ECB Accounts 2019

This is a post on the ECB's accounts for the year to January 2019.  My review of the 2018 accounts is here and of the 2017 accounts is here. 

The ECB had income of £172m in the period and costs of £168m, leaving it with a £4m surplus. The ECB had an accumulated surplus at 31 January 2019 of £10.5m.  This is a big reduction from the £70m of reserves held at January 2016 and is, to a large extent, caused by additional payments to the first class counties that, in my opinion, were made in exchange for the ECB assuming control of domestic cricket in the UK. 

So Is The ECB In "Difficulties"

There was an interesting piece by George Dobell in cricinfo suggesting the ECB was experiencing cash flow difficulties.  As regular readers will know I don't like the way the ECB runs English cricket and the idea of Colin Graves and Tom Harrison reaching down the back of the sofa for emergency funds is appealing.  But I don't really think it's true.  Although the ECB's reserves figure might be down, at the end of January 2019, it had cash and other fungible assets of £94m on its balance sheet, compared to £54m at January 2018.  Admittedly £20m of the cash was held by the ECB's in  - house charity, The England and Wales Cricket Trust and therefore not available to meet ongoing expenses and it may be that the ECB is always cash flush around January, but I still find it hard to believe it could have run through £70m of cash in the period to the end of August.

Some Accounting

Another interesting question is how the ECB manages to have £70m of "free" cash but only £11m in reserves?  The answer is the accruals basis of accounting where expenses are included in the income statement without cash being paid or cash is received for services without income being recorded.  A couple of examples:

Assume you have your own business and are making up accounts for the period to 31 December 2018.  You know your accountant will charge you £2k to put the accounts together.  The £2k is an expense of 2018 so you include it in the 2018 income statement but you won't pay your accountant until 2019.  To reflect the money you will have to fork out you show a liability of £2k in the 2018 accounts for accrued accountant's fees.  Or it might be that you are going to do some work for a client in 2019 and the client pays half up front in 2018.  The cash received is included in the 2018 balance sheet but it would be incorrect to include the cash received as income, because you haven't done the work, yet.  So the cash received is shown as a liability in the balance sheet (because it's work you have to do in the future) and described as something like "deferred income".  

Note 17 to the ECB's 2019 accounts confirms this is what's been happening with the ECB with, "accruals and deferred income, amounts falling due after 1 year" increasing by £27m and effectively adding to the net cash position.  "But what are these accruals and deferred income which fall due after one year?" I hear you ask.  I'm afraid I can't answer that question because that is all the narrative the ECB provides.  Throughout the accounts the minimum information is provided to users, that might be OK for a private, closely held company but the ECB is, officially, a Public Benefit Entity and accordingly it should use its accounts to disclose to the public how it spends their money.  The ECB's accounts do not meet this standard.

Is the ECB Spending Our Money Efficiently?

Another area where the ECB's accounts give the user a very sketchy idea of what is going on, is expenditure.  Everything starts so promisingly in the strategic report where 4 main categories of expenses are identified. 

• Fees to first class counties,

• Costs incurred to support England teams,

• Recreational and grass roots costs and

• Administration costs

But when we turn to the income statement and the notes to the accounts, there is no analysis of expenses between those four areas.  All the user is given is a meaningless split between cost of sales of £26m and £142m of administrative expenses.  But using the notes to the accounts and doing some digging through the ECB's subsidiaries it is possible to at least try and allocate total expenses of £168m across the four categories described above.

Fees to first class counties

Note 20 to the statutory accounts discloses £41m fees, paid to first class counties, minor counties, the MCC and cricket boards.  I think the payments to each of the 18 first class counties for a full year come to £2 - 3m, so they would make up the bulk of the £41m.  For the sake of simplicity let's say the ECB pays £41m to the counties for providing Test grounds and a first class and 50 over competition as development leagues for future international players.  

The ECB also employs the 28 first class umpires (note 4 to the accounts).  Let's throw in an additional £4m for wages, expenses and training those gentlemen. 

So £45m total costs of sustaining first class cricket. 

Costs incurred to support England teams

Now this is a tricky one as details on what centrally contracted England players get paid are very sketchy.  We do know the ECB employed 36 cricketers (note 4 to the accounts) and, a scarcely credible, 56 coaching staff.  Let's make an heroic assumption that it costs £1m a year to keep an international cricketer, paid, transported and accommodated.  So that's £36m.  Chuck in say £6m for the coaches (£100k a pop) and we have total cost of supporting England teams of £42m.

Recreational and Grass Roots

Most of the non  - salary expenditure under this heading is incurred by the England and Wales Cricket Trust which is a charitable subsidiary of the ECB.  We can see the trust spent £18m in grants to cricket clubs, county boards etc from its individual accounts.  Additionally the ECB paid £3m to the Chance to Shine charity and a combined £3m to the Irish and Scottish cricket boards and the Professional Cricketers Association.

