The Board of Motherwell FC today issued its annual End of Season Financial & Strategic Update.
For the attention of Shareholders, Members of the ’Well Society, Season Ticket Holders and all Motherwell Supporters.
Once again we are delighted to have celebrated an exceptional on-field performance in the league campaign. While results in both cups disappointed and we did not progress in Europe beyond the early stages, we cannot overstate the achievement in reaching the runners-up spot for the second year in a row.
Given the turnover in core first team playing staff, the ability of Stuart McCall and his team to recruit, motivate and reconstruct the first team has been quite exceptional. He has done so while maintaining an excellent culture that is becoming the trademark of our family club.
We now look forward to European competition for the sixth year in the last seven. Once again a remarkable achievement given the economic realities facing our competitive position.
We put on record our sincere thanks to the management and players and all the support staff for the great credit they have brought on both themselves and this club.
Notwithstanding the excellent news on the pitch, the Board would like to draw the focused attention of our shareholders, members and supporters to the financial reality we face off it. In the last few years we have been at pains to ensure that our strategy is clearly understood and that we communicate both our financial performance and prospects with transparency. We did this in the summer of 2012, to allow members to make an informed judgement on the implications of SPL decisions as affecting Rangers FC. We do so again today to allow everyone who cares about Motherwell FC to understand the context of the decisions we have made as a Board and to allow time for individuals to determine their own actions before the Board determines the next set of strategic decisions that we must make.
Our aim since the launch of The Well Society has been to create a sustainable model for the eventual fan ownership of the majority of the equity in the club. This required good governance structures to be created and function, fit and proper individuals to be nominated that could perform as full Club Directors and financial targets to be reached for the Society, that would provide the Club’s effective “strategic reserve”. From the outset, a figure of £1.5 million has been identified as the required strategic reserve.
This strategy was created purposefully with the objective of stabilising the Club’s financial position on a sustainable footing so that we could maintain the financial strategy that has underpinned the Club’s competitive position which has produced the sporting success we have enjoyed over the last five years and more.
Update on Financial Performance
The following points should be considered in detail:
1. We have made a full year loss in the last two years of just under £600k in 2011/12 and £184k in 2012/13 respectively.
2. For 2013/14 we currently anticipate a loss moderately in excess of five figures for the year.
3. These losses have so far been absorbed by existing cash reserves and then by the ongoing cashflow management of the club in anticipation of future income, underpinned by a number of measures we have outlined below.
4. We have already recorded the reasons for these losses. In particular we have maintained our player budget in the face of falling central revenues and from gate and commercial receipts, as the Board judged the balance of risk to our competitive performance and the financial implications merited this, given all of the information at our disposal and having made reasonable judgements about likely outcomes. The main downside impact on our financial outcomes have been:
- Last year’s (2011/12) in-season recalibration by the SPL of the financial rewards for second place, before our agreed bonus structure for the team could be changed, meant we received no net additional income from finishing second.
- Overall the total pool of distributed funds by the SPFL to top league clubs has been reduced following the decision to pay more to the lower leagues.
- Combined revenue from gate receipts and season tickets has fallen by approximately 10% since season 2010/11 meaning a cumulative loss to the revenue of the club over the subsequent 3 years of £200k. Our home attendances this year have not been as strong as anticipated given the strength of team performance.
5. The governance of the ‘Well Society is working well and we have two Society nominees acting as full and equal club directors.
6. The ‘Well society has recruited 869 adult and business members and accumulated total funds of just under £470k. This is equivalent to 21% of our season ticket holders. In other words when taking account of regular pay at the gate fans we have recruited less than 1 in 5 of our loyal core base to the society.
7. The society holds 6% of the equity in the Club injecting £150k into the club’s balance sheet. In addition the society made available a bridging loan to the club of £230k in February 2014 and retain a further £40k in reserve. The total distributed/distributable sum at the disposal of the Society is therefore just in excess of £420k which is very significantly short of the clear target for the “strategic reserve” of £1.5 million.
8. In the current financial year the Board agreed a short term asset finance loan of £125k which was underpinned by the personal financial guarantees by a number of our Directors. It is our intention to pay this back within the next 3 months.
