Transfer targets, squad size, player sales, flags, Fit & Proper Persons Test, Costa, tactics, away fans, Doherty, contracts, form, Fan Zones, Beer and Batth... that will be the topics covered at the last Fans’ Parliament then!
Indeed these were just a smattering of the items on a bumper agenda facing the panel for well nigh three hours, around the time Gareth Southgate's men were succumbing to the Germans on a field in Dortmund on Wednesday evening.
The evening kicked off in sombre tones with the news that regular minute taker and long-time Wolves' author and journalist Dave Instone's father had recently passed away. Chairman Paul Richards made a point to pass on the Parliament's condolences to David on his sad loss. (NOTE: In David’s absence Bill Howell, a well-known Midlands’ journalist with over 20 years experience in the media, took the minutes).
Chief Finance Officer Rita Purewal took questions for the first hour with a fascinating insight into the pressures Championship clubs have in dealing with what was once Financial Fair Play, but is now Profit and Sustainability.
Alongside Rita were Managing Director Laurie Dalrymple and Sporting Director Kevin Thelwell, both of whom more than came into their own as the evening progressed with their insights provoking a healthy debate.
The Annual Financial Results were revealed at the end of February were the last year under the ownership of Steve Morgan and showed a pre-tax profit of £5.831m to May 2016, compared to £700,000 in the previous 12 months. Richard Stearman's sale to Fulham and Benik Afobe's to Bournemouth were key to this rise in profit. Conor Coady, Jed Wallace, Michal Zyro, Joe Mason and Mike Williamson were added to the squad but what also aided the profit margin were the release of part of the exceptional onerous contract provision made in 2013, where the club took a £15million hit after the relegation to League One. This figure was only £2.6 million in these latest accounts compared to £6.7 million in the year to May 2015.
Rita explained certain key points: “Turnover increased despite a 10 per cent drop in attendances, largely due to increased central distributions from the new TV deal. It is also important to point out that this will be the last set of figures which will include the Premier League parachute payment.”
She added that Wolves budget for three home and three away televised games but actually saw the benefit of seven home and seven away televised. A net asset value of £55 million and net current liabilities of less than £2 million.
The first question of the evening, submitted by Dave Benton, centred on the summer takeover: Section 25 - Seems to suggest Fosun loaned the company £21m following the takeover, does this cover the money we have spent on players? (We have spent £17.1m on players since May 31st, though not sure whether this would include Marshall and Costa. Presumably not as these accounts were approved at the end of November?
“Yes it does include those purchases (from last summer),” said Rita. “It doesn't include Marshall and Costa as they were purchased in the January window and these accounts were signed off in November.”
Rita then dealt with a question about company structure, explaining that WW1990 Ltd was the parent company of the football club WWFC 1986 Ltd. “It is also the parent company of the sister company Wolverhampton Wanderers Properties Ltd. These two companies are 100 per cent owned by WW1990 Ltd and this is 100 percent owned by Fosun.”
Rita then tackled a follow-on question concerning a £21m loan by Fosun, explaining it was loaned to the Club via the parent WW1990Ltd under-taking.
Another submitted question from Dave Benton followed. ‘The PSC statement indicates that Fosun don't own us completely and that some shares are with Guo Guangchang, is this correct? “No, Fosun have 100 per cent ownership of the WW1990 group. The ultimate parent company is actually Fosun International Holdings Ltd and Chairman Guo is a majority shareholder of this company,” explained Rita.
Neil Dady had submitted the following question: “As the accounts recently released relate to the previous ownership can the club now explain how debt is going to be managed between the parent company (Fosun) and Wolves going forward. Are Fosun under writing and guaranteeing all debt?
“A very short answer to this: yes” replied Rita. “Fosun have agreed to under-write the debt. Our auditors Deloitte are in the process of reviewing our interim accounts for 2016/17 and are totally satisfied on a going-concern basis that this is the case.”
Next question. Can the club explain our position in respect of financial fair play and how the club are structuring its finances to stay within the rules.
This was not such a short answer. Financial Fair Play was brought in in 2013 and Wolves have “always passed it by a comfortable margin”, explained Rita. But over those years Wolves have benefited from a Parachute Payment and the release of the onerous contract provision.
“Going forward we are facing a challenging financial climate,” said Rita. “We have invested quite heavily in the squad over the last ten months, so it will be challenging. It is something that a lot of other Championship clubs are facing at the same time, certainly those without parachutes.”
