If I were to compare Wigan Athletic to a movie it would be The Grey; there are surely parallels between supporting the Latics and a harrowing story about the will to live despite crushing odds. The Latics are about to finish their seventh consecutive year in the Premier League and have just secured an eighth with a 1-0 win over a quickly sinking Blackburn. Although they have managed to exceed the average lifespan of promoted sides, Wigan are still relative newcomers to the top of English football. They could be found in the fourth division as recently as 1996 and the past seven years represent their first ever run in the top division. Wigan’s remarkable rise, and survival, is only forgotten because of the appearance of even larger miracles denominated in billion pound notes.

The engine behind their drive to the top of the pyramid was the ownership of Dave Whelan, a local ex-footballer who made his fortune developing the JJB Sports retail store franchise.

Whelan’s capital and shrewd hires promoted Wigan three times in ten years and launched them into the Premier League. While history and spirit are subjective, Wigan are absolutely economic underdogs compared to the rest of the league. This poverty contributes to  perennial doubts about their presence in the top flight and Wigan have been happy to confound those expectations every year so far.

REVENUES

Revenue has grown substantially since 2004-05. Promotion to the Premier League saw a bucketful of funds dumped into the coffers with 2005-06 revenues jumping to £34.8m from a paltry £4m the previous year. It was an above average year for revenue as the club achieved its highest league finish of 10th as well as fighting to a League Cup final appearance against Manchester United. 2006-07 revenues dropped as a relegation fight impacted league awards and attendances;  cup bonus chances were also knocked out in early rounds. 2007-08 saw a stabilization in revenues and performance around what is arguably Wigan’s ‘natural’ level. Revenues grew slowly after that reaching  a high of £50.5m in 2010-11.

Let’s look at the components of Wigan’s revenue.

League Payments. The Premier League distributes money to clubs from the collective sale of tv broadcast rights; part is distributed equally and the rest is awarded based on final league position (merit awards).

League money is Wigan’s lifeblood. It is by far the largest revenue category and has constituted an average 85% of total revenues over the past 5 years. The contribution that league monies make to total revenue has been growing each year reaching a high of 88% in the 2010-11 season.

Increases in League distributions have not only been Wigan’s only source of revenue growth, but have actually made up revenue lost in other categories. They have accounted for 151% of the growth in total revenue since promotion. League payments as a whole have grown from £20.7m in 2006-07 to £44.4m in 2010-11. Merit awards increased following an 11th place finish in 2008-09, but decreased again as the squad finished 16th in the following two seasons. The bigger contributor to distribution growth was an overall increase in the price of Premier League broadcast rights.

Put lightly, Wigan is wholly dependent on the money coming in from the Premier League.

Match Receipts (gates and matchday sales) are the second largest incomings category, but play a comparatively small part in total revenues. Starting from an average of 11,562 supporters per game in 2004-05 attendances spiked to 20,609 in Wigan’s promotion season. This would be the highest average attendance the club would achieve. Inconsistent progress and relegation battles sapped supporter fervor and caused a decline to 16,812 per game in 2010-11.

Declining attendances have negatively affected gate and match-day revenues (shocking!). From 2007-08 to 2010-11, average attendance fell by 11.8% (-2,234) and total revenue fell by 6.3% (-£277k). You would expect revenue and attendance to have a relatively 1%-to-1% relationship, so what explains the resilience of match revenues? The answer lies in the number of matches played:

A Premier League club plays a set number of home matches (19) per season, as such potential for match revenue growth from the league is limited to increases in seating capacity, higher ticket prices, or matchday sales. However, extra revenue can be found in cup runs.  Success in cup competitions creates more home matches and progress into later rounds increases the potential rewards per match as attendances swell. Wigan has done well for itself in this category, steadily growing its cup appearances since 2006-07 when only 2 cup fixtures were played. 2008-09 saw a run to the 4th round of the Carling Cup, 2009-10 the 5th round of the FA Cup,  and finally 2010-11 where good performance in the FA Cup and an appearance in the semifinal of the League Cup saw 7 cup matches played. So an 18% increase in matches played (up by 4 to 26) reduced the impact of slumping average attendances to a 6% drop in match revenues.

Commercial-Sponsorship has grown little over the past 6 years. JJB Sport was Wigan’s shirt sponsor until the end of the 2008-09 season when financial troubles at the retailer caused it to reconsider the sponsorship. 188Bet took over the sponsorship but the new deal did not noticeably increase revenues, likely because the constant threat of relegation shrank any possible premium Wigan could have commanded. The club  announced a “record” sponsorship deal with 12Bet in of June 2011, its impact will be seen in next year’s accounts.

