Financial Fair Play - Latest News

Ipswich used to be one of the most envied club in the Football League.  They have an impressive history, winning the League Championship in 1962, the UEFA cup in 1981 and the FA Cup in 1978. They were also the League runners-up in runners-up in 1981 and 1982.  Even though they are now struggling in the Championship, they still get average gates of around 17,000 – an amazing feat for a town with a population of just 155,000. That works out to around 11% of the entire population attending their home games – on that basis, an equivalent crowd for Leeds would be around 75,000!

However things have taken a marked turn for the worst recently. To illustrate the problem I have attached a summary of the last published accounts. The most recent accounts run up to 30 June 2011 and we can expect the accounts that relate to the 2011/12 season next month – however they are unlikely to make very happy reading.

Note: the figures are in given thousands so, for example, '6,638' represents  £6,638,000

Even if you aren’t familiar with looking at accounts, there are a few things that jump out.  The wages paid to by the club exceeds the Turnover (i.e. the total ordinary income from the club).  Wages exceeding or equalling turnover is a crazy situation for the club to be in for any prolonged period of time. The club simply won’t be able to even cover the admin expenses of running the club – it is real danger sign if wages are anything over 60/70% of Turnover. In League 2, clubs are currently given a transfer ban if this happens (link).  

The text in the club accounts inform us that Ipswich was nearly £67m in debt on 30 June 2011 (and the debt is likely to have grown since then). During 2010/11 the club paid out £3.4m in interest to cover the debt. This is a huge amount given that Match Day Income/Gate receipts has been in the region of £6.6m. It must be a thoroughly depressing prospect to look round the ground and know that two of the four stands are solely paying for interest on the debt. 

Looking at the figures, Ipswich Town appears to pay Evans around 5.4% interest on the debt – this is a little below the market rate for this kind of debt but is still a substantial drain on the club.  The approach to charging interest on debt varies across ‘benefactor owners’.  Other owners including Al Fayed at Fulham and Abramovic do not charge their club any interest on the debt, whereas Bolton and Villa pay around £5m each year on their approx £100m debts.

Despite selling Connor Wickham as part of the £10.8m profit on player sales, the club still came no-where near breaking even last year (although without this huge player-trading profit, the club would have repeated the previous season’s £14m loss).

It is probably worth explaining the Amortisation figure shown above (Ref 5).  When a club pays a transfer fee it will not record the fee paid in one go in the accounts. The club has to depreciate/amortise the purchase price over the life of the contract. So a player signed for £3m on a 3-year contract is amortised at a rate of £1m a year. It is clearly good to see this figure reducing but like wages, it is generally hard to change this figure quickly owing to the duration of player contracts.

Oddly, there appears to be an anomaly in the accounts.  Ordinarily the elements of the ‘Cost of SaIes’ figure (shown in the accounts on page 8) can be easily reconciled to the expenses listed in the accounts. However there was an  element of the Cost of Sales figure which I cannot locate in the accounts (around £1.9.m) - see note 9.  Frustratingly - it looks like it is some kind of administrative cost to do with the running of the club (such as paying up old contracts or paying-off an old manager). I have attached the club accounts and would welcome anyone’s input to this.

We should be able to reconcile the 20,929 (i.e.£20m) Cost of Sales figure shown on page 8 of the accounts to the figures in the accounts (i.e. items 4,5,6,7,8, should add up to 20,929).

I suspect this significant £1.9m expense may be due to the cost of paying-off the contract of Roy Keane but can’t be sure. I would expect the accounts to detail this kind of expense as an Exceptional item – it almost looks like the club are trying to hide this £1.9m expense (but as I say, I can’t be sure quite what it is).

Since June 2011, the club have evidently tried to tackle the wages costs and have managed out Grant Leadbitter, Jimmy Bullard, Lee Bowyer, Jaime Peters, Ivar Inginmarsson, Damien Delaney, Ibrahima Sonko, and ended loans of David Stockdale, Danny Collins and Keith Andrews.  In addition to that, Carlos Edwards and Jason Scotland have signed contracts which halved their wages and these players have been replaced by Scott Loach, Elliot Hewitt, Luke Chambers and Paul Taylor, as well as short term loanees and 2 season long loanees in Guirane N’Daw and Massimo Luongo. Financially, this is all good news for the club but the full benefit of the change won’t appear in the next published accounts and the club might have incurred expenses when paying-up some of the contracts.

When owner Marcus Evans took over the club in 2007, the club were £32m in debt –under Evan’s ownership, this figure has more than doubled (and looks set to increase further in the next accounts).  It is always difficult to gauge the personal wealth of any business person – although in 2010 the Times Rich List estimated he was worth £500m.  However these estimates are often highly inaccurate and we simply don’t know how deep his pockets are.  Interestingly, the accounts show that £67m debt is all owed to Evans and he has not converted any of it to equity.

One of the main issues for Ipswich has been the continued ability to get further and further into debt. The new Financial Fair Play rules in the Championship will at least make it harder for misguided owners to grow the debts of the club.  Many would argue that the plight of Ipswich illustrates the potential benefits of Fan Ownership as a fan group would simply not have been allowed to grow the debts in the way Evans has done.  However, it is very difficult for fan consortia to get started as they generally lack the funds required to run a club with existing debt and high expenses. Unfortunately Fan Ownership generally only occurs after the club has had a financial melt-down and shed most of its running costs (eg Exeter City and potentially Portsmouth).

Refreshingly, there are distinct signs of fan disenchantment and mobilisation.  A fan group @Turnstile_Blue has launched a one-off fanzine to highlight the mismanagement of the club and attempt to gain greater say in the running of the club –it is a very good read and can be downloaded from here.