Watford FC has enjoyed several years of Premier League success followed by several years of what can generously be described as mediocrity. This last period of non-success (promotion notwithstanding) have not only been taxing on fans, but on the bank account of the club too.

Every year we were not in the Premier League, we lose out on roughly £60-70M of revenue from broadcasting, match day, and commercial sources. And that’s after parachute payments, and not counting the discount we take in player trading because we have less leverage to demand higher fees.

And despite record turnover, we weren’t breaking even during our run in the Premier League between 2015 and 2020. In fact, Gino had to lend the club an additional £35M in the 2017/18 season so we can increase our investments in the squad, and even more after the first relegation. But we made it work thanks in no small part to some shrewd player trading.

Financially, we were relatively sustainable with our strategy of buying young players from undervalued markets and selling them for profit (with or without them playing for us). But that only worked because we were in the Premier League, to attract top players, fund the spending, and foot the bill for transfer deficits and other costs associated with having source club funding externally.

It’s that last point we haven’t not talked about enough as a fanbase, the reason we cannot spend very much at all in this transfer window: we have bills to pay, and no other means of paying them other than reducing the total amount of funding to the club. The money we bring in from selling the likes of Joao Pedro need to go to loan payments and past-transfer fee instalments. And we can only afford to do that while covering wages and expenses because of parachute payments.

Club Funding and Relegation

I can probably write a whole post or two on how football clubs are funded. I’m not talk about paying wages and operational expenses, but rather investments in infrastructure and players. There’s probably a more specific term to describe this – it’s a combination of working capital, share equity, outstanding loans, and net transfer payables, all going to fund operational assets like player registrations. It’s money tied up with the club so that it can operate.

Premier League clubs can sustain a large amount of club funding even if their owners are wealthy benefactors with hundreds of millions invested in the club via share equity and shareholder loans. Higher revenues allow them to spend more money on player transfers, sustain a higher level of loan interest payments (and borrow more), and be given more leniency in deferring transfer fee payments – so more money can be tied up in operation assets. With relegation, the level of funding a club can sustain shrinks precipitously, and how a club manages that reduction says a lot about how financially responsible their owners are.

Clubs that want to “bounce straight up” try to keep funding at an unsustainable level. They largely keep their squad intact, or reinvest the money they recoup on player sales in new players. They may take out riskier loans with higher interest rates to get the cash in to make up for the shortfall of revenue. They’re basically trying to hold it together so they can resume their regular levels of spending if they get promoted again.

This is not a terrible strategy to take for one season if you’ve had a long run in the Premier League and your finances are in decent shape. This is the path that Gino chose after the relegation in 2020, at least a cautious version, and it succeeded! Somewhat.

The problem with stretching yourself thin like that is it reduces your ability to improve the squad responsibly even if you achieve promotion. You’ve effectively already spent some of your future revenues to fund the promotion, so you have less to spend to stay up. If your existing squad is already pretty good, and you don’t need to buy a tonne of players in order to be competitive, then congratulations: you have a fighting chance of Premier League survival.

The squad Watford was promoted with in 2021 was not Premier League ready. The money we were able to spend did not change things materially, and that’s with getting a bargain in Dennis and essentially having Cucho come in for free. That midfield and defense were not close to being good enough after years of poor recruitment, and we simply did not have the money to make it Premier League quality.

With the sustained funding in 2020/21, Gino basically gambled and won. But the prize we got was a miserable campaign in the Prem that ended with an expected relegation. Insert Thanos “But at what cost?” meme.

Relegation Redux

With the second relegation, Gino literally could not afford to go down the same path. He kind of sort of tried, but with a squad that had to be weakened further, one that was already worse than the squad that was relegated in 2020, it was always going to be tough. The quick pivot away from Rob Edwards did not help, but that was not the root cause. The players simply weren’t good enough, and we couldn’t spend the money to make up the difference. The fact that the team underperformed even that lower bar made for a horrendous season for us fans.

Facing a second year in the Championship, I think the overall strategy has changed, even if Gino is willing to admit it or not. Neither he nor Scott have been talking up promotion this year, and this is because they know it’s unrealistic. We have no money to improve the squad, so the best thing to do is consolidate at this level of funding and build back up with younger players who will hopefully be ready for the Premier League if we ever get back there.