No detail is provided for Other Revenues but it likely includes merit payments related to progress in cup competitions; the category spiked noticeably in 2010-11 when Wigan challenged for both the FA and Carling Cups into later rounds.

COSTS

As revenues have grown, so have costs. Total Operating Costs have almost doubled, ballooning from £30.7m to £58.4m in 2010-11.

Player wages and staff salaries are the majority of costs. Wages more than doubled in 2005-06 due to new signings and promotion triggered contract increases for existing players. Salaries continued growing in the following seasons, at times faster than revenue but eventually leveling off beginning in 2009-10. The wage to revenue ratio peaked at a ‘suicidal’ 91.6% in the 2006-07 season and has since dropped off to a ‘more manageable but still inadvisable’ 70.7% for 2010-11. As a side note, the oft cited wage-revenue ratio ignores employment costs such as Social Security tax, if these ‘extras’ are included the employee expenditure picture looks much unhealthier.

Wigan has been consistently expanding its staff, since 2005 employee count has risen by 36 to 95 in 2010-11. Growth in playing and coaching staff has accounted for much of the increase, with the addition of 30 players and coaches almost doubling the category for the period. Much of this growth came in the 2010-11 season as the club hired 18 staff members. Administrative staff members have also increased with 7 employees added over the period.

More interestingly Wigan’s Academy, The Centre of Excellence, has cut staff from a high of 8 coaches to 5 in the most recent year. Whether this signals a reduced emphasis on youth development or a necessity of cost cutting is difficult to say. When Youth Team Manager Dave Watson was appointed in April 2008 staff expanded to 8 coaches but was subsequently cut back to 5 in 2010-11. In November 2011, Watson moved to Newcastle and John Doolan was appointed as replacement.

INCOME

Wigan Athletic FC does not make money, it has accrued losses in 5 of the 6 seasons it has been in the Premier League:

The 2005-06 promotion season was the only profitable season due to the large bump in revenues from joining the top flight. Net Losses peaked in 2007-08 at -£11.2m as higher costs driven primarily by the 3m hiring fee of Steve Bruce from Birmingham sent the yearly loss to a record. Spiking interest rates on outstanding bank debt also increased financing costs for the year. Since then losses have been reduced but still ever present.

Looking at operating income with player trading results removed reveals a loss, but one which has been improving since 2008-09.  As at many clubs, profit from the player transfer business is used to mitigate losses from regular club operations.

The Operating Income (including player trading results, excluding financing costs) picture looks better, but only marginally so as Wigan’s financial costs are actually low compared to its debt level. Interest charges do not make up a substantial percentage of its losses.

From last available accounts the club had accrued losses of £66.2m, of which £65.1m was covered by new debt borrowings.

TRANSFERS

Since 2004-05 the Latics have spent £100.4m on incoming players, while taking in £64.4m from outgoing players for a net spend of £36m. Net transfer spending has averaged £6m per year and 20.8% of revenue between 2005-06 and 2010-11.

However the average spend figure smoothes out what a rougher (and more interesting) story of Wigan’s activity in the transfer market. Wigan’s transfer history is divided into three periods under the last three managers: Paul Jewell, Steve Bruce, and Roberto Martinez.

Paul Jewell brought Wigan up and helmed their inaugural top-flight campaign. Charged with escaping relegation he oversaw a predictable bump in transfer activity with a £6.8m net spend in 2005-06. In his second season Jewell was given more leeway to spend and spent a net of £10.4m. Unfortunately, results were not as spectacular as in the first season and the club only narrowly avoided relegation. Jewell resigned at the end of the season. Net spend under his tenure was £17.2m and the wage level ended at £24.6m. Steve Bruce was brought in during the 2007-08 season to bring stability to the club. Net spend for the season was 12m. Performances improved marginally bringing the club to a 14th place finish. In 2008-09 net spend was £5.4m. Bruce left at the end of the 2008-09 season for Sunderland.  Net spend under his tenure was

£17.4m and the wage level ended at £37.7m. Roberto Martinez started in the 2009-10 season. His net spend to date has been -£5.7m (profit) and £7.1m for 2010 and 2011 respectively, a paltry total of £1.4m has been spent and wages have been reduced to £35.7m.

To quickly summarize the activity of the three, Paul Jewell entered the Premier League with a small squad on low wages. He was able to invest substantially in both transfer fees and wages. Steve Bruce, while given a larger net spend, had liberty to increase the wage bill. Roberto Martinez has presided over the lowest net spend as well as a shrinking wage budget while also expanding the squad.

