Tuesday, September 20, 2016

Manchester United - Power In The Darkness


Manchester United fans always suspected that Sir Alex Ferguson would be a tricky act to follow, but they probably did not anticipate it being quite so difficult. Since the Scot’s virtually unprecedented 27-year reign concluded in 2013, United have had to employ four managers in just over three seasons (including Ryan Giggs’ interim appointment).

David Moyes was the first to be handed the poisoned chalice, though he did not even last a full season before being unceremoniously sacked as the club failed to qualify for European competition for the first time since 1990. Hopes were higher when the experienced Louis van Gaal took the reigns and he did guide the club back to the Champions League, though his team failed to get through the group stage, losing to both Wolfsburg and PSV Eindhoven.

Even if United did win the FA Cup for a record-equalling 12th time, this was not enough to save the Dutchman, whose stultifying brand of football had not only created many enemies, but also resulted in a disappointing 5th place in the Premier League.

As former chief executive and non-executive director David Gill admitted, it was “undoubtedly a season of under-achievement… given the investment that was made.” This was a reference to van Gall splashing out over £250 million in a vain attempt to successfully rebuild an aging squad.

"Partial to your Ibracadabra"

And so José Mourinho duly arrived in May 2016, an appointment that had seemed almost inevitable once he had left Chelsea, albeit in less than happy circumstances. The Portuguese may not be everyone’s cup of tea, but he has delivered trophies at every club that has employed him.

Even for the “Special One”, United will be a major challenge, so he has wasted little time in adding more expensive recruits, including the talented Paul Pogba from Juventus for a record-breaking £89 million transfer fee just four years after he had moved in the opposite direction for a notional sum.

Such expenditure is testament to United’s amazing ability to generate cash. The club may not be firing on all cylinders on the pitch, but it is going great guns off it, as evidenced by the excellent 2015/16 financial results. As executive vice-chairman Ed Woodward put it, “Our record fiscal 2016 performance reflects the continued underlying strength of the business.”


Indeed, United reported a very healthy profit before tax of £49 million, which represented a dramatic improvement from the previous year’s £4 million loss. Profit after tax was somewhat lower at £36 million, as there was a £12 million tax expense, compared to a £3 million credit in the prior year, though this was still a great result.

The main reason for the improvement was revenue increasing by £120 million (30%) from £395 million to £515 million, the first time that a British club has broken through the £500 million barrier. All revenue streams grew, though commercial was the star performer, rising £71 million (36%) from £197 million to an incredible £268 million, primarily due to the commencement of the new Adidas kit agreement from 1 August 2015, which included a step-up in minimum guaranteed revenue and a contribution from several businesses previously operated by Nike.

Broadcasting and Match Day were both positively influenced by the return to European competition, rising by £33 million (30%) to £140 million and by £16 million (18%) to £107 million respectively. In contrast, profit from player sales was £33 million lower, as it swung from a £24 million profit the previous season to a £10 million loss this season.

"Many happy returns"

The impressive revenue growth was partly offset by corresponding increases in the costs. The wage bill rose by £30 million (15%) to £232 million, mainly due to the renewal of existing player contracts, couple with a salary uplift due to participation in UEFA competition. Similarly, other operating expenses increased by £19 million to £91 million, primarily due to retail and merchandising costs being recognised in-house, plus an increase in match day costs due to additional home games.

Exceptional items were £13 million higher at £15 million, including a £7 million impairment charge to write-off the value of German international Bastian Schweinsteiger, who is “no longer considered to be a member of the first team playing squad.”

There was also an £8 million pay-off to van Gaal and other members of his coaching staff, which means that United have now paid out a total of around £16 million to departing managers post-Ferguson.

However, profits were boosted by player amortisation being £12 million lower at £88 million, while net finance costs were cut by £15 million (43%) from £35 million to £20 million, due to the reduction in interest payable on the secured loan term facility and senior secured notes following the refinancing in June 2015.


In 2014/15 United were one of only six clubs in the Premier League to make a loss, as most clubs have become profitable thanks to the growth in the TV deal. United’s smallish £4 million deficit was essentially due to their lack of European competition (and money), but 2015/16 represents a return to the upper reaches of the top flight, at least in financial terms.

Although United are the first Premier League club to publish their 2015/16 accounts, their £49 million pre-tax profit would only have been surpassed by Liverpool’s £60 million in the previous season.


This performance is even more impressive considering that United’s profit was delivered despite making a £10 million loss on player sales, primarily as result of Angel Di Maria’s move to Paris Saint-Germain just one season after shelling out £60 million for the Argentine winger, though they probably also lost money on Robin van Persie’s move to Fenerbahce. Profits would have been recorded on the sale of Javier Hernandez to Bayer Leverkusen and Jonny Evans to WBA.

To place United’s loss into context, Liverpool’s 2014/15 £60 million profit was very largely due to making £56 million profit on player sales (Luis Suarez to Barcelona). Similar large sums were made that season by Southampton £44 million, Chelsea £42 million and Arsenal £29 million.


United now seem poised to report regular large profits, averaging £45 million profit in the last two seasons when they qualified for the Champions League: £41 million in 2014 and £49 million in 2016.

The last time that they reported a large loss was 2010, when the £44 million deficit was largely caused by £109 million of financing costs. This was actually lower than the £117 million of financing costs the previous season, but was partly compensated by the £80 million profit on player sales, almost entirely from Cristiano Ronaldo’s move to Real Madrid.


Since that mega deal in 2009, United have only once generated more than £20 million profit from player sales. That was in 2014/15, which included the transfers of Danny Welbeck to Arsenal and Nani to Fenerbahce, the returns of Shinji Kagawa to Borussia Dortmund and Wilfried Zaha to Crystal Palace, plus Michael Keane to Burnley and Bebé to Benfica.

However, this is not a major revenue-generating activity for Manchester United, though Ed Woodward has drawn investors’ attention to China as “another useful market if we’re looking to sell any players.” Anyone know if Wayne Rooney likes Chinese food?


Of course, United’s profits would have been substantially higher if the club did not have to bear the financing costs of the Glazers’ leveraged buy-out. In fact, over the last eight years they have made total operating profits of £526 million (including £138 million from player sales), which have been very largely wiped out by net financing costs of £480 million.


The good news is that the cost of this debt has been reducing following a series of refinancings, falling from that horrific £117 million in 2009 to “only” £20 million in 2016 (£13 million in cash terms). Coupled with the club’s explosive revenue growth, this means that financing costs have been cut from 42% of revenue in 2009 to just 4% last season.

