Wednesday, August 17, 2011

Romanov's Battle For Hearts And Minds

Oscar Wilde, the famous Irish playwright, was not known for his love of sport, but his warning “to expect the unexpected” could certainly apply to the world of football, not least at Heart of Midlothian, where the colourful owner Vladimir Romanov continues to resist the path of predictability. Just two games into the Scottish Premier League (SPL), the volatile Lithuanian decided to sack the club’s manager Jim Jefferies, replacing him with the former Sporting Lisbon manager Paulo Sérgio. The popular Jefferies was in his second spell as Hearts manager after a ten-year absence, retaining much goodwill for delivering the Scottish Cup in 1998, ending 36 years without a trophy.

The timing seemed quite strange, not just because the change in manager came so early in the campaign, but also because Hearts had secured third place behind the Old Firm last season. Moreover, Jefferies had been allowed to bring in four new recruits: the imposing forward John Sutton from Motherwell, Danny Grainger from St. Johnstone and two experienced midfielders from Kilmarnock, the Moroccan Mehdi Taouil and Jamie Hamill. In theory, the addition of these new players to a talented squad, including the exciting wingers Andrew Driver and David Templeton plus the commanding captain Marius Žaliūkas, should have been the catalyst for a successful season.

"The Romanov revolution"

However, if you scrape below the surface, there is some method in Romanov’s apparent madness, as Hearts’ last victory was way back in March last season. As the man himself said, “With only one competitive win in 15 games, only fools and idiots would not raise questions and suspicions.” The club’s third place in 2010/11 was also a little deceptive, as the run-in was disappointing in the extreme, so Jefferies’ dismissal was not completely unjustified.

Of course, Romanov has plenty of previous when it comes to hiring and firing with Sérgio becoming the ninth manager during his seven-year tenure. That’s not counting caretaker or interim managers, though no Hearts manager could confidently describe his position as permanent. As Scotland manager and former Jambos legend Craig Levein said, “I don’t understand what boxes need to be ticked at Hearts to keep you in a job. You would need to be insane to do this job. At times it defies logic.”

"See you, Jimmy"

The owner’s lengthy list of victims includes John Robertson, George Burley, Graham Rix, Valdas Ivanauskas, Anatoly Korobochka, Stephen Frail, Csaba László and, of course, Jefferies. Of those, Burley was perhaps the unluckiest, being given the boot with Hearts top of the SPL after nine unbeaten matches, though Ivanauskas went just a few months after winning the Scottish Cup and qualifying for the Champions League in 2006. However, the most telling image of the problems during Romanov’s reign came when three senior players (club captain Steven “Elvis” Pressley, Paul Hartley and Craig Gordon) held an impromptu press conference at the club’s training ground to inform the world of “significant unrest.”

To put it mildly, Romanov is an interesting character, who polarises opinions in the game, even among Hearts’ own supporters. Some view him as the “great dictator”, while others consider him to be the saviour of the club.

It is true that there is rarely a dull moment with “Mad Vlad”, who also owns the Lithuanian club FBK Kaunas and Belarusian club FC Partizan Minsk. Prone to numerous verbal outbursts, including accusations that Celtic and Rangers were “buying off” match officials, his club has received several fines from the Scottish football authorities. Some have attributed this to language difficulties, but his son Roman, now Hearts’ chairman, once joked, “He has all the words he needs: ‘Yes, ‘No’ and ‘You’re fired’.” Managers have complained of constant interference, including transfer choices and team selection, such as when he ordered Jefferies not to pick Žaliūkas during a contract dispute.

"One careful Driver"

On the other hand, there is little doubt that he has kept the club alive. Before his arrival, Hearts were in dire straits financially. Auditors PricewaterhouseCoopers (PwC) described the club as being technically insolvent, while the Hearts Supporters’ Trust said, “We were heading for the abyss.” Former chairman, George Foulkes, summed it up, “Most fans have mixed feelings about Romanov. If (former CEO) Chris Robinson was still there, we’d probably be in the First Division and playing in front of 5,000 people at Murrayfield.”

This was a reference to Robinson’s 2004 plans to sell Tynecastle, the club’s famous old ground, which he claimed was “not fit for purpose”, and instead rent Murrayfield from the Scottish Rugby Union. Although this deal would have reduced the club’s burgeoning debt, it was deeply unpopular with supporters, who launched a Save Our Hearts campaign to prevent the move. Despite this opposition, a deal was still signed with a housing developer for £20 million, but this was called off after Romanov purchased the club, so the initial response to the Lithuanian was very favourable.

The previous board’s willingness to go against the supporters’ wishes by selling the stadium highlighted the seriousness of the club’s financial challenges, and it was with some relief that the fans saw Romanov steadily increase his stake in the club throughout 2005 to become by far the largest shareholder. In return, Romanov got hold of a venerable football institution, part of the inaugural Scottish league in 1890, which has won the championship four times, though two of these victories came in the 19th century, while the last victory arrived back in 1960. However, history doesn’t pay the bills, so Foulkes was right to give Romanov credit for “the fact we remain a going concern.”

This can be seen by the increasing debt, which reached £36 million at the time of the last published accounts in July 2010. That is simply enormous when the turnover is only £8 million and follows a series of what the club itself described as “significant operating losses.” The debt mainly comprises £24.3 million owed to the parent company UAB Ukio Banko Investicine Grupe (UBIG) at 4.5% interest, repayable in December 2011; £8.9 million owed to another group company UAB Hearts Developments (HD) at 3.5%, where the repayment date has been extended to August 2012; and £2.5 million convertible loan stock at LIBOR.

There is a fairly confusing paper trail for this debt, as it was owed to AB Ukio Bankas at the beginning of the year, then transferred to UBIG and another company called ImpExNet. The latter balance was then again transferred to HD during the course of the year. I’m not sure why this has to be so complex, but the important point is that all of these companies are under the effective control of Romanov. As Hearts director Sergejus Fedotovas said, “The key fact, that sets Hearts apart from many other clubs, is our debt is in the form of funding from our own parent company.” That’s true, but can occasionally be a double-edged sword if the owner loses patience with his investment.

"Paulo Sérgio wonders what he's let himself in for"

That said, the debt position in 2010 would have been even worse without a £7.9 million forgiveness of debt from the parent company (effectively Romanov), which was not enough to prevent net debt from rising by £1.3 million. Actually, the debt would be horrifically high without several timely interventions from the owner, such as a £12 million debt-for-equity swap in 2007/08. Excluding these adjustments, the debt would stand at £56 million – seven times annual turnover.

