How To Waste £100m: The Reading FC Story

On April 17th, 2012, Reading Football Club earned themselves the biggest financial reward in the club's history with promotion back to the Premier League. The club would earn over £100m over the next four years from their title win yet in 2016 yet what did that money really buy the club?

What was earned

Promotion to the Premier League guaranteed Reading a package that at the time was worth around £90m but ended up totalling well over the £100m mark. The key earner for the football club was getting a slice of the Premier League's vast broadcasting revenues which saw television earnings increase from around the £3m mark in the Championship to £44m for Reading's lone top flight campaign in 2012/13.

Going into that season Reading knew that even if relegated, they'd earn £48m over the following four seasons in parachute payments but the club lucked into an extra £12m on top of that due to clubs voting in changes at the end of the 2012/13 season. That took Reading's total haul to £104m or 408 Jamie Cureton's back in 2000.

Those figures don't include other revenue increases for things like hospitality, extra tickets, increases in sponsorship and all of the goodies you get not just for that lone Premier League season, but the slowly fading afterglow in the years after. Simply put, Reading had struck it rich but if that was the case how did we so nearly end up in administration little under three years later?

Where did we spend it?

Transfer fees

Historically the most common way for fans to look at where clubs have spent their money is to take a look at transfer spending in and out.

(given that the majority of transfers are now undisclosed, fees are estimates taken from best available sources including soccerbase & transfermarkt)

At a glance, Reading have done pretty well out of their trading since promotion, with a tidy proft of over £11m. Yet this is the major problem with transfer fees when looking at modern football finances, in that they tell just a fraction of the story. The main reasons for this are the other expenses that include signing on fees, wages, bonuses, loyalty payments and a myriad of other costs that are attached to any transfer.

For example, Pavel Pogrebnyak and Royston Drenthe were both widely reported as 'free' transfers yet no details have ever been confirmed on either their signing on fees nor exact wage figures for either player. Therefore on paper, Hope Akpan was a bigger drain on the club's finances because the £400k cost to sign him was never recovered when he was allowed to join Blackburn on a free. Yet that £400k is small fry compared to what Reading will have been paying some of Anton's vanity signings. If you take a conservative £40k-a-week estimate for both then each seasons of the pair would have cost the club at £4.1 million in wages alone. For reference, the ENTIRE 2005/06 squad earned £12.5m. That's if it was £40k a week because Niall Quinn who was then on the board at Sunderland claimed that Reading had 'blown his club out of the water' to get Pogrebnyak, and this is Sunderland we're talking about who've hardly been afraid to splash the cash....

Wages

So by far the biggest single expenditure for the vast majority of football clubs is their wage bill and the table below only goes to show just how much Reading have been forking out in recent seasons.

A couple of things are worth noting here. Firstly we won't know the extent of 2015/16 spending until the next set of accounts in October but you might wonder why I'm including figures from 2011/12. Well that's because those wages represented 180% of our turnover, as Anton Zingarevich started his spending spree early. In 2010/11 our wage bill was £18.3m, meaning wages shot up by nearly 50% when Anton took over. As we now know, Anton invested almost nothing of his own personal fortune, meaning those extra costs were presumably absorbed by future Premier League earnings.

Now you'll remember that £44m in broadcasting rights for our single Prem season I mentioned earlier, well as you can see, this is exactly where that all went, straight into the pockets of players who combined to finish 19th. Even when other income streams are taken into account we somehow managed to make a LOSS of £2m during that season.

Relegation saw a couple of high profile players depart in Adrian Mariappa and Jimmy Kebe but even with relegation clauses taken into consideration, we still spent £30.1m on wages even though our TV revenue dropped by around £20m. Wages may have been cut by around 30% but when your main source of income has dropped by more than 50%, you're going to be in a big spot of bother. The only way those wages could even be afforded was due to Zingarevich borrowing against future payments to the tune of £17m. In essence, Anton's takeover was no different to if you or I had pitched up and taken over the club. The difference was that Zingarevich was happy to gamble with the club's finances.

The pain of that waste is only magnified when you consider the fact that Brian McDermott's squad who finished 5th in 2010/11 had a wage bill of £18.3m. So in essence we spent nearly double the amount on wages three years later to finish two places lower under Nigel Adkins.

The following season saw the Thai consortium take over but they were still lumbered with a whole heap of rotten contracts that again cost well over the £30m mark, just to finish 19th.

