Wolves accounts may 2021
Wolves have released headline financial information for the year ending 31st May 2021, in this personal blog, Trust Board Member, Neil Dady, theorises on what it may all mean for Wolves supporters.
The first thing to note is that these accounts are reflective of trading during the COVID Pandemic, when revenue was severely impacted.
The ‘headline’ within the accounts is the fact that the ownership group Fosun, capitalised and transformed into equity £126.5 million of shareholder loans. This is undoubtedly good news for supporters of the club, it underlines the owner’s commitment and provides a level of financial security in turbulent times.
Converting debt into equity, what does that mean? In simple terms it is a refinancing arrangement that means Fosun has increased its direct investment in the club whilst reducing the club’s exposure to debt. Alongside the reported £45m purchase price, Fosun now have a direct investment of circa £171.5m. Given the estimated value of Wolves was £350m in 2019, (a pre-pandemic valuation - Financial Times 29/10/2019) then Fosun are still well placed to make a healthy return on their investment at the point of sale, or stock market flotation.
Wolves also reported external bank loans secured against future Premier League broadcast revenue of circa £60m. It was also recently reported that the club had taken a further loan of £23m, secured against transfer funds due on the Jota transfer. Borrowing against future income to strengthen ‘day to day’ cash flow is not unusual; it could be viewed as widespread practice within football. The risk for clubs is in maintaining revenue streams to finance the debt repayment, in Wolves case retaining Premier League football is now a critical element of the club’s finance model.
Do Wolves have money for future transfer activity? The simple answer, on paper, is no. For Wolves to invest in new players they must either sell, or borrow, to raise finance. The owners will know that to retain Premier League status it will require ongoing player trading; how they manage this will be their decision. All indications are that Wolves are seeking to balance player sales and purchases, so in theory the sale of our most valuable player, Neves, would create significant funds for incoming new players, but at what cost to the team?
Even though substantial transfer fees have been paid in the last two seasons, there is no indication that Fosun are going to ‘push on’ to bankroll ‘top six’ level player investment.
Investment in new players will be made, as necessary, to secure Premier League status but I suspect the push to secure sustainable European football will be built around the development of young players, with the link to Grasshopper Club Zurich being a key element of the strategy.
What we do not know is to what extent Guo Guangchang (the Chinese Billionaire owner of Fosun) desires to see Wolves Playing Champions League football, and if pressure is being applied by the Chinese political machine for a Chinese-owned football club to win the Premier League. World events will change the dynamic of Fosun’s relationship with English football, for good or bad, is yet to be seen.
Will Fosun redevelop Molineux? It is ‘chicken and egg’; to create additional revenue then Molineux needs to be extensively refurbished, at a minimum, and rebuilt if it is to compete with other Premier League ‘top ten’ clubs. Anyone that has visited Spurs, Man City or Arsenal Stadiums will know how far Wolves are behind in this regard. It is estimated that Spurs matchday income could be as much as £120m alone, whereas Wolves total reported annual turnover in the most recent accounts is circa £194m.
The club is impressively growing revenue as it establishes itself as a Premier League club with worldwide branding opportunities and releasing further potential match day revenue incomes, through the redevelopment of Molineux, must remain a target for Fosun. Further increases in match day ticket prices is an option, although Wolves 1877 Trust has already raised objections to further increases - https://www.wolves1877trust.co.uk/news/trust-calls-for-ticket-price-freeze . Brighton have already announced a ticket price freeze for 2022/23 season.
The decision when to redevelop Molineux has been delayed; although the club outwardly remain committed to the project it’s clear that the appetite to move quickly has waned. In my view, it is now reliant upon identifying an investment partner that is prepared to finance the project over an extended term, possibly for as long as 30 years. The challenge for Wolves is building a financial model that shows that it can generate the revenue required, whilst financing the increased level of debt.
The redevelopment of Molineux will only generate significant income for the playing side if it is completed on a debt-free basis, will Fosun build it for ‘free’? Fosun clearly understand the need to invest to support growth; a redeveloped Molineux is the key to increasing season ticket numbers and match day revenue. For Fosun, it is a risk/reward decision.
Another option that has not fallen completely off the table is the sale of Molineux and the training ground, to partly fund a new stadium as part of a regeneration project somewhere on the outskirts of Wolverhampton. A shiny new stadium with a massive increase in match day revenue, reduced construction cost, improved transport links, and a Manchester City style training ground that can host Wolves Women must be attractive to Fosun? Of course, as match-going supporters, we would be distraught at the prospect of the soul of the club being torn apart, Molineux is the beating heart of Wolverhampton. To contemplate moving the stadium elsewhere might not be a price the match- going supporter is willing to ‘pay’, but for Wolves to become established as a European force, our owners may think differently.
Wolves’ finances are strong with our Premier League status secure for another season; the plan to take the next step may have been temporarily derailed by COVID and world events, but supporters should be confident that, overall, Fosun remain committed and trustworthy custodians of our club.