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Thursday, 20 March 2014

Doug Harman interview

A couple of weeks ago my Dad spotted an article in the relatively niche but hugely informative Sunday Independent, a Plymouth-based Sunday newspaper that has spread its wings as far north as Bristol and contains an excellent sporting pull-out each week, with comprehensive coverage of all the local teams.

In this article, Richard Latham interviewed the lesser-spotted Doug Harman – City’s Chief Executive and one of the Board members I was critical of earlier in the season for not being publicly supportive enough of the club’s policies/management – about financial fair play and the club’s financial prudence policy.

Here was the result, which the Sunday Independent have kindly given me permission to share with you online, to reach a greater audience.

“Doug Harman insists the days of Bristol City’s wage bill spiralling beyond their means are over and that the club is firmly on course to significantly reduce annual losses.

While the chief executive admits that Steve Lansdown’s continued backing is vital to turning things around, he stresses that major savings brought about by unloading players on big contracts have also helped meet the demands of the new Salary Cost Management Protocol Rules.

Those rules, outlined below, make League One clubs subject to sanctions if they spend more than 60 per cent of their turnover on ‘player-related expenditure’ during a financial year.

Harman admits that a year ago in the Championship, City’s player expenditure was 144 per cent of their turnover. Now, thanks to the latest injection of cash from Lansdown and a drastic reduction in the wage-bill, the figure has plunged to 45 per cent.

Having been critical in this column of the poor financial management, which has seen City lose £57 million in five years, I asked Harman a series of questions aimed at discovering the current position.

His answers were honest and informative.

How much has the vast reduction in the percentage figure of player expenditure compared to turnover been due to Steve Lansdown’s vast injections of cash?

It was during our last financial year that Steve effectively injected £40 million worth of new equity into the club in exchange for wiping out the same figure in debt, which had built up to him through director’s loans.

Because it was a swap of equity for debt, it did not count towards our turnover as far as the new rules are concerned.

In the current financial year, however, he has made a further equity injection of £5 million, which does count as relevant turnover. This, linked with our efforts over the last 18 months to reduce the player wage-bill by moving on expensive players and recruiting ones on far less money, has brought about the very significant reduction in the ratio of expenditure to turnover.

Is there a set date by which you have to meet the criteria of the Salary Cost Management Protocol Rules?
Yes, with all the Financial Fair Play rules, you have to do what amounts to an interim test halfway through your financial year. You have to produce accounts that show a snapshot of your position and that has already been done. Any club not meeting the requirements at that time are counselled about what needs to be done and the consequences of not doing it by the end of the year. But at 45 per cent we are inside the restrictions by a significant margin.

Salary Cost Management Protocol Rules
League One clubs must spend no more than 60 per cent of their relevant turnover on player-related expenditure. Relevant turnover includes TV payments, prizemoney, season ticket income and gate receipts, net money received from transfers, donations and injections of money in equity form.  

Player-related expenditure excludes the wages of any players under the age of 20 on July 1 last year.  Accommodation costs, player appearance and bonus payments and signing-on fees are also exempt.

Steve Lansdown has said himself that he wants Bristol City to function as a business independently of his money. How far along the road are the club to achieving that?
We are not naïve enough to think we can make a profit as a club given our current League status.

We know that we are going to need Steve’s help going forward and that will be forthcoming with the purchase of more equity, rather than any more loans.

Having said that, we recognise that we need to try our level best to get the club to operate professionally as a business, within the budgets that we set, and that is already having an effect.
Do plans for the summer necessarily involve more cutbacks or will the manager have the necessary financial backing to significantly strengthen the squad?
As a board, we have always tried to support the manager of the time and Steve Lansdown, as owner, has also done his best in this respect. That will continue.

Exactly how much money will be made available has yet to be decided, but we are not happy being in League One and want to develop the team with fresh players. That said, it has to be done in a prudent way.

Are the days over in which Bristol City pay £10,000 a week plus to individual players?
Financial prudence at our level at this moment in time means that we have to pay reasonable wages, not wages that are beyond our means.

It’s how we manage the budget that is put in place, which is important. We might be able to afford a £10,000-a-week player – but certainly not a whole team of them - providing that is supported by signing less expensive ones.

One of the components of the board’s Five Pillars strategy was that the signing of players aged over 24 would become the exception. Why has that been abandoned?

The principle hasn’t changed and recruiting young players is still very much part of the plan. But at times you have to adjust as befits the circumstances.

Steve Cotterill told us that he needed a bit more experience than was available to him and that is why we have invested in a few older players. Given our position in the League One table, we felt it necessary.

How big a disaster would relegation for a second successive season be?

We are not thinking about relegation. It is not something we sit around the boardroom table and discuss because we think we have the right manager to keep us in League One and believe we will be in a stronger position at the end of the season that we are now.
Are annual losses  £11-14 million a year consigned to the history books?
Yes, I believe they are. The business will be run on a more prudent basis going forward. Inevitably more losses will be incurred, particularly when we remember that Ashton Gate is a tired old stadium overdue the redevelopment work that is planned.

With that work will come commercial opportunities that drive revenue streams we have only been dreaming about.

Prudent player recruitment, combined with increased revenue, will ensure that profitability is more managed than it has been of late.

Initially we would like to get the annual loss below £10 million, but when you are dealing with playing contracts of two or three years it does take time.

Thanks again to the Sunday Independent and to Richard Latham, for the interview.

I personally thought the questions were challenging and to the point, with the answers given perhaps a touch predictable, but answered nonetheless.  One of the major questions I had a few months back was surrounding the pillars and principles, and the response given was expected – we were in a position which required experience – and the summer will be a far more telling period as to the seriousness as to which the board hold these values.

There is also a strong hint that we won’t be afraid to spend money in the summer to support a promotion attempt – ambitious you may say right now – but clearly that has to be the aim, if not next season, then the next.  If I have a slight worry it’s that he’s not ruling out paying big money for the big name. In my mind this is one of the major issues we’ve had these past few years, ‘superstar’ players ruining the team ethic and causing unrest in the stands as soon as their performances drop below that elevated status.

However, comfort can be drawn from the statement that any investment made by Steve Lansdown will be in the form of equity rather than further, debt-increasing loans.  This point is especially poignant when you consider Harman is effectively telling us this year’s debt will be £10m again – despite all the cost-cutting measures. Paying off managers (and coaching staff) each season is undoubtedly contributing, whilst the likes of Neil Kilkenny and James Wilson are probably still having payments made in lieu of what they were owed for the full length of their contract.

No board should be totally unaccountable, and whilst ultimately they all report into Steve Lansdown, the fans should feel the right to look with interest as to what happens this summer, if…once…survival is assured.  If the movements in the summer are following the pattern adopted by Sean O’Driscoll in the summer just gone, then it’s fair to say the Board have been true to their word.  If a series of 27-32 year-old’s on two or three-year, relatively lucrative contracts are recruited, we have every right to question the Board on anything they tell us in the future.

For now I’m prepared to see this season out and see what happens. Over to you, Doug & Co.

The Exiled Robin

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