Thirty-Six & A Half Million Holes In The Accounts In Blackburn, Lancashire

Thirty-Six & A Half Million Holes In The Accounts In Blackburn, Lancashire

By on Nov 3, 2013 in Finance, Latest | 0 comments

At least, the supporters of Blackburn Rovers may choose to console themselves this evening, at least the team won yesterday afternoon. For the first time since the start of last month, Rovers have three points under their belt with a one-nil win against Middlesbrough being enough to lift the team to ninth place in the Football League Championship table. A repeat of last season’s battle to avoid relegation to League One seems highly unlikely to be repeated. If there was success on the pitch for the club yesterday afternoon, however, away from it the results couldn’t have offered a much starker contrast. While the team was playing yesterday afternoon, BBC Lancashire was reporting that Blackburn Rovers Football Club has posted the sort of financial results that send a chill down the spine.

Some reasonable level of financial husbandry had been the one saving grace of the otherwise disastrous period of ownership of the Venkys group. In the year to the end of June 2012 the club reported a small operating profit of £4.5m, which we might have hoped would stand as an indication that the club at least had some sort of safety buffer in order to be able to cope with its relegation from the Premier League at the end of the 2011/12 season. A combination of being able to trade profitably and plump parachute payments from the Premier League following the club’s relegation should, in theory at least, have sheltered the club from the worst of the chill wind that flows through a club’s accounts following the cutting off of the top rate of television money. This year, however, the club has posted an annual pre-tax loss of £36.5m for the year following its relegation from the Premier League.

In truth, however, what seems to have happened at Ewood Park over the course of the year following this relegation might easily be viewed as some sort of collective madness. The club spent heavily during the summer of 2012 on players such as Jordan Rhodes, Leon Best, Danny Murphy and Dickson Etuhu, and this resulted in an £11.7m player trading loss over that period. On top of this, the club suffered a £27.3m drop in turnover and this contributed towards a staggering 136.1% wages-to-turnover ratio for this period, with the club’s net debt rising from a perfectly manageable £24.5m to a more troubling looking £54.5m, an amount which starts to look like a figure spiralling out of control, especially with the club having failed by some distance to have got anywhere near its aim of a quick return to the Premier League last season.

The most immediate and obvious danger to the club’s wellbeing comes in the form of the Football League’s Financial Fair Play rules, which requires clubs to stay within pre-defined limits on losses and shareholder equity investment. This season, owners are allowed to invest £6m into their clubs which, on top of an allowance for a loss of £2m over the course of the season, means that the club’s accounts for the year to the end of July 2014 will be allowed to show a loss of up to £8m if the club wishes to avoid sanctions from the Football League under these rules. Over the two years after this, however, the rules become even more stringent, with acceptable losses eventually levelling out at £5m for the 2015/16 season. There is an additional complication for Blackburn Rovers because, if the club doesn’t win promotion back to the Premier League at the end of this season, its Premier League parachute payments will drop. With this in mind, every three points that the team picks up on the pitch might be considered to be considerably more important for the club’s long-term security.

What, though, are the ways in which the club could increase its revenue? The most obvious way would be to try and tempt more supporters through the turnstiles at Ewood Park, but this is obviously diffficult in the case of Blackburn Rovers. The club was frequently unable to fill its home ground when playing in the Premier League, and relegation has had a near-inevitable detrimental effect on crowds. The attendance at for yesterday’s match against Middlesbrough 16,645 people, but 2,000 of those made the trip from Teesside to Lancashire for the match which made the attendance the club’s highest of the season, so far. The club’s average home attendance so far this season is just 14,508 people, less than half of the overall capacity of Ewood Park.

With little indication that attendances are set to increase at the club, questions will inevitably be asked about how, exactly, losses can be cut without the need to cover them by making cuts into manager Gary Bowyer’s playing budget, and how the club’s overall debt is structured. The club’s losses for this season should be considerably lower than they were last time around, but reaching the levels now demanded by the Football League is going to be a huge challenge. And even if the club can manage to get its losses down to a level that is acceptable under the Football League’s Financial Fair Play rules, there are valid questions to be asked regarding how the club’s overall debt will ever be paid down.

This overall debt of £54.5m is a troubling figure because there are no assurances whatsoever that this club will be returning to the Premier League at the end of this season, and it is difficult to see how any significant inroads can be made towards paying down this debt without access to the riches that come with membership of it. This time around, the club cannot take anything like the sort of financial gamble on players that it did during the summer of 2012 in order to try and buy promotion back to the Premier League for fear of crossing the line with regard to losses for this season, if nothing else. As such, whilst there is no immediate cause for alarm at Ewood Park, it does feel rather as if there are several question marks hanging over the club’s future which will prove extremely difficult to resolve without finding a way of scraping a way back into the Premier League. Those holes in the accounts will have to be plugged whether the club can manage to get back to the promised land or not, though.

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