Minority Report 2019-20 Talking Finance 5

The Long-Term Plan


Before I say anything about the plan, I want to set the need for a plan in perspective. This is the 5th Talking Finance article. To summarise


Article 1 was about the company that owns Barnsley Football Club (Barnsley Football Club (2002) Ltd. It identified that the company as a separate legal entity to either its owners (shareholders) or its directors. It highlighted that any transactions between those parties have to be identified and reported on in the Annual Financial Statements. Those Financial Statements must be filed at Companies House and they can be looked at free of charge via the internet. If there was anything untoward going off, it would be reported upon, because the independent firm of auditors that look at the financial records every year has the right to qualify their report if they find anything that they believe is not right. The owners are not bent as some are wont to say. However, neither are the owners committed to introduce new money, be that through new shares or via a loan, particularly if their long term plan rules that out, and has ruled that out from day 1.


Article 2 was a comparison of the filed accounts of all Championship football clubs, albeit that some of those clubs were in different leagues during 2017/18 season, which is the last season for which Annual Financial Statements have been filed. The article concluded that most Championship clubs were technically insolvent, but were kept going by huge loans from their owners. In spite of that, there was no sign that lessons had been learned, and pay was still far too high. Furthermore, it concluded that our owners were right not to try to compete on the same basis, because they would just be throwing their money down the drain. They are right to expect the club to generate its own cash, and to live within its means. They are right to make their corporate decision-making dependent upon logic and reason, rather than the pressure exerted by the mob.


Article 3 looked at the control systems for the top 2 leagues (FFP) and the lower 2 leagues (SCMP). These control systems are supposed to level the playing field ensuring fair sporting competition, but the article concluded that FFP does nothing of the sort. Whilst SCMP is better at maintaining financial discipline, it has created a large gap between the resources available to teams in League 1 and resources available to teams in the Championship, a gap that many promoted clubs will struggle to bridge. The article went on to discuss how the two different control systems create a problem for relegated clubs, a problem that means clubs either have to plan well in advance, or face selling higher paid players after a relegation, probably at a loss. Finally, it discussed how Barnsley Football club might be planning to mitigate that shock.


Article 4 looked at some major projects to try illustrate the factors that need to be considered in assessing whether those projects should go ahead. It also looked at some proposed policy changes in order to identify what needs to be considered before a proposed policy change can be enacted.


Together, these articles aimed to put fans in the boardroom, to give them a taste of the decision making criteria that are used in the real world, and to give a flavour of how difficult it can be for a company to change the direction of travel.


This article looks at the Long Term Plan and tries to illustrate both why the club needs a Long Term Plan, and also why the strategy for the Long Term Plan is what it is.


What is the Plan?


The plan is based upon finding potential talent before any other club can do so. By definition, that talent will usually be young. Having found the potential talent, the plan is to work intensively with that talent in order to develop it as quickly as possible to its full potential. Furthermore, the plan is to put that talent in the shop window as soon as it is ready. That will mean that the club will get offers for that talent and the club must decide when might be the best time to sell. If the player is in the final year of his contract, and has turned down all opportunities to sign a new extended contract on better terms (terms that are the maximum that the club believes it can afford), then the player has to be sold. No argument. However, if the club receives an offer for a player who is not in the final year of his contract, and the club believes that the offer overvalues the player significantly, the club may sell the player if it believes that it can purchase an adequate replacement for much less, or if it believes that it has an adequate replacement in the U23 squad.


The Reason for the Plan.


The plan exists because the club loses money from normal trading. That is, the club loses money on the business of playing professional football before an audience of paying customers. There is an argument that the club does not seek to maximise turnover as hard as it should. There is another argument that says that overheads are higher than they need to be, that certain parts of the business are not run as efficiently as they might be. There is no doubt that when running a business, the directors must be constantly vigilant of these things, and should seek to make the operation as efficient as possible. There is also the counter argument that those inside the business know more about the driving forces that lie behind the business better than any outsider. Outsiders must be careful that their comments are not overly focussed upon criticism. Comments must be constructive, otherwise they will, quite rightly, be ignored.