That’s obviously great for United, but a little frightening for their rivals, as the club’s capacity to produce cash has never been in doubt. The bill for the Glazers has to an extent placed a break on United’s ability to spend, but this is not such a major factor anymore (even with the addition of dividends).


Accountants often use a metric called EBITDA (Earnings Before Interest, Depreciation and Amortisation) to assess a club’s underlying profitability and especially how much cash it produces. On this basis, United have been the undisputed champions over the years, but they have moved into another league in 2016, as their EBITDA shot up from £120 million to a deeply impressive £192 million.


To place this into context, the next highest EBITDA reported by other Premier League clubs in 2014/15 was Manchester City’s £83 million, more than £100 million lower. As another comparison, Arsenal’s EBITDA of £63 million is only around a third of United’s.

It is true that United are projecting a reduction in EBITDA in 2016/17, due to only competing in the Europa League, but their estimate of £170-180 million is still extremely good, driven by another increase in revenue to £530-540 million (mainly from the new Premier League television deal).


United’s revenue has grown by £152 million (42%) in the last three seasons, mostly due to the new deals with Chevrolet and Adidas, which have led to £69 million (76%) growth in sponsorship and £59 million (152%) in retail, merchandising and product licensing. There has also been a £39 million (38%) increase in broadcasting income, linked to the last TV deal in 2014.

However, it’s not been all good news, as mobile and content revenue has fallen by £12 million (53%) since 2013, due to the expiration of a few mobile partnerships, while match day income has also slightly reduced by £2 million (2%).


The 2015/16 revenue growth to £515 million has really distanced United from their domestic rivals. This is almost 50% higher than the closest challenger, Manchester City, though their £352 million is admittedly a 2014/15 figure.

The difference between United and the next clubs in the revenue league is the best part of £200 million: Arsenal £329 million (gap £186 million), Chelsea £314 million (gap £201 million) and Liverpool £298 million (gap £217 million). That is an astonishing competitive advantage for United and helps explain why they can drop £89 million on Pogba without batting an eyelid.


United stood at third place in the Deloitte 2015 Money League with revenue of £395 million, only behind Real Madrid £439 million and Barcelona £427 million, but ahead of Paris Saint-Germain and Bayern Munich. This was a notable achievement, as they were the only club in the Money League top ten not to benefit from Champions League participation, which demonstrates the underlying strength of United’s business model.

In fact, it is likely that United’s £515 million revenue will top the 2016 Money League when it is published, assuming that Deloitte maintain their approach of using the average exchange rate throughout the year. At that average rate of €1.34 to the £, Real Madrid’s €620 million is equivalent to £464 million, while Barcelona’s €612 million would be £458 million.

Of course, if we were to use the latest, post-Brexit Euro rate of 1.17, then it would be a different story: Real Madrid £530 million, Barcelona £523 million. Note: Barcelona announced total revenue of €679 million, but that included €67 million from player sales, which should be excluded for a like-for-like comparison.


If we compare the revenue of the other nine clubs in the Money League top ten, we can see United’s issue in 2015, namely the lack of Champions League TV money. This meant that United’s broadcasting income was lower than seven clubs, including Juventus who earned a staggering €89 million from Europe’s main tournament.

United were well ahead of all most clubs in terms of match day income, even without European competition, while they were only outperformed by two clubs commercially: Paris Saint-German, whose £226 million massively benefited from the French club’s “friendly” agreement with the Qatar Tourist Authority, and Bayern Munich, whose £212 million emphasised their commercial dominance in Germany.


Of course, those are the previous season’s figures, so it is entirely possible that United’s commercial income of £268 million is the highest in 2015/16. This now accounts for 52% of United’s total revenue, up from 24% in 2009. The importance of match day income, even though it is above £100 million, has consequently diminished from 41% to 21% over the same period.


Commercial activity is particularly important to the two Manchester clubs, accounting for around half of their revenue, compared to 39% at Liverpool, 34% at Chelsea, 31% at Arsenal and 30% at Tottenham.

United’s commercial income of £268 million in 2015/16 is evidence of the club’s ability to monetize its global brand through three revenue streams: (a) sponsorship – up 3% to £160 million; (b) retail, merchandising, apparel and product licensing – up 207% to £97 million; (c) mobile and content – up 4% to £11 million.


Domestically, United’s £268 million is around £100 million more than Manchester City’s £173 million (2014/15), though it will be interesting to see how their “noisy neighbours” have progressed last season. To further place this in perspective, it’s around the same as the three leading London clubs combined (Chelsea £108 million, Arsenal £103 million and Tottenham £60 million)

To give a better idea of United’s commercial might, £268 million is higher than the total revenue at all but nine of the Money League clubs in 2014/15, ahead of the likes of Juventus, Borussia Dortmund and Tottenham.


There’s an old investment saying that “elephants don’t gallop”, but United’s growth rate of 128% since 2012 outpaces all their rivals. Admittedly, those clubs could also grow more in 2015/16, but Arsenal (the team with the next highest percentage growth) would have to increase their commercial revenue by £17 million to £120 million to match United’s growth rate, which seems unlikely based on their half-year accounts.

This year’s figures include the new kit supplier agreement with Adidas, which is worth £750 million over the next 10 years, i.e. £75 million a year. This is £50 million higher than the previous Nike deal. Not only that, but it has allowed the club to take control of various activities, e.g. they have brought the management of the Old Trafford Megastore in-house and signed a number of lucrative licensing deals.


There are success clauses are built into this contract, e.g. if United fail to participate in the Champions League for two or more consecutive seasons, then the payment for that year would reduce up to 30%, i.e. £22.5 million, though this would be spread over the remainder of the contract. On the other hand, success in the Premier League, FA Cup or Champions League would bring an additional maximum of £4 million.

Nevertheless, it is still an astonishing deal, significantly higher than the £30 million agreements at Arsenal (PUMA) and Chelsea (Adidas), though Chelsea will switch to Nike for £60 million from the 2017/18 season.

At the time it was signed, United describe theirs as the “largest kit manufacture sponsorship deal in sport”, though it has since been reportedly overtaken by new agreements signed by Barcelona (Nike) and Real Madrid (Adidas), which would be worth £125 million and £115 million respectively (at the current exchange rate).


In England, United’s ability to “extract value from their sponsorship deals is almost unprecedented, as seen by the seven-year shirt deal signed with General Motors (Chevrolet) running to the end of the 2020/21 season worth a total of $559 million. As GM paid United $18.6 million in each of the 2012/13 and 2013/14 seasons for “pre-sponsorship support and exposure”, the remaining $521.8 million works out to $74.5 million a year.