After the latest accounts closed, there was yet another debt-for-equity swap to the tune of £10 million. While this “demonstrates that UBIG remain committed to providing ongoing support” and reduces the club’s interest burden, it does also further strengthen Romanov’s hold on the club. Depending on your perspective, there are two ways of looking at this situation: on the one hand, the club would almost certainly go bust without Romanov’s backing; on the other hand, he is largely responsible for the increase in debt from the £20 million or so at the time of his takeover, due to his hefty spending on players.

Either way, according to PwC’s annual review of Scottish Premier League football, Hearts have the highest net debt in the SPL, which has been the case for the last few years. In fairness, only St. Johnstone and Hamilton are operating debt-free, but the magnitude of Hearts’ debt is more worrying, accounting for a third of the SPL’s net debt of £109 million.

This, in turn, means that Hearts have the weakest balance sheet in the SPL with net liabilities of £24 million. With the exception of Dundee United and Hamilton, all other SPL clubs have net assets. Of course, like all football clubs, the value of the players on the balance sheet is under-stated, as this equals acquisition cost less cumulative amortisation. In Hearts’ case, the book value of the players is just £370,000 compared to an estimated value of £18.5 million on the respected Transfermarkt website.

The noises coming out of Tynecastle suggest that Romanov has given new manager Paulo Sérgio no less a target than winning the league this season. Although the Portuguese said that he did not feel under any additional pressure, he did emphasise that the squad needed strengthening, “Everyone knows what a team such as Hearts needs. If we get the money, we can compete with the biggest clubs in Scotland, Rangers and Celtic.”

Fedotovas claimed that the club was working on bringing two to three new players in before the transfer window closed on 31 August, potentially including former captain Michael Stewart, but Sérgio should be aware that criticism of the owner for not spending in the transfer market helped lead to the downfall of Csaba László, the longest serving manager under Romanov’s regime – at all of 19 months.

History suggests that Sérgio is unlikely to see Romanov put his hand in his pocket for new players, as there has been only one season at the club (2005/06) when Hearts have made net purchases – and that was just £2.3 million. Although there have been many arrivals, almost all of these have been on a free transfer with Hearts’ record buy being Bosnian international Mirsad Bešlija in 2006 at just £850,000. Indeed, since 2005 there have been net sales proceeds of £16 million, largely derived from the big money sales of Craig Gordon to Sunderland, Roman Bednar to West Brom, Christophe Berra to Wolves, Lee Wallace to Rangers and Paul Hartley to Celtic.

Given the limited budgets in Scottish football, this lack of spending is not too surprising with only the “Big Two”, Celtic and Rangers, having the resources to spend reasonably large sums. That said, over the last five years, nobody has spent less than Hearts.

Nine of the current 12 SPL clubs have net sales over that period, but Hearts lead this league table with net sales of £18 million. Of course, this could be considered as a sign of good financial management, but it does mean that Sérgio, like many managers before him, is likely to be disappointed if he expects to see any big money purchases.

This tight-fisted approach is not just down to the whims of the owner, but is also symptomatic of the financial pressures under which Hearts are operating. Only this week the club was threatened with a winding-up order by Her Majesty’s Revenue and Customs (HMRC) over an unpaid tax bill for the second time in two years. Although this was swiftly paid in full, as happened on the previous occasion that they faced administration proceedings, this is clearly not good news.

Fans have become all too accustomed to the club sailing close to the wind with many reports of wages and bonuses being paid late, but these frequent cash flow problems are not exactly an indicator of a thriving business. You only need to ask the fans of Dundee, Livingston and Gretna to appreciate that football clubs in Scotland can enter administration.

Indeed, the club itself states that it “does not have formal funding facilities in place that allow it to meet its liabilities as they fall due” and is “dependent on the continued support of UBIG.” That’s fine, so long as the money continues to be pumped in, though the auditors have regularly noted their concerns in the accounts, partly attributed to the lack of available information that might allow them to conclude that UBIG would be “able to meet its commitment.” In plain English, they don’t know whether UBIG can provide the club with enough money to pay its bills on time.

The fundamental problem is that Hearts make colossal losses, at least for a club of this size. The apparent recovery to break-even in 2010 is misleading, as this is almost entirely due to the debt forgiveness of £7.9 million. If this once-off factor were to be excluded, the club made an underlying loss of £8 million last season and completely unsustainable cumulative losses of £38 million in the last five years. The figures would be even worse without the substantial £10 million profit on player sales in 2008, largely Craig Gordon.

Although these losses might not seem that terrible compared to some made in other leagues, they need to be placed into context. A loss of £8 million on turnover of £8 million means that the club spends £2 for every £1 of revenue it generates. A similar business model would have produces losses of £62 million at Celtic and £56 million at Rangers in 2009/10.

Another problem that the club has is the large amount of interest charged. Again, this might only be £1.6 million in 2010, but this represents 20% of Hearts’ revenue of £7.9 million and is clearly too high for a business of this scale.

In fairness, there have been some slight signs of improvement with the operating losses (excluding player sales and interest payable) falling from £11.8 million to £6.9 million in the last three years, despite revenue declining in the same period. This is because the club have cut the wage bill and managed to introduce some operational efficiencies (seen in Other Expenses). They’re still a long way off their stated aim of “reaching operational break-even in the medium term”, but at least they’re heading in the right direction.

Even with the debt forgiveness, Hearts have the second highest losses in the SPL over the last two years with £8.6 million, only surpassed by Rangers. Excluding the debt forgiveness in 2010, Hearts would have comfortably held the unwanted title of least profitable club in the SPL. To be fair, only three clubs were profitable during this period, namely Hamilton, Hibernian and St. Mirren, though five other clubs restricted their losses to below £1 million.

This poor financial performance is all the more depressing when you consider that Hearts have the third highest revenue in Scotland with £7.9 million, just ahead of their local rival Hibernian and Aberdeen, who both have turnover of £7.1 million. This goes some way towards explaining Romanov’s expectations of the team, though they are still miles behind the Old Firm, who enjoy revenue around £60 million.

This revenue is obviously a lot lower than their counterparts in the Premier League, but more worryingly it is also worse than all but two teams in the English Championship. Indeed, clubs like Cardiff City, Leicester City and Ipswich Town generate twice as much revenue as Hearts, even without the benefit of parachute payments from the Premier League. Little wonder that players head south at the first opportunity.

Hearts’ plight has not been helped by the fact that their revenue has actually been declining from a peak of £10.3 million in 2006 and 2007 to last year’s £7.9 million – a fall of only £2.4 million, but that’s almost a quarter of the club’s revenue gone. Three years ago the Heart of Midlothian Shareholders’ Association warned, “The club needs to generate more revenue and that is difficult in the short-term”, and how right they were. In fact, revenue is now lower than 2005 levels.

