Thank you to all who have engaged with my last insight piece on Forest's FFP position. That piece looked at where Forest were early in the summer transfer window, with Ola Aina having just joined. He is a shining example of how brilliant the window was for Forest, and how well the recruitment team of Wilson and the returning Syrianos were, with some serious muscle added with Marinakis himself getting involved in key deals, like for Sangare.
Now the transfer window has closed and wages for players who moved on transfer deadline day have started to appear online, it is time to take stock on Forest's financial position.
A quick recap: I had taken the published financial results from the promotion year, and projected the results for the 'staying up' year as these are not filed yet.
2021/22 'promotion': £18.7m FFP relevant loss
2022/23 'staying up': estimated £30m FFP relevant loss
With FFP rules between the EFL and EPL loss limits, the maximum cumulative loss over 3 years that Forest can have in this current financial year (1st July 2023 to 30th June 2024) is £13m + £35m + £35m = £83m. It is key to note that by staying up last year an extra £35m - £13m = £22m of allowable losses have been added for this year and next year will be the same (if Forest avoid relegation, which even the most pessimistic Forest fan seems to believe), with the last £13m (EFL) above being changed into a £35m (EPL) allowable loss.
So, given the estimations I had performed is it estimated that Forest can have FFP-relevant losses up to £83m - £18.7m - £30m = £34.3m this financial year.
The most notable element of the summer transfer window was the heartbreaking sale of Brennan Johnson for 'FFP reasons' as touted around the press. This undoubtedly provides a huge injection of profit and cash into the accounts. What this article is going to look at is:
1) How much FFP room do Forest have for the January transfer window?
2) Did Brennan Johnson really have to be sold?
3) How sustainable is next season looking and will Forest need to sell anyone else?
As with each of my articles, these are estimates and guides to the general financial position. It involves a host of estimations and extrapolations and so should not be treated as exact financial accuracy. But with the magnitude of figures we are talking about, this should be good enough to indicate what type of position the club is in. The key is the largest figures are player wages and transfers. In the main, the internet gives us what we need for greater accuracy.
1) How much FFP room do Forest have for the January transfer window?
The easiest way to estimate this year's profit/loss is to look at the movement from the estimated loss last year in each key area of finance. Given last year was an estimated £30m of relevant loss and this year a maximum of around £34m loss can be made, as long as revenues and expenditure stay level overall from year to year, Forest should be ok, with a small £4.3m margin to be worse off year-on-year maximum.
From my previous article, the following estimations were made for this financial year:
- Tickets and Memberships: +£10m
- Commercial / Radio: no change
- Sponsorship / Adverts: +£7.5m (note I predicted the £7m a year for a front-of-shirt sponsor exactly!)
- Grants/Broadcasting: no change
So before we get on to the key cost drivers, player wages and amortisation, it looks like this year is already estimated to be £17.5m better off than last.
Player loan fees
Player loan fees have also moved more favourably this year:
- Lodi: +£4.7m back vs last year
- Wood: +£4m back vs last year
- Tavares: -£1m new loan fee
This is a £7.7m net gain on the prior year's position.
Player sales
- Samba: - £3.5m profit taken last year
- Johnson: +£45m new profit (£2.5m are contingent add-ons so not booked as profit yet)
- Ojeda: + £2.1m new profit
- Surridge: +£4m new profit
- Drager: +£0.36m new profit
- Cook: +£1m new profit (assuming he was sold for £1m, no press confirmation)
- Biancone: +£1.6m new profit (assuming he was sold at 'fair price' which was what he was bought for)
This is a roughly estimated £50.5m net gain on player sales from the prior year.
Player wages and amortisation
As explained in my accounting for player purchases and sales article, player purchases are not directly relevant here. The players are 'capitalised' and the cost of the player is released over a number of years ('amortisation').
So what we really need to look at is the movement in the total of player wages (adjusted for when players are out/in on loan and wages are covered) and player amortisation.
I estimated that last season, the wage bill was about £74.6m with amortisation charges being approximately £42.6m. The wages also generate an additional £10.6m in employer NIC taxes.
After this summer window, this season's roster is looking to cost £67.7m in wages (assuming all the loans out are having 100% of their wages covered by the receiving clubs) and amortisation charges of £76.2m. The wages also require employer NIC payments of £9.4m.