At the 30 June 2015 $ rate of 1.57, that was equivalent to £47 million a year, a figure that has been widely reported, but at the 30 June 2016 rate of 1.33, it is worth £56 million, which is considerably more than the next highest English shirt sponsorship deals, namely Chelsea (Yokohama) £40 million and Arsenal (Emirates) £30 million.

United’s previous shirt sponsors, Aon, have not completely exited the scene though, as they will pay for the privilege of being United’s training kit partner until 2020/21 including renaming the training facilities at Carrington as the Aon Training Complex.

"A prisoner of the past"

On top of that, United continue to announce new sponsorships, 25 in the last two seasons alone: 11 global sponsors, 9 regional sponsors and 5 financial services, MUTV and telecom partnerships.

United also earn good money from promotional tours and exhibition matches, e.g. £10 million in 2015/16, £13 million in 2014/15. However, the Glazers have drawn the line at selling naming rights to the Old Trafford stadium, which are potentially worth £20 million a year.

The only potential fly in the ointment is if United’s lack of success on the pitch persists, especially if the football is not in line with their swashbuckling tradition. Indeed, last season Adidas chief executive Hubert Hainer, while boasting that shirt sales had exceeded expectations, had a dig at the team’s playing style, which was “not exactly what we want to see.”


United’s match day revenue rose 18% (£16 million) from £91 million to £107 million in 2015/16, as they played 8 more games at home, largely arising from a return to European competition (4 Champions League, 2 Europa League). As a result, they have once again overtaken Arsenal’s £100 million.

These two are a long way ahead of other English clubs, e.g. Chelsea £71 million, Liverpool £51 million, Manchester City £43 million and Tottenham £41 million, which helps explain why they are all investing in stadium development/expansion.


United’s average attendance of 75,000 is far higher than any other English club (Arsenal being the nearest at just under 60,000), with Old Trafford being the largest football club stadium in the UK. Season ticket prices were frozen for the 2016/17 season, which means that prices have been held for five consecutive seasons. That said, United have the most expensive season tickets outside London.

The club places great emphasis on its premium seating and hospitality facilities in order to maximise match day revenue, as can be seen by Old Trafford (“the theatre of dreams”) having 154 luxury boxes, approximately 8,000 executive club seats, 15 restaurants and 4 sports bars. In this way, in 2015/16 United generated around £34 million from hospitality (compared to £52 million from gate receipts).


United’s share of the Premier League television money was flat at £97 million in 2015/16. They actually earned £6 million more than champions Leicester City, as the smaller merit payment for finishing four places lower was more than offset by higher facility fees for having 11 more games broadcast live. This again is down to the United brand.

This is even before the increases from the mega Premier League TV deal in 2016/17. Based on the contracted 70% increase in the domestic deal and 40% increase in the overseas deals (per United’s press release), the top four clubs would receive around £150 million, while even the bottom club would trouser around £95 million.

Although this is clearly great news for the clubs, it is somewhat of a double-edged sword for the elite, as it makes it more difficult (or at the very least more expensive) to persuade the mid-tier clubs to sell their talent, thus increasing competition.


The other main element of broadcasting revenue is European competition, though United have not done so well here recently. They have only got as far as the quarter-finals once in the last five years (under the much maligned Moyes in 2013/14), while not qualifying at all in 2014/15.

UEFA have not yet published the revenue distribution details for 2015/16, but my estimate for United’s share is €40 million, based on the increases in the 2016 to 2018 cycle, namely higher prize money plus significant growth in the TV (market) pool, thanks to BT Sports paying more than Sky/ITV for live games (worth €125 million vs. €94 million, per United’s 20-F submission).


United’s 2015/16 Champions League payment was partly influenced by their progress in the tournament, but was to an extent compromised by their 4th place finish in the 2014/15 Premier League. This is because half of the market pool is allocated based on the finishing place in the previous season’s domestic league: 1st place 40%, 2nd place 30%, 3rd place 20% and 4th place 10%.

The value of Champions League qualification is clear, especially if it is compared to the Europa League, where the most earned by an English club in 2014/15 was Everton’s €7.5 million.

Mourinho has admitted that the Europa League is “not a competition that Manchester United wants” from a sporting perspective, but Hemen Tseayo, United’s head of corporate finance, outlined the damage in financial terms. He estimated that the Europa League is worth around £30 million less than the Champions League in broadcasting income (plus another £5-6 million in gate receipts), though this is mitigated by lower salary/bonus payments and cost of staging games.


United’s wage bill increased by 15% (£30 million) from £203 million to £232 million, primarily due to player contract extensions and an uplift in salaries due to participation in the Champions League, though the wages to turnover ratio was reduced from 51% to 45% following the surge in revenue.


Not only is this the the lowest wages to turnover ratio at United since 2009, but is by some distance the smallest in the Premier League, the closest challengers being Newcastle and Tottenham with 51%. Put another way, United’s wages to turnover ratio is the best in the top flight, even though their wage bill is the highest.


Their 2015/16 wage bill of £232 million has overtaken Chelsea’s £216 million from the previous season and is around £40 million more than Manchester City £194 million and Arsenal £192 million.

Of course, United fans will be quick to point out that City’s wage bill might well have gone up in 2015/16. They will also have noted that some of City’s decrease from the English all-time high of £233 million in 2012/13 is due to a restructure whereby some staff are now paid by group companies with the costs included in external charges, as opposed to wages.


In any case, United’s wages are way ahead of most Premier League clubs with some of the nearest challengers (in 2014/15) being Liverpool £166 million, Tottenham £101 million, Aston Villa £84 million and Everton £78 million. For context, United’s wage bill is about the same as Tottenham, Everton and Leicester City combined.

The Premier League’s Short Term Cost controls restricted the annual player wage cost increases to £4 million for the three years up to 2015/16, then £7 million a year for the next three-year cycle to 2018/19 – except if funded by increases in revenue rom sources other than Premier League broadcasting contracts. In other words, United are fine here, due to their massive commercial revenue growth.


Although there is a natural focus on wages, other expenses also account for a considerable part of the budget at leading clubs. Excluding player amortisation, depreciation and exceptional items, United’s other expenses increased in 2015/16 by £19 million (26%) from £72 million to £91 million, due to retail and merchandising being recognised in-house, plus higher match day costs in line with more home games.

This is again the highest in the Premier League, ahead of Chelsea £83 million, Manchester City £76 million and Arsenal £74 million, though there have been media reports that the Glazers have demanded cuts of 15% in most departments, including the academy.


Another cost that has had a major impact on United’s profit and loss account is player amortisation, which is the method that football clubs use to account for transfer fees. As a result of the recent huge increase in spending, player amortisation has shot up from £38 million in 2012 to £88 million in 2016. Although this is £12 million lower than the previous season’s £100 million, it should shoot up again next year following this summer’s splurge.


