The Financial Underbelly: Reading

Posted by on Jun 23, 2015 in Financial Underbelly | 5 Comments
The Financial Underbelly: Reading
Image available under Creative Commons (c) JUlian Walker

In Friday’s previous instalment in our series on the financial health of football clubs, Chris Lines described Reading Football Club’s attitude post-relegation in 2013 as a ‘dignified readjustment’. Here, Jon Keen delves deep in a bid to assess the financial health of the Royals.

When the guys at The Two Unfortunates asked me to put something together about the financial underbelly at Reading, the two words that sprang immediately to mind were “ownership” and “transition” — closely followed by uncertainty.

Because whilst at all clubs there is, of course, an inextricable link between ownership and finances, at Reading right now this link is even more acute, and the current transition to new owners of whom we know a disappointingly small amount makes the level of uncertainty just as acute.

I think it’s fairly well known how Reading, who were always renowned as one of the better managed and more financially astute of all league clubs, came within an hour of going into administration just over a year ago — but it’s worth briefly retelling, if only as a warning of how quickly one rogue owner can wreak havoc with a club’s financial situation.

The sorry tale started in January 2012 with the takeover of the club by Russian Anton Zingarevich, in a deal in the name of Thames Sports Investments and organised by Christopher Samuelson, a long-time manager of funds in offshore locations. This deal was ratified in May that year, the same month in which Reading won promotion to the Premier League — which may explain why supporters asked precious few questions about the bona fides and intentions of Zingarevich, Samuelson and TSI.

At this point Reading’s finances started to unravel, as Zingarevich appears to have started playing his own game of Championship Manager with imaginary money. Whilst his father Boris had amassed a fortune through paper-pulp, the wealth of his son appears to have been relatively limited, and whilst he was happy to select players and commit the club to paying their contracts, no money seems to have ever have been forthcoming into the club to meet these commitments, so despite the Premier League money Reading found itself holding — and paying for — a number of very expensive babies.

A perfect example is Pavel Pogrebnyak, a big Russian striker signed in July 2012. He appears to have been Zingarevich’s “marquee signing,” as he seemed determined to achieve the acquisition of his compatriot no matter what the cost might be. After his successful loan spell at Fulham the Cottagers were keen to sign Pogrebnyak, but balked at what they felt were excessive wage demands, but it was these same wage demands which Zingarevich was happy to commit Reading to — reported at the time as being around £65,000 to £75,000 a week.

I’m also fairly sure that Zingarevich, negotiating in an overseas hotel room, wouldn’t have been aware of the sort of financial niceties like relegation clauses that are so important in contracts, so it appears that whatever the level of remuneration, the club was committed to them for the duration of the striker’s four-year deal. There were recently reports that he was wanted by Zorya Luhansk in Ukraine, and I’m sure those in charge of the wage bill at the Madejski would welcome his departure on financial grounds, but I can’t see it happening — it’s a rare player who would take a cut in salary in order to move to a club in the middle of a war zone!

To further add to this, in the last week The Daily Mail ran a story saying that although Pogrebnyak had “only scored seven goals in 33 matches last season [he] will receive a pay rise from Reading this summer to make him the highest paid striker in the Championship.” Predictably, that’s a fairly sensationalist and disingenuous angle from the Mail, since any pay rise now would only be a type of “loyalty bonus” due in the final year of his contract – and one committed to at the time this contract was drawn up. It’s fairly safe to say that the existing club management would not be paying it if they had any choice, and I think if Pogrebnyak did leave early there’s be great rejoicing from anyone involved in trying to manage the club’s finances.

As a side comment, I’ll just add now that I absolutely hate the way that footballers’ wages are always quoted as a weekly figure, as if that makes them more realistic to supporters. But no-one I know thinks in terms of weekly wages, just about everyone talks about annual sums, so once you realise that £65,000 a week equates to £3.38 million a year then you get to realise the enormity of the sums involved.

There were several other high-value players signed in that period, such as USA international midfielder Danny Williams, ex-Newcastle star Danny Guthrie, and ex-Real Madrid trainee Royston Drenthe. The former has been a qualified success at Reading when fit, and the jury is very much out on Guthrie – although he failed to endear himself to anyone when declining to travel to a crunch match away at Sunderland because “his head wasn’t in the right place!” As for Drenthe, the less said the better — but quite apart from such players, the overall wage bill across the club went up exponentially, with Premier League salary demands and Zingarevich’s promises. Manager Brian McDermott was deemed a failure — despite having his hands tied by his new Chairman’s choices of players but little budget for his own choices — and he was replaced by Nigel Adkins – but after just one season as a Premier League club, Reading suffered the financial double-whammy of both relegation and the disappearance of Zingarevich. The Russian vanished without, as far as anyone can tell, a single rouble of outside cash coming into the club despite all the previous promises made, and financially Reading found themselves staring at the rapids of a well-known creek without the necessary tool for rowing with.

