After nearly thirty years Wales once again has a representative in the top tier of English football, following Swansea City’s thrilling 4-2 win in the Championship play-off final against Reading. Not only was this a terrific achievement in its own right, but it also represented a massive turnaround for the Swans, who came close to going out of business less than ten years ago.
Scott Sinclair’s hat-trick meant that Swansea will be the first Welsh club to play in the Premier League since its inception in 1992, which is a fair reward for its pleasing brand of football over the last few seasons and its determination to rise from the ashes of financial disaster.
While most of the plaudits have gone to the team’s attacking stars like the prolific Sinclair, Nathan Dyer, Stephen Dobbie and Fabio Borini, the success also owes a great deal to a tight defence, marshalled by the outstanding centre-half Ashley Williams, which had the second best record in the Championship in terms of goals conceded.
In his first season as Swansea manager, Brendan “Buck” Rogers has rightly received a lot of praise for the team’s passing game and possession football, which has been compared with Arsenal and even Barcelona. The man from Northern Ireland had a point to prove after being sacked by Reading just six months after arriving from Watford, where he had damaged his reputation with the manner of his departure only seven months after being given his first managerial role. This he has done in emphatic style, making use of the knowledge acquired in his time as youth team and reserve team manager at Chelsea under the tutelage of a certain José Mourinho, which he described as “like being at Harvard University.”
"Brendan Rodgers - he's worked with Mourinho"
To a certain extent, Rodgers is merely carrying on the progressive football philosophy established at Swansea by previous managers like Kenny Jackett, who laid the foundations, which were subsequently refined by Roberto Martinez. This can be seen by the supporters’ resistance to Paolo Sousa’s more defensive approach, even through the Portuguese star led Swansea to their highest league finish for many years, just outside the Championship play-offs. As chairman Huw Jenkins said, “It's (been) a build-up of experience and understanding.”
Indeed, Swansea’s journey has been nothing short of remarkable.
Older fans will remember the dramatic rise and fall during John Toshack’s reign between 1978 and 1984, when the club rose from the Fourth to First Division in just four seasons with a team featuring former Liverpool hard man Tommy Smith, wing wizard Leighton James and Jeremy Charles, son of Swansea stalwart Mel Charles and nephew of the legendary John Charles, before plummeting back through the leagues to end up where they started in 1986. The club’s ambition cost them dear, as they were wound up by court order in 1985, before being saved by local businessman Doug Sharpe.
Once bitten, twice shy, fans might have hoped, but history more or less repeated itself in 2001, as the club changed hands between a series of unlikely owners. Ninth Floor, a London-based security company, had bought Swansea City in 1997 and invested several million pounds before cutting their losses and selling the club for just a £1 to former commercial manager, Mike Lewis, who in turn disposed of the club (again for £1) to Tony Petty, an Englishman fronting a consortium of Australian businessmen associated with the Brisbane Lions, an Australian Rules Football club.
"Ashley Williams - a show of strength"
Petty’s brief period in charge was deeply unpopular, as he sold the club’s best player, sacked many others and told the remainder that their salaries would be reduced. This infuriated both the Swansea fans, who organised a number of demonstrations, and the Football League, who threatened sanctions, resulting in Petty exiting stage left in January 2002, after selling the club to a consortium of local businessmen led by the former Swansea defender Mel Nurse. Although they only paid Petty a nominal sum, they had to contend with estimated debts of £1.7 million, a fortune at the time for a club of Swansea’s size.
The club was forced to enter into a Company Voluntary Arrangement, which meant that it had to agree through the courts how to pay its creditors or else go into administration. Although this meant that many creditors, including local suppliers did not receive the full amounts owing to them, it was probably the lesser of two evils. It’s a sad indictment of the management of football clubs in the lower leagues that Swansea are far from unique in following such a path with over half of the clubs in League One and Two suffering from an insolvency event in recent years.