As a reminder of how this works, transfer fees are not fully expensed in the year a player is purchased, but the cost is written-off evenly over the length of the player’s contract – even if the entire fee is paid upfront. As an example, Pogba was reportedly bought for £89 million on a five-year deal, so the annual amortisation in the accounts for him would be £18 million.


Unsurprisingly, United's player amortisation is now the largest in the Premier League, though City are likely to be close to this amount when they publish their 2015/16 accounts. Basically, those clubs that are regarded as big spenders logically have the highest amortisation charges, e.g. City £70 million and Chelsea £69 million, while Arsenal’s relatively restrained spending has left them with £54 million of player amortisation in 2014/15.

United have really ramped up their spend in the transfer market in the last few seasons, splashing out huge sums to compensate for the years of austerity (relatively speaking). In essence, Ferguson’s genius at working on a tight transfer budget delivered great results, but also resulted in a squad that needed to be substantially upgraded by his successors.


In the five years between 2006 and 2011, United’s average annual net spend was only £3 million (gross £33 million), a paltry sum for a club of this magnitude, though this was obviously impacted by Ronaldo’s £80 million sale to Real Madrid. However, in the next three years the average net spend rose to £52 million (gross £61 million), and then accelerated again to £92 million (gross £133 million) in the last three seasons.

That’s around £400 million in the last three seasons, as United has recruited expensive new blood, including (deep breath) Paul Pogba, Eric Bailly, Henrikh Mikhitaryan, Zlatan Ibrahimovic, Anthony Martial, Memphis Depay, Morgan Schneiderlin, Matteo Darmian, Bastian Schweinsteiger, Angel Di Maria, Ander Herrera, Luke Shaw, Marcos Rojo and Daley Blind.

After the Pogba deal, Mourinho observed, “sometimes in football things happen and the club breaks the record, but this is only possible at clubs like Manchester United” in a thinly veiled jibe at Arsène Wenger and Jürgen Klopp.


Despite this massive outlay, United’s net spend of £275 million in this period was still beaten by Manchester City’s £299 million, though it was well clear of Arsenal £165 million and Chelsea £123 million. As Woodward explained, “there’s a bit more pressure on some of the bigger clubs to bring in top players, verging on world class, that are going to hit the ground running.”

Perhaps the most eye-opening signing was Martial with United paying an initial £38.5 million (€50 million) for the 19-year old forward plus a potential £23 million (€30 million) in add-ons. These comprise three bonus payments of €10 million dependent on the following achievements: 25 goals, 25 French caps and being shortlisted for the Ballon d’Or award during his time at Old Trafford.

Woodward has cautioned that the club may reduce its spending in future: “As a club we will always invest in the squad to the extent that we feel that we need to, so that we are challenging for titles, but this sustained level is probably relatively high compared to what is needed.” However, as we have seen, United generate more than enough cash in future for similar purchases – if they want to do so.


United’s gross debt rose by £79 million from £411 million to £490 million (the highest since 2010), largely due to the impact of exchange rate movements on the USD denominated debt (1.57 to 1.33). This comprises $425 million of Senior Secured Notes (3.79%, repayment 2027) and a $225 million Secured Term Facility (1.25-1.75%, repayment 2025).

However, net debt only rose by £6 million from £255 million to £261 million, as cash balances increased by £73 million from £156 million to £229 million.


The 2015 refinancing increased the debt, but extended the repayment dates with a lower interest rate, thus reducing the annual financing costs to £20 million, compared to £35 million the previous year (including a premium paid for the refinancing).

Despite the reduction, this is a lot more than any other Premier League club with Arsenal being the only other club with a double-digit interest payment of £13 million. To place that into perspective, Manchester City, Tottenham, Everton and Liverpool all had net interest payable of only £4-5 million.


Although these interest payments are clearly manageable, United supporters would prefer this money to be spent on further strengthening the squad. Former chief executive David Gill famously said that “debt is the road to ruin” before the Glazers purchased the club, which has not exactly proved to be the case for United, but it has undoubtedly been damaging to their prospects.

The only other Premier League club with anything like the same levels of borrowing is Arsenal, whose £232 million represents the debt incurred for the construction of the Emirates Stadium. There were just two other Premier League clubs with debt above £100 million in 2014/15, namely Sunderland £141 million and Newcastle United £129 million.


United’s business model only works as they are a veritable cash machine, once again evidenced in 2015/16 when they generated £201 million of cash from operating activities. They then spent a net £100 million on player registrations (£138 million of purchases less £38 million of sales), slightly more than the previous season’s £97 million. That does not even include this summer’s purchases with a note in the accounts stating that a further £160 million was spent on acquiring players.

In addition, £13 million went on interest payments and £20 million on dividends. There was also £5 million of infrastructure investment, mainly to refurbishment work at Old Trafford and the Aon Training Complex, and a £2 million tax payment. As a result, cash rose £61 million before being boosted by £13 million of FX gains to give a net increase of £73 million.


In the last seven years United have generated an incredible £1.25 billion of cash: £936 million from operating activities plus £318 million from share issues. Just over £400 million (32%) of this has been spent on player purchases and £68 million (5%) on capital expenditure, but the majority £671 million (54%) has been used to finance the Glazers’ loans: £424 million of interest payments and £247 million of debt repayments.


The good news is that there has been a clear swing in the last three years from using cash to finance debt to player purchases – “our strong commitment to invest in our squad”, as Woodward put it. In the period 2010-14, United spent an average of £158 million each year on financing debt, compared to just £32 million on players. However, in the last 3 years, the average financing expenditure has fallen to £23 million, while player spend has risen to £92 million.

This is partly due to annual interest payments being reduced to £13 million, though this has been replaced by an annual dividend of £20 million, including £2.5 million to each of Malcolm Glazer’s six children (amounting to £15 million).


Although this is rather galling to the club’s supporters, there is certainly enough cash available in the club’s coffers with United’s £229 million now just ahead of Arsenal’s £228 million in 2014/15, but miles above all other Premier League clubs, e.g. the next highest balances were Manchester City £75 million and Newcastle United £48 million. That said, there are high amounts owed for transfer fees, amounting to £156 million, up from £115 million in 2015.

In conclusion, Manchester United’s financial status is the envy of almost every other football club on the planet. They are a commercial powerhouse generating the highest revenue and cash in England (possibly the world, depending on exchange rates), which means that they can spend huge sums on player transfers and wages.

