Did anyone else read this drivel in the Grauniad this morning - what utter shite. Trotting out complete garbage that Stuart Pearce is at loggerheads with the City board over his acceptance of the England U21 job, albeit on a temporary basis. What SP really said, was that he had accepted the job on the proviso of there being agreement between  Manchester City and the FA. But hey, don't let the truth get in the way of a good story - and there hasn'e been another Manchester City disaster story for oooh at least a week. What annoyed me was that ancient history was dredged up to speculate that Denis Tueart was somehow the Machiavellian villian of the piece - quotes from Frank Clarke's autobiography for fuck's sake, and quotes from Joe Royle.

But the icing on the cake was big fatuous Dave "the fan's mouthpiece" Wallace, editor of City fanzine (sic) King of the Kippax on the radio. Five Live made a big thing of getting the views of Manchester City fans and then trot out this gobshite. Whenever the former "fan on the board" opens his gob, bullshit pours forth. He waffled on for a couple of minutes about the fans won't be happy blah blah blah, and then said something about it being an exit strategy for Pearce and justified this by saying that Pearce had never bought a home in the North West.Well, fuck me Dave, did you bother to check out the facts? Mrs Pearce is a successful businessperson in her own right and runs her own stud farm. Not exactly the sort of thing you can move lock, stock from one place to another.

My take? Well it's for a couple of friendlies and then the U21 Championships in the summer. The friendlies coincide with senior England squad matches and so there will most likely be no Premiership matches that weekend anyway. Some of the senior pros will be away with their own international squads so I'm quite confident that Steve Wigley is capable of looking after training whilst SP is away with the U21s. The summer tournament will also give SP a chance to do a bit of scouting and perhaps entice a couple of promising youngsters to Eastlands. If, after that SP decides that he would rather be U21 manager full time and let go of the reins at City, then that's up to him. But Pearce, being Pearce won't let an opportunity pass him by.

I haven't posted anything football related in a while, so whilst the national and international press are wanking their column inches over david beckham's move to the Yoo Ess, here's my take on it all.

<squeaky southern accent>"I'm doing it for the footbawl, honest"</squeaky southern accent>

Yeah right, that's why you're leaving La Liga for the MLS and not Serie A, Bundesliga, or returning to the Premiership. Finally, you have reached your level of incompetence so the next step is to become a whale in a duckpond.

I honestly can't think of a single footballer who has been more over-hyped, over-rated and over marketed than david beckham. A one-trick pony that can't dribble, can't tackle, can't pass and can't head the ball - that's not my opinion, ask George Best. Well, you can't now he's gone to the drying out clinic in the sky, but he did say that. I just added the one-trick pony bit.

Guaranteed that had beckum's career blossomed at Spurs or Newcastle, there's no way on (insert creator of choice here) own earth that he would have become the toast of the tabloids, England captain, Real Madrid player and now the highest paid footballer in the world in a no mark league. My mate Graham always reckoned that if Paul Scholes was a foot taller and not ginger he'd be worth twice what beckum's worth - and as much as it pains me to admit it, he's the only manchester united player I'd welcome at Manchester City. Even at 35 and having had problems with a detached retina, the lad's playing some of the best football of his career. Not so former colleague beckum who's star has been on the wane since his reportedly acrimonious split with slur alex.

As an England captain his leadership on the pitch when the chips were really down were sadly lacking. Not once in any of the major international competitions has he shone - absolute shite in Japan 2002, overshadowed by Wayne Rooney in Euro 2004, and missing in action vomming on the pitch in Germany 2006.

At least Fabio Capello can see what beckum really is - ordinary. Just an ordinary midfielder when compared to the likes of Lampard, Scholes and Gerrard.

Now him and his publicity hound are off to the good old US of A for what amounts to an obscene amount of dosh. A country where "sacker" is fifth in terms of interest (at least that what we're being led to believe) behind, Gridiron, Baseball, Basketball and Ice Hockey. Not forgetting of course that Nascar racing has a bigger following in the US than F1 has in Europe - hardly surprising since watching cars go round and round on an oval track sums up their level of overall intelligence. Then there's wrestling - I know it's not really a sport and it's all rehearsed and staged - not that the hillbillies know that or are able to spot it. So "sacker" is well down the list of sporting interests.

