Ashley pays off further £45m of debt, Mort says club could well have folded

[quayside]

So if we have a squad worth 50m and the clubs costs = revenues each year, as the squad value depreciates over time (representing a loss) who do we have to pay back?

 

As slugsy said, its paper depreciation, not a cost that has to be paid to someone.

 

 

And how did the club acquire a squad worth £50 million? With monopoly money?

[ChezGiven]

So if we have a squad worth 50m and the clubs costs = revenues each year, as the squad value depreciates over time (representing a loss) who do we have to pay back?

 

As slugsy said, its paper depreciation, not a cost that has to be paid to someone.

 

 

And how did the club acquire a squad worth £50 million. With monopoly money?

 

That doesnt answer the question. Say its all bought and paid for with hypothetical CL campaign. Then, all things being equal, answer the question. We're back at square one with a squad worth 50m and revenue = cost. Who do we pay for the depreciation in value of players over time?

[James]

In the end of the day, all asset depreciation does is reduces the valuation of the company, and not the amount of cash the club has available.

 

In terms of the Ashley empire though, a decreased valuation of a company is a loss to him, as the club is a saleable asset.

 

Player valuation depreciation is difficult to measure though in the end of the day, as there are other major determinants such as demand, and the possibility that they could sign a new contract.

[quayside]

The revenues from the hypothetical CL campaign are shown as revenue in the year in which they are recived. The full costs of buying the players aren't. Those costs are spread over say 4 years. We have already paid for the depreciation when we bought the player. But over time you can't use accounting policies to hide a period of heavy trading losses.  

[ChezGiven]

The revenues from the hypothetical CL campaign are shown as revenue in the year in which they are recived. The full costs of buying the players aren't. Those costs are spread over say 4 years. We have already paid for the depreciation when we bought the player. But over time you can't use accounting policies to hide a period of heavy trading losses.  

 

So for the following four years we make a loss then? (all things being equal)

[quayside]

The revenues from the hypothetical CL campaign are shown as revenue in the year in which they are recived. The full costs of buying the players aren't. Those costs are spread over say 4 years. We have already paid for the depreciation when we bought the player. But over time you can't use accounting policies to hide a period of heavy trading losses.  

 

So for the following four years we make a loss then? (all things being equal)

 

Not sure where this is going to be honest. But lets try a simple example:

 

We buy a player for £10 million on a 4 year contract. The £10 million for the player disappears from the club's cash resources immediately so represents a negative cash flow in one hit.

 

In determining whether you make a profit or a loss for the year accounting practice doesn't allow you to write the whole £10 million off in your accounts in one hit - it requires you to spread the £10 million over, in this case, 4 years at £2.5 million per year. The £2.5 million is called amortisation in the accounts.

 

So the charge of £2.5 million is a real cost as it relates to the £10 million that was spent in year 1.

 

At the end of 4 years the whole cost of £10 million has been charged in the club's accounts and if the club is making losses it is incorrect to say that the annual amortisation charges of £2.5 million shouldn't count. To do so is effectively to say that the player was never bought.

 

 

[ChezGiven]

You havent answered the question and it took you 20 minutes, you're worse than my accountant. 

 

So for 3 of the next 4 years we make a 2.5m loss? Even i'm bored now.

[quayside]

You havent answered the question and it took you 20 minutes, you're worse than my accountant. 

 

So for 3 of the next 4 years we make a 2.5m loss? Even i'm bored now.

 

Unfortunately I am at work so can't give this fascinating discussion my full undivided attention. Life's a bitch sometimes. 

 

And what's wrong with a  20 minute turnround anyway?

 

I think the answer to your question is we show a loss of £2.5 million for 4 years rather than a loss of £10 million for 1 year.

 

Bored shitless to be honest.

[madras]

isn't that purely a paper exercise though.

 

for example you buy a player for £10mill. after year 1 his value would show up as £7.5mill even though he is now european player of the year and you have rejected a bid of £100 mill.

 

it doesn't take into account the real value.

[quayside]

isn't that purely a paper exercise though.

 

for example you buy a player for £10mill. after year 1 his value would show up as £7.5mill even though he is now european player of the year and you have rejected a bid of £100 mill.

 

it doesn't take into account the real value.

 

 

Yes true enough - it doesn't reflect a possible upward valuation. You'd only get that coming through in your results if you did sell the player. But the practice does reflect the actual cash cost of the player.

