Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 6:53 am
Q+A part two: Cardiff City finance director Doug Lee reveals the true state of the club's finances
In the second part of our exclusive interview with Cardiff City finance director Doug Lee, Football Correspondent Chris Wathan asks the key questions on the Langston loan, the club's Premier League dream and transfer plans for next season
Chris Wathan: We spoke about potential expansion to the stadium and a new training ground as part of a proposed new investment from the Malaysians. The issue I have with that is, given the club's financial position, it seems a case of putting the cart before the horse.
Doug Lee: You have to recognise major infrastructure projects take time to bring online. Part of the discussions have always been when is the appropriate time to expand. You need to do a lot of planning work, engineering work to schedule that change. Realistically you can't do that during the season so you have to plan ahead. We have a time horizon in which we would hope to achieve Premier League football and therefore be in a position we can start construction either immediately or soon after there's clarity on that.
CW: Is the club reliant on getting to the Premier League? To have a business model that relies on promotion can end in real problems.
DL: Absolutely. We can't make all our decisions based on us having to be in the Premier League because clearly that's not something we can ever guarantee. We all saw at the weekend with Man Utd and Man City that outcomes are very unpredictable, going down to the last 30 seconds of an entire season. We can't build our model around that. We have to find ways where we can survive whether we are in the Championship or the Premier League, although retaining an ambition to be in the latter.
The Premier League brings with it some fantastic opportunities, but also lots of problems in terms of transfer fees and player wages on different scales and they have to be built into any business model. Not many Premier League clubs make a profit and they will be subject to the Uefa variant of Financial Fair Play, too, so throughout European football there will be downward pressures.
CW: So rather than boom and bust, what you are trying to say is the strategy is to avoid that?
DL: Yes. It's not something that will happen overnight. But clubs will have to find a way to make it work. Fundamentally, we have to find a revenue, we have to find new markets or we will not be able to invest in players.
CW: You touched upon transfers. Fans will, and have, got excited by talks of war chests. We've addressed the fact the club is already losing money and yet with buying players comes a commitment to wages of two or three years that will not be covered by one cash injection.
DL: You have to get a balance between fees and wages so you recognise how much is an asset and how much is cost that is acceptable. It's difficult and well-publicised that in the first season of Malaysian investment we had a lot of loan players that had a lot of cost but no asset, whereas last summer the consequence was a substantial investment in assets. We had some good trading, got good players at relatively low cost, most of whom are quite young and hopefully will blossom and should increase in value. We need to be wary of any trading this summer and coming summers.
The indirect objective of the whole thing is to put downward pressure on transfer fees and player wages - that's where the vast majority of cost base for any football club is.
CW: In TG's open letter there was an interesting phrase where he suggested the club cannot be run the way it has been. He has been involved for two years and yet there doesn't appear to have been an obvious policy of austerity. Although you have to have ambition, for a club that has long-standing debt issues there has still been a lot of money spent on wages etc.
DL: But, as you said yourself, player contracts are typically three years in length so when you make commitments there's an on-going cost of doing so. We're running at a loss of £1m a month. The biggest contributor to that is player wages, many of which were associated with past contracts.
We have one further season until FFP sanctions come in for exceeding thresholds, where if you breach them there will be a transfer embargo in January 2015. It seems a long way off, but when we sign a player this summer, it's only that first year that we will not have the risk of FFP impacting on it. So decisions on player investment are more difficult than they ever have been. There are a small number of assets being chased by a large number of clubs so market forces have driven values up. However, the buying market is changing because of the consequences of FFP. There is a real risk of embargo for a lot of clubs.
Next page: Cardiff City and HMRC
CW: Cardiff were placed in a transfer embargo themselves not so long ago. With regards to the HMRC and football creditors the club is...
DL: 100% compliant and up to date. I'm glad to say we now have a good relationship with HMRC. And that's pleasing to say for someone who had to deal with them day-to-day when I joined this organisation not long after the Malaysian investment.
CW: In terms of other debts - for example the PMG debt that was not converted into equity as once proposed - where does the club stand?
DL: We've agreed what we regard as a sensible payment schedule with PMG and we're servicing that and the relationship is fine with both parties happy.
CW: With regards to the Langston debt, there was a repayment agreement made under the previous administration. Looking back it raises the question why that option wasn't taken?
DL: Some of the decisions have to be seen in the context of the other investments being made (by the Malaysians). You can always have hindsight and say if it was a good or bad deal and whether you should or shouldn't have done it.
Although as a UK board we can make recommendations on what the strategy is, ultimately we're not writing cheques and I'm not aware of all the financial issues that the investors have to balance out.
They have to make judgements, not just in this business, but with their other businesses about how best to spend their money at any point in time.
Will that opportunity rise again? Let's wait and see if we can do a sensible deal. But it is fundamental to the business going forward that we can resolve it and we hope there's willingness on both sides, but it's not going to be easy or something we can guarantee we can deliver.
CW: The club's position with the historic debts does seem to have limited your options going forward.
DL: None of us here or the Malaysians created the debt that the club was saddled with when they took over.