It may be a big sport amongst the kids over there - but the Yanks, like everything else they adapt, have fucked it up and turned it into a game dominated by women. More women play "sacker" over there than men - which when you think of the size of  Hispanic/Latin American communities and possibly Afro/Caribbean communities - is a sad indictment of the US footballing authorities promotion of the game.

Will beckum be a success? No doubt about it. Then again he'd have the same impact on their league as he would on League One if he'd come back and was playing for Chesterfield.

What are the odds though that we could see beckum at the next World Cup? Not in an England shirt but in an American one.

In this 7th and final part, Colin recaps and summarises the previous 6 articles he wrote for the MCIVTA newsletter:

Summary

This is (thankfully, you may say) the last in the series on the finances and accounts. I will summarise the position and give you some pointers to what to look for this week when the accounts are published. Before I get into the bones of this final article I'd just like to re-iterate why I did them. There was clearly a desire within parts of the City supporting community to understand the real financial state of the club.  Much of this was due to a lack of detailed knowledge of financial issues. Published accounts of public
companies are supposed to give investors relevant information on those companies' finances but that only works if you understand what you're looking at. I also understand that many people couldn't care less. I never claimed to be an expert but I admire people that have the ability to simplify a complex
subject.

In the first article I talked about the share structure of the club and who the major shareholders are. There are four holders of more than 3% of the company and many smaller shareholders. Since then the price has drifted and you can now buy shares for 24p each and sell for 21p. Anyone can buy the
shares, via a stockbroker. The Supporters Trust have had enquiries about buying the shares and we plan to publish contact details of a stockbroker that has indicated that they will not require a minimum contract value (although there will be a small minimum commission charge). There have been no significant changes in shareholdings or the composition of the board since then.

The next article covered the structure of the annual report and the business of the AGM. I expressed concerns about aspects of the club's corporate governance, namely that our chief executive is a member of the audit committee, in contravention of the major guidelines on the subject. The board
had a very easy ride at the last one and while I don't want a return to the friction of the latter days of Peter Swales' reign, the board are there to be challenged.

Next up was an article about the stadium and the debts. The stadium is leased from Manchester City Council and the term of the lease is 250 years. We pay the council on a formula based mainly on attendances in excess of those achieved at Maine Road and the estimated total liability under the terms of the lease is shown in the balance sheet. The stadium is shown in the accounts as though we own it and this is correct under the applicable accounting standard. However, there are many unanswered questions about this topic and neither the club nor the council seem in a hurry to expand our knowledge.

I told you that we have two main sources of borrowing. The first is two long term loans secured on our future income streams and these are being paid back over 15 and 25 years. It was interesting to note that in his recent podcast, Alistair Mackintosh was saying that we have used the stadium for securitisation in contrast to what the accounts say. So there's a question for the AGM.

The other source of borrowing is the loans from John Wardle & David Makin, totalling £19.2m. These attract interest but we don't pay it. John Wardle had to introduce an additional £7m during the previous year and the suggestion is that this was required to replace the season ticket money that had to be
ring-fenced and therefore we couldn't use for operational purposes. This ring-fenced money was offset against our total debt but I would query whether this was really appropriate as much of the £7m would be used to pay interest, rather than capital. So apart from a repayment of £2.2m, being the first of
two repayments of another outstanding debt, and £700k paid off the one of the secured debts our debts weren't reduced. In fact they effectively increased with the introduction of the extra £7m by John Wardle.

The fourth article looked at the Profit & Loss account and analysed the three main sources of income. Ticket receipts are actually third, behind TV and commercial income. Our wages were £37.7m and around 62% of turnover. This is generally regarded as on the high side of acceptable in the crazy scheme of things in modern football but this was the sixth highest figure in the Premiership and we certainly didn't see that translate into top six performance. I also explained the difference between cash and accounting transactions and tried to explain the concept of depreciation/amortisation. I also explained how we calculate the profit or loss on the sale of players and that, although we showed a large loss, this is not necessarily disastrous in the larger scheme of things.

