Ask the Chairman - Part 2 with Michael Wilde

Here, we present the second set of questions and answers where football club board chairman Wilde talks about finances, the future, loan moves ... and how lower crowds at St Mary’s have affected the acoustics.

Q: What are your aspirations for the team this season? What is your role and to what extent are you involved in the team?

Ray Barnes

A: Under the current plan our target is to aim for at least a play-off place this season and to achieve promotion within three years.

It is vital that we aspire to success and we must all strive for this. I agree that our team will get stronger and stronger as they play together, although there will inevitably be both highs and lows along the way.

Jan’s track record with youngsters is excellent and he will be key to our success. Crowd encouragement and support will also be vital to such a young team.

Despite our current financial position we remain an ambitious club and, as I have repeatedly stressed, our number one priority is to try and regain our Premiership status – although this cannot be pursued at the expense of further financial instability and uncertainty.

It is a difficult balance to achieve but we remain completely focussed on this.

My role is that of non-executive chairman of the football club and, as such I act on behalf of the board, working closely with Rupert as the club’s chief executive.

Day to day decisions are taken in the normal course of events by the chief executive, however the board are informed and consulted where appropriate in respect of any substantive decisions.

The executive directors work within limits of authority set out by the board and are required to operate within the board approved business plan.

In practice, and in keeping with the existing club philosophy, there is close and regular contact between the executives and the non-executives to ensure that important decisions are taken “as one”.

Of course, I also have close and regular contact with the coaching and playing staff although the chief executive will retain day-to-day responsibility for their management.

Jan, as Head Coach, retains control of all team matters, including squad preparation and selection.

It is, in our view, important to have more than one view of any given situation and the present structure allows this to be done simply and easily.

Q: Assuming that you and Rupert Lowe are still in charge in three years time, what do you want Southampton FC to have achieved within that time scale?

Steve Partridge, Basingstoke

A: If both Rupert and I are still involved with the Club in three years time we would like to have achieved both financial stability and promotion to the Premiership combined with an ability to retain our status – irrespective of whether new investment is forthcoming.

Whilst this is our target, there are many challenges that will emerge during the next few years and I am confident that the present board has both the experience and ability to confront these challenges and overcome them.

We are on an important journey – we have to be as prepared as possible for every eventuality with a view to ensuring the long-term survival and prosperity of Southampton FC.

Q: I was wondering if you could comment further on the exact financial problems we are facing as a football club?

Rich Hughes

A: I believe the board have been extremely clear publicly about the present financial position of the club, particularly in the recent trading update statement released on AIM.

The current position will also be made clearer with the release shortly of our latest Annual Accounts, which will cover the period up to the end of June 2008.

However, on a very fundamental level the financial problems facing us as a football club are the direct consequence of the dramatic fall in revenue that accompanies relegation from the Premiership compounded in the last financial year by an increase in the wage bill to £10.5 million at a time when turnover fell to £13 million.

This created a completely unsustainable situation and, in my view, pushed the club to the precipice of administration from which we are now seeking to recover.

Additionally, I believe we are now facing fundamental problems in the financial structure of the game in this country.

For example, it has previously been argued that significant monies obtained by Premiership clubs have filtered down through player trading to clubs outside the Premiership.

Unfortunately this is no longer the case as the vast majority of income enjoyed by Premiership clubs is now spent overseas – effectively starving lower league clubs of important revenue from player trading.

This trend is without doubt going to have serious implications on Football League clubs in the coming seasons.

Whilst these structural problems are outside our direct control, we must do everything in our power to reduce our exposure to these inherent risks.

Q: How involved is our scouting network at the moment? Do we also scouting referees and Premiership teams (for next season?). Information is power. How involved is Jan in the scouting process?

Mark Davidson

A: Whilst we are very happy with the quality of our recent signings, the club’s scouting network has been reduced due to our financial situation.

Regional scouts will usually make recommendations in writing regarding particular players who may then be watched by a member of the academy or coaching staff.

If the player demonstrates potential then they will be watched by the head coach and/or invited to trial at the club for periods ranging from a few days through to a couple of weeks.

