The Derby County debacle – a possible Championship iceberg

DERBY COUNTY are going into administration, a disaster for the club, but handled properly, it should not be the end of the road for the Rams. Fans of the club will be devastated, especially if it means relegation, but they should have the chance to rebuild and come back a better-run footballing institution. The public admission that things had to change will come as a relief to many fans who suspected that Derby were reaching a fork in the road.

Words of sincere encouragement, perhaps, but there may be more Derby Countys out there as the chickens come home to roots in a division where wages have outstripped income at most clubs. 

Derby’s case is especially acute, though, as their last filed financials were for the 2017-18 season and, from the outside, there seems a lack of transparency about the club. The club has been under a transfer embargo and because of issues over their financial reporting, notably the practice of amortising intangible assets, they had to resubmit their accounts for 2015-16, 2016-17 and 2017-18.

Thje 2017-18 accounts showed a net profit of £ 14.6 million and revenues of just under £ 30 million, but at the same time, they revealed that Derby’s wages were £ 40.5 million, representing a wage-to-income ratio of 137%. In short, the club was paying out far too much money, and still couldn’t get back to the Premier League. A similar story has developed at a number of clubs in the Championship.

Derby County are, effectively, an upper second tier club, even though the city they represent has a population of 260,000 which is comparable to Newcastle, Wolverhampton and Southampton.  Since the start of the Premier era, they have spent just seven seasons in the top tier and their last campaign, in 2007-08, was an absolute calamity, one win in 38 games. Never mind that they won two league titles in the 1970s when they resided at the muddy old Baseball Ground, the club has won nothing of note since and even the arrival of a new stadium, which opened in 1997, hasn’t given Derby the status they craved.

The club tried to make headlines with the signing of Wayne Rooney and the subsequent appointment of the former England star as manager, but Derby are in decline on and off the field, although their results this season have been better than many people envisaged. 

This season, aside from the local clash with old rivals Forest, around 16,000 people have attended the club’s home games at Pride Park. Consider that before the pandemic, they were drawing more than 26,000 – that’s a drop of 10,000 per game, not only a financial blow, but also a downer from a motivational perspective. What could happen now is a mass demonstration of siege mentality and the return of missing fans as the club regroups to combat this major crisis. When clubs hit a brick wall, fans have a habit of rallying round.

Owner Mel Morris has been trying to unload the club but has seen two potential sales collapse, one to Bin Zayed of Aby Dhabi and another to Spanish businessman Erik Alonso. The club cannot be sold for 28 days owing to administration, but it is clear that the future depends on a change of ownership as much as more prudent financial management. In the club’s announcement of September 17, they insisted that their forecasts showed the emergence of a more sustainable financial position – hopefully, this will encourage any potential buyer.

As it stands, Derby will suffer a 12-point deduction when they enter administration. This will place them at the bottom of the Championship with a 10 point margin between themselves and safety. If the club’s position does not allow certain creditors to be paid within two years, they will incur another nine-point hit. Ironically, the club immediately above them will be Nottingham Forest. What would Brian Clough and Peter Taylor have to say about that?

Derby County will surely survive, but there will be some leaner times ahead before the club can reinvent itself. They may not be a petro-club or part of the pampered elite, but they have the potential to fare far better than they have over the past 30 years. Football fans all over the country should be hoping an acceptable solution is arrived at, for the Rams will probably not be the last club of size to stare into the abyss. As Gary Neville, the SKY pundit and Salford City co-owner, said: “This has got to stop”.


When wings start to melt – Wigan Athletic’s sad collapse

WIGAN Athletic tipping into administration is sending shock waves through lower league football at a time when more and more business casualties of the coronavirus are gradually emerging.

Wigan, the first domino to collapse due to the virus, may yet be bought and saved from extinction, but nobody in football should be complacent about the situation. The fall of a club that seven years ago was in the Premier League and had just won the FA Cup is a sad story with a very clear warning.

Wigan’s tenure in the Premier lasted an astonishing eight years and ended with that FA Cup triumph at Wembley that prompted chairman Dave Whelan to “Dad dance” in the Royal Box. It was a delight to see, but as Wigan celebrated one of the most unlikely FA Cup wins of all-time, against Manchester City, they were also grappling with relegation. The club’s decline can arguably be traced back to that moment.

