THE FINANCIAL IMPACT OF EUROPEAN FOOTBALL FOR NOTTINGHAM FOREST

Firstly, I must shout out and credit the brilliant Swiss Ramble Blog from where I've gathered the baseline numbers used in these calculations. He provides in-depth analysis on the finances of clubs and the European Competitions, which I've used as the starting point and adjusted from or been able to use as a reference.

Aims & Caveats

• This calculation is aimed to be a NET estimate of the financial boost Forest will have from this brilliant season in the league. I am considering the extra amount of revenue over and above what might have been expected at the start of the season. In that regard, I've assumed we predicted a 12th-place league finish for ourselves and no European football. I've excluded the FA Cup run boost as well so as to focus on the impact of 5th v 6th place in the league.

• All the numbers used are guesstimates based either on our accounts from the last available period or based on the Swiss Ramble numbers for similar clubs in European competitions. I have also had to guesstimate things like bonuses and matchday revenue changes going into next season.

• I've prepared four estimated outcomes in each of the two main European Competitions, UCL & Europa. A high, upper mid, lower mid and low performance scenario for each to demonstrate how performance in the competitions dictates revenue, and how that impacts the transfer business in the summer, before you know how well you've done.

• I have assumed the furthest we could get in the UCL is the quarter finals. Don't shoot me!

• I've prepared four estimated outcomes in each of the two main European Competitions, UCL & Europa. A high, upper mid, lower mid and low performance scenario for each.

• I've assumed that we can only spend 70% of the extra revenue in order to meet Squad Cost Ratio rules.

• I have needed to make adjustments to the numbers to reflect the fact that Forest haven't been in Europe for over 30 years, which means our financial rewards are slightly reduced from teams that regularly appear in Europe.

• I'm happy to receive feedback on any item headings I have missed or if you think the assessment values are wide of the mark. I'm aiming to find what is accurate and refine it if more information is available.

A couple of things to keep in mind as reference points for the numbers:

• Everything in football finance now should be considered over at least a three year period. Amortisation, revenue etc, has to last across assessment periods for PSR or squad cost.

• Forest's squad cost is around £250m every year in amortisation and wages. This is the key number that will matter the most in future years for setting spending limits, as Forest will need to spend less than 70% of their revenue on the squad costs.

• It's worth thinking about the extra revenue as a % of that current squad cost. E.g. £50m extra revenue would be an extra 20% added to the squad cost. I think it helps to appreciate the impact it might have. For example 20% increase in the number of players in the squad would be 4-5 players, but spending 20% of the squad cost on one player would be a big investment. Another way to think about it would be how you would act if you received a one-off 20% pay rise. It could be a lot of money, but perhaps not enough to suddenly change your lifestyle. I think that's perhaps the conclusion we should reach with the impact of European football for Forest.

• Our operating losses were £73m up to June 2024; therefore, in a normal business, all of the additional revenue from European football would be spent just in the running of what we currently have to try and make a profit. It's most likely however, that profit isn't the aim for our owner and revenue will be invested to the maximum limits again.

I've got plenty of detail below with full calculation tables, but for those just interested in the key points:

• The core / net impact from UCL football on Forest's finances is estimated to be £47m. These are the revenue headings that aren't reliant on performance in the competition.

• The core / net impact from Europa League football would be £25m. Again, these are the revenue headings that aren't reliant on performance in the competition.

• Therefore, the difference between the 'guaranteed' revenue boost from UCL and Europa League football is estimated to be £22m. Amortised over a 3-year PSR period, that would be £7m per season additional revenue for UCL over Europa. Or the equivalent amortised cost of one £15m squad player.

• In the UCL, the performance-related additional revenue ranges from £30m for Quarter-Finals down to £2.5m for poor results in the league phase.

• In the Europa League, the performance-related additional revenue ranges from £55-60m for winning the competition & qualifying for UCL the following season down to £1.6m for an average showing in the group stage.

• The best-case scenario I have considered for Forest to reach the UCL quarter finals would result in an annual boost to the squad cost kitty of around £19m per year. This accounts for only spending 70% of revenue on squad costs. This would be enough to fund amortisation and wages for ONE £50m player on £100k a week for three years of their presumably five-year deal.

• If I could emphasise anything, it'd be that the headline numbers always have to be reduced in line with the 70% squad cost ratio to revenue, and any income has to be considered over the three-year PSR cycle. It's these factors that mean European football is a financial boost, but it's not quite to the extent we perhaps imagine. For example, look at teams like Villa and Leicester a little further back in time, who are still now wrestling with big wage bills and PSR limits despite UCL football.

