Forest still face PSR challenges

Forest’s pre-tax loss in 2022/23 widened by £21m from £46m to £67m, despite revenue shooting up £125m from £30m to a club record £155m following promotion to the Premier League, as this was eaten up by operating expenses rising £135m in the top flight.

In addition, net interest payable significantly increased from £1m to £10m, while profit from player sales dropped from £4m to £3m.

Forest are no strangers to losses, as they 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 £191m in the last 10 years, including £176m in the six seasons since Marinakis arrived.In fact, Forest’s £67m loss last season is the club’s highest ever, while they have lost £113m in the last two years alone.

Forest’s losses would have been even higher without the owners writing-off £73m of loans in the last eight years. The largest write-off of £40m came in 2017 when Evangelos Marinakis bought the club from Fawaz Al Hasawi, though £5m was included in both 2020 and 2021.

The main driver of Forest’s revenue growth was broadcasting, which rose a staggering £113m from £12m to £125m, due to the far more lucrative Premier League deal (ten times as much as in the Championship).  Despite the steep increase, Forest’s £155m revenue was the third lowest in the Premier League last season, only ahead of Southampton £146m and Bournemouth £141m.

There was also good growth in the other revenue streams, especially commercial, which more than doubled from £9.3m to £18.9m, while match day increased by a third, rising £2.8m from £8.2m to £11.0m.

Although Forest’s £67m loss is far from ideal, it’s worth noting that this was by no means the worst result in last season’s Premier League, as no fewer than seven clubs posted larger deficits, namely Aston Villa £120m, Tottenham £95m, Chelsea £90m, Leicester City £90m, Everton £89m, Southampton £87m and Newcastle United £73m.

Player sales

One of the reasons for Forest’s large loss was that they generated very little profit from player sales, which actually dropped from £4.1m to just £2.6m. Most players left on free transfers, though the club did receive a fee from Lens for Brice Samba.

The figures would have been much better if they had sold Welsh international Brennan Johnson before the end of June 2023, which would have also resolved their PSR issues. As an Academy product, his £47.5m sale to Tottenham represented pure profit.

The slowdown in player sales has hit Forest’s finances hard. They only averaged a £3m gain in the last two seasons, compared to £12m in the preceding 5-year period. The last big season was 2020/21 when they sold Matty Cash to Aston Villa.

However, the result will be significantly better this season, thanks to the Johnson sale plus reasonable money earned from the sales of Sam Surridge, Gustavo Scarpa and Braian Ojeda. In addition, the club received a sizeable loan fee from Lyon for Orel Mangala.

Forest’s average attendance increased by more than 3,000 in the Premier League, rising from 25,778 to 28,808. This was nearly 50% more than the 19,676 low in 2015/16.  Even after this growth, Forest’s 28,808 attendance was on the low side for the top flight, where seven clubs regularly attracted crowds above 50,000, with Manchester United leading the way with 73,671.

This is one reason why Forest have been looking into opportunities for the stadium, as they try to increase revenue, including improved hospitality and executive boxes.

The original plan was to upgrade the City Ground with two new stands, taking the capacity to 40,000, but the club has apparently experienced difficulties in agreeing terms for a new lease with the council.

As a result, it has recently emerged that Forest are exploring other options, including constructing a brand new 50,000 capacity stadium in another part of Nottingham with Toton mentioned.

Wages and transfers

Forest’s wage bill shot up £86m from £59m to £145m, due to “a record level of investment by the ownership to ensure the club were able to attract elite talent” in the Premier League. The number of players increased from 69 to 84, while non-playing staff were up from 142 to 170.

Following this growth, Forest’s £145m wage bill was comfortably the highest in the club’s history. Not only that, but this was more than more established Premier League clubs like Wolves, West Ham, Crystal Palace and Brighton, so Forest really pushed the boat out.

Forest splashed out an amazing £170m to bring a vast number of players to the City Ground last season. This was eighth highest in the Premier League, ahead of the likes of Newcastle United, Tottenham and Liverpool. It was also much more than the other promoted clubs: Bournemouth £130m and Fulham £86m.

Forest’s significant activity in the transfer market is even starker when looking at net spend, where their £165m was actually the fourth highest in the Premier League, only surpassed by Chelsea, Arsenal and Manchester United.   No club has spent more on the transfer market than Forest in the first season after promotion to the Premier League.  no club has spent more on the transfer market than Forest in the first season after promotion to the Premier League.

Forest’s gross financial debt increased by £61m from £21m to £82m, comprising £45m other loans, £13m bank overdraft, £23m from the owners (NF Football Investments Ltd) and £1m finance leases  However, Forest’s debt would have been much higher without Marinakis converting £104m debt to equity in the last six years, including £11m last season and £41m in 2021/22. In addition, £73m of loans have been written-off in the last eight years.

Since his arrival, Marinakis has pumped £112m into Forest, boosted by £33m from third party loans. The vast majority of this money has been used to simply cover £100m of operating losses with another £27m spent on player purchases (net) and only £15m on improving infrastructure.

Indeed, various owners have provided more than a quarter of a billion of funding since 2006: Marinakis £112m, Fawaz Al Hasawi £88m and Nigel Doughty £61m.  In reality, Marinakis’ £112m funding in the last six years is only average for the Premier League (though only one of those was spent in the top flight). In that period, owners at four clubs have put in more than £400m, namely Everton £643m, Fulham £496m, Aston Villa £475m and Chelsea £416m.

To ensure that they don’t face issues with PSR this season, Forest would have to post an adjusted profit of £10m. Excluding allowable deductions means that they will essentially have to break-even.

That’s a tough ask, even though their maximum loss has increased to £83m after two seasons in the Premier League. They will be boosted by the inclusion of the Brennan Johnson deal, but Forest are currently projecting losses of approximately £12-17m for this season, as per the findings in the Commission’s report, so there is still some work to do.

Forest’s issues with PSR have masked the club’s achievement in first securing promotion from the Championship, then surviving in the Premier League two years in a row. Their success has been built on the owner’s money, but that’s the case for almost every football club, so these feats should still be acknowledged.

Forest will believe that they have been punished for showing ambition. They would argue that the cards are stacked against any club that is promoted to the top flight after spending many years outside the top flight.