Who wants to buy a football club?

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“Whelan admits he’s looking to sell up” screamed Wish FM and a host of copycat websites last week. In other news, Germany have invade Poland and Freddie Mercury decides he prefers boys to girls. Quite.

Here’s a couple of thousand words on what it means, no tables this time sorry:

Whenever this story occurs or reoccurs it is met with a cursory, worrying nod by a clued up minority and absolute indifference by the screaming, shouting majority for whom the future never seems to go beyond the next result.

If and when they do choose to acknowledge, it is generally met with approval – “get someone in who will spend some money” they cry. It’s also as if the working class, high unemployment, minimum wage so prevalent in the town of Wigan never existed and we are in fact living in Monaco and it’s merely a case of waiting for some tipsy billionaire to come stumbling in after a fruitful night at the casino and bunging a few hundred million quid on the table.

It’s time we all paid a visit back into the real world I’m afraid. As a football club, we will be relatively cheap to buy but running the thing is another story altogether. There is a long queue of clubs out there waiting for a wealthy benefactor to turn up and wipe out their debts with a magic wand, what on earth makes you think that Wigan Athletic will feature anywhere near the front of that queue?

So we’re debt free – great. It is great news believe me. And Wigan Athletic now own the DW Stadium. Even better. There is a reason behind both of these events though, assuming they are factually true.

Wigan Athletic as a standalone business is a basket case
The debts Wigan Athletic has are a mix of loans & overdraft from the bank and loans from the parent company and subsidiaries.

The overdraft we have seen as high as £16m but you would assume it isn’t like that always otherwise Wigan Athletic would be under pressure to convert that into a loan.

Considering over the summer we will have some but not presumably not all of the £9.5m for Charles N’Zogbia up front and maybe a bit of a sell on fee for Palacios. Then there are season ticket sales and the Premier League prize money, always good for cash flow but don’t spend it all at once – you need to make it last the whole year.

However, we have also signed some players to offset that of course.
If you assume that the overdraft was £10m then Whelan will have had to pump in £10m cash to remove it. Or this might not have happened as it is a very fluid sort of debt: although it is money owed, it is money that could be repaid probably by selling a player or two just like you could sell your car or your pristine collection of replica Star Wars figures if you needed to pay off your own overdraft rapidly.

Most of the above is hypothetical guesswork but the point to make is that Wigan Athletic are allowed to rack up an overdraft because of Whelan not in spite of him. Without his other businesses and personal wealth as security we’d struggle to get any financial institution to lend Wigan Athletic any more than a few million.

Witness a famous old club up the road in Everton for whom the bankers are rumoured to have turned the tap off on and are now reputed to be mortgaging off their future TV revenue. This is scary stuff given this is exactly what is used to pay the player’s wages.

The other £50m ish of debt is owed to parent and subsidiary companies i.e. Whelan’s other companies. All he has done is convert the debt to equity which is a nicer word and makes people feel better. All this means is that when he sells the club he sells his debt rather than the buyer having that debt on the balance sheet.

It’s the same basic transaction though: he is simply entitled to a dividend twice a year instead of an interest payment. I can find no evidence of him taking either during all his time as owner of Wigan Athletic by the way.

Whelan has loaned £50m to Wigan Athletic to subsidise £50m of accumulated losses over the last ten years. He has also put in the bulk of the stadium funding 85% of £25.5m for what was a £30m capital investment to build the JJB Stadium.

Whelan has talked of putting £100m in, I’m not disputing this in the above, but nor am I going down the detail route, I want to retain this from an overview perspective. We’ll do the detail some other time but again what we do not know yet is whether he has converted the debt to equity on a pound for pound basis. There is no issue with doing this – the bottom half of the balance sheet will just show £75m of shares offset against £75m of losses.

The value of the shares simply reflects the amounts put in – not the realisable value.
The realisable value is what someone is willing to pay for it, ‘it’ being two entities: a property company and a football club.