At the end of 2010-11, player registrations valued at £20.7m were held on the books. These constitute the majority of Wigan’s assets.

DEBT AND FINANCING

Over the period we are discussing Wigan has never been profitable, it has generated only losses and has been sustained by outside borrowings. Wigan has total assets of []m. As mentioned above, the club had accrued losses of £66.2m, of which £65.1m was covered by new debt borrowings.

Wigan has total liabilities of £91.7m. Of these £72.7m are Debt with a capital D (as opposed to credit extended by vendors and the like). £21m revolving bank debt, £41.9m loans from associated companies, and £9.8m in other loans from the Whelan Family Trust.

The Bank Debt is a revolving credit facility which has no set term limit and a variable interest rate, it behaves much like a consumer credit card. Use of the revolver peaked during the Bruce era and has been drawn down slightly to £21m in 2010-11, but has still grown by 23% since 2004-05.

Meanwhile loans from Dave Whelan have also grown sizeably. Whelan has provided additional financing of £33m through the parent company, associated companies under his control, and the Whelan Family Trust since 2004-05. This is in addition to the £18.6m already loaned to the club at that point. As of 2011 the loans extended by Whelan totaled £51.7m.

Cost of Capital

Interest on revolving bank debt and loans from the Whelan Family Trust are the only significant financing cost. Total interest payments peaked at £1.7m in 2007-08 and have fallen to £1m in the most recent year.

In 2004-05 they were paying a leisurely 3.64% rate on £17m in loans. The rate jumped to 8.5% the next season, but the increase was due to retirement of debt late in the year as revolver use dropeed to £9.6m, the lowest in the Premier League period. As would be expected, debt financing costs increased significantly during the financial crisis and at the peak in the 2007-09 seasons debt cost spiked to the 7% level. By 2009-10 stress in the financial system had mostly subsided, allowing for a drop in the rate close to the 2.97% Wigan paid in its most recent year.

The non-bank ‘Whelan’ loans are all interest free, except £7.5m from the Family Trust which bear interest at 5% annually. Because of the ‘soft loans’ the club’s cost of capital is extremely low: just 1.38% on £72.7m total debt in 2011. The difference between rates on the bank debt versus the combined financing rate show the immense benefit offered by Whelan’s capital. As perspective, if Wigan had to finance similar debt levels at market rates they would be paying £2.2m rather than £625k in interest annually.

It is worth noting that in the 2009-10 financial statements the club stated it was attempting to sell Preferred Shares in February 2011 in order to pay down some of the Whelan debt. As these shares, and a reduction in the Whelan loans, are not reflected in the 2010-11 accounts I assume that the sale was unsuccessful.

THE FUTURE

Wigan are a remarkable club whose pluckiness on the pitch has yet to translate into economic success. The club remain dependent on their Premier League status and, ultimately, the benevolence of owner Dave Whelan. With their recent win over Blackburn, Wigan have secured their top flight spot for another year but doubts about their survival are sure to crop up again. If the Latics were to be relegated next year the squad would likely have to be dismantled to avoid a £30m hole in annual finances. This would be in spite of the guaranteed £48m over four years from parachute payments.

All is not bleak though, Roberto Martinez has shown a remarkable talent for operating on a shoestring wage and transfer budget. If the talented, young manager can continue to perform his magic (and does not get snatched away by a wealthier club first) Wigan have a good chance of reach financial stability. Costs are stabilizing and revenues have been growing steadily thanks to increased TV monies. Sponsorship incomings have also increased as advertisers have become more comfortable thinking of Wigan as a Premiership presence.

League performance is the missing span in Wigan’s bridge to profitability. Better performances in the league produce higher merit awards, higher attendances, and more lucrative sponsorships. With each final spot in the league worth approximately £900k, a season of mid-table ‘boredom’ would be just what the doctor ordered. As a hypothetical, if Roberto Martinez were able to equal 2005-06’s 10th place finish it would increase merit awards by approximately £6m. Success on the pitch would also make use of the club’s most valuable fixed asset, a modern stadium waiting to be filled with supporters. If attendances could be brought back to average levels (~18,000) it would add another £1m to revenue. A growth in both major revenue sources of only £7m would allow the club to break even based on the most recent results.

Wigan’s path to success is a difficult one, but who would have bet on them surviving this long in the beginning? Roberto Martinez has already starting laying out his plans for the summer and while he is not likely to have money to spend no one doubts that he has tricks up his sleeve. Wigan are perpetual underdogs and no other club plays the role as joyfully as they do.