 2016/17, which will be worth an additional £30-50 million a year to each club depending on where they finish in the table.

As an example, I have (conservatively) estimated that the club finishing bottom in the Premier League next season will receive £92 million, which is £87 million more than a Championship club not receiving parachute payments. Forest might well be a big club, but the TV deals in the Premier League have risen to stratospheric levels since they last graced the top flight, so they now have to compete against the realities of the modern footballing world.


From 2016/17 parachute payments will be even higher, though clubs will only receive these for three seasons after relegation. My estimate is £75 million, based on the percentages advised by the Premier League (year 1 – £35 million, year 2 – £28 million and year 3 – £11 million). Up to now, these have been worth £65 million over four years: year 1 – £25 million, year 2 – £20 million and £10 million in each of years 3 and 4.

There are some arguments in favour of these payments, namely that it encourages clubs promoted to the Premier League to invest to compete, safe in the knowledge that if the worst happens and they do end up relegated at the end of the season, then there is a safety net. However, they do undoubtedly create a significant revenue disadvantage in the Championship for clubs like Forest.


Surprisingly for a club of Forest’s admirable tradition, their commercial income of £3.1 million, up from £2.6 million the previous season, was one of the smallest in the Championship in 2014/15, way behind Norwich City £12.8 million, Leeds United £11.3 million and Brighton £8.9 million. In fact, it was only ahead of four clubs: Charlton Athletic £2.5 million, Brentford £2.4 million, Millwall £1.9 million and Wigan £1.5 million.

Forest’s commercial income is made up of sponsorship, royalties and advertising £0.8 million, match day hospitality, events and catering £1.8 million and merchandising £0.6 million.

One of the reasons for Forest’s low commercial revenue is their merchandising deal with Kitbag, though this ended in June 2015, so next year’s accounts should see some upside. That said, there is considerable room for improvement in the commercial arena when you consider that local Midlands rivals, Derby County and Wolves, both generate around £8 million a year from this activity.

"Shout, shout, let it all out"

For the past three seasons Forest’s shirt has been emblazoned with the name of one of the owner’s companies, namely Fawaz Refrigeration & Air Conditioning. Although the chairman described this as a “lucrative” deal, he did admit that he would have preferred to secure an external sponsor, and he has now done so. From the 2016/17 season, Forest will have online betting firm 888 Sport as its shirt sponsor.

It remains to be seen whether some of the sponsorship areas around the stadium will be continued to be utilised by companies controlled by the Al Hasawi family at no charge. Either way, it feels a long way from the days when Fawaz claimed that Forest’s revenue issues would be addressed in the form of new sponsorship from several companies in Kuwait.

The current three-year kit supplier partnership with Adidas runs until the end of the 2016/17 season.


Forest’s wage bill rose by 9% (£3 million) from £27 million to £30 million in 2014/15, which means that wages have increased by a staggering 69% (£12 million) in the three years since Al Hasawi arrived, while revenue only grew by 19% (£3 million) in the same period, thus pushing the wages to turnover ratio up to an awful 170%.

As the club observed, “the owners gave significant support to football management in an effort to support the promotion bid.” In a way, that is laudable, though it is unclear how much is included in the wage bill for pay-offs to all the sacked managers (and their backroom staff).


This is the price Forest have paid for their frequent changes at the top, perhaps the worst example being Billy Davies being sacked just six months after being awarded a four-year contract.

In any case, the last time that Forest had a wages to turnover ratio below 100% was back in 2009. Of course, wages to turnover invariably looks terrible in the Championship with no fewer than 10 clubs “boasting” a ratio above 100%, but Forest’s 170% was the third highest (worst), only behind Bournemouth 237% and Brentford 178%.


Given that, it might come as something of a surprise then to see that Forest’s wage bill of £30 million was actually only the seventh highest in the Championship, behind Norwich City £51 million, Cardiff City £42 million, Fulham £37 million, Reading £33 million, Bournemouth £30 million and Blackburn Rovers £30 million – though it was almost £10 million more than Watford, who were promoted that season.


Stop me if you’ve heard this before, but this was once again because most of these clubs enjoyed the benefit of parachute payments. If we look at clubs who did not receive such payments, then Forest had the second highest wage bill, only £700k behind Bournemouth, whose wages were significantly inflated by substantial promotion bonus payments, but £8 million above Derby County. In other words, Forest's wages were effectively the highest of any club not receiving parachute payments - and by some distance.