You can skip to the end to see my full thoughts and conclusions.

The trouble with football finances is that they are so huge, it's hard to know when a big number is actually a big number. A £40-70m boost in Forest's balance sheet sounds like a lot of money, it is a lot of money, but it is only around 15-20% of our current squad cost. It's around 25-35% of Forest's wage bill. So, in perspective, this revenue is a bonus, but not a sudden doubling of our financial powers. It's not on the same level as the £150 prize of the promotion we secured a couple of years ago. It's on a par with the sale of Brennan Johnson for £47m profit, which eventually paid dividends with the careful recruitment we made.

Another way to put it into perspective is to say that throughout his 5-year contract, Forest are likely to have paid over £40m for Nikola Milenkovich in transfer fees & wages. So, if we did see a £40m boost for one season from UCL football, it would just about cover the cost of having Milenkovich at the club. That's just enough to cover one player in the squad for each season you get into the UCL.

The final chart shows a comparison of Forest's revenue in 23/24 compared to what it might be with a 5th place finish & decent UCL campaign. It's a nice step up on the chart, but I've also included the AVERAGE revenue Spurs have seen over the last 5 years. The step up from Forest last year to Forest with UCL football is still a smaller jump than from UCL Forest to average Spurs. I used Spurs because they aren't a successful club as such, they don't always get UCL, they don't win trophies but their revenue still sits a long way ahead of Forest's.

I think maybe the misconception is that it's European football that is the big revenue difference between the big clubs and the others. To some extent, it is, but it's a compound effect. It's European football year after year that brings the money in, allows the squad to build and also allows clubs to bring in big-name players. It's the big-name players that then bring in the big sponsorship deals and kit deals to the club, as brands want a piece of the action. Then you invest that extra money in other ways to generate income like a new stadium and events. The key difference isn't the European football, it's the ability to build a better brand over the years of being in the limelight.

So in the wider context, a season in Europe for Forest is a great way to invest another 20% into the squad, be that in terms of quality or quantity. It's another rung up the ladder, but in football financial terms, there is a way to go before we compete with the established clubs to sign the very biggest names in football. We have to turn our project players into those big-name players ourselves and repeat that cycle until we get there.

The headings I have included in the calculations are listed below with an explanation of how I've calculated their value on the full comparison chart.

Extra Premier League Prize Money

I have assumed that Forest were forecast to finish 12th in the Premier League this season. I have therefore added in the surplus prize money we should receive for a 5th or 6th place finish, depending on the scenario. E.g. 5th place being +7 places x £2.8m per league position = + £19.6m boost.

Worth noting this is a sizeable sum and if European football dented out league position last season, it does negate the benefits somewhat, but I can't predict that at this stage.

UEFA Participation Fee

This is the most certain cost about the whole exercise as UEFA awards each participant a set initial fee that's the same for all clubs across their relevant competition. The difference in fee from UCL to Europa is £12m!

The Value Pillar / European and Non-European Part

I don't fully understand how this is calculated, but I know it's based on which country the team is from and how well they have done in Europe over the previous five seasons. Therefore, I do know that Forest's payment against The Value Pillar will in part be similar to other English clubs in each competition. The second part of the payment will be much lower than the likes of City, Arsenal, etc as Forest haven't played in Europe in the last 30 years.

The Lack of Recent European Involvement Adjustment line is included to reflect this.

Matchday Revenue

Both competitions would bring a minimum of eight additional matches, four home and four away. I have therefore included an additional 4 x £626,000 for the additional home matchday revenue, which is based on an approximate value per home game from the 23/24 accounts. Of course, this might be much higher if the club increase ticket prices for European games. I've assumed this revenue would be the same for UCL or Europa.

Increased Commercial Revenue

This one is pure guesstimate with a little bit of research into the boosts to commercial revenue that Newcastle & Villa saw in the accounts when qualifying for UCL or Europa. Ultimately, this is driven by the club's ability to bring in better sponsorship deals, kit deals, etc, on the back of European football. I have assumed a £20m boost for UCL football and a £10m boost for Europa League football. Forest are big in Nottingham but still establishing themselves as a club that brands will want to get on board with and pay top dollar for, so I've assumed this is a reasonable gain, but in future years with consistent success, this can increase much more.

