Given our comfortable position in the league table and some excellent performances in recent weeks, criticism of the club feels harsh.
But despite many positives on the pitch, there is a definite sense that ambition has been reigned in away from it, with transfer business limited and a notable shift in rhetoric from Jeff Shi over the last 12 months.
To help me form my own opinions about the club’s financial status and what they might be able to do this month and beyond, I got in touch with Dr Daniel Plumley, Senior Sport Finance Lecturer at Sheffield Hallam University.
I asked about the club’s ability to spend, how worried we should be about the idea of ‘self sufficiency’ and the Adama Traore situation. The answers I got back were interesting, so I’ve shared them below in unedited form for others to draw their own conclusions.
Thanks for agreeing to answer my questions Dan. The club has alluded to the fact that Financial Fair Play has limited their ability to spend big on transfers in recent windows. How restricted do you think Wolves are, both in terms of their general financial situation and compliance with FFP? And ultimately, do you think if they don’t do any serious deals this month, it’s likely to be because they don’t want to or because they have limited movement in the market?
The FFP situation from 2017-2019 showed a cumulative loss of £60.9m. This is okay against Premier League FFP where the acceptable cumulative losses over three years is £105m. It is not okay against UEFA regulations but of course, the club already agreed a settlement regarding this with UEFA when they competed in the Europa League so no immediate concerns there. The loss for 2020 was £39.3m (we have to factor in the pandemic as a big part of that and the extra Europa League revenue was a big plus for Wolves during this period). No 2021 figures are available yet but we know that the FFP has been relaxed for 2020 and 2021 and that the break-even principle will be looked at as an average of those two years. So, we would lose the 2017 figure from the three-year rolling calculation and pick up the average of 2020 and 2021. For 2018 and 2019 the cumulative rolling loss is £37.7m so there is some room to work within the EPL regulations (but not the UEFA ones). The losses, therefore, become more of a problem in the next couple of years if Wolves qualify for Europe again. That said, we don’t fully know what is happening with FFP longer term so much of this is hypothetical for now.
More generally, we know there will be a reluctance to spend amongst many clubs in this window. It becomes a case of how much you want to risk (financially) and what is the reward. Wolves at the minute look relatively safe from relegation. This would be the biggest risk because the revenue reduces by £60m overnight if you get relegated. The turnover of Wolves in 2020 was £132.6m so you can see the hit if the worse was to happen. Looking the other way, it’s where the club see the target for this year. Do you look to push for 5th place and a Europa League group stage place? What are the thoughts on the Conference League internally etc.? Wolves took just under £20m from the Europa League in 2020 but the Conference League is not as high. They have invested in players since promotion and have had a net player trading loss (e.g. more expenses on players in and amortisation as opposed to players out) in the last 2 years. This was a £42m net player trading loss in 2020 and £35m in 2019.
As a result, I would expect that if they don’t do any serious deals this month then it is a combination of not wanting to based on the last couple of years, the pandemic and the current state of the market. They are not in a position, for me, to get into arms races for players and pay over the odds.
Another line the owners have repeated a few times is about the club becoming self-sufficient. This has caused some supporters to panic about their intentions and whether Wolves can eventually develop into a top-six club without serious financial backing from FOSUN. Are rich owners still able to make a big difference, even when restricted by FFP?
The club is not quite self-sufficient yet based on the loss figures mentioned above and other factors. There is negative equity in the business (which is because of their reliance on the owners) and the net debt position is £125m in the 2020 accounts. The majority of their liabilities are to the owners which is okay if the owners are planning to stick around and are willing to keep investing. The problem arises if they do not want to stick around and/or continue investing. The owners’ other businesses are also a factor here considering the pandemic and wider world etc.