What is the football club worth? Well next to nothing really…
If you consider that we were running at a £15m operating loss when Steve Bruce was in charge (Higher wage bill, lower TV revenues) this has now been addressed by the following (roughly):

£5m decrease in wage bill
£5m increase in prize distribution/TV money (renegotiated TV deal)
£5m net inflow on player sales (every year or else we make a loss)

However, it may have escaped your notice but we have a weaker, younger, more inexperienced squad and have teetered on the brink of getting relegated more or less every year.

Decreasing costs will almost certainly result in relegation however, increasing revenue is also unlikely: We get lower Championship crowds and our non-Sky/TV commercial revenue is the lowest by far out of all the Premier League clubs. Increasing ticket prices is only likely to drive more fans away and even success on the pitch is only ever likely to generate a 5% to 10% increase in attendances.

So why would anyone pay money for a company which doesn’t make any money?
Football clubs in general are at best a plaything and only a handful of truly global names can ever make a profit: United, Liverpool, Arsenal etc. Whelan knows this and he knows that his best chance of recouping anything at all is by lumping the stadium in with the football club.

Apart from the perceived prestige of owning a football club, our football club is worthless. The alternative is someone coming in as a sugar daddy to pour even more money in but I suspect there is a pretty long queue there of which Wigan Athletic need to get to the back of. We do not have the fanbase or history of someone like QPR, let alone Everton and don’t let current gates fool you on that score.

The other alternative is a Venky’s type situation and I think we’re all realising that they’re not quite what they were cracked up to be and they’re none too happy up the road at Ewood Park with their current situation.

Now to the stadium: and from the last set of accounts that I looked at, the stadium holding company actually makes a profit of circa £1m per year. Income will include rents from tenants (WAFC, WRLFC) commercial revenue from hospitality and events, there is then the issue of who owns the advertising and stadium rights. Advertising should be a no brainer – when Wigan Warriors are playing they get paid for advertisements and similarly Latics so we must assume that all advertising revenue is held within the sporting club’s books.

The stadium rights are clearly owned by

the stadium company not the individual sports club. So any revenue from the DW Stadium will have by rights historically gone to the DW Stadium company not Wigan Athletic anyway. However, if we assume that DW Sports aren’t already making a contribution to the stadium company’s £1m per annum profit, then maybe there is some revenue in that.

Using Stoke as an example, they bring in £1m a year from Britannia for shirt AND stadium sponsorship. It’s a dangerous comparison though as Stoke have 22,000 season ticket holders, sold 40,000 replica shirts last year, reached an FA Cup final last year and are playing in Europe this year.

Let’s say it can push up the new combined company’s profits to £1.5m per year, I doubt you will find anyone willing to pay more than £20-30m for it. When valuing companies, buyers tend to look for multiples of five times operating profit or 15 times turnover.

If you multiplied turnover by 15, then you would have a business that could be worth up to half a billion, but as we know wages are 90% of turnover: the bulk of our revenue comes in and goes straight back out again and therefore is not a reliable indicator.

So the bottom line is Whelan has put £80m possibly rising to £100m all in building the ground and sinking money into the Wigan Athletic project.
Take away that investment and we are still probably support and financially wise a bottom half Championship or top half League One club and may one day recoup £20m, maybe even £25-£30m for his shares.

Whereas we all realise he is now trying to balance the books as much for a sale than to meet financial stability requirements, we also have to recognise that the party wasn’t going to last forever.

I’m not trying to distract away from some of the dross served up on the pitch at this point but we have a chairman who, if he’s lucky will get in and out of Wigan Athletic with maybe £50m lost and you can argue that he’s had a lot of free advertising and publicity off the back of it all you like, but there’s no way it’s £50m worth.

It’s also very unlikely that the next person through the door, whoever that may be will show anything like the same level of financial intent, and even if he or she did, it would not go anything like as far in an increasingly money-ridden game as it has in the last 15 years or so.

Once you learn to accept fate, only then can you start to fight and challenge it. The sooner we as fans learn that we’re not here for a long time, we’re here for a good time, the better.

It may well be that the good times are over and this season is the year – as the doom and gloom merchants would have it. I don’t want to see our football club go down but we have been here before, or at least 1,500 or so have and it is not the end of the world.

To return to the beginning, what scares me more is the general lack of concern over the whole future of our football club compared to the hysterical reaction to a few bad results and garbage performances.

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