Forest 'moving in the right direction'

Locked down in his Zurich fastness, the Swiss Ramble analyses the recently published 2018/19 accounts of Nottingham Forest. He comments, 'There are some signs that Forest are moving in the right direction under Evangelos Marinakis, though the Championship is incredibly competitive, so there is no guarantee of success, especially as Forest are competing against many clubs fortified by parachute payments.'

The board has stated that remaining within the discipline of EFL’s Profitability and Sustainability Rules is a high priority. If required, this will be achieved by taking 'tough decisions' on player sales, 'notwithstanding substantial investment in the playing squad'.

The reality is that the club is still 'dependent on funding from its parent company'. In the last 10 years various owners have pumped £149m into the club. The vast majority of that has been used to simply cover operating losses with only £10m spent on improving infrastructure.

Forest broke-even from a cash flow perspective, but only thanks to £24m additional loans from the owners and £5m from player sales (net). Thus was needed to cover £27m losses from operational activities, plus £1m spent on infrastructure and £1m repayment of external loans.

The £39m gross debt is not that large for the Championship, far below the likes of Stoke City £141m, Boro £105m, Birmingham City £97m and Ipswich Town £96m.

Forest spent £23m on players, including Joao Carvalho, Lewis Grabban, Hillal Soudani and Tobias Figueiredo. Not only is this the third highest in the Championship to date in 2018/19, but is also more than Forest spent in the previous four years combined (partly due to the transfer embargo).

The wage bill rose 31% (£8.5m) from £27.7m to £36.3m, a club record, as the number of playing staff increased by nine to 74. This followed two successive years when wages had fallen. The wages to turnover ratio increased from 122% to 143%, which is the 7th highest (worst) in the Championship, though not as high as the 177% that Forest reported in 2014. However, it should be noted that more than half of the clubs in the Championship have ratios over 100%.

Commercial income rose 34% (£1.8m) from £5.2m to £7.0m, though this is still firmly in the lower half of the Championship, which is disappointing for a club with Forest's great tradition (two European cups).

Plans to redevelop the City Ground, increasing capacity by 8,000, have been put on hold due to 'delays in the planning process'. The club wants to increase revenue via improved hospitality and executive boxes. Had hoped to start rebuild of Peter Taylor stand at the end of this season.

Attendances had been declining, due to poor results on the pitch and unhappiness with the former owner, but they have bounced back strongly in the last two seasons. The 2018/19 average of 28,144 was around 40% (8,000) higher than the 19,676 low three years ago.

Revenue has grown by two-thirds (£10.0m) from £15.4m to £25.3m in the 5 years since 2014, though £3.9m of that is from bringing back in-house retail operations and catering. Another £4.1m is from broadcasting, mostly due to increase in Premier League solidarity payments.

If parachute payments were excluded, Forest's £25m would have been the 8th highest revenue in the Championship. They would still be a fair way below the leading clubs, e.g. Aston Villa £43m and Leeds United £41m, though the gap would be reduced to 'only' £16-18m. Despite the growth, the £25m revenue is mid-table in the Championship, significantly below clubs benefiting from parachute payments following relegation from the Premier League, such as Stoke City £71m, Swansea City £68m, Middlesbrough £56m, Aston Villa £54m and Hull City £48m.

Player sales have also become increasingly important for Forest [and indeed for many clubs], who have averaged £12m profit in the last three seasons, including £15m in 2016/17 (Burke & Lansbury) and £10m in 2017/18 (Assombalonga). Should also be decent this season (Appiah, Osborn and Chema).

Losses would have been much higher without owners writing-off £63m of loans: 2016 £18m, 2017 £40m and £2018 £5m. The largest write-off came in 2017 when Greek owner Evangelos Marinakis bought the club from Fawaz Al Hasawi.

The club have only reported a profit once since 2005 – and that was entirely due to a £40m loan write-off in 2017. Otherwise, the club has consistently lost money, amounting to just under £100m in the last decade.