Before we compare year-on-year movements, it is worth noting that the overall wage bill has DECREAED slightly even with the huge upgrade to the squad. This is in main from shedding the expensive wages of Lingard, Henderson, Navas, Lodi and Ayew, loaning out players with about £15.5m worth of wages and reducing the average age of the squad.
So overall year-on-year £6.9m has been saved on wages so far this season, plus NICs of £1.2m. But amortisation has gone up by £33.6m. This is a net increase of £25.5m for wages, NICs and amortisation.
Add-ons
So the last thing to consider is the 'dark art' of add-ons. Incentives on player contracts have been around for a while, but material add-ons seem to be on the increase in a way to push more of the total purchase price of a player into future accounting periods for FFP (as well as reduce the cost of the player if sold early into their contract).
I have teamed up with fellow financial wizz and Twitter/X buddy Jim (@jjmeemaa) to estimate a number of the non-validated wages online, but also to try to estimate the size of the hugely opaque add-ons in the Forest player contracts. We have then adjusted for a % that is likely to be paid out and then allocated the estimated adjusted total of add-ons evenly over the length of the contract but logically adjusting for things like being out on loan, not playing for the first team etc.
Looking year-on-year it is estimated that add-ons increased from £8.1m last financial year to £12.9m this financial year, so an increase of £4.8m is estimated.
So how much room might Forest have theoretically come the January window if they wanted to do any more business? If we look at the year-on-year change:
Extra room vs last year's losses: +£4.3m
Core revenue: +£17.5m
Loan fees: +£7.7m
Player sales: +£50.5m
Wages & NICs: +£8.1m
Amortisation: -£33.6m
Add-ons: -£4.8m
Spend left to FFP limit: £49.7m
2) Did Brennan Johnson really have to be sold?
So if we assume that there is £49.7m worth of room left this financial year to the FFP loss limit, we need to compare this to the financial difference if Johnson had stayed.
The sales revenue that applies to this financial year (so no add-ons) is £45m. But also his wages and related employer-related NICs do not need to be paid this year. That saves another £1.56m + £0.22m = £1.78m. He does not have any annual amortisation charges as he was an Academy graduate. This is also why the sale is deemed pure profit.
This indicates that if Johnson stayed at Forest, there should have still been about £3m of room to the FFP limit. But there are a number of considerations to be made in what is a huge estimation game:
- All these numbers are best estimates and we are talking about tiny amounts of wiggle room;
- Add-ons are very opaque and there could easily be over £3m of add-ons and bonuses that have not been taken into account in the correct periods;
- Not 100% of the wages for every player out on loan may be covered by the receiving clubs (e.g. possibly Dennis and Shelvey)
- I have estimated the sale value of Cook and Biancone as there is no public information that I can find. Given the sale of Biancone was to Olympiacos, it very well might have been at a huge cut price, much lower than the £5m I estimated. This would allow Marinakis to help out Olymiakcos' own financial limits if it was needed;
- Even if all the numbers are right, it gives no wiggle room to make any emergency purchases in January if required due to injuries etc;
- There may be an amazing bargain Forest want to pounce on in the two weeks in June 24 when the summer window opens before the financial year closes at the end of June;
- Forest are blessed to have an owner like Mariankis who is willing to loan cash to the club (for cashflow purposes) to allow the theoretic losses to be used and not have a lack of cash prohibiting player purchases, but he does not want to constantly be doing this. Cash in the bank is good to be nimble in the transfer market;
- Marinakis might like Forest not to be posting a £35m loss every single season!
So overall, in theory, no, Johnson did not need to be sold (just...). But from the perspective of allowing the club to be in a sensible, healthy position at the start of the season and also possibly keeping their powder dry for future windows, it did seem sensible given the large number of key additions to the squad.
3) How sustainable is next season looking and will Forest need to sell anyone else?
As a Forest fan, if you look at the squad that has been assembled over the last three transfer windows, the depth in each position, the start to the season and now the financial position of the club, things really are looking rosy.
Given we said that this year, losses of up to £34.3m could be taken but there is currently £49.7m room left to that limit, we can deduce this year is projected to be a profit of roughly £15m.
