3 Golden Opportunities From The Falling Ringgit - Guest Post

“Four months ago, I had X amount of cash reserves in my emergency fund. Fast forward to today, and a portion of that amount's value is now gone, thanks to the continued fall of the Ringgit.” Does that sound familiar to you? The fact is, this story is more common than you think and now, the analysts are predicting that we'll see RM 100 = US$ 25 before the year ends. See for yourself.

The ringgit's depreciation has taken its toll on a lot of things, from the government budget and right down to our everyday purchasing power. In theory, the government is doing what it can to solve this problem, which is of course due to unforeseen external factors (falling global oil prices, China’s currency devaluation and more).

But for every problem, there is an opportunity. The ringgit may have lost its value, but here are some key factors that present themselves as "opportunities" for the future.

Tourism

If you are from nearby Thailand or Singapore, the weak ringgit is an opportunity for you to have a quick getaway to Kuala Lumpur. Tourism is a huge industry in Malaysia and the boost in local tourism will most likely keep the local currency from falling even further. Alternatively, if you’re Malaysian and traveling abroad, now is the perfect time to make use of your air miles points if you have them. You wouldn’t want to exchange your ringgit to more expensive currencies at this point.

Online Freelance Work

By now, everyone's familiar with the concept of freelance work. When you do this online and your medium of payment is through PayPal, you will most likely get paid in US Dollars. Try to get a fixed rate (in USD) for your online freelance work. As the value of the ringgit fluctuates against the dollar, the money you get in dollars will make you have more purchasing power once you exchange it with local currency.

Invest For The Future

There is an old story, where a person during the financial crisis of '97, bought all those stocks whose value had diminished. Of course 10 years later, these companies have regained their strength in the stock market. He bought those companies' stocks, and years later, the value of those has gradually increased over time. Rewarding isn’t it?

Perhaps the same opportunity is upon us now.

If you are reading this blog, then you probably know the difference between a stock trader and an investor. The stock trader monitors the market consistently, daily, or even by the minute! The perfect timing on when to buy or share the stock will spell the difference between victory and defeat. The investor isn't like that. He invests on what he feels are good companies, depending on its history and performance over time. There is a certain science to this, and I will advise you to monitor the market and read blogs like this one.

This article is prepared by Michael Vincent Mislos on behalf of CompareHero.my, Malaysia’s premier financial comparison portal.

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The Compressed Tech Life Cycle: The Investor Challenge

Much of what we learn and practice as investors represent models and methods developed in a different age, one where the market was composed of consumer product, infrastructure and manufacturing companies. While those lessons may have been good ones for old economy markets, I will argue in this post that they can provide misleading signals with short corporate life-cycles,  an affliction common among, but not unique to, tech companies. Lest this be construed as an attack on a specific group of investors, I will spread my critique across investor classes, starting with value investors, then moving on to growth investors and market timers and then turning it on intrinsic valuation practitioners (which is where I count myself).

The Tech Challenge for Value Investors

If you are a value investor, you may have been told that everything you need to know about valuation is in Ben Graham's Security Analysis. I will make a confession.  I love Ben Graham for his philosophy and intellect, but I think that using the techniques suggested in it to value tech companies is akin to using a hammer to do surgery. It is not Graham's fault, since he wrote the book at a time when the corporate world was populated with railroads, utilities and manufacturing companies and much of his advice was directed at coaxing investors who were more interested in buying bonds, to consider stocks as an alternative. In fact, in the Graham world, a good stock looks like a perpetual bond, with ever-growing coupons. So, at the risk of arousing the ire of value purists, here is my list of old value investing chestnuts that need to be roasted on the tech fire.

1. Don't trust earnings multiples: There are some pricing metrics that are singularly inappropriate for use with tech companies, and at the top of the list is price earnings (PE) ratios. Early in the life cycle, when growth is explosively high and R&D expenses are rising, the PE ratios for tech companies will be high, as markets price in future earnings, and tech companies will almost always look expensive, even if they are fairly priced. Later in the life cycle, when growth is not just low but often negative and R&D expenses are falling, the PE ratios for tech companies will be low, and tech companies will look cheap, even when they are not.

To illustrate this dynamic, I created two companies, both with 20-year windows and similar risk, but made one a tech company, with intense growth (50%) for the first 5 years, a short mature period of 5 years (10%) and speedy decline thereafter and the other one a non-tech company, with less intense growth (25%) for the first 5 years, a longer mature period of 10 years and a more stable afterlife. The graph below shows the fair PE ratios for these firms, as they move through their lifetimes. The bottom line is that tech companies look expensive on a PE ratio, when they are young, and cheap on a PE ratio basis, when they age, even if they are fairly valued. This problem is exacerbated by the accounting mistreatment of R&D, which makes young tech companies look less profitable than they truly are and old tech companies more profitable. Multiples of revenues and book value are also affected, but not to the same degree. 

Spreadsheet for PE ratio comparison

I can offer some evidence for this proposition from my post on the aging of tech companies, where I classified all companies based on their age and compare old tech companies (older than 35 years) with old non-tech companies. In the graph below, I compare the earnings multiples at which old tech companies(>35 years) trade, relative to old non-tech companies:

Old companies = Age greater than 35 years (since founding)

Note that old tech companies look cheap on every earnings metric, relative to old non-tech companies. There may be a reason why companies like IBM and Microsoft keep showing up on the lists of cheapest stocks, when you run value screens.

2. Don't buy and hold "good" companies: Not all value investors subscribe to this notion, but quite a few seem to accept the idea that if you find a good company (well managed, with strong competitive advantages), you should buy the company for your portfolio and hold for the long term (perhaps forever). That is not good advice with tech companies, where today's tech superstar can become tomorrow's dog. If you buy a tech company, you should be revaluing it at frequent intervals, selling it, if the price exceeds the value significantly.

3. Don't prize dividends over stock buybacks: I have always believed that fixed dividends are a ill-suited way of returning cash on a residual claim (equity), especially because investors who receive them seem to view them as constants that should not be changed. With technology companies, I would argue that stock buybacks are not only more suited to their life cycle needs, but are also more reflective of what they can afford to pay out, than large dividends. Again, I can offer partial backing for this statement by comparing cash returned by old tech companies versus old non-tech companies.

Old tech companies have, at least in the aggregate, returned far more cash to stockholders than old non-tech companies, have used buybacks more frequently and have held on to less cash wishing the companies, behavior that you would expect in the aggregate in the speeded up life cycle hypothesis, where decline is more precipitous.