 

You can't write players values up. Taylor and Zoggy's values in our books are nothing and next to nothing respectively for example.

 

You can buy a player for £10 million and he turns out to be a crock of shyte. At the end of 1 year he's shown as being worth £7.5 million yet in reality his value to the club is nowt much. You can do an impairment write down on him if you want and write his value down quicker than the normal process.

[madras]

isn't that purely a paper exercise though.

 

for example you buy a player for £10mill. after year 1 his value would show up as £7.5mill even though he is now european player of the year and you have rejected a bid of £100 mill.

 

it doesn't take into account the real value.

 

 

Yes true enough - it doesn't reflect a possible upward valuation. You'd only get that coming through in your results if you did sell the player. But the practice does reflect the actual cash cost of the player.

 

You can't write players values up. Taylor and Zoggy's values in our books are nothing and next to nothing respectively for example.

 

You can buy a player for £10 million and he turns out to be a crock of shyte. At the end of 1 year he's shown as being worth £7.5 million yet in reality his value to the club is nowt much. You can do an impairment write down on him if you want and write his value down quicker than the normal process.

isn't there another way to work out the amortisation aswell instead of just dividing it equally between the years of the contracts duration.

[quayside]

isn't that purely a paper exercise though.

 

for example you buy a player for £10mill. after year 1 his value would show up as £7.5mill even though he is now european player of the year and you have rejected a bid of £100 mill.

 

it doesn't take into account the real value.

 

 

Yes true enough - it doesn't reflect a possible upward valuation. You'd only get that coming through in your results if you did sell the player. But the practice does reflect the actual cash cost of the player.

 

You can't write players values up. Taylor and Zoggy's values in our books are nothing and next to nothing respectively for example.

 

You can buy a player for £10 million and he turns out to be a crock of shyte. At the end of 1 year he's shown as being worth £7.5 million yet in reality his value to the club is nowt much. You can do an impairment write down on him if you want and write his value down quicker than the normal process.

isn't there another way to work out the amortisation aswell instead of just dividing it equally between the years of the contracts duration.

 

Maybe. The contract years method is the only one I've ever heard of though.

[Slugsy]

Cash is king, Chelsea operate every year with massive trading losses, the key is how much cash we generate and whether that covers what we spend oh and it does helop that additionally we have a owner who will happily fund any actual 'cash debts'.   Quayside is right in the fact that it isn't good that we have these losses and we are technically insolvent but Barclays Bank were going to quite happlily re-finance us pre-Ashley so they must have seen something they liked - oh and that's a fact, from a 'qualified accountant'

 

 

[Guest shaun11177]

Absolutely agree-cash cash cash forget all this amortisation stuff it will do your head in

 

 

[ChezGiven]

Cash is king, Chelsea operate every year with massive trading losses, the key is how much cash we generate and whether that covers what we spend oh and it does helop that additionally we have a owner who will happily fund any actual 'cash debts'.   Quayside is right in the fact that it isn't good that we have these losses and we are technically insolvent but Barclays Bank were going to quite happlily re-finance us pre-Ashley so they must have seen something they liked - oh and that's a fact, from a 'qualified accountant'

 

 

 

Which was the point i was trying to get at. The business was fundamentally sound and the people at Barclays who make decisions like that arent accountants, they are business analysts. They look at future growth opportunities and trends in markets. Thats how google was valued so highly when it was still loss making.

 

As quayside has noted you can make 2.5m loss a year and still be in tip top condition. So what exactly does it mean to be putting that loss into the accounts? It can mean fuck all.

 

This whole debate is based around Mort's idea that a premiership football club with massive revenues could have gone bust. Notwithstanding the lawyerly way he phrases that statement, i still think its a load of shit. The business wasnt great but with high revenues, increased TV money to the tune of 30m a year and increasing demand for football and the success of the prem brand across the globe, it just doesnt add up.

[bulivye]

Cash is king, Chelsea operate every year with massive trading losses, the key is how much cash we generate and whether that covers what we spend oh and it does helop that additionally we have a owner who will happily fund any actual 'cash debts'.   Quayside is right in the fact that it isn't good that we have these losses and we are technically insolvent but Barclays Bank were going to quite happlily re-finance us pre-Ashley so they must have seen something they liked - oh and that's a fact, from a 'qualified accountant'

 

 

 

Which was the point i was trying to get at. The business was fundamentally sound and the people at Barclays who make decisions like that arent accountants, they are business analysts. They look at future growth opportunities and trends in markets. Thats how google was valued so highly when it was still loss making.