Swansea’s financial difficulties inevitably spilled onto the pitch and they only avoided relegation from the Football league in the 2002/03 season by the skin of their teeth, when they won against Hull in the last game of the season. They were playing in a ramshackle, run-down stadium in front of declining crowds without two pennies to rub together. The chairman recalled not being able to pay the electricity bill, while workers replacing rusty seats in the ground were paid with season tickets.
"Nathan Dyer - a tricky character"
However, it’s an ill wind that blows no good and the result of these turbulent times is a board of directors with the club’s best interests at heart, including an elected representative, Huw Cooze, from the Swansea City Supporters’ Trust. This organisation played a huge part in rescuing Swansea and now has substantial involvement in running operations, owning 20% of the shares, which is the third highest individual shareholding at the club. Indeed, following their promotion to the Premier League, Swansea have been described by Supporters’ Direct, who did so much to help set up the trust, as “the first club at the top level to have a substantial trust shareholding.”
Since those dark days, Swansea City’s progress back up the football pyramid has been steady, though mighty impressive. They were promoted from League Two in 2005 under Jackett, went up as champions from League One in 2008 in Martinez’s second season and now once again have a seat at the top table.
And what a financial prize they will receive for their endeavours. The Championship has been dubbed the £90 million match, a description that is a little misleading, given that this money is spread over a few seasons, but the increase in the Swans’ revenue will still be spectacular.
Even if they finish rock bottom of the Premier League next season and come straight back down, they will earn around £40 million from the TV deal, but will also be in line for £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), a significant increase on the previous £16 million made available to relegated teams. On top of that, gate receipts and commercial income will certainly be higher, hence at least £90 million more revenue.
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 figures from 2009/10), we can observe this phenomenon with Wolverhampton Wanderers, Birmingham City and Burnley, but all three of them went from operating losses in the Championship to profits in the Premier League.
Promotion is going to have a transformational impact on Swansea City’s finances, as can be seen by looking at the club’s profit and loss account over the last few years. Next season’s projected total revenue of £47 million is almost five times as much as the last reported turnover of £10 million. However, Swansea’s recent financial performance is nothing to be ashamed of – far from it, as they reported a solid £0.6m profit in 2009/10, which is much improved from the thumping great loss of £1.4 million when they had the CVA back in 2001/02.
As chairman Huw Jenkins explained, “Over a period of time, you can see we’ve made small profits and small losses, but we’ve managed to balance the two out.” He went on to explain the club’s ethos, “We have tried to stick to within our income levels while staying competitive. It is a difficult job balancing the two but we’ve managed to do that over the last few years and we will be doing our best to make sure that continues.”
The club’s efforts to “use our budget and finances wisely” has been acknowledged by the Supporters’ Trust, who praised the club for successfully competing in the Championship “in a way which has not damaged the club financially.” That said, operating expenditure did rise by a third (or £3 million) in 2009/10 from £9.4 million to £12.5 million “reflecting the seriously growing cost of investment in a football squad capable of maintaining a strong challenge at the top of the Championship.”
This growth in expenditure was financed by £3 million in net transfer fees and compensation received from Wigan Athletic for the loss of Roberto Martinez and his management team. Interestingly, Swansea recognise transfer fees in the period in which they are received or incurred, unlike the vast majority of football clubs, which record players’ purchase costs as intangible assets, amortising the transfer fees over the length of the contract. It will be interesting to see if they maintain this accounting policy in the Premier League with transfer fees likely to substantially increase.
"Dorus de Vries - can he kick it? Yes, he can."
One way of looking at the 2009/10 figures is to note that Swansea would have made a relatively large loss of £2.5 million without the once-off money received from Wigan, including £2 million for striker Jason Scotland. Alternatively, given Swansea’s conservative approach to financial management, they might have simply cut their cloth to adapt to a smaller budget.
That question will only be answered definitively when the accounts for 2010/11 are published, though my guess is that these will show a loss. Not only will there be no once-off compensation (though some have suggested that there is still some money owed by Wigan for Martinez, based on a performance clause for keeping the Latics up last season), but the club have not made any profitable player sales, while splashing out for Scott Sinclair and Luke Moore. Against that, the solidarity payment given to all Championship clubs by the Premier League increased last season from £1 million to £2.2 million in 2010/11.