In the fifth article on the Balance Sheet, I showed how the different types of assets and liabilities were set out and what some of the figures meant. The nature of how assets and liabilities were accounted for, which may not relate to their "true" value. Football clubs assets don't reflect the market value of players so this can be misleading. Also the treatment of the stadium as though we own it tends to skew the balance sheet. Ideally, I would like the club to give us a clear and unequivocal statement about the actual value of the lease to us and what we can and can't do with it. This could have a crucial bearing on our true financial position and as whether our actual asset value was greater or less than the value of our liabilities.

Finally, there was the cash flow situation. I explained that despite our huge £60m income we struggled to generate any net cash and therefore this prejudiced our ability to sign players where the deal involved large cash payments. In a very speculative piece, I also made the assertion that I believed our day-to-day cash flow meant we had to renew season tickets so early as we were short of cash by that time and, if I was right, this could be a major problem if we were in trouble at that time and many people were reluctant to renew.

If you want a really good bullet point summary of the 2005 figures, please read David Hamer's report in MCIVTA 1186 (http://www.uit.no/mancity/mcivta/11/86.html).

So that's a brief look back but what about the accounts we should see this week? I hope they're better than the performance against Wigan.

2006 Pointers

I will be doing something on these when they see the light of day but would encourage everyone to have a good look themselves and ask questions, based on what you hopefully now know. What should you be looking for?

Read the Chairman's Statement carefully. He talked about the proceeds of the SWP sale in 2005 (even though it was in the following financial year). There were clues even then that investment in the squad and reduction of the unsecured debt were not high on the list and that much of the cash might well
be spent on more mundane purposes. He should be spelling that out in detail this year, as well as telling us what the board's strategy is going forward.

Something else to look for will be in the Directors' Report. Look for the make up of the Audit Committee, which should consist of two, suitably qualified, independent non-executive directors. If one of those is still Alistair Mackintosh then serious questions need to be asked of the board and our auditors. I know I am not alone in being concerned about this. I have heard that the board consider that they have sufficient numbers and experience to do their job but if they can't find a suitably qualified non-
executive to sit on the Audit Committee then they clearly haven't.

The accounts should show an overall profit but this will be mostly due to the sale of SWP for a guaranteed £21m. This is pure profit as he cost us nothing. Take that out and see where that leaves us. Look at operating profit and the breakdown of income and the level of wages. Fowler, McManaman, Bosvelt, Tarnat & Anelka all left before or during the financial year and you would expect the wage bill to have been reduced significantly. But comments from Mackintosh recently suggest it hasn't, so where's the money going?

Compare gate and commercial income to the previous year. It wouldn't surprise me if gate income has fallen. Now any normal business seeing their receipts fall would reduce prices or otherwise offer better value to attract customers. But what do football clubs do - increase prices, that's what. City also angered season ticket holders like me by stopping our exclusive period for claiming cup tickets.

The level of debt is clearly a key item of concern. What we need to know is how much we still owe Wardle and Makin. Last year it was £14.7m to Wardle and £4.5m to Makin. The big question is whether any of the SWP money has been used to repay any part of these loans. This can be easier said than done but the answers can be found in the note on Borrowings listed under Shareholder Loans so read these carefully.

Finally, look at the cash flow statement. We had a huge influx from the SWP sale so take that out to see how we actually did over the year. It is a complicated statement to read but you need to work out how much cash we have generated (and it should include the SWP money so take that out) and how much of that has been because we managed our money well or because it had to be introduced via loans or other external financing.

I hoped you have enjoyed these articles. I've had direct and indirect feedback from a great number of people. That has ranged from the "So what" camp (thank you Mr Heavis) to some that claimed my articles were too simplistic. The latter charge has a ring of truth to it but I don't have the knowledge to satisfy people in that camp and it wasn't aimed at them anyway. But most has been supportive and appreciative and if I've helped just a few people to cast a more informed eye over our accounts then I've achieved what I set out to do. I may well have got things totally wrong or missed something obvious and, in one case at least, I jumped to an incorrect conclusion until corrected but I never promised you that I was a financial wizard.

I also started these well before I got involved with the attempt to form a supporters' trust and these articles are 5 totally separate from that activity. However there is a clear connection between the two. As a supporter and shareholder I want to understand what the board are doing to bring success (or avoid failure) and how we are building for the future. If I believe that the board is doing the best it can for my club then I will support them wholeheartedly and so should we all. I would love to be able to
walk away from the AGM thinking that the board had been giving a good grilling but had succeeded in convincing us that they were on the right path.