 

As quayside has noted you can make 2.5m loss a year and still be in tip top condition. So what exactly does it mean to be putting that loss into the accounts? It can mean fuck all.

 

This whole debate is based around Mort's idea that a premiership football club with massive revenues could have gone bust. Notwithstanding the lawyerly way he phrases that statement, i still think its a load of shit. The business wasnt great but with high revenues, increased TV money to the tune of 30m a year and increasing demand for football and the success of the prem brand across the globe, it just doesnt add up.

 

so, should i retract my    ?

[ChezGiven]

Cash is king, Chelsea operate every year with massive trading losses, the key is how much cash we generate and whether that covers what we spend oh and it does helop that additionally we have a owner who will happily fund any actual 'cash debts'.   Quayside is right in the fact that it isn't good that we have these losses and we are technically insolvent but Barclays Bank were going to quite happlily re-finance us pre-Ashley so they must have seen something they liked - oh and that's a fact, from a 'qualified accountant'

 

 

 

Which was the point i was trying to get at. The business was fundamentally sound and the people at Barclays who make decisions like that arent accountants, they are business analysts. They look at future growth opportunities and trends in markets. Thats how google was valued so highly when it was still loss making.

 

As quayside has noted you can make 2.5m loss a year and still be in tip top condition. So what exactly does it mean to be putting that loss into the accounts? It can mean fuck all.

 

This whole debate is based around Mort's idea that a premiership football club with massive revenues could have gone bust. Notwithstanding the lawyerly way he phrases that statement, i still think its a load of shit. The business wasnt great but with high revenues, increased TV money to the tune of 30m a year and increasing demand for football and the success of the prem brand across the globe, it just doesnt add up.

 

so, should i retract my     ?

 

No, not at all, it was the right time and things were far from perfect, i'm just struggling to see how Mort can stand by his comments.

 

Clubs in the lower leagues with no chance of paying off debts or re-financing go into administration, not the club with the 14th highest revenue in the world. Revenue and revenues projections drive value metrics, not the accounts.

[Parky]

Cash is king, Chelsea operate every year with massive trading losses, the key is how much cash we generate and whether that covers what we spend oh and it does helop that additionally we have a owner who will happily fund any actual 'cash debts'.   Quayside is right in the fact that it isn't good that we have these losses and we are technically insolvent but Barclays Bank were going to quite happlily re-finance us pre-Ashley so they must have seen something they liked - oh and that's a fact, from a 'qualified accountant'

 

 

 

Which was the point i was trying to get at. The business was fundamentally sound and the people at Barclays who make decisions like that arent accountants, they are business analysts. They look at future growth opportunities and trends in markets. Thats how google was valued so highly when it was still loss making.

 

As quayside has noted you can make 2.5m loss a year and still be in tip top condition. So what exactly does it mean to be putting that loss into the accounts? It can mean fuck all.

 

This whole debate is based around Mort's idea that a premiership football club with massive revenues could have gone bust. Notwithstanding the lawyerly way he phrases that statement, i still think its a load of shit. The business wasnt great but with high revenues, increased TV money to the tune of 30m a year and increasing demand for football and the success of the prem brand across the globe, it just doesnt add up.

 

In this instance Mort was being a bit of a drama queen.

[Matt]

High revenues mean nothing if it's all going out the other door. Certainly businesses can make a loss and still be in good condition. People are arguing whether profit or cash was more important, yet we haven't been ticking either box. The fact we had borrowed against future earnings for transfers is enough to show that the game was up and that the club would either have to curb its spending or look for fresh equity.

 

I've not yet been through the accounts but I will have a look later on to get a better picture.

 

As for amortisation- it's a cost, simply an apportionment. If you like you can ignore it and charge everything on one go (theoretically, not legally) but the net result is the same, we'd simply have made some staggering losses a few years ago.

 

I disagree that the business was fundamentally sound. I think the model as was had run its course and it was absolutely the right time to sell. Would we have gone bust? No, becuase as Chez points out, there's too much future income at stake. However we could have been treated to some lean years of transfer spending- I don't see where we would have got the funding from without crippling the club.

[ChezGiven]

I'd say that future income made the business fundamentally sound, its a question of how you look at the present.

[quayside]

Thought this one might have been put to bed by now.