Financial Fair Play has been replaced by Profit and Sustainability by the Football League to make it more aligned to the Premier League model which was introduced by UEFA six years ago. And, whereas FFP looked at financial results on a season-by-season basis, this new model looks at a rolling three year period. “In summary, you are allowed to lose £5million every year for each of the three years,” explained Rita. “That's £15million losses allowed over three years. However, a club can also lose a further £8 million each year.” But Rita explained that the extra £8 million of losses per year has to be in the form of an equity injection or secured funding. “Just to put that into context ; £39million of allowable losses compare to the Premier League model of £105millionof allowable losses,” Rita added. “They can incur losses of £35 million in each of the three years.
Managing Director Laurie Dalrymple added: “For a number of clubs in this league it is about to get extremely challenging. Clubs will be aiming to operate within those financial models and still compete financially against each other to get the best players into the squad and try and generate the right levels of income and to comfortably stay within those margins. There are several clubs that I would predict are going to be posting results in a year's time that are going to be putting them in a more precarious position. Maybe not right on the £39 million but certainly going to be over the £20million mark. We all just need to be aware of the fact that we are not in the Premier League, we don't have the broadcast income that Premier League clubs have. The clubs with the highest turnover in this league, which will fluctuate somewhere between £20m-£30m, I'd imagine, are still going to be restricted in how freely they can operate. To have genuine ambition to build the strongest squad to compete for promotion, makes it extremely difficult to operate in this league. Just as it is for everyone else in this league, it is going to get harder for us and harder for the reasons that Rita has outlined. Key income sources over the past three or four years have now ceased to exist, so we are wholly reliant on maximising all of our commercial opportunities. A massive part of how we generate income will inevitably come from player activity, and whether that is players coming in, but crucially players leaving the club as well.”
Unsurprisingly Helder Costa's future was thrown into the domain. Laurie replied: “I'm never keen to be drawn out on players, I know Helder is going to be drawn out because he is one of our prize assets and we have gone quite some way to invest in him, but ultimately player trading will become a fundamental part of how we can sustain our model. Without question, getting to the Premier League is going to massively ease that. And at some point, in my opinion, the Football League is going to have to take a long, serious, hard look at how the model works, particularly for clubs outside the Premier League. It is not sustainable whilst we are only being given a central broadcast payment of between £4.5m to £5m. TV income is vital but whilst there is such a huge chasm between what the Premier League retain in terms of broadcasting rights and what the Championship retain, it makes it very hard for Championship clubs to be sustainable and competitive. Add to this, the value and market conditions of player trading is that top strikers are not going for less than £10m-£12m, and three years ago they were going for £3m-£4m, yet we are still being managed under the same rigid parameters of financial management….I can't see how that is ultimately sustainable.”
Rita interjected on the point made about broadcasting income. “To put it in context, for example, Wolves receive £100,000 up to £140,000 for every home televised game, or £10,000 for an away game. Premier League clubs get £1.1m for every televised game and also have a minimum ten-game quota.
Jon Tummon asked the implications on transfer policy with regards to those economic warnings: “Have we got to sell before we can buy?”
Laurie answered this by stating that the squad was already a large one: “We are going to be looking at altering the squad, and the size of the squad, so we will inevitably see out-goings as well as some in-comings. Players going out is going to be part of our trading activity going forward, no question. If we want to get the players that we want, and if market forces are dictating that the value of players are going up and up all the time, then we are going to have to make some player sales if we want to compete.”
A follow-up question suggested that might be ‘Big Sales? Players like Costa and Cavaleiro?” “Not necessarily” was Laurie’s reply. “You could go through the entire squad, such as Carl Ikeme? What about Danny Batth? Or Morgan Gibbs-White who is an absolutely thriving young talent who arguably could be worth a very high sum of money in time? I wouldn't want to be drawn on any particular player. I could say: 'He's going nowhere' but, as with all players at all clubs, I don't know what is coming down the line in four months. Just as Liverpool may not have known what was coming down the line when they had Luis Suarez. Their initial stance was, “he's going nowhere” then low and behold twelve months later he left. We've got a squad of players - the ones that we have invested in and the ones that we know we want to keep to develop the squad - but equally I can't sit here say 100 per cent that every member of that squad will be here this time next year. I just couldn't do that, but we know the ones that we want to develop into the future and there will be people leaving during the summer. Partly to find football elsewhere, but partly to help us trade and bring players in.”
