THE deph of the black hole left in Gillingham's finances by the collapse of ITV Digital is revealed in the club's latest accounts.

While the Gills managed to stay in the black the accounts show costs, including players' salaries, increasing significantly.

The rising costs explain the recent spate of lay-offs at the club as chairman Paul Scally attempts to control expenditure and please his bankers.

The demise of ITV Digital cost the club £2.9m last season and a further £2.9m this season, money which the normally cautious Scally had banked on when allowing costs to rise in 2001/2.

But its collapse forced Mr Scally and the Bank of Scotland to confront mounting debt, soaring costs and lower-than-expected income.

The accounts, which are about to be sent to shareholders, show that "administrative expenses" costs rose by 60 per cent from £1.9m in 2001 to nearly £3.2m in the 12 months to May 31, 2002.

Other costs, including players' salaries, went up from £4.2m to £4.9m. Mr Scally paid himself £131,000, but has put off a £200,000 bonus payment due to him until the club has "sufficient funds".

Pre-tax profits increased from £347,983 to £558,469, on the club's £8.75m turnover, up 32 per cent on the previous year (£6.6m).

The accounts also showed debts of £10.3m but assets - mainly the ground and new banqueting facilities - at £12.3m.

Although the club valued the players at £5.55m (down from £6.63m in 2001), accountants said they were worth just half a million pounds. Accountants are wary of over-valuing players who could break a leg tomorrow and become almost worthless.

While Mr Scally will be applauded for keeping the Gills in the black - unlike many other league clubs - profits are nowhere near enough to pay for vital ground improvements and other major costs looming on the horizon.

The Town End stand will have to be replaced - or closed - soon. The playing surface is in a poor state and needs radical surgery.

Police charges will rise sharply next season when clubs have to pay for policing outside as well as inside grounds.

Mr Scally admits the club had problems. Commenting on the loss of ITV Digital revenue, he tells shareholders: "The loss of that money has contributed to the dire financial straits in which many clubs find themselves because many, including ourselves, budgeted for that income and committed some of it to enhanced players' contracts.

"Although Gillingham is not as badly affected as some, due to its policy of diversification, a company of this size cannot shrug off the loss of £2.9 m per year - less the income form the new contract with Sky Television - and some painful pruning will be necessary."

However, he adds that the impressive new banqueting and conference facilities, which are being licensed for weddings, were beginning to make a "substantial contribution" to the club's income.

"This in turn means that the company's future will be less dependent on the conventional measures of success, such as gate receipts and transfer revenue."