Administration?

[Liam Liam Liam O]

At 30th June 2007 the club was insolvent ffs - who was going to put up a guarantee to fund it for the next 12 months if Ashley didn't? Shepherd? Douglas Hall?

 

In terms of the clubs survival you are wrong. Being insolvent isn't a problem if the man who is owed the money isn't going to pull the plug and commits to support it. Abramovitch, Lerner, Al Fayed even Gibson all own their clubs and have commtted their support but if, for any reason, they found themselves unable or unwilling to continue their support then those clubs go bust. Under our previous regime, none of the shareholders ever really committed anything much by way of funding and we were in the hands of external lenders. There was no commitment from our lenders other than a commercial loan agreement. Why do you think Liverpool are crapping themselves?

 

 

The club may have been balance sheet insolvent (as are half the premiership) but it was not cash flow insolvent. "Many large companies operate permanently in this state." - Wiki. The net debt repayments were around £7m per year. This is not an unsustainable amount. The majority of the debt was the £45m remaining on the stadium loan which was a long term contract that couldn't be foreclosed on unless the ownership changed, so your doomsday scenario of all the debtors wanting their money NOW could not in fact have happened under the old board with the financial arrangements they had in place.

 

In 06-07, the operational loss before player trading & amortisation was £0.3m. The actual cash flow loss was < £10m more out than in. Not great, however this was in the knowledge that we were going to get a £18m boost in turnover the following year from TV revenue alone. Running the club in the same way (that includes having a £10m transfer budget), with anything less than a 14% increase in expenditure (due to wages say) would have seen us break even or make a profit. Are you telling me that would have been impossible to do under the old board? That they were inevitably going to let costs run away even more? It's possible they would have increased the debt slightly if they could get the finance, but it was certainly not a necessary inevitability as some are making out.

 

I know I keep mentioning it, but I think it's an important point when the old board is being accused of financial mismanagement based on the amount of the debt, but the majority of the debt was due to the stadium expansion which was paying for itself over time and bringing in extra revenue. I don't know about you, but I don't call this financial mismanagement, I call it a shrewd investment. Only the remainder of the debt, around £25m, was due to "wasting money on trophy players", to get us into Europe on average 1 year in 2. This level of operational debt is less than most clubs in the premiership (all but Blackburn and the the 3 promoted teams in 07-08). Again, I fail to see how anyone can call this level of debt financial mismanagement,.

 

Finally, in response to you're implication that we were in debt up to our absolute limit in another thread, I apologise for the lack of credibility and the location of the link, but I couldn't find a better source. I have no reason to think the Man U fan made it up :

 

http://www.joinmust.org/forum/showthread.php?t=24381

 

Newcastle United tops ICC's Credit Premier League with Top Score

Mar 21 2006

Creditman - UK

 

ICC Credit, one of the UK’s leading credit reference agencies, reports that unlike its current position in the Premier League, it isn’t Chelsea that is riding high in ICC Credit’s Risk Score League. ‘The Champion’ is Newcastle United who beat all other top premiership clubs.

 

Newcastle currently heads the ICC Credit Risk Score League with a score of 88, with Manchester United a close second with a score of 87. Reflecting the current state of play in the Premier League, Blackburn Rovers and Bolton sit next with scores of 84 and 81 respectively. Interestingly, Chelsea has a lower credit score of 78.

 

ICC Credit’s Risk Score is a predictor of whether a company is credit worthy, or not. The Score is used to predict whether a company will fail within the next 12 months (and therefore not able to pay its debts) and takes into account variables such as financial, demographic and trading criteria.

 

I guess a lot must have changed in a year.

 

The idea that we were days away from administration before Ashley came along and saved us (Ashley himself being the biggest proponent of this myth) is about as ridiculous as the idea of Ashley putting the club into administration now.

 

Afternoon UV – back for some more then   

 

The problem with an insolvent balance sheet is that the auditors will only sign the company off as a going concern if there is proof that the company can meet its debts as they fall due for the next 12 months. In the case of most football clubs that are insolvent this is provided by the owner with a written undertaking of financial support. At 30th June 2007 Ashley, who bought the club in the following month, was able to give that undertaking – but who would have done it if he hadn’t bought the club? Do not underestimate this because if the auditors were not satisfied on this point they would put a going concern qualification in the audit report. And if they did that then all secured creditors would have the right to foreclose.

