On pitch progress for Forest but financial challenges remain

Nottingham Forest have been doing well on the pitch, but face financial challenges off it. The authoritative Swiss Ramble reviews their latest accounts.

Nottingham Forest’s 2020/21 accounts saw their loss narrow to £15.5m, despite revenue falling £6.9m to £18.4m, due to COVID. This was helped by £14.3m profit from player sales. Debt was £37m after further conversion to equity and loan write-off.

It is their fourth season under the ownership of Evangelos Marinakis (80%) and Sokratis Kominakis (20%).

Like most Championship clubs, Forest make large operating losses, partially offset by player trading, as they compete against those with parachute payments. If they do not secure promotion this season, they will come under pressure to sell rising stars like Brennan Johnson.

Remaining within the EFL Profitability and Sustainability Rules is a “high priority”. The Zurich-based expert calculates they have just met the target, after allowable deductions for academy, community, infrastructure and COVID (limited to £5m a year), but excluding loan write-offs.

The Championship is a division that has an endless appetite for owner funding, so the £149m provided in the 10 years up to 2020 was by no means the highest, much lower than the likes of Fulham £315m and QPR £285m.

In the last 10 years various owners have pumped £140m into Forest, boosted by £19m from (net) player sales and £17m external loans. The vast majority of this money has been used to simply cover operating losses with only £9m on improving infrastructure.

Although debt is high in the Championship, most of it has been provided by owners who charge little or no interest, though Forest paid £418k in 2020/21. Only one club has an interest payment over £1m, namely Cardiff City with £1.9m. £37m gross debt is not that large for the Championship, far below the likes of Stoke City £187m, Blackburn £156m, Birmingham City £116m and Boro £116m. Forest’s holding company has £89m debt. Not an issue – so long as the owners continue to provide support.

The club spent £3.9m on player purchases, their lowest for 5 years and well down from £22.7m in 2019. This is relatively small for the Championship, even below Barnsley and Preston North End.

The wages to turnover ratio increased from 151% to 202%, obviously affected by COVID revenue loss. Most clubs in the very competitive Championship had ratios above 100%, but Forest are one of the highest (worst). This should improve after many summer departures. Following this growth, the £37m wage bill was 8th highest in the Championship, so they punched well below their weight last season.

The wage bill fell slightly (2%) from club record £38.1m to £37.2m. However, this is still £9.5m (34%) higher than three years ago, despite revenue dropping £4.3m (19%) in that period, which neatly encapsulates Forest’s financial predicament.

Forest terminated their shirt sponsorship with Football Index after the online betting company went into administration. They were replaced by BOXT for remainder of 2020/21, extended to 2021/22 in similar sized deal. More encouragingly, Macron extended the kit deal by 5 years to 2026.

Plans to redevelop the City Ground, replacing the Peter Taylor Stand, have been delayed, but the club submitted a planning application in November. One objective is to increase revenue via improved hospitality and executive boxes.

Average attendance in 2019/20 (for games played with fans) was 27,723, only surpassed by Leeds in the Championship. This was around 40% higher than the 19,676 low four years before that.

Broadcasting income rose £1.2m (12%) from £9.8m to £11.0m, comprising grants and royalties £9.6m and TV and radio £1.4m. Most Championship clubs earn £7-10m, but there is a massive gap to clubs in receipt of parachute payments.

Championship revenue is hugely influenced by parachute payments, which are so large that they make it difficult for clubs like Forest to compete. Details not published for 2020/21, but in 2019/20 a relegated club received £42m in year one, £34m in year two and £15m in year three.

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The Political Economy of Football V2

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