By John Dewhirst
For the last twenty years at least the practice at Valley Parade has been for minimal disclosure of detail in the published financial statements of the operating company, Bradford City Football Club Limited (registered number at Companies House: 05102915).
The practice of filing abridged accounts is neither illegal nor unique but is an option for any private company with turnover of less than £10.2m per annum and a balance sheet of less than £5.1m, criteria that BCAFC fulfils with little difficulty.
Its most recent published accounts for example are for the financial year ended 30th June, 2019 (‘FY19’) in which it had turnover (i.e. trading income) of just £6.7m and a negative balance sheet of £(1.1)m which is to say an excess of liabilities to assets and technically insolvent.
The instinctive reaction of many finance directors is to disclose as little as necessary about the financial affairs of a company and to reveal information on a need to know basis. Like most football clubs, the affairs of Bradford City are subject to an inordinate degree of scrutiny and speculation and hence there is good reason to be cautious about what commercial information is made public.
On the other hand, the minimal disclosure practice has served only to encourage conjecture and conspiracy theories about the club’s financial circumstances. Many of the comments made about the club’s affairs are groundless and quite often, simply ludicrous.
I have experience undertaking diligence and business reviews on behalf of banks and investors and I am familiar with the club’s accounts having undertaken an independent examination on behalf of Bradford City AFC and the PFA in 2003 and 2004.
Julian Rhodes was receptive to my suggestion at the end of last season to undertake an independent review of the accounts and to summarise them in a feature such as this. The club’s auditors, Bostocks Boyce Welch have provided me with full assistance and had it not been for the lockdown and staff working off-site this would have been published much sooner.
With concerns among supporters about the implications of Covid it is now particularly topical. The purpose is to provide some background about the club’s financial circumstances and hopefully dispel some of the more extreme claims and expectations that exist. Quite possibly it will serve as a reality check and maybe even provide some reassurance.
A small business
First and foremost, what surprises many people is that in terms of size, Bradford City is a relatively small business. The club’s annual turnover is less than what the highest paid players in the Premier League can expect to earn in a year.
Not only that, it is a small business with a record of marginal profitability and in a nutshell that is the most profound financial analysis that can be made. By any standard, it is not an organisation with the wherewithal to act as a large corporate entity and that has been the case for the vast majority of the club’s existence.
Even within Bradford, BCAFC is not a big business. The club’s significance to the local economy is primarily of an indirect nature, for example by drawing people into the city, generating publicity and on occasions, creating a feelgood factor.
Whilst Valley Parade generates rates for the local authority (£0.1m pa), Bradford City is not a major employer. The club’s social impact on the district is principally through community involvement.
Collectively all of this represents considerable leverage but does not alter the fact that as an organisation, the club is no bigger than many small owner managed businesses. Neither is it a ‘big club’.
The historical context
History is relevant to provide some context. For a start, the late development of soccer in Bradford denied the possibility that a local side might establish itself as a pioneer with the prestige that would have accrued.
In 1892 for instance, Bradford FC at Park Avenue was said to have been the wealthiest football club in Great Britain. Had it been an association – as opposed to a rugby – football club it is not inconceivable that Bradford FC would have been successful and become a leading side in England.
In 1903 Bradford City AFC was established with minimal financial backing. The lack of resources meant that the club struggled to simultaneously build a team and develop Valley Parade. In 1907 the abandonment of rugby at Park Avenue meant that City no longer had a monopoly in the district as the only professional association football club.
The existence of a second club – Bradford Park Avenue – handicapped the efforts of BCAFC to raise sufficient share capital in 1908 which had far reaching implications. Most of the funds raised were used to develop Valley Parade, all of which meant that insufficient resources were available to sustain the success of the side after winning the FA Cup in 1911.
World War One had a major negative impact on the club’s financial affairs and all told it meant that City lost its first division status instead of being able to consolidate. Relegation in 1922 from Division One precipitated a series of financial crises and Bradford City fell down the rankings of English football.
The story of the last one hundred years has been dictated by the fact that the club has been under-capitalised, or in layman’s terms impoverished. It has meant that the finances of Bradford City AFC have never been sufficiently resilient to absorb the cost of failure or to provide the resources to buy success.
Instead the club has been trapped in a negative cycle of trading losses that have forced player sales and an inability to invest, a consequence of which has been loss of public interest and continuing financial difficulties. That cycle has never really been broken and the club has historically relied upon the bonus of cup glory or player sales as well as supporter fund-raising to stay afloat.
Historically, the club has suffered the burden of a ground – built on a steep hillside – that has been costly to maintain and upgrade. Whilst the rebuilding of the stadium in 1986 had a massive benefit, allowing the club to increase commercial revenues as well as attendances, the irony is that since 2004 Valley Parade has become an even bigger burden in cost (both in absolute as well as relative terms) than ever before.
