Amongst Dons fans some of the current discussion about stadium financing has led to talk about whether-or-not taking on external investment would help us to “get to the next level”.
That phrase will probably mean different things to different people, but it’s generally about being a “bigger club”. Other than the stadium, that could mean the number of supporters, and of course the league position.
We think having that discussion as fans and owners of our club means we should consider properly the way football club finances actually operate. That way we can make good decisions about where we might get that money from if “the next level” is something we want to achieve.
The expenses of a football club generally fall into one of two buckets, either buying something permanent (anything from a snack bar to a football stadium) or things that you need to keep buying or paying for again and again, such as staff (including players), electricity, and footballs.
The income of a football club can also be put into two buckets. There are the regular income sources such as ticket sales, drinks, burgers, pies, events at the stadium, sponsorship, and any ‘central’ income from the EFL (broadcasting deal etc). Then there is one-off income: a cup run, a player being sold, a large donation to the club (the annual donation option as part of season ticket renewal), borrowing money such as a bank loan, or when someone makes a financial investment in the business in return for a share of ownership.
I suspect we all agree that the first duty of any football club is to continue to exist for the community it represents. As Wimbledon supporters we know that financial arrangements which could be described as ‘unsustainable’ can put the continued existence of a club at serious risk, and we’ve experienced the most extreme consequence possible. Supporters of many other clubs have of course experienced similar problems, so much so that very substantial numbers of football clubs are now operating on an unsustainable financial basis. Just look back to the loss of Bury, and near loss of Bolton Wanderers this year. It is common knowledge that this is true even of Premier League clubs, and especially those in the Championship.
As a general rule, financial security lies in using regular income to pay for regular expenses, and using one-off income to pay for one-off expenses (though in the case of repaying a mortgage, bond, or some other borrowed income, it may be that it actually generates ongoing smaller expenses in the form of repayments).
Ideally, when a club commits money towards one-off expenses on infrastructure, it will help to build the club in such a way that the regular income grows, which in turn means that the regular expenses can increase.
The big trap that it is easy to fall into is when regular expenses are paid for by one-off income. Because it is one-off income, inevitably and before too long, the money is all used up, and a second ‘one-off’ source of money is needed. Before long a vicious cycle has begun in which repeated sources of ‘one-off’ income are required to keep meeting the expenses.
Loans are often the one-off income of choice, whether from shareholders or other financial institutions. These can be secured on the ‘physical’ assets such as the stadium or training ground (though as part of ‘Financial Fair Play’ the rules (FFP) the potential for this is more complex), or the stadium itself might be transferred into a different company. The problem is that club ends up either with debt hanging around its neck that means regular income is spent servicing it, attention turned to how to get more income in to pay that debt, and very little attention given to how or why the club got there or how it can walk back from it. That’s the essence of what’s happened to clubs over the last twenty years, and which most recently happened to Bolton Wanderers and, most tragically, Bury, this year.
So how do we reach the next level?
We’re assuming that now It’s pretty obvious to everyone reading, that regular costs should be financed from regular income, and not from one-off income. So the obvious way for us to be able to increase the playing budget is to increase matchday income and finding ways to earn additional money from the facilities we have (some call this ‘sweating the asset’). This is done by having more ways in which supporters and other users of the stadium on non matchdays can spend their money. This might be by increasing the number of supporters who are able to attend matches (expand the stadium), other commercial income through sponsorship, and corporate facilities; on a non-matchday it might be use of conference facilities and bars for functions. We can see why growing our football club requires a stadium that is larger than Kingsmeadow can ever be.
The new stadium at Plough Lane is a critical component of our strategy for growing the club, but The Dons Trust Board has recently notified us of a critical stumbling block in the plan: An £11 million funding gap in the construction of the new stadium.
Reasonably enough, the Dons Trust Board originally expected to fill this one-off expense with some one-off income in the form of a single large bank loan, but for one reason or another it hasn’t yet been possible to secure a sufficiently large sum. The construction contract needs to be signed, but we do not yet have the finances in place.
Do we need external investment?
The specific details remain undisclosed (a problem in itself), but at some point the Dons Trust Board entered into discussion with a group of individuals who are potentially interested in investing a sum of money into the club in return for shares in AFC Wimbledon PLC (the company that owns the club and the stadium, and which is currently controlled by The Dons Trust). From one perspective this sounds like it could be an ideal solution to the problem. But as you might expect, the devil is in the detail.
One of the details is that the primary ‘safeguard’ that we put in place to ensure we could protect AFC Wimbledon’s existence is now under threat. We ensured that we as fans and owners maintained ultimate control over who could become involved in the club through a set of what are called ‘”restricted actions”. One of these is designed to prevent the issuing of additional shares in AFC Wimbledon PLC without the very firm consent of Dons Trust members. The individuals concerned have said that this protection must be removed if they are to commit to any deal, Also very importantly, it is also understood that they wish decisions over future share issues not to involve the membership being involved in any decision over issuing shares, but instead the football club board to be able to decide. Why’s that important? Because they would themselves be in control of precisely half of the board, and The Dons Trust, the other half. Even if though The Dons Trust would for the moment, own a majority of the shares in AFC Wimbledon PLC.
It seems unlikely that anyone would have this sort of requirement if they had no intention of ever using it.
So, we are being asked to change our rules so that future decisions we might not agree with can be made without our consent, or ability to oppose them if we wanted. Should additional shares ever be issued, The Dons Trust would only be able to maintain its level of ownership by purchasing the majority of them – which would mean finding the money. This would become increasingly difficult, since the influence The Dons Trust currently has, would inevitably dilute. With less influence, means less profile, and less profile means it becomes very difficult to find ways of generating money to purchase things like shares.
As the percentage of shares owned by The Dons Trust reduced, it’s just a fact of life that our ability to maintain influence – let alone actual control over the direction and ethos AFC Wimbledon – would be lost. From that point, it’s very hard to see how it recovers that influence.
Can good owners go bad?
If mounting debt as we’ve described, is one of the risks that threatens the continued existence of a football club, another is that of an owner who sees the club as an opportunity to make themselves a substantial amount of money. If we allow external investors in under the circumstances we’ve described above, we must be mindful of one thing: as sure night follows day, eventually the investors would be replaced. Their shares would be invariably be sold on to someone else – even inherited by another individual or institution (a company or another organisation).
For this reason alone we can say that the identity of the current potential investors starts to become less relevant, and the actual decision we’re making and what it means, the important factor. We can’t predict where that ends up, but what we do know is that decisions like that can only be made once.
One thing we should all be clear about is this: Whilst the sustainable route to improving the playing budget, and so taking Wimbledon to the next level is by completing the construction of our new stadium at Plough Lane, the way we do it matters. A lot.
If we achieve it at the cost of losing the right to control our destiny as a club, we inevitably put everything that we have built up over the last 17 years into to the hands of other people, and those people will never need to be directly answerable to you and me again. Think about that.