The Tech Challenge for Growth Investors

While growth investors don't have the long traditions that value investors do, they have their own share of dos and don'ts accumulated through time. One is, of course, the idea of buying growth at a reasonable price (GARP), a notion made popular by Peter Lynch's work at Magellan and his resultant writings. In putting that  common sense notion into practice with tech companies,  growth investors draw on they own share of practices based on the premises that growth is good, that it is sustainable and if bought at a reasonable price, is a winning strategy. 

1. Growth is not always good: I have long argued against the lazy notion that growth is good and that a company should therefore go for growth, at any cost. While that notion is dangerous at any company, it is particularly so at tech companies, where once the life cycle turns, growth is a value destroyer, not a value adder. 
2. Growth may not be sustainable: Growth in the past has never been a great indicator of future growth across companies, but it is a particularly misplaced notion with tech companies where growth rates can change over night.
3. PEG Ratios are misleading: If value investors put their trust in PE ratios, growth investors put their in PEG ratios, the ratio of PE to growth rate. A low PEG ratio is considered to be a signal that a company is under valued; this is dumbed down even more when a PEG ratio below one becomes a magical indicator of cheapness. Using the tech life cycle rubric, I would argue that the PEG ratio approach will lead to too many tech companies looking cheap during their high growth phase and too few in their decline, the mirror image of the problem faced by value investors. Here again, I can use the two companies from my example to illustrate my point:

PEG = Trailing PE/ Expected Growth rate in EPS in next 5 years

Note that early in the life cycle, tech companies have lower PEG ratios than non-tech companies and later in the life cycle, they look expensive.

The Tech Challenge for Market Timers
This is not a post on market timing, but there are lessons here for market timers as well. The composition of the S&P 500 has changed over time, with tech companies increasing as a proportion of the index from 6% of the index in 1990 to 20% of the index in 2015.

While only the most successful of tech companies make it into the index, they do bring their specific life cycle characteristics with them. The effect on the index PE will depend in large part on where these companies are in their life cycles; if they are still in their growth phases, their presence will push up the index PE, but if they are in decline, they can depress the index PE.

The Tech Challenge in Valuation

As someone who lives in the intrinsic value world, I wrestle with this compressed life cycle concept, when I value technology companies. The typical framework for valuing a company, in a discounted cash flow valuation, is to estimate cash flows for a growth phase and then to estimate a terminal value, based on growth forever beyond that point.

The defense that is offered, when someone notes that nothing lasts forever, is that if a company lasts decades, you might as well use the assumption of "forever", since your value will be approximately the same number. That argument loses its power with technology firms, raising the question of whether we are over valuing mature technology companies by using this standard mythology. There are three simple fixes, if the perpetual growth assumption troubles you with a technology company:

1. Use a liquidation value, assuming that you disband the company and sell its assets. Since the assets of technology companies are not physical, this will yield a conservative estimate of value.
2. Use a growing annuity equation, i.e., assume that your cash flows will continue after your terminal year but only for a finite period (10-15 years) and with limited growth.
3. Use a growing perpetuity equation, with a negative growth rate in perpetuity, a practice that you don't see used often, but is well in line with what the model allows. Intuitively, you are assuming that the company will shrink over time and effectively disappear.

As a final point, in intrinsic value, you have to make judgments about managers in companies, and when valuing declining tech companies, where managers are in denial about the decline, you have to value the consequences (bad investments, value destroying growth etc.).

The Bottom Line
As the market's axis tilts towards technology, it may be time for us to revisit the metrics and models that we have been using, almost on auto pilot, for many decades. The shorter lives and the higher failure rates of technology companies can make them look cheap, when they are expensive, if you are a value investor, and their high growth rates can draw in growth investors, who may not factor in the fact that this growth is not sustainable.

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Tech Life Cycle Series

1. The Yahoo Chronicles! is this the end game?
2. Aging in Dog Years? Tech Company Life Cycles (Coming soon)
3. The Compressed Tech Life Cycle: The Manager's Challenge
4. The Compressed Tech Life Cycle: The Investor's Challenge

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The Compressed Tech Life Cycle: The Managerial Challenge

In my last two posts, I first looked at Yahoo, in the context of the challenges associated with turning around an aging technology company, and then argued in my second post that the life cycle of tech companies is compressed, relative to non-tech companies. As some of you have noted, there are not only exceptions to this rule, but there are actions, some healthy and some not, that managers of tech companies can, and often do, take to fight aging.

The Tech Life Cycle: The Manager's Handbook
The hyper speed at which their firms move through the life cycle can upend conventional rules on how to manage and finance businesses and there are three strategies that managers at these firms can adopt to survive and each has both a good and a dark side to it.

1. Acceptance/ Denial
In the healthy version of this strategy, as a tech firm (and its managers), you accept the fact that your life cycle will be short and you manage accordingly. 

1. During your ascendance, its all about growth: Since your period of growth will be steep and short, you have to keep your focus on delivering that growth. You also cannot afford distractions, whether they come from fights over control or from having to make debt payments.
2. When mature, use debt with restraint and keep it short term: The conventional wisdom is that mature companies should avail themselves fully of debt, and use its tax advantages to augment value. The same advice is often doled out to technology firms, but they are exposed to far more danger from debt, since their mature phases may last only a few years, rather than decades. Thus, tech firms will be better served if they borrow less than non-tech companies and keep that debt short term.
3. In decline, return cash with a vengeance: Your cash returns, whether in the form of dividends or stock buybacks, should reflect the speed of your decline, and to those advisors who worry that you may be signaling to the market that you have no investments, remind them that it is never wrong to signal the truth.

All of these suggestions, though, are built around accepting the speeded up tech life cycle as a fact of life and working within its constraints.

In the unhealthy version of this strategy, you do nothing to alter the life cycle dynamics for the firm, but manage the firm, in denial, breaking one or more of the three rules listed above. During your growth phase, you allow yourself to diverted by fights over control or debt financing and lose a portion of your growth potential. As your firm matures, you either continue to act like a growth company, pursuing growth (at any cost), and/or borrow money like a non-tech company. In decline, you try to reverse the process by going after the corporate equivalents of tummy tucks and face lifts, corporate do-overs that do not change the end game but enrich others in the process.

