Turmoil Week: Preston North End
Back in November 2011, Preston City Council reluctantly announced that the redevelopment of England’s 50th city had hit the buffers. John Lewis had pulled out of the Tithebarn regeneration scheme in the city centre and, operating as we are “in the middle of one of the worst economic and financial situations since the 1930s”, plans will now be made to scale down the blueprint accordingly.
Similarly, the city’s football club are also in the middle of their own cost-cutting exercise. Following years of spending beyond their means in the quest for Premier League status, North End are now having to adapt to new surroundings down in League 1.
In this piece, I want to consider the club’s spending policy over the past few years, why their books are such an ongoing cause for concern and how effective the steps that are currently being taken to remedy the situation might be.
A Brief History
With costs spiralling almost beyond control over the seasons, many would argue that the recent incisions to North End’s playing budget have been a long time coming. However, having been hit with a winding-up petition served by HMRC and subsequently placed under a transfer embargo in May 2010, changes in ownership were finally brought about in an attempt to reshape the club’s finances and stabilise its future.
The decision was made to delist as a public company after 15 years on the Alternative Investment Market, and the club is now 100% owned by Deepdale PNE Holdings Limited, a wholly owned subsidiary of Grovemoor Limited, a company incorporated in the Isle of Man and controlled by one Trevor Hemmings.
Property developer Hemmings, reputedly one of the richest men in football, started his reign by replacing outgoing chair Derek Shaw, a key figure at North End during the years of excess, with friend and football convert Maurice Lindsay in June 2010. His brief to clean Preston’s act up was clear but in the end badly conceived as the 70 year-old’s ill health curtailed his time with the Lilywhites, forcing his resignation in December 2011.
The 18 months that he did spend at Deepdale were tortuous. With players such as Darren Carter still on big salaries, little headway was made during 2010-11 on reducing the club’s oversized wage bill and things were even worse on the pitch as Darren Ferguson was sacked in December 2010 after just 11 months in charge, with North End bottom of the Championship. Phil Brown was brought in to gee things up but the situation failed to improve, even after the board threw further money at the likes of Ian Ashbee and Nathan Ellington. By the summer of 2011, Preston’s relegation alongside Scunthorpe and Sheffield United was confirmed and the books weren’t looking a whole lot healthier.
For the first time in over a decade the Lilywhites would be playing in the third tier, resulting in an estimated £4.5m drop in TV revenue. With Hemmings unwilling to play sugar daddy, the club had little choice but to respond by selling key players Keith Treacey and Sean St Ledger once seven figure sums had been offered by Burnley and Leicester.
However, several big earners tied to longer contracts still remain – Paul Parry, Barry Nicholson and Iain Hume among them – and though the season started well enough defeat at Leyton Orient in October precipitated a terrible sequence of results which casted doubt over an immediate return to the Championship. Clearly, Hemmings felt that drastic action needed to be taken to turn the debt-laden club around: by December Lindsay had gone.
In his stead, the much-maligned Peter ‘PR Pete’ Ridsdale has arrived after a short but acrimonious spell as Plymouth’s ‘Chairman of Football Operations’. His first act was to axe Brown and, after a short interim over the festive period, appoint Stevenage manager Graham Westley and his coaching staff on rolling contracts earlier this month.
A Shift in Emphasis
The aforementioned cost-cutting plan, which initially began some 18 months ago as Hemmings took complete control of the club, is now plain to see. Gone are the days where those players on the lookout for a decent wage after dropping down a league are brought in beyond the club’s means. Rather, with a manager well known for his motivational abilities and eye for a bargain, North End are seemingly in the process of undergoing a character transplant. With those on truly unaffordable wages either already departed or likely to be on their way as soon as their contracts expire, the focus has instead been placed on a recruitment policy which favours low-risk signings who view a move to Preston as a step up in their career.
Having already brought in Andy Procter and Chris Holroyd (and Jamie McAllister on loan), Westley’s first movements in the market provide a case in point. Likely to be on much reduced wages from those players performing in the same positions this time last season, the onus progressively seems to be on acknowledging the club’s current standing in the pyramid and budgeting accordingly.
It all seems so obvious and well conceived, but try telling that to supporters accustomed to the Lilywhites being competitive at the top end of the Championship. Having to now contend with a new, and potentially unwelcome, style and approach, the club will rely on the use of every last trick in chairman Ridsdale’s PR handbook to keep expectations on track and crowds stable.