The head coach or the academy director (depending upon the age of the prospect), in consultation with the chief executive, will determine whether an offer will be made, working at all times within pre-agreed budgets set out by the board.

Of course, signings may often be made without the need for the involvement of the scouting network when players are referred to the club by our existing industry contacts or are identified by our own coaching team.

In all cases, Jan will be consulted throughout the process.

As the club currently does not have a full-time chief scout, members of the coaching staff watch and report on future opponents.

Q: Bearing in mind that the turnover of the club has slumped from £50m to £14m over the past three years and the club is set on reducing its over inflated wage bill, have the directors taken a substantial pay cut at least in the order of 60 per cent to assist the finances?

Robert Veal

A: There is currently only one full-time executive within the company being the finance director, David Jones.

There is only one part-time executive, being Rupert Lowe, and there are two non-executive directors being Andrew Cowen and myself. Levels of annual remuneration are consistent with industry norms.

However, with the reduction in the number of directors affected when the change of management occurred in June 2008, there has been a substantial overall reduction in the level of annual remuneration paid to directors. Full disclosure will be made as required by AIM Rules in the Audited Accounts.

In reality, all the current directors are spending considerably more time on club matters than they are contractually remunerated for.

Q: I would like to know where the £2m you promised to invest into the club is?

Stuart Chadler

A: It is correct that in early 2006 I discussed with the Board the possibility of making an interest free loan to Southampton Leisure Holdings PLC.

This loan was offered subject to two conditions.

Firstly, that in the event of a subsequent Rights Issue this money would become repayable making it available for the purchase of new shares in the Company, and secondly, that the funds should be ring fenced and used only for squad strengthening in the event of the Club failing to secure promotion to the Premiership at the end of the 2006/7 season.

Certain members of the Board rejected these conditions and shortly afterwards I resigned my position as Chairman of Southampton Football Club and as a Director of Southampton Leisure Holdings PLC.

Despite this loan offer, my position has always been that we need to find a comprehensive funding solution that guarantees the club’s long-term stability and security.

Unfortunately, I believe that the piecemeal investment of the kind proposed at that time, would not in any way have helped the club to achieve this objective.

Q: What I want to know is just how much has the move to St Mary’s has cost? (the total paid including all interest payments, less the sale value from the Dell.). The original figure of £30m seems unlikely by now. How much longer will we be paying off this move?

A: The total cost of the stadium as reported in the annual report and accounts was £39m.

This was financed primarily by a stadium loan, together with funding from the Football Foundation, an equity issue, and proceeds from the sale of the Dell.

The stadium loan was for a £25m and is repayable in equal annual instalments over a 25-year period ending 2025. The amount currently outstanding on the loan is £22.6m.

Q: Can you explain the financial side of how loan deals work? Is it a hard and fast rule or is every deal different?

A: Loan deals are agreed between the clubs involved and may take a variety of forms.

In most cases a loan fee for the period will be agreed plus an obligation on the receiving club to cover the salary of the player during the loan period.

Depending upon the circumstances, the loan fee may be waived or a contribution only made to the wage of the player.

For example, where a Premiership club wants to loan their player out to a lower league club in order to gain experience of first team football, they will want to ensure that the club receiving the player is going to enhance the player’s development.

Therefore, to secure a specific placement, it may be necessary to waive some of the usual financial payments.

Many clubs are extremely particular about where they place their players, particularly the younger ones, as they will not want to undo or undermine the expensive and tailored development programme which has been undertaken.

I believe it is fair to say, that as a result of the football we are now playing; our coaching structure; and the reputation of our academy; we are now very well positioned to take loan players from the top Premiership clubs.

The recent loan signings of Jack Cork from Chelsea and Tomas Peckhart from Tottenham are testament to this.

Jan and the whole management team are involved in any loan decision.

However, we have to balance loans and acquisitions against the players we have coming through the academy who represent the lifeblood of the club in both playing and financial terms.

Q: Are the board in discussions with any third party investors or are they still actively looking to attract fresh investment into the club?