That's why resolving the Langston debt will be fundamental to the resolution of all this. If we can solve that, it opens up huge opportunities to rebalance the finances and the conversion of debt to equity is a much simpler decision because the risk of the Langston debt is taken away.
In the second part of our exclusive interview with Cardiff City finance director Doug Lee, Football Correspondent Chris Wathan asks the key questions on the Langston loan, the club's Premier League dream and transfer plans for next season
Chris Wathan: We spoke about potential expansion to the stadium and a new training ground as part of a proposed new investment from the Malaysians. The issue I have with that is, given the club's financial position, it seems a case of putting the cart before the horse.
Doug Lee: You have to recognise major infrastructure projects take time to bring online. Part of the discussions have always been when is the appropriate time to expand. You need to do a lot of planning work, engineering work to schedule that change. Realistically you can't do that during the season so you have to plan ahead. We have a time horizon in which we would hope to achieve Premier League football and therefore be in a position we can start construction either immediately or soon after there's clarity on that.
CW: Is the club reliant on getting to the Premier League? To have a business model that relies on promotion can end in real problems.
DL: Absolutely. We can't make all our decisions based on us having to be in the Premier League because clearly that's not something we can ever guarantee. We all saw at the weekend with Man Utd and Man City that outcomes are very unpredictable, going down to the last 30 seconds of an entire season. We can't build our model around that. We have to find ways where we can survive whether we are in the Championship or the Premier League, although retaining an ambition to be in the latter.
The Premier League brings with it some fantastic opportunities, but also lots of problems in terms of transfer fees and player wages on different scales and they have to be built into any business model. Not many Premier League clubs make a profit and they will be subject to the Uefa variant of Financial Fair Play, too, so throughout European football there will be downward pressures.
CW: So rather than boom and bust, what you are trying to say is the strategy is to avoid that?
DL: Yes. It's not something that will happen overnight. But clubs will have to find a way to make it work. Fundamentally, we have to find a revenue, we have to find new markets or we will not be able to invest in players.
CW: You touched upon transfers. Fans will, and have, got excited by talks of war chests. We've addressed the fact the club is already losing money and yet with buying players comes a commitment to wages of two or three years that will not be covered by one cash injection.
DL: You have to get a balance between fees and wages so you recognise how much is an asset and how much is cost that is acceptable. It's difficult and well-publicised that in the first season of Malaysian investment we had a lot of loan players that had a lot of cost but no asset, whereas last summer the consequence was a substantial investment in assets. We had some good trading, got good players at relatively low cost, most of whom are quite young and hopefully will blossom and should increase in value. We need to be wary of any trading this summer and coming summers.
The indirect objective of the whole thing is to put downward pressure on transfer fees and player wages - that's where the vast majority of cost base for any football club is.
CW: In TG's open letter there was an interesting phrase where he suggested the club cannot be run the way it has been. He has been involved for two years and yet there doesn't appear to have been an obvious policy of austerity. Although you have to have ambition, for a club that has long-standing debt issues there has still been a lot of money spent on wages etc.
DL: But, as you said yourself, player contracts are typically three years in length so when you make commitments there's an on-going cost of doing so. We're running at a loss of £1m a month. The biggest contributor to that is player wages, many of which were associated with past contracts.
We have one further season until FFP sanctions come in for exceeding thresholds, where if you breach them there will be a transfer embargo in January 2015. It seems a long way off, but when we sign a player this summer, it's only that first year that we will not have the risk of FFP impacting on it. So decisions on player investment are more difficult than they ever have been. There are a small number of assets being chased by a large number of clubs so market forces have driven values up. However, the buying market is changing because of the consequences of FFP. There is a real risk of embargo for a lot of clubs.
Next page: Cardiff City and HMRC
CW: Cardiff were placed in a transfer embargo themselves not so long ago. With regards to the HMRC and football creditors the club is...
DL: 100% compliant and up to date. I'm glad to say we now have a good relationship with HMRC. And that's pleasing to say for someone who had to deal with them day-to-day when I joined this organisation not long after the Malaysian investment.
CW: In terms of other debts - for example the PMG debt that was not converted into equity as once proposed - where does the club stand?
DL: We've agreed what we regard as a sensible payment schedule with PMG and we're servicing that and the relationship is fine with both parties happy.
CW: With regards to the Langston debt, there was a repayment agreement made under the previous administration. Looking back it raises the question why that option wasn't taken?
DL: Some of the decisions have to be seen in the context of the other investments being made (by the Malaysians). You can always have hindsight and say if it was a good or bad deal and whether you should or shouldn't have done it.
Although as a UK board we can make recommendations on what the strategy is, ultimately we're not writing cheques and I'm not aware of all the financial issues that the investors have to balance out.
They have to make judgements, not just in this business, but with their other businesses about how best to spend their money at any point in time.
Will that opportunity rise again? Let's wait and see if we can do a sensible deal. But it is fundamental to the business going forward that we can resolve it and we hope there's willingness on both sides, but it's not going to be easy or something we can guarantee we can deliver.
