BST Gazette article - September 2021
At the time of writing, life looks pretty encouraging for ‘Pool fans everywhere. We’ve just taken six points from nine and look as though we are finding our Championship feet. It seems timely then, to focus on the plight of fans of a fellow Championship club who look as though they are having the rug pulled out from under theirs.
We are of course alluding to Derby County. They are in the news at the moment for all the wrong reasons, after owner Mel Morris chose to put them into administration last weekend. In truth, they have been making negative headlines for months due to the protracted row they have had with the EFL (who else?) about financial irregularities. These centered on the way in which the club depreciates assets, and their ability to stay within the confines of the financial fair play rules (FFP).
The situation is very serious. Administration carries a default penalty of twelve points in its own right, and it is difficult to see Derby succeeding in arguing that they should escape this because of the impact of COVID. That line of argument has failed before.
But there is every likelihood that the financial irregularities will attract a further penalty - in fact, negotiations about the size of such a penalty are one of the reasons that the case has dragged on for months. At the weekend, Mr. Morris was making hopeful noises about this being “just” another four points. But we think that he was talking about the penalty for just one year of transgressions - and Derby are likely to fail the FFP rules in at least three. Many observers think the penalty is more likely to be nine or even twelve points - on top of the twelve for going into administration.
Such a penalty will almost certainly lead to Derby being relegated. The squad may have to acquire around seventy points on the field just to survive, and as they are - and will continue to be - under a transfer embargo, their prospects look bleak. The squad is small and made up of a mixture of promising kids and veterans, who are heroically over-performing at the moment. Whether they can withstand the impact of the attrition that comes with a long season is open to doubt.
The consequences of both being in the hands of an administrator, and heading for League One, are potentially grim. The administrator’s primary job is to secure maximum value for the club’s assets in order to satisfy creditors, not to run the club like a fan would. Ordinarily that would mean selling the best players - except that Derby can’t even do that until the transfer window opens again in January. Trading from day to day in the meantime is going to be a challenge in itself.
The real value of the current squad must be limited. But Derby appear to have few other assets to sell. It is currently unclear whether the stadium is subject to administration, as Mr Morris sold it to a company outside the Derby County Group and it is mortgaged to an American company anyway. The training ground is also subject to a loan ; and there isn’t much else. The club is thought to owe around £26m to HMRC and Mr. Morris has previously suggested that he was supporting it to the tune of around £1.5 million every MONTH.
There have to be real doubts, therefore, as to whether the administrator can keep the club afloat as a going concern, without the intervention of a buyer. And the value of the club to such prospective new owners is getting smaller every day.
You may by now be wondering how it came to this. Mr. Morris has a track record as an extremely wealthy and successful businessman. So how has this club reached a position whereby in the last year for which figures are available it was spending 151% of its revenue - or, put another way, spending three pounds for every two it took in? That’s not good business practice.
The answer appears to be that Mr. Morris gambled on spending big and getting the club into the EPL. But for a play-off final defeat, he may have done so, and this article could well have been written about Aston Villa instead. But he didn’t, and now chickens are coming home to roost.
In fairness to Mr. Morris, he is not alone in spending money his club does not have, or mortgaging its future. Sheffield Wednesday got punished for financial transgressions, and paid for them with a relegation that they would otherwise have avoided. Birmingham and Reading have both been hit with sanctions recently and are in delicate financial positions as a result. Around 80% of the clubs currently in the Championship spend more money on wages alone than they take in. It is, to coin a phrase, the economics of the madhouse.
That it happens says much about the way that TV revenue is distributed between the Leagues. When a club who finishes bottom of the EPL is rewarded with over £120m (plus parachute payments), while the likes of Stevenage and Walsall get around £400k (and even a club the size of Derby has to settle for £4.5m), you can understand why some club owners are dazzled by the size of the prize - and behave accordingly.
Does this matter to us? After all, effectively reducing the number of relegation spots to two might be very helpful to a newly promoted team. But we would argue that it is wholly unsatisfactory for two reasons :
firstly, it makes a mockery of “competition integrity”. The League should be decided on the field of play, not in an EFL tribunal, out of sight of everyone ; and
secondly, the current rush to the bottom in terms of financial management puts enormous pressure on those club owners who choose to run their clubs on a prudent basis. The way the game is structured in England offers very little in the way of reward for clubs who husband their resources carefully and try to build a sustainable business based upon good recruitment and developing young talent. It feels as though football looks at the world through the wrong end of the telescope.
There is therefore an awful lot at stake in terms of Tracey Crouch’s fan-led review of the game. She is due to publish her final recommendations in late October. The pressure will then be on the Government and others to deliver real, lasting change that encourages club owners to treat the clubs they own with the veneration they deserve.
Much of the media attention being focused on Derby at the moment centres on Mr. Morris, and on Wayne Rooney. But the real losers are likely to be the supporters, the unsecured creditors (which most local suppliers will be), and on those back-office staff at the club who face the prospect of being unemployed for Christmas. It shouldn’t be like this, and for BST the fight goes on to ensure that we get something far, far better.