I believe that West Brom's most recent revenue was circa £70m. £53m of broadcast money. £7m commercial. £7m gate receipts. It has been reported that the most recent deal is a 70% increase in broadcast rights. There is little detail as to exactly how the new money will be shared inside the PL or outside in trickle down payments to the FL, payments to elite development etc. To keep it simple, let's assume that Albion's broadcast money rises by 70% to £90m. Assume that the gate receipts and commercial revenues don't change (given the amount of TV money, it frankly doesn't matter whether I turn up singing COYB and buying a pie or not...).
IF we now assume that the cost base doesn't change, Albion's very small profit of circa £1-2m per annum suddenly becomes circa £40m per annum because ALL of the extra TV money (another £37m) goes straight to the bottom line.
The crucial, crucial point is of course cost control. The £40m profit won't happen if agents just push up their players wages pro rata. That may seem far fetched but remember that in 1992 the average PL wage was only £1200 per week. Wage inflation has been enormous and there is no reason why we couldn't see hikes that soak up all of the fresh cash if Chairmen are weak enough.
However, all that a new owner would need to do is say no. There will only be 500 players on premier league contracts due to the limit of 25 squad players. If Brunt's agent comes asking for a 50%, 60%, 100% pay rise the new owner just says "no, thank you, please go elsewhere and ask one of 19 other owners for that money" There are only 475 other well paid PL contracts out there. Either Brunt stays and accepts not having a massive pay rise or goes. If he goes we offer Brunt's current package to the best Championship, Scottish, European and (where possible) non-EU players. Brunt's current package would be a massive pay rise for almost any other player and we would have no problem filling our squad with grateful and very committed players. Therefore it unquestionably IS possible to keep our variable costs fixed.
All of our other fixed costs (ground, maintenence, office, etc) is going to be pretty small compared with our variable costs and these should be genuinely fixed costs anyway. The grass isn't going to cost more to cut following the Sky deal....
Hopefully I have proved that Albion COULD make £40m per annum in the PL.
Of course, if we are paying a smaller wage bill, we might struggle and a long term stay in the PL can't be guaranteed in any investment model that we build. That's ok. Let's assume that just through luck we have 2 years in the PL. Let's also assume that we have two years of break-even following relegation (which seems reasonable as JP's current cost base as appropriate drop-down clauses to avoid financial implosion if we were relegated. There is also the chance that future parachute payments are increased). Let's also assume that post relegation WBA still has some value and could be sold for £5m. We therefore have £80m of free cash from 2 years of profits and a stub value of £5m.
Most banks will lend despite the fickle nature of football clubs. Look at most PL clubs and they have £60-100m of net debt. Swansea and Albion are rare examples of clubs without debt. Given the cash flows yet to come, I see no reason why any bank wouldn't lend £60m to someone (and by that I mean an individual, fund, corporate structure) who was willing to put up £10m of their own money. This would be a Loan To Value of 85% and given the cash flows, acceptable to most banks. The net interest margin might be LIBOR +7% (that appears about right looking at the interest bills and outstanding debt of other PL clubs) and therefore an interest bill of circa £4m per year. Knock that £4m off the £40m profit (EBIT for you accountants) and you have a £36m profit before transfer profits/ losses. As you have only put up £10m of your own cash that represents a pre-tax 260% per annum return and you would have recovered your own cash after 4 months. A sensible banker will ask for the debt to be paid down and that might limit the cash that you could take from the business but one look at the indebtedness of clubs shows that banks don't actually get repaid whenever there is cash in the pot.
So, what does it mean for an investor? They could put up little cash, pay JP a very full price (remember that Lerner was reported to be willing to take less than £100m for Villa and I would suggest that they are a bigger club than us). They could take a dividend of £30m+ per annum for a couple of years and if it all goes to s41t then they can just walk away. It is honestly a very compelling opportunity for the right investor.
As a supporter, it is of course potentially dangerous. I'm not saying that this is going to happen or even very likely but believe me, the maths work very well.