In 2012-13, Wigan’s revenues totalled £ 56.4 million, three years later, they had dropped to £ 15.7 million and in 2018-19, they were just £ 11.5 million – the lowest in the Championship. Since 2013, they have suffered two relegations to League One and bounced back each time.

Wigan’s wage bill went from £ 43.7 million in 2013 to £ 19.4 million in 2019, a logical reduction but the wage-to-income ratio was at a very dangerous 168% in 2018-19, one of the highest in the Championship.

Wigan made a net loss of £ 9.2 million in 2018-19, making it five annual losses in six seasons since their Premier League membership ended. Whenever the club sailed close to a crisis, Dave Whelan would prop them up.

Whelan sold the club in November 2018 in a £ 22 million to Hong Kong-based International Entertainment Corporation (IEC), a casino consortium, which brought the curtain down on a 23-year association between Whelan’s family and Wigan Athletic. Under Whelan’s regime, Wigan were widely considered to be one of the better run clubs. In June, it was announced that IEC had sold the majority of shares to another Hong Kong-based entity, Next Leader Fund LP. IEC and NLF are controlled by the same person, a professional poker player named Dr. Choi Chiu Fai Stanley. Under the terms of the “new” ownership, Next Leader Fund loaned Wigan £ 29 million at a rate of 8% with a default rate of 20%. The club’s net debt is currently running at around £ 20 million.

Wigan, like all other championship clubs, had to endure a three month lockdown, and given their high wages and low level of revenues – even more restrictive after the termination of parachute payments – the club position clearly deteriorated, so much so the new owners declined to inject more money into the club, which triggered the decision to put the club into administration for its own protection. Critics have questioned just how much due diligence was carried out by the owners, and indeed the Football League, when the club was initially taken over and then “sold” to New Leader Fund. There are also strong rumours that a gambling ring in the Philippines was trying to exploit the club, placing a bet on Wigan being relegated.

Post-Premier careers can be precarious for smaller clubs that outperform and find themselves in the top flight. While the experience is great for the fans and players, once a club like Wigan, Barnsley, Bradford City and Swindon Town falls out of the Premier, the adjusted financial realities of life can become very troubling. Relegation from the Premier can often be followed by a second demotion and after parachutes dry-up, income can drop off a cliff to a certain extent.

Wigan’s crowds have fallen by 46% since relegation from the Premier League in 2013 – in 2019-20, their average was just over 10,500 which was a 9.2% drop on 2018-19 and a far cry from their Premier average of 18,600 over the eight years. Once renowned primarily a Rugby League town, Wigan Athletic Football Club were a successful non-league club until the late 1970s. The football club’s turnover is around double Wigan Warriors RLFC’s income.

The administrators, Begbies Trynor invited the fans to buy the club out of administration, but subsequently admitted it might prove too much for them. They commented: “It comes down to money, I’m afraid. We all love our football clubs, but at the end of the day, they are businesses now.” Sadly, this may be true, but not enough attention is paid to risk management and financial prudence in the football industry.

Begbies Traynor have said there are at least 10 parties interested in buying the club, but they must prove they have funds of at least £ 10 million to open negotiations. Although there is currently little, if any, cash going into the club at present, the administrators see a rosier outlook in the medium term. The club is the 85% owner of the DW Stadium and shares it with Wigan Warriors.

Whatever the outcome, Wigan look like they are facing a 12-point deduction if they finish outside the relegation places or a 12-point penalty in 2020-21 if they are relegated this season. This will, naturally, be contested, but it doesn’t look good at this stage.

To the credit of Wigan’s players, they have remained focused, even though relegation is now a likely scenario. They have won all three of their games since the Championship resumed and have yet to concede a goal.

The Wigan episode should act as a warning for clubs with Premier League aspirations. The Championship model is an unhealthy one and can be a recipe for disaster. That Wigan managed eight years at the top level is still hard to believe but once the bubble burst, a club with such low income streams became very vulnerable.

The rest of football should wish them well in these difficult times if only because the chair of the Department for Culture, Media & Sport, Julian Knight, said there may be 10 to 15 clubs who could find themselves in a similar situation to Wigan. Who will be next?

Wigan Athletic will, hopefully, survive, but in the current climate, they couldn’t have picked a worse time to be staring into the abyss and their most recent owners could have chosen a better moment to climb on board, but increasingly, people believe dirty deeds might be at play and that the truth will eventually reveal some very disturbing information.


Photo: PA