So December 7th (as I hear the AGM will be) should be interesting.

Continuing Colin Savage's assessment of City's books. Just remember we at least have the advantage of gauging City's finances for ourselves, unlike some club that will remain nameless whose books are completely shut off from their supporters. We may be in the shit, but at least we know we're in the shit. The first the United fans will know is when they turn up one Saturday and there's a big fuck-off WalMart sign where the Manchester United sign used to be.

I digress...over to Colin:

This was going to be the last in the series but my original draft, including a summary, proved too long. Also it was suggested that I did a separate article giving some pointers as to what to look for in the 2006  accounts. So I’m going to combine that with a summary of the finances in one final article. In this one, I’ll talk about the last of the three financial statements and what it says about our ability to finance major player purchases. I’m also going to summarise the overall cash flow situation as I see it, as this seems to me to be the most illuminating evidence about our real financial state.

The Cash Flow Statement

The Cash Flow statement seems the most obscure of the financial statements. The P&L Account shows our income and expenses, the Balance Sheet shows our assets & liabilities. But what does this show?

In Article 4 (the P&L Account) I said that this was a mixture of cash items and non-cash, accounting transactions (such as amortisation of players). The resulting profit or loss is meaningless to a large degree in a football club as the most important element is actually pure cash. The Cash Flow statement removes those non-cash items so we can see how much actual cash we have either generated or spent overall. So we need the cash flow statement to show us whether we have surplus funds available for 
transfers or whether we can only finance incoming transfers by selling or borrowing.

Any business (or individual) that consistently spends more cash than they earn will eventually end up in deep trouble. They will need to borrow more and more money just to keep going day-to-day, which becomes more difficult to repay. So, as I said, profits alone are meaningless unless they generate cash as well. Football clubs tend to operate to different rules, with chairmen and directors expected to pump funds in to keep them going.

The first figure in the statement shows something called Net Cash Inflow from Operating Activities. That is the amount of cash left over after we’ve paid all our operating costs from the income we’ve received. This is calculated in Note 25 and starts with the Operating Loss after player amortisation of £8,060 (£8m). The non cash items, such as amortisation and depreciation are added back and some other figures are added or subtracted relating to the overall change in stock, debtors (money we are owed) and creditors (money we owe). This gives us a cash inflow of just over £6.6m.

So can we spend this on players? Unfortunately not as it didn’t include interest paid so we have to knock off this. The P&L will show what we should have paid but you already know that we don’t actually pay the interest on the Wardle & Makin loans. So only the actual interest paid is taken into account, less any interest received. In total this comes to just under £6.7m and this wipes out the surplus from operating activities. 

So here’s conclusive proof that there’s no money for new players unless we sell first. It’s not the board being skinflints and holding onto a big pile of cash to reduce the debts, it’s not lack of ambition, it’s simply lack of cash.

The next section shows this, with the cash element of the purchase and sale of assets (players and fixed assets). You will see from the Cash Flow that we received just over £8m for players and paid out £6.2m, with just under £1m paid for other fixed assets. This gives us a small overall surplus of £899,000, so you might think that there’s nothing too wrong with the finances overall, except that we’ve still got more cash to pay out. We’ve taken into account the interest paid on loans but not the capital element and this comes to just over £4m. So the overall position is that we are over £3m short of the cash we need to get by, even when we’ve balanced our player sales and purchases. New debt 
issued of £10.7m, includes two things. The first is certainly the extra £7m lent by Wardle while the second, as far as I understand it, has to do with the increase in the value of the stadium lease in our accounts, due to a recalculation of the overall liability. But it could be something else entirely.

So, overall, the cash position has increased by £7.6m over the year but pretty well all of this has been introduced by the chairman, via his additional £7m loan. This means that we have actually generated no cash by our own efforts. This is a pretty similar story to the last couple of  seasons. The outcome in all this is that we need to increase income and/or reduce costs. Increasing income involves consistently high league finishes, cup success and European football. Reducing costs means reducing wages and that’s certainly one part of the board’s current strategy but there’s always the risk that they get reduced to the point where we find it difficult to continue to compete at the top level. And if we lose the level of income that comes with our Premiership status then we really are in a downward spiral. So who would swap places with Wardle and Mackintosh knowing this?

