An update from the boardroom
On the 22nd of October at the Supporters’ Trust AGM the Club Chairman will deliver as usual a review of last season and comment on the current season’s picture, most especially in the context of the broader market we compete in, and also our position as a Club going forward. At the same event the Club’s Financial Director, Keith Mason, will present the Club’s up to date financial position and answer the questions of Trust members.Ahead of presenting it then, we are presenting now a basic outline of how the Club has used the financial windfalls it has received in recent seasons to date, and how this then works through to our season by season playing budget.
The starting premise of the Club Board is always to try to ensure that the playing budget is as competitive as the Club can sensibly afford. This budget is calculated, as has been the case since the Trust took over the ownership of the Club (where no structural debt can be taken on) by budgeting for total Club revenue (before windfalls), from which the day to day operational overheads (which are constantly reviewed and reworked) are deducted, in order to leave an annual budget which is made fully available for the playing side of the Club. This ‘base’ playing budget is then augmented by a share of windfalls that the Club receives (largely, player sales and playing success). The allocation of each windfall is made on a case by case basis, with the starting premise being that it is split three ways – a third to infrastructure development (including to the Club’s Academy), a third to the playing squad, and a third to invest in the improved running and profitability of the Club as a whole.
The principle of always balancing our budget is one that gets ever more challenging, in terms of both the income needed to maintain a year on year playing budget at the same level as the previous year (which, for the past few years has been bolstered by windfalls to a great extent), but also by comparison to what our opponents are “investing” / prepared to throw at owning a football club.
Taking this last point, one of the most powerful factors that the Club Board is trying to grapple with and address is that our competitors are injecting vast sums of money directly into the playing squads, and the infrastructure, of the Clubs that they own. Last year alone, Bristol Rovers’ Jordanian consortium invested a small fortune into their club, Accrington reported a new owner investing £1.5m, Mansfield £100,000 per month, Crawley new overseas owners, and Northampton’s owners invested a reported £10m. These are just a few examples. We could add to these reference to the Club “down the road” who have had a £1m injection and also attract gates of 8/9k per week, and our recent opponents Pompey who have 18k attendances per week. As a result of their crowd numbers, these clubs enjoy further “injections” well in excess of ours. This list is not exhaustive in any way.
The picture here is not localised to our division. As more and more clubs in the Premier League, the Championship and League 1 and League 2 are taken over by foreign entities, then more and more philanthropic investors are arriving in droves in our league and, more worryingly, even the leagues below. Eastleigh, Forest Green, Gosport, Salford, Bromley… - again not an exhaustive list.
At the same time there is the need to be cognisant that if there is to be a longer term future for the Club we must not and cannot fall into the trap of generations of successive owners and pour every available penny into the playing side only of what we do. Investment in new and replacement infrastructure, as well as maintaining the existing facilities and estate (the stadium and the training facilities), are essential. Despite then being far far from perfect Exeter City is a Club that is run, both in absolute and in relative terms, positively in so many ways, despite the disparity of the funds caused by the above, and also by our model.
The scenery is though undoubtedly fast changing around us, and we must find a way as a Club to adapt, or else to accept an unattractive reality.
The Club has benefitted enormously by windfalls over the past few seasons. Without these, our ‘base’ playing budget of a fraction over £1m would not just fail to be competitive on the pitch, but it would see us left behind by an increasingly large majority of Clubs in the league we are in and in the league below us. Given these facts, the principle of the use of windfalls by thirds that the club attempts to stand by where possible is the only starting point to review the need for us to correct the underinvestment of the past (especially in infrastructure – even as basic until recently of having a fully functioning public address system), maintain a self-funding Academy that allows us to invest in the assets of the future (a core source of that windfall income), ensure that our financial management is not at the expense of others (a position only fully corrected thanks to the Matt Grimes windfall), and to then increase the base playing budget by as much as possible.