For much of the post-war period, Bradford City has been an unglamorous lower division side. The toxic record of Bradford football (and maybe perceptions of Bradford itself) has also deterred wealthy people from financing the club or getting involved. With the benefit of hindsight, had BCAFC secured promotion to Division One in 1988 it could have been a significant turning point and the club might then have been able to establish itself firmly in the top half of the Football League.
At that time, the gulf between the top two divisions was much less pronounced but the failure to advance came down to the shallow foundations, a lack of resources and the absence of a benefactor willing to bankroll success. The same themes became apparent once more at the turn of this century.
Geoffrey Richmond was responsible for betting the finances of the club in his six weeks of madness during the summer of 2000. However, for the club to have sustained itself as a Premier League side meant that a big financial gamble was unavoidable. Had Richmond’s signings been successful, Bradford City might similarly have been transformed.
However, the reality was that whilst Richmond sought to emulate other clubs in making his move, his was a gamble that he could not afford to lose. Plenty of big clubs make big gambles although typically don’t face the same ‘all or bust’ high risk stakes.
Once again it came down to BCAFC lacking financial resilience but the other salutary fact was that Richmond was reliant upon borrowed money to finance his adventures.
As I recall from my involvement at the time undertaking an independent review of the club’s finances, I can say without exaggeration that the financial circumstances of Bradford City were among the worst that I have ever seen. In the last twenty years I have been involved as an adviser with more than 300 situations of financial and operational restructuring and of all those, I can think of only a couple that had finances in a more desperate state in relative terms than BCAFC in 2002. In fact, both of those were cases of fraud.
The consequence of insolvency in 2002 and again in 2004 was that the club was saddled with a considerable rental burden which has been subject to upwards revision every five years.
The current rent for example is £434k per annum compared to £300k in 2003. (Additional to the rent the club is, pursuant to the lease, responsible for paying the costs of insuring the ground and all other outgoings and also under an obligation to the landlord to keep the stadium in good repair.) In the immediate aftermath of the insolvency there was also a commitment to repay liabilities under the terms of a Creditors’ Voluntary Arrangement (CVA).
Prior to the sale of BCAFC in 2016 the finances were once again dictated by the lack of capitalisation and the absence of a wealthy benefactor. Indeed, Messrs Lawn and Rhodes sold the club because they lacked the personal financial resources to invest on a long-term basis. An interest-bearing loan of £1.0m from Mark Lawn in 2008 was used to finance a promotion challenge and this was repaid in 2013 with the benefit of the League Cup revenues.
The balance sheet has remained a handicap. Prior to 2016 the directors failed to attract a buyer, primarily on account of the fact that the club did not have assets (and that considerable funding was necessary to make good a lack of investment in prior years).
Likewise, the weakness of the balance sheet was such that BCAFC would have been unable to secure third party borrowings without the directors providing personal guarantees. Besides, after the implosion of the club at the beginning of the century the chances of a lender advancing funds on affordable terms was remote (and will continue to be so).
The implication of limited resources
For any business operating in an uncertain and volatile environment where success is often a matter of good fortune, the lack of a capital buffer is a massive handicap. It means that there is no room for error and in practice it not only leaves a company vulnerable to cash crises (i.e. inability to pay wages, the rent or other creditors when commitments fall due) but conspires against long-term planning.
If a business has high monthly fixed costs (i.e. payroll and rental commitments) it can make things very difficult and at worst can lead to existence on a week-by-week basis.
It is not necessarily an easy task to manage the financial affairs of a football club. The variables and uncertainties can make forecasting difficult to say the least, with no guarantees that there will be sufficient cash to pay the bills.
In that regard, in the last couple of years the financial support of Stefan Rupp has provided a degree of security such that in the final event, the wages can be paid. The McBurnie windfalls have also been fortuitous and whilst the timing owes much to good fortune, they underline the strategic benefit of the club’s transfer dealings.
The difference between now and prior eras has been the sheer scale of amounts involved, whether the level of wages, the player transfer fees or the extent of operating losses. Previously the club would rely upon bank overdraft funding secured by director guarantees, but this is no longer an option.
In 2008 Mark Lawn provided a loan to finance a promotion challenge and during FY19, Stefan Rupp provided a loan of £1.76m to cover the losses made in that year. (An additional bridging loan of £0.20m was received in June, 2020 pending receipt of McBurnie monies and then repaid in July, 2020.)
What do the accounts tell us?
In the period since the insolvency in 2004 and prior to the sale of the club in 2016, the club was broadly profit neutral. The most apt way of describing the financial performance of Bradford City in the period 2004-16 is that it operated within its means and with a willingness to invest a prior year surplus.
