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CHIEF EXEC: Dealing with the £1.2m of lost normal income

Part three of a five part interview

5 May 2021

Club News

CHIEF EXEC: Dealing with the £1.2m of lost normal income

Part three of a five part interview

5 May 2021

In part three of the May update from chief executive Nigel Clibbens, he explains how we have prioritised taking steps to ensure we could deal with that ‘lost’ normal income.

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That comes from a combination of sources.

Income replacement

Other non-recurring one-off income sources like iFollow, Government support measures, Premier League support, Football Fortune, have all played their absolutely vital parts in bringing in valuable income alongside cost savings and donations.

iFollow - £280,000

I have given details in the five monthly updates we’ve done during the last year the importance of iFollow. We have earned £280,000 in 36 games to the end of March [click HERE to read that update].

This is a crucial flow of new income. In February we thought this could rise to over £250,000. With the tremendous fan support since then it looks to be heading to be around £350,000 by the end of the season. 

Fans can’t be at games but we know you are with the team in spirit. It has been no substitute for live action in person, but it has made a real difference, as can be seen. The support has been brilliant, even in the recent weeks when results have not been what we would want. With two games every week for a long time, the cost to fans of watching every game soon starts to mount up. A big thank you to everyone who has backed the team in this way.

We don’t know what the iFollow arrangements will be for 21/22 yet, but we will update as soon as possible.

Government support measures - £175,000

We have taken advantage of the external government support furlough scheme to protect jobs. The Coronavirus Job Retention Scheme has provided approximately £160,000 so far this financial year. We have also received rates relief. Back in July 2020, I described the Coronavirus Job Retention Schemes as ‘an absolute lifesaver’ as you can read if you click HERE.  

At the moment most of the back office of the club is now open again.  Some staff are still placed on flexi-furlough, but are often being called upon at short notice to work. This is difficult and their commitment has been superb. The Blues Store reopened on 12 April.

Club News

CHIEF EXEC: £1.2m of normal income lost in 20/21

4 May 2021

Premier League support - £360,000

It has been clear in all of the updates I have done that because of the scale of our expected lost income this year (£1.2m), and the inability to match that with cost savings and still field a team, it meant other permanent replacement income was critically important - not just short-term temporary cash-flow help, but permanent financial relief.

Up to December 2020 we had received no permanent external financial support from the game [just from the Government support measure schemes above], despite being nine months into the crisis. The EFL and Premier League had helped by advancing cash we were due anyway, but earlier. This helped temporary cash-flow, it didn’t fix the long-term issue of permanently ‘lost’ income.

On 3 December 2020 it was confirmed that the EFL and the Premier League concluded negotiations on a rescue package and distress fund to address the immediate financial challenges faced by EFL clubs arising as a result of the coronavirus pandemic.

A fund of £50m, in the form of a £30m grant [permanent relief] and £20m ‘monitored’ grant payments [temporary relief] had been agreed for League One and Two clubs. At that time I mentioned that we needed to carefully consider what it meant for us, and I said that the allocation of cash must be fair, whilst emphasising that it’s the very fine detail that matters, not the headlines.

Like all League Two clubs we received a ‘no strings attached’ and very welcome first interim payment of £250,000 (L1 clubs each got £375,000), which accounted for £15m of the £30m grant.

We were eventually allocated £360,000 in total as our share of the £30m grant, with a final £110,000 instalment. As detailed above, our ‘lost’ normal gate income to the end of March 2021 is £675,000.

Non-football cost savings £250,000

Going back to June 2020, I said: “Do we reduce our costs now for 20/21 to possibly absorb that potential ... loss of match income? How long for? Three months ... or four, or five? How much do we target to save? Will £200,00 a month saved be enough? Can we possibly save four months’ worth of losses?”

The ‘lost’ normal income we have faced absorbing has proved to be well above the four or five months I referred to in that statement. It’s going to be a full season with just five games and only 9,000 fans attending in the whole of 20/21.

Fans will understand, when we already operate with minimum non-football business costs off-the-field in normal times, making further non-football business cost savings on the scale required was not feasible, but could play a part. 

Cutting business costs has contributed as part of our commitment to ‘self-help’ - but bridging the £1.2m income gap in a single year (£1.6m in total) always needed to be primarily income driven.