In any case, it is evident that Swansea have finally learned their financial lessons and have not gambled their long-term existence on trying to reach the riches of the Premier League. This is explicitly stated in last year’s accounts: “The board of directors’ aim continues to be the achievement of promotion to the Premier League as soon as possible, but not in any way that would jeopardize the group’s financial stability.”
This is evidenced by Swansea being one of only four of the 24 clubs in the Championship to make a profit in 2009/10 with six clubs reporting losses of over £10 million. In particular, the two other promoted clubs made hefty losses: QPR £14 million and Norwich City £6 million (though, to be fair, Norwich’s figures are from League One). For Swansea to secure promotion without splashing the cash to anywhere near the same extent of their rivals makes their feat even more striking.
As Huw Jenkins put it, the club needs “to operate within the confines of a limited budget.” Another director, Steve Penny, explained, “We are run on a very, very small shoestring. (Our budget) is bottom three or four in the Championship. It’s above Scunthorpe’s, around Barnsley’s.” Spot on, big man.
Swansea’s revenue of £10 million was considerably lower than many other clubs. As you would expect, the three clubs that were in the Premier League last season (Portsmouth, Hull City and Burnley) have the highest revenue (between £45 and £60 million), while the next three teams in the “league table” (Middlesbrough, Reading and Derby County) still had the benefit of parachute payments.
Although fewer clubs were boosted by parachute payments in the 2010/11 season, it clearly remains an issue, as noted by Huw Jenkins at the beginning of the season, “The financial gap is going to widen over the next few years and that’s going to make it harder for clubs like us.” Indeed, he has argued that the financial disparity is one reason for Swansea’s playing style, “Trying to monopolise possession was our answer to competing with sides spending a lot of money, who had physical players.”
That’s no longer the case, as we can see by the projected revenue growth for next season up to £47 million. Over the past few years, revenue has grown gradually, mainly in line with Swansea’s progress through the leagues. For example, revenue rose 75% in 2006 from £3.6 million to £6.3 million following promotion from League Two to League One. Similarly, revenue rose 54% in 2009 from £6.0 million to £9.3 million after the promotion to the Championship.
The blip in 2007, when revenue fell £1.4 million, was due to not repeating the previous season’s success on the pitch, when Swansea reached the League One play-off final, won the Football League Trophy and retained the FAW Premier Cup. Of course, all these increments now pale into insignificance next to the gigantic jump in revenue in the Premier League.
It is not an entirely straightforward exercise to analyse Swansea’s current revenue of £10.1 million, as their accounts only provide a high-level split between football income £8.2 million and commercial income £1.8 million with no further details. Nevertheless, we can make some educated estimates, based on information elsewhere.
Television revenue in 2009/10 was probably around £4 million, 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 an estimate of around £0.4 million 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).
"Gower power"
In 2010/11, this figure will have increased by £1.7 million 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.
That compares to the £40 million that the bottom-placed club, West Ham, received in the Premier League. For a newly promoted club like Swansea, it is worth understanding how the Premier League distributes its TV revenue. Much of it is shared out equally, namely 50% of the domestic rights and 100% of the overseas rights, but not all of the money is allocated in this manner. Merit payments account for 25% of the domestic rights with each place in the final league table being worth around £750,000, so if Swansea were to narrowly avoid relegation that would be worth an additional £2.25 million. Similarly, the dream scenario of a top ten place would increase the TV revenue to over £46 million.
In addition, the remaining 25% of the domestic TV rights comes from the facility fee, which is based on how many times Sky broadcast a club’s matches live. Taking Blackpool as an example, they were shown the minimum ten times, while the champions Manchester United were broadcast the maximum 24 times, which produced an £8 million difference in revenue between the two clubs. This system might just benefit a team like Swansea which is easy on the eye.
