Blackburn Rovers´ financials -a sad state of affairs

Blackburn Rovers are currently going through a challenging period. The traditional club was relegated to the Championship after the 2011-12 season, when they finished 19th in the Premier League. The club is far from it´s glory days, which include 3 league titles and 6 FA Cup titles. The Rovers won their latest league title in 1994-95, and haven´t been able really fight for the title ever since. The club was actually  relegated 1998-99, but bounced back quickly by fininshing runners-up in the Championship two years later. 

 

The current state of Blackburn is a sum of many things. But definitely one of the biggest issues for the club was Jack Walker´s death in 2000. Walker bought the club in 1991 and reportedly spent tens of millions of pounds to strengthen the club. Within the first three years since he took charge at the club, Rovers spent £ 25 million to new players, including Shearer from Southampton for £ 3,3 million in 1991 and Sutton from Norwich for £ 5 million in 1994. In addition to funding player transfers, the club´s home ground, Ewood Park, was also rebuilt into a modern stadium.  The project was ultimately succesful, when Blackburn took the title in 1995. Alan Shearer formed a lethal duo with fellow striker Chris Sutton, Shearer scored a league-record of 34 goals, Sutton managed to find the net 15 times. After Walker´s death in 2000, the ownership of the club was moved to Jack Walker Settlement Trust. Walker´s wish was that the Trust would continue supporting the club financially, which it did. In 2006 the Trustees converted £ 14million of loans into shares and in 2007 they converted £ 80 million into shares, in addition to interes-free loans. In 2007, the Trustees finally decided enough was enough and started to work on selling the club. 

 The sale was finally put into effect in November 2010, when it was announced that the club was sold to Indian poultry company, Venky´s. Venky´s London Limited paid £ 23 million for 99 % of the shares. Venky´s chairperson, Anuradha J Desai told at the time: ”We will absolutely respect the Jack Walker legacy and will be actively supporting the organisation to ensure that Blackburn Rovers remain one of the best-run clubs within the Premier League.”

After over four years later, it´s safe to say things have not progressed quite how Venky´s visioned, or the fans hoped. The new owners quickly sacked Blackburn´s coach at the time, Sam Allardyce. Rovers finished 15th in 2010-11, but the following year was a disaster, as the club finished 19th and were relegated to the Championship. As chairman of operations, Paul Agnew, stated somewhat bitterly in the club´s annual report in 2012; ”Blackburn Rovers´proud 11-year stay in the top flight came to a bitterly disappointing end. Misfortune, mistakes and missed penalties summed up a spluttering start of three successive defeats. Rovers were playing catch-up from the off and, in truth, they never really recovered. ” Despite the bitter disappointment, Agnew took a brave look ahead by saying: ” Promotion back to the Premier League became the club´s collective goal from the very moment relegation to the Championship was confirmed in early May 2012”.

What has followed since those words is a sad (if not uncommon) story of a relegated club trying to find their way back to the top level of the game. Needless to say, financially the biggest concern for any relegated club is the diminishing turnover.This is partly offset by the parachute payments, but the difference between Premier League and Championship is huge. Below is a figure representing Blackburn´s profit & loss account for the past four seasons.

Blackburn´s turnover went from £ 57,6 million in 2010-11 to £ 30,4 million in 2013-14 due to relegation. What follows in normally the same as with any company whose  turnover diminishes quickly: The cost base needs to be adjusted accordingly in order to avoid making losses. But in the case of a relegated football club, it is extremely difficult to adjust costs AND try to gain instant promotion back to top tier. As Blackburn´s figures show, the club wasn´t making profit even when they were playing in the Premier League. The EBITDA in 2011 and 2012 was, respectively, £ -2,8 million and £ -8,2 million. But after the club was relegated and the turnover was cut by more than 50 %, the EBITDA sank as low as to £ -22,8 million in 2013. The turnover did increase by about £ 3,5 million in 2014. This was mostly due to increase in central distributions by the Premier Leagueand there was a £ 1,2 million reduction in matchday revenue due to worse performance in the cup competitions than in the previous year. With the slight increase in turnover and slight reduction in operating costs, the profitability improved in 2014. Still, this can hardly be seen as a groundbreaking achievement, since the EBITDA was still very much negative. 

An important part of any football club´s profitability is the level of wages. In Blackburn´s case, it is quite stunning set of figures. 