Estimated Impact of Bonuses & Wage Increases

This is the key cost that will impact the net boost from European football. Players, staff, agents and who knows else will all be due extra bonuses as a result of Forest playing in Europe. It's impossible to know what this will equate to as it will be different for every contract. Will Emmanuel Dennis be due another Harry Arter-style contract extension? There will also be extra transfer fees to pay to selling clubs, I expect. Particularly Wolves with MGW, I suspect.

I've estimated this as a £25m cost, which in effect means it wipes out the additional commercial revenue and the additional matchday revenue. £25m would be roughly an average cost of £1m per squad player which actually might seem low. It is also roughly 10% of our current squad cost, which seems the least you'd expect for such an achievement.

The core revenue net position is the most useful number at this stage. This is the extra boost that the club will be able to forecast and understand, and this will be used to plan any additional transfer spending over the summer window. This is before any performance-related impact next season. To summarise

UCL / Finishing 5th = £47m Boost

Europa / Finishing 6th = £25m Boost

Getting promoted in 2022 = £600m +  boost so far....

A £22m difference for that single league position from 5th to 6th. Without a doubt worth fighting for, but in the grand scheme of football finances, it's hardly the same as that £150m boost we saw from promotion a couple of seasons ago and the boost of staying in the Premier League.

I've not calculated finishing 7th in detail, but I would guesstimate a £10-15m boost for Conference League football and a 7th place finish.

To emphasise again, these 'core revenue' figures are the ones I expect will determine our recruitment plans in the summer. We might gamble on further prize money given our recent approach, but let's assume not for now.

Firstly, we need to take this core revenue and apply the UEFA Squad Cost Ratio to it. Forest can't afford to spend 100% of this additional revenue because we make an operating loss. Therefore as a simplistic approach, we can assume we spend the same % of it, as the UEFA Squad Cost Ratio rules would be 70%.

This means the funds to cover transfer fees, wages, and fees from the core revenue boost would be:

UCL = £47.44m x 70% = £33.21m

Europa = £25.15m x 70% = £17.61m

A difference of £15.6m between a 5th and 6th place finish for Forest. Both of these are nice amounts to add to our transfer kitty, but both are less than the boost we got for selling Brennan Johnson to Spurs, which allowed us to sign players like...... Sangare.

The Amortisation Factor

We then have to consider the fact that Forest might not qualify for European football in back to back seasons (not being negative just realistic). Therefore whatever revenue we bring in for the 25-26 season might have to be spread across a number of years. I'm going to assume it's across a three year period.

So the £33.21m becomes £11.07m per season for UCL. The £25.15m for Europa becomes £8.38m per season. 

By comparison / for context:

The cost of a £50m player on £100k a week amortised over a 5-year deal would be £15.2m per season.

The cost of a £25m player on £70k a week amortised over a 5-year deal would be £8.64m per season.

The cost of a £15m player on £40k a week amortised over a 5-year deal would be £5m per season.

So if my calculations are correct, the core revenue boost from European competition would allow us to bring in 1.28 x £25m player on £70k a week. I'm ignoring signing-on fee costs and bonuses, which make it even tighter. I'm ignoring any existing transfer kitty we have. I'm just looking at what Europe brings in terms of our outlook on spending, and unless we gamble on doing well in the competition, it probably doesn't allow us to suddenly consider an extra £50m player unless we gamble on success.

I think this puts the emphasis again on the player trading model. Invest in a couple of £15m players with potential to bring in £50m profit in a few years time, unless we can guarantee UCL year after year.

The Scenarios Considered

We are now into the realm of assessing various scenarios for how Forest might perform in each European competition, based on how clubs performed this season and their financial rewards for that. The prize money comes from:

• Winning group stage games

• Drawing group stage games

• Final league position

• Qualifying for the knockout or last 16

• Reaching the Quarter-finals

• Reaching Semi-Finals

• Reaching the Final

• Winning the competition

• Qualifying for a subsequent competition, e.g. win Europa, get Champions League next season.

Call me Johnny Negative, but I don't think Forest will win the UCL next season if we qualify, so that isn't a scenario I have calculated here. I do however, think we could win the Europa League if we are smart and with a bit of luck. The scenarios I have established are categorised as High, High Mid, Low Mid, and Low optimism scenarios in each competition. Specifically, they are:

• UCL High - Quarter Finals (e.g. Aston Villa)

• UCL High-Mid - Knockout Stages (e.g. Brest)

• UCL Low-Mid - Group Only, but win a few games (e.g. Stuttgart)

• UCL Low - Group Only and only win 1 game (e.g. RB Leipzig)

Stuttgart is an interesting comparison for me. They were a surprise in their league last season and qualified for the Champions League after previously being relegated and away from Europe for a long period. They are probably the most similar example to Forest's current situation.

