Wolves: The cost of failure

Just 2 seasons ago, Wolverhampton Wanderers were preparing for their third season in the Premier League after finishing a very credible 15th the season before. Today, they are beginning their first season in the third tier of English football after a dismal relegation from the Championship last year.

In 2007, Wolves owner Sir Jack Hayward relinquished control of his beloved club and sold it to property developer Steve Morgan for the nominal fee of £10. Morgan, the owner of Redrow Homes who once made an audacious attempt to buy Liverpool FC, promised that he would initially invest up to £30 million in the club "over a period of time ... to help re-establish Wolves as a Premiership club. "

At the start of the 2011/12 season Wolves fans had every right to be buoyant. The club was financially secure, they were preparing to invest and upgrade their Molineux stadium and they had managed to retain their core players which had performed so well the season before.

But like many before them, Wolves failed to maintain their level of performance and were in the relegation zone for the majority of the season. Midway through the season the Chief Executive, Jez Moxey, announced that the club had made a £9m profit the season before. Many fans were in uproar claiming that these funds should be reinvested back in the squad to try fight their way out of the relegation zone. They were not. And Wolves were relegated without much of a fight.

At the start of last year, back in the Championship, Wolves were expected to fight for promotion with many eyeing them up as possible winners. Indeed Sky Bet had them listed as third favourites offering the odds of 8/1 that they would be automatically promoted. 

Things did not go to plan. The new manager, the rather unknown Stale Solbakken from Norway who took over from Mick McCarthy, was relieved from his position in early January after being knocked out of the FA Cup by non-league Luton and the team lying 18th in the league. 

The Wolves board pondered their next appointment carefully knowing that it was probably one of the biggest decisions they would have to make. 

Highly-rated Dean Saunders, manager of promotion chasing League 1 side Doncaster Rovers, was charged with the responsibility of saving the historic club. Like Solbakken before him, Saunders struggled to get the side to work for him and the club continued to struggle in the league. Wolves were relegated and banished to League 1, Baggies fans jumped in joy and Saunders was quickly sacked after just 20 games in charge. Karl Henry, boyhood supporter and club captain, summed the situation up pretty accurately calling it a "sorry state of affairs".

The Wolves Board and Steve Morgan have continued to take flack all off-season as they struggle to offload some of the residual high earning players from their brief stint in the Premier League. With the sudden demise of the historic club it is likely that it will impact the club's finances and, ultimately, affect their ability to climb out of League 1.

So, after back-to-back relegations and investing significant sums in their infrastructure & players, how are Wolves fairing financially?

Wolves report their financial statements on a yearly basis starting every June. Therefore, the 2012 financial statements represent their final year in the Premier League and their 2013 statements (the year in the Championship) have not yet been released.

Overall, Wolves' financial statements are quite impressive. During their 3 season stint in the EPL they managed to bank profits totalling £13.5m, satisfy their outstanding loan of ~ £3m, and accrue just over £12.8m in cash reserves. In fact Wolves were the 5th most profitable club in the EPL in the year 11/12.

The financial benefits of playing in the EPL are evidently clear - in 09/10 turnover surged to just over £60m - a whopping increase of over 300%. This is due to the central broadcasting deal and the £2.1bn TV rights that the league generates. The club also signed a new sponsorship deal with SportingBet which is largely responsible for the £2.2m increase in commercial revenue. Wolves' revenue increases are offset in part by their activity in the transfer market (player amortisation increases from £3.7m to £9.5m) and the subsequent increase in wages (£16.7m to £29.8m). 

As a form of 'relegation compensation' Wolves will receive £48m over 4 years from the EPL.  Also known as the parachute payment, many Football League clubs have attacked the practice of paying huge sums to clubs as they argue it gives the relegated clubs an unfair advantage and effectively rewards failure in the EPL. Wolves will have received £16m last season and will receive a further £16m this season, despite being in League 1.

In March, in an attempt to curb excessive spending and the loss-making culture of many clubs, the Football League agreed to cap aggregate wages to 60% of the club's revenue. Even though Wolves will be receiving their second parachute payment of £16m they will not be allowed to consider this as revenue when calculating their wage cap limit because it is considered an 'exceptional item'. 

If Wolves want to avoid sanctions they will need to severely cut their wage bill. Many of the players at the club are still collecting Premier League wages and a few media articles have estimated their wage bill for the 2012/13 season was approximately £5m. As a point of reference, the team who wins League 1 gets just £25,000 in prize money.

The cap also includes a club's spending on non-playing staff (eg. Cleaners etc). Therefore, as Wolves inevitably cut back on luxuries, it is likely that many backroom staff will leave - another cost of the team's dismal performance on the pitch.

The importance of the upcoming season cannot be downplayed. Wolves fans will be expecting promotion and the owners cannot afford to stay in League 1 for more than one season. Some of more the more senior players will need to stand tall and help some of the youngsters settle into the pace of League 1.

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