We have worked very hard to save non-football business costs where possible. We have achieved lower match expenses from behind closed doors games with no fans, furloughing staff (reducing pay to match the 80% recoverable from Government), cutting back to only essential spending off-the-field, closing the club as soon as possible in lockdowns, and for as long as possible during the lockdown periods. By these ‘self-help’ measures we have reduced our off-field expenses in the nine months to date by £250,000 (20%).

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Football spending

David said in January 2021 when, we were riding high: “Let’s start on the budget, it is what it is, there’s no surprises for anybody on that.” 

Last week David gave his take on budgets from a football recruitment and on-the-field point of view when he said: “I’m not going to talk about budgets, I’m bored of hearing about budgets. We’re working within the parameters of what we know we can afford and that’s a healthy place to be. We aren’t comparing ourselves to other clubs in terms of finances or budgets because there’s no point, we look after ourselves.”

I agree, the position hasn’t moved, and it’s clear and consistent both short-term and longer-term.

From an overall club point of view, our approach to football spending is unchanged since the end of the reign of Keith Curle. Our long-term aim remains to direct as much cash into our football activities as we can, without placing the club in a high-risk position financially, or investment in other areas of the club.

Even before coronavirus, we’ve moved to avoid being reliant on short-term external or emergency funds, with all the issues that can create. Since May 2019 we have not needed to draw on external support – that’s continuing.

Yes - there is no denying in the short-term that coronavirus has made all of our normal financial challenges even more difficult. However, by doing what was right financially before coronavirus, we are stronger through it. 

Throughout the coronavirus crisis our aim has been to continue with this approach, to avoid reducing our football spending (with off-field costs being the focus, as detailed above). We have done that successfully and also been able to award new, improved and longer contracts to football players and staff, and more recently retain players earlier and in bigger numbers for 21/22 to avoid the disruption and risk from player churn.

The player cost and football expenses budget for 20/21 was unchanged from 19/20 and has remained so, even as the fan lockout extended beyond January 2021, which obviously worsened the problems beyond what we had forecast. 

This still allowed our window dealings in January to be unaffected. Any change in the final total football spending in 20/21 is only likely to be from lower bonus payments relating to success on the pitch.

Chris Beech often refers to the challenge we have with football spending compared with rivals.

“It’s so difficult, but I suppose if you look at finance and budget, we’re below a level playing field anyway, so we’re always fighting up. They [the players] go against everything, they don’t get it easy, we don’t stay in the best hotels, have the best travel or training facility. We have it hard.”

Yes - as we all know, we are fighting the financial and budget battle. We remain in the bottom quarter of League Two for player spending on EFL Salary Costs benchmarks in 20/21, as we were in both in 19/20 and 18/19 (before coronavirus).

With the cash reserves and steps we have taken, with the wider support we have received, we have fully insulated the football department from the wider heat faced by the club – so it hasn’t suffered financially. The wider club has stepped up, as planned, reflecting the priorities for our spending.

Other cash support measures

We have not applied for a loan from the remaining £20m ‘monitored’ grant fund from the Premier League.  The arrangements for that fund and our financial position mean we will not receive any further monies. 

As I explained previously [part 1], we took a short-term PAYE deferral from HMRC at the start of the crisis in 2020, and this was all fully paid back by November 2020, as agreed. We remain fully up to date and all tax payments continue to be paid on time.

Our VAT payable from March 2020 has been deferred until 21/22 under the nationwide Government scheme. 

Edinburgh Woollen Mill

The club has still not drawn any funding under the commercial funding arrangement since May 2019, and has not relied on EWM during that crisis time. 

Following player sales, the club didn’t draw on EWM funding in 19/20, before the coronavirus crisis, or during 20/21, even before the insolvency of EWM. 

Since my last update, EWM stood aside as shirt sponsor, but otherwise the position remains as I outlined in February [click HERE] which from a financial point of view is unchanged since mid-October 2020, in practical terms [click HERE] or as updated in February 2021 by John Nixon [click HERE].  

Also, there is no change, from a 1921 board point of view, in how we manage the club operations day-to-day. Financially we plan to continue to operate on a self-sufficient basis with no external funding in the remainder of 20/21, and again for 21/22 at this stage.

In part four I'll be taking a look forward from the current position.

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