Rich owners can still make a difference but there is the issue of FFP. You cannot just throw money at a club anymore and run up big losses. The other issue is the ‘big 6’. Wolves turnover was £132.6m in 2020. Contrast that to Manchester City (£478.4m), Manchester United (£509m), Liverpool (£489.9m), Chelsea (£407.4m), Arsenal (£344.5m) and Tottenham (£402.4m) (all figures 2020) and you can see the challenge for any club trying to break into that elite. Matchday and commercial revenue (as well as the Champions League) is where these clubs continue to pull away and this makes them stronger in the transfer market etc. The gap is huge and is only getting bigger. It’s quite a sobering picture for English football generally in truth and for Wolves it is about how do they try and grow to close that gap and how can they do it without just paying inflated transfer fees and wages. This is the biggest challenge for Premier League clubs like Wolves.
I do agree that the club becoming self-sufficient is important in the long-run because the owners won’t be around forever but it does cause problems with the above as attempting to become self-sustainable might mean cost-cutting and limited spending etc. which impacts the ability to compete on the pitch.
If you were drawing up a table of where you thought each club in the Premier League were in terms of spending power and the ability to invest in the team, where would you expect Wolves to be positioned? My uninformed view is that the Big Six are miles ahead of everyone else and the others (with the possible exception of Newcastle) are struggling with the same issues around FFP and the impact of Covid. Would that be close to accurate or are some of the other clubs in better positions?
You are absolutely spot on with that assumption that the big six are miles ahead (linked to some of my comments above). Newcastle would be next on the list of course given their takeover. Expect them to keep spending in January but they will have the challenge of trying to attract players to a relegation fight. Newcastle are also okay against FFP because of how Mike Ashley ran the club so he has left them in a good position financially, ironically.
You then look at those clubs that come next. Leicester, West Ham, Everton, Aston Villa would be names you would mention (despite the current league position for Everton and Villa). Leicester and West Ham would be 7 and 8 on the list I would say (after the big 6) because of Leicester’s performances in recent years and West Ham because of their current position, Europa League and a pretty good financial position (pandemic aside).
Everton, less so for me at the minute because they have spent big in recent years and are right on the limit of FFP. Aston Villa also seem to be looking to spend a bit this month and can attract good players so they would come into the top 10 probably at 9 on this list. I think you can then put Wolves in the top 10 or around that position as the next best in terms of spending power and ability to invest plus the attractiveness factor of where the club is currently and the style of play etc.
Brighton, Southampton and Palace probably come next and then there are a few clubs battling relegation and struggling etc. that you would probably group together in terms of attractiveness. Of course, there is some subjectivity based on the above but it won’t ever end up too far away from the current league positions and on-pitch performance which in turn influences revenue etc.
Adama Traore is into the last 18 months of his Wolves contract and it’s being widely reported he will be sold to avoid the prospect of him leaving for free next summer. A transfer fee of around £20 million has been spoken about, which many supporters believe is way too cheap. We know that contract length heavily influences a player’s valuation but to what extent?
The Amortisation principle is how clubs record player registrations on the balance sheet. Traore was signed for £18m in 2018 on a 5-year contract (August 2018). So the annual charge for his amortisation is £3.6m (£18m/5). Take the end of the 2021 season as a guide so he is three full years into his contract. In the accounts of the club, he is worth £7.2m in book value (£18m – (£.6m x 3)). Obviously, there is wage costs as well (rumoured to be around £11m in total over the course of his contract). Clubs may look to get some of this back when selling. Assuming roughly one and a half years left on contract means a wage cost of around £3.3m still to pay to him if he were to see out his contract. Determining a fee for an individual player is based on supply and demand, the clubs available financial resources (on both the selling and buying side), contract length and sometimes a release clause.
There is some subjectivity in determining player values of course but Transfermarkt as an example value him currently at £25.2m. If the club accepts they are going to lose him if he doesn’t want a new contract then it is better to sell him now in this window rather than in the summer or next year when his value will be lower. Given the above factors and market valuations, the club might view £20m as a good deal. They might want to push the value slightly higher to say £30m but it is difficult to see any club paying much beyond that given all the factors above which of course any buying clubs would be aware of as well.
Thanks again to Dr Dan for answering my questions and giving a good amount of detail in each of his responses. It’s pretty much impossible to speak definitively because football finances are a complicated business and when it comes to transfers specifically, it’s clear that there is much more at play than your average tub-thumping supporter on Twitter takes into account.