However, fans need only take a look at the accounts from the club’s time as a public company to appreciate the need for such an about turn. While competitive in the Championship, North End ultimately failed to achieve their end goal of reaching the top-flight as outgoings escalated to untenable levels in an attempt to keep up with bigger and better supported clubs, many of which were buoyed by parachute payments.
While their revenue during the Championship years remained in the lower half of the table alongside the likes of Watford, Bristol City and Barnsley, the club gradually became saddled with unaffordable liabilities at a time when wage levels rocketed in a short space of time (Preston’s player costs jumped £3.5m from £7.7m to £11.2m in three seasons).
Perhaps more than any other club, Preston have developed a financial model over the years that primarily relies on repaying debt through players sales. To name but a few, Richard Cresswell, Ricardo Fuller, Tyrone Mears, Claude Davis, David Nugent, Matt Hill, Ross Wallace and Sean St Ledger have all come and gone over the past 10 years or so, pocketing North End a shortfall in income upon each of their departures, helping to sustain the club’s status as a competitive Championship side in the process.
But in a contracting market, where many clubs appear content to let time elapse on their targets’ contracts before pitching an offer, preferring instead to bring in loan signings, where are clubs such as Preston left?
In a recent article on the Elite Player Performance Plan, John McGee questioned the wisdom of leveraging club debts or futures on the untapped potential of players. Although referring to youth players and those clubs willing to shell out millions of pounds in the pursuit of the elite while they’re still in development, his argument would equally seem to hold in the case of Preston, and the many other clubs, who have relied upon future player sales to fund current spending.
If these clubs had a number of lucrative revenue streams, then the depressed state of the transfer market mightn’t have been such a knell. However, in Preston’s case, an average attendance high of just 14,619 over the past decade (2005-06) and the difficulty of expanding hospitality and advertising revenues in the current economic climate mean that the club has been steadily backed into a corner as revenue from player sales has declined.
This has been the case at North End for a few years now, but the significance of the Lilywhites’ problem is that the club continued trying to spend their way up the pyramid for too long, even after player sales had dried up. As a public company, losses were habitually paid off through loans from Guild Ventures, another Hemmings enterprise. But now that revenue has dropped significantly following relegation to League 1, what does the future hold under Hemmings’ complete control?
Immediate and Long-Term Objectives
On the face of things, it would seem that the plan is simply for new manager Westley to work miracles on a shoestring over the next 18 months while Ridsdale keeps the PR machine purring in his role as chairman. Preston find themselves in a strong division this year and it would take some turn in form for them to leapfrog three of Charlton, Huddersfield and the Sheffields, not to mention those new town pretenders Stevenage and Franchise.
Yet the clubs residing towards the bottom of the Championship generally look weaker than those they are likely to replace so, with a little bedding down after the departure of a few more big earners, it’s quite feasible to expect a Westley team to figure strongly in next year’s League 1. His signings may have been low-key so far but, currently in the midst of an epic run of form and wedged in the same division’s play-offs, you’re unlikely to find a Stevenage supporter who’d complain about his judgement.
But what of the longer-term picture at Deepdale? A couple of years ago, in their report to the members of Preston North End plc, auditors KMPG wrote of “the existence of a material uncertainty which may cast doubt on the Group’s and the Company’s ability to continue as a going concern.” Given the Company’s subsequent dissolution and the significant drop in North End’s revenue since that report was made, very little will have changed to improve this outlook and, barring an unforeseen multi-million pound player sale or interest-free cash injection from the board, it would appear that North End’s best hope for stability is a slow and steady couple of years building the team back up.
Even so, given that only in November owner Hemmings spoke of the £750,000 that he is wiring to the club each month in order to keep it afloat, will slow and steady be enough?
And, more to the point, how relaxed should North End supporters be in the knowledge that their club is so indebted to a single person, a tax exile who happens to be in possession of the ground of another struggling club, Chorley FC? If this Turmoil Week has taught us anything, it’s that owners of football clubs are very rarely in it for purely philanthropic reasons and that it’s important that fans keep a watchful eye on events, probing and questioning poor business practice where it would be easier to turn a blind eye and ‘get behind the lads’.
With Ridsdale and Westley on the centre stage and owner Hemmings quite happy to reveal the extent to which he is currently having to support the club, one senses that Lilywhites supporters should be bracing themselves for fireworks. And that’s coming from a Plymouth fan.