2. Reseed and regrow
If you are the manager or owner of a tech company, it is natural to look for an anti-aging serum, something that will let you extend your life. After all, you do have the exceptions to the short life cycle rule, companies that have managed to not just survive over long periods, but continue to grow. This strategy is built on the premise that it is tech products that have short life cycles, not tech companies, and that if you can keep coming up with new tech products, you can extend your life as a company. Your management strategy, if you go with this option, will be to advance the company along two tracks. While nurturing your primary product, you will look for opportunities to extend what you see as your strengths (technology, design, user base), by offering new products and services. In your dream scenario, your initial success gives you a leg up for future successes, leading you to have an extended life cycle as a company.

Promising though this option may look, there are two caveats and they are what characterize the darker version of the strategy. The first is that whether the strategy pays off for your stockholders will depend in large part on what you pay to extend your product portfolio. If the price you pay to add new products and extend your life cycle is greater than the benefits of doing so, you will have a long life cycle, but you will lose value along the way. The second is that the new products that you offer have to scale up, as you become larger. Put differently, a new product that adds fifty million in value is a giant step forward, when you are a hundred million dollar company, but makes only a small difference if you are a billion dollar company. An added and related implication is that the more successful your initial product is in delivering profits and value, the more difficult it becomes to find new products that make a substantial growth contribution.

3. Reinvent
The third and perhaps most promising route for high tech firms that want to stretch out growth periods is to change the business model. Having used low cost entry, easy scaling up and customers switching to climb the growth ladder quickly, you have to work at removing those advantages for the firms that follow you. In particular, you have to try to do one or more of the following:

1. Increase the cost of entry: To accomplish this, you can look to legal protection (perhaps through patenting) or by creating gate keepers that slow and perhaps stop new entrants. In my view, both Microsoft and Apple have been helped in their life cycle lengthening efforts by controlling the operating systems that are the standards that competitors often have to follow to enter their respective businesses.
2. Increase the cost of scaling up: To the extent that low capital intensity allows competitors to grow fast, you can work to increase the capital needed for growth. 
3. Increase the stickiness of customer preferences: If customers are quick to switch with technology products, you have to make it more costly to switch. This can be accomplished in many ways, by adding features to the product or service that become more user-customized with use (eg. search engines that remember your searches and online retailers that learn your preferences) or by creating work product that will be degraded or rendered useless by switching. As someone who has been frustrated with MS Office (for the Mac) at various times in the last few years, I have considered switching to competitors (Keynote and Pages, for instance) but have held back because I have thousands of Office documents from close to three decades that may or may not survive the switch.

In the darker version of this strategy, the roadblocks you create to competition may expose you not only to bad public relations (as a bully or unfair competitor) but to legal jeopardy, as anti-trust regulators target and try to change your practices. Google and Microsoft, two companies that have adopted this strategy with extraordinary success over the last two decades, have faced this backlash, as a consequence of their success.

The "Right" CEO
The corporate life cycle structure comes with a subtext on what type of management skills are needed at each stage.

Put briefly, the "right" CEO for a company in the growth phase will need vision, charisma and story telling skills to attract employees, investors and customers to the company. As growth levels off, you need a different set of skills in your CEO, more discipline in seeking out growth and recognizing its limits. In decline, you want a CEO with limited ambitions, who is swilling to shrink the company and sell its assets, at the right price. While this is true for all companies, the process is easier for non-tech companies with long life cycles, where each phases lasts long enough to allow the process to happen naturally (where the CEO ages with the company and hands the reins over to a new one).

The Rest of the Story
With tech companies, with speeded up life cycles, where a company can go from rising star to declining company in a period of a few years, there is a much greater risk that the start-up CEO (often a founder) will still be at the helm when the company enters its mature and perhaps even declining phases. The qualities that made the CEO a good fit in the start up and growth phases will become a liability as the company matures and declines. There are three implications:

1. Denial is more deep set: The potential for value destruction from going for growth, when it no longer makes sense to do so, is greater at tech companies than an at non-tech companies, because the management in place is often the same one that nurtured the company through its high growth phase. The problem gets worse if the CEO happens to be the founder of the company and views its decline and failure in personal terms.
2. Making the backlash stronger: The natural reaction to management denial is investor anger which will be manifested in activist investors pushing managers to change, and if they refuse, push them out.
3. Which is reason to worry about voting rights: In the last decade, technology companies have moved away from the "one share, one vote" paradigm that governed US companies for decades. That trend, started by Google, but extended by the social media companies, has been ignored as these companies grow rapidly but will become an issue for investors, when growth slows at these companies and the founders/insiders go into denial model. If you are a stockholder in one of these young tech companies with unequal voting rights, you will regret your inability to have a say in how these companies are run, sooner rather than later.

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Tech Life Cycle Series

1. The Yahoo Chronicles! is this the end game?
2. Aging in Dog Years? Tech Company Life Cycles (Coming soon)
3. The Compressed Tech Life Cycle: The Manager's Challenge
4. The Compressed Tech Life Cycle: The Investor's Challenge

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Aging in Dog Years? The Short, Glorious Life of a Successful Tech Company!

The corporate aging theme is one that I have returned to repeatedly in my posts, and I have looked at how the aging process creates dysfunctional responses on the parts of managers, who want to find ways to reverse it, and investors, who make bets on such reversals. It was the under pinning for my last post on Yahoo, and in that post, I argued that technology companies have compressed life cycles, i.e., age in dog years, relative to non-tech companies. In this post, I would like to provide a rationale for why this may be the case and set the stage for my next post on what the implications are for managers and investors.

The Corporate Life Cycle

The corporate life cycle follows a familiar pattern. It begins with an idea, that develops into a product, which evolves into an operating business, that matures, and eventually dies. 

I have also highlighted the transitions that determine whether a company moves to the next stage and the mortality rate especially early in the life cycle is high. There are wide differences across companies in how long they take to climb the life cycle, how much time they spend as mature companies and how quickly they decline. As legal entities, corporations do have a little more give in the process, i.e., the capacity to slow or even reverse the process for periods, than individuals do, but not as much as they (and their strategic advisors) think that they do.  The one reality that I think is incontestable is that even the most exceptional companies will age and that whether they deal with that aging gracefully is what determines how their stockholders will do during the process. 