 

The wages were already at a very high level in comparison to the turnover in 2011 and 2012, around 90 %. When wages consume 90 % of the turnover and the turnover suddenly reduces to around half of what it was, it is a very, very difficult task trying to adjust the wages. As it turns out, Blackburn were unable to do this. Not that that was their primary goal, anyway. As managing director Shaw stated in 2013, annual report, ”With Venky´s stated commitment to a return to the Premier League as soon as possible, every effort was made to keep the team together and add further to the squad with the signing of players such as Danny Murphy, Dickson Etuhu, Colin Kazim-Richards and Jordan Rhodes. This was reflected in the wage costs which, although showing a decrease against the previous year of £ 13,4 million, increased in percentage terms to 136 % of turnover, despite relegation clauses contained in most contracts.” There you have it. Wages/turnover –ratio was 136 %, which is an outrageously high figure. It was a big gamble, and ultimately an unsuccessful one, as Blackburn failed to achieve promotion. In 2014 wages were reduced by about £ 2 million, but the wages-turnover- ratio was still at a very unhealthy level, at 113 %. As huge as Blackburn´s wages/turnover –ratio was, it was not unheard of at the Championship. Quite the opposite. In 2012-13 Blackburn were at the upper end of the table, but still quite far from the dreadful figures of Bristol City (who spent almost twice their turnover on wages) and Cardiff. 

 

Amortisation of players contracts made the losses even worse. During the last two years alone, Rovers have recorded a combined operating loss of around £ 68 million. The club managed to record a profitable year in 2012, but this was due to player trading. The club sold several players, including Phil Jones, Nikola Kalinic, Yakubu and Chris Samba, and recorded a profit of £ 22,9 million as a result. This raised the result to £ 4,3 million. Recording a profit is always a positive thing, but it is not unreasonable to ask whether that was also part of the reason they were relegated? The last two years after relegation have been financially disastrous, to say the least. Total combined loss of the last two seasons is a monumental £ 78,6 million.

Blackburn´s spending on players has followed the same pattern as their wage bill. The club made a nice profit in 2012 while sinking to the Championship, but in 2013 they again invested heavily in the squad, in pursuit of promotion. Most notable arrivals were Leon Best and Jordan Rhodes. Best arrived from Newcastle with a transfer fee worth £ 3,3 million and Rhodes from Huddersfield for £ 8,9 million. Looking at the figure below representing Blackburn´s transfers, it is easy to see that after making those profits in 2012, the club really did invest heavily to the squad in 2013 when trying to get right back to the Premier League.

By all accounts, in 2012-13 the club really did make a substantial effort. The spending on players and the bloated wage bill meant that it was really an all-or-nothing –bid to gain promotion. There was absolutely no way that kind of business model could be sustained in the long run, and whether it was a smart move even in the short run is debatable. If 2012 was a bitter season due to relegation, failing to gain promotion in 2013 with this kind of spending must have stung, too. Especially since the season started very well for the Rovers. The team lost just one of their opening seven fixtures and topped the table. Not that Rovers made it too easy on themselves, though. Manager Steve Kean resigned. Or, as Kean himself told BBC at the time; "For reasons that I cannot discuss on legal advice, it is with deep regret, given my hard work and service for the club for a number of years, that I have been forced to resign as manager of Blackburn Rovers Football Club with immediate effect, due to my position as team manager becoming untenable."

Several Rovers fans had demanded Kean´s resignation. But his resignation still raised a few eyebrows, as Blackburn were in third position at the time. Rovers´ former defender Henning Berg took control after Dean, but was forced to leave after the club won just one out of ten matches. After that, it was Gary Bowyer´s turn to try his luck. Bowyer guided to team to three wins and a tie, when Michael Appleton took the charge. Appleton´s reign was also short-lived and ultimately Gary Bowyer returned for his second spell as a manager. Eventually the team managed to avoid relegation into League One, but in all honesty, it can hardly be called a triumph. The season was a soap opera at best. Heavy financial investments were ultimately for nothing, as the club showed tremendous determination in making a complete mess of the season.

Following the disaster of 2012-13, the club seemed to take a slightly more conservative approach to their finances. Wage bill was cut by about £ 2 million. Spending on new players reduced significantly, as new arrivals were only worth £ 1,8 million. In 2013´s accounts, managing director Shaw stated that ”The club´s owners and management remain determined to to get back to the Premier League. Although we need to be competitive, we have to aim to be within the Financial Fair Play regulations”. The financial figures of 2014 reflect that approach. But the outcome for the season was that the team didn´t reach the playoffs and were still not even close to being within the FFP regulations. The team finished two points from play-off places. The accounts from 2014 state bravely: ”Hope, optimism and ultimately, pride restored. Bowyer´s mission accomplished. Progress is the main aim for 2014/15.”  Notice that for the first time since the club´s relegation, the accounts don´t mention anything about aiming for promotion, but have replaced that with progress. 