To illustrate how this works in practice, the Club received income of £1.75m from the sale of Matt Grimes in 2015. Having dealt with the last of the ‘historical debt’ (£250k) in the Club, the ‘one-thirds principle’ was applied to the figure of £1.5 million. To this was also added the income received from the transfer of Tom Nicholls (which, although being received over time, is a guaranteed sum so planning taking it into account is certain), and also the revenues from the Liverpool FA Cup matches last season.
Under the long term goal of installing a 3G all weather pitch at the Cliff Hill Training Ground (for first team, whole Club, and community use) a massive amount of detailed work across recent years has built to a position where the grant of planning permission is imminent and the facility (at a cost of c£680k) is shortly to be brought to fruition. The importance of this investment cannot be emphasised enough. It will allow the team to train effectively during the winter months of the year, a time when disruption at a cost of time, injuries and money is huge. Significant hire charges and travel will be saved. Exactly the same scenario applies to our Academy, facilitating cost and time saving and a quality provision to maximise training opportunities. In addition, the facility will offer our Football in the Community charity the opportunity to introduce yet more youngsters to our football club, and also our Ladies team the opportunity to train and play matches. Once it is settled and in action it is envisaged that income will then also be secured from use of the facility by outside agencies as it is used for the purposes of enhancing the health and well-being of all parts of the community. This facility alone is being funded out of the ‘infrastructure share’ of the recent windfall monies.
In terms of further infrastructure investment, it is not the intention to go into intricate details of the many projects that are constantly under way but pitch improvements, primarily the need for drainage, both at SJP and the Cliff Hill Training Ground, (pitch one and two near complete, pitch three to be addressed) have over the last 3 years cost £150k. In addition, items such as repairs to the archaic P.A. system at £28k, and the general cost of keeping the Old Grandstand open, are just some of the many examples of general maintenance repairs and renewals. Equally, the new Heritage lounge has seen an investment of £70k to include the new bridge into the IP Office Stand – with this investment already being repaid through the uplift in match-day and non-match-day commercial revenue (the Lounge is almost entirely sold out for the whole season). These activities, alongside those of restructuring the ‘off pitch’ team, as well as funding the legal and related costs for the new ground developments, are all funded out of the Club’s operational funding third of the windfall money.
In order to ensure that the Club gets as much value as it can from the Manager, he is asked to manage with a holistic view of the Club’s current needs and requirements. He is aware that he may have to change tac or track should finance dictate as we are all acutely aware that, unlike the vast majority of clubs, at Exeter City there is no overdraft, loan facility or multi million pound owner to cover any short falls. He is left to manage his resources with minimal intervention to achieve the target of at least the play-offs, but with solvency through not overspending his budget being a non- negotiable pre-requisite. In addition, he is tasked with delivering the pipeline of Academy players through to the first team (the head of the Academy is accountable to the Manager) in order to ensure that, unlike at almost every other Club, our young players, like Ethan Ampadu this season, are given every early opportunity and exposure to turn them into valuable assets for the Club in the future, with this being the lifeblood of windfall income – into which we must invest – for the Club.
In terms of Exeter City’s playing budget, whilst each year a base budget of just over £1m is set by the Board based on the basic income/turnover of the club, from the point the initial budget is set (around Christmas of the season before so that player contract renewal discussions commencing then have a firm budget number to work into), the Board and manager then work on increasing that as much as possible. Approximately £100k was added two years ago, £500k last year and the same amount again for this year. Figures for next year and the subsequent four years are currently being worked on as part of the current development of a full five year business plan and budget and were discussed in detail at recent Board meetings in order to give the manager as much forward notice as possible of the likely shape of his budget.