"Left to my own devices"

As Ed Woodward said, “The club is on target to achieve record revenues in 2017, even without a contribution from the Champions League. This strong financial performance has enabled us to invest in our squad, team management and facilities to position us to challenge for, and win, trophies in the coming years.”

Success on the pitch has to be the club’s top priority. There’s no doubt that money is available for United to attract star names to Old Trafford, though ironically their shining light in recent times has been local lad Marcus Rashford, an academy graduate who cost nothing.

"At the height of the fighting"

For a club of United’s size and history to be struggling so badly is a major surprise, especially as the board has loosened the purse strings since Ferguson’s departure. Of course, money doesn’t guarantee success (see Leicester City’s triumph last season), but it is normally a fairly reliable indicator, so the onus is now on the team to deliver.

Woodward described José Mourinho’s appointment as “a reflection of the club’s determination to return to the pinnacle of our sport”, but at the moment this looks a long way off. The new era has had a shaky start, not least in comparison to Manchester City, where Pep Guardiola has already got his team playing some dazzling football.

Ultimately, the question remains: can Mourinho succeed where Moyes and van Gaal have failed and lead United back to former glories? One thing is for sure, if his reign does end in disappointment, it is unlikely to be down to a lack of money.

Tuesday, July 26, 2016

Millwall - Hard Times


Millwall narrowly missed out on bouncing back to the Championship at the first time of asking, losing 3-1 against Barnsley in the League One play-off final. Although this was not the outcome that Lions’ supporters would have desired, there were plenty of encouraging signs for The Den faithful. As chairman John Berylson observed, “This was going to be a rebuilding year and that has proved to be the case.”

The previous season had seen Millwall relegated after five years in English football’s second tier, which Berylson had described as “a massive disappointment to us all.” In truth, it cannot have been that big a surprise, given that his club had finished just above the relegation zone in each of the preceding seasons (19th, 20th and 16th).

Millwall’s progress in 2015/16 owed a lot to manager Neil Harris, who had been appointed interim manager in March 2015, then confirmed as permanent manager soon afterwards following improved performances by the team.

The club had struggled under his predecessors Ian Holloway and Steve Lomas, but Harris brought hope that he could be as successful as Kenny Jackett, who not only delivered promotion to the Championship in 2010, but also took the club to the FA Cup semi-final in 2013, where Millwall lost to the then Premier League club and eventual winners, Wigan Athletic.

"Back on board"

In his first full season Harris succeeded in restoring the club’s sense of identity and connection with the supporters. Of course, when many think of Millwall, they focus on the reputation of some of the club’s supporters, who have certainly been a “bit tasty” in the past, leading to the “no-one likes us, we don’t care” image.

However, even though some issues remain, this obscures the huge amount of work done in the community, e.g. the Millwall Community Trust. As Harris said, “this goes a little under the radar.” In reality, the local community is at the heart of the club, a recent example being when Millwall supported a successful campaign to save Lewisham Hospital A&E department.

The fans’ notoriety is just one of the challenges facing Millwall, though they also struggle with their geographical proximity to many bigger London clubs. On top of that, they have only competed twice in the top flight in their history (1988-89 and 1989-90) – though they did briefly lead the league in September 1989.

Furthermore, Millwall have always operated under severe financial constraints, once entering administration in 1997 before being bought out by Theo Paphitis, a local boy made good (and erstwhile star of Dragons’ Den).

The financial problems were eased in 2007, when Chestnut Hill Ventures (CHV), which has interests in financial services, retail, property and sport, invested £5 million into the club with Berylson becoming chairman. CHV is incorporated in America and own just over 70% of Millwall, but a crucial link with the supporters is also there with the Fan on the Board.

"The band wore blue and white shirts"

As you might expect, the club’s strategy is fairly down-to-earth, according to chief executive Andy Ambler, “developing a squad of players for the longer term who understand the Millwall philosophy… with the aim of gaining promotion to the Championship at the earliest opportunity with a squad that is capable of competing at that higher level.”

Harris is very much singing from the same song sheet: “You don’t have to be the best player. It hasn’t got to be 1,000 passes a game, it’s got to be high tempo, aggressive and you can’t ever shirk a challenge. It’s frowned upon.”

This has resulted in a focus on youth, as Ambler outlined: “There is a greater emphasis on younger players, mostly graduating from the Youth Academy. This is key to the strategy of the club, under the direction of Scott Fitzgerald. It is intended to invest further into the Academy, both in the quality of coaching and the facilities used, to enhance the opportunities to develop future players for the club. The directors regard this as a vital part of the future success of the club.”

Berylson is of the same opinion, “Having funded the Academy for some time, it is encouraging to see so many good young players coming through, which will be vital going forward. I want one or two young lads coming out of the Academy each year who can play (for the first team).” Recent examples of the production line include midfielder Ben Thompson and right-back Mahlon Romeo.


Millwall’s financials show quite clearly why they have to find a strategy that works for them, the most recent example being the hefty £12.0 million loss they reported in 2014/15. This was slightly higher than the previous season’s £11.7 million loss, despite revenue climbing £0.7 million (7%) from £10.5 million to £11.2 million.

Commercial income rose £0.4 million (26%) from £1.5 million to £1.9 million, mainly due to the refit of the retail outlet and improved merchandise. Match day income was also up £0.3 million (8%) from £4.3 million to £4.6 million, despite lower average attendances. Broadcasting income was flat at £4.7 million.

However, costs came under pressure, as the wage bill increased by £1.3 million (9%) from £13.9 million to £15.2 million, which the club ascribed to the full year cost of strengthening the football management team and increases in player salary costs. Other expenses also rose by £0.7 million (15%) from £4.8 million to £5.5 million, due to “increased investment in the pitches at both The Den and the training ground, as well as a higher cost of football agent fees.”

Profit on player sales fell £0.3 million to just £0.1 million, but player trading benefited from a £0.4 million (38%) fall in player amortisation from £1.0 million to £0.6 million. On the other hand, depreciation rose by £0.2 million (67%) from £0.2 million to £0.4 million.

Interest payable was slashed by £1.1 million from £2.8 million to £1.7 million, still very high for a club of Millwall’s size, as CHV agreed that no interest would accrue in respect of the £20 million loan facility from 1 January 2015 to 30 June 2016 (when interest will begin to accrue again unless CHV agrees otherwise).


Of course, most Championship clubs suffer very heavy losses, usually subsidised by their owners, so Millwall’s losses were by no means exceptional in this division, though they were among the largest. In fact, only five Championship clubs reported losses larger than Millwall’s £12 million in 2014/15, namely Bournemouth £39 million, Fulham £27 million, Nottingham Forest £22 million, Blackburn Rovers £17 million and Brentford £15 million.