CW: The club's position with the historic debts does seem to have limited your options going forward.
DL: None of us here or the Malaysians created the debt that the club was saddled with when they took over.
That's why resolving the Langston debt will be fundamental to the resolution of all this. If we can solve that, it opens up huge opportunities to rebalance the finances and the conversion of debt to equity is a much simpler decision because the risk of the Langston debt is taken away.
Re: Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 7:00 am
Id say the last paragraph sums everything up: settle with Langston and things can change in regards to spending at our club. Otherwise the penny pinching and looking for decent free transfer and low cost players will continue.
Re: Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 7:45 am
so when is the settlement due?
the pro sam boys says he's up for it
the board say they are up for it
the malaysians say they are up for it too.
so when will it happen?????
the pro sam boys says he's up for it
the board say they are up for it
the malaysians say they are up for it too.
so when will it happen?????
Re: Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 7:47 am
where's part one? 
cheers
cheers
Re: Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 7:56 am
Re: Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 8:13 am
Interesting....
I am not sure how they can turn a £1M per month loss into a profit, That's an awful lot of money to try and find and keep a competetive squad. I think in part one it was mentioned that filling the stadium every other week won't really help balance the books...a lot of big earners left last year and we had a few extra matches during our Carling Cup run and all the extra income that the cup final brought, yet it seems it doesn't scratch the surface.
I appreciate that they say it will go on wages, and there are quite a few players earning very good money at Cardiff, but surely the costs have come down from last year?
I'm sure that if/when the Langstone debt gets settled, then things will happen..
I am not sure how they can turn a £1M per month loss into a profit, That's an awful lot of money to try and find and keep a competetive squad. I think in part one it was mentioned that filling the stadium every other week won't really help balance the books...a lot of big earners left last year and we had a few extra matches during our Carling Cup run and all the extra income that the cup final brought, yet it seems it doesn't scratch the surface.
I appreciate that they say it will go on wages, and there are quite a few players earning very good money at Cardiff, but surely the costs have come down from last year?
I'm sure that if/when the Langstone debt gets settled, then things will happen..
Re: Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 9:13 pm
eddiep wrote:so when is the settlement due?
the pro sam boys says he's up for it
the board say they are up for it
the malaysians say they are up for it too.
so when will it happen?????
Annis speaks with him I believe, ask him!
Re: Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 9:42 pm
Bigbluebird wrote:eddiep wrote:so when is the settlement due?
the pro sam boys says he's up for it
the board say they are up for it
the malaysians say they are up for it too.
so when will it happen?????
Annis speaks with him I believe, ask him!
Paul,
When the Malaysians agree to pay the agreed sum theyve agreed on in full and not drip feed it.
Re: Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 9:59 pm
Forever Blue wrote:Bigbluebird wrote:eddiep wrote:so when is the settlement due?
the pro sam boys says he's up for it
the board say they are up for it
the malaysians say they are up for it too.
so when will it happen?????
Annis speaks with him I believe, ask him!
Paul,
When the Malaysians agree to pay the agreed sum theyve agreed on in full and not drip feed it.
Hi Annis,
What's the latest on this mate? Any closer cause last week it was being reported we were close....
Re: Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 10:10 pm
Bigbluebird wrote:Forever Blue wrote:Bigbluebird wrote:eddiep wrote:so when is the settlement due?
the pro sam boys says he's up for it
the board say they are up for it
the malaysians say they are up for it too.
so when will it happen?????
Annis speaks with him I believe, ask him!
Paul,
When the Malaysians agree to pay the agreed sum theyve agreed on in full and not drip feed it.
Hi Annis,
What's the latest on this mate? Any closer cause last week it was being reported we were close....
Paul, it is in a lot of ways, all the major stuff is sorted, its just how and when it will be paid, which is now become the stumbling block.
Re: Doug Lee part 2 / city finances indepth interview
Sat May 19, 2012 11:33 pm
What I don't understand is if it isn't paid off in one go how can they convert the debt to equity?
Re: Doug Lee part 2 / city finances indepth interview
Sun May 20, 2012 7:24 am
How to turn around a £1m/month loss?
Personally, I can't see how the hell it's a million a month? We're filling the stadium and have no big name Charlie's like the previous season - yet were still leaking money like water out of rusty bucket.
The only thing we have is a huge debt around our necks that is gaining interest at an alarming rate. The fact is, it's not in the lenders interests to get things settled whilst they're gaining 6 or 7%. If they had their money in a bank the'd be getting 2 or 3% max!
The bottom line is that until Sam / PMG / Ranson f**k off were not going to balance anything
Personally, I can't see how the hell it's a million a month? We're filling the stadium and have no big name Charlie's like the previous season - yet were still leaking money like water out of rusty bucket.
The only thing we have is a huge debt around our necks that is gaining interest at an alarming rate. The fact is, it's not in the lenders interests to get things settled whilst they're gaining 6 or 7%. If they had their money in a bank the'd be getting 2 or 3% max!
The bottom line is that until Sam / PMG / Ranson f**k off were not going to balance anything