So, here we go. After dropping many hints, the announcement has finally been made that Watford
Leisure, the football club's holding company, intends to seek a listing on the Alternative Investment
Market (AIM) in early August. Which is all very interesting. But what does it mean?
It's nearly four years since a football club last took the decision to float on the Stock Exchange. In
itself, that is revealing. After an initial burst of enthusiasm as the business community took notice of
the financial possibilities offered by football's booming popularity, realism has taken hold.
That realism is primarily based upon the volatility of football shares. Not many businesses are quite so
dependent on the results of the company footie team, let's face it. Equally, not many businesses have to deal
with such stupendous wage inflation, spending most, if not all, of turnover on paying a few key
staff. Additionally, there is a growing awareness that clubs differ from the normal commercial models, with
different priorities and stronger pressure from customers. To quote Peter Varney, Chief Executive at
"The City would probably like to see us giving a dividend - and that's probably what deflates the share price - and the fans would like to see us spending the money on players. The City buys shares to get a return from their investment and as we don't offer a dividend it's probably one of the reasons the City has turned away from football shares. If we did offer a dividend instead of buying that striker I think I know what the supporter shareholders would say."
Put simply, it is just not as easy as it once was to encourage institutional investors to buy shares in football
clubs. This harsher climate has been responsible for failed flotations - the last, at Nottingham
Forest, raised just £2m of the expected £20m - and sliding share prices.
The answer is, of course, to match realism with realism. Notably, the target figure of £5m is a modest one. Of course,
it could be argued that such a small sum of money will make little difference to the club's ability to pay the transfer
fees and wages required to build a Premiership-quality side. True. Nevertheless, that's rather encouraging,
in a curious way - it'd be worrying if such a fundamental decision was being taken just so that we could secure
the services of Ashley Ward. Rather, the board's stated intention to use the money to buy the freehold of Vicarage
Road, something that is utterly essential for the long-term future, and to further improve the infrastructure of
the club is reassuring.
It will be fascinating to gauge the City's reaction when it analyses the club's past performance and future plans. As
ever, this analysis will decide whether the flotation is a success or a failure. While Tim Shaw has already
made a point of stressing the desire for supporters to take advantage of the public offer, Watford would not appear to
have a large enough fanbase to carry a flotation alone.
So, how will the City view Watford? With the exception of a highly profitable season in the Premiership, the
club's financial performance has been consistently poor over the last decade. Under Jack Petchey, annual losses
of around £1m were so regular that no-one batted an eyelid. While promotion to the top flight may have provided
an opportunity to get the bank account looking healthy again, the Financial Times made a point of
highlighting a loss of £3.5m in the last financial year, a figure which tells an entirely different story, when
it reported the club's decision to float.
The directors are asking potential investors to buy into a vision, then. It is no coincidence that this announcement
comes at the start of Gianluca Vialli's first season as Watford manager and, therefore, at a time when interest
in the club's future is at a peak. The sub-text is clear enough - you're investing in a club that's destined
for the Premiership.
How this sits alongside the previous business plan - to build a company with such a strong
attachment to its supporters and the local community that its financial success is less dependent on winning
football matches - is unclear. Similarly, using the money generated by flotation to secure an asset like Vicarage
Road for the long-term is an entirely sensible decision that doesn't quite fit in with the financial gamble
of an apparently rising wage bill and hopes of Premiership riches. That's not surprising, in many ways. While this is undoubtedly an opportune moment to go for
flotation, it's also a time, right in the middle of the transition between two famous managers, when Watford Football
Club is slightly unsure of its identity.
The success of the flotation depends on the ability of the club to persuade the City that its future performance
will be rather better than its financially grotty past, therefore. In that respect, the interests of supporters
are no different from those of investors. Indeed, you could argue that the latter are rather more used to
considering the long-term than the former.
With or without flotation, Watford Football Club cannot afford a period of stagnation like that experienced
prior to Graham Taylor's return. Nor can it afford to get carried away with its new-found affluence. If a
stock market listing rams certain key points home to all concerned, then that is perhaps enough in itself to
make it worthwhile.
For a start, it would be absolute madness for a club of Watford's size and stature to place all its eggs in the
basket marked "Premiership". Even leaving aside the lunatic scramble for promotion from the First Division, the
blunt truth is that the top flight of English football is changing rapidly, and it is not changing to the advantage
of the Watfords of the world. As domestic competitions are devalued, so a reduction in Premiership numbers becomes
more and more likely. That isn't to say that we shouldn't strive to be part of it, merely that you wouldn't want
to bet your house - or your football club - on it.
In that respect, pressure from the City would probably be welcome. Much of the anger that is vented by supporters
against the influence of business in football clubs is misplaced. That is, it fails to identify that many issues emerge
from what are fundamentally amateurish, out-dated practices, not from the involvement of business itself. Face it -
most clubs, including Watford in the not-so-distant past, are run in a way that would send any private company
to the wall in just a few months, as customers fled to the competition. The future lies in becoming
a more dynamic, imaginative, forward-thinking business. It's a process that's already been started, commendably, in the
last couple of years. That it continues is far more important than promotion, for investors and supporters alike.
In many respects, not least a common player in Nigel Wray, the experiences of Nottingham Forest are particularly
interesting. While that flotation may have been something of a disaster, it left shares in the hands
of thousands of supporters...and that may also be the effect of Watford's more modest call for investment. The result
was that ordinary fans were able to influence key events.
In 1999, Nigel Doughty, a lifelong Forest fan, offered to invest £12m in the club. His conditions were tough -
he wanted full control; for the money to go directly into the club rather than to bail out the deeply unpopular,
fractured plc board; for Irving Scholar - bizarrely, the director of football - to be removed; for Martin O'Neill
to be recruited as manager. Well, three out of four ain't bad.
That these things were achieved is down to the organisation of supporters. Despite opposition from
Scholar and company, the proposals were voted through by a majority of 57% at a shareholders' meeting. Incredibly,
an estimated 97% of small, Forest-supporting shareholders voted in favour. Thus, the influence of the plc upon
the club was diluted. Whatever the future holds, fans were able to have a tangible, vital effect at a massively
important moment in the club's history.
So, the possibility of greater influence for supporters is there, whether by direct involvement in the plc or the
external pressure of large numbers of independent shareholders. You just wonder if this is what the current board
has in mind.
Frankly, who knows? A few hundred words, and I'm not much the wiser. Which, at this time of speculation and
little substance, is perhaps appropriate.