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Heads Above Water

Indonesian Santini Group purchases stake in Tranmere Rovers

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Posted: 05/09/19

By | Matthew Evans | @M_R_Evans1

mevans@deadlysubmarine.com

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The Republic of Indonesia is an archipelago situated between the Indian and Pacific oceans. As a component of the ominously named Pacific Ring of Fire, it is one of the most volcanically active nations on Earth. Indeed, the most violent volcanic eruption in recorded history occurred at Mount Tambora in 1815.

In addition to the persistent threat of another eruption, its location on the boundary of the Eurasian, Pacific and Indo-Australian tectonic plates poses a significant risk of earthquakes, whilst the low-lying nature of many of the islands leaves them prone to flooding. In short, Indonesia is often left at nature's mercy.

On 26th August 2019, Indonesian President Joko Widodo announced the decision to relocate the country's capital city from its current location in Jakarta. The new capital is to be situated in the East Kalimantan province on the island of Borneo, more specifically in the reasonably undeveloped regions of Kutai Kertanegara and Penajam Paser Utara.

Jakarta is one of the most densely populated urban areas on the planet, with more than 10 million people calling the city home. Much of the population lives in some of the most testing conditions on Earth, with chronic air pollution, horrendous traffic congestion and expensive housing compounding the difficulties faced by natural phenomena.

Whilst many megacities on the planet deal with similar issues, Jakarta has one further overarching, pressing concern — the city is literally sinking.

The fastest-sinking city in the world, almost half sits below sea level, a situation that continues to worsen. Having sunk by as much as 2.5 metres in the last decade, parts of the city continue to sink at between 1 and 15 centimetres a year, and it is estimated that 95% of the city could be below sea level by 2050.

With the municipal government unable to fulfil the city's water needs, individual homes and businesses remove groundwater to service themselves. The bigger the building, the more groundwater it removes, and the combination of all sourcing plays a key role in exacerbating the sinking problem. With large parts of the city built on marshland, it's a recipe for disaster, and the government has decided to act now by moving the capital 800 miles away.

If you have continued this far, you may be wondering what this has to do with Tranmere Rovers Football Club.

Well, on 3rd September 2019, a Club statement was released by Tranmere Chairman Mark Palios announcing that a minority stake in the Club had been sold to the Indonesian Santini Group following the issuing of new shares.

Nicola and I are pleased to announce that we have today agreed a deal to issue new shares in the Club to an external investor, as a consequence of which they will own a minority stake in the Club.

Mark Palios, tranmererovers.co.uk, 3rd September 2019

He later revealed on Sky Sports News that this equates to 15% of the Club.

Need For Investment

As we have already established, Indonesia is prone to natural disasters. On Friday 2nd August 2019, on the eve of the 2019-20 League One season, an earthquake of a reported 6.9 magnitude struck the southwest coast of Java, impacting much of Indonesia, including the aforementioned capital, Jakarta.

The following day, 3rd August 2019, Tranmere experienced a seismic event of their own, a 2-3 home defeat to Rochdale violently shaking the more unrealistic expectations out of the SWA at the first attempt.

It served as a reminder that, despite the progress made in returning the Club to a more suitable level for its stature, there was and is much to be done if the upwards momentum is to be maintained. Quite simply, the Club required a fiscal stimulus.

That should not be taken as a criticism of the current ownership, as securing external investment has been a stated goal of the Palioses since they first walked through the doors of Prenton Park in 2014.

In the interim between their initial comments and the statement confirming its arrival, the need for investment at Tranmere continued to become more pronounced.

Rovers spent three years in the non-League wilderness, caught in slow-moving football traffic of their own as they attempted to navigate a bottleneck that would rival anything on the streets of Jakarta. The toll taken on the Club's finances during this period is well documented.

Furthermore, they returned to an EFL landscape polluted with the debris of mismanagement and the detritus of decaying clubs. Avarice on the part of the League's more irresponsible owners has left the EFL sinking under its members' debts in a manner akin to North Jakarta.