The fact is that the plan is there to give a focus to day to day decision-making. It is there to guide thinking along a consistent path, to provide a reference point for thinking about both today and tomorrow. The plan is not fixed, but it does have fixed elements. Areas that must not be changed without the approval of the board. The plan defines how the club goes about its business, not only its day to day business. It is a long term plan of how it will stay solvent, how it will continue to trade and how it will attempt to compete on the field of play. It does not describe in detail, but it sets principles, and those principles guide the day to day decisions of club senior management.

 

Elements of the plan


The Academy


The first element of the plan is the academy. The academy takes kids from as young as 8. At that age, there are very few clues about whether the child has a future in the game. All the club is trying to do with very young children is to build a bond between the community and the football club that bears its name. The hope is that the early contact will build a relationship, not only with the child, but also with his family and friends. Although the kids will be coached, it will be more about having fun and proper coaching will not begin until much later. At the age of 14, the child is old enough to grasp some of the more esoteric elements of the game and coaching will enter the next stage. However, it is still far too early to be certain he will be considered promising enough to join the ranks of the under 18s, the first real step on the ladder to a career in football. Many of the Under 16 team do not get offered a place in the academy. They have not shown the right stuff, whether it be talent, bravery, competitive edge, will to win or any of the other qualities necessary for a life in sport. Of course, below 17 years of age, youngsters must live close to the ground (I forget just how close). They will still be in full time education, and quite rightly a more rounded education takes precedence over a career in football. Indeed, education outside the club continues after the age of 17. The question is, why is the town of Barnsley not able to produce the amount of talent that it once did. Is it the schools, is it the lack of playing fields or is it the reluctance to support competitive sport at such a young age? Whatever it is, it seems that fewer and fewer youngsters are being offered a place in the academy proper.


The numbers in our U18 squad are boosted through trials for those who were not offered places at other academies, or for players not picked up previously. Youngsters are being offered a second chance and they are fleshing out the numbers of the few who graduated through our academy. Are these young men academy graduates? Should they be listed as having come through the club’s academy if eventually they go on to play for the first team? When should a player qualify to be classed as an academy product? Well, it is a grey area, but if he is signed after the age of 18, if he has been rejected by another club at that age, and he goes straight into the U23 team structure, he is not an academy product in my view. You might think that it is not important, but if you are trying to work out whether the academy offers value for money, it certainly is. You see I highlighted earlier that there are parts of the business of Barnsley FC that are not being run efficiently, and I suspect that one of those might be the academy. Could the £500k net that it reputedly costs each year be used more effectively? Should we use it to sign promising 18 year olds from other clubs? Just how many graduates to the U23 team should we expect the academy to produce each year? We seem to sign a lot of 19 year olds at our club. Too many if you ask me. Is it an indicator that our academy is not particularly well run, or is it an indicator that the local area does not produce potential talent like it used to do? I do not know the answer. These questions are based upon comments by Paul Conway, who said our academy needs to be better.



The Player Recruitment Department.


The club has increased the number of analysts responsible for finding and establishing the potential of young players from around Europe and beyond. Their wages plus the subscription fee to the data collected about all of these players, young and old, represents a significant investment apparently. The point to that investment is that it is there to guide the player acquisitions process. There is no point to it if the players are well known within the game, because then every club will have an opinion. The acquisition process is searching for players who are as yet not well known in the game, and the point of it is to find hidden gems, before anyone else can.