It should be noted that this profitability is in the eyes of FFP, so Academy costs have been excluded from the calculations. I have previously estimated these to be roughly £6m per year. So really the club is running to about a projected £9m profit this year.
Forest Women have a separate set of accounts (they are a 100% owned subsidiary of Forest), and although Forest invest into the Women's team (and is FFP exempt), it is not a material number for these calculations.
But this projected profit is skewed by a number of moving factors each year:
- player sales (Johnson provided a huge boost to profitability this year)
- expiring contracts
- commitments to purchases
If we start with the current projected profit of £9m, we can make the following more simple adjustments (vs this year):
- add £1m back for no planned loan fees payable yet
- less £54m for no planned sales of players yet
- add £2.5m in add-ons (no movement at Forest yet, Johnson's add-ons paid next year)
- add an estimated extra £10m from extended broadcasting deals currently being renegotiated for more non-Sat3pm games
So before we get to expected player movements in and out of the club, it looks like the £9m projected profit has moved to a £31.5m loss.
I have then made the following guesses about the treatment of players with expiring contracts or who are on loan:
- Wood (released)
- Filipe (retained or replaced like-for-like wages)
- Kouyate (released)
- Boly (retained or replaced like-for-like wages)
- Aurier (released)
- McKenna (released)
- Horvath (released)
- Hennessey (extended, same terms, as Shelvey sent back out on loan)
- Toffolo (released)
- Arter (released...EVENTUALLY!)
- Aina (extended, same terms)
- Santos (returned)
- Origi (returned, option not triggered)
- Montiel (obligatory purchase)
- Tavares (returned, option not triggered)
- Scarpa, Freuler, Richards, Laryea, Bowler, Hwang, O'Brien, Mbe Soh, Panzo, Mighten, Dennis and JJ Shelvey all loaned back out or sold (none of the calculations assume any revenue from sales from these players next summer).
Based on this, the wage bill comes down to £46.6m and NICs down to £6.4m. This is £21.1m + £3m = £24.1m saving on the current year (Origi is on £6.24m per year alone).
With amortisation, I have assumed Montiel is put on a 4-year contract (11m EUR fee) but Filipe and Boly are not replaced yet (new contracts after the last one expires attract no new amortisation). The big win is there not being a full £15m amortisation hit from Wood alone, as there is this year! Amortisation is projected to be down to £57.8m, which is a further £18.4m saving.
So before new players are added, the projected profit next year is -£31.5m +£24.1m + £18.4m = £11m. This also assumes Forest don't tinker in the transfer market in January....!
But what 1st team squad is left after all this movement?
From what we can see, the core of a strong Premier League squad is here, and from the players leaving there is the opportunity to raise the overall level of quality in the depth of the squad.
It looks like a left-back, a midfielder and a striker will be needed, and possibly 1 or 2 centre-backs (if Filipe and /or Boly are not extended, and also about the speed of progress of Murillo and Omobamidele). Given the annual £35m FFP losses allowable not looking like they are needed this season, and having a fresh set next season, there should be no danger of FFP issues next season either.
But in terms of getting to a place of financial stability in the books so as not needing to be a selling club each season, there is a little way to go. But some perspective is needed here, as according to offthepitch.com, only 5 Premier League clubs in the 2021/22 season were profitable (and even that can be skewed from major sales in a summer).
If we estimate 4 players are brought in, on an average fee of £20m each, 4-year contracts and wages of £50k per week, that will cost roughly £32m per year from wages, NICs and amortisation.
As such, Forest will be running at a loss of roughly £21m per year (less £6m of Academy costs in the FFP calculations). The stadium expansion should help bridge up to half of this gap in ticket sales, catering facilities and enhanced matchday experiences. Commercial units within the new complex should easily bridge the rest of the gap (as the big clubs like Liverpool and Chelsea have). But a key point here is that, if Marinakis is happy to do so, the club could run at this level of loss each year and be reasonably comfortably within FFP limits without having to sell anyone each year.
So the club is really moving in the right direction.
Marinakis has given the funding to revitalise the squad, the club and the city community.
Cooper has transformed the sporting fortunes of the club and reconnected the club and the players to the fans.
The club and its executives have been working hard to get the stadium expansion approved, which is the final piece of the jigsaw to becoming a financially stable club.
Please do leave your comments below and let me know your thoughts.
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