Twelve months ago, after a season of inconsistency where Reading briefly flirted with the play-off positions but never really looked like credible contenders for them, the financial crows came home to roost. In order to meet financial obligations, promising players such as Sean Morrison and Alex McCarthy were sold off, with Adam Le Fondre also departing in great haste on the day a bill to HMRC was due. Reading also needed to take out a £10m loan from Vibrac Corporation, a company incorporated in the British Virgin Islands who specialise in advances to English Football Clubs — this loan was secured against the August 2014 parachute payment. Even once this was handed over to Vibrac, another £1.5m in interest was due to Vibrac, making payday lenders like Wonga look like honest brokers with reasonable terms. And…to make things even worse the Football League fined the club £30,000 for taking out this loan, primarily because Vibrac and Samuelson were deemed to be exercising a significant role at the club, exerting influence over the choice of potential owners, without having been assessed under the Football League’s “Owners and Directors” tests.

In the twelve months since then, things haven’t improved financially, and a pretty dismal first half of the season saw Adkins replaced by Steve Clarke; and whilst League performances continued to be dire at least a fantastic FA Cup run gave Loyal Royals something to smile about. It’s hard not to feel some sympathy for Adkins, who was no doubt promised all manner of financial wonders by Zingarevich but who ended up finding the cupboard was bare – although his critics would say that he consistently seemed unable to get the best out of the players he found at the club.

So as we approach next season, with parachute payments reducing and partly committed, the likes of Pogrebnyak still at the club for another year, and with the threat of Financial Fair Play penalties for the previous years of Anton-inspired profligacy, the financial crunch has really come to Reading. I pity those at the cub who have to try and square this particular circle and deal a winning hand with the precious few cards left them by Zingarevich.

We’re in the midst of a host of difficult decisions, as high-earning players are let go — such as the release of Adam Federici, who has joined Bournemouth, and the likely departure of Jem Karacan, who has been offered only a one-year contract and who currently appears on Reading’s “not-retained” list. But such decisions are inevitably unpopular with many fans — fans who just want to see big transfer fees paid and highly-paid players at the club, without particularly understanding or caring where the money for them comes from.

For them, we just “didn’t try hard enough to keep” Federici, for example, whereas in reality we just couldn’t afford to match what he wanted — or maybe he’d decided to move on whatever. For the final six months of his expiring contract he’s been free to talk to other clubs, so who’s to say he’s not been looking or new pastures all along — and who would really expect him to turn down a move to the Premier League? But this is leading us towards a discussion of some football supporters’ warped vision of “loyalty” — and let’s not go there right now! Suffice to say that as big-name players are leaving and there are no replacements yet (even though it is still only June!) many supporters are getting extremely twitchy.

I mentioned at the start the link to ownership, and that’s the other important strand in Reading’s financial future. Between July and September last year, the club was taken over by a Thai-based consortium, with Lady Sasima Srivikorn and Khun Sumrith Thanakarnjanasuth each purchasing 25% and Khun Narin Niruttinanon taking on the other 50%, in a takeover which The Daily Telegraph City Diary priced at £26m.

But sadly not much is known about Reading’s new owners. Lady Sasima seems to be their public face, having visited several times, especially around the times of FA Cup matches, and having featured with Sir John in a Mail article – but the big unknown for supporters is what their intentions are, and whether they are prepared to put in any external money.Certainly it’s needed, because it’s likely to take a good few years for the damage inflicted by the Zingarevich adventure to be repaired — and to do so is going to be painful and upset many supporters. Balancing the books is getting harder and harder for Championship clubs. The Deloitte Annual Review of Football Finance 2015, issued last week, spells out just how dire the situation is for clubs at this level. For example (all figures relate to the end of the 2013/14 season):

  • Wages paid by Championship clubs topped £500 million for the first time ever, a 12% increase from the previous season
  • Only three Championship clubs had wage costs below 70% of revenue, and nearly half of them had wages which exceeded revenue
  • The aggregate debt of Championship clubs passed £1.1 billion, equivalent to more than twice their aggregate revenue
  • Only one Championship club was in a “net funds” situation — and that was Blackpool, where the owners seem to have decided not to spend any money on the team, with predictable results.

This figures look utterly horrible and completely unsustainable, and are even more depressing when considered against the backdrop of another massive increase in Premier League broadcast revenue, making the financial gap between the top two tiers even broader.

So it’s a pretty bleak short-term outlook for everyone concerned with the club, and especially for those who are charged with trying to steady the financial good ship Reading FC – a ship weighed down with reported debts of £66m in June 2014, and further encumbered with the weight of supporter expectations and demands.

Because I think the biggest problem the club faces over the summer and going into the next season is management of expectations and ensuring that supporters understand the financial realities facing the concern — and indeed all clubs at this level! Because whilst there’s little coming out of the club in terms of what the new owners intend to do, and what the short-term financial plans are, it’s inevitable that this void of silence is being filled with the screams of the louder, more dramatic supporters, many of whom don’t appreciate the financial reality.