Gally’s description of the recruitment process is as follows:


First of all we have a recruitment department. They start the process by identifying the way we want to play, so they work with the Chief Coach to do that. The Chief Coach works with the recruitment team to come up with profiles for each position based on the way he wants us to play. Then we have James and some analysts who go through data and maybe identify 50 players for each position from all over Europe. Then the club filter that down to maybe 27 or 28. Video scouts narrow down the list again (2 video scouts, 4 reports per scout). After that, we have between 5 and 10 possibilities remaining, which the CEO looks at in order to determine whether we can afford the fee that would be demanded by the player’s current club. That will reduce the number to perhaps 3. The team then assemble 15 minutes of video clips per player that illustrate both the player’s good points and his bad ones. The clips will illustrate where the player needs to improve and will assess each player’s potential for improvement. All of the relevant evidence is then shown to the Chief Coach, who will rank the players in order of his preference. The CEO then tries to get the No1 choice. If that proves impossible, he then moves on to No2 etc. Of course, the CEO must agree a fee with the player’s current club before he is allowed to talk directly to the player and his agent. The deal can still collapse because the club cannot agree terms with the player.


It does not say in Gally’s summary of the recruitment process, but clearly, the player’s age is a big factor. We appear to only consider recruits in the 19 to 24 age group. The club have said little about the reasoning behind this requirement, but it does not take a genius to work out why. Younger players should improve, and by doing so, they increase their transfer value. Younger players are willing to sign long term contracts, which gives the club longer to improve them before it has to cash in on that improvement. Younger players are willing to accept lower pay because they want to improve, and they want to be in the shop window (first team football).


The U23 Team


The U23 team is part of the long term plan to rely upon youth. Players have been signed for the U23 team after trial, but transfer fees have also been paid for players at that level, players who it is accepted are not yet ready to play for the first team, but who show potential. The intention is to play them in the U23 team, to improve and develop them there, and to prepare them to play in the first team when they are considered to be ready by the Chief Coach. I am thinking of George Miller and Callum Styles, both of whom were left at their selling/loan clubs initially. I believe Clarke Oduor, Patrick Schmidt and Elliot Simoes also fall into this bracket. Those 5 are players who showed talent at a very young age, but who were not considered strong enough yet for men’s football. They need time out of the limelight to grow, to strengthen and to develop.


Clearly, the club is now investing heavily in the recruitment process. It is the main cog in the long term plan and significant resources are being invested into it. But how is the plan supposed to work. The need for financial security drives the plan, and the fact that the U23 squad are not part of the first team squad for SCMP purposes increases the appeal of the plan when the team plays in League 1, but how can it contribute to success on the field.

 

Success on the Field


The directors have talked about the long term nature of the plan, and it is important that the plan is not judged on the basis of short term outcomes, both positive and negative. The plan is designed to improve the club over many seasons, and not just the single season that fans tend to keep score by, or in the circumstances that prevail currently, after but a quarter of a season. If we do not manage to recruit all the players that we need in a single transfer window, as happened in the summer 2019 transfer window, it could lead to a disastrous outcome (relegation) judged according to a single season in isolation, but it has less significance when judged over 5 seasons, or even on the basis of continuous improvement. An adequate replacement may be recruited in the following transfer window, and that may be too late to keep the club in the Championship. If you are a fan, that may be a disaster, but if you are a director, relegation may be judged a better outcome than a panicky (ill thought through) purchase of a player on a 4 year contract, who had not gone through the approval process described above.


Many on the BBS believe that we should have recruited more experience in the summer 2019 transfer window. Their justification for that belief is not a financial one. The belief is based wholly upon the assumption that the club would have been more successful if more experience had been recruited. Like all assumptions, there is a fundamental problem at the heart of it. No-one knows who would have been signed by the club in those circumstances, and no-one knows whether those unknown players would have made any difference to the outcome, although we do know that they would have made a difference financially, both this season and in future seasons. I do not intend to go any further into the argument than that, because I have seen how pointless it can be. Suffice to say that the downside of the argument outweighs the upside, and anyone wanting to pursue the argument can go back and read Taking Finance 1 – 4, should they want to read my full explanation.