The financial record was solid and consistent although insufficient to finance overdue investment in Valley Parade – let alone a radical transformation of the club – without new monies being introduced. In the ten years to FY20 the turnover of the club was nearly doubled, albeit from a low base.
Internally the club prepares very detailed management accounts to monitor its costs. My understanding is that Edin Rahic instituted certain changes to the reporting of information (as well as a restatement of the prior year, FY16 accounts) that has necessitated some adjustment in this exercise to ensure like for like comparison.
Essentially the trading income is categorised as ‘football’ on the one hand and ‘commercial’ (i.e. off-field) on the other. The former includes gate receipts, season ticket sales and player transfer fees. Total football revenues in the period FY12-20 inclusive amounted to £44.9m of which £9m (20%) was generated by player sales. Commercial revenue comprises sponsorships and off-field income generating activity.
The accounts for last season (‘FY20’) have yet to be audited but the draft accounts disclose a net profit in the year of £1.2m, driven principally by receipt of monies in relation to Ollie McBurnie. Prior to FY20, in the four preceding financial years the club has disclosed losses of £3.0m, of which £1.9m in FY19 alone. A factor in the higher losses in FY19 was the much higher wage bill that increased by 25% from £2.6m in FY18 to £3.3m in FY19, coupled with the deterioration in receipts that accompanied a relegation season.
Player wages have been a growing proportion of football revenues and in FY19 represented 75%. In FY20 this percentage fell arising from the income attributable to Ollie McBurnie included within football revenue. The burden of the rental commitment has remained significant and in FY19 was equivalent to just under 10% of football revenues.
The cup run and promotion in 2013 boosted turnover to £7.1m from £4.2m the previous year and since then aggregate revenues have not fallen below £5.9m.
The club’s losses in FY19 were funded by a loan from Stefan Rupp of £1.8m on which no interest is payable. There was an additional bridging loan of £0.2m in June, 2020 which was repaid the month after (following receipt of McBurnie monies). With those funds the club now has cash in the bank to deal with contingencies and there is no plan for repayment of the outstanding director loan (of £1.8m).
Since 2011 there has been a total of £0.67m capital expenditure invested in Valley Parade, of which £0.56m in FY17 and FY18. The fact that only £10k was expended in FY19 reflects the financial pressures of that season and a focus of investment on players.
In 2016, at the time of its sale, the club was free of debt. Now the only debt is the loan owed to Stefan Rupp although its substance is what could be described as quasi-equity. For instance, it is not the equivalent of a term loan borrowed from a bank, amortised (paid back) in monthly instalments. To that extent the club can say it has been free of external debt since the completion of payments under the former CVA.
The published financial statements are a lag indicator of performance. Furthermore, profit generation in a period is distinct from cash generation, demonstrated by the most recent FY20 accounts which show profit for the McBurnie sell-on clauses whereas the cash was not received until the current financial year (that is, after 30-Jun-20).
Whilst profit generation is obviously a key metric, the funding of a football club is equally a critical issue. What the annual accounts do not reveal is the pinch points that occur during the year when cash is tight, arising typically in the new year if there is no bonus of cup revenue or at the end of a month if cash flows are not sufficient to pay wages or the taxman.
The financial statements actually tell us very little about the cash pressures behind the scenes.
No-one can spend money that they do not have or that they cannot afford – or want – to lose. Or rather, money that cannot be spent without implications if things go wrong. This was the dilemma facing Julian Rhodes and Mark Lawn who made no secret that they could not bankroll Bradford City in the Championship.
At the point that the club was on the brink of a possible return to the Championship they elected to sell to a party who could take City onto the next level. Hence, in 2016 the sale of the club to realise that ambition.
During the last ten years the club’s financial record should be compared with the likes of Sunderland, QPR and Coventry or clubs such as Colchester and Wigan who have been sustained through the charity of their owners.
There have also been high profile insolvencies where football directors have been unable to defy financial gravity indefinitely. Recently, Bury and Macclesfield have been victims of insolvency. Whilst other clubs have seemingly emerged unscathed from insolvency, an administration does not make liabilities disappear completely and it is a fallacy to believe otherwise that insolvency destroys value.
(There are plenty enough businesses in all sectors and industries who have emerged from insolvency but survive in a state befitting the description of being a zombie.)
There are two ways in which Bradford City’s finances can be radically transformed to fund the ambition and risk-taking that has been called for on social media or the new stadium that has been suggested. Unearthing two or three McBurnies would go a long way to that end (or in the case of a new stadium, multiply that tenfold and more again).
