Yesterday afternoon all our Trust members were emailed the following update co-authored in our roles of Supporter Director and Associate Director.
It will also be released in two parts with this first update focussing more on investment and financial matters and the second on recent meetings we’ve held with Gavin Levey, Paul Watson and Andy Coleman.
It’s fair to say it’s been a difficult start to 2024 for the club on the field, facing some of the best sides in the division as well as Bournemouth in the FA Cup. That doesn’t soften some of the results we have seen, but the gap in quality between the top sides and ourselves has been very clear at times. We have a way to go to get back to that level.
We have seen some bright spots however, including vital wins at Hull and Sunderland, and a gradual return to some of the possession-based football that has served us well in the past. The introduction of Ronald has certainly been exciting with his brace on the weekend proving decisive, and we are also glad to see Przemysław Płacheta getting decent minutes. Both will be key to our success over the next 12 games.
However, we recognise the nervousness about our current league position. It’s fair to say the next few weeks will be critical. Given the manager change, we suspect that most will be happy with a mid-table finish and to look towards next season.
Despite the downturn in results, work off the field has been continuing at pace and the whole Trust Board has spent countless hours on both individual and collective supporter issues, queries, feedback and meetings with club personnel.
An update on recent investment into the club
Last week, we announced that an additional investment of c.£2.5m was being made into the club in exchange for shares for Swansea Football LLC (the investment vehicle of the majority owners). This will be the first of a series of investments made each month up until the summer, which will be used to meet the ongoing operating costs of the club. We expect the total new investment to be more than £10m by the end of the club’s financial year (July 2024).
We welcome new money into the club, especially when it is in exchange for equity rather than through loans that would increase the club’s debts. However, we would be remiss not to recognise that this money is being used in-part to cover operating costs. There is work to be done on improving the sustainability of the club, both in finding new revenue opportunities and reducing our cost base. There is a shared view amongst the Trust and the club that we must seek to rely less on selling a marquee player or significant cash injections from ownership to balance the books every year.
In the current climate, this is a challenge.
FFP / P&S Explainer
We are spending increasing amounts of time talking with the club about finances. It’s been a steep but important learning curve for all of us and we recognise that there is a lot of information out there on Financial Fair Play – now known as Profit & Sustainability. Recent high-profile cases against the likes of Everton, Manchester City and Nottingham Forest have brought it to the fore more than we have seen in years past.
We thought it would be useful to share some thoughts and insights on this for members and supporters, which hopefully you will find useful.
What does it mean?
With the growth of the game, we have seen an explosion in costs at all levels of the pyramid – football clubs are unlike any other businesses. Most continuously lose money with little hope of turning a profit, but don’t face the inevitable consequences that any other business would – bankruptcy.
The EFL operate a financial sustainability process that seeks to ensure clubs operate within reasonable financial boundaries, with adequate coverage to avoid the loss of football clubs from the pyramid and all the negative social and economic consequences that come with that.
Every club’s financial performance is measured on a three-year rolling basis, and the EFL has a specific financial reporting unit that combs through detailed financial reports and forecasts from clubs. Recognising that many clubs are loss-making organisations, the current model has two threshold levels – lower loss limits (£5m per year average), and upper loss limits (£13m per year average). Under EFL rules, no club can lose more than £39m over three years without being subject to investigation and potential punishment (inc. transfer embargos, fines, points deductions).
Any club with losses above the lower loss limit (£15m over a three-year period) is subject to additional scrutiny from the EFL team – it’s fair to say that they will be busy, as at least 50% of the clubs in the division are operating at or above that limit. The closer to the upper loss threshold a club is, the more scrutiny that the accounts are given, and the more stringent the requirements are for clubs to prove that they have adequate financial reserves to meet their costs. It can also result in the EFL needing to provide clearance for a club to sign any players during a transfer window, as we saw at Cardiff City and others in January.
How this relates to Swansea City
Each club’s finances (namely their profit/loss) are reviewed on a three-year rolling basis, meaning that the profit/loss for 2020/21, 2021/22, and 2022/23 are currently in the club’s reporting window.
Swansea City are not at risk of breaching FFP / P&S regulations this year, but increasing existing revenue and finding new revenue streams, as well as robust cost management, will be critical to our ongoing ability to comply. It is worth noting that clubs are allowed to add back non-cash movements (like depreciation & Amortisation) and money spent on their Academy/Youth football plus that spent on the Women’s team.
This is a useful point at which to highlight that the new money being invested into the club (as shared above) has no bearing on the outcome of our P&S compliance. If we invest more, we cannot spend more (unless revenue goes up in parallel) – this rule was introduced partly to avoid clubs buying their way out of losses and creating even further imbalances in the league than those that already exist through the Parachute Payment system.
What can be done?
There is no simple answer to this question – it is a mixture of multiple factors. Firstly, the club must continue to find ways to increase revenue, both on matchdays and when the stadium and other facilities aren’t in use. Concerts, summer camps, corporate events and hospitality are all avenues that the club is actively exploring. They are in a profit-share arrangement with Compass Hospitality Group, which is an area where the club can benefit from increased revenue opportunities as these other events become a reality.
We are hopeful that the planned discussions between the Premier League and the EFL can take place very soon following their postponement from earlier today (29th February) and that they’ll produce a new revenue-sharing deal that all parties are happy with. This will provide vital funds (potentially millions of pounds per season) to Championship clubs to help ease the financial burden.
In exchange, we know that the Premier League want the Championship to introduce new financial measures, including the “Squad Cost Model”, which is currently in place for clubs competing in UEFA European competitions. The model caps player wages at fixed percentages of income – we welcome such a change and see it as a way to manage the spiralling costs on the playing side where wages are outstripping revenue.
The other aspect to this is containing and reducing costs wherever possible. Wages remain the club’s largest expense, but simply reducing this alone isn’t the answer, especially when we all expect the club to field a competitive team week-in, week-out.
The size and composition of the squad is one area we know the club is continually looking at, which is something we covered this in our recent discussions with Gavin Levey and Paul Watson (which we will cover in more depth in part two in a few days’ time).
The club also incur a wide variety of other costs in day-to-day operations, and like any organisation, there is always an element of overspend or wastage. In our regular conversations with CFO Gareth Davies, as well as other senior management team members, we are continuing to push for a need to continually review costs. We are encouraged by recent work done in the football department to analyse and assess the cost base. We hope to see positive movements on that over the remainder of this financial year.
That concludes the first part of our latest update to supporters. In part two we will provide more detail around recent meetings we’ve held with Gavin Levey, Paul Watson and Andy Coleman plus an update on a few other areas we’ve recently been working on with the club.
We will be emailing that to current Trust members in the next day or two with a copy posted up on our website in the days thereafter.
Paul Meller, Supporter Director
Adam Lewis, Associate Director
Swansea City Supporters’ Trust