Two other points are evident from this graph. First, the club’s revenue is to a certain extent linked to success, as the year when the club finished second in the SPL and won the Scottish Cup produced revenue of over £12 million. Second, Hearts earn half of their revenue from match day income, which is different from many other leagues, where TV money rules. As the PwC review stated, “The majority of the income for Scottish clubs is actually coming from fans coming through the turnstiles.”

Hearts’ accounts proudly refer to match day revenue increasing to over £3.9 million, but the reality is that this is 27% lower than the £5.3 million generated in 2006. The fall is partly because of shorter cup runs, but is largely due to a significant reduction in attendances from just under 17,000 (almost full capacity) to 14,484. which further declined to 14,185 in 2010/11.

Nevertheless, crowds have increased since 10 years ago and Hearts are the third best-supported team in Scotland, only behind Rangers 49,000 and Celtic 45,300, for the sixth year in succession. They are also only one of three teams in the SPL to fill more than 80% of their stadium’s capacity, which is pretty good in the current tough economic climate. This might be due to the relatively low cost of watching football at Tynecastle. According to a recent BBC survey, only four teams in the SPL are cheaper. However, the good news end there, as every single team in the Premier League and 18 teams in the English Championship had higher attendances.

One reason why gate receipts are so crucial is the incredibly small amount of television money received for the Scottish Premier League rights, which worked out last year at £1.5 million for Hearts. In the SPL 48% of the TV revenue is divided equally, while 52% is distributed to teams dependent upon their final league position, so the higher up the table that a club finishes, the more money it will receive.

While TV revenue has powered revenue growth in other leagues, this is clearly not the case in Scotland. This disparity can be seen by looking at the TV revenue earned by clubs in the “Big Five” leagues, which absolutely dwarf Hearts’ revenue: Barcelona £146 million, Milan £116 million, Manchester United £105 million, Bayern Munich £68 million and Lyon £64 million. Scottish clubs can be boosted by European revenue, but even Ranger only earned £18 million, while Celtic’s adventures in the Europa League only added £1.5 million to their domestic revenue.

In fact, the entire annual payment to all SPL clubs is only £13 million, which puts them behind TV deals in Greece, Portugal, Poland and Romania. To place that into context, it is less than a third of the £40 million that the team finishing bottom of the English Premier League can expect to receive this season. A still more amazing statistic is that the total SPL payment is worth only 1% of the Premier League rights. Actually, even a club in the English Championship now earns more than a club in the SPL with £3.5 million a season (including the solidarity payment from the Premier League).

The situation was not helped by the collapse of Setanta last year. The upstart Irish channel was replaced by a combination of Sky and ESPN, but there was a harsh price to pay, as the new deal was worth only £65 million over five years, compared to the previous £125 million over four years. Sky had offered more than twice as much the year before, but the SPL clubs got greedy and gambled on the higher Setanta bid. There is some optimism, as there is a break-clause in the current TV deal after three years, and rival broadcasters might be encouraged by an increase in viewing figures, as outlined by SPL chief executive Neal Doncaster, “Early indications this season are that TV viewer numbers for SPL matches are well up on last year, which in turn showed a huge improvement on the year before.”

Commercial income had been on a rising trend, but has been shrinking in the last couple of years, falling 44% from £3.3 million in 2008 to £1.9 million in 2010, even though the 2009 accounts confidently stated, “Hearts expect to improve commercial revenues.” In fairness, PwC’s annual review of Scottish football noted that the global downturn had impacted discretionary spending on corporate sponsorship, hospitality and merchandise.

After six years of their shirts being sponsored by Romanov’s bank Ukio Bankas for a “six-figure deal”, Hearts have a new two-year agreement from this season with short-term loans company Wonga. Financial details have not been divulged, but the club say that it is the biggest deal in Scotland outside of the Old Firm. Their shirt manufacturer Umbro has extended the original three-year deal for a further two years until 2012. According to the club, this “could be worth almost £1 million per year, depending on shirt sales.” The latest accounts also “expect improvement” from the new retail franchise agreement with SRM Hearts Limited.

One of the toughest issues for Hearts is their hefty wage bill. At £9.1 million, it is the third highest in Scotland, but to a certain extent is in “no man’s land”, as it is a lot lower than Celtic (£36.5 million) and Rangers (£28.1 million), but is twice as much as their main opposition: Hibernian £4.8 million, Aberdeen £4.6 million, Kilmarnock £4 million, Dundee United £4 million and Motherwell £3.4 million.

The dilemma is whether to try to hang on to the coat tails of the Big Two in an attempt to meet Romanov’s aspirations, when doing so leads to an unsustainable wages to turnover ratio. It looks like this was their strategy in the first part of Romanov’s reign, when the wage bill exploded from £4.5 million to £12.5 million, but since then the taps have been turned off, as the wage bill has been cut three years in a row, though it is still more than double the amount before his arrival, partly due to Hearts having one of the largest squads in the SPL.

The accounts do specifically mention the “exit of some of the club’s higher earners”, including the likes of José Gonçalves, Michael Stewart, Christian Nadé and Laryea Kingston. This trend is likely to continue in 2010/11 “as a number of players reach the natural end of their contracts”, demonstrated by the hard line taken by the board during contract negotiations with Žaliūkas.

The reduction in wages has lowered the wages to turnover ratio, but only from 126% to 115%, which is still hideously high. To place that into context, it is even more than big spending Manchester City (107%), while the next highest in Scotland is 76% from Motherwell and St. Mirren. Indeed, the average in the SPL is a respectable 61%. If Hearts wanted to lower their ratio to UEFA’s maximum recommended limit of 70%, they would either have to increase revenue by an unrealistic £5.1 million to £13 million or (more likely) cut their wage bill by a further £3.6 million to £5.5 million.

That, of course, would bring its own issues, as Hearts would then struggle to attract and retain good quality players. Recently, two prominent Scottish strikers have moved to England, rejecting offers from Rangers in the process, starkly highlighting the problem: David Goodwillie went to mid-table Premier League side Blackburn Rovers (wage bill £47 million), while veteran Kenny Miller joined Championship team Cardiff City (wage bill £17 million).

More encouragingly, Hearts have managed to cut their operating costs by over 40% from £7.7 million in 2007 to £4.5 million last year. Even though there was a slight increase in 2010, the club say that “these are expected to reduce significantly in the current financial year following a series of improvements.”

