Paul Aldridge Q&a

Visitors to were recently invited to send in any questions they may have concerning the club's future to Managing Director Paul Aldridge.

In part one of the Q&A session, Paul tackles the subject of funds.

"There were a number of questions relating to finance," says Paul, "and I believe the statement in the accounts accurately reflects the board's view and covers most of the points raised.

"I have updated the tables showing transfer fee expenditure and wages."

By way of a first answer, here is that updated extract from Chairman Terence Brown's Annual Statement:

'Despite a 6% increase in turnover, the operating loss for the financial year increased from £0.7m to £3.3m and the pre-tax loss rose from £2.1m to £4.7m.  Whilst the latter figures include £3.4m in respect of compensation for loss of office and a contribution towards the deficit of the Football League Limited Pension and Life Assurance Scheme, and £5.8m relating to the demolition of the old West Stand, we have to view the results as disappointing after net transfer receipts of £9.1m.

'We, like all other football clubs, face a simple conundrum.  The latest Deloitte & Touche Annual Review of Football Finance indicates that, although during the 1999/2000 season we had the 15th highest stadium capacity in The Premier League, we also had the 8th highest wage bill and that, during the five seasons ending in 1999/2000, our net transfer expenditure was the 10th highest in English football (just £100,000 below that of Arsenal, for example).  If we add to our transfer and wage expenditure the £4m a year invested in our youth development programme, which added Rio Ferdinand, Frank Lampard Jnr, Michael Carrick and Joe Cole, all English internationals, to the squad, then 15th place in The Premier League, failure to qualify for European competitions on a regular basis and continued embarrassment at the hands of lower division teams in both English cup competitions does not make financial sense.

'There is a misconception that the club has made substantial profits in the transfer market, but the truth is very different.  During the last seven years we bought and sold a total of 134 players (virtually the equivalent of buying and selling a team every season).  The net deficit from this player trading activity was £34m (£5m per season) before accounting for the receipt of the Rio Ferdinand transfer fee - £16m after that receipt (£2.3m per season).  During the same period our annual wage bill rose from £5.5m to £28.1m - an increase of 420% over seven years.

'I have set out a summary below for the benefit of both shareholders and supporters:

  Transfer FeesFA CupWorthington CupYearPaid

Net expenditure
£mAnnual Wage Costs
£mLeague PositionExit RoundDiv. of opponentsExit RoundDiv. of opponents1994/

[*2001/02 figures are estimates]

'Going forward, the team now needs to perform in accordance with the huge financial investment we have made or the investment needs to be brought into line with what can be achieved on the pitch.  Your board will do its utmost to achieve the former but much now depends upon Glenn Roeder and his football management team.

'I became Chairman of West Ham United almost a decade ago.  We had just been relegated to the new First Division under somewhat traumatic circumstances.  Our stadium was woeful.  We needed to purchase land surrounding the ground (including a road) at a cost of nearly £2m if we were ever to redevelop our stadium in the future.  The team was inadequate but we had to sell our best player to finance the forthcoming season.  The pitch had no drainage, let alone under soil heating and had not been renovated since the second world war.  We leased our training ground and could have been evicted at any time and our 'retail operation' was a second hand portacabin in the club car park.  The famous West Ham United youth academy was to all intents and purposes in mothballs.

'We have moved on. We purchased the land we required for the redevelopment of the stadium and will shortly have one of the finest football grounds in London. We have a team valued at more than £100m, a superb pitch, two freehold training grounds, nine retail outlets and one of the best youth development programmes in the country.

'I have mentioned elsewhere in my statement the need for the team to deliver on the pitch if we are to benefit from the massive investment the Club has made during the last decade both in terms of time and money.  Subject to that one major caveat our future financial progress is likely to be determined by external factors which both we as a club and the football industry as a whole will need to address. 

'Television rights have brought massive funds into Premier League football (in excess of £240m in 1999/2000) but the growth of digital subscription television may be slowing and television viewing figures are, at best, steady.  The  Deloitte & Touche Annual Review of Football Finance for 1999/2000 discloses that the 20 Premier League clubs generated a total operating profit (before interest, exceptional items, player amortisation and profit or loss on sale of players) of £53m on turnover of £772m.  Net spending on player transfers was a further £136m.  Operating costs included total wages and salaries of £471m (up 20% from £391m the previous year) of which Deloitte & Touche estimate £319m was paid to players. We see football agents becoming profitable quoted companies, managers earning salaries that could only have been imagined five years ago and young footballers becoming millionaires before becoming first team regulars.  At the same time quoted football clubs are being advised to return to private company status because of their inability to earn a sufficient return for investors - or indeed in some cases, any return at all.