Our General Cash Flow

The Cash Flow statement summarises the movement of cash over the whole year but in doing these articles I became interested in the month-by-month cash flow. Saying we have come out even over the year is one thing but what happens during the course of that year? There were a number of things that puzzled me such as why do we have to renew our season tickets in February and March, well before the current season has even finished. Why did John Wardle have to introduce a further £7m when, according to the Alistair Mackintosh interview in Accountancy Age “…the business generates  significant amounts of cash…”?

Apply this to your personal finances. If you earn £2,000 a month on the 1st and spend £2,000 over the same month then your cash flow looks OK, if  not particularly inspiring. However, if you’re £2,000 in the red at the start of the month and your £2,000 just puts you level before you even spend a penny then you could be on thin ice if you have an unexpected bill or the income stops for some reason. So which one is City?

It’s a trick question actually as the answer is neither of these. We appear to be like the person who starts with nothing in the bank, gets £2,000 in every month and spends £3,000.  However, we also know we’ll get commission but that is paid annually, in arrears, based on what we’ve sold. So at the end of the year we’ve built up a £12,000 overdraft but we get a £12,000 bonus to clear it. And so we start again, relying on the fact that we’re going to get another £12,000 in a years time so, instead 
of cutting our spending to £2,000 a month and putting the bonus in the bank, carry on regardless. Clearly there are even more dangers in this scenario.

Our bonus is called Sky’s money. I’m indebted to the poster on one of the City forums who gave me the information I needed, relating to Sky payments. As far as Sky is concerned, we get the bulk of the income in a lump sum in August, as the season starts. There is an equal payment to all clubs then totalling around £15m, with the so-called merit money being paid in May, depending on league position at the end of that season. Other payments are made per game televised.

Then there is ticket income and commercial income. Much of the ticket income (an estimated £12m) is in season ticket renewals and therefore will mostly come in February, March & April. The rest of the ticket income is spread over the season. The commercial income will probably be higher in the season but we will still get some in the close season as well.

As far as expenses were concerned these will probably be higher per month in the season than the close season, as we employ more staff as well as paying appearance and (occasionally) win bonuses.

Putting all this together showed that, starting from June we were at our worst position by April and significantly in the red. My figures, I have to stress are intelligent guesswork without access to the books but would indicate that we would be overdrawn by possibly well over £10m, ignoring any season ticket income. This would therefore explain why we were so desperate for fans to renew season tickets then, when most clubs ask for renewal in July. It also explains why John Wardle had to pump in more money, after we had to keep secured assets separate (see last article).  Quite simply, if I’m anywhere near right we desperately needed that additional £7m at that time.

This begs one intriguing question; suppose in February and March we are in, or close to, the bottom three places. Would you renew your season ticket at Premiership prices if you thought there was a reasonable chance of watching Championship football? I’m not sure I would and if most people thought the same way then the impact could be potentially disastrous, with little cash coming in at the time we needed it most. Let’s face it there were a few thousand who didn’t renew at Premiership prices to watch Premiership football this season.

While I was looking at my crude cash flow forecast, I looked at what the impact would be if we renewed in June & July. This was a bit of a “Eureka” moment as the impact of the merit money in May, added to season ticket income in June & July, with the main Sky payment coming in August,  transformed the picture and produced a substantial cash pot that lasted throughout the financial year, going just overdrawn in April. It was the equivalent of getting your bonus at the beginning of the year and gradually spending it throughout the year. But at the moment it looks like we’ve effectively run out of cash by Easter. So to ensure we were on a sound financial footing, any investor would probably have to provide something like an extra £15m in working capital, on top of any funding for new players, any debt repayment and purchase of shares.

At the beginning of this series I said I had no smoking gun or insider knowledge about City’s finances. However, when I started them I firmly believed that the board were actively managing City’s finances over the next few years so that we could be in a position to compete, after a few seasons where we had to settle for mid-table mediocrity. However if the above is anywhere near correct, then I have to conclude that we’re merely running to stand still and hoping, like Dicken’s Mr Micawber, that  something turns up.

In the positively final article in this series, I’ll summarise everything and try to give you some pointers to what to look out for in the 2006 Annual Report.