It is likely that the wage bill will fall in 2015/16 following the departure of some high earners (and  lower termination pay-offs), but it will still be a real challenge for the club to control this while giving themselves the best chance of promotion.


Another aspect of player costs that has been steadily rising at Forest is player amortisation, which is the method that football clubs use to expense transfer fees. In line with the higher sums spent on bringing players into the club, player amortisation has grown under the current ownership from £2.5 million in 2012 to £6.4 million in 2015.


As a reminder of how this works, transfer fees are not fully expensed in the year a player is purchased, but the cost is written-off evenly over the length of the player’s contract via player amortisation. As an illustration, if Forest were to pay £5 million for a new player with a five-year contract, the annual expense would only be £1 million (£5 million divided by 5 years) in player amortisation (on top of wages).


Although Forest’s player amortisation might not seem a huge charge, it was actually the fourth highest in the Championship, only surpassed by those clubs relegated from the Premier League in recent times, i.e. Norwich City, Cardiff City and Fulham. Of course, this expense should have come down in 2015/16 following the transfer embargo and release of many players.


The other side of that coin is that player values on the balance sheet have also increased, more or less tripling from £3.1 million in 2012 to £9.2 million in 2015. That is the accounting value in the books, but the actual market value would obviously be much higher if Forest were to sell any of its players, as homegrown players have zero value in the accounts.

It will not have escaped the supporters’ attention that the performances on the pitch have actually worsened as both wages and player values have increased, which is not how these things generally work. As The Blow Monkeys once sang, “It doesn’t have to be this way.”


In fairness to Al Hasawi, one thing that he cannot be accused of is failing to back his managers in the transfer market. Even with the impact of the transfer embargo, Forest have made gross purchases of £23 million in his four seasons, compared to only £9 million in the preceding four seasons.

On the other hand, there has also been an increase in player sales from virtually nothing between 2008 and 2012 to £17 million in the last four years, so net spend has overall decreased.

Clearly, Forest have had to act smarter since the embargo was put in place, so they have made some astute free signings such as Matt Mills, Jamie Ward and Daniel Pinillos. They have also dipped into the loan market with good contributions from the likes of Nelson Oliveira, Ryan Mendes, Bojan Jokic and Gary Gardner.


As a result of the transfers of Antonio, Lascelles and Darlow, Forest had £4 million of net sales over the last two seasons. This meant that they were comfortably outspent by the likes of Derby County £29 million, Middlesbrough £23 million and Burnley £14 million.

In fact, the two automatically promoted clubs and the four that qualified for the play-offs filled six of the seven top places in the net spend league, which underlines how much Forest have been hit by the transfer embargo, so it is good news that the chairman has confirmed this has recently been lifted (though there is nothing to this effect on the Football League website).


Forest’s net debt significantly increased in 2015 from £52.0 million to £82.1 million, as gross debt rose by £29.5 million from £52.6 million to £82.2 million and cash fell £0.5 million from £0.6 million to just £0.1 million.

Virtually all of the debt is owed to the club’s owner, either directly to the Al Hasawi family (£67 million) or indirectly via the loan from the parent company, NFFC Group Holdings Limited, £14.9 million. No interest is charged on these loans, which are only repayable when the club “is in a position to do so”, so this could therefore be considered “soft” debt. Other football club owners have gone a stage further by converting much of their debt into equity, though last month Al Hasawi did convert £8 million into capital.

Indeed, after the takeover the estate of Nigel Doughty allowed £66 million of their outstanding debt to be capitalised. As the club said, that represented a “considerable and significant improvement to the balance sheet.” The remaining balance of £20 million was repaid using funds provided by the parent company. However, just three years later, Forest’s debt is back up to the pre-capitalisation levels.


Forest’s was by no means the largest debt in the Championship, being lower than six other clubs. In fact, four clubs had debt over £100 million, including Brighton £148 million, Cardiff City £116 million and Blackburn Rovers £104 million. Bolton Wanderers have not yet published their 2015 accounts, given their much-publicised problems, but their debt was a horrific £195 million in 2014.

That said, the vast majority of this debt is provided by owners and is interest-free, so the amounts paid out by Championship clubs in interest is a lot less than you might imagine.