In Talking Finance (3), I referred to the huge financial gap between League 1 and the Championship. I doubted whether that gap could be bridged by clubs promoted from League 1. If pay is the biggest indicator of success, then we need to increase pay by about £4m before we can even think about consolidation in The Championship, but of course, that would increase our annual loss by at least that amount, and no-one explains where that money comes from. As explained previously, that is just how the Championship works. All the teams loss money and are funded, not by their fans, but by their owners. The one remaining area of hope at establishing in the Championship comes if you can keep your promotion squad largely together. That was the key to our good start the last time that we were promoted, and it was also the key to why we were relegated the season after, after those players had to be sold. Many of the players that won us that promotion last time were about to enter the final year of their contracts as the season began. When the January transfer widow opened, the owner was faced with a stark choice. Keep the players and face financial ruin when their contracts terminated at the end of the season, or sell the players and face potential relegation whilst you try to rebuild. There can be little doubt that the players wanted to go. The life of a footballer is a short one and the time at the top is even briefer. Selling the player gives him what he wants. It gives the club what the club wants too. The only loser is the fan. But is the fan being realistic when he expects the player and the club to ignore all logic, and go for broke. We can argue this point until the cows come home, but you will not find any person who has held a position of responsibility in a limited liability company that will say that our owner was wrong. It is regrettable, but that does not make it any less true.


It is more likely that the players will stay together that first year back if they have two years left on their contracts. The players will have been together for 1 or 2 years, and they will have noted how they have improved over that time. They will be confident that they will get better the following season as well, and anyway, they know that the club will sell them, for one reason or another within the next 2 to 3 years. They have nothing to lose. Players are always going to leave. The important thing is that you try to prevent too many of them leaving in the same transfer window. You try to replace them gradually over 8 transfer windows (4 years) and you also commit their replacements to long contract terms (4 years). That way, the club avoids the drastic fire sales that have destroyed it in the past. In that respect, loans are always damaging, because the termination of a loan is equivalent to the loan player(s) being sold. Long term contracts is the answer, but the club needs to ensure that the contracts do not all terminate in the same transfer window. It is not just the length of the contract that is important. It is the limitation of the number of players who can leave at the same time. By way of example, let us agree that the first team squad numbers 24 players and they are all on 4 year contracts. There are 8 transfer windows in 4 years, so we should aim to have only 3 contracts terminating (potential transfers) in any single window. If we had 3 loan players, and they all returned to their parent clubs at the same time, that is our 3 contract terminations. There is no allowance for any other player leaving. It is yet another reason why the club does not want loan players. Long contracts will not appeal to older players, or the club for that matter. They both want short contracts and another move. The player is trying to maximise his career earnings, not to improve or put himself in the shop window. The modus operandi is the opposite of the one that the club is operating, and that is bound to lead to a mismatch.

 

Now that sounds like a plan.


There are those on the BBS who say the plan should have flexibility. They are right. The only question is about what that flexibility should allow. Most of the time, those calls for flexibility are really calls for a new plan. They are calls for more to be spent on older and/or better players. They are calls for a plan that will produce bigger losses, but no-one ever says where the money to pay for the new plan will come from. It is implied. It is assumed that the money will come from the owners in the form of a loan, but it is never openly stated. It is left as a vague statement that the owners should not be ruled by the Balance Sheet. I do not know where this new understanding of the job of an owner came from. I guess that it is conditioning to the new world, where rich individuals treat football clubs as vanity projects. That has not been the case for the majority of time that I have supported the club. Before Administration and rescue by Patrick Cryne, the club shareholders were the people who originally subscribed for shares in the company, back in the mists of time. Some of those shares had passed through a few generations since those original owners, and some had been sold on to directors of the club, but club ownership was still very wide spread and diverse. It would have been a community project, putting together the £40,000 it cost to found the club, and set it on its feet. That must have been an incredible sum of money back then, and an act of faith by the community that was bound together by that shared responsibility. I cannot say that everything was sweetness and light. It wasn’t. In 1966 after 10 games we were 92nd, attendances were less than 2,000, and the club was saved from closure by Ernest Dennis, Sid Edmondson and others. I just cannot see that happening today. I cannot see the community clubbing together to found a club, or even doing the same to save the club. Our fans would much rather see someone else risk their money on their behalf, or call them names when they refuse to do so without an adequate plan. Harsh perhaps, but is it any less true for all that. As might be guessed, I do not like the mob mentality that pervades this place as soon as anything goes wrong.