It’s also tricky to pin down the exact size of the club’s match day income, though the accounts do mention revenue received from two of the club’s associate companies, which should give us an indication of the total. The Swansea Stadium Management Company Limited (33.33% owned) collected £2.9 million match revenue, while the Swansea Stadium Premier Club Limited (50% owned) had £0.5 million of club membership income. That produces a total of £3.4 million, though there may be other elements included within the club’s football income.
Swansea’s average attendance of 15,507 is not particularly large. In fact, it was only the 15th highest in the Championship last season, around 10,000 behind Leeds United, Derby County and Norwich City. Clearly, this statistic is not a guarantee of success, as we can see with Championship winners QPR’s attendance being around the same mark as Swansea’s.
In fairness, Swansea’s attendances have significantly grown since they almost went out of business in 2002 and are now more than four times as much as the 3,691 registered in that season. Moreover, next season’s season ticket sales stand at a record 16,000, leaving just over 2,000 tickets for away fans to satisfy the Premier League’s 10% rule and around 2,000 tickets for match day sales.
It is also gratifying to see that, in stark contrast to QPR, the Swans have restricted price increases for their tickets. Season tickets for the West Stand (£469, early bird scheme £440) have only risen by inflation, while other increases are generally less than 15%. There are also special deals for senior citizens and full-time students £306 and under-16s £204. In addition, interest-free credit is available, while supporters who renewed their season tickets in March received up to £100 of vouchers to spend in the club shop. This refreshing approach was explained by vice-chairman Leigh Dineen, “The club is run by supporters for supporters. That is the main reason behind our decision to keep season ticket prices as low as possible.”
Part of the increase in attendances is undoubtedly due to the move from the dilapidated Vetch Field, which had been Swansea’s home for 93 years, to the shiny new Liberty Stadium in the summer of 2005, for which the club owes the local council a huge slice of gratitude. Neither Swansea, nor the regional rugby club, the Ospreys, had enough money to finance the development of a new stadium, so Swansea council stepped in. Although they also did not have any spare cash, they did own the proposed site, the home of Morfa Athletics Stadium, which they sold with enough adjoining land to create a major retail and leisure site.
"It's a Liberty"
The new stadium was named after local property firm, Liberty Properties, who paid more than £500,000 for the naming rights, but the freehold is owned by the council. It is run by a management company that includes six directors, two each from Swansea City, the Ospreys and the council. Swansea reportedly only pay ground rent if the attendance is over 16,000, but I have not been able to verify that. Despite the low cost, the South Wales Police begun legal action to recover money owed to them by Swansea for the cost of policing games, though this has now been settled out of court.
In any case, the Liberty Stadium has clearly been a big advantage to Swansea, not only in terms of the higher match day revenue, but also due to its ability to attract better players, managers and sponsors.
Given the near sell-out crowds for the Premier League, the club has said that it is looking at options to increase the capacity of the stadium, which is the second smallest in the top division (only behind QPR), especially as the demand for season tickets was so high, but Huw Jenkins rightly observed that “we can’t think about running before we can walk.” The stadium management company has also spoken of plans “to maximise alternative revenue streams, other than those arising from the football and rugby clubs.”
"Angel Rangel - Spanish eyes"
As stated earlier, Swansea’s commercial income is only £1.8 million, though it is possible that some revenue normally treated by other clubs as commercial income has been classified within football income. The club will be hoping to increase this revenue stream in the future following the greater prestige and exposure from playing in the “best league in the world.”
Their current shirt sponsorship deal with online gaming firm 32Red.com has been running for the past two seasons and is worth “a sizeable six-figure sum”. Last month this was extended for a further three seasons, though no financial details were divulged. Kit suppliers Umbro have recently been replaced by Adidas, which is a neat piece of symmetry, as the last time that Swansea wore this kit was also the last time that they were in the top flight under Toshack.
The wage bill highlights the difficulties facing Swansea, as it rose by a third last season from £6.3 million to £8.3 million, which meant that wages had nearly doubled in just two years. According to the club, this “clearly demonstrates the growing cost of matching market demand, protecting quality of performance and achieving a fair measure of success in the Championship.”