After that things get a bit murky.  The ECB also employs 96 development staff and 42 game support staff. Their salaries don't go through the charity. It's not clear what these people do or why the ECB needs to employ them centrally, surely the money could be allocated to counties, cricket clubs, councils, schools and charities and let them decide how it can best be spent.  The ECB could then concentrate on ensuring best practice across its funded organisations.  Still, for the moment, let's assume all development staff and game support staff are involved in grass roots cricket and assume all in costs of £75k a head.  That's an additional £10m.  Giving total grass roots costs of £34m.

Value for Money?

That gives a total "cricket" cost of £121m (£34m of grass roots, £42m international and £45m first class)

Which leaves £48m for administration.  Is that an accurate number?  To be honest, I don't know but it's the ECB that doesn't provide any information, which invites this type of uninformed exercise.  Going through I felt I was tilting the figures towards the productive areas rather than administration costs but there might be other areas of non  - administration costs I've missed or underestimated.

Let's ask another question, if £48m is sort of in the right ball park (cricket field) would that be a reasonable figure for administrative expenses?  Here I feel on  safer ground saying, "No, that would be too high."  Surrey, which is by far the largest county spends around £30m a year IN TOTAL!  Leicestershire more like £5m a year.  For the ECB to be knocking back the best part of £50m running itself is disproportionate.

Another way of trying to get a feel for the correct amount is to look at the Report and Accounts of Oxfam.  These do split expenditure by function and reckon 18% of Oxfam's expenses are for fund raising and support (what I would consider as administrative expenses).  Now I accept Oxfam isn't perfect perhaps it should have spent a bit more on "support" but that 18% compares to 29% for the ECB (based on the above £48m figure for administration).  That would imply the ECB is overspending on administration by £15m.

Evidence of Overspending

This post sets out some examples of ECB overspending.  And even with the sketchy information included in the 2019 accounts it's pretty easy to find instances of overspending, particularly in the area of amounts paid to directors.

In the year to 31 January 2019 the ECB's directors paid themselves just over £1m.  This represented an increase of 64.7% on the figure for 2018.  I think that figure needs emphasising; 64.7%, increase.

There are three reasons for this staggering rise.  The first is that Scott Smith has come onto the board as a second executive director alongside Tom Harrison.  This actually isn't unreasonable, Smith has been chief financial officer at the ECB since 2016 and it's a bit odd he wasn't on the board before now. 

The second reason for the increase is the sharp rise in the pay of Tom Harrison, ECB chief executive.   Harrison was paid £729k in the year to 31 January 2019.  This compared to £614k in the year to January 2018.  A 19% increase.   

And that's not all.  In addition to the payments to Harrison and Scott the accounts disclose non  - executive directors, who, previously were unpaid, are now remunerated.  Cricket has been going for the best part of three hundred years, sustained by countless unpaid volunteers.  But now there are a special group at the ECB who need to be paid, what they're doing for their money isn't clear, they certainly aren't keeping a check on executive director's pay.

But I've left the best bit of overspending to last.  The ongoing saga of the long term incentive payment (LTIP) scheme.  Disclosure for this is at the foot of note 18 to the accounts which is all about pension schemes and shows how anxious the ECB is to inform outsiders about the LTIP.  As before certain unspecified individuals will receive a payout from the plan in 2022 of (in aggregate) £2.5m or to put it another way roughly 50% of what Leicestershire CC spends in a year.  Previously, I complained about a lack of detail about what these individuals had to do in order to qualify for the payout.  But there is perhaps something I missed in the accounting policy note, which under LTIP says, "LTIP accrues annual contributions under which become payable (sic) after 5 years provided that the employee remains in full time employment."

Now it's a bit hard to work out what that means, there's an obvious typo.  But what I think it means is that the employees concerned just need to be in employment in 2022 to collect the LTIP payout.  If so the way it works is, you come to work, you get paid, if you keep on turning up you get an additional "thanks for turning up" payment.  Presumably the people getting paid are the same people who devised and signed off on The Hundred.

The End (Finally)

The ECB is one example of a widespread experiment, the introduction of "market" (really business) values into a public benefit entity.  The argument is that running the ECB like a business, provides clarity and rigour lacking in the old world of amateurism and cosy old boy's networks.  The business ethos probably works best as a critique of the old way of doing things, which certainly had its failings.  Whether running the ECB like a business has improved cricket in the UK is a highly complicated question - I'd say the jury is still out and if the "new" ECB has been a success it's been a messy, moderate success.

What seems clear cut is that running the ECB like a big, monopoly, business has led to many of the failings typically associated with monopolies, including senior management running the business in their best interests rather than those of the game of cricket.