   

Let us look at a simple financial history for the 4 years leading up to the time of the takeover:

 

 

                                      2003/2004      2004/2005        2005/2006                2006/2007

Profit/Loss          Profit  £4.4 million     Breakeven      Loss £12 million      Loss £33 million

 

Net Worth                  £29 million     £29 million      £17 million        Negative £16 million

 

Wages/Turnover                50%              58%                   62%                        71%

 

 

 

There is a clear pattern of decline here and begs the question as to what was going to change to stop it. Why would the management team that started this trend be able to reverse it? And if additional funding were required what bank would offer it given the clear downward financial trend plus the fact that all assets and sources of revenue were already tied up as collateral on existing loan agreements?

 

The operating loss figure you quote for 2006/2007 is pretty irrelevant because ignoring player trading and amortisation is like a builder ignoring cost of materials. The operating loss also excludes interest costs which adds to its irrelevance given that the club was funded entirely by debt. 

 

Turning to your assumption on the cash flow I haven’t looked at it recently so I’ll take your word for it that the club shipped £10 million in 2006/2007. You conclude that in the following year this would be made up by the increase in TV revenue – in fact overall revenue increased by £12 million so prima facie your assumption is supported by the figures. However this would only give a breakeven cash situation if costs were held at about the same level and nothing was invested in the squad. As we now know Allardyce set about reshaping the squad and we ended up with the likes of Geremi, Smith, Cacapa, Viduka and Barton all earning huge wedge and contributing not very much, plus Allardyce’s army of backroom staff  – result = wages increase by £12 million year on year. He also invested money in the squad iirc. Did we not have a net spend of around £5-10 million that summer? You seem to believe that none of this would have happened if the previous board and not Ashley had been in charge of Allardyce. As Shepherd and co recruited Allardyce and gave him carte blanche to restructure the club I don’t believe that.

 

The issue of the stadium is not in doubt. This was an excellent decision and left the club with an outstanding facility and without doubt it created extra revenue. But you have a warped view of debt. There is nothing wrong with debt, most businesses need it and football clubs especially so. But there has to someone around who is going to provide it. I have said earlier on here our problem was that we were in the hands of external creditors who charged large interest rates and to whom the transaction was nothing other than a commercial arrangement with foreclosure clauses. When Ashley took over the debt it was at least owed to the man who owned the club who had (hopefully) a vested interest in the club remaining in business and would not foreclose. You mention Blackburn Rovers. As far as I know their debt is owed to the trust of Jack Walker, which owns the club. They are therefore in the situation I have just described.  The only limit on the amount clubs like this can borrow is what the owners are prepared to make available - and that was not the case with us pre Ashley

 

I have no reason to doubt your reference to the ICC’s credit Premier League but it was dated March 2006 when the latest available results would have been 2004/2005 and the club was looking ok. Your comment that “a lot must have changed in a year” is pretty much on the money. In fact it happened over the next two years and the club lost £45 million in that period. 

 

I have put forward the suggestion on here before that Shepherd may have been deluded about the club's finances. I read a recent interview with him where he said that every year he was in charge "we made a profit". So how does he explain departing from the club with £92 million of losses sitting in the balance sheet? Maybe the "we" he is referring to is himself, his family and the Halls....I do think he may have had an inflated view of the status and financial clout of the club and thought he could wagon his way through any situation. But in the world of finance chickens invariably come home to roost, as we've seen in many business sectors during the last 12 months or so.         

 

I don’t know if anyone has said the club was days away from Administration pre Ashley, I seem to remember Mort saying something about it being like a house of cards. All I have ever done is express my view on the clubs finances pre Ashley, and provide evidence from published and audited information to explain why I think that. If you really want to carry on trying to convince people that there was no financial problem pre Ashley then please do so. But you won't alter my opinion.

 

 

An excellent post that

[jimmymag]

An excellent post quayside, and I hope it is read, and understood, by the 25% or so who have voted that they want Shepherd back running the club.

[ChezGiven]

We need an Adminstrationometer.

[madras]

We need an Adminstrationometer.

and an adminstrationometer adjudicator.

[madras]

hey parky. you should provide a link to this on toontastic as the administration thread on there doesn't seem to answer it aswell as this one does.

 

 

 

 

 

 

[Parky]

Have minds changed on this from 3 weeks ago?

