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FINANCES: Interview - part one

1 March 2013

First part of an in-depth interview

Award-winning match day programme Back of the Net spoke to chairman Andrew Jenkins and managing director John Nixon this week to get their thoughts on the financial state of the game. 

“The financial controls which are now in place are an attempt to stop clubs from going out of business,” Mr Jenkins said. 

“It encourages clubs to spend within their means and a lot of that depends on attendances. Last season, here at Brunton Park, we budgeted on 5,200 and we have already seen this season that our gates are down by approximately 1,000. 

“That means we will have to readjust our forecast for next season and spend the money on playing staff accordingly. It makes it slightly harder for the manager because he has to stay within the 60% of turnover limit, and if we haven’t got as much money coming in then it naturally means he won’t have as much to spend.”

“By and large these control measures should create a much more level playing field across football,” he continued. “In many ways I think players are going to have to understand that there isn’t as much cash around these days. Every club is in the same boat, though, and I think we’ll still be in a strong position to compete because of the way we do things. 

“Hopefully the fans will see where we are and what we’re trying to do, and they will continue to support us, because they play a vital part in helping us to set the levels in which we can invest right across every area of the club, in particular on the playing side of the business.”

Managing director John Nixon then answered a series of questions on a wide range of subjects.

The financial state of the game below the Premier League is one of football's hot topics, so what would your assessment be of the situation at the moment? I think a lot of the clubs in the Football League are having a lot of difficulties at this moment in time. A big factor is that crowds are down right across the league by about 4 or 5%. They're down 15% in League One and, for us, we are down about 19%. That’s probably a reflection of the league position and the poor start to the season, but there are a lot of teams struggling. You only need to look at Swindon as they are in real financial trouble and it has got as far as them having a transfer embargo placed over them. We all know about Portsmouth and fingers are crossed that they will come through a very difficult period. Southend are back in court this week because they've got a winding up petition, Notts County were the same the week before, and a lot of clubs we visit are on the edge of difficult situations. We can’t hide from the recession and I think it’s correct to say it’s having a big impact on the sporting industry. 

With the things you've just mentioned across all of those clubs, is there a feeling things are coming to a head? Not so much coming to a head as putting things into focus. I think part of it is down to it being the second half of the season. In the first half of the season you have the three cups to give you that bit of extra income. When you get to January, and you're out of those cups, then that extra strand of income isn't there. You've probably got a few games that have been postponed, so they get moved to a Tuesday night, and that isn’t as lucrative as getting them played at the weekend. The solidarity payments from the Premier League are scheduled for August and January, so once you get into February and beyond it's tough. We have to work through it though because we still have wages and bills to pay.

As you’ve said, attendances are in decline across the Football League, so that has to be a concern? It is, and we have to look at television as a major contributing factor. Over the years we've taken TV money and solidarity money, mostly because it is a source of very welcome income. The solidarity payments are the Premier League's way of saying that they know by them selling the matches to Sky, and to other channels, then it is going to have a direct impact on the other divisions and it becomes a means of compensation for that. We have live football on TV seven days a week, sometimes two or three matches a day, and that is hard to compete with. The amount of football on TV has changed audience expectations and it is now often a preferred option for many to watch from home rather than take the walk along to support the local club. That’s something we have to try to deal with.

As the big TV deal at the top level started to grow we heard comments along the lines of – we aren’t going to need fans as we have the TV money. How much do clubs at our level rely on foot-fall? Just over a third of our total income comes from people who buy season tickets and who come through the gates on match day. Another third comes from the Football League and solidarity payments, with a little bit of that coming from cup runs. If you start to lose 1,000 fans on average per game, like we have this season, then it will end up costing us between £200,000 - £250,000 worth of income. You don’t need me to tell you that is very worrying indeed. You can say there's a margin on that, because we need fewer stewards and support staff, but the difference in the money we spend on staff for bigger crowds is nowhere near the difference in the money we lose when fans don't come to watch us. We obviously still have to pay the players the same if there's 4,000 fans here, or if there are 5,500 here. 

