Football fortune and the challenges facing a League 2 club

Carlisle United decided to improve the depth and detail of their annual report and the result is a fascinating insight into the challenges facing a League 2 club. The current season is their fourth consecutive season in the division. They make 'Football Fortune' a central concept which is a way of talking about randomness as a factor in football outcomes on and off the pitch. It can play a bigger part in the life of a smaller club which does not have the resources and income streams of a larger club.

The report notes, 'The football industry continues to be highly uncertain, volatile and subject to random events. Professional football in League 2 has intense rivalry but with a generally evenly balanced competition'. There is a similarity in the size of clubs and their resources. 'This makes any additional funding available from unpredictable Football Fortune a key factor - cash from Cup success and player sales can make a big difference.'

'Beyond that, football success is heavily dependant on non-financial factors such as player recruitment, effective use of budget and player development, strategy and tactics. Since resources, wages paid and ability to attract players are broadly similar across many clubs in League 2, and the pool of player skills is also evenly spread, absolutely critical is football coaching and management.'

Turnover was slightly down from £4.4m to £4.3m. Income from the EFL and Premier League went up from £725k to £919k. Academy grant income from the EFL went up from £319k to £424k. Excluding football fortune, shareholder funding or donations the club generated £1.4m to pay for all its football activities. The operating loss was £675k.

Business turnover was up from £2.07m to £2.28m, an increase of 10 per cent. Ticket income was up by £46,000 or four per cent. Retail income was up by £90,000 or 42 per cent. Commercial income was up by £70,000 or nine per cent.

Income from player trading was down from just under half a million pounds to just over £200k. 'The balance between player trading and on-the-field improvement and success is always a difficult one, but it plays a part in the sustainability and viability of the club. It is part of our strategy to increase the value of our players by developing their talent, to improve the team and sell them for profit to then reinvest.'

Income from Cup matches and play offs was down from £735k to £223k. The Checkatrade Trophy contributed just £30k. Football Fortune income overall was down by £739k, but total football expenditure, primarily player costs, was up 15 per cent after a 22 per cent increase in the preceding year. 'As a result, the club incurred a very significant loss in supporting this increased spending on player costs.'

Total staff costs were 80 per cent of turnover. Spending on players was 96 per cent of the EFL allowance under Salary Cost Management Protocols (99 per cent in the preceding year). Spending was in the top quartile for League Two.

The total debt of the company was largely unchanged at just over £2m. £205k of new loans were received from related party shareholders and £484k of loans due to shareholders were exchanged for shares. Total bank and lease finance debt was down by £55k at £250,000.

Insurance costs trebled after the 2015 floods, a hazard that most clubs do not face. 'Control of costs is a challenge especially given the rising cost of the stadium.'

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The Political Economy of Football V2

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