To illustrate how these many factors come together in the life of our Club, using management accounts a basic overview of the impact of windfalls on our budgets and where they are spent is as follows:
| Season |
Total Income 000's |
(of which Windfall) 000's |
Infastructure & One Off Spend 000's | Playing Budget |
|---|---|---|---|---|
| 14-15
| £4,841
| (£1,750)
| £50
| £1m +100k
|
| 15-16
| £4,153
| (£850)
| £100
| £1m +500k
|
| 16-17
| £3,376
| (£Nil)
| £778
| £1m +500k
|
| 17-18
| £3,385
| (£Nil)
| £TBC
| £1m +TBC
|
Notes:
1. Windfall income over the period consists of the sale of Matt Grimes and Tom Nicholls, and the profit from the Liverpool FA Cup ties;
2. Total windfall = £2.6m;
a. Historic debt repayment = £250k
b. Total windfall to the playing budget = £1.1m (42% of the total windfall)
c. Pitch Renovations = £150k
d. 3G Training Ground Pitch = £680k
e. Capital Projects = £98k
f. Currently unallocated Working Capital = £322k.
It will be unsurprising that that our club is dependent on three significant income lines in order to add further than the base budget sum (just over £1m) to the playing budget. These three income streams, gate receipts, windfalls from cup matches, and windfalls from player sales, are our life blood, none of which are guaranteed year on year. We do not have the luxury of being owned by a rich individual who pumps in (albeit unsustainable) sums to bolster any budget, or indeed to respond to unexpected performance dips or injury crises, or who artificially increases a Club’s natural budget. We have to earn every penny we spend, taking account also of the £100k pa income we receive into the core budget from our owner, the Supporters’ Trust, a figure that we are grateful for and has remained at that level for many years.
To assist in our forecasting, each of our non-playing team works with their ‘line director’ to either drive income increases or cost management as part of our budget round, and ensure ongoing delivery through the year. Agreement to these figures is a rigorous Board process, and management of their achievement is a core part of every Board meeting. To assist in this, whilst the Gates Committee, comprising of a number of statistical experts, estimates attendances and what the income from gates is likely to be (incredibly well in fact) as part of the budget round, much is dependent on loyalty and home form. It would be stupid not to recognise and acknowledge that factor, and the Board does so, especially as the estimates for the first three home league games this season is already 1500 below that anticipated by the Gates Committee. The effect of this is stark, income being well below budget for these three matches alone, and is already having consequences on our planning elsewhere for the rest of this season, in order for us to shield the effect of this from the playing budget, and also on our assumptions for next season’s budget. In the context of this season, the Board is also under pressure to respond to the fact that, despite this year’s playing budget being largely spent as a result of summer activity, a crazy number of injuries is not helping and the need to look again at the finances to bring in two, or three, loan players has already been carried out.
With the above in mind opinions are wide and varied over how to best ‘balance the books’ on and off the pitch, especially in a Trust owned Club. Some say put everything into the team. That might work. Some say reinvest in the future through the Academy and that will be best long term. That might work too. Some say leave the infrastructure investment to someone else. That might work too – until one realises the price of ownership and what it takes to run a modern football club that is also competing for the next and the current generation of players when they make their choice of which club to join. All this also being delivered alongside the development of a project requiring the funding of legal and other professional services bills that will deliver one or two brand new stands with income earning potential and a significantly enhanced spectator experience all of which is being done using only working capital of the Club.
What is clear though is that the job of the Board is one of balancing the books, and trusting and managing all of the staff – playing and non-playing – to deliver to the budget that is set and agreed each year. At Exeter City, with no rich benefactor and a stadium that is seriously limited, even when partially redeveloped, as to the income it can generate on match-days and non-match days alike, the constraints are real. Clearly it is the sale of youth, and the hugely significant wage savings made by playing “one of our own” that underpins much of the above alongside cup runs. From time to time this brings playing results that disappoint us all, but that is a direct consequence of what we can afford. The Club is hugely dependent on achieving budgeted revenue in all of its income lines in order not to hit an inevitable downwards spiral. This is why attendance and other pressures matter a lot, especially when we are trying to cover for a large amount of injuries to key players.
However, we are also a Club that is open and different about the way it runs things. As a result we ask all of our employees – including the manager – to deliver and to balance the present and the future in order not to go back to the past. We also share this with our primary audience, the fans and City that own the Club.
This is why we openly share this State of the Nation.