Nevertheless, the continued support of Romanov is still paramount, as can be seen from the cash flow statement. Sometimes, poor figures at a football club do not reflect reality, as the P&L is affected by non-cash items such as player amortisation and depreciation, but this is not the case here, as the cash flow from operating activities is negative every year. Even in a year when a relatively large amount of cash is received from player sales, e.g. £9.3 million in 2008, this is not enough to turn cash flow positive. The only way this has been achieved is by Romanov’s company putting in additional loans: around £38 million since the takeover.

Another note of concern regarding cash flow is the huge increase in the average creditors payment period from 36 days in 2004 to 94 days in 2010. This might just be astute commercial practice of obtaining improved payment terms, but it could also be a warning sign that the club is having difficulty in paying its bills on time.

Perhaps the most puzzling aspect of Romanov’s involvement is the fundamental question of why he would invest in Hearts at all, as Scottish football is not exactly booming. Attendance levels keep falling (most of the stadiums are half-empty), they have one of the worst TV deals in Europe and commercial opportunities are suffering from the economic downturn. Although SPL profits improved in 2009/10, the PwC survey noted that if they excluded exceptional factors such as debt forgiveness and Rangers reaching the Champions League group stages, there were still large underlying losses and warned of “more pain to come as the league strives to find a sustainable financial footing.”

"Stevenson's rocket"

This has resulted in countless proposals to reform the game in Scotland, usually revolving around the number of teams in the league. The current momentum seems to be behind a reduction to a 10-team league, though the majority of fans would prefer a return to a larger division with 14, 16 or even 18 teams. The problem is finding a formula that somehow manages to eliminate the tedium of teams playing each other four times a season without reducing the number of games (with its consequent impact on revenue) and/or imposing an artificial structure, such as the mid-season split. Other possibilities include a winter break, a move to summer football and an earlier start to the season.

Some insight into Romanov’s strategy was provided by the 2007 annual report, “Future revenues will be generated through increased participation in European competitions, larger attendance in a redeveloped Tynecastle stadium and an associated greater sponsorship and retail income.”

However, the European dream seems further away then ever after the drop in the UEFA coefficient, which means that Scotland now only has one place available for the Champions League (and that is only for the qualifying rounds, no direct entry). Furthermore, it will be a long time before Scotland gets back up to two places, as the calculation takes into consideration the last five years, so next year will drop the very successful 2007/08 season, which featured Celtic reaching the last 16 of the Champions League and Rangers being UEFA Cup finalists.

"John Sutton heads for the heights"

Paradoxically, this might actually work in Hearts favour, as the Old Firm’s revenue has been badly impacted by reduced involvement in the Champions League, which means that they can no longer attract the calibre of player that they could in the past, theoretically making the title race more competitive.

If Hearts were to reach the Champions League group stages, it would make a massive difference to their revenue. In the last two seasons, Rangers received an average of £15 million from UEFA, excluding additional gate receipts. The Europa League is nowhere near so lucrative with Celtic only receiving £1.5 million from their 2009/10 participation. That said, the speed with which Hearts sold out their glamour tie in the Europa League against Tottenham Hotspur demonstrates that the appetite in Scotland for watching top players remains undiminished, as did the astonishing 58,000 crowd that watched Hearts play Barcelona in a pre-season friendly at Murrayfield in 2007.

Romanov has wanted to redevelop Tynecastle for some time with a planning application submitted in 2008 for a £51 million development that would include a new 10,000-seat main stand and other facilities such as a hotel, restaurant, offices and corporate hospitality. At the time, the deputy chief executive said, “The project will enable the club to be self-sufficient in the future and naturally to reduce the debt to zero.”

"Home is where I want to be"

However, the club’s statements in this area have often appeared overly ambitious, as the plans have been scaled back pretty much every year. The 2006 accounts spoke of turning Tynecastle into “a truly top class European football venue” by increasing the capacity to 26,000, which had been lowered to 23,000 in the 2007 accounts and 20,000+ the following year – which also said that the new main stand would be fully operational for the 2011/12 season…

Although the 2010 accounts continued to focus on “revenue generating opportunities through a redeveloped Tynecastle”, they did also note that the planning application had been unable to progress because of restrictions placed on the stadium zone, so it was perhaps no surprise when the club announced in May that it was going to formally revisit the possibility of selling Tynecastle and moving to a new, purpose-built stadium in Edinburgh, though the reviled Murrayfield is apparently no longer an option.

Frankly, the financial projections around this project have never been entirely convincing. Even though the club would be able to reduce its debt by selling their stadium, it would have to raise much more to build a new stadium, which might prove difficult in the current credit crunch. The club would hope that a significant chunk of the funding would come from other companies who would want to avail themselves of some of the commercial opportunities, but the only realistic source of financing might prove to be a certain Lithuanian bank.

"David Templeton - example of Project Youth"

The club would also have to write-off £1.4 million of costs so far incurred in the plans to redevelop Tynecastle, which are currently sitting on the balance sheet, booked as “assets in the course of construction.”

It looks increasingly likely that Hearts will have to rely on profitable player trading to balance their books, so they have invested in their academy, as any money received for players developed in-house is a pure gain in the books. The success of this strategy can be seen through the emergence of Lee Wallace, Andrew Driver, Eggert Jonsson, Calum Elliot, David Templeton and Scott Robinson.

Some have put forward more scurrilous suggestions to explain Romanov’s investment, such as Hearts being used as a vehicle to launder money, especially after Ukio Bankas was involved in such an investigation in Belgium last year. If this is the case, then it is a particularly ingenious scheme, as little money appears to be going back to Romanov or his companies. Interest charged on his loans is not paid, rather it is accumulated as additional debt. In fact, much of it has been written-off, including £2 million in 2010 alone. Admittedly, there is a raft of related party transactions, but the money involved is small beer.

"A message to you, Rudi"

There has also been conjecture that Romanov’s involvement in Hearts is an elaborate way to curry favour with the natives, so that they would look favourably upon his application to open at branch of Ukio Bankas in the UK, but no licence has been granted to date with Romanov complaining, “This is another example where the contribution to the economy is not wanted.”

Maybe he considers Hearts as a good place to showcase the talents of Lithuanian footballers, as many have been transferred or loaned from FBK Kaunas to the Scottish capital. Or is it just a plaything, where he can give his family and friends good jobs in the world of football?

Whatever his motives, Romanov’s actions resemble more those of a traditional benefactor, rather than a hard-headed businessman. That’s fine, while he is around and his other companies provide enough funds to support the football club, but the concern is that the club would collapse (in the same way that Gretna did) if he left for any reason.

"Eggert Jonsson - value for money at Iceland"

There seems little chance of Romanov ever getting his money back, as it is difficult to imagine that he would find someone to take the club off his hands, unless he substantially reduced the price. Even then it would hardly be a fait accompli, as the club’s business model in its current form is unworkable. As a pertinent comparison, it took Rangers an eternity to find a buyer.