For what it’s worth, my own thoughts, factoring in Dan’s responses, what we’ve observed the club do in recent times and some of the lines from Jeff Shi in Tim Spiers’ interview back in September, are as follows…
– Whether Fosun are reigning in their short term ambitions or not, there’s clearly room for the club to do substantial deals. It was widely reported by reputable sources they were prepared to spend big on the likes of Sanches and Botman in the summer, but only if they could structure the deal in a way that suited them. Jeff Shi stated in the interview referenced above:
‘We could have spent money on a player, the budget wasn’t an issue, albeit we can’t spend like Manchester City or Chelsea. We could easily have bought four or five players, but Bruno had the say on who he did or didn’t want. It’s not all about the budget, it’s about finding top players to come here, which isn’t easy. You need the player to be top quality, to want to move, the club (he’d be leaving) to want to sell and the fee to be more or less fair. Through the whole window, we were working collaboratively with Bruno every single day, trying 20 or 30 targets overall, but the coach was unsure about two-thirds of them, he didn’t think they were better than (what was already in) our squad.’
– The fact that they could do more deals then leads to the debate of ‘should they?’. Most fans will always say an emphastic yes and I agree that it perpetually feels like we’re two bodies short of feeling robust. But I do like that the club are selective about who they bring through the door and don’t bloat the squad with mediocre additions that can potentially do more damage than good.
– It also seems like serious consideration is applied to any additions we do make, whether or not those signings end up being successful. When you reflect on the summer window now, you’d say Sa, Ait-Nouri, Hwang and Trincao all seem like solid, considered signings, especially when you remember the latter two were ‘try before you buy‘. Again Jeff Shi’s comments in the summer have aged reasonably well:
‘Of course we can do better, but if you compare the squad to the end of last season, I think we’ve done a good job. The squad is larger, we have more fit players and we have players who are improving — look at Kilman. I can’t say it’s the best window, but it was good. We have a clear plan and every new signing is the player we think is right. Fans want to see players come in, but sometimes you have to be stubborn and understand what you want to do.’
– As we already knew, The Big 6 are in another universe commercially, so even if Fosun were prepared to bankroll the club indefinitely, FFP would always limit our ability to compete for the Champions League and to an extent, even the Europa League. To that end, perhaps we shouldn’t all laugh and be so critical about eSports and some of the quirkier commercial tie-ins the club have announced in recent times. The ambition behind these initiatives is to close the gap and ultimately have a chance of competing against the best more consistently. That doesn’t mean we won’t spend. Shi knows that the team on the pitch has to consistently perform as part of this growth:
‘My long-term view is how to make Wolves a big, strong company with commercial strengths, a larger fanbase and attractive products. To achieve that, Wolves have to do well. If we’re relegated, or always 13th, it doesn’t help. To improve the team, it’s a kind of fuel for the growth of the whole organisation, not the opposite. So we’re not desperate to get in the top six straight away, it’s about an upward trend, maybe it will take three or four years. Whether the trend is fast enough, I don’t know, but if it starts we’ll be happy, and that’s why we’re happy with Bruno because we see it starting.’
– I think Adama Traore will leave, possibly in January if the deal can be structured, but if not, in the summer. I don’t think Wolves have to sell to buy, but I do think a major sale will make them more robust in the market this month and increase the chances of additions. If Traore doesn’t go, we’re back to trying to find the right profile of player to improve the team and structuring deals to suit the club’s plan. Don’t rule out business, but don’t expect it either in a market where few clubs are doing big things.
– I remain satisfied the club are in good hands and although it’s fanciful we’re going to be raiding the top four any time soon, I think there are smart people making informed decisions at the top and while that’s the case, we should still have plenty to look forward to in the immediate future. Even if Fosun wanted to completely pull up the drawbridge and pay down the club’s debt to them, it’s not really in their commercial interests for the team (their asset) to suffer so I’m not sweating just yet about our prospects.