Deloitte's Annual Review of Football Finance 2019, published in May this year, revealed that in the 2017-18 season (the most recent data available) Championship clubs' combined pre-tax losses stood at £320million, whilst those in League One more than doubled from £36million to £81million. Even in League Two, clubs made a combined loss of £10million, albeit lower than the previous season's £18million deficit.

Whilst total net debts of Championship clubs fell by 47% from the prior campaign, a somewhat heartening development, their combined net debts still stood at an astounding £963million. In May 2019, then Championship side Bolton Wanderers, who were relegated from the second tier at the end of the 2018-19 season, became the first EFL club to enter administration since Aldershot Town in 2013.

Then, on 27th August 2019, League One club Bury, who had earned promotion from League Two alongside Tranmere at the end of the 2018-19 campaign, were expelled from the EFL after succumbing to their financial ailments. The threat of a devastating fiscal eruption, dormant since the collapse of Maidstone United in 1992, had once again activated.

One would think, therefore, that clubs would be more cautious in their approach, yet the exact opposite is true. In 2017-18, the EFL's total wage bill topped the £1billion mark for the first time as Championship clubs continue to chase the Premier League riches. £795million (79.5%) of that was spent in the second tier, as parachute payments and revenues hand perennial gamblers another roll of the dice. At a time when clubs should be tightening the purse strings, they instead increased wage spends by 12% to an average of £33million per club and an average wages/revenue ratio of 106%.

In the Football League as a whole wages rose above £1 billion for the first time. The worsening (from an already poor position) of Championship wage control dates back to the 2012/13 season, the first year after the vast increase in Premier League broadcast revenues for 2013/14 was announced.

Deloitte, Annual Review of Football Finance 2019, Page 25

This has the effect of raising the financial tide for everyone, with clubs in League One seeing total wage costs increase from £123million to £137million, with an average wage bill of £6million and an average wage/revenue ratio of 94%. In League Two, the total increased from £65million to £71million, at an average wage bill of £3million and an average wage/revenue ratio of 78%.

In trying to ensure the Club is, and will be, financially stable whilst maintaining its competitiveness, Tranmere are caught in a disaster zone of their own. They find themselves in a league whose foundations resemble fiscal marshlands, whose members' finances represent a newly active Ring of Fire and where the reckless dream-chasing of the foolhardier members threatens to drown low-lying clubs under the rising waters of wage inflation.

In a plethora of ways, Tranmere and Indonesia face very similar problems — the need to keep their heads above the rising water in a landscape sinking towards the very aquatic bodies threatening their respective existences.

In partnering with Rovers, Indonesia-based Santini Group is making the commitment to help. But who are they?

Santini Group

The Santini Group is owned and operated by the Wanandi family and can trace its roots back to a 1974 venture of the patriarch Sofjan. As he became more established in business, he founded the Gemala Group in 1984 and this evolved into the current incarnation, Santini Group, in 1994.

Sofjan has been involved in politics for most of his life and he is currently the Chairman of the Advisory Board of APINDO (Indonesian Employers' Association) and Chief of the Special Advisor team to the Vice President of Indonesia.

It is Sofjan's sons, Wandi, Lukito and Paulus, who now operate a multi-national company of hundreds of millions of dollars, whose portfolio of interests spans a variety of different sectors. For example, on 29th July 2019, the Jakarta Post reported on the breaking ground of a 134 bedroom, 5,000 square-metre hotel complex that the Santini Group is responsible for delivering by September 2020. The Luwansa Hotel in Manado is a project into which the Group has invested a reported $14.2 million (USD) of their own money.

Clearly, finances do not appear to be a barrier with regards their investment in Tranmere Rovers.

In his statement announcing their involvement, Palios reiterated the Club's approach to sourcing external funding:

We were not looking for a partner who would simply inject large sums of money into the Club's playing budget…

…Instead, we were looking for a partner who could help us invest in income producing assets to sustain the Club for the long term, and that is what we believe we have now found.

Mark Palios, tranmererovers.co.uk, 3rd September 2019

One look at the company's website will give insight into why Rovers' ownership feels confident in making such assertions.