Readers must realise that when they call for a change of plan, there are always financial consequences. The plan was arrived at after much thought about the alternatives, and indeed Patrick Cryne spent a lot of money in financing other ways of trading that did not work out, and which simply cost him a lot of money. The plan is the result of trial and error. It is what remains after lots of other suggestions were tried and rejected. The plan is not set in stone. It is there until a better plan emerges. However, the plan is not about short term outcomes, and any suggestion that tries to overcome a short term problem is likely to be rejected, especially if it does not contain a financial justification. The plan cares about the fans, but it cares more about the long term survival of the football club, and the fans ought to be happy about that.


The BBS demand the right to continue to debate issues that are close to most hearts. They demand the right to tell it like it is. However, in most cases, the vision of how it is, as put forward by the contributor, is not how it actually is. Over this series of articles, I have gone to great lengths to put more information at the disposal of those who wish to learn. Of course, it is up to individuals whether they want to use that information, and the use of that information will definitely reduce the amount of things that contributors have to say, because more things will be ruled out, even before they are said. But that is the thing with information. The more information you have, the fewer possibilities present themselves as good ideas. That is just how it is. The BBS believes that the directors should listen to them. That is a reasonable aim, but in order for it to come to fruition, the BBS must have something valid or important to say, and sadly, that is rarely the case.


The BBS reacts to short term events, usually wins and losses. No long term plan will be changed because of short term outcomes, no matter how good or bad those outcomes might be, and no matter what threats are used by individual contributors in order to try and force the issue. If you want to be listened to, you must not be reactive. You must have a long term plan and it must be fully costed. But I warn you. The people who run our club are professionals. They have been running businesses for a very long time. They have arrived at the conclusions about the way the club is run after a lot of thought, and they have considered and argued their way through lots of suggestions and counter-suggestions in order to formulate this plan. Do not underrate them and do not under underestimate their individual and group ability on the basis of an ill thought through theory and some *** packet calculations. The world does not work like that, no matter how many likes you got for your idea.


Why do I believe in “The Plan”?


I believe in the plan simply because we have nothing else. I am not an anarchist. I do not believe in having no plan at all. In that case, there has to be a plan and all that those who are rubbishing the plan can offer is its stead is…. Well nothing. No alternative source of finance and no way of affording the players that they want without that new source of finance. It might be desperate Micawberish reasoning. Clinging on to a plan in the hope that something will turn up, but is it any less desperate to argue that we should throw “the plan” out, when there is no other plan. Is criticism for the sake of it any more sensible? Is the search for a scapegoat, along with its concentration on perceived mistakes in the past a helpful position? Does it help to look backwards? The answer to all of that is a firm “NO”. No-one likes losing every week, but the way out of a problem is to search for a solution, and not to search for someone to blame from the past. As I said in a recent BBS thread, “It will all look a lot better once we start winning again”.

 

I’ll pass.

 

First of all - really appreciate all the effort you’ve gone to to compile all these articles; it must have been a real labour of love.

As I’ve said before though, my main beef with your analysis is that you refuse to acknowledge the interoperability of separate factors and instead seek to simplify to the lowest common denominator (any cost other than acquiring assets to sell is bad)

I’ll give you an example; you state correctly that the plan is to develop and sell on our own players at a profit, and you downplay any alternatives, presumably including loans because of the wage costs and the lack of an end profit, on the simplistic basis that they cost additional money. But you’re failing to acknowledge that not having experienced players to learn from, and having the constant negativity of losing is detrimental to our own players development and more importantly, their end price.

We are failing to maximise the potential sales price of our assets precisely because of the policy. My argument - just to be perfectly clear as you keep stating that no one is offering viable alternatives - is that the judicious use of a couple of loans - incremental cost (let’s say just 2 players = 2 x 40 weeks x 5k per week = 400k of the wage budget utilised) would likely pay back multiple times in the market value of transfer fees received for our young assets.