Very few clubs are profitable in the Championship with only seven making money in 2014/15 – and most of those are due to special factors, such as high player sales, loan write-offs, land revaluation or high parachute payments. Top of the pile were Blackpool with an £8 million profit, thanks to their “unique” business model that seems designed purely to favour their owners.

Millwall have struggled financially for many years, accumulating £63 million of losses in the last decade. The last time that they (very nearly) broke-even was way back in 2004, though the loss was only £2 million in 2011, when Berylson described the results as “a very big step forward” and the reduction in losses as “encouraging”.


The previous season the chairman had claimed, “I feel we have managed to reduce costs and become more efficient in almost every area, however there is still work to be done.”

Unfortunately, these improvements proved to be something of a false dawn, as losses rose to £6 million in 2013, then more than doubled to around £12 million in the last two seasons. This was frustrating, but perhaps only to be expected when looking at earlier comments from Berylson: “All our efforts must be focused on giving our manager the resources to continue to achieve the progress we have shown on the field.”

That approach is all too understandable in the ultra-competitive Championship, but Ambler recognised that it was not sustainable in the long-run: “Putting aside the (Financial Fair Play) rules, we should not be running this club at £8 million losses every year. We’ve got to find a strategy to increase revenues and get the best possible quad without spending too much money.”


One method used by clubs to fund their operating shortfall is selling players, though to be fair this is not an enormous money-spinner outside the top flight with the most profit made by Norwich City £14 million, followed by Ipswich £12 million, Leeds United £10 million and Cardiff City £10 million. Indeed, Millwall noted in their 2014 accounts “a trend towards lower transfer fees outside of the Premier League.”

That is certainly true, but Millwall’s profit from player sales of £108,000 in 2014/15 was one of the lowest in the Championship, only ahead of Rotherham United and Bournemouth.


In truth, Millwall have rarely made big money from player sales, the last reasonable sum being received in 2010/11 when Steve Morison was sold to Norwich City – which also helps to explain the overall lower loss that season.

You have to go all the way back to 2004 and 2005 to find the last time that Millwall reported £3 million of profits from player sales: 2004 included the sale of Steven Reid to Blackburn Rovers (plus an insurance settlement following the premature retirement of Richie Sadlier); 2005 included the sales of Tim Cahill to Everton, Darren Ward to Crystal Palace and Scott Dobie to Nottingham Forest.

The 2015/16 accounts will be boosted by a sell-on fee arising from the sale of Aaron Tshibola from Reading to Aston Villa for £5 million, as he was on Millwall’s books until the age of 13, though the amount has not been divulged. Otherwise, most departure were basically released for nothing.


Millwall’s underlying profitability has been getting worse, as seen by the reduction in EBITDA (Earnings Before Interest, Depreciation and Amortisation). This is considered to be an indicator of financial health, as it strips out once-off profits from player trading and non-cash items. This has been consistently negative at Millwall, but has declined in the last five years from minus £1.5 million in 2011 to minus £9.4 million in 2015.


The size of Millwall’s negative EBITDA was far from uncommon with 15 clubs generating cash losses between £4 million and £12 million. In fact, only four Championship clubs had a positive EBITDA in 2014/15 (Blackpool, Wolves, Birmingham City and Rotherham) In stark contrast, in the Premier League only one club (QPR) reported a negative EBITDA, which is testament to the earning power in the top flight.


The only real revenue growth that Millwall have generated recently was off the back of their promotion to the Championship in 2010/11, when income rose by nearly 60% (£4.4 million) the following season. Berylson said that this was “as a result of higher attendances and commercial sponsorship, but most significantly a greater share of the Football League central television and sponsorship revenues.”

However, since that first season back, match day and commercial income have actually fallen, leaving TV as the only growth revenue stream. It is true that match day income was higher in 2013, benefiting from an FA Cup run to the semi-final.

Andy Ambler put his finger on the problem when he said that “the opportunities to increase revenue streams are very dependent upon the success of the team.” Thus, relegation at the end of the 2014/15 season will obviously have had an adverse impact on Millwall’s revenue.

This was confirmed by Ambler: “It is inevitable that operating in League One will reduce all revenue streams of the company. This may be mitigated should the team have a successful season as attendances and match day income are affected by the team’s performance and the club’s position in the league.”


Given the lack of growth, it is unsurprising that Millwall had the fourth lowest revenue in the Championship in 2014/15 with £11 million, only ahead of Rotherham United, Huddersfield Town and Brentford, and just behind neighbours Charlton Athletic. To place this into perspective, four clubs enjoyed revenue higher than £35 million (more than three times as much as Millwall): Norwich City £52 million, Fulham £42 million, Cardiff City £40 million and Reading £35 million.

Ambler noted that other clubs enjoyed “substantially more spending power than Millwall due to the parachute payments they receive.” Not only does this “create stiffer competition within the league”, but means that it is far from an even playing field.


However, even if we were to exclude this disparity, Millwall would still find themselves near the bottom of the table, though the revenue differentials would be smaller. That said, clubs like Leeds United, Brighton and Hove Albion , Derby County and Middlesbrough still managed to generate more than £20 million without the benefit of parachutes, thanks to their ability to attract larger crowds and earn money commercially.


Only 17% of Millwall’s revenue was sourced from their commercial operations in 2014/15 (up from 14% the previous season). The majority was derived from broadcasting with 42%, just ahead of match day 41%.


Millwall’s match day income increased by £0.3 million (8%) from £4.3 million to £4.6 million in 2014/15, despite a 2.5% fall in the average attendances from 11,182 to 10,902. This was partly because they hosted two more cup games, though ticket prices were also raised (around £1 a game) after many years of price freezes.

Commercial director Alan Williams commented, “It's a 4% rise and that helps our finances. A slight increase in revenue will make it a little bit more palatable for the chairman to maintain his current level of investment. We have to make money but we're sensitive to the fact that we must offer value for money. An increase after four years without an increase is acceptable I think.”


The match day income is not too bad, albeit less than half of table-topping Brighton (£9.8 million), especially as Millwall’s attendance was the fourth smallest in the Championship, only ahead of Brentford, Bournemouth and Rotherham. In contrast, Millwall’s average attendance of 9,108 in 2015/16 was the sixth highest in League One, even though it dropped by around 1,800 (16%).

This continued a trend of declining attendances, which have plummeted by around 3,300 from the recent peak of 12,439 in 2010/11 when Millwall finished ninth in their first season back in the Championship. That’s over a quarter of their crowd that have stopped turning up.