For the Europa League, the scenarios are:

• Europa High - Winners (e.g. Spurs, or Man Utd perhaps)

• Europa High-Mid - Quarter Finals (e.g. Lyon)

• Europa Low-Mid - Last 16 (e.g. Roma)

• Europa Low - Group Only but do ok (e.g. Hoffenheim)

You can see from the tables above and below that this performance element of revenue can vary massively from an extra £30m down to just an extra £2.5m. Again, if we relate these numbers to player costs amortised, then it's the difference between being able to bring in another £25m player or not.

The trouble is, how do you predict what will happen when planning in the summer? I guess this is why Villa reinforced again in the January window on the back of their success.

Europa League performance rewards are meagre and in reality the difference between the stages isn't that significant. Having an OK season in the Europa League isn't going to make much difference at all in terms of recruitment; it would potentially only add £1m per season to the squad cost budget over and above the core revenue.

Once you are in the Europa League, it's pretty much all or bust because the big prize money comes from qualifying for the UCL the following season.

Winning the Europa League would be the financial equivalent for Forest of reaching the UCL Quarter Finals. On the assumption that we wouldn't win the UCL and wouldn't be able to make back-to-back UCL qualification via our league position next season, then the Europa League offers perhaps the better opportunity, but it's all or nothing to really impact out future financial situation.

I think this explains why the powers that be at Man Utd & Spurs aren't reacting as you'd expect to their league form, all that matters now for them is winning the Europa League. A couple of league places here or there is irrelevant. Winning the Europa League secures them at least a £50m bonus, and probably much more. It could be an interesting final of the Europa!

My thoughts, conclusions, and questions

• The potential boost to Forest's revenue of around £50m after covering extra costs is a great next step for the club, but probably not a seismic change. It's a 20% uplift for one season or a 4% uplift over a 5-season plan. The only way to get the substantial impact of European football is to have it year after year, and as a result, also massively increase your commercial revenue alongside the prize money so you can sustain the squad quality you need. Compared to getting promoted from the Championship, this is a drop in the ocean.

• Clearly, UCL football brings more potential revenue than the Europa League, but I wouldn't say it's enough to consider Europa a disappointment or disaster for our situation right now.

• If Forest sacrifice league position for European progress, then it might negate some of the financial benefits, so we would have to face the challenge of being competitive in multiple competitions.

• The player trading model is a much more viable route for Forest to create an ever better squad and backroom setup. Making £50m extra revenue by finishing 5th sounds harder to me than finding a couple of rough diamond players where we can make £25m profit each on them and then reinvest and do it again and again. If we do that well, then European football will come, and the financial rewards will multiply exponentially.

• A big part of the revenue boost from Europe is performance-related. So my main question is, how do you budget for that in your recruitment? Spend assuming success, or spend just the 'secured' amount and see how you are doing when January comes along.

• We only have to look at other examples to see that European football doesn't provide a lasting legacy if the money isn't spent well. Leicester is the prime example, but West Ham, Southampton, Burnley and others show that an odd season in Europe soon fades from memory as you drop down the league.

Bring it on! Forest back on the European stage is huge for many reasons outside of the finances. Whatever happens, there are teams to get excited about playing in any of the European competitions. The Champions League chant / Garibaldi Bard recording mentions Lazio & Roma, both of whom were actually in the Europa League this season and not the UCL, so maybe that was a sign that Europa is where we are meant to be. For me, the potential of a Europa League final outweighs just taking part in 8 Champions League group games, if I really need to rationalise it. Also, let's not forget Nuno has managed in the UCL and Europa League, and he took Wolves to the quarters of the Europa League while also finishing 7th in the Premier League with the same small squad. Anything is possible when this club is united with a clear vision.

Hopefully, this analysis is of use to put a more accurate value on what this season might mean for Forest's potential spending. I've seen lots of numbers presented, £100m, £60m, etc, but there has to be a bit of context on what club that is based on, how successful they were and then what costs do you need to offset against the revenue, like extra bonus costs.

Thanks for reading. As mentioned in the introduction, I'm happy to be corrected to work towards an accurate picture of the impact. You can get in touch nffcstats@gmail.com