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Henrik
Lloyd finds room for improvement in the latest annual accounts |
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When Rovers’ shareholders gathered at the Mem earlier this week to review the club’s latest set of accounts, the message from the Board was clear: the losses can’t continue and financial control is at the top of the agenda. These aren’t new strategies. As the table below shows, an almost identical message was presented at the previous AGM in April 2005.
The figures presented last Monday show just how unsustainable Rovers’ current off-field performance is and why curtailing the annual operating losses is so important to the future of the club. The table below shows that without the assistance of transfer fees Rovers lost in excess of £700,000 on their day-to-day activities in both 2002/03 and 2003/04. The figure was only marginally better in 2004/05, with losses of £461,000 once the £626,000 received from Westbury Homes in compensation for disruption to the car park was taken out. That may have represented an improvement, but it still amounts to losses of nearly £9,000 a week.
To put things in perspective, trading losses over the course of the last three years are roughly three times the additional income provided by the Share Scheme over a similar period of time. Another way of looking at it is that over the last two financial years we've had exceptional income of £1.1 million (£626,000 from Westbury, £498,000 from player sales the year before). That money has had to be used to offset these huge operational losses when it could have gone towards securing the club’s long-term future by helping pay off the mortgage or funding redevelopment of the ground (the North Stand development was pulled because of a £500,000 funding gap). The damage to our long-term future of incurring such operational losses is therefore all too clear to see. The Board’s statements about the need to cut these losses via strict financial control are also very evident. So why, then, three years down the road, are we still so far away from the stated target of a break-even position? It’s when you start to try and answer this question that the Board’s promises about getting tough on the finances start to look just a little bit hollow. The table below provides a breakdown of the club’s expenditure over the last three published years. Their overall approach to costs seems to have been set out in the 2003/04 Chairman’s Statement: “Our continual investment in the squad must, at some point, be met with success on the pitch. We have cut our costs in all other departments of the Club….” In short, maintain the playing budget but cut costs in other areas. That happened in 2003/04, when overall expenditure was cut by nearly 5% to £4.24m courtesy of sharp declines in products purchased for resale, match & ground expenses and admin costs. However, while spending in these areas remained stable during 2004/05, overall expenditure nevertheless increased by 2.1% to £4.33m as player & staff costs continued to rise.
It is here that the Board’s strategy seems to come unstuck. It’s difficult to see how match, ground and administrative expenses can be cut any further and they seem unwilling or unable to tackle the issue of ever-increasing player and staff costs (up by £200,000 over the last two seasons). Without a surge in revenue – and it’s difficult to see where that would come from – it’s impossible to see how a break-even situation can be achieved. Player and staff costs will therefore have to be tackled by the Board at some point if they are to reach their goals. It could be argued though that they have already had the chance to do that and failed to grasp it. The table below shows that player and staff costs are by far the biggest component of overall expenditure but, in spite of all the talk about financial control being top of the agenda, these costs have risen steadily over the last three years (see below) and the proportion of overall expenditure spent on staff has risen steadily from 56.4% to 62.7%. Moreover, this has come at a time when the number of staff employed by the club has fallen from 103 to 86.
The increase in 2003/04 was maybe justifiable: as the 2003/04 Chairman’s Statement stated, the club had had to spend £100,000 on transfer deadline day to preserve our League status, contributing to a 4.7% increase in overall staff costs to £2.65m. However, if the Board were really intent on ensuring that financial control was top of the agenda then staff costs surely had to fall in 2004/05, a season in which we were able to start with a relative clean slate in terms of playing contracts (a whole team of out-of-contract players left the club) and there was no need for panic deadline day buying. In fact, the club’s overall wage bill rose by a further 3.5% to 2.75m as a brand new team of experienced pros arrived, the vast majority on long-term deals. Far from learning from the mistakes of previous years, it’s hard not to come to the conclusion that at the same time as publicising the need for financial control and cutting operating losses the Chairman and his Board were simply handing out deals which more or less guaranteed the opposite. And not surprisingly within a year we were reduced to having to try and pay off the contracts of some of the highest earners, not least our current manager. Perhaps such extensive spending could be justified if it was what was required to get us out of this division, but a brief tour of Companies House will tell you that that is not the case. And perhaps that is where there is some hope for Rovers. Below is a comparison of our overall wage bill over the last three years with a range of other clubs in our division, along with some others in League One. There are two very clear messages:
Comparative
Wage Bills 2002/03-2004/05
The above figures highlight that it should be possible for Rovers to achieve a break-even position while at the same time funding a squad that can deliver promotion. For that to be the case, however, there would need to be a complete rethink on the cost structure of the playing squad. That won’t happen while we continue the policy of the last 5-6 years of overloading our squad with high wage earners who have seen the best of their playing days on long-term deals that they wouldn’t get elsewhere. That’s not to say that there shouldn’t be experience in the squad, but we have to strike a decent balance. We had the chance to instigate such a policy a couple of seasons ago but, in spite of plenty of good talk about quality not quantity, we persisted in handing out a host of contracts that we ultimately couldn’t afford to pay and which betrayed the view that the financial control was top of the agenda. That has cost us over a million pounds in exceptional income, the majority of which could have been used to ensure the long-term future of the club. The likelihood is that it has also already eaten up the windfalls received this season from the sales of Ellington and Scott Sinclair. |
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