 

Could never disagree with anyone who says cash is king. And yes businesses go bust because they run out of cash not because they make losses. But all losses have to be funded eventually.

 

Slugsy is right about Chelsea being insolvent technically. The last balance sheet I saw showed net liabilities of about £250 million. There is a difference between us (pre Ashley) and Chelsea though. And that is that the main lender of funds to Chelsea is the owner of the club. He has about £500 million of loan sitting in their balance sheet with no precise finance terms. Pre Ashley our debt was externally sourced and had very precise payment terms and also was incurring interest charges.

 

I didn't know Barclays were going to re finance us. I had assumed that the aborted refinance project that cost £2.9 million was aimed at finding some new source of finance as the existing funders weren't going to play. I have absolutely no proof of that by the way.

 

I doubt the club would have gone bust too. I'm sure someone would have stepped in. But I was surprised to see the state of the balance sheet - no one could call that annual report healthy. And I could believe Ashley got a shock as well.

[NE5]

Cash is king, Chelsea operate every year with massive trading losses, the key is how much cash we generate and whether that covers what we spend oh and it does helop that additionally we have a owner who will happily fund any actual 'cash debts'.   Quayside is right in the fact that it isn't good that we have these losses and we are technically insolvent but Barclays Bank were going to quite happlily re-finance us pre-Ashley so they must have seen something they liked - oh and that's a fact, from a 'qualified accountant'

 

 

 

Which was the point i was trying to get at. The business was fundamentally sound and the people at Barclays who make decisions like that arent accountants, they are business analysts. They look at future growth opportunities and trends in markets. Thats how google was valued so highly when it was still loss making.

 

As quayside has noted you can make 2.5m loss a year and still be in tip top condition. So what exactly does it mean to be putting that loss into the accounts? It can mean fuck all.

 

This whole debate is based around Mort's idea that a premiership football club with massive revenues could have gone bust. Notwithstanding the lawyerly way he phrases that statement, i still think its a load of shit. The business wasnt great but with high revenues, increased TV money to the tune of 30m a year and increasing demand for football and the success of the prem brand across the globe, it just doesnt add up.

 

clearly a load of shit and only believed by those with a reason to say it or a desire to believe it. I wonder why.

 

 

[Mick]

In layman terms for all you non accountants:

Turnover 87m

Wages 55m

Operating costs 20m

Interest charges 6m

net transfers 6m

Refinancing costs-before the takeover FS was trying to er rearrange the debt-2m

Roeder compensation-1.1m

Cash loss was about 5m

 

I have read the accs but dont have them in front of me but these are roughly the figures.

Without doubt the wages had got out of hand and still are way too high and would have been higher if we hadnt received 7m for Owen.

The interest charges on the debt were getting higher.

The debt was about 70m on the stadium+we owed about 13m on players.

 

That seems to rubbish the "Roeder resigned" bollocks then.

[Mick]

Cash is king, Chelsea operate every year with massive trading losses, the key is how much cash we generate and whether that covers what we spend oh and it does helop that additionally we have a owner who will happily fund any actual 'cash debts'.   Quayside is right in the fact that it isn't good that we have these losses and we are technically insolvent but Barclays Bank were going to quite happlily re-finance us pre-Ashley so they must have seen something they liked - oh and that's a fact, from a 'qualified accountant'

 

 

 

It's interesting that you say Barclays were going to re-finance, if that's the case, why were we paying somebody over £2 million to try and sort out an aborted re-finance deal?

[Guest Knightrider]

I'd say that future income made the business fundamentally sound, its a question of how you look at the present.

 

What future income? TV revenue that all clubs would get? Decreasing ST sales. Decreasing sponsorship revenue? More managerial compensation payouts and loses in the transfer market? More dry cow milking? More dodgy deals? The future income that had already been spent? Club was heading towards financial meltdown and the only way we'd have turned it around is if we qualified for the CL every season. But to get there would have required more rolls of the financial dice, ala a Boom or Bust operation that existed at Leeds. Our future income was loan based.

 

Oh and there is a very good reason why that fat cunt didn't get any compo or made any noises about being sacked/bought out. Lets just say MA and CM has something on the Shepherds...

 

We were on very thin ice under those lot, financially and on the pitch. Ashley has wiped out their financial mismanagement and today we are now financially secure and can look ahead to a more optimistic future on and off the pitch, a stable one that doesn't require CL revenue to keep us afloat (ala Leeds) or more bank loans ala the Shepherds.