Mind numbing and utterly pointless football finance discussion thread

[Alcatraz]

Hicks sells his baseball team to a legend of the game and his football team to the Communist Party of China. Crazy

[beLIEveR]

Hicks sells his baseball team to a legend of the game and his football team to the Communist Party of China. Crazy

[Alcatraz]

In fairness, the only player that could feasibly afford a Premier League football club is David Beckham. And I'm sure selling an MLB side to Communists would have gone down really well.

Edited August 5, 2010 by Alcatraz

[ralph250]

They're a cost, and outside of the necessity of them for the business to operate they bring no other benefit - they don't allow me to earn more, they only allow me to earn.

[eFestivals]

Neil, they do allow you to earn more. The money comes back in spades.

My bank manager and accountant certainly wouldn't agree.

Sure, if I stick with old kit what I might earn might fall, so from that perspective cap ex allows me to earn more.

But the reality for me - and just about every other business - is that the vast majority of cap ex expense merely allows that business to stand still, to retain its place in the market. It's only when a cap ex spend allows you to enter a new market that in reality a business sees a real return from it.

And that's the case for Utd - their cap ex spend on players doesn't allow them to earn anything extra, it merely allows them to stand still. If they cut back on that cap ex spend so the squad weakened, then they'd (ultimately, if not immediately) see what they earned start to fall. So their cap ex spend doesn't bring them any *extra* benefit, it just allows them to maintain their place.

And when you make the same cap ex spend year-on-year, there's ultimately no benefit even within the books against other day-to-day business expenses. If a club signs four players of the same value over four years (and continues buying a player a year of that value), then the 25% cap ex that gets written into the books is multiplied by 4, and exactly equals what they've spent out on a player that year - the impact on the company value in the books is identical each year, and balances itself out.

Via that averaging effect, it ends up working on all levels within the books no different to a day-to-day spend on (say) the leccy bill, and the whole idea of anything around cap ex spends can be ignored. It bring absolutely zero benefit on all levels of the clubs finances via that averaging.

And nearly every business spends around the same on cap ex stuff each year - so has that averaging effect, and zero benefit at all levels of the company's books. It's certainly the case for Utd.

[oafc0000]

I take it back... Not everyone is a c**t...

I take my hat off to the Blackpool chairman...

http://news.bbc.co.uk/sport1/hi/football/teams/b/blackpool/8893938.stm

[ralph250]

My bank manager and accountant certainly wouldn't agree.

[eFestivals]

Then three possible conclusions:

1: They wouldn't disagree with me at all.

2: You should change banks/accountants as they're crap.

3: Your saying efestivals isn't a viable business, and the accountants confirming that. If in your personal experience, the main tools to run the website isn't making a return, then your overstretching, and you'll be looking to reduce your overheads so likes of Scozzie should start looking for a new job as your soon to sack him.

you missed the 4th - that you're simply not getting it. And it's the 4th that the right one. You aren't.

1. Cap ex is not something that brings about business growth for mature businesses in nearly all cases.

2. Cap ex is not something which benefits the business balance sheet for mature businesses in the majority of cases.

Explanations ... again....

1. if I buy a new computer for eFestivals to replace an existing computer it counts as a capital expense. Yet it adds zero to the business: it doesn't create any business growth, it doesn't bring in any extra money - how could it? It's simply replacing what was there already, it merely enables the business to carry on as it was.

2. if I buy a new computer every year - and on average I do - then as far as the balance sheet in reality is concerned, it ceases to have any meaning as a capital expense. It simply becomes just another business cost, both from where I'm sat and from the impact it has within the businesses books. For each new computer I buy each year, I'm dumping an old one that is no further use - so cap ex allows me to stand still, not to grow.

These capital expenditures do make "a return", but only a return that enables the business to carry on as it was previously, which is no extra benefit, no extra income, no growth. It allows the business to stand still rather than shrink.

You only get an extra return above the normal by making a capital expenditure that's also above the normal. What I think you're missing is that capital expenditures are necessary to *maintain* any businesses required stock of tools; once any business is set up and operating, further cap ex spends are generally (unless to enter a new market) to maintain things at the same level, not to expand things further.

It's all very well running scenarios around in your head and thinking they bring a benefit. The reality for both efestivals and Man Utd is that they don't. Cap ex spends at a consistent level year-on-year allow a mature business to stand still, not to grow, because the value that's written off within the books each year does in reality equate to a real loss in value of the thing(s) that that value is against.

I suggest that you go and ask owners of mature businesses if what I say is true. You might find some that agree with your take (because they're trading in a marketplace which is expanding - which is not the norm across all markets), but the majority will definitely side with what I'm saying.

[Gre]

I take it back... Not everyone is a c**t...

