Part one of a three part interview
Salary Cost Management Protocol – what exactly is it? We sat down with managing director John Nixon and financial controller Suzanne Kidd to rake through the nitty gritty details.
When did SCMP come into play? This was something we did in League One two seasons ago, as a paperwork exercise, but there were no sanctions at that stage. That changed for this season when sanctions were put in place. League Two have been doing this for a few seasons now and the thinking behind it is to try to stop clubs from heading towards administration. The bar was set at 65% of your turnover on player wages at League One level this season and that will go down to 60% next season. League Two have been operating this successfully and they will actually go down to 55% for next season.
Has it definitely worked at League Two level, particularly with them adopting the framework before the rest of us? Even though the crowds and budgets are lower in League Two I think you would have to say that it has been a success. I think Port Vale are the only team who have had to go into administration recently in that division. Looking across the leagues, most of the teams who have gone into administration recently have been the bigger clubs who have been relegated from the Championship. That suggests that it has worked for the bulk of League Two clubs.
How does SCMP work? The idea is that you can only spend a certain amount of money on wages, and you have to keep between 35-40% of your turnover back to make sure you can pay all of your other bills. Some clubs in the Championship were spending over 100% of their turnover on wages and that clearly isn’t sustainable. If that happens it means that someone else has to put the extra money in, simply because clubs were making such massive losses and were then having to rely on what effectively had to be large donations of cash. These steps have been taken to counteract that, with the long term future of all Football League clubs in mind. In addition, there is also the Customs and Revenue aspect. They now report to the Football League on clubs who are in arrears or who have defaulted on their payments. Again, this goes some way to ensure you can only sign players you can afford. If you do default on payments to HMRC then you are placed under a transfer embargo until the situation is sorted out.
Is that a positive change? When we were in administration in 2004/05 the people we didn’t pay were the Customs and Revenue, because it's what you were able to call invisible money. For example, if you pay someone's wage at £500 a week, then £150 of that is tax. The physical payment made from that is £350, to the player, and you don’t actually spend the other £150. The easiest thing to do back then was to keep hold of it rather than give it to the government. Before this April we only used to report to Customs and Revenue once a year via an end-of-year tax return. Now we have the RTI [real-time information] system, which means we have to report monthly through the payroll software, and you can’t hide away from the payments you are due to make any more. At the end of any given month the Football League now have an agreement with Customs and Revenue which means that as soon as a club defaults on a payment they go onto a list. The Football League then immediately contact the club in question to enforce a transfer embargo. The most recent example for us was when we had two players lined up for a loan move to Accrington. It turned out that they had hit an embargo, because they had outstanding bills with other clubs, and they weren’t allowed to see the deal through. The same thing happened to Bury and they had to use the PFA to help them pay their wages during the month the transfer window was open. That got them through, but the following month they went back under an embargo. It can be a very strict system.
What goes into calculating the 60% of turnover level of player wage payments next season? There are a whole host of things you have to do to make your calculations and, in many cases, it has to be based on assumptions. The first thing you have to do is put in a forecast for what you think your turnover will be for the whole year. For this season we had to submit that on 22 June 2012. That was obviously before our players were even back for pre-season training. Within that forecast there have to be two figures – one for the season as a whole and one for where you think the club will be at the half way stage. The figures submitted in June have to be evidence-based using the audited accounts from the previous year. There is a reconciliation sheet to show your actual figures from the previous season against your forecast going forward, and the two figures have to relate to each other or it will set the alarm bells off with the Football League before you even make a start. You can’t, for example, predict that your shop will sell twice as many home shirts, that your attendances will be 9,000 a week or that you will sell two players for £1 million each. That would be seen as an attempt to artificially inflate your figures, and rightly so. You have to be very detailed in your assumptions and forecasts so that they [the Football League] know exactly where we think the income is going to come from. If there are big differences to the evidence-based submission from you previous season then you have to have a very good explanation as to why. As long as you have a good reason for changing the figures, that's fine, but it can’t be based on wild notions or ideas. A good example would be if you know that your ticket prices are going up. You can then show an increase on gate receipts based on that fact.
Are you allowed to forecast good runs in Cup competitions to bump the figures up? We always assume no progression in the cups as it’s the safest way to do things. That means if we do progress it becomes something of a financial bonus for the club. Any FA Cup money we do get comes directly from the Football Association, but we always enter a zero amount in that column on day one. You can actually guarantee some money from the highlights programmes, and we received an additional payment two seasons ago when we played Alfreton, but by far the safest thing to do with all cup competitions is to assume you will get nothing.
for part two of this interview.