In fairness to the owner, he has been at the club for nearly seven years now, so he cannot be accused of being “here today, gone tomorrow.” Under new manager Paulo Sérgio, the club has had a couple of encouraging results, but the most important man at the club remains Vladimir Romanov, a man maybe best summed up by Winston Churchill’s famous quote, “a riddle wrapped in a mystery inside an enigma.”

Monday, August 8, 2011

Nottingham Forest - Shadows And Tall Trees

Last season was a bit of a déjà vu experience for Nottingham Forest fans, as their team looked a good bet for promotion to the Premier League for much of the campaign, only to be defeated in the Championship play-off semi-final for the second year in a row. Their disappointment was not lessened by the fact that they lost to the eventual winners, Swansea City and Blackpool, on both occasions.

Yet again, the team’s performances had promised so much, built on the formidable partnership of Wes Morgan and Luke Chambers in central defence providing solid protection to goalkeeper Lee Camp, whose form was good enough to win a couple of international caps for Northern Ireland. The experience of midfielder Paul McKenna and forward Rob Earnshaw was complemented by the emergence of the exciting young Lewis McGugan, who was the club’s leading scorer with an impressive 13 goals.

Nevertheless, football is the ultimate results-based game, so it was no huge surprise when manager Billy Davies was sacked in the summer, to be replaced by Steve McClaren. Inevitably, the appointment of the so-called “wally with the brolly” raised eyebrows, but apart from his ill-fated reign as England manager, McClaren has a pretty good record and is an experienced coach. He revived his reputation by guiding FC Twente to the Dutch championship after the England debacle, though his time managing Bundesliga side Wolfsburg was not so successful.

"Return of the Mac"

His misfortune in Germany certainly hasn’t dented his confidence, as seen by his prediction during his first press conference, “I wouldn’t be sat here if I didn’t think I was the man to fulfil everybody’s dream of playing in the Premier League. That is the ultimate goal.” In order to boost Forest’s promotion prospects, McClaren has brought in Rob Kelly, the former Leicester City boss, as assistant manager and Jimmy Floyd Hasselbaink, the old Chelsea and Holland striker, as first team coach.

Many felt that Davies, described by Forest owner and chairman Nigel Doughty, as “probably the best manager, at this level, in the game”, was unfortunate to be dismissed and there is little doubt that he did a fantastic job in turning round the fortunes of a team that was struggling in the Championship relegation zone when he took over, after only winning twice in 19 league games under Colin Calderwood. Indeed, Doughty admitted, “Billy Davies was unlucky to lose his position and unlucky in two play-offs, when we came close. In the end, we felt that to motivate the squad for a third time, under the same sort of leadership, would have been difficult.”

However, that’s only part of the story, as Davies’ public grumbling about lack of funds and frequent sniping at the club must surely also have been a contributory factor to his demise. Quite frankly, statements like “there is not a job that I would not consider” were just asking for trouble, especially given that Davies has plenty of previous for similar outspoken rants against the board at Derby County and Preston North End.

"The always appealing Billy Davies"

Eventually, these shenanigans proved too much for Doughty, who relieved Davies of his duties. A co-founder of the leading private equity firm Doughty Hanson, he is known for his financial expertise, which stood him in good stead when he took over the club in 2002. In fact, it’s probably not over-stating the case to say that without his guarantees, Forest would almost certainly have ended up in administration.

The club had been in financial turmoil for many years, finally abandoning their membership structure in 1997, leading to an ill-fated takeover by the Bridgford Consortium, featuring former Tottenham chairman Irving Scholar, serial entrepreneur Nigel Wray, businessman Julian Markham and author Phil Soar. Their ambitious plans effectively collapsed after a disastrous flotation on the Alternative Investment Market, which raised just £2 million – about £18 million less than they had predicted. However, Doughty’s initial attempts to take over the club were strongly resisted by Scholar and Markham, and his investment was only confirmed after he won a bitter court case.

That was not the end of Forest’s financial woes, as the collapse of ITV Digital left them with substantial levels of debt. Indeed, in 2004 Nottingham City Council threatened the club with winding-up proceedings after Forest failed to make a £200,000 interest payment on their £4.3 million loan.

"Nigel Doughty - money can't buy him love"

These days, Forest are in a more robust financial position, but that is very largely due to Doughty and the funds he has injected into the club. Despite this investment, he is not universally popular with some of the Forest supporters, who believe that his cautious approach has held the club back, but the reality is that they owe him a great deal – quite literally, in terms of the club’s debts, which have been steadily increasing from £25 million in 2005 to £64 million in 2010.

Virtually all of this debt (£63 million) is owed to Doughty. Although the loan is secured by a debenture over the clubs assets and earns interest at “market determined rates”, Doughty has not been paid any of the accrued interest of just under £10 million. Instead, the date for the repayment of the principal and the accrued interest has been continually pushed back with the latest extension to 31 May 2013. In fact, Doughty has stated, “I am not looking to get my money back. I look at it as some sort of community investment”, though that’s not quite the same as a formal agreement.

The other £1 million debt is the residual amount owed to Nottingham City Council from the original £4.3 million six-year loan (at 5.25% per annum), which was due to be finally repaid last season.

It is notable how the make-up of the debt has changed since 2005, when it largely comprised an expensive bank overdraft and short-term loans. If Doughty had not stepped up to the plate, it’s doubtful whether this funding would have been renewed. Even if the banks had agreed to extend more credit, it would certainly have been more costly for the club, as the interest rate would have been higher (and needed to be paid).

Forest also owe £1.8 million in transfer fees plus have a similar amount in contingent liabilities: £1.5 million to be paid if certain players make an agreed number of international appearances and £0.5 million signing-on fees to players if they are still at the club on specific future dates.

Of course, this leads to one of the major criticisms that fans have of Doughty’s regime, namely that they have not been very active in the transfer market. Like so many things, this depends on how you look at it. In fact, in the last three years, only three clubs in the current Championship have spent more than Forest – and two of those (Birmingham City and Burnley) have had the benefit of Premier League money, with Birmingham now holding a fire sale of their more expensive players and question marks over their very existence. The other club ahead of them is Leicester City, who have effectively bet the farm on securing promotion, as it is questionable how their new Thai owners would react if they failed to achieve this objective.

With the exception of Leicester, very few other Championship clubs have really gone for it, as a new financial realism is being embraced. As Doughty put it, “Leicester don’t seem to have got the memo, but everyone else seems to get the idea, which is why there has not been that much activity.”