Cuts were again made in the summer of 2015 when long-serving players included Adam Federici and Jem Karacan moved on but they were soon replaced by the costs of seven loanees and a couple of established Championship players in Stephen Quinn and Paul McShane. From the outside at least I'd highly suspect wages to once again be at or around the £30m level for the 2015/16 campaign, again a totally unsustainable level.

Poor long-term returns

The double whammy of all of this wage spending is how little Reading ended up getting back from it.

Pavel Pogrebnyak, Royston Drenthe, Wayne Bridge, Danny Guthrie, Alex Pearce, Adam Federici, Jem Karacan, Anton Ferdinand, Simon Cox, Hal Robson-Kanu, all players who signed for the club or who penned lucrative new deals since 2012 and what do they all have in common? They all left on free transfers.

One of the beauties of our previous dally with the Premier League was that even while costs escalated, so did the value of the players we'd nurtured and developed. Dave Kitson, Kevin Doyle, Ibrahima Sonko, Stephen Hunt and Nicky Shorey brought in a combined £20m-£25m alone and even flops like Emerse Fae and Greg Halford recouped most of their transfer value.

The problem this time around was that the signings of the Anton and Thai eras have all been cash sink holes. Worryingly, of all of the players signed since promotion, only the sales of Adrian Mariappa and Nick Blackman have made the club any notable profit and £2m-£3m combined. The biggest profits since that time came from prior McDermott and Coppell buys or home-grown players such as Alex McCarthy, Jimmy Kebe, Sean Morrison and Adam Le Fondre.

Likewise the longevity of those players signed with the cash from the Premier League has been painfully low. Chris Gunter and Garath McCleary are the only non-Academy developed players to have been with the club since 2012. Now the club's squad is decimated by exiting loanees and free transfers, meaning few of the Premier pounds spent are going to have an impact going forward.

Infrastructure

So if we've wasted a good £100m+ there must have been some good right? Well thankfully yes is the answer to that one as the club has successfully developed and retained a category one Academy under the Elite Player Performance Plan. The cost of running that Academy is estimated around £2.5m a season so four seasons of that will have taken at least £10m out of the club's coffers. The financial rewards of that investment may not have been recouped just yet but it's perhaps the only way we'll ever see a meaningful return on our investments, with Michael Hector and Alex McCarthy two of the recent graduates to earn substantial returns for the club.

There have also been modest upgrades to the stadium, with a new scoreboard and executive seats installed within the Madesjki Stadium but otherwise there's not much to show on a superficial basis.

One of the biggest developments off the field have been plans to develop a state of the art training facility at Bearwood, with the land costing the club around £4m, not including the actual expense of building of the new facility. Any attempt at figuring out how much that will cost would be speculation but for comparison, Tottenham spent £30m on their training complex six years ago, while Arsenal's 17 years ago cost £10m. Needless to say it won't be cheap and even with the sale of the old ground at Hogwood, we're probably talking a minimum of an eight-figure investment. Small wonder perhaps that work on the training ground has reportedly crawled to a stop in recent months.

What's next?

Hopefully all of the above should help fans figure out just why we've been so reluctant to splash the cash so far this summer. This year will see the very last of the parachute payments trickle into the club and with some estimates suggesting the club lost as much £20m before outside investment last season, the club is already going to be fighting a battle to stay within the permitted losses of up to £39m over a three-year period. This is why Royal Elm Park is a very necessary evil for the club's Thai owners.  Reading Football Club is currently a massive sink hole of money, beyond even what it was under Sir John Madejski's ownership. The idea of plowing tens of millions into a club every year just to get 19th and 17th placed finishes will not sit well with any ownership group and so any additional revenue streams have to be considered.

Thankfully the club now appears to be heading back towards a more sound financial footing. Clubs in the Championship will very rarely make a profit without parachute payments but the slashing of the wage bill over the past year should now see Reading able to get back towards more digestible losses. We may be a fanbase divided on the long-term commitment and intentions of the Thai ownership group but this article should at the very least help show the utter mess we managed to get ourselves into and just how easily it could have been so very much worse.

Questions will remain about how much debt the club has and how much longer the Thai's will support us but for now we're lucky to still have a club at all.

Financial figures were taken from a variety of very handy sources, including here for the 2011/12 figures, here for 2012/13, this piece for the 2013/14 numbers and here's the 2014/15 numbers. Additionally, for comparisons with the pre-Anton era, I'd very much giving this a go from the excellent Swiss Ramble.