On Friday 27th February Dundee released their annual accounts for the year to 31st May 2014 (PDF, opens in a new tab). The club placed a statement on the club website at the same time. The result was a row and considerable confusion that perfectly illustrates how inadequate conventional financial accounts are for football supporters, and how ill-equipped the press is to deal with them.
The highlights of Dundee FC’s statement were;
“In our 2013/14 Championship winning season, the club reported a loss for the full year to 31 May 2014 of £820,000, which was a significant reduction from the previous year’s profit. That profit was earned during season 2012/13 when DFC were unexpectedly promoted to the SPL as runners-up in the previous year’s Championship. Notwithstanding this loss, after taking account of the capital injected in the business during the year, the net worth of the company improved by £100,000.”
“We continue to make steady progress as a club and are working hard within a totally debt-free environment to reduce our net balance sheet liabilities and to build our club again on a firm financial footing for the future.”
That was all any journalist needed for a quick story. There was a loss in difficult circumstances, but capital was pumped in. There isn’t any debt.
Unfortunately, the Courier tried to be clever. They followed the link in the statement to the accounts, plunged in and got lost. They got horribly, embarrassingly lost. Ignoring, or just failing to see “Loss for the year… £820,909” they focused on “Accumulated loss carried forward… £3,166,718”.
This was enough for them to write a story entitled ”Dundee FC post £3 million loss”. I didn’t capture it before they changed it, but that is an archived version. In it they wrote.
“The Dens Park side’s annual accounts up until May 31, 2014 show a loss of just over £3.1m. The figure was £2.3m the previous year.”
The only sensible reading of that is that Dundee lost £2.3m in 2012/13 and £3.1m in 2013/14. They actually made a profit in 2012/13 of £214,000 – a figure that was readily visible in the accounts. Over the two years Dundee FC lost £616,000 as opposed to the Courier’s story of £5.4m.
I’m not sure why the accounts were laid out in such a way, or why the accumulated loss was given that name. It’s accurate, but the figure is just about the least interesting number in any football club’s accounts. The accumulated figures aren’t of any more significance than the points a football club accumulates over several seasons. It’s really just a technical device to make sure everything balances, and it’s of no interest in itself. Basically it’s the figure you get if you add up all the profits and losses from the past.
In Dundee’s case accumulated losses include the massive losses and paper profits surrounding the club’s two spells in administration. By the way, the profit in 2008 was a result of restructuring to move debt off the club’s books, and certainly wasn’t the product of a brilliant trading performance. The resulting total accumulated loss is a big “so what?”. The figure that matters is the change in the total from year to year. Yes, the profit or loss for the year, and that’s a headline figure elsewhere in the accounts, so the accumulated loss shouldn’t be anywhere near a high level press story
I tweeted to the Sports Editor, who had written the story, and the Digital Content Producer who had drawn my attention to the story via Twitter.
I didn’t get a response, but the story was quickly changed to ”Dundee FC’s debt rises”. Sadly the Courier had blundered further into the swamp by confusing losses and debts. They assumed that the accumulated loss on the profit and loss account was debt. That is an appalling level of ignorance. I had some sympathy for their first mistake because of the layout of the accounts. There was no excuse this time. I tweeted again, but still didn’t get a response.
Losses can be covered in various ways. Debt is only one of them. Other possibilities are drawing on reserves (i.e. savings) and pumping more capital into the company by selling shares. What makes the Courier’s mistake worse is that the club’s press release explicitly drew attention to the new owners putting in more capital to cover the losses. The consortium had also given a pledge that they would not load debt onto the club. The Courier’s story was therefore an implicit attack on their integrity.
The club complained, but nothing happened till Monday, when they put out a strongly worded statement, which reflected their exasperation that the Courier’s website was still carrying a story that the paper must have known was false. Eventually the story was removed, after more than three days.
Jim Spence of the BBC also picked up on the same story and wrote that the club had run up a big debt, but he quickly corrected his error. Unfortunately the corrected version focuses misleadingly on the accumulated loss in the profit and loss account.
The result of the shambles is that it’s now widely believed that Dundee have either racked up unsustainable debt, or a multi-million pound loss in one year.
What is the debt anyway?
A few people asked me how much debt Dundee have if it’s not £3.1m. That’s an awkward question to answer because it depends what you mean by debt. We’re not financed by debt in the sense of loans from banks or directors or whoever. That’s what’s usually meant by debt.
However, we do have creditors as does every company. These provide funding to some extent because they’re letting the club hang on to money for longer. The money we owe is obviously a debt. The closing position in the 2013/14 accounts for creditors was £887k. Current assets (ie cash plus debts that are owed to us) were £673k. So the net current liabilities were £214k.
