The Financial Underbelly: Nottingham Forest
Our latest series of posts features a range of clubs in varying states of financial health. The Football League and indeed, the sport as a whole, has provided evidence of extreme financial irresponsibility for a while now and few fans can point the finger at the more flagrant over spenders given that any of the teams we support could quickly be plunged into debt or abandoned by a disloyal sugar daddy. The posts will focus on some of the more obvious cases of mismanagement but we intend to mainly shine the light on some of those who are yet to garner serious headlines. First up are Nottingham Forest, whose fans have a lot to worry about in the aftermath of a campaign that tailed off badly and in which even the sorry capitulation of rivals Derby County will only have provided temporary cheer. We are pleased to welcome back regular contributor Steve Wright, @mistrollingin on twitter and founder of the excellent Mist Rolling in From the Trent blog. Here, Steve summarises the mood in the east Midlands.
On the surface Nottingham Forest would appear to be a very attractive Championship football club. It has a long and proud history that includes not only its share of glory on the domestic and continental stages but also an innovative flair that contributed to the earliest developments of the organised game. The fan base is large and resilient featuring amongst the best supported clubs in the division with both its home and away followings. Then there is the financial backing of a wealthy owner more than happy to spend his money on the hopes and dreams of the City Ground faithful.
Scratch a little deeper though and this happy story turns out to be a veneer. It has been 16 years now since the club graced the top flight of English football. Having seen the estate of the previous owner Nigel Doughty write off in excess of £60m of debts the new owner had already racked up over £50m of his own debt in just the two years to May 2014 – and it will be considerably more now that we are a further year down the line from the last published accounts. Rising losses, meanwhile, have meant failure to fall into line with the league’s Financial Fair Play rules and a transfer embargo.
Despite the high level of expectation amongst fans, Forest is not a club with a divine right to a place in the Premier League, but it does become frustrating to watch a string of apparently smaller, less well financed and supported clubs leapfrog them in the race for promotion. There are always excuses that can be drawn upon to explain another year of failing to meet this objective but it seems likely that given the sustained problems in this area it is the way the club is run that is really to blame.
That isn’t to say that the current owners inherited a fabulous club and then ruined it, but rather that they bought into an organisation that was already troubled and amplified the problems. In early 2012, owner and lifelong Forest fan Nigel Doughty suddenly and tragically died and the club, which had largely floundered for years, suddenly hit a crisis. That summer, having averted the threat of relegation, it looked like a long, hard road would need to be taken to re-organise the club’s finances, until the extravagantly wealthy Al-Hasawi family arrived from Kuwait promising to wipe away the gloom and return old glories.
From this point on two schools of thought develop as to whether the new owners are saviours driving the club forwards and maintaining the dreams of the fans or enthusiastic incompetents spending money without purpose and losing ground. Wealthy owners are prone to splitting opinion but the financial statements covering the first two years of Al-Hasawi ownership do paint a frustrating and worrying picture.
Revenue has increased by 12% to £16.5m largely due to sponsorship money paid by Al-Hasawi owned companies for advertising around the ground and an apparent change in accounting policy for loan players. At the same time though wage costs have increased by 55% from £17.6m to £27.2m and other costs (which are not broken out into more detail than that in the accounts) have grown by 33% to £8m. This means that EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) has gone from £(8.9)m in 2012 to £(18.8)m in 2014, despite the Championship moving into a new world of Financial Fair Play (FFP) – ion common with accounting practice, brackets denote minus numbers here.
In the same two years, significant investment of over £13m was also made in new players, although this was partially offset by sales, which combined to create accounting losses for the year to 31 May 2014 of £22.9m, compared to £11.6m in the year to May 2012. As a result, some fans will point to the financial statements as proof of the ambition of the owners, whilst others see reckless spending combined with a lack of strategic oversight. Mapping the financial numbers to actual events may make it clearer which is closer to the truth.
The financial statements only cover the two years to 31 May 2014, with the most recent financial year not due to be published until March 2016, but the owners have now completed three full seasons in charge. Over that time the first team has been managed by Sean O’Driscoll, Alex McLeish, Billy Davies, Gary Brazil (on an interim basis), Stuart Pearce and Dougie Freedman. For many that is itself evidence enough of a lack of direction.
In addition to these changes and the associated coaching staff that came with each appointment, the club’s Head of Recruitment role (a strategically crucial position) has been filled by Keith Burt, Bobby Downes, John Marshall and Leon Hunter. Such a rotation of leadership brings with it a high turnover and lack of consistency in player recruitment and a resulting poor value in transfer dealings.
Off the field of play the club sacked Mark Arthur, their long serving but deeply unpopular Chief Executive, along with several other office staff, and appeared to unofficially replace him with manager Billy Davies’ own agent. Six months into his tenure Davies was awarded a new 4 year contract as Chairman Fawaz Al-Hasawi declared he wanted the Scot to be Forest’s Alex Ferguson leading the club for many years to come. Six months after that, Davies was sacked, the security of that new contract presumably ensuring he was well compensated.
At this point fans were screaming for a proper, experienced football CEO to be appointed to lead the club and Al-Hasawi relented by bringing in Paul Faulkner, who had performed the same role at Aston Villa. With club legend Stuart Pearce installed as manager and a club structure coming together under their combined leadership there seemed to be cause for optimism again, until early form fell away and a run of 3 wins in 21 games led to yet another managerial sacking and the resignation of Faulkner claiming the owner would not allow him to carry out his role.
So, at the end of this third season we now have Dougie Freedman in charge, who himself followed a bright start with a final run in of no wins in his last 8 matches. In those three years the club has finished eighth, eleventh and fourteenth in the Championship in that order and with FFP penalties now starting to bite few would be looking to the coming season with expectation of great improvement.
For sure, it isn’t easy to own a football club in the financial and competitive environment of the Championship and a slice of either good or bad luck can have a significant impact on the perception of a club. The last three years for Forest, however, have been haphazard and reactive and as a result they continue to fall behind. A lot of clubs at this level benefit from either a wealthy owner or parachute payments from the Premier League so you need a competitive advantage to get ahead. Forest simply look out of touch and that has to change.
The extent to which the club’s financial position is a problem depends largely on the commitment of the Al-Hasawi family to continue to fund it. They certainly seem to be happy with their financial obligations to date but things can change very quickly and if they decided to stop paying the bills the club would quickly unravel. Championship clubs need financial support to compete, there is no escaping that reality, and the Al-Hasawi’s are in a great position to provide that crucial investment at Forest. What they need to learn, however, is how to focus their investment to deliver long term returns on the pitch.