[GG]

You don't want to go into admin. Ashley wouldn't let it happen, either.

[Guest toonlass]

At 30th June 2007 the club was insolvent ffs - who was going to put up a guarantee to fund it for the next 12 months if Ashley didn't? Shepherd? Douglas Hall?

 

In terms of the clubs survival you are wrong. Being insolvent isn't a problem if the man who is owed the money isn't going to pull the plug and commits to support it. Abramovitch, Lerner, Al Fayed even Gibson all own their clubs and have commtted their support but if, for any reason, they found themselves unable or unwilling to continue their support then those clubs go bust. Under our previous regime, none of the shareholders ever really committed anything much by way of funding and we were in the hands of external lenders. There was no commitment from our lenders other than a commercial loan agreement. Why do you think Liverpool are crapping themselves?

 

 

The club may have been balance sheet insolvent (as are half the premiership) but it was not cash flow insolvent. "Many large companies operate permanently in this state." - Wiki. The net debt repayments were around £7m per year. This is not an unsustainable amount. The majority of the debt was the £45m remaining on the stadium loan which was a long term contract that couldn't be foreclosed on unless the ownership changed, so your doomsday scenario of all the debtors wanting their money NOW could not in fact have happened under the old board with the financial arrangements they had in place.

 

In 06-07, the operational loss before player trading & amortisation was £0.3m. The actual cash flow loss was < £10m more out than in. Not great, however this was in the knowledge that we were going to get a £18m boost in turnover the following year from TV revenue alone. Running the club in the same way (that includes having a £10m transfer budget), with anything less than a 14% increase in expenditure (due to wages say) would have seen us break even or make a profit. Are you telling me that would have been impossible to do under the old board? That they were inevitably going to let costs run away even more? It's possible they would have increased the debt slightly if they could get the finance, but it was certainly not a necessary inevitability as some are making out.

 

I know I keep mentioning it, but I think it's an important point when the old board is being accused of financial mismanagement based on the amount of the debt, but the majority of the debt was due to the stadium expansion which was paying for itself over time and bringing in extra revenue. I don't know about you, but I don't call this financial mismanagement, I call it a shrewd investment. Only the remainder of the debt, around £25m, was due to "wasting money on trophy players", to get us into Europe on average 1 year in 2. This level of operational debt is less than most clubs in the premiership (all but Blackburn and the the 3 promoted teams in 07-08). Again, I fail to see how anyone can call this level of debt financial mismanagement,.

 

Finally, in response to you're implication that we were in debt up to our absolute limit in another thread, I apologise for the lack of credibility and the location of the link, but I couldn't find a better source. I have no reason to think the Man U fan made it up :

 

http://www.joinmust.org/forum/showthread.php?t=24381

 

Newcastle United tops ICC's Credit Premier League with Top Score

Mar 21 2006

Creditman - UK

 

ICC Credit, one of the UK’s leading credit reference agencies, reports that unlike its current position in the Premier League, it isn’t Chelsea that is riding high in ICC Credit’s Risk Score League. ‘The Champion’ is Newcastle United who beat all other top premiership clubs.

 

Newcastle currently heads the ICC Credit Risk Score League with a score of 88, with Manchester United a close second with a score of 87. Reflecting the current state of play in the Premier League, Blackburn Rovers and Bolton sit next with scores of 84 and 81 respectively. Interestingly, Chelsea has a lower credit score of 78.

 

ICC Credit’s Risk Score is a predictor of whether a company is credit worthy, or not. The Score is used to predict whether a company will fail within the next 12 months (and therefore not able to pay its debts) and takes into account variables such as financial, demographic and trading criteria.

 

I guess a lot must have changed in a year.

 

The idea that we were days away from administration before Ashley came along and saved us (Ashley himself being the biggest proponent of this myth) is about as ridiculous as the idea of Ashley putting the club into administration now.

 

Afternoon UV – back for some more then   

 

The problem with an insolvent balance sheet is that the auditors will only sign the company off as a going concern if there is proof that the company can meet its debts as they fall due for the next 12 months. In the case of most football clubs that are insolvent this is provided by the owner with a written undertaking of financial support. At 30th June 2007 Ashley, who bought the club in the following month, was able to give that undertaking – but who would have done it if he hadn’t bought the club? Do not underestimate this because if the auditors were not satisfied on this point they would put a going concern qualification in the audit report. And if they did that then all secured creditors would have the right to foreclose.