This increased the important wages to turnover ratio from 67% to 83%, which is way above UEFA’s recommended maximum limit of 70%, but is not untypical in the Championship, where Deloitte’s Annual review of Football Finance recently reported that the average was a deeply troubling 88%.
In fact, Swansea have done better than most in their challenge of “protecting the wage structure in the face of increasing player market demands”, as their policy of focusing on hungry, young (and relatively cheap) players has resulted in one of the lowest wage bills in the Championship. In fact, only three clubs (Scunthorpe United, Millwall and Doncaster Rovers) had lower wage bills in 2009/10 than Swansea’s £8.3 million. Almost half of the teams had wages at least double Swansea’s with a few spending three times as much. For Swansea to gain promotion despite their financial disadvantages is extremely impressive, as there is usually a very strong correlation between wages and success on the pitch.
The wage bill will obviously rise in the Premier League, but Swansea will still be at an enormous competitive disadvantage. To place this into context, five teams have wages above £100 million: Chelsea £173 million, Manchester City £133 million, Manchester United £132 million, Liverpool £114 million and Arsenal £111 million. Even the two teams with the lowest wage bills in 2009/10 (that still survive in the Premier League) paid out far more: Wolves £30 million and Wigan Athletic £39 million.
Last season was the first time since the formation of the current board in 2002 that the directors received any payment “for services rendered and reimbursement of expenses” – and this was only a nominal £110,000. As this included £30,000 compensation to a director for the loss of office, the remuneration was in fact only £80,000, which is hardly milking the club dry. Speaking of the directors, Swansea fans will hope that the collapse of chairman Huw Jenkins’ building supplies business last August with creditors owed more than £430,000 is not a sign of things to come.
The club’s activity in the transfer market has reflected its strenuous efforts to balance its books. Over the last decade the club has spent just over £7 million in total on purchasing players, while recovering virtually all of that outlay with £5 million of sales proceeds, giving a net spend of only £2 million. As Huw Jenkins explained, “The success we have had has been built by finding the majority of our players on their way up the ladder.”
In fairness, Swansea’s limited budget means that they have struggled to attract the best players, though Brendan Rodgers has suggested that the club might still appeal to “a player who perhaps wasn’t playing as much as he would like at an established Premier League club.”
That said, the club has been increasingly willing to splash out what it describes as “substantial” sums in order to deliver a squad that was capable of doing well in the Championship, including the likes of Nathan Dyer, Craig Beattie, Luke Moore and David Cotterill in the past few years. Indeed, the club has twice broken its transfer record in the last 12 months, first paying £500,000 for Chelsea forward Scott Sinclair last summer (the fee potentially rising to over £1 million with appearances and performance-related add-ons, including promotion to the Premier League) and then £3.5 million to Watford last week for striker Danny Graham.
In fact, over the last two season, Swansea’s apparently paltry net expenditure of £1.5 million was actually the fifth highest in the Championship, though this is largely because many clubs were net sellers, while others spent hardly anything. Eagle-eyed observers will note that the three teams promoted this season (QPR, Norwich City and Swansea) were all in the top five spenders over this two-year period.
One advantage that Swansea will enjoy over many Premier League clubs is their very low debt, which stands at just £1.4 million, meaning negligible interest payments. This actually represents a £0.7 million increase over last year, while the club had net cash of £0.3 million two years ago. There is a tiny bank overdraft, while the only loan of note is the £1 million advanced last year by the director Martin Morgan via his company OTH Limited. This loan is repayable within a year and is secured against the football club’s assets with interest payable at 1.5% above base rate.
Swansea’s balance sheet is markedly different to most other football clubs in other aspect, as it shows very few assets for two reasons: (1) the club does not own the stadium; (2) it does not include player valuations. The latter is normally under-stated in the books of a football club, as book value of original player cost less amortisation is invariably lower than market value, but Swansea have taken the prudence concept to the extreme with zero value. According to the respected Transfermarkt website, Swansea’s squad was worth around £19 million in reality. Obviously, that valuation is a matter of opinion, but the squad is clearly worth more than nothing.