One curious aspect of 2014´s accounts are the exceptional costs of £ 9,7 million. As stated in the accounts: ”Due to the fact that the club suffered relegation from the Premier League at the end of the 2011/12 season and have not returned since, the directors have considered it necessary to make payments of £6.6m to achieve player disposals during the year. In addition, the directors have undertaken a review of the club’s assets and liabilities at the year end, and consequently an exceptional, one-off impairment of £3.2m has been made against the value of player registrations at the year end, as well as a further exceptional, one-off provision of £6.4m for onerous player contracts.” The £ 6,6 million figure including the payments to achieve player disposals is included in the ”loss on disposal of intangible assets”- figure. The other figures mentioned are stated as ”exceptional costs”, totalling £ 9,7 million. As the statement in the accounts continues: ”Therefore a total of £16.2m has been charged to the profit and loss account in the year as a result of this exercise, which is considered by the directors to be important in its efforts to return the club to a sound financial footing.” As Lancashire Telegraph suggested in January 8th, 2015, ”these payments included summer pay-offs to players like Dickson Etuhu, who had two years remaining on his reported £36,000-per-week contract, and David Goodwillie.” 

Making these payments and arrangements certainly suggest the club is finally making a real effort in getting their finances in order. How that works out, we´ll see only when the next accounts are released a year from now. But it also signals that while they certainly wouldn´t resist getting promoted, the time to make heavy financial investments in order to achieve that has gone. It appears that the club willingly made all those exceptional costs and pushed the year´s result all the way to £ -42 million in order to get a healthy start to 2014-15. It was almost like they were saying ”We didn´t get promoted, we will make terrible losses anyway, so let´s  just deduct all the costs we can now and try to be financially healthier next year.” 

As dreadful as Blackburn´s profit & loss account is, it is actually on part of the financial problem they are facing. Many football clubs who spend more than they can afford are funded by welathy owners. Often that funding comes in the form of equity, but not in the case of Blackburn´s. Instead, Venky´s have chosen to just keep lending Blackburn the cash required to chase the promotion. As a result, Blackburn´s balance sheet is not looking any healthier than their profits. 

The most notable aspect of the loan structure is that within the course of four years, Blackburn´s loans owed to Venky´s have gone from £ 4,1 million to over £ 63 million. That is not to say the bank overdraft of £ 11,8 million (in 2014) is a totally insignificant amount, either. The net debt has rocketed all the way to £ 79,8 million. 

Sure, the amounts owed to Venky´s are not like bank loans. As the accounts state: ”The amounts owed to the parent undertaking are interest free, with no fixed date for repayment.” That´s all good, but a loan is still a loan. Venky´s have chosen to keep supplying loans instead of converting any of it to equity. While Venky´s insist they are still very much committed to supporting the club, doing so through loans will only push the club further and further into debt. In that sense, the recent, more conservative approach to spending can only be good for the club. To put the last few year´s into perspective, when Venky´s bought the club, shareholder´s funds were £ 25,7 million. By the end of fiscal year 2013-14, that figure had sunked all the way to £ -57,2 million. At the same time net debt has soared all the way to aforementioned £ 79,8 million. This pretty much says it all about the financial turmoil the club has gone through in recent years.

What Venky´s have done to the club, basically, is they have made it worthless. That sounds harsh, but the fact is that if Venky´s would suddenly decide they have had enough of Rovers and want out, they would obviously need to find a buyer for the club. That buyer would have to take responsibility of the club´s debts. And to say that a club with this kind of debt structure is less than appealing for any potential buyer, is putting it mildly. Weirder things have happened, but it would most likely not be an easy task finding a buyer. Also, due to the debts, the selling price would probably be very low compared to the £ 23 million Venky´s themselves paid. But then again, you don´t buy football clubs to make profit, do you..?

All in all, it is safe to say Blackburn´s last few years have been challenging times. Relegation and the desperate, unsuccesful gamble to get back to the Premier League have  had a disastrous effect on the club´s finances. Judging by the latest accounts, it would seem that the club is finally taking a more conservative approach and is making an effort to get the finances in order. Still, getting the finances within the FFP regulations is still a distant prospect, and a lot of work needs to be done. If Blackburn are to get back to the Premier League, it will most likely happen through hard work and disciplined approach, instead of lavish spending. When (or if) that will happen is another matter. Currently the Blackburn are in 9th position, with eight points behind the last play off –position. That´s not too bad, but at the moment promotion seems unlikely. Still, as the latest accounts state, for Blackburn, it is about progress now. On and off the pitch. It will be a long road to recovery, but one that the traditional club will hopefully get through.