   

Let us look at a simple financial history for the 4 years leading up to the time of the takeover:

 

 

                                      2003/2004      2004/2005        2005/2006                2006/2007

Profit/Loss          Profit  £4.4 million     Breakeven      Loss £12 million      Loss £33 million

 

Net Worth                  £29 million     £29 million      £17 million        Negative £16 million

 

Wages/Turnover                50%              58%                   62%                        71%

 

 

 

There is a clear pattern of decline here and begs the question as to what was going to change to stop it. Why would the management team that started this trend be able to reverse it? And if additional funding were required what bank would offer it given the clear downward financial trend plus the fact that all assets and sources of revenue were already tied up as collateral on existing loan agreements?

 

The operating loss figure you quote for 2006/2007 is pretty irrelevant because ignoring player trading and amortisation is like a builder ignoring cost of materials. The operating loss also excludes interest costs which adds to its irrelevance given that the club was funded entirely by debt. 

 

Turning to your assumption on the cash flow I haven’t looked at it recently so I’ll take your word for it that the club shipped £10 million in 2006/2007. You conclude that in the following year this would be made up by the increase in TV revenue – in fact overall revenue increased by £12 million so prima facie your assumption is supported by the figures. However this would only give a breakeven cash situation if costs were held at about the same level and nothing was invested in the squad. As we now know Allardyce set about reshaping the squad and we ended up with the likes of Geremi, Smith, Cacapa, Viduka and Barton all earning huge wedge and contributing not very much, plus Allardyce’s army of backroom staff  – result = wages increase by £12 million year on year. He also invested money in the squad iirc. Did we not have a net spend of around £5-10 million that summer? You seem to believe that none of this would have happened if the previous board and not Ashley had been in charge of Allardyce. As Shepherd and co recruited Allardyce and gave him carte blanche to restructure the club I don’t believe that.

 

The issue of the stadium is not in doubt. This was an excellent decision and left the club with an outstanding facility and without doubt it created extra revenue. But you have a warped view of debt. There is nothing wrong with debt, most businesses need it and football clubs especially so. But there has to someone around who is going to provide it. I have said earlier on here our problem was that we were in the hands of external creditors who charged large interest rates and to whom the transaction was nothing other than a commercial arrangement with foreclosure clauses. When Ashley took over the debt it was at least owed to the man who owned the club who had (hopefully) a vested interest in the club remaining in business and would not foreclose. You mention Blackburn Rovers. As far as I know their debt is owed to the trust of Jack Walker, which owns the club. They are therefore in the situation I have just described.  The only limit on the amount clubs like this can borrow is what the owners are prepared to make available - and that was not the case with us pre Ashley

 

I have no reason to doubt your reference to the ICC’s credit Premier League but it was dated March 2006 when the latest available results would have been 2004/2005 and the club was looking ok. Your comment that “a lot must have changed in a year” is pretty much on the money. In fact it happened over the next two years and the club lost £45 million in that period. 

 

I have put forward the suggestion on here before that Shepherd may have been deluded about the club's finances. I read a recent interview with him where he said that every year he was in charge "we made a profit". So how does he explain departing from the club with £92 million of losses sitting in the balance sheet? Maybe the "we" he is referring to is himself, his family and the Halls....I do think he may have had an inflated view of the status and financial clout of the club and thought he could wagon his way through any situation. But in the world of finance chickens invariably come home to roost, as we've seen in many business sectors during the last 12 months or so.         

 

I don’t know if anyone has said the club was days away from Administration pre Ashley, I seem to remember Mort saying something about it being like a house of cards. All I have ever done is express my view on the clubs finances pre Ashley, and provide evidence from published and audited information to explain why I think that. If you really want to carry on trying to convince people that there was no financial problem pre Ashley then please do so. But you won't alter my opinion.

 

 

Excellent post from Quayside there. Just read it.

[madras]

it doesn't end there and UV does make some good points.

 

 

http://www.toontastic.net/board/index.php?showtopic=24954&st=60

 

 

[Parky]

it doesn't end there and UV does make some good points.

 

 

http://www.toontastic.net/board/index.php?showtopic=24954&st=60

 

 

 

I have feeling people who were writing off admin aren't so sure now.

 

The overdraft is rising.

MA isn't putting money in.

The buyers don't want to pay the silly price.