Atop the homepage sits a blue whale, the largest mammal on Earth, accompanied by the heading “Massively Modest”. Underneath the tagline reads “Trusted Partner. Loyal Affiliate. Thoughtful Companion”.

Simple, yet powerful words.

In fact, the whole website truly conveys the company's sense of responsibility and desire to build long-term, mutually beneficial working relationships.

However, perhaps the most reassuring statement the company makes is the following:

We believe that the only way a business can truly grow and prosper is through its commitment to benefit and satisfy every component of its market and society.

Santini Group, santini-group.com/vision, 5th September 2019

Here, the goals and behaviours of Tranmere Rovers under the current ownership clearly align with those of the Santini Group. Whilst one must be careful to afford any investor the appropriate scrutiny and caution regarding their verbiage, one must also balance this off against an ownership whose actions have supported their statements for the majority of their reign at Prenton Park.

If they truly believe the Santini Group is what's best for the business, then the SWA has no choice but to trust in them once more.

Notwithstanding, with 15% of the Club now in the hands of a company based halfway around the globe, the need for vigilance is perhaps greater now than at any time since the Bruce Osterman era.

Immediate Future

In the immediate future, Lukito Wanandi has been granted a position on the Board of Directors at Tranmere Rovers, whilst Santini Group's investment will be shared across three main facets of the operation. With regards infrastructure at Tranmere, the wi-fi at Prenton Park and an artificial surface at the Campus training ground appear to be the main focus of building works.

In terms of finances, debt accrued navigating the National League roadblock will be reduced in addition to an unspecified increase, unlikely to be sizeable, in the overall playing budget.

An Extraordinary General Meeting was called for 3rd September 2019 and amongst the agenda were provisions to permit the issuance of up to 20 million additional shares with a value of 50p each, and to authorise the directors to allot said shares how they wish for a period of 5 years.

The Tranmere Rovers Official Supporters' Club (TROSC) will be holding a Question & Answer session with Mark Palios at 7pm on Tuesday 24th September 2019, whilst there will be an Annual General Meeting at 5pm on 30th September 2019 for shareholders. Both meetings will likely provide further clarity on the plans for future progression.

Beyond that, the Club will doubtless press on with plans to establish themselves in League One this season, before embarking upon the journey that will hopefully see them achieve their objective of sustainability in the Championship.

The first step on that climb? Gillingham at home on Saturday.

Conclusion

Aside from a brief period in the late 1980s and early 1990s, Tranmere has never been a club awash with financial resources. It appears very unlikely that, in the short-term at least, the Santini Group's investment is going to alter that in any sizeable fashion.

Yes, social media has been awash with rumours and speculation, partly driven by a photograph of a whiteboard, the contents of which revealed very little that hadn't already been publicly acknowledged. However, it is perhaps wise to focus on the words of those in control of the situation. When one does so, it is quite clear that Rovers are looking to build in a sustainable fashion, that may in time lead to a promotion, perhaps multiple.

With the new minority owners currently constructing a major development in their homeland, perhaps the ownership will decide a stadium move will help Rovers survive their volatile surroundings in the same fashion that the Indonesian government took the decision to move their capital city?

Whilst excitement about the new investment is understandable and inevitable, perhaps greater excitement can be drawn, not from where the Club could go, but from where it has already come.

Tranmere Rovers is unrecognisable from the club that was relegated from the EFL just 5 years ago. Everyone connected with the Club has fought against an incessant downwards current, kicking and clawing in an attempt to swim against a tide that came perilously close to marooning them in a non-League backwater forever.

And what was greeting them upon their return to League One? An environment more hostile, more polluted by the forces of greed and irresponsibility than any they had previously encountered. After 5 years of kicking to reach the surface, a humbling defeat to Rochdale served as a foot on the shoulder, reminding the SWA that, for all the hard work that had been done, they'd need to do a lot more to breach the surface.

With this investment, it appears as though the Club has finally achieved that breakthrough.

Hopefully, in a football Ring of Fire threatening to erupt and submerge itself simultaneously, Tranmere can now keep their heads above water.

MMSWA.