'Rapidly rising revenues which do not lead to rapidly rising profits should be a warning to us all.  Borrowing excessively against future revenue streams or selling share stakes, either to media companies or unsuspecting supporters, and ploughing those capital receipts into revenue expenditure cannot be justified by the pursuit of league and cup success, which can only be achieved by four or five clubs, or even by the avoidance of the sword of Damocles in the form of relegation. In our own case, for example, one of last season's loan signings, who cost £720,000 in salary and loan fee, spent 85 minutes on the pitch.  Another "free" transfer, who cost almost as much as we earned from the whole of the East Stand for the season, made eight starting appearances.  Yet another, who will cost the club £4.4m in salary and transfer fee during the period of his contract, has so far made only three starting appearances in over two years.

'Such expenditure cannot be justified and we will make no apologies for approaching future transfer negotiations in a far more structured and considered way.  In this context I have been greatly encouraged by Glenn Roeder's diligent approach to current negotiations.  The danger in failing to control costs should be obvious to everyone.  We do wish to win trophies and appear in European competitions but we will not pursue those ambitions recklessly at the expense of future generations of supporters nor, indeed, at the expense of the club itself.

'The last 10 years represent an amazing journey for the club and whilst history is unlikely to repeat itself I am sure we have many more twists and turns ahead of us during the next decade.  Despite the dangers I have highlighted above if we, and our colleagues in The Premier League, show the determination to retain some of the money which passes through our hands, rather than simply acting as a conduit for passing large sums of money to players and their agents, then I believe everything is now in place to ensure an exciting future for this great institution and I believe we can all look ahead with considerable optimism.'

Here are the other questions submitted, followed by detailed answers from Paul Aldridge:

What is happening to the East Stand, and what about the £6m if it is not being built?

"The plans for the rebuilding of the East Stand are ongoing. A date has not been set and will now not affect the available capacity for next season. When a date for the project is agreed we will obviously inform supporters as soon as possible. The finance facility that had been agreed will obviously not be required until work commences.
"When Rio Ferdinand was sold the club did indicate that ideally we would rather use some of this money to part fund the cost of the new stand, rather than increase our borrowings. However, the cost of purchasing new players immediately post Rio, and the extra wage burden this entailed, meant the total transfer fee received from this sale has been re-invested in the team."

How can it be justified selling the Chelsea cup tickets for £46 when it was on Sky and other clubs include cup games in their season tickets; and will season ticket prices be pegged or reduced next year?
"We are currently reviewing our price structure for next season and hope to publish it soon. I receive a lot of correspondence on ticket pricing and I hope that over the next few seasons the cost of watching football at Upton Park will not increase and that in some cases, especially for season ticket holders and the young supporter, it will reduce."

Why was there a share buy back and where did the money come from to do it?
"The share buy back was organised at the request of many shareholders who for various reasons wished to sell some or all of their shareholding. The board felt it had a duty to implement a scheme that allowed a number of shareholders a mechanism to realize the value their shareholding.  Our shares are not traded openly, but by a match bargain basis. This meant that a number of shareholders that had fallen on hard times or no longer wanted the shares could not sell them.
"The cost to the club to purchase these shares was less than £1.4m.  Considering our turnover will be in excess of £50m next year we believed it was the correct thing to do to."

Why didn't the board make it clearer about the possible sale of Paolo Di Canio to Manchester United and why was it being considered when the money that would have come in for him wouldn't have been adequate to replace him?
"Much was written on this subject. Glenn and myself confirmed that we had received an offer from Manchester United which had been declined. We were not looking to sell Paolo, but of course could not stop further approaches from Manchester United, nor the enormous press speculation."

Why are wages incurred calculated in the cost of an incoming transfer, but wages saved from an outgoing player are not?
"Generally when a transfer is reported the selling figure is quoted as the gross amount and does not allow for any payments made to the player or his agent due under his contract, or any amount owed to the previous club under a sell on agreement. This means that in almost every instance this figure is higher than that actually received. When amounts attributed to the purchase of a player are reported they are generally understated; the 5% levy and agents fees are never included.
"We never include players' salaries in either the purchase or sale of a player. I would always recommend that supporters do not rely on details stated in the press and check with our web site or club publications for more accurate information."

Further answers from Paul Aldridge to your questions will appear on the site soon.