In addition to the financial debt, Forest owed £2 million in transfer fees, while they also had quite high contingent liabilities of £6.6 million, up from £4.3 million, for player purchases and first team management changes.


The accounts state that the club “relies on the continued support of the Al Hasawi family for its day to day funding and funds its working capital requirements through a facility provided by the Al Hasawi family.” This is clearly seen in the 2015 cash flow statement.

Even after adding back non-cash items such as player amortisation and depreciation, then adjusting for working capital movements, Forest made a substantial cash loss from operating activities of £23.9 million. They then spent a net £5.7 million on player recruitment and £0.5 million on capital expenditure. This was funded by an additional £29.7 million loan from Al Hasawi.

One other point worth noting is the increase in creditors in 2013 and 2014, which meant that the club was effectively funding some of its expenditure by the old trick of paying suppliers later.


Of course, it is nothing new for Forest to rely on their owner for financial support, as it was much the same story under Doughty with the only real source of funds being additional shareholder loans. In fact, since 2005 around £127 million has been provided by the club’s owners with almost 70% (£88 million) of that money being used purely to cover operating losses.

Only £14 million was used for player purchases (net), while over £18 million went on sorting out the finances: reduction in overdraft £9.8 million, loan repayments £6.7 million and interest payments £1.8 million.

What is striking is how little money (only £6.6 million) has been spent on infrastructure investment, so there have been virtually no improvements to the stadium or the academy. This is in stark contrast to clubs like Brighton and Brentford where the owners have also provided ample funding, but large amounts have been invested in their long-term future.

It is also true that there has been an increase in financial dependency under Al Hasawi with the family needing to pump in £67 million in just three years. As a comparison, Doughty had to stump up a similar sum (£65 million) over the preceding eight years.

"It looks like Daniel"

As we have already noted, Forest’s 2013/14 loss meant that they breached the Financial Fair Play regulations, resulting in a transfer embargo. The Football League simply stated that the club had “exceeded the maximum permitted deviation of £6 million – consisting of a maximum adjusted loss of £3 million plus a further maximum of £3 million of shareholder investment.”

It should be noted that FFP losses are not the same as the published accounts, as clubs are permitted to exclude some costs, such as youth development, community schemes, promotion-related bonuses and infrastructure investment (such as stadium improvements and training ground). That said, this does not really  help Forest’s FFP calculation that much, as they have spent so little in these areas.

Instead, this will remain a major issue for the owners, as they noted in the accounts: “Preparation to meet the challenges of FFP also adversely affected the season as management worked tirelessly behind the scenes to thrive in the changed environment.”

That may be, but it is somewhat surprising that they took so long to wake up to the realities of FFP, given that the 2012 accounts explicitly stated that this “will be a challenge for the new owners.”

From the 2016/17 season the regulations will change to be more aligned with the Premier League, so that the losses will be calculated over a three-year period up to a maximum of £39 million, i.e. an annual average of £13 million. This will likely encourage clubs to “go for it” even more.

"Many Happy Returns"

Any renewed spending may well be under new ownership, as Al Hasawi has tired of the criticism: “If people are pushing and always negative, and there is no appreciation, why should I continue? Maybe there are some people better than me and I am doing it wrong.”

The obvious answer would be that few could do worse, but it might be a case of “out of the frying pan and into the fire” if the rumours are true about Olympiacos owner Evangelos Marinakis buying into the club. He is currently banned from any “football activity” in Greece with the public prosecutor’s dossier containing a lengthy list of allegations, including blackmail, fraud and bribery.

In any case, Forest fans would not have seen the last of Al Hasawi, who would like to stay on as chairman: “Whatever happens, it is not going to be a sale of the club. I want this club to win promotion and I want to be here when it happens.”

Even after all the misadventures on his watch, Al Hasawi is still optimistic, “I hope this will be a positive summer, because I want to do things right. I want this to be the time we get it right.” On the plus side, key players like Assombalonga and Chris Cohen are returning from lengthy injuries, but the lack of a manager does not exactly inspire confidence.

Realistically, the chances of  a return to the Premier League appear further away than ever. The Championship is a tremendously competitive league and Forest seem ill-equipped to mount a serious challenge against those clubs benefitting from hefty parachute payments – or even those with wealthy owners who have a good understanding of the game. Unless, of course, you do believe in miracles.
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