Determinants of the Life Cycle

To get a sense of what drives differences across companies and how the life cycle evolves, I tried to take a look at the determinants of each phase of the cycle in the graph below:

• When you start up, your focus is survival, and that will depend on (a) how much access you have to capital, (b) how much you need to invest to enter the market and (c) the time lag before you have a product or a service. Your chances of survival improve, if you have access to more capital and don't have to wait very long before you have a functioning product. 
• The speed of your growth will depend on (a) how quickly the overall market is growing, (b) the ease of scaling up your operating and (c) how much inertia there is on the customers side. You will be able to grow faster, if the overall market is growing exponentially, scaling up is easy and you are dealing with customers who are willing to switch from incumbent products/services.
• The length of the mature phase will depend upon the nature of your competitive advantages, how big they are and how long they last. If your competitive advantages are strong and sustainable, your mature phase can last for a long time. Consumer product companies with strong brand names, one of the strongest and most sustainable competitive advantages, have longer mature phases than companies that have a cost advantage, a more transient and short term competitive advantage.
• In decline, the speed with which your business will deplete will depend upon (a) how quickly new companies can enter the market  (b) how quickly they can scale up and how willing customers are to try new products. In other words, you see that a mirror image of the qualities  that allow for speedy growth also contribute to a quick decline.
• In the end game, your choices depend on what your remaining assets look like and whether they can be liquidated, without substantial losses. If they can, your end will be speedy and perhaps even painless. If not, your death throes can be long and painful.

Tech versus Non-tech

Before we start on a discussion of how tech companies are different from non-tech companies, we have to think about what separates the two groups, and that separation becomes hazier by the day. In the 1980s, at the start of the tech revolution, the distinction was a simple one. If a company’s products or services were computer-related (either personal or business computers), it was classified as a technology firm. That distinction allowed us to identify Microsoft, Apple and Atari as technology firms, and bring in HP, IBM and Digital Equipment as the old guard. That definition no longer works, as almost every product we buy (from appliances to automobiles) has a computerized component to it, and it has meant that deciding whether a company is a tech company is a judgment call. Given that reality, I would propose that rather than draw hard lines of distinction between tech and non-tech, we consider technology on a continuum, where at one end you have companies whose products and services are entirely technology driven (Google, Facebook) and at the other, you have companies that almost no technology component to them (consumer products and cosmetics companies, for instance). With this continuum, you can argue that Tesla and Ford are both auto companies, but that Tesla has a larger technology component than Ford. 

Why do we care about these distinctions? First, they have practical implications for analysts and portfolio managers. Sell-side equity research analysts are usually put into sector silos and asked to keep their focus on the companies that they are assigned. With companies like Amazon, Netflix and Tesla, high profile names to follow, I have noticed that there are big differences across banks. Some assign these companies to the technology analysts, some to the businesses that these companies operate in (Tesla in autos, Netflix in entertainment and Amazon in retail) and some create new sector groupings just for these gray area companies. Second, for better or worse, the categorization of a company can affect its pricing. Tesla, classified as an auto company, will look expensive, compared to other auto companies, but classified as a young tech company, it may look cheap. That is perhaps why companies seek out the tech label for themselves, even if technology is only a small component of their offerings.

The Tech Life Cycle

If you accept my argument that technology is a continuum, then you can perhaps live with my definition of “tech” companies as those that get the predominant portion of their value from technology. With that definition, I can revisit the corporate life cycle and its determinants and make the following generalizations (and I am sure that you can think of exceptions with each one):

• Scaling up is easy: Tech companies often operate in businesses where entry is not restricted, the up front investment is minimal and scaling up in easy. If market conditions are favorable, they are aided and abetted by access to  capital and by less sticky customer preferences in their markets. Not surprisingly, tech companies can grow quickly.
• Holding on is tough: Once tech companies reach the mature phase, they don't get to have long harvest periods. Their competitive advantages are fleeting and quickly deplete.
• Decline is rapid: The same forces that allow technology companies to grow, i.e., unrestricted entry, ease of scaling up and customer switching, also make them vulnerable to new entrants seeking to take their business away from them.
• And there is little left in the end game: Unlike other businesses, which accumulate physical assets as they grow and thus have a liquidation potential, with technology companies, there is little of substance to fall back, once earnings power is exhausted.

Here, for instance, is my contrast between the life cycle of the typical tech company, contrasted with a typical tech company.

Is there evidence that this is what happens in the market? I could use Blackberry as an example, but I would then be guilty of using anecdotal evidence to advance my theory. Instead, I will argue that the evidence exists, albeit in scattered form. First, there is evidence that the small tech firms (that survive the first tests) are able to scale up faster in terms of revenue growth (at least) than small non-tech firms. The fact that they often lose money while doing so is as much a function of the accounting inconsistency of treating research and product development costs as operating expenses, as it a function of operating weakness. The second is that these tech firms, once established, have a more difficult time maintaining growth. The third is that decline, once it starts at tech firms, is more difficult to reverse and quicker to accelerate. All of these points are made in this  McKinsey article on growth at tech companies. 

A Life Cycle Perspective on Disruption

Disruption is the new buzz word in corporate strategy, a reason that I listed it as on my list of words that operate as weapons of mass distraction, and is often used to cut off debate or not talk specifics. From my perspective, the essence of disruption is a that it is a new way of doing business that radically changes the fundamentals of on established business. In the context of technology-driven disruption, it a company, with a tech model, coming into a non-tech business, characterized by long growth periods, extended mature phases and elongated declines.

Consider car service, i.e., the taxi cab and limo business. The old non-tech model for this business required regulatory approval (making entry difficult) and substantial investment (in cars) in a market governed by customer inertia. Uber and the other ride sharing companies have upended the model by bypassing regulatory approval, not investing in cars and breaking through inertia by reaching out to customers through their smart phones. The results speak for themselves. Not only have Uber, Lyft and Didi Kuaidi grown at rates unlike any seen by traditional car service companies, but each has a market reach that is beyond the old model. No traditional cab company can afford to operate in 300 cities, like Uber does.

The effect of disruption is that it upends the fortunes of mature companies from the old business model, coasting in their mature phase, convinced that change is slow. Unprepared for the speed of change emanating from the tech entrants, these old players wait too long to respond, looking to regulators and rule makers for protection, and not surprisingly, face an implosion. That, in a nutshell, is what has happened to the taxi cab and limo business in many cities. The new entrants, though, should not celebrate too quickly, since their tech model disruption comes with its dangers. Their models are difficult to mine for cash flows and are themselves susceptible to competition. As I noted in my post on the future of the ride sharing business, disruption is easy, but making money on disruption is hard.

