So Venky’s seeming ignorance of the realities of football club ownership are understandable, if problematic.  I still find it hard to believe that the owners of a corporation of the size of the Venky’s Group would go into an investment that blind, but, however it happened, they ended up in an AWFUL situation.

Football club ownership (in England, at least) is not generally a profitable enterprise.  It’s a constant arms race to get the best players, and the deep pockets of the mega-clubs (Chelsea, Man City, Man U [theoretically], Real Madrid, AC Milan, etc.) drive the cost of players up year on year.  Ideally a club would have a deep network of scouts and buy unknown-but-promising players cheap, get a few good years out of them, and sell them on, or have a good academy setup.  A good manager (see Norwich, Swansea) is also recommended.  Blackburn have been, on the whole, pretty good at that strategy over the years (though perhaps less so with managerial talent).  Unfortunately this is getting increasingly difficult to do.  The rising costs of players are forcing all clubs to get more efficient and play “moneyball”.  Teams must, to paraphrase a cliche, spend smarter, not harder.  This will only be exacerbated by Financial Fair Play.

Venky’s bought Rovers with three goals, so far as I can tell:

1. Use the club as an advertising platform to break into the South American and/or European markets
2. Use the club as a status symbol (Rovers are the first large club owned by an Indian company)
3. Run the club as a self-sustaining business unit, requiring little, if any, capital injections

1) and 2) are viable goals, and make some sense.  3) was never going to fly.  Herein lies Venky’s problem (ironically similar to the problem of the Walker Trust, who sold them the club) – they don’t want the core business to act as a driver for a random football club’s success.  The Venky’s group does about 100m GBP in profit a year.  They realistically need to invest 10m GBP of that (minimum) a year if they want the club to tread water.  That’s on top of any operating loss the club may have.  Blackburn being where it is, with the fanbase it has, is unlikely to make enough money in ticket revenue to have a large turnover.  So Rovers look like an unprofitable business unit.

How do you turn around an unprofitable business unit?  Increase revenue and/or cut costs.  How do you increase revenue for a football club?  Get more fans, who will then, presumably, buy more tickets and club merchandise.  The Blackburn area is unlikely to yield a larger fanbase in the short to medium term.  Yes, if Rovers were to go back to their Premier League winning ways ticket sales might increase, but Lancashire is fairly saturated with clubs in the top 4 divisions.  The “big” clubs in Manchester aren’t that far away either.  Venky’s could use their experience in the Indian market to try to drum up fan support (and to some small extent they have).  The problem here is that a) India isn’t a nation that traditionally follows football, and b) with a per capita GDP of 2330 GBP, a 20+ GBP kit is going to be a hard sell for a large segment of the population.  In addition, Venky’s are likely to see that market as high risk, comparatively low reward.  The traditionally big clubs are largely skipping marketing in India, preferring to concentrate their attention on marketing in Far East Asia, because of football’s comparatively low profile on the sub-continent.

So if you can’t easily increase revenue, you must cut costs.  As I noted above, you can contain costs by playing moneyball, but it’s difficult.  Venky’s seem to lack the expertise necessary to do this.  They also seem unwilling to hire that expertise – either because they’re still gunshy over the fallout from SEM, or because they don’t want to pay for it, or hubris, or some other reason entirely.  It’s difficult to speculate with any real sense of certainty, though I’d lay my money on fallout from SEM and hubris if I had to take a guess.  The main cost driver at Rovers is player salaries (49.9m GBP at last report).  …and with those salary levels and the players Rovers have, they’re in a relegation battle.  I tend to believe Rovers have a good enough squad to be solidly midtable with decent management.  Kean isn’t decent management, but hasn’t been sacked, allegedly because Venky’s don’t want to pay him off.  Michel Salgado has indicated on Twitter that he’s not being played because he’d get a new contract with another appearance.  Kean played no subs against Manchester United on Monday, April 2nd, and it has been suggested this was to save appearance bonuses.  Ruben Rochina is rumored to be riding the bench because of his appearance fee.  This suggests that cost control is the main driver of club policy.  So if reducing player costs is unlikely to keep you in the Premier League, and you have to cut costs…

You accept relegation.  Venky’s spent roughly 53m GBP to buy Rovers.  With the money from the sales of Jones and Samba, a large part of that debt has been paid off.  I believe Venky’s think (probably correctly) that it’s easier to run a neutral or profitable club in the Championship than in the Premier League.  At the very least they think they can pump in less money and keep the club mid table.  I suspect the 12m parachute payments to Rovers will be used to pay the rest of the club’s debt, and the proceeds from the fire sale of players upon relegation used to purchase Championship level players on Championship level wages.  With the parachute payments, Venkys will be essentially neutral on the whole transaction – they’ll be able to sell the club for 10m and get out with their finances intact.  Whether Venky’s CAN run the club properly to keep them in the Championship is another matter entirely.

I doubt Venky’s WANT Rovers to be relegated, per se – it is a large drop in income, and, if they can survive until the summer and sell off most of Rovers remaining salable players, they will get out of debt that much faster.  I just don’t think they much care one way or the other, and certainly aren’t planning to try to stay up.  They have a plan either way – and neither is especially good for BRFC as a whole.  It’s probably the shrewdest move Venky’s have made since buying Rovers – cold comfort though that might be to the fans.

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