As a result, Millwall have frozen ticket prices for both the last two seasons in an attempt to boost crowds. As Williams said, “As everybody knows, this team plays better when the fans are behind them. When The Den is really rocking, the atmosphere is second to none.”

Some fans might have anticipated a price reduction in League One, though in fairness the club had not increased prices when the club had gained promotion. In any case, last month Ambler said that season ticket sales for 2016/17 were up on last year, presumably linked to the better displays on the pitch.


In the Premier League, the vast majority of all but the elite clubs’ income is derived from broadcasting, but this is not the case in the Championship. Here, most clubs receive just £4 million of central distributions, regardless of where they finish in the league, comprising £1.7 million from the Football League pool and a £2.3 million solidarity payment from the Premier League.

However, the clear importance of parachute payments for clubs relegated from the Premier League is once again highlighted in this revenue stream, greatly influencing the top eight earners, though it should be noted that clubs receiving parachute payments do not also receive solidarity payments.


In 2015/16 clubs received parachute payments ranging from £10.5 million to a massive £25.9 million. In fact, two of the clubs receiving the largest payment, namely Burnley and Hull City, went on to gain promotion. As the saying goes, “money talks”.

Nevertheless, it should be noted that these payments are not necessarily a panacea, for example Middlesbrough also secured promotion last season, even though their broadcasting income of £6.2 million in 2014/15 was less than half the size of those clubs boosted by parachutes.


From 2016/17 parachute payments will be even higher, though clubs will only receive these for three seasons after relegation. My estimate is £75 million, based on the percentages advised by the Premier League (year 1 – £35 million, year 2 – £28 million and year 3 – £11 million). Up to now, these have been worth £65 million over four years: year 1 – £25 million, year 2 – £20 million and £10 million in each of years 3 and 4.

There are some arguments in favour of these payments, namely that it encourages clubs promoted to the Premier League to invest to compete, safe in the knowledge that if the worst happens and they do end up relegated at the end of the season, then there is a safety net. However, they do undoubtedly create a significant revenue disadvantage in the Championship for clubs like Millwall.

Following relegation, Millwall will have received even less TV money: £680k from the Football League central distribution and a £360k solidarity payment, amounting to just over £1 million. As Ambler said, “The major factor to affect football-related income (in 2015/16) is the reduction in League and TV levies, which drops away dramatically in League One.”


Millwall’s commercial income in 2014/15 rose by £0.4 million (26%) from £1.5 million to £1.9 million, but this was still one of the lowest in the Championship, only ahead of Wigan £1.5 million. Again, few Championship clubs score big commercially, but six clubs earned more than four times as much as Millwall: Norwich City £12.8 million, Leeds United £11.3 million, Brighton £8.9 million, Watford £8.6 million, Derby £8.5 million and Wolves £7.8 million.

The club has two shirt sponsors: Wallis Teagan, a local building and maintenance company, have extended their arrangement for the 2016/17 season; while the back-of-shirt sponsor is taken by Oil Brokerage Limited. In the past, Millwall have, rather admirably, foregone commercial income when taking Prostate Cancer UK as their sponsor in 2013/14.

The Italian company Errea has replaced Macron as the kit supplier from the 2016/17 season. The shirt will be a striped design replicating the kit worn by the record-breaking Millwall side of 50 years ago that went 59 home league games without defeat.

Ambler expects commercial income to go up in future, as the 2015/16 accounts will benefit from a full year of operation of the new retail outlet and kiosks, while it is also hoped that the successful staging of a Wigan Warriors rugby league game at The Den will open up new opportunities.

"Jimmy, Jimmy"

Nevertheless, perhaps the best opportunity that Millwall has to generate more revenue is by developing the land adjoining the stadium. They have a regeneration plan to create affordable housing, student accommodation, retail and office space, a hotel and conference centre plus a facelift for the stadium.

However, Lewisham council has thrown a spanner in the works by unexpectedly preferring to allow a private developer, Renewal, to undertake the entire regeneration programme. It has threatened to sell the freeholds of the land next to The Den on which the club (and the Millwall Community Trust) hold leases, using Compulsory Purchase Orders if necessary.

Millwall’s view is that the football club should be at the heart of a “thriving and brighter community”, while its own development scheme “provides an opportunity to bring more financial stability to the club by generating non-football revenues, which are vital to the long-term future of Millwall FC.”

"Advice for the young at heart"

This was reinforced by Ambler: “It’s a once-in-a-lifetime chance to make sure what is built on our doorstep actually works for the club.” He added, “If this goes against us, it makes it more difficult to thrive and become self-sufficient. We haven’t got enough income generation outside the actual football that will help us when we do need injections of cash.”

Berylson went further, describing the decision as “a challenge which threatens the club’s very survival.”

Indeed, a petition to “Defend Our Den” gained over 19,000 signatures, which must have been a contributing factor to the council deferring the decision in a February meeting. That was good news, but hardly definitive, as Ambler admitted: “We are under no illusion this is over or the battle is won and would urge people to keep signing the petition. We have effectively gone into extra-time.”

At least the deferral allows the club more time to state its case and work towards a more beneficial partnership with the council.


Millwall’s wage bill in 2014/15 rose £1.3 million (9%) from £13.9 million to £15.2 million, leading to a slight increase in the wages to turnover ratio from 132% to 135%. Since being promoted to the Championship in 2010, Millwall’s wages have shot up by £8.8 million (138%), while revenue has only grown by £3.7 million (50%) in the same period.

The 2013 rise included significant bonuses for reaching the FA Cup semi-final, while the 2014 increase was partly due to the high cost of loan players, e.g. Steve Morison, together with those recruited to cover injuries.


Up until 2013 Millwall had managed to keep the wages to turnover ratio below 100%, though it was still on the high side, but wages have really outpaced revenue since then. Ambler neatly summed up the dilemma: “There will be continued pressure to increase further the budget if needed to remain competitive.”

Of course, wages to turnover invariably looks terrible in the Championship with no fewer than 10 clubs “boasting” a ratio above 100%, but Millwall’s 135% was the fourth highest (worst), only behind Bournemouth 237% (inflated by promotion bonus payments), Brentford 178% and Nottingham Forest 170%.


That said, Millwall were hardly one of the big spenders in the Championship, as Ambler explained, “Despite the continuous rise in the player wage cost, the club is still budgeted to have one of the lower quartile wage bills in the league.” In fact, Millwall’s wage bill was only the 17th highest in the Championship in 2014/15, significantly lower than clubs benefiting from parachute payments, e.g. Norwich City £51 million, Cardiff City £42 million and Fulham £37 million.