On the other hand, Forest’s net spend in this period was only £7.5 million, so their high position in the net spend table is more a case of them standing still, while others have balanced their books by selling players. In other words, if Forest have strengthened, they have done so more in relative terms than absolute terms, though the switch from Forest being a selling club should not be under-estimated, e.g. in the four years up to 2005 they had net sales proceeds of £22 million, but since then they have been net spenders every single year, adding up to £16 million.

Then again, Forest’s recent transfer spend is a little misleading, as most of this (£10 million) came in 2008 and 2009 with hardly anything in the following two years. In particular, Forest backed Davies in the summer of 2009 by signing nine players, many of whom played for the club on loan the previous season, including Dexter Blackstock, David McGoldrick, Dele Adebola, Chris Gunter, Lee Camp, Paul McKenna, and Radoslaw Majewski, giving them the unwanted reputation of being big spenders. Many of these players significantly improved the side, but it was unreasonable for Davies to expect similar investment every year, especially when he talked about needing “four or five stellar signings.”

That said, it was disappointing that Forest did not manage to sign anyone in the January 2010 transfer window, when they were in the Championship top two, as this might have made the difference between automatic promotion and the play-offs. It was an open secret that they were after Nicky Shorey (Aston Villa), Darren Pratley (Swansea City) and Victor Moses (Crystal Palace), but they failed to secure any of their targets. It’s unclear why this was the case, nor why there was a similar lack of purchases in the following two transfer windows.

The much-maligned chief executive Mark Arthur argued, “You cannot force people to sell. We tried everything we could possible try to get the players in, but it didn’t come off.” It’s hard to know for sure, but there is a suspicion (to paraphrase Hamlet) that he “doth protest too much”, especially as the board must have been tempted to keep their hands in their pockets when Davies was effectively a dead man walking.

"Jonathan Greening - the face of experience"

In any case, it’s always better to watch what people do, rather than listen to what they say: actions speak louder than words. Since McClaren’s arrival, very little money so far has been spent, as Forest have adopted a policy of buying in older, experienced Premier League players on the cheap. Former Forest star, Andy Reid, and Dutch midfielder George Boateng were acquired on free transfers, while Jonathan Greening only cost £600,000 from Fulham. Furthermore, quite a few players have been released, including Kelvin Wilson, Nathan Tyson, Earnshaw, Adebola and McKenna.

It’s possible that some Forest fans have unreasonable expectations, which are heightened by a glorious past, though in truth this largely relates to one magical period under the legendary Brian Clough and his assistant Peter Taylor, whereas the rest of the club’s history is not so impressive. After gaining promotion from the old Second Division in 1977, Clough’s Forest become Division One champions at the first time of asking in 1978 and then proceeded to win the European Cup two years in succession, first beating Malmö 1-0 in 1979 with a header from Trevor Francis and then retaining the trophy by overcoming Hamburg 1-0 with a John Robertson strike the following year. In the same purple patch, they also picked up two League Cups.

This was a remarkable achievement for a club of Forest’s size and was testament to the genius of the manager, as the team featured few superstars, though the likes of Peter Shilton, Martin O’Neill, Viv Anderson, Archie Gemmill and Kenny Burns would yield to few. As Steve McClaren said, “You can smell the history and tradition of this football club.”

"Brian Clough - legend"

However, recent history has not been so kind. Although Forest played in the first Premier League in 1992/93, they were relegated at the end of that inaugural season, which was also the end of the Clough era. They immediately bounced back, but dropped back down a couple of years later, a feat they repeated before falling back into the Football League in 1998/99. Since then, Forest have spent 12 long years away from the Premier League and the riches that accompany playing in the “best league in the world”, which goes a long way to explaining the reasons for their financial challenges.

In fact, the situation got even worse, as Forest became the first European Cup winners to fall into their domestic third division, when Gary Megson’s team was relegated in 2004/05. It took the Tricky Trees three years to get back into the Championship, which makes the board’s prudent policy a little more understandable.

Recently, Doughty described the approach in this way, “We are trying to push the boat out, but in a gentle fashion.” This reasonable desire for sustainability has led some fans to condemn the board for a lack of ambition. In particular, many have never forgiven them for failing to support former manager Paul Hart, who built an attractive young team, but was not given the funds to strengthen the squad and actually had to sell some of his key players.

"Lewis McGugan - helping Forest fire"

One specific source of frustration has been the clumsily named Transfer Acquisition Panel, which comprises the chairman, chief executive, manager, finance director, chief scout and football consultant David Pleat. The idea is to avoid the club wasting precious funds on a manager’s whims. As a concept, this sounds fine and many other clubs have something similar, e.g. Lyon who are past masters in the transfer market.

However, there are three potential problems with Forest’s version: (a) It seems far too bureaucratic with no fewer than six people involved. (b) It is not entirely clear what role the football consultant has – is he meant to be a de facto director of football? If so, the temporary nature of a consultant could cause problems. (c) Having had their fingers badly burned by former manager David Platt who wasted £12 million, largely on obscure Italian veterans, it looks like the club’s stance might have swung too far the other way, so they’re now loath to pull the trigger on a deal.

To a certain extent, Forest have tried to compensate by making good use of the loan system with a number of signings having an impact last season, including Scottish striker Kris Boyd (from Middlesbrough, six goals in 10 games), England U21 defender Ryan Bertrand (Chelsea), Wales captain Aaron Ramsey (Arsenal), left-back Paul Konchesky (Liverpool) and forward Marcus Tudgay (Sheffield Wednesday).

"Lee Camp makes his point"

Many Championship clubs have taken advantage of new rules that allow them to take up to six players on loan at a time, a trend that has been exacerbated by the introduction of a 25-man limit in the size of the squad for Premier League teams. The reason for this might not seem immediately obvious, but that cap does not include players aged 21 and under, resulting in Premier League clubs taking on more quality young players. They need playing time, so clubs are now more willing to loan players to the Championship, even funding some of the wages during the loan period.

While Forest’s attempts to move towards a sustainable business model are admirable, there is a nagging belief that if they were just to spend a little more then they could finally reach the Premier League, which would transform their finances. Obviously, spending would be no guarantee of success, but it is worth considering the size of the prize.

The Championship play-off final has been described as one of the most lucrative matches in world football with the value estimated at £90 million. Although this is a little misleading, given that this money is spread over a few seasons, the difference in revenue following promotion is still spectacular.

Even if the promoted club were to finish last and come straight back down, it would still receive £40 million from the TV deal plus £48 million in parachute payments over the next four years (£16 million in each of the first two years, and £8 million in each of years three and four). On top of that, gate receipts and commercial income will also certainly be higher, hence at least £90 million more revenue.