I take my hat off to the Blackpool chairman...

http://news.bbc.co.uk/sport1/hi/football/teams/b/blackpool/8893938.stm

[oafc0000]

I think that's the first time I've ever heard one of the Oyston's not referred to as a c**t

[ralph250]

<snip>

Edited August 11, 2010 by ralph250

[eFestivals]

Your business is no longer mature as you've lost the asset!!! There is a reduction in your current earning power.

The business is mature, as in it's not just started up. It's only at start-up that the way cap ex spends are written into the accounts can be said to show a gain (tho the reality is actually no gain - after all, the money used for it has been used for it).

When it's the same cap ex spend year on year there's no gain in either the books or reality.

Care to tell me what asset I've 'lost'? The computer that I dump is worthless, both in reality and within the accounts.

Buying back again is business growth relative to that, and if it made a return the first time, and makes the same return the 2nd, then its equal benefit to the business.

Does any business owner continually look back on only their starting position - say 100+ years down the line (which is how things are with Utd) - and say "oh look, we're better off than we were 100 years ago"?

Nope, that doesn't happen. They look at "the business cycle". And that's (for me) spending £1000 each year on cap ex things, via which I get to stand still - that is the business cycle that people use to look at these things.

And looking at Utd, about the only cap ex spend that's brought them any real actual financial benefit over what they would have achieved anyway (on the basis of everything else being equal) over the last 25(ish) years is the stadium expansion, via which they get to fleece an extra 20,000 (or whatever it is) fans than they would otherwise have done. And the return on that within their total turnover is actually very tiny.

On the basis that they'd have had the success on the field that they've had anyway, without that stadium expansion (and bearing in mind it's not something which was giving them a return initially, as the extra income would have gone out on the stadium costs, their initial success wasn't triggered by this), then everything else would have still happened - the money they get from the Chumps league, the brand licencing deals, the TV money, etc, etc, etc, would have all come their way anyway.

The stadium expansion has had financial benefit for them ultimately - but just as well given the losses from other parts of the business, they'd be Pompey'd now otherwise.

Have the big cap ex spends on players brought them anything extra? Nope, zilch. It's simply allowed them to maintain their position at the top. It's brought nothing extra, but it has stopped the business shrinking - which is what cap ex spends do with nearly all cap ex spends, rather than bringing anything extra to the business.

[Gre]

The dad is a c**t... But thats a whole different level of c**t

[Gre]

Manchester United reports loss of £80m

And Go!

*runs for cover*

[The Nal]

Manchester United reports loss of £80m

And Go!

*runs for cover*

Edited October 8, 2010 by The Nal

[oafc0000]

Manchester United reports loss of £80m

And Go!

*runs for cover*

[ralph250]

Yep, dreadful.

Tho I'm highly amused at how the loss has happened - essentially it's cost Utd £80M for them to raise £500M thru the bond issue. Which has got to be just about the worst bit of business ever done by anyone anywhere in the world ever.

The bond issue was meant to make things better financially, not f**k them up even more than they already are.

Edited October 8, 2010 by ralph250

[eFestivals]

Not the greatest of reading, but the £80m isn't quite £80m.

There's £64.7m,

I got the £80m figure from doing a rough calculation on the summary numbers which were in the story on BBC TV text, but after I'd walked away from the TV. So I knew it wasn't spot on, but that it wasn't massively out.

£64.7m doesn't really make much difference at the end of the day. It's still a hugely expensive way of swapping one expensive debt for another - and another that's not the (comparitively) bargain borrowing that the bond was meant to be against the debt it replaced.

It's another step on Utd's slide into financial oblivion.

[oafc0000]

It's another step on Utd's slide into financial oblivion.

[ralph250]

I got the £80m figure from doing a rough calculation on the summary numbers which were in the story on BBC TV text, but after I'd walked away from the TV. So I knew it wasn't spot on, but that it wasn't massively out.

£64.7m doesn't really make much difference at the end of the day. It's still a hugely expensive way of swapping one expensive debt for another - and another that's not the (comparitively) bargain borrowing that the bond was meant to be against the debt it replaced.

It's another step on Utd's slide into financial oblivion.

[ampersand]

this clip from the simpsons reminded me of ralph and neil and co so thought i'd upload it

http://www.youtube.com/watch?v=W-p_FpVUo48

l.o.l. especially the guy on the laptop!

[ralph250]

Manchester United’s owners agreed to pay off a payment-in-kind loan worth about 220 million pounds ($353 million), according to a corporate filing by the English soccer club.

Red Football Joint Venture Ltd. will “prepay 100 percent from the outstanding loan on Nov. 22,” the team’s parent company said. The document, called a voluntary free-payment notice, was signed Joel Glazer, co-chairman of Red Football, and was sent to the holders of the loan. Philip Townsend, a spokesman for Manchester United, declined to comment.