There’s no point quoting the £887k as debt without looking further. Even the impeccably prudent St Johnstone had creditors of £695k in their latest accounts, but that’s meaningless without considering the other side of the equation. In Saints case that is dwarfed by a stonking £1.256m cash and £572k owed to them. So Saints have net current assets of £1.167m, which is admirably sensible.
Dundee’s net current liabilities of £214k isn’t a good position, but it seems that it’s being managed. The club said in their initial statement that they are working hard to reduce these net liabilities. Also, the current owners have put in more investment than was lost, so the balance sheet has been strengthened (or isn’t as weak). I’d prefer it to be much stronger. I’d certainly want us to have positive net current assets and to be breaking even, sooner rather than later, but the situation is far better than the Courier and BBC reported.
I am slightly hesitant in trying to explain the net current liabilities, because what I’ve just written is an over-simplification. Sure, it’s better to have positive net current assets than a negative figure, but it’s theoretically possible to go bust with a positive figure for net current assets while also making a profit. Cash flow is king. Profit is just paper. Look at the paper profit in the 2010/11 accounts (see above) at a time when we were nearly liquidated because the cash wasn’t coming in to pay debts when they fell due.
Of far greater importance than a simple total of the net current liabilities is what they’re made up of and when the money is due. Money owed to HMRC for VAT/PAYE is very different from advance season ticket sales or bonds bought by supporters, but they’re all lumped in together under creditors. If you buy your season ticket before the end of May then you’re a creditor in the annual accounts for the year ending 31st May because your money can be treated as income only in the following season. The club owes you entry to 19 games, so that’s a debt of sorts. That’s totally different from owing HMRC money.
Seriously, how many people want to wade through a full analysis of all that? In Dundee’s case the “accruals and deferred income” is £468k, more than half of the creditors figure. That’s up from £130k the previous year, which is intriguing but not worrying. Presumably that money will mostly be treated as revenue in 2014/15, but we’ve already got the cash.
So strictly speaking it’s inaccurate that there’s no debt, but most football supporters think of debt as being money owed to the bank or formal loans made to the club. It’s perfectly reasonable that the board said the club is debt free because that’s consistent with most people’s understanding of the term, and it’s certainly consistent with the promises they made in 2013.
What do the accounts tell us?
The accounts tell us nothing about how money was spent in running up £3.2m of expenses. It’s surprising that the figure is up from £2.6m the previous season when we were in the top division. Clearly an important factor was paying up the contracts of employees who left. The board have said that the club was committed to most of the costs by contracts that were in place before the new owners were on the scene. That’s worrying. It casts serious doubt on the realism of the budget for 2013/14 if capital injection was required to cover a shortfall. It’s also an implied criticism of the financial management of the club before they arrived.
We’ll see where we are when the new regime has had a full year doing it their way with their budgets. As so often in the past the supporters are basically keeping their fingers crossed. We have to trust that the new owners will get a grip on the management of the finances, because we can’t expect them to keep covering losses by purchasing shares. That isn’t a sustainable strategy, and the board do seem to appreciate that. It is their money after all.
Dundee FC’s board gave their interpretation of the accounts and that was consistent with the pledge the new owners gave in the summer of 2013; they would not load any debt onto the club. When the Courier wrote that they’d run up debts of £3.2m it wasn’t only factually incorrect, it was also an attack on the integrity of the board. It’s hardly surprising that the club was furious. The Courier were as good as accusing the board of lying in 2013 and lying again now.
Accountancy isn’t arithmetic
Preparing company accounts isn’t a simple arithmetical exercise. It’s not a matter of adding up cans of beans and saying “there are exactly 943”. There are all sorts of assumptions, judgements and nuances. It’s a bit more like mapping. A map isn’t the same as the territory it describes; it conveys information about the territory. Drawing up a map requires an understanding of conventions, assumptions, compromises, and above all a clear idea of the story you’re wanting to tell and the audience you are talking to. A map for a motorist is different from one that a hill walker needs. It’s the same with accounts. It all depends what narrative you’re trying to sell and who your target is. Unfortunately conventional financial accounts are totally useless to the average football supporter.
You can place all sorts of spin on company accounts with varying degrees of justification. The spin that the Courier used was well beyond the limits of reasonable justification. They were trying to sell a story, and it wasn’t intended to be one that showed the Dundee FC board in a good light. The Courier were either utterly incompetent in the way they did it, or dishonest. The episode leaves them looking stupid at best. Their failure to correct a false story for more than three days casts doubt on more than their competence. Let’s hope Dundee FC’s board are more competent. That’s setting the bar rather low though!