It’s incredible to think that just one place in the football pyramid can make such a difference. Of course, if the club finished higher in the Premier League, it would receive even more TV money and every season survived adds another £40+ million to the coffers.

The concern is that the club might eat into that higher revenue by increasing wages and other costs, but the net effect is still likely to be positive. If we look at the three teams that were promoted to the Premier League in 2008/09, using the last available financial figures from 2009/10, we can see that all of them (Wolverhampton Wanderers, Birmingham City and Burnley) transformed operating losses in the Championship to profits in the Premier League. In particular, Wolves’ revenue of £18 million (broadly similar to Forest) increased to £61 million in the Premier League.

As it stands, Forest’s profit and loss account is not a pretty sight, as they consistently make losses. All too appropriately, the bottom line is a sea of red with losses reported in each of the last five years. In that period, the total losses add up to more than £40 million. Furthermore, the losses have been steadily rising, from £5.1 million in 2007 to a seriously uncomfortable £12.3 million in 2010. In other words, the loss is almost as much as the turnover of £14.7 million, which means that the club spends almost £2 for every £1 it generates. As the accounts state, this can only be “sustained with the continuing financial support provided to the club by its chairman, Nigel Doughty.”

Alternatively, some clubs compensate for such shortfalls by player sales, but this is not the case at Forest, as they have made less than £5 million from the transfer market in the last five years, including just £91,000 in 2010. Some clubs can point to their losses being caused by non-cash expenses, such as amortisation and depreciation, but again Forest do not have that comfort, as their EBITDA (Earnings Before Interest Taxation Depreciation and Amortisation) is also negative every year.

Not even the promotion from League One to the Championship was enough to improve the club’s finances, as the £4.5 million increase in revenue in 2009 was more than offset by investment in the squad, resulting in wages rising by £3.5 million and player amortisation by £1.1 million. Similarly, the 22% revenue growth in 2010, largely from the new television deal, was eaten up by £4.4 million extra on the wage bill and a further £1.1 million on player amortisation. These numbers should give pause for thought to those who censure the board for not investing in the playing side.

Of course, the vast majority of Championship clubs make losses. In fact, only four reported a profit before tax in 2009/10 and one of those, Burnley, had the benefit of Premier League money. The total losses in the Championship worsened for the sixth consecutive year to a record of around £130 million, while the total net debt rose to £875 million.

That said, Forest’s loss of £12.3 million was one of the highest and only surpassed by four clubs: Sheffield United, Ipswich Town, QPR and Portsmouth. Incidentally, the size of the loss appears to have little bearing on a team’s chances of success, as the three promoted clubs in 2010/11 represented all points on the spectrum: granted, QPR made a large loss, but Norwich City only had a small loss, while Swansea City were actually profitable.

But, as Bob Dylan said, the times they are a-changin’ following the Football League’s recent decision to adopt a Financial Fair Play (FFP) framework from the 2012/13 season. Football League chairman, Greg Clarke, explained the reasons for the move, “It’s a perfect storm in that a lot of things have come together to make this happen, including of course the level of debt in the game and big losses being racked up by the clubs.”

"You'll never beat Wes Morgan"

Details of how the scheme will work have not yet been finalised, but essentially clubs will only be allowed to spend what they earn. In the early years, clubs will probably still be permitted to make small losses, but these will be limited and the amount of money that owners like Doughty are allowed to put in to cover losses will be severely curtailed. Any club breaking the rules is likely to be punished with fines and a transfer embargo.

The impact on Forest, whose business model is essentially large losses funded by the owner, will be dramatic, as Doughty explained, “With the advent of financial fair play, we are going to have a very strict budget. We are talking about drastic cuts. It is going to change things. This year, we cannot afford to be throwing around three or four-year contracts for Premier League players.”

However, one logical result of the new rules is that those Championship clubs with parachute payments will have a significant financial advantage, as can be seen by the revenue “league table” for 2009/10. As you would expect, the three clubs that were in the Premier League the previous season (Portsmouth, Hull City and Burnley) have the highest revenue (between £45 and £60 million), while the next three teams in the (Middlesbrough, Reading and Derby County) still had the benefit of parachute payments.

However, Greg Clarke argued that the effect would not necessarily be so distorting, “Largely the parachute payments are absorbed by the club paying their debt and players. Last year three clubs came down and did not make the play-offs.” This is true, but the previous season was a different story with Newcastle and West Brom returning to the Premier League at the first attempt.

Forest’s revenue of £14.7 million places them in the bottom half of the money league, so they have actually outperformed their budget by twice reaching the play-offs. That said, two of the promoted teams (QPR and Swansea City) had less revenue than Forest, so a well-managed and organised team can still succeed in the face of financial disparity.

Any growth in Forest’s revenue in the last few years has basically been down to the promotion from League One (average £8 million) to the Championship. This is partly because of the better TV deal in the higher division, but is also due to higher gate receipts and more commercial opportunities. Indeed, gate receipts remain the most important category at Forest, accounting for 48% of total revenue. This increases to almost 60% if you include hospitality and catering income, which is largely generated on match days.

Gate receipts of £7.1 million in 2009/10 were 56% higher than the £4.6 million in League One, partly due to the decision to reduce ticket prices in the lower division, but also influenced by cup runs and participation in the play-offs. Forest have a large, loyal following, as evidenced by their 2010/11 average attendance of 23,275 only being bettered by four teams (Leeds United, Derby County, Norwich City and Leicester City). Even when Forest were playing in League One, they attracted a mighty impressive 20,000 on average.

In fact, Forest have the 22nd largest attendance in England, higher than three Premier League clubs. It’s not generally appreciated that the Championship is actually the third best-attended league in Europe, ahead of the top divisions in Spain, Italy and France. Even though crowds declined 6% in 2010/11, mainly due to the “Newcastle factor”, Doughty has confirmed that season ticket sales at Forest are still selling well.

Last week Forest revealed plans to expand the capacity of the City Ground, which is owned by the council, from 30,600 to 37,000 by rebuilding the Main Stand, but only if they reach the Premier League. Corporate facilities would also be revamped to help increase turnover. This was an interesting change of approach, as chief executive Mark Arthur had previously said that the costs of redeveloping the City Ground would be prohibitive, as it is located in a dense urban area, surrounded by private housing, businesses and industry.

Indeed, four years ago the club explored the possibility of building a 45-50,000 capacity stadium in Clifton to the south of the city, but switched their plans to Gamston, due to logistical problems. Following objections by residents, the club then looked at Eastside, though plans were abandoned after the failure of the FA’s bid to host the 2018 World Cup in England.