The best guarantee however would be to persuade someone to throw money at the club. Nowadays, investing in a football club such as BCAFC would be contrary to most investment criteria and hardly the safest way to get a return on your money or safeguard a personal fortune. Who knows, maybe a billionaire with a passion for Bradford City could yet be found.
The opportunity however might equally appeal to those in possession of dirty money that could be laundered or to dubious investors from afar that no-one has ever heard of (as the example of Wigan Athletic attests).
Covid brings a whole new dimension to this and the prospect of an extremely difficult financial environment in the near term that makes owning a lower division football club an even less attractive proposition. I have not had sight of projections for the current season (FY21) although with the deteriorating Covid outlook it seems a reasonable bet that the club will be loss-making. Nevertheless, you cannot afford to lose sleep with nightmares. Instead, you have to look for the options upon which to build.
Although the Covid impact involves considerable uncertainty, there is genuine confidence that Bradford City is better placed to face the financial storms of the next few months than many other lower division rivals. For a start, even though the club voted against the salary cap regulations, it stands to benefit to a greater degree than smaller rivals.
An interesting development is the recent ‘Big Picture’ plan and the suggested redistribution of TV monies. The detail will be in the smallprint, but in conjunction with the salary cap it could potentially work to the club’s advantage by improving profitability.
According to press reports, League Two clubs would receive £2.5m annually, a not insignificant amount. Who knows, it could become the means by which BCAFC invests in infrastructure and training facilities or even buys back the Valley Parade freehold.
On the other hand, it would likely come at a big cost, for example an end to the traditional pyramid league structure and with other strings attached. Whilst the proposals are unpopular and have inevitable implications for the independence of the EFL, I expect that desperate clubs will snatch the bribe to ensure their survival. My feeling is that in the next few weeks this is going to be a real moral dilemma for supporters of all clubs outside the Premier League with implications also for the National League.
There is likewise the opportunity for Bradford City – and English/Welsh professional football – to reinvent itself. As I wrote previously on WOAP, the example of how Bradford Park Avenue adapted to wartime circumstances and focused on youth development is one such way.
Another lesson from history is the benefit of management stability and not changing the team manager every other year. From a medium-term perspective, the club is likely to derive further benefit from its youth academy and the potential for other talented young players to be sold. BCAFC will surely continue to derive advantage from its catchment in the Bradford Metropolitan District.
What the historic accounts demonstrate is that prior to 2016 the club had established a strategy of being self-sustaining and given the state of the balance sheet at the time of the insolvency, that was no mean achievement. In fact, it was probably contrary to all expectations.
Furthermore, the club’s relative profitability was better than in any other comparative period since Bradford City AFC had been formed in 1903. Julian Rhodes might be criticised for being invisible and adopting a low profile but still deserves credit for having kept the lights on at Valley Parade.
All of this was blown apart by the Rahic era. Nonetheless, the basis of a future self-sustaining model exists and places the club at a competitive advantage among its rivals (of which many are currently teetering on the edge of financial collapse).
Of course, it doesn’t constitute a sexy high stakes strategy. There is nothing glamorous about rigorous cost control and a focus on profitability but then, neither is financial failure and the personal tragedies that that entails. Nor is a focus on profitability common in English football despite most of us being familiar with the discipline in our day jobs.
The ability to control costs is not something that comes easy to every business and I suspect that a number of football clubs will find it difficult to implement economies. For those there will be a steep learning curve but irrespective, all will need to live within limited means in the brave new world.
With the next few months likely to bring multiple company failures, job losses and insolvencies there will be less sentimentality or spare cash to save insolvent football clubs. Besides, to enter a recession saddled with debt from a hostile, third party (external) lender is the stuff of nightmares – a prospect faced by a number of other football clubs although thankfully, not Bradford City.
The balance sheet of the club is what it is and history cannot be undone. The fact that Bradford City does not own Valley Parade remains a constraint and the legacy of under-investment is a handicap. Irrespective, ‘we are where we are’. Whilst it is easy to level criticism at BCAFC or highlight the weakness of its balance sheet, the club is actually in a far better position than many of its peers and as a consequence, more likely to survive. Nevertheless, there are no guarantees.
However, with the necessary focus and unity of purpose we might yet emerge stronger. The outlook will be difficult but if any comfort can be taken, the scale of the challenge is unlikely to exceed that which faced the club in 2004.
JD is a business turnaround specialist and was engaged by the club and the PFA in 2003 and 2004 to review its financial affairs. He has written books on the origins of organised sport in Bradford and the history of Bradford City and Bradford Park Avenue. His latest book, The Wool City Rivals: A History in Colour is published at the end of this month ( www.bantamspast.net ). He is currently working on another history of the two Bradford clubs and their financial affairs.