9. The Club has an outstanding historic loan to Mr John Boyle of just under £350k.
10. The financial position of a number of our competitor clubs has stabilised and improved for a variety of reasons.
Implications for the Financial Position and Future Strategy of the Club
The figure of £1.5m as a strategic reserve was arrived at as a reasonable estimate, based on past experience, of the funds which the Club would require to have at its disposal to fall back on in the event of a series of losses being sustained.
As detailed above, losses have been sustained but the strategic reserve has not been met.
Qualification for Europe has allowed the Board, based on past revenues generated and making reasonable assumptions on income for the coming season, to maintain the playing budget at the same level for season 2014/15.
However, this is the last year in which we will feel able to do this unless a very substantial improvement in our revenue position occurs and/or the targets for the ‘Well Society are reached.
A sustainable step-change in our revenues is not likely to be enjoyed in the short-term unless we enjoy the windfall of unexpected player sales or exceptional Cup performances. Given our experiences in recent years the Board cannot, and has not, planned for either as a central assumption.
This means we must turn our attention to the achievement of our strategic reserve target of £1.5 million as an urgent financial priority for the club.
Achieving our Strategic Reserve Target of £1.5 million
Following repayment of the loan to the Society, the Society’s reserves will sit at approximately £270k after the purchase of equity in the club. As noted above this, when combined with the equity injection amounts to 28% of our target and reflects the reality that fewer than 1 in 5 of our core support has joined the society. The number of 1886 and Claret members is significantly lower than we had hoped.
While not wishing to diminish the simply outstanding work and commitment of so many people to make the Society a reality, this performance to date is disappointing and, to be crystal clear to everyone, does not represent the sustainable financial underpinning for the Club’s strategy that we hoped for and require.
The Board met on the 7th May to consider our current financial performance in the light of our qualification for Europe and anticipating the scenarios we faced the subsequent Sunday in the play-off for second place. The Board agreed unanimously on the course of action we must now take in the interests of the Club:
1. That we should give the Management clarity in the player budget to allow them to secure some stability on the field, as we face European competitive opportunities and an increasingly competitive race for the top six.
2. That an increase in the capital available to the Club is essential and that such a capital injection should be pursued as a matter of urgency. The preferred source of that capital would remain the ‘Well Society, however, other sources of capital investment, including the sale of shares to private individuals have to be explored. A number of our competitor clubs have recently been able to raise significant funding from a small number of fans, further weakening our competitive position.
3. That we should set a deadline for the Society achieving the goals that were set on its launch in November 2011. The next intermediate goal we set was for the society to achieve a reserve of £800k by the end of November 2014 in order to underpin the club’s finances and to prove that reaching the full reserve of £1.5m is achievable in the near future.
4. In the event that this first target is not reached the Board has authorised officers of the Club and its Directors to consider alternative routes to achieve the strategic reserve target that the Club requires. In all circumstances we will do everything we can to ensure that the future fan ownership of the club can become a reality. But we will have to consider all proposals put to us.
We urge all fans of the club to recognise the reality of the financial situation we face and to do anything they can to assist the club urgently.
We recognise that our on the field success and the generally positive culture and atmosphere at the club has meant that there is no perception of “crisis” and therefore no imperative or urgency for many otherwise deeply loyal supporters to join.
While we are not yet at a “crisis” position, we are flagging that we require to take action now to ensure the continued financial stability of the club. This action will either mean a substantial increase in resources towards our reserve or a very substantial reduction in our expenditure plans.
This latter route would have the inevitable impact of diminishing our competitive capabilities on the field and creating a negative financial spiral. The consequences of this latter route are only too familiar to all supporters of the game in Scotland
The Board of Directors continue to believe that the ‘Well Society can achieve its stated aim of raising sufficient capital to acquire and run the club on a sustainable basis. If the target figure of £800k is achieved by November 2014 the plan of fan ownership can be a reality. This can only happen if those who support this aim act now by joining or contributing further to the Society.
We therefore ask all of our shareholders, members and supporters to reflect very closely on what we have set out above and to consider their position carefully. We know how much we have to rely on a very small number of people but we are all in the same position. We urge everyone who shares our love for the Club to act.
The Board of
Motherwell Football Club
21st May 2014