Simon Wade asked if the financial fair play penalties were still the same. Rita answered: “Not really, we are waiting to see what teeth they have, because it has still to be demonstrated. A whole raft of sporting and financial sanctions are on the table, anything from a transfer embargo, points deduction, fines. A disciplinary panel will decide on a case-by-case basis.”
Laurie Dalrymple added: “We all follow the Football League, we all know which other clubs are going substantially aggressive in terms of their player activity in the transfer market. It is an all-out risk strategy and some teams won't get out of the league this year that have gone hell for leather with expenditure and at some point clubs will have to start altering their approach under the current rules. The transfer fees that they paid and together with the wages won't be sustainable and it will be hurtful.”
Tom Byrne posed a question about how far Wolves could push sponsorship to lessen the effects of financial fair play constraints. Laurie answered: “A lot of people have pushed the boundaries and the league and the central bodies are wise to it. In a sense, if something doesn’t smell right to the authorities then it raises serious questions. But it is also more definitive than that. There are guidelines and a process in place for what they consider a fair and justified investment, or what might go above and beyond that level. There are obviously areas where we can potentially invite greater degrees of investment and I'd be lying if I said we aren't exploring every single opportunity to maximise our revenue opportunities.”
Laurie stated that sponsorship has risen 40 per cent in two years: “and it will continue to grow again this year.” Plenty of talks with 'strong, commercial partners' are already lined up.
A submitted question from Clive Smith read: “How can we afford to buy Helder Costa for £13m when that equates to 37,000 Stan Cullis season tickets alone? Laurie admitted he wasn’t too sure about the motivation behind the question but went on to talk about the deal and a sign of the club’s intentions to bring in quality players. “It's a bit of a chicken and egg,” he said. “The owner's priority has massively been around investing in the football area of the business, certainly in the past nine or ten months, and that will continue to be the primary focus. There's clearly some areas of work we still need to do, so making an investment in someone like Helder is quite a large statement in terms of how we are looking to take the team forward and how we are trying to bring quality players into the team. We have got to make the investment into the squad if we are going to take it forward.”
Greg Asbury wanted to discuss whether the £13million price tag speculated about Helder Costa was with a portion of that amount amortised over the length of his contract. Rita duly confirmed that the fee was indeed amortised.
Jas Bahia made the point, perhaps tongue-in-cheek, that Wolves need an 18-month financial year. Rita said: “I think clubs will no doubt try every way possible to try and avoid this stringent ruling, but the long and short of it is that it’s extremely challenging for all clubs in this financial climate. As a result of Financial Fair Play in 2011, Premier League club debt has gone down from 65 percent to 40 percent so there is evidence this is working”. Rita added: “As a result this, the ruling won't go away, if anything it is going to get harder and more challenging.”
Peter Abbott questioned loan deals and how they appear in the figures. Dave Benton questioned how director loans might appear in the balance sheets, or indeed pure cash injections. Rita explained that the Football League would start to take a closer look at any club once owners starting pumping in money, asking for future predictions to prove that clubs were regaining control without reliance of additional funding. “They have asked that if they start to feel uncomfortable with the level of losses... they don't wait for it to reach £39 million... they get involved between £15million and £39million and want to see future cash-flow predictions to make sure at some point in the future clubs take corrective action. They also require evidence of secured funding.”
Steve Page made the point that Wolves appear to be in an extremely healthy financial position taking the last three years into consideration. “I'm not really getting the debate about the constraints of Financial Fair Play because we are in such a healthy position,” he said. When Steve questioned why Wolves couldn't spend big on the back of two years of good finances, Laurie responded: “And if we don't get out (of the league)? We could be annihilated in one year. You are also making the assumption that we are going to continue to break even when it is a very difficult trading environment.”
Rita was then asked another question about Wolves' company structure and which one was responsible for the footballing side of business? “A lot of football clubs are structured in this way,” she replied. “One is a trading arm, they then have a sister company for properties, housing the capital costs of the structure. It is structured in that way so that if the club got into difficulty, the assets would still be intact.” Laurie denied suggestions of any current wish to sell-off any land and Rita answered Jas Bahia's comment about the possibility of Fosun injecting further equity over and above the £39m by stating: “That is not allowed.”
At this point Rita left the room to a round of applause and matters moved onto the footballing sphere.