With the position you have on the board of the Football League can you tell us if they are looking at ways to help clubs through what is a very difficult period? We've discussed it at a strategic level and we're going to discuss it with all member clubs when we get back together in June. There are all sorts of thoughts on where we can go and strategically the Football League are starting to think that they need to give fans what they appear to want - football available, almost on demand, 24-7. I agree with that sentiment but I think we have to be careful. We don't want to drive fans into becoming full-time armchair supporters because we still need that 35% of income from them coming through the gates. What we must do is make the experience of going to a football match something that is enjoyable and a real experience. I think the only way to do that is to keep television away from the 3 o’clock kick offs for as long as we can. The other thing the Football League are looking at is the fact that we have to record the matches to give to the referee, opposing teams, etc, so it isn’t such a big step to take to start to stream that out live to some of the countries where there is a real market for that kind of thing, like China, India and the Middle East. A potential problem is that it could be streamed back to pubs and clubs around this country so there would have to be safeguards in place. The potential from advertising revenues and betting partners if we can get to a stage where we are streaming live games is huge and it has to be explored. The first thing we are looking to do to dip our toes in the water is to put a lot of the work already done by our media departments onto YouTube. That will give us an idea of how much interest there is throughout the world. 

Going back to the solidarity payments, what exactly are they and why are they so heavily weighted towards the Championship? As I say, it’s effectively a compensation payment which the Premier League give us out of their earnings, which are primarily from television and from the Barclays sponsorship deal. From that we receive a payment from the Football League and the split is 66% to the Championship, 20% to League One and 14% to League Two. That is the net effect but it's actually an extremely complex system. Any income paid to us directly from broadcasting comes at a split of 80% to the Championship, 12% to League One and 8% to League Two. However, to complicate matters even more, that is only in place up to and including the first £33 million. The split changes again after that. The reason it can become so confusing is that non-broadcasting income is split in an entirely different way. The broadcasting shares were decided because 80% of the Football League matches shown on TV are from the Championship, and so on. In broad terms the solidarity income we get is £2.171 million to a Championship club, £324,000 to a League One club and £214,000 to a League Two club. We get half of the amount due in August and the rest comes to us in January. There's a new deal to be put together to cover all of it at the end of this season, but I don't think we'll get much more money and we don't really have much chance of negotiating. The Premier League needs to protect itself as much as it can because they're under pressure from FIFA and UEFA to ensure Financial Fair Play. That basically means they have to stop making the huge losses that we've seen from Chelsea and Manchester United in the last couple of seasons. To add to that we also have the Premier League parachute payment. This was introduced at the beginning of the 07/08 season, to coincide with the increased television deals, and it was an attempt to make sure the teams coming out the Championship would be capable of performing at the higher level. If you get relegated from the Premiership you will obviously have some players on very good contracts still tied to the club. To help with that the first parachute payment from the Premier League stands at £16 million for your first year out of the top flight. That goes to £12.8 million in year two and then £6.1 million in years three and four. In addition to that you still get the £2 million payment off the Football League. Currently there are eight teams on parachute payments with seven of them in the Championship and the other, who we played recently, in League One. Now, when three more teams come down at the end of this season they are unlikely to be replaced by teams currently receiving parachute payments. That means next season will see ten teams receiving a total pot in the region of £100 million from the Premier League. I think this is one of the biggest problems we have. Some clubs are getting a huge parachute payment and a Football League payment and things are obviously skewed in their favour. They can pay higher wages and attract the so-called better players because of it. 

So we have effectively already created a two-tiered football system? Definitely, and the more teams that come into the Championship and receive the parachute payments the worse it will get. With it being over four years you could have Portsmouth in League Two getting close to £8 million, if the figure goes up as we expect it to. They'll also still get £240,000 from the Football League and that’s just crazy. 

How often do the negotiations take place? Once every three years, and every time things change it's because the Premier League want something in return. The first year they wanted to realign all the contracts between the two organisations and the last time it was all about EPPP. I don't know where it will go this year but I can see that the Premier League teams are going to have pressure on because of the amount of games they have. The International weeks mean they can't play games because they are scheduled by FIFA, and if you do play then you get fined. You've also got European football in midweek, so their fixture calendar can quickly become clogged. I think that could lead to pressure not to have replays in any cup games, in particular the FA Cup, because that hurts the teams which are still in European competitions. My guess is they will look to remove the replay system and replace it with a straight knock-out. 

Are we in a situation where the top level teams are looking after bottom-up football or are they focused on themselves? They are very much focused on themselves. A lot of them are losing money as they pursue what they perceive to be better players. I can’t see that situation changing too much.

Click HERE for part two of this interview.

Click HERE for part three of this interview.

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