Naturally the wage bill will have fallen in 2015/16, as explained in the accounts: “A substantial reduction in the player salary budget for this year. This is due to the Divisional Pay Structure policy of the club whereby the salary of players is reduced as a result of playing in a lower division and reflects the expiration of a number of contracts which were not renewed at the end of last season, many of which were for highly paid players.”


Another aspect of player costs that had been steadily rising at Millwall is player amortisation, which is the method that football clubs use to expense transfer fees. In line with higher sums spent on bringing players into the club, player amortisation grew from just £63k in 2007 to a peak of £1.0 million in 2014, though it did fall back to £0.6 million in 2015.


As a reminder of how this works, transfer fees are not fully expensed in the year a player is purchased, but the cost is written-off evenly over the length of the player’s contract via player amortisation. As an illustration, if Millwall were to pay £2 million for a new player with a five-year contract, the annual expense would only be £0.4 million (£2 million divided by 5 years) in player amortisation (on top of wages).


Even so, Millwall’s player amortisation of £0.6 million was still one of the lowest in the Championship, especially compared to those clubs relegated from the Premier League in recent times, i.e. Norwich City £13.2 million, Cardiff City £11 million and Fulham £10.7 million. This highlights how little money Millwall have spent in the transfer market.


Although there have been many player movements at Millwall, many of them have been free transfers with several being released. The objective in most seasons seems to be to balance the books, but it is also striking to see how little has been raised from player sales after 2007.

In the nine years since then there have been net sales of £1.6 million, almost entirely due to Steve Morison’s departure in 2011. Ironically, Morison was one of only two signings made by Harris last summer, while selling or releasing 18 players following relegation.


Millwall’s net debt decreased in 2015 by £9.7 million from £29.8 million to £20.1 million, as gross debt was cut from £30.3 million to £20.8 million, while cash was slightly higher at £0.6 million. Debt had been steadily rising from £7.3 million in 2011, but the 2015 reduction was largely due to CHV waiving £8.4 million of unpaid interest.

In addition, £2.8 million of the cash raised from issuing £12.4 million of new share capital was used to repay loans. This was similar to the open offer in 2011, where £7.9 million of the £10.1 million cash raised was used to convert loans into equity.

Without CHV effectively writing-off £19.1 million of debt through this combination of equity conversion and waiving interest, gross debt would have been almost twice as high as the current balance at around £40 million.


In 2013 various loan facilities and PIK notes provided by CHV, ranging from 9% to 15%, were consolidated into a new loan facility amounting to £20 million at 12%. This is a non-convertible loan secured by a fixed and floating charge over current and future assets.

Although this is a fair amount of debt for a club of Millwall’s size, it could be described as “soft” debt, as it is owed to the owners. It was originally repayable in July 2015, but the repayment date has been extended twice, most recently to July 2017.

Furthermore, it was nowhere near being the largest debt in the Championship. To place Millwall’s £21 million balance into perspective, four clubs had debt over £100 million, including Brighton £148 million, Cardiff City £116 million and Blackburn Rovers £104 million. Bolton Wanderers have not yet published their 2015 accounts, given their much-publicised problems, but their debt was a horrific £195 million in 2014.


The 2014 accounts noted, “Finance costs are now increasing annually as the level of borrowing by the company increases”, though it might surprise some supporters to see that Millwall’s net interest payable of £1.7 million was the highest in the Championship in 2014/15, ahead of Cardiff City £1.3 million, Blackburn Rovers £0.9 million and Ipswich Town £0.7 million.

Of course, Millwall did not actually pay any interest. Indeed, as we have seen, the owners have in fact written-off substantial sums of accrued interest. As a technical aside, Millwall credited the write-off directly to the retained reserves and not to the P&L as some other clubs have done in similar circumstances.


The cash flow statement reveals the extent of the owners’ support with £35 million of funding provided in the last seven years through £24 million of loans and £11 million of share capital.

It should be noted that a total of £22.5 million has been raised by issuing new share capital, but £10.7 million was used to convert loans into equity, while there were £0.5 million of costs associated with the open offer, leaving £11.4 million of available cash.

On top of this, after the 2015 accounts were closed CHV bought more shares, raising a further £2.6 million.

These share offerings “strengthened the balance sheet and reduced the company debt position, whilst providing the funds for the football club to continue to progress.”


The owners’ funding has been almost entirely used to simply cover the club’s losses: £32.5 million (92%) since 2009. In contrast, very little money has been spent on player purchases (£1.4 million net) and infrastructure investment (£1.0 million).

This is the issue with CHV as owners: on the plus side, they have picked up the tab by covering losses every season; on the other hand, there has been a lack of investment in the playing squad and the club’s facilities.

That said, it is clearly imperative that Berylson continues to put his hand in his pocket and he has promised to do so: “I have agreed to fund the club on an ongoing basis by way of shares and am as fully committed as ever.”

"Right Said Fred"

Millwall have toiled to comply with the Football League’s Financial Fair Play (FFP) regulations, actually failing to meet the target in 2014/15. The maximum loss allowed was £6 million, assuming £3 million was covered by equity investment, and after excluding allowable deductions such as infrastructure and academy investment.

However, the Football League confirmed that Millwall would “not face any further sanction following the club’s relegation to League One, as it was not deemed to have gained any significant advantage.” If the Lions had managed to stay up, that would have triggered a transfer embargo, as was the case with Nottingham Forest, Fulham and Bolton Wanderers, while Bournemouth were fined £7.6 million after promotion to the Premier League.

Following Millwall’s relegation to League One, they had to comply with that division’s Salary Cost Management Protocol (SCMP). As a rule, player salary costs cannot be more than 60% of revenue, though there is a higher, transitional target of 75% for clubs like Millwall in their first season after relegation.

Importantly, for these purposes, equity investment from owners is classified as revenue, which helps explain CHV’s recent issue of share capital. Consequently, Millwall have confirmed that they are in compliance with the SCMP regulations.

"Shane is the Name"

Even though dropping to League One would hardly have been part of the club’s playbook, things are looking up at The Den. Manager Neil Harris has done a good job to date and has given the fans something to cheer about: “The biggest thing for me is that the club has to have an identity, the team has to have an identity, a Millwall identity. It has to have a spirit about it.”

Harris continued, “I think there was a little bit of heart and soul lost with the fans in the team, especially last year with relegation.” However, performances were much improved in 2015/16, even though they fell at the last (play-off) hurdle. Ambler is certainly keeping the faith, “I think the run we had in the second half of the season has given people a lot of optimism for this year. We are hopefully going to challenge in the top six.”

Let’s hope so, as this is a club with strong links to its community. Somewhat at odds with their reputation, it is clear that many do care.
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