The money from Brighton for JP will go to paying off Macquarie, reducing our club funding even further. It will also bring us to some definition of being “debt-free” in 12 months, as Gino said. We will still owe money to vendors as future payables, to other clubs for past transfer fees, and also to Gino, who will once again be the primary source of funding for the club. But there will be no money owned to banks that requires interest payments, which means if we can keep the cashflow even with our player trading and normal Championship-level turnover, the club will remain financially sustainable going forward.

I don’t want to gloss over the fact that this is really good news for Watford FC fans.

The one thing that has always worried me and a lot of supporters is the existential threat of the club going out of business because of poor financial management. This is the main reason many don’t clamour loudly for the club to change owners – it’s because we don’t know what’s behind that door. You don’t have to go far in the EFL to find examples of perfectly fine clubs being driven to the ground by owners who overspend and then lost interest. Or just bad eggs looking to cash in on some juicy real estate. Having Watford Football Club to support in any form is the most important thing, bar none, and if that means having to adjust my expectations, so be it.

This Season

Now, about that. What do I expect in 2023/24? If I’m being honest: very little.

Very little in terms of transfer spending. Very little in terms of hope for promotion. Very little in term of chill from the fans because Watford are reverting back to what I’m mostly used to us being for the better part of the last 3 decades: mid-table in the second tier, with a bigger chance to be in a relegation fight than a promotion push.

All this talk of South Korean internationals and or up-and-coming hotshots in the EFL? It’s all just fantasy to me because I don’t think we can outbid anyone. We’ll get players no bigger clubs want, players that are either unproven, have obvious flaws, or come really cheap. Manga and Costa will be shopping in the bargain bins, which will test our patience as well as theirs, but we have to live with that because we don’t have the financial means to do better. We might get one marquee signing, but I wouldn’t hold my breath for a blockbuster.

So strap in, Watford fans. This year is going to be like no other in the Pozzo era. At best, hope for consolidation and improvement at the margins, building towards something better with a younger squad we can get behind, a distinct playing style under one head coach all year, and no financial trap doors that make us worry needlessly. If we get all that but still finish 13th, I will ecstatic.

4 Responses to “On Sustainability”

  1. Dan Elman Avatar

    Great Blog Hansen, looking forward to more.

    I’m feeling a tad more optimistic about this coming season. I like our new coach as he wants his team to press. Once we find a home for Sarr we will see a few more new faces that freshen our team. We also have a proven goal scorer in Healey.

    Playoffs and an exciting brand of football. I reckon we are in for a fun season.

    1. Hanson Avatar

      I think I’m looking forward to the season and have some amount of “you never know” optimism, but looking at the squad, even with some amount of recruitment, I can’t see us seriously challenging given the 3 teams that came down will be *strong*. Unless Ismael shocks us and pulls a Barnsley, I think I just want to see some hardwork out there with a young team that improves over the season.

  2. Andrew F Avatar

    “ don’t have to go far in the EFL to find examples of perfectly fine clubs being driven to the ground by owners who overspend and then lost interest.”. – so pertinent… the latest edition of “The Price of Football” podcast talks to a Reading fan about what they are going through. Billionaire came in, spent millions (badly, evidently) and has lost interest. Recent seasons has seen him treat the club/fans with utter disdain. Three successive point reductions for financial shortcomings etc. And they can top us for communication black out: they have not heard a word from the owner since they were bought, no press quote, no interview etc. Sone parallels with our own travails, but another level altogether

    I was also struck by Duxbury at the QA apparently saying in mid-answer ‘we’re a championship club, and proud of it…’ (or words to that effect) which was a total ratcheting down of previous rhetoric. They have never said that before. Yet it didn’t get much pick-on the forums etc as comments about managers and speed bumps. But it was the most telling line of the night.

    1. Hanson Avatar

      Haha, that “championship club” comment what I was going to write about next! He also mentioned about always being an EFL club, and not once talked about promotion next year (that I can recall). I think they know where the team is now and how much they can spend, so they don’t want to set expectations they can’t meet.

      This is why unless we’re flirting with relegation, I think Ismael is staying for the reason. I could very well be wrong given the last 3 seasons, but I don’t think they want to change head coaches mid season – they even talked about how hard it is to find someone then.

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