Matt Scott: QPR’s past failure to cut costs would make life after relegation a real battle

“Economy is half the battle of life; it is not so hard to earn money as to spend it well.” Charles Spurgeon

Charles Spurgeon was the 19th Century preacher whose sermons taught millions of Victorian Londoners how to apply Christian virtues to life in an often-Hogarthian city. His mark was far from permanent: Spurgeon’s famous fondness for self-restraint has hardly left behind a city steeped in self-denial. He would no doubt be dismayed by a nation that has responded to the financial crisis by gorging itself on debt.

Since 2008 hard-pressed Britons have been accumulating debt issued neither by banks nor mutuals – on credit cards, at payday lenders and pawnbrokers – at an ever-accelerating rate. This is because although a household’s circumstances might become reduced, its appetites and hopes for the future seldom diminish in the same way.

A similar inability to cut the coat to fit the cloth grips football. A club owner’s emotional attachment towards his team’s demands is more akin to that of a parent confronted by a beloved child asking for the latest computer console, putting the purchase on a credit card to think about another day. The indebtedness of so many clubs proves how their owners and boards frequently capitulate to the querulous demands of managers and fans.

Queen’s Park Rangers is a case in point, as its statutory accounts which were published at Companies House this week prove. First of all it is worth remembering how, a fortnight before the accounts were released, QPR released a statement trumpeting its own reading of them, entitled “QPR Reduced Losses”. That statement read:

“QPR filed its accounts for the year ending May 2014 showing the club posted a loss for the year of £9.8 million. Expenditure was reduced by £22 million mainly driven by lower player costs and this trend will continue in future years as the club will continue to bring losses down. In addition the club’s shareholders reiterated their long term support for the club by strengthening the club’s balance sheet by writing off £60 million of shareholder loans.

“The club’s shareholders and directors are of the opinion that the club is moving in the right direction and on track with its mid-term and long-term business plans. The impact of relegation and promotion inevitably has a material impact on the short-term financial results of clubs but the shareholders are comfortable that the medium-term outlook is positive with Premier League revenues growing and the club’s costs continuing to fall.”

On the basis of what the QPR board had to say, it all seems very positive – especially as, having been relegated from the Premier League as its bottom-place team in 2012-13, QPR are again in the Premier League. Yet close reading of the accounts tells a very different story indeed. The £22 million reduction in expenditure came from a £32 million difference in the amount spent on new players over the course of the year versus the previous season. However, despite what the club claimed in its statement, there was little in terms of other attempts made to trim the club’s coat to fit the new Championship cloth. Like a household that suffers an earner’s redundancy and thinks it has economised simply by denying itself a brand-new car, the savings on transfer trading were far outweighed by the discrepancy between income and overall outgoings. Even with the substantial £28.1 million in so-called “parachute payments” from the Premier League, relegation meant an overnight drop in turnover of 36.2%.

Yet at the same time, only £2.6 million was removed from the salary expense. It meant that a wage bill that had stood at 128.7% of turnover in the top division now ballooned to a balance-sheet-shattering 194.8% in the second tier. As explored in this column two weeks ago [see related article below], excess is the norm in England’s second tier, but QPR’s losses took even Championship standards of profligacy to extremes. It all added up to cash losses of £67.5 million over the course of the year and net debt of £179.6 million, facts that were not reflected in the club’s claims of a “loss for the year of £9.8 million”.

The way the club massaged this groaning cash deficit into a manageable loss was with the unusual insertion of a non-cash balance-sheet item into the profit-and-loss account. What the club referred to as being “in addition” to the reduced loss, namely the “writing off [of] £60 million of shareholder loans”, was in fact absolutely central to the magical turnaround. What QPR did was to declare this write-off as an “exceptional item” in the P&L, thus reducing the true P&L loss by the same amount – from £69.8 million to £9.8 million.

The purpose of this accounting dexterity was presumably to counter scrutiny from the Football League regulator, whose Financial Fair Play rules are strict on clubs’ expenditure. In the 2013-14 season clubs were not permitted to exceed a “permitted deviation” in losses over revenues of £8 million. Those who exceed this mark and fail to gain promotion suffer transfer embargoes – those, like QPR, who do are fined for a lack of compliance upon their return to the Football League.

With eight defeats in their past nine Premier League games, QPR currently lie 19th in the division, four points from safety and with an upwardly mobile club, Burnley – who beat the champions, Manchester City, on Saturday – immediately ahead of them. On the face of it at least, survival this season looks highly unlikely.

That would return QPR to the Football League’s jurisdiction and it has clearly not been inveigled by the club’s creative P&L. “The treatment of certain items in those accounts, and how the League’s FFP rules should be applied to them, remains a matter of ongoing discussion between QPR and The Football League,” said the regulator on the same day as QPR made its announcement.

The League has separately made clear its intention to pursue breaches of the prior rules: “The existing Championship FFP framework will remain in place for the 2014-15 and 2015-16 seasons. Any sanction for accounts relating to the 2013-14 season will continue to take effect as intended (and in accordance with the amounts specified at the time).”

That augurs ill for QPR, who under those prior rules face a fine measuring in the several tens of millions of pounds if they do succumb to relegation. The League’s chief executive, Shaun Harvey, has previously intimated that a refusal to pay that could lead to the club being denied entry to its competitions, meaning a potential demotion to England’s fifth tier.

However, where QPR may have some grounds for a challenge against Football League FFP is that a looser set of regulations were agreed last November, and will come into effect in the 2016-17 season. This will monitor clubs over a continuous three-year period in which they may lose up to £13 million per season, and additional amounts if they are promoted to the Premier League. QPR could argue that under those future rules they might have had no case to answer at all.

Indeed, going by the sanguine statement QPR released to the world to coincide with the submission of their accounts, it seems the club will fight whatever sanction the League imposes, blithely ignoring the threats. And despite the lack of self-restraint in QPR’s past that he would no doubt disdain, Spurgeon might admire their optimism now, for as he said: “Anxiety does not empty tomorrow of its sorrow, but only empties today of its strength.”

Related article: The painful cost of Premier League relegation — http://www.insideworldfootball.com/matt-scott/16528-matt-scott-inglorious-failure-has-proved-costly-for-former-premier-league-clubs-who-s-next

Journalist and broadcaster Matt Scott wrote the Digger column for The Guardian newspaper for five years and is now a columnist for Insideworldfootball. Contact him at moc.l1566292967labto1566292967ofdlr1566292967owedi1566292967sni@t1566292967tocs.1566292967ttam1566292967.