The Glazer family, which also runs the National Football League’s Tampa Bay Buccaneers, bought the 18-time English soccer champion in 2005. United supporters have protested against owners because of the debt they’ve added to the team. The Glazers were shouldering 16.25 percent annual interest charges on the PIK debt because of concern they’d face fans’ anger if they used the soccer club’s cash to pay off the loans.

The Glazers aren’t going to take any money out of the club to pay down the debt. With PIK loans, interest rolls up annually and increases the amount owed.

The Glazers bought the 18-time English champion for 790 million pounds. In January, they converted a bank loan secured against the team into a 526 million-pound bond. Under the bond’s terms, the Glazers could make a one-time withdrawal of 70 million pounds from the club to pay down the PIK loan.

Anti-Glazer protests increased after details of how the owners were financing the once debt-free club were revealed in the bond prospectus. Thousands of supporters took to wearing the green and gold colors of the team’s original incarnation, and a group led by Jim O’Neill, chairman of Goldman Sachs Asset Management, emerged as a potential buyer.

16.25 Percent Interest

The PIK loan issued in August 2006 to Red Football Joint Venture is held by fewer than 10 investors, mainly hedge funds. The facility started out as a 138 million-pound loan, accruing annual interest of 14.25 percent. That rose to 16.25 percent after the club breached a debt-to-earnings ratio agreement. The Glazers bought back between 15 and 20 percent of the loan in 2008.

The PIK loan to United was due to mature in 2017. If the Glazers had held the debt until then, they would have owed almost 600 million pounds at the current interest rate, according to Bloomberg calculations.

On Oct. 8, the team announced a record loss of 83.6 million pounds for the year ending June 30. Much of that was attributable to interest payments and costs related to replacing long-term bank debt with the bond. Sales reached a record 286 million pounds.

Since the Glazers’ purchase, United has won three domestic league titles and took the Champions League in 2008.

The club has increased revenue from various sources since the takeover, notably in commercial operations. A London-based sales team has negotiated sponsorship and partnership deals in industry sectors across the world.

United is currently third in the Premier League, three points behind leader Chelsea and one behind Arsenal.

http://www.bloomberg.com/news/2010-11-15/manchester-united-to-pay-off-353-million-of-soccer-team-s-corporate-debt.html

Edited November 16, 2010 by ralph250

[ralph250]

Andersred's blog

This evening Bloomberg's Tariq Panja has broken a story that Red Football Joint Venture Ltd (the parent company that issued the famous Payment In Kind loans) is to redeem all £220m of the PIKs on 22nd November. Perhaps more importantly, Bloomberg report that none of the funds to redeem the PIKs will come from Manchester United.

As has been well documented, under the terms of the bond issue, the Glazers can take £95m from the club whenever they wish. The fact that they are NOT using this dividend entitlement to repay the PIKs raises the obvious question; where is this money coming from?

There seem to me to be three main possibilities (and probably a few dozen less likely ones):

1. Refinancing

The PIKs are being refinanced with a new form of debt, secured (as the PIKs are) on RFJV's shares in Red Football Ltd. If this was the case, it would be reasonable to suppose that the interest rate on this new debt was lower than the 16.25% currently being paid on the PIKs. The question would remain as to how this debt would be repaid in the long-term and whether the burden of this repayment would fall on the football club.

2. Sale of an equity stake

The Glazers have sold a stake in Red Football Limited to a third party outside investor and are using all or some of the proceeds to repay the PIKs. The consequences of this would obviously be hugely uncertain. Who could this investor be? What stake would they own? How would their ownership impact the running of the club?

3. Sale of other assets

The Glazers have secured significant sums from another source, perhaps by selling assets. I find this incredibly unlikely as the only asset valuable enough is the Tampa Bay Buccaneers. The fact that redemption notices for the PIKs have already been issued suggests the funding is already in place which does not tally with a sale of the NFL franchise.

As someone who has repeatedly and vehemently stated that the club's money would be used to repay the PIKs, I can only eat humble pie at this point. Another source has clearly been found and that means I was wrong. I do believe however that until we have concrete answers about the source of this £220m it is best to reserve judgement about what this means for United.

Tomorrow (Tuesday 16th November) Red Football Limited announces its results for the three months to September 30th. These results may cast more light on what is going on, but there is a good chance that no further information will be forthcoming as the PIKs are held by the parent company that is not reporting its figures. I will be blogging about the figures tomorrow.

[The Nal]

At least they're shifting that high interest debt. Good start Raplh? Im not sure.

[eFestivals]

At least they're shifting that high interest debt. Good start Raplh? Im not sure.

Robbing Peter to pay Paul is never a good thing.

But it's very likely that they've found a cheaper loan, so it's a better situation than it was I guess - but everything depends on the term of the loan; see LFC.