Those who call for big-name signings don’t appreciate that not only can Reading just not afford big-name signings, but that big-name signings almost inevitably don’t work here — the likes of Kevin Doyle, Shane Long and Dave Kitson weren’t big-name signings, whilst the likes of Drenthe, Greg Halford and Emerse Fae were! In any case, it’s wages that are most relevant to the actual cost and affordability of players, rather than transfer fees, and I’m a firm believer that big transfer fees are much more about making statements and winning bragging rights than they are about the quality and effectiveness of players.

A couple of themes are emerging amongst the general hysteria, notably that now Zingarevich has gone everything should now be on an even keel again (!), and that owners of a club can reasonably be expected to pour endless sums of money into a football club to meet supporters’ expectations, without expecting any reward or return except a nice warm feeling of altruism. If only life worked like that! But I’m regularly hearing statements like “If the Thais haven’t got any money then we should get rid of them and bring in someone who has” (!!) – and the general tone is getting more and more impassioned and critical of the club with each player who leaves and isn’t replaced on the same day.

Because there is a real air of uncertainty at Reading at the moment — deals are certainly being lined up, but it’s not clear to outsiders what the financial attitude of the new owners is. No-one seems to know if an actual total playing budget has yet been set, and so it appears that the only money the club has to play with right now is a proportion of the wages freed up by releasing higher-paid players. Whether there is — or will be — any more money coming in to bolster the playing staff further is a moot point, and a source of great discussion.

And whilst this is a real worry in the short-term, because now is the time that transfer business is starting to be done, I also worry that the relative lack of information about the new owners or their intentions brings another, longer-term, risk. All football clubs inevitably take on certain characteristics of their owners – in their whole identity, in their approach to things, in how they do business, and in their ethics and ethos.

Certainly Reading under John Madejski had a certain character and identity, one of honesty, integrity and of doing things in a slightly different way to the rest of football — which made them quite different in character and identity to Portsmouth before its rescue by its supporters, or to Newcastle under Mike Ashley, to give just two random examples. And so I worry just what character and identity Reading will actually develop if the owners are largely absent and pretty much unknown, and are not exerting any direct influence. The big risk is of a club without any character or any real identity, and that would kill off much of what has been so special about Reading over the years.

To close, there is one small ray of light which might just pierce the gloom of depression surrounding Reading’s immediate future. And that’s the quality of some of the players coming up from the Academy. The Reading Under-21 team won the Premier League Cup in 2014, and at all levels Academy teams are holding their own against those from the highest levels of the Premier League. It’s inevitable that many of these players will get chances to prove themselves at Championship level this season — even if it may be “sink or swim”. That, for me, is the biggest hope for the future and will prove to be the most interesting part of this forthcoming season.

Having said that, a crop of great youngsters is a double-edged sword for a cash-strapped team, as the better they are the bigger the struggle to hold onto them when richer clubs come waving cheque books, so I only hope that the financial situation is being managed well enough to keep the most promising young players at the Madejski. And that will also require a realistic prospect of fighting for promotion as an enticement to keep promising young players at the club, to go with Reading’s existing powerful selling-point compared to bigger clubs who might try to entice prospects away — the fact that this season is likely to be one in which opportunities for actually playing first-team games are likely to plentiful.

The Two Unfortunates
The non-partisan website with an eye on the Football League


  1. Lanterne Rouge
    June 23, 2015

    A good summary of the situation Jon. Further to this, the club signed a new kit sponsorship deal yesterday with a Thai energy drink but this seems unlikely to net millions. I worry slightly that the rebuild is a year behind – Reading started last season with lots of the youngsters such as Aaron Kuhl and Ryan Edwards in the team but got cold feet after bad results at Forest and Brentford in particular and turned to the loan market and a few old lags. They still only narrowly escaped relegation which makes you wonder if it was worth it (the incomers did do the club proud in the cup run mind).

  2. Lanterne Rouge
    June 23, 2015

    PS – I do worry about the Thai tour that is planned especially as it is just down to one game. The last time the club embarked on a trip to Asia, relegation followed. I can only see the trip as being needlessly exhausting and the impact on the bank balance will be debatable.

  3. MostlyBobbins
    June 23, 2015

    Excellent article, Jon. You have to feel that until we have run out the contracts of the likes of Pogrebnyak and Williams that we’ll start to get back on an even keel again. A lot of the (obvious) work has been done with Drenthe, Guthrie, Pearce, Federici and possibly Karacan – though I would guess that most would like to see him stay.)

    Clarke alluded to the Thai ‘Tour’ in his interview at the weekend, he said he was happy it was only one game as the Thai climate isn’t conducive to optimum training, so he was happy for there only to be one game.

  4. urzz1871
    June 23, 2015

    Thanks for the kind words, guys.
    I agree about the “tour” – in fact, is it fair to actually call it that when it’s a single game? How about the “Thai trip”?

  5. PJ
    June 23, 2015

    Great article. I might add one concern that I have. Lady Sassima when questioned on the Peach show stated that there were 4 investors and the show suddenly at that second disappeared off the air. Never mentioned again. Could Samrit Bunditkitsada now being investigated for money laundering be that fourth investor? As silence from the club doesn’t clear matters.


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