This means that Swansea’s balance sheet has net liabilities of £0.8 million, which would have been £2 million higher without a large increase in trade debtors (the Martinez compensation?). Although this is a relatively small sum, it did provoke the auditors to note that the club’s ability to continue as a going concern is “dependent on the continued support of the group’s shareholders.” In particular, this means “providing loans to assist the group at times when cash flow is under pressure.”
Given the small size of the loans and the fact that they are from supportive shareholders, as opposed to banks, this should not be considered to be unduly alarming, but it might have become an issue if Swansea had remained outside the Premier League, potentially requiring additional investment to strengthen the balance sheet.
As the profit and loss account has been relatively healthy over the past few years, the auditors’ comments might be a little surprising to some, but the reality is that the club is cash negative before financing: £0.1 million in 2007/08, £1.0 million in 2008/09 and £0.8 million in 2009/10. These shortfalls have been covered by £1.5 million of loans and £0.5 million from a share issue.
Hence, Swansea is likely to maintain its path of financial caution, as outlined by Huw Jenkins, “The club will continue to operate in the same way we always have done. The kind of money that comes with being in the Premier League perhaps offers temptation to some, but the same was said when we first came into the Championship.” With the recent threats to Swansea’s existence due to financial mismanagement still firmly lodged in most supporters’ minds, few are likely to argue with the board’s unwillingness to take risks with their new fortune.
The good news is that the club is now in a financial position where it no longer needs to sell its best players. However, one of the problems of a club doing well is that its players tend to get noticed and even though Jenkins has stated, “The last thing on our mind is to sell anyone over the summer”, there are a few attracting serious interest from clubs that would be willing to pay them higher wages.
"Joe Allen - young at heart"
It has been reported that Fabio Borini, on loan from Chelsea last season, has joined Parma, while Newcastle have been sniffing around young full-back Neil Taylor and midfielder Darren Pratley has not signed a new contract amid rumours that he is off to another Premier League club. On the other hand, star striker Scott Sinclair has declared that he will be staying at Swansea, “I’m not going to go to another Premier League club and sit on the bench.”
A few players have been linked to the club, as Jenkins affirmed, “Bringing players in is our priority.” Perhaps the most intriguing is 34-year-old Marcos Senna, part of the Spain squad who won Euro 2008, who is out of contract at Villarreal. Another possibility is for Swansea to take players on loan from more established Premier League clubs with two England Under-21 defenders already in the frame: Tottenham’s Steven Caulker and Chelsea’s Ryan Bertrand, who were loaned to Bristol City and Nottingham Forest respectively last season.
This is very much in line with Swansea’s policy, of which the best example is Wales international Joe Allen, though the club aims to turbo-charge this aspect of its strategy by investing more funds into the academy, including the acquisition of the former RTB Landore sports ground. Brendan Rodgers believes that it is vital for the club to have its own training facility, especially with the need to instill its football philosophy at all levels and provide “a continuous stream of talent into the senior playing squad” and now Swansea have the funds to do just that.
"Danny Graham celebrates his move to the Swans"
The bookies have made Swansea favourites for relegation from the Premier League, which is fairly predictable when you consider that four out of the last five teams promoted from the Championships via the play-offs went down the following season (while Hull City only survived two seasons). Brendan Rodgers also seemed to acknowledge that the odds were against them, when he said that the club was “similar to Blackpool last year or Burnley before that”, but few sides will relish a visit to the Liberty Stadium, as the passion of the Swansea fans can make it an intimidating arena, contributing to the best home record in the Championship last season.
In the worst-case scenario of immediate relegation, the club’s finances will still receive a major boost, which will enable them to be even more competitive in the Championship. However, it’s far too soon to write-off the Swans’ chances, as this is a club that has beaten the odds on numerous occasions in the last few years.
They’ve almost gone out of existence twice, most recently less than ten years ago, and battled their way up from League Two on a budget considerably lower than most other clubs. Backed by devoted fans and a supportive community, their progress has been heartwarming to observe and it wouldn’t be a complete surprise if they added a few more glorious chapters to this fabulous story.