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Tech Life Cycle Series

1. The Yahoo Chronicles! is this the end game?
2. Aging in Dog Years? Tech Company Life Cycles (Coming soon)
3. The Compressed Tech Life Cycle: The Manager's Challenge
4. The Compressed Tech Life Cycle: The Investor's Challenge

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Brighton and Hove Albion - Welcome to the Beautiful South

“Good old Sussex by the sea, Good old Sussex by the sea, Oh we’re going up….”

Brighton and Hove Albion’s famous song goes on to refer to winning the cup, but these days the Seagulls are firmly focused on going up to the Premier League. The club has transformed itself from relegation candidates in a “disappointing” 2014/15 to viable promotion contenders this season.

Indeed, the Albion currently sit proudly on top of the table and after 19 games are the only remaining unbeaten side among the 92 Football League clubs. As chairman Tony Bloom commented, this represents “a tremendous improvement and progress in the past 12 months.”

Under the guidance of manager Chris Hughton, who replaced Sami Hyypia on New Year’s Eve after the Finn had finally been “binned”, Brighton are once again playing some effective football.

The proverbial “safe pair of hands”, the knowledgeable Hughton first ensured that Brighton stayed up and has since “reshaped the squad into one capable of competing at the top end of the Championship.” As Hughton said, “We knew it was going to be a big recruitment summer. We lost nine players and knew we had to bring in nine, which is really too many.”

"Marching orders"

Nevertheless, they have recruited well, signing a good blend of experience and youth including Liam Rosenior, Jamie Murphy, Uwe Hünemeier, Gaetan Bong, Tomer Hemed, Niki Mäenpää, Elvis Manu and Connor Goldson. They also captured James Harper, the promising “kid from Madrid”, and delivered the icing on the cake in the form of returning hero Bobby Zamora.

Last season was particularly frustrating after the club’s development over the past few years. Following promotion from League One in 2011, Brighton had qualified for the Championship play-offs two years in succession in 2013 and 2014.

The recent success tastes all the sweeter when the many years of adversity are considered. In the early 90s the Goldstone Ground was sold to property developers, ostensibly to pay off the club’s debts, though the vast majority of fans considered this to be a blatant act of asset-stripping by the reviled chairman, Bill Archer, and his partner-in-crime, chief executive David Bellotti.

In 1997 Brighton avoided relegation out of the Football League to the Conference by the skin of their teeth, as a 1-1 draw at Hereford United condemned their opponents to the dreaded drop, but there then followed years of struggle, exacerbated by the problems of finding a suitable ground.

"Let's get serious"

First came exile to Kent, where a ground share with Gillingham meant a 140-mile round-trip for Albion fans to attend their “home” games. After two long years the club made its weary way back to Brighton in 1999, but the destination was Withdean, an old council-owned athletics stadium where the facilities were far from ideal. Largely open to the elements, the “theatre of trees” was arguably the worst stadium in the whole of the Football League with totally inadequate facilities, but at least chairman Dick Knight had brought the club back home.

It took 12 years, but finally Brighton moved to the magnificent new Amex stadium in Falmer. The major investment required to build the stadium (and indeed a superb new training centre) was financed by Tony Bloom, a lifelong fan who became chairman with Knight taking the role of life president.

It is now a realistic aspiration for Brighton to seek promotion. Although the club has never been in the Premier League, it did play in the old First Division, which was then the top tier of English football, for four seasons between 1979 and 1983, when they also came within a kick of beating the mighty Manchester United in the 1983 FA Cup Final (“and Smith must score”).

So the club has made great strides off the pitch in the past few years, but the financial results for the 2014/15 season “reflected a difficult season”, though the £10.4 million loss was a slight improvement on the previous year’s £10.6 million.

There was a small decrease in turnover of £0.3 million (1%) from £24.0 million to £23.7 million. Although there was solid growth of £0.7 million (8%) in commercial income to £8.9 million, as a result of the sponsorship of the American Express Elite Football Performance Centre and the Academy grant increasing from £0.5 million to £0.9 million for Category 1 status, the other revenue streams fell.

Gate receipts were £0.6 million (5%) lower in line with the fall in attendances, while broadcasting income dropped £0.5 million (9%), as the club featured less on live TV.

On top of that, all cost lines were higher. Wages rose £0.3 million (2%) to £20.6 million, while other expenses surged £2.3 million (19%) to £15.0 million. There were also increases in the non-cash expenses, as depreciation was up £1.4 million (41%) and player amortisation rose £0.3 million (14%) to £2.4 million.

The deterioration in ongoing revenue and costs was compensated by a significant £4.9 million increase in profits on player sales from £3.8 million to £8.7 million, largely due to the sales of Leo Ulloa to Leicester City and Will Buckley to Sunderland.

To be fair to Brighton, almost all clubs in the Championship lose money and are reliant on owners’ funding. In 2013/14, the last season when all clubs have published their accounts, losses were reported by 21 of the 24 clubs – in stark contrast to the Premier League where the new TV deal, allied with wage controls, has led to a surge in profitability. The only clubs to make money in the Championship were Blackpool (and their model is not one to be recommended), Wigan Athletic and Yeovil Town.

As Bloom noted, “Any Championship club wishing to compete for promotion will inevitably make significant losses, so it remains a delicate balancing act for the board, recruitment team and manager as we strive to achieve our ultimate aim.”

That said, Brighton’s loss of £11 million in 2013/14 was one of the highest in the league, only surpassed by six clubs: Blackburn Rovers £42 million, Nottingham Forest £23 million, Leicester City £21 million, Middlesbrough £20 million, Leeds United £20 million and Millwall £12 million.

This was despite Brighton making a fair amount from profits on player sales with only three clubs generating more money from this activity in 2013/14. Again, Championship clubs rarely sell players for big bucks, at least compared to the Premier League, but this has become increasingly important to Brighton, rising from £3.8 million to £8.7 million in 2014/15.

It is believed that Brighton have received additional payments of around £2 million for Ulloa and Buckley helping their clubs stay up. Although it is not completely clear whether these payments were included in the 2014/15 accounts, the contingent receivables on transfers have fallen from £4.3 million to £2.1 million, so it is a reasonable assumption that they have been booked.

Of course, losses are nothing new for Brighton. The last time that they made a profit was back in 2007/08 – and that was less than £1 million and only arose because of a £3.6 million exceptional credit, due to a change in the accounting for the Falmer stadium expenses incurred to date.