Steve Moulsdale, Totton

A: The Board are not currently in formal discussions with any third party regarding fresh investment.

However, we have, as a Board, made it perfectly clear that we are open to any approaches in this regard.

I believe I speak for my other Board colleagues when I say that any approach must be evidenced by tangible assets lodged with a UK Bank before formal discussions will be entered into, and that such available funds must be of a quantum to provide for the long-term stability of Southampton Football Club.

In the meantime, the club must operate within its available means and your Board is doing everything in its power to achieve this whilst at the same time recognising that the company’s success is intrinsically linked to success on the pitch and that we need to remain competitive in footballing terms.

This is a vital balance that must be achieved if we are to move forward as a club.

I believe that with the current board structure, together with our new coaching set up, we are now making steady progress towards achieving this balance.

Q: What is it about the Saints that is making it totally unattractive to any potential investor? It is a great club, with a great tradition, a great fan base, and has great facilities. Add to that the club is located in one of the nation’s greatest cities in what is a beautiful part of the country.

That nobody of worth would be interested in the Saints when Portsmouth was able to locate a good financial source after nearly 50 years of mediocrity defies logic. What’s the deal?

A: I fully agree with you, although I would caution against wishing for a club that is totally dependent upon the whims of one wealthy individual. I remain convinced that this is not a recipe for long-term stability.

A number of high profile clubs have increased their level of debt substantially on the back of an individual’s underwriting rather than on the basis of the tangible assets and financial strength of the club.

I believe, that this could result in major problems for such clubs who are effectively no longer in control of their own destiny. This is not a position I would like to see Southampton Football Club in the future.

The quality and nature of any investment is as important, in my view, as the quantum.

Q: I would like to ask why can’t staff sort out the sound acoustics out to a reasonable level that you can hear what the announcer is saying? Perhaps a member of staff could be the crowd to witness what it sounds like.

George Lewis, season ticket holder in block 11

A: The PA system installed as part of the stadium construction project is designed to provide safety and evacuation announcements only as part of the requirements of a Ground Safety Certificate.

It was never designed as an entertainment system, which would have cost several times more. In order to improve the performance of the system as an entertainment vehicle (including the announcer) we supplement the PA system with the additional speakers situated on the spike top.

This gives an adequate entertainment audio offering but not as good as a full-blown entertainment system installed at eaves rather then floor level.

The problem is currently compounded by lower attendances. The acoustics of the building are designed to work when the stadium is full of sound absorbent people. When this is not the case there is a tendency for the noise to reverberate round the stands.

We have had members of staff in the crowd on match days as well as acoustic professionals and believe that we have got as good sound as we can consistent with our current financial position.

Q: Is Saints the worst business decision you have made? What have you learnt from his venture? What are you and Rupert Lowe hoping to achieve off the pitch as a PLC?

Ben Smart, Melbourne, Australia

A: Saints have never been a business decision for me. My investment in the purchase of shares in Saints came solely from my love of the club and the game.

Notwithstanding that, I believe that I have learnt a great deal over the past two and a half years. At times it has been a steep and difficult learning curve.

I came into the club with no real football industry experience (other than as a supporter) and my objective was to learn from those with experience around me.

What I learnt was not always what I expected and I became very disillusioned by what I saw in my first period as Chairman.

Nevertheless, I believe that those experiences gave me a much better understanding of what is required to run a successful football club and more particularly, how to deal with the many, varied, and sometimes colourful people this business attracts.

I do not believe success in any other form of business can prepare you for what you encounter as Chairman of a football club – it has been a great personal experience so far – both the good times and the bad – and, as they say, what doesn’t kill you makes you stronger!

As far as what are we aiming to achieve is concerned, our priorities are to achieve both financial stability and promotion back to the Premiership.

With the current corporate structure, only success on the pitch can bring success to the PLC.

Whilst the PLC may or may not enter into other non-footballing activities in the future, this cannot be an option until the primary aim of having a successful football club has been achieved. This therefore remains our absolute focus at the present time.

Whether we will be successful remains to be seen, but I believe we have made a highly credible start towards this.