And that is without considering the onfield benefit they would bring, the avoidance of massive fall offs in revenue which the current strategy is about to lead to as people vote with their feet and refuse to spend money watching a team that loses every single week

By the logic of your argument no business would ever invest in any capital expenditure because there’s no such thing as invest to reap returns, you simply see it as money out of the door.

 

The plan is smoke and mirrors. If it was a recipe for success then everyone would try fielding an u20s team in their respective league. They don’t and they don’t for a reason.

Crewe are perhaps the best long term adherents to the plan and I suspect if we carry on that’s exactly where we will end up. If you have zero flexibility and do not make any decisions based on sporting outcome and all based on maximising profit then you cease to have any reason to exist. The plan needs flexibility and adjustment to succeed without it we will fail. Under Cryne we had that flexibility while maintaining financial stability. We no longer do so. I guess relegation at the end of the season or staying up will be a reasonable marker of the plans success.

 

This is bang on the money (no pun intended). When you pay money in advance for a product (in this case, a season ticket) you do not expect that product to be diminished before you even start to enjoy what you have purchased. This is what the club's strategy has done, and to make apologies for it - even in a lengthy and erudite fashion - is to invite the owners to treat the fans with disdain. It is for the owners to deal with the economics - we purely have to decide whether we wish to continue to purchase what they are offering. It will be interesting to see how that goes come April time.

 

I suspect if nothing changes we will lose around a third of our ST holders. Of course if we have a decent season in L1 we may attract some back though they may look at the 30 quid pay on the gate prices and not bother.

 

I admire your optimism .

 

I dont think it will be 30 pound pay on the gate in league 1.

 

what was it last time 23 in advance with £26 on the day? I forget.

 

I had a ST but I know for a fact that the away days were a lot cheaper in league 1.

 

Thank you for taking the time to compile this report. Interesting reading.
One question came to mind, if the players we sign as young up-and-comers don't improve over a period of several windows what happens then? We may have signed them for a fee, paid wages for the duration, only to find that nobody comes in for them. That's a lose-lose situation. We're relegated and thus the overall value decreases.
Also, I like the way you/we can't say f.a.g. on here without getting ***. And I thought they were cigarettes !!!

 

I won't be bothering because nothing appears to change. If the owners can' be bothered to invest I can't see why I should.

 

that’s how I feel at the minute.

 

Fancy, I think that is the first time I have woken up the swear filter.

 

What are the "Extraordinary items"?
QPR had a minus item

 

I have posted the above table again. It was originally part of Talking Finance 2. It is part of the analysis that I did of the most recently published accounts for the 24 clubs that are playing in The Championship this season, although many of those teams played in different leagues in season 2017/18. In particular, I would like people to look at Wages and Trading Profit before Adjustments. Now I must confess immediately that the figures I quote are total wages, and not just the wages of the first team, but the comparison is still justified I believe. Someone posted the other day that the best indicator for success on the football field is the level of wages paid. In other words, the clubs that can afford higher wages get better players. If you eliminate teams playing in different leagues, Barnsley were by some distance, the lowest payers in the league.

Many will respond to that statement by saying that we should match other teams. Well, the next lowest were Millwall who paid £3m more than we did. Preston paid £4m more. Brentford paid £7m more. And they are the clubs nearest to us. Once again, many will say that we should pay those wages. Well after player trading, we almost broke even for that season. Millwall lost almost £4m. Preston made a profit of over £2m but Brentford lost £4m. The question is, how can Barnsley FC finance those sort of losses? Losses at that magnitude mean that the club must find cash if it is to continue to trade, and no-one seems to have the answer to that question.

Nevertheless, I will ask it again. Assuming that establishing in The Championship means losing £4m per year for 4 years, where does that money come from.

Here is another. We know that in League 1, our wages cannot exceed 60% of turnover, that is £8m x 60% (£4.8m), does it make any sense to employ players for one season when you know that our fall back into League 1 is inevitable and you are going to have to pay those players off.

Running Barnsley FC is not easy. It involves answering difficult questions honestly. Fans who are not prepared for those difficult questions are not being honest with themselves.