Since then, the club has made cumulative losses of £62 million. In fact, their losses have increased as the stakes have got higher, i.e. targeting promotion to England’s top flight, where the financial rewards are enormous. This has produced £46 million of losses in the four years since promotion to the Championship, averaging more than £11 million a season. As Tony Bloom put it, “most Championship clubs are currently loss-making as a means of supporting their own ambitions.”

As we have seen, the 2014/15 figures were flattered by hefty profits on player sales. Traditionally Brighton have made very little from the transfer market until 2013/14 when the club sold Liam Bridcutt to Sunderland and Ashley Barnes to Burnley.

Next year’s accounts will be interesting, as no major sales were made this summer. In fact, Brighton demonstrated their ambition by resisting Fulham’s offer of £4-5 million for central defender Lewis Dunk, who is not even guaranteed a starting place.

That said, Bloom admitted, “It would be ridiculous for me or any owner to say that a player is never for sale. There’s always a price for any player.” In particular, Brighton have a number of players that could attract tempting bids from bigger clubs, e.g. Solly March, Dale Stephens, Beram Kayal and that man Dunk.

Brighton’s strategy is more clearly seen by the club’s alternative presentation of the profit and loss account, which highlights the increase in the football budget last season, funded by making the administrative and operational costs more efficient plus improvements in player trading.

This has been driven by chief executive Paul Barber, who explained the approach in this way, “I’m obsessive about reducing our operational costs, cutting waste, getting better supplier deals, and making the club more efficient, because it's the only way that we can maintain a competitive playing budget without breaking Financial Fair Play (FFP) regulations.”

Finance director David Jones added, “We have continued to increase our investment in football, and in particular player wages, in order to give ourselves the best possible chance of success on the pitch.” This enabled Brighton to invest an additional £3 million in the club’s football budget in 2014/15.

In fact, Brighton’s managers have benefited from a significant increase in this football budget of around 80% since 2012, as it has grown from £13.1 million to £23.7 million.

This was a notable achievement, especially in a season that Barber described as “unexpectedly difficult”. He added, “Ticket sales fell, merchandising sales fell and, on top of that, our Football League income fell too. Against such a backdrop, keeping our turnover ticking over was the first priority. Give or take, we managed to keep our overall income static, despite reductions in key areas.”

To put this into perspective, Brighton’s revenue has grown by almost 500% since 2009, surging from £4 million to £24 million, largely due to what can de described as the "Amex effect", though the promotion from League One to the Championship in 2011 has obviously also helped. Following the move from Withdean, gate receipts are more than four  time higher, increasing from £2.3 million to £9.8 million.

In addition, the new stadium has brought more commercial opportunities, leading to income climbing from £3.1 million to £8.9 million. The club could negotiate better deals with sponsors in the higher division (up from £0.8 million to £5.6 million), increase retail sales, e.g. from the stadium megastore (up from £0.5 million to £1.2 million) and make more from catering, i.e. pies and the famous Harveys beer (up from £35k to £1.0 million).

In 2013/14 Brighton’s revenue of £24 million was the 8th highest in the Championship, but the clubs with the three highest revenues (QPR, Reading and Wigan Athletic) were more than 50% higher with £37-39 million.

Money often talks in football, so it is no surprise that two of the four clubs with the highest revenue were promoted that season: QPR and Leicester City. The exception to the rule was Burnley, who had the 11th largest revenue, £4 million less than Brighton, so it is still possible to get out of the Championship on a modest budget.

Of course, these revenue figures are distorted by the parachute payments made to those clubs relegated from the Premier League, e.g. in 2013/14 the first year of relegation was worth £24 million. If we were to exclude this “disparity” (as Barber calls it), then Brighton’s revenue would have been the 3rd highest in the Championship, only behind Leicester City and Leeds United.

As Barber observed, “Championship clubs need to be spending the sort of money we are spending to be competitive, but it is certainly easier to do this if you have higher incomes supported by parachute payments.”

Following last season’s movements, the club’s revenue mix has also changed, though the majority (41%) still comes from gate receipts (down from 43%). Commercial income’s share has increased from 34% to 38%, while broadcasting has reduced from 23% to 21%. This is a not untypical mix for Championship clubs, as opposed to the Premier League where TV is by far the largest source of income – up to 80% for some clubs.

Clearly, Brighton are more reliant on match day income than most clubs. In fact, in 2013/14 only two clubs were more dependent on this revenue stream: Charlton Athletic 50% and Nottingham Forest 44%.

However, Brighton’s gate receipts fell 5% (£0.6 million) from £10.4 million to £9.8 million in 2014/15, driven by a decrease in average attendance from 27,110 to 25,649 and one less cup game being staged at the Amex. Despite the reduction, this is still likely to be the highest match day revenue in the Championship, as they were far ahead of the closest challengers the previous season (Leeds United £8.6 million and Nottingham Forest £7.2 million), partly due to the transport levy paid to rail and bus companies.

After having the highest attendances in the Championship for two seasons in a row, Brighton fell back to 3rd place in 2014/15, behind Derby County 29,232 and Norwich City 26,343.

Since the move to the Amex, attendances had been steadily rising from the 7,352 at Withdean, as the new stadium finally met latent local demand for tickets. Capacity has been increased twice since the original move: in July 2012 it grew from 22,500 to 27,444 after the Upper tier of the East Stand was extended; and in March 2013 there was a further increase to 30,750 after all four corners were completed.

Although the reduction in attendances must be of concern, Brighton’s potential was highlighted by a new record crowd of 30,278 being set in the FA Cup 4th round tie against Arsenal in January 2015.

Ticket prices are among the highest in the Championship. According to the BBC’s Price of Football survey, Brighton have the second highest cheapest season ticket (only below Hull City) and the fifth highest most expensive season ticket (behind Fulham, Ipswich, Sheffield Wednesday and QPR).

However, Barber argued: “Once the cost of travel is deducted, our average ticket price is very much in line with the Championship and wider Football League average prices.” He also pointed to the magnificent facilities that are second to none, including free wifi and VIP padded seats,

In 2014/15 Barber “kept season ticket prices as low as possible”, which meant an average increase of 3%, though there was a price freeze for juniors. The good news is that in 2015/16 the club froze season ticket prices, extended the subsidised travel zone and introduced a new age bracket for fans under 21.

Brighton’s broadcasting revenue fell from £5.4 million to £4.9 million in 2014/15, which was attributed to the club being shown less on live TV, but was also due to not appearing in the play-offs. In the Championship most clubs receive the same annual sum for TV, regardless of where they finish in the league, amounting to just £4 million of central distributions: £1.7 million from the Football League pool and a £2.3 million solidarity payment from the Premier League.