"You are going in the Trent"

Television revenue in 2009/10 of £4.3 million was largely derived from two payments given to all clubs in the Championship, the £2.47 million distribution from the Football League and the £1 million solidarity payment from the Premier League, plus money for cup runs and facility fees (each time a team is shown live is worth £100,000 to the home team, £10,000 to the away team).

In 2010/11, this figure is estimated to increase to around £6 million, as the solidarity payment rose £1.2 million (up to £2.2 million) and each Championship club was given £0.5 million as their share of the parachute payments for Newcastle and WBA, because those two clubs went straight back up to the top tier.

However, clubs relegated from the Premier League still have the advantage of considerably higher TV revenue, as we can see by comparing Burnley’s TV revenue of £34.4 million last year, which was significantly higher than Forest’s £4.3 million. Even after relegation to the Championship, Burnley’s projected revenue will still be more than Forest, purely due to the £16 million parachute payments.

The other cloud on the horizon is the new Football League three-year TV deal that kicks off in the 2012/13 season, which will be £69 million lower than the current contract at £195 million, a reduction of 26% or £23 million a season, reflecting what Greg Clarke called, “a challenging climate in which to negotiate television rights.” As there was no interest from BBC, ITV or even ESPN, the only game in town was Sky, who could accordingly lower their bid.

Given that most of the money is allocated to the Championship, this is where the impact will be most keenly felt. The annual reduction for each club was estimated at £766,000 by the Ipswich chief executive, Simon Clegg. This is another reason, if one were required, to push as hard as possible for promotion.

Commercial revenue of £3.3 million includes around £1 million from sponsorship and advertising. Shirt sponsorship is provided by Victor Chandler, the gaming group, who replaced long-term partner Capital One in 2009 with a one-year deal that has since been extended by a further two years to 2012. Figures have not been divulged, but it was originally a “significant six-figure sum”, now rising to “seven figures”. Interestingly, if Forest had won the Championship in 2010, that would have cost the sponsor around £6 million, as it had promised to pay for season ticket renewals if that happened. The kit supplier is Umbro, but merchandising revenue is only £1.1 million. The club state that this is partly dependent on which kit is replaced, the home version being more popular.

Like most football clubs, Forest’s greatest challenge is how to restrain their wage bill while remaining competitive. Transfer activity caused this to rise a staggering 40% in 2009/10 from £11.2 million to £15.6 million, resulting in an unsound wages to turnover ratio of 106%, second only to the 121% in 2006, when the board sanctioned the purchase of players on Championship wages in order to secure promotion from League One as quickly as possible.

This is a common problem in the Championship, but Forest’s wage to turnover ratio is well above the divisional average of 88% and was only surpassed by five other clubs (Bristol City, QPR, Portsmouth, Ipswich and Preston). It is easy to see how the club arrived at this sorry state, as wages increased by more than 70% (£6.5 million) in the last five years, while revenue only grew 20% (£2.5 million) in the same period.

To give an idea of the magnitude of Forest’s challenge, if they wanted to get in line with the 60% salary cap employed in League One, they would have to either increase their revenue by 77% (£11.3 million) to £26 million or cut their wage bill by 43% (£6.8 million) to £8.8 million, neither of which seems very realistic (though FFP may play a part here).

In fairness, Forest’s wage bill is by no means the highest in the Championship, placing them more or less in the middle of the league table. However, unlike the Premier League, the wage bill does not necessarily correlate with success on the pitch, as Doughty pointed out, “If you look at our roster and our salary bill and you look at the teams who were promoted, we were way ahead of Swansea, we were ahead of Norwich in terms of cost and, until Christmas, we were on a par with QPR.”

Forest’s finance director, John Pelling, clearly spelled out the situation, “The club can only spend the level it does on transfers and wages with the continuing support of Mr. Doughty.” The chairman’s commitment can be seen in the cash flow statement, which shows that Doughty has advanced £46 million of loans in the last six years, including £13.4 million in 2009/10 alone. Pelling noted, “That is pretty much the total loss for the year”, while Mark Arthur observed, “It is double the amount we received from season ticket and match day ticket revenue.”

So what will Forest’s strategy be going forward?

In a recent interview, Doughty indicated the club’s future direction when talking about its youth policy, “What is coming out of the academy may help us, when it comes to financial fair play, because those players are not going to be as expensive. We have a wonderful conveyer belt of young players coming through. Not just one or two or half a dozen, but maybe as many as a dozen good prospects, many playing internationally already.” Forest have a reputation for a terrific academy, as evidenced by the emergence of former graduates Lewis McGugan and Wes Morgan, which should be further strengthened by the appointment of McClaren, who has a fine reputation for developing young players.

Perhaps the bigger question, as posed by John Pelling, is “what would happen if (Doughty) wasn’t around to provide the backing that he does?” The benefactor model works fine, so long as the money-man does not exit stage left for whatever reason. Like his father, Doughty is a Forest fan, born in Newark, near Nottingham, and maintains that he is still committed to the club. However, Mark Arthur has hinted that his presence should not be taken for granted, “When you are putting in that sort of money and getting the abuse he has received, it must make you think about it.”

"Guy Moussi - shout to the top"

Of course, this may not be such an important issue in future with the advent of FFP, but there's many a slip 'twixt cup and lip, so Doughty’s financial support may still be necessary for a while yet. Doughty himself has not ruled out selling, “I am not going to say never. If the right sort of potential owner with hugely deep pockets came along, you would have to consider it.”

It is clear that some fans would prefer a new owner with a more cavalier approach to spending, but there are two problems with this way of thinking. First, it’s not as if billionaires are queuing up to invest in football clubs; second, be careful what you wish for. Forest fans only have to look at the calamitous experience their neighbours Notts County endured with Munto Finance to realise that all that glitters is not gold.

The easiest way of solving Forest’s financial problems would be to gain promotion to the promised land of the Premier League. While it is fair to say that the club’s prospects of achieving that objective would be enhanced by some astute player purchases, it is equally true that spending in itself is no guarantee of success in the extraordinarily competitive Championship. That said, Doughty has actually promised to back McClaren “as far as new acquisitions are concerned”, and there is talk of Ishmael Miller and Wesley Verhoek arriving from WBA and Den Haag respectively.

"Pre-match tension from Chris Cohen"

However, those fans hoping for a major loosening of the purse strings are likely to be disappointed, as Doughty recently summed up his ethos, “If you look at the teams who have been promoted in the last few years, such as Watford, Burnley, Swansea and Norwich – they have all done it with sensible budgets. They did not do anything too risky or expensive.”

So, there you have it, more of the same for Forest. And in the current economic climate, who can really blame them?

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