However, the clear importance of parachute payments is once again highlighted in this revenue stream, greatly influencing the top eight earners, though it should be noted that clubs receiving parachute payments do not also receive solidarity payments.

Looking at the television distributions in the top flight, the massive financial disparity between England’s top two leagues becomes evident with Premier League clubs receiving between £65 million and £99 million, compared to the £4 million in the Championship. In other words, it would take a Championship club more than 15 years to earn the same amount as the bottom placed club in the Premier League.

As we have seen, parachute payments make a significant difference to a club’s revenue and therefore its spending power in the Championship. Up to now, these have been worth £65 million over four years: year 1 £25 million, year 2 £20 million and £10 million in each of years 3 and 4.

However, the Premier League has recently announced changes to this structure, whereby from 2016/17 clubs will only receive parachute payments for three seasons after relegation, although the amounts will be higher (my estimate is £75 million, based on the advised percentages of the equal share paid to Premier League clubs: year 1 55%, year 2 45% and year 3 20%).

There are some arguments in favour of these payments, namely that it encourages clubs promoted to the Premier League to invest to compete, safe in the knowledge that if the worst happens and they do end up relegated at the end of the season, then there is a safety net. However, they do undoubtedly create a significant revenue advantage compared to clubs like Brighton.

If Brighton were to gain promotion, the financial prize for returning to the Premier League would be immense, exacerbated by the recent blockbuster Premier League deal that starts in 2016/17, which Barber described as “astonishing”. I have estimated this be worth an additional £30-50 million for Premier League clubs, depending on where they finish in the table, though my assumption for overseas deals may prove to be a little conservative.

Even if a team were to finish last in their first season and go straight back down, their TV revenue would increase by an amazing £87 million (£92 million less £5 million) and they would also receive a further £64 million in parachute payments (restricted for clubs only in the Premier League for one season), giving additional funds of around £150 million. The size of the prize helps explain the loss-making behaviour of many Championship clubs.

Of course, Brighton would also have to spend more to improve their playing squad, but the net impact on the club’s finances would undoubtedly be positive, as evidenced by the clubs promoted in the past few seasons.

Commercial income was the most impressive revenue performer in 2014/15, rising 8% (£0.7 million) from £8.2 million to £8.9 million, comprising commercial sponsorship and advertising £5.6 million, retail £1.2 million, catering and events £0.9 million and academy grant £0.9 million.

In the new world of FFP, Bloom said that the club “had to adapt and move quickly to establish a sharper commercial focus. We had to focus on the inherent value of our brand.” The club’s success in this area is reflected by Brighton having the 3rd highest commercial revenue in the Championship, only behind Leicester City (boosted by a “friendly” marketing deal with Trestellar Limited) and Leeds United, as befitting their fine history.

This is despite the fact that Brighton now only report the net catering commission in revenue, whereas in previous seasons all the gross revenue was included in revenue with the expenses shown in costs.

"Tell me when my light turns green"

What has been particularly impressive is the increase in sponsorship. American Express are not only shirt sponsors, but also naming rights partner for the stadium and the training ground. This multi-year agreement, signed in March 2013, was described by Barber as “the biggest in the club’s history.”

Similarly, Barber said that the 2014/15 Nike deal, replacing Errea after 15 years as the club’s kit supplier, represented “a significant increase on our existing commercial arrangement.”

Interestingly, the club has applied for planning permission for a 150 room hotel alongside the stadium through its subsidiary, The Community Stadium Ltd, with a planned opening in summer 2017. This would enable the club to host more events like the two rugby World Cup matches in September.

Brighton’s total wage bill rose by 2% (£0.3 million) from £20.3 million to £20.6 million, though this was still lower then the 2013 peak of £21.1 million. It is worth noting that since 2012, the first year back in the Championship, the wage bill has grown by £6 million (41%), while revenue has only increased by £1.5 million (7%).

Furthermore, given the significant reduction in administrative and operational expenses, it is likely that the players wage bill has increased by a healthy amount.

Despite this growth, Brighton’s wage bill is still only the 8th highest in the Championship, thus outside the top six, as noted by Hughton, so promotion would indeed be a fine achievement. It was significantly lower than the likes of Leicester City, Reading, Blackburn Rovers and Wigan Athletic, whose wages were all above £30 million. QPR were even higher at £75 million, but that was simply ridiculous in the second tier.

The remuneration for the highest paid director, who is not named, but is surely Paul Barber, has decreased from £652k to £558k, almost certainly due to the previous season including a large bonus for the chief executive’s success in cutting operational expenses and renegotiating many of the sponsorships.

Although Brighton’s wages to turnover ratio increased from 85% to 87%, which is not exactly great, it is by no means one of the highest in the Championship. No fewer than 10 clubs “boasted” a wages to turnover ratio above 100% in 2013/14 with the worst offenders being QPR 195%, Bournemouth 172% and Nottingham Forest 165%.

The (relatively) prudent approach is evidently the one that Brighton want to follow, especially in a FFP world, as noted by Bloom: “While we do want to play at the highest level, we cannot simply open our cheque book and start spending without care or attention.”

Other expenses rose by 19% (£2.3 million) from £12.6 million to £15.0 million, which are the 2nd highest in the Championship, only behind Leeds United. These represent the other side of the coin of moving to the Amex, as the club noted: “The operational and administrative costs of running a state of the art stadium are significant.”

Depreciation increased by 41% (£1.4 million) from £3.5 million to £4.9 million, which is by far the most in the Championship, the next highest being Derby County £2.1 million. This represents the annual charge of writing-off the cost of the stadium and (for the first time in 2014/15) the training ground. These are depreciated over 50 years, i.e. 2% of cost per annum.

Player amortisation was 14% (£0.3 million) higher at £2.4 million, but this is strictly mid-table in the Championship. To put this into perspective, the highest player amortisation in 2013/14 was at QPR £16.6 million, Blackburn Rovers £7.2 million, Wigan Athletic £6.8 million and Nottingham Forest £5.7 million.

The way that football clubs account for player trading can be confusing, but the fundamental point is that when a club purchases a player the costs are spread over a few years, but any profit made from selling players is immediately booked to the accounts.

So, when a club buys a player, it does not show the full transfer fee in the accounts in that year, but writes-down the cost (evenly) over the length of the player’s contract. Therefore, if Brighton were to spend £10 million (if only) on a new player with a 5-year contract, the annual expense would be only £2 million (£10 million divided by 5 years) in player amortisation (on top of wages).

However, when that player is sold, the club reports the profit on player sales straight away. This essentially equals sales proceeds less any remaining value in the accounts. In our example, if the player were to be sold 3 years later for £13 million, the cash profit would be £3 million (£13 million less £10 million), but the accounting profit would be higher at £9 million, as the club would have already booked £6 million of amortisation (3 years at £2 million).

Over the years, Brighton have not been a big player in the transfer market, often registering net sales, though they have increased their gross spend recently, averaging £4.4 million in the last two seasons, compared to just £0.5 million over the previous eight seasons.

However, it is apparent that Brighton have not gone overboard in terms of spending, especially compared to some of their principal rivals who are really “going for it”. To illustrate this, in the last two seasons Brighton had net sales of £2 million, while four clubs had net spend above £10 million: Middlesbrough £15 million, Burnley £14 million, Derby County £14 million and Hull City £12 million.

To be fair, this comparison has to be treated with some caution, as the figures are distorted by clubs that were in the Premier League the previous season, either because of high spend when they were in the top flight or large sales following their relegation. Furthermore, many deals are “undisclosed” in the Championship, so might have no reported value.

That said, it is clear that Brighton have been comfortably outspent by many other clubs. As Hughton observed, “There are big spenders in the Championship. We aimed to put ourselves in a challenge for the play-off positions – no-one would have put us as favourites. But let's keep surprising people.”

Therefore, Brighton have to box clever. They have made extensive use of the loan system, although arguably too much, as at one stage last season they had six loanees, one more than the maximum permitted in a match day squad – and who could forget Leon Best, the most inappropriately named player since Dennis Wise.

Fortunately, this season’s loan signings looks more promising, especially the talented James Wilson from Manchester United, while Barber has said money is available for permanent transfers: “we have some funds to invest in January – but as ever we will do it in the right way, for the right player, at the right price.”

Brighton’s net debt rose by £14 million from £127 million to £141 million with the £17 million increase in gross debt to £147 million slightly offset by cash also rising by £3 million to £7 million. Debt has been rising over the past few years, but it is almost entirely owed to Bloom and can be regarded as the friendliest of debt, being interest-free and repayable after more than one year.

This means that Brighton have one of the largest debts in the Championship, though it is still not as high as Bolton’s £195 million in 2013/14. The other difference is that Brighton’s borrowings can be considered as “good” debt, having been largely used to fund the new stadium and training ground, as opposed to other clubs, whose debt is more to fund over-spending on players and agents.

Brighton also have £2.3 million of contingent liabilities in regard of transfers, which could be payable if certain defined performance criteria are met, e.g. number of appearances.

Although Brighton’s finances are pretty robust (for the Championship), the support of Tony Bloom remains incredibly important, as Barber acknowledged: “In football, people talk about spending – or losing – millions of pounds almost flippantly. It's still very important to remember that Tony Bloom is covering our annual losses of £10.4 million – and as a result we are not under pressure to sell players. Tony has incredibly deep pockets but we don’t ever take his incredible generosity towards our club for granted.”

As well as the £17 million increase in his loans, Bloom also invested a further £11 million in shares subsequent to the year-end. It is not clear whether this is new capital or equity conversion, but it does not detract from the fundamental point, which is that Bloom has put in a massive amount of funding.

As at the 2014/15 accounts, I estimate that this amounts to £217 million, split between the current £147 million of debt, £11 million converted to equity and £58 million of share capital. That may not be the precise figure, but, to paraphrase Oscar Wilde, we don’t need to know the price of everything, as the value of the owner’s contribution is crystal clear.

Looking at how Brighton have used these funds since Bloom took charge, the majority (£153 million, or 72%) has gone on investment into infrastructure (including £103 million on the stadium and £32 million on the training centre), while £45 million (21%) has been used to cover operating losses. Any spending on new players has essentially been self-funded in this period by player sales.

Being so dependent on one individual can be a concern, but Bloom comes from a family of Brighton supporters: “I have absolutely no intention of selling. I think I will be here for many years to come.”

He continued: “Our ambition remains for the club’s teams, both men and women, to play at the highest level possible – and as chairman (and a lifelong supporter of the club) I will do everything I possibly can to achieve that and I remain fully committed to that goal.”

"Smooth operator"

Bloom is seriously wealthy from his property and investment portfolio (plus money earned from poker and other forms of gambling), but he would not be able to simply buy success, even if he wanted to, as Brighton will need to continue to comply with the Financial Fair Play (FFP) regulations. Under the previous rules, clubs were only allowed a maximum annual loss of £8 million (assuming that any losses in excess of £3 million are covered by injecting equity).

It should be noted that FFP losses are not the same as the published accounts, as clubs are permitted to exclude some costs, such as youth development, community schemes, promotion-related bonuses and depreciation on fixed assets. In any case, Brighton have complied with FFP for the 2014/15 season.

"One better Dale"

The current rules will continue to apply for the 2014/15 and 2015/16 seasons (though the maximum allowed loss is increased to £13 million from the second season), but will change from the 2016/17 season to be more aligned with the Premier League’s regulations, e.g. the losses will be calculated over a three-year period up to a maximum of £39 million.

Although Bloom said that the club was “not entirely happy” with the increase, he did concede that the change “does provide us with greater flexibility and the option to compete with those clubs benefiting from parachute payments.”

FFP encourages clubs to invest in youth development, which is an area of focus for Brighton. The splendid new training centre (“the best I’ve ever worked in”, according to Hughton) has resulted in the awarding of the important Category 1 academy status and will ultimately help develop players that can push for the first team.

"Long may you run"

Brighton can only be applauded for their efforts off the pitch, which have produced a remarkable transformation. As Hughton said, “There is no doubt that in the ambition the club have shown in the infrastructure, the stadium and the training ground, this can be a Premier League club.”

However, he pointed out that the Championship is “an incredibly demanding division”, so it was good to see that the owner is also acutely aware of this fact: “We have had a very good start to the current season, but we all know how competitive and tough the Championship is year after year, so it’s important we do not become complacent.”

Are Brighton Premier League ready? Absolutely, but they still have to do it on the pitch and there’s a long way to go yet. Nobody on the South coast is counting their chickens before they’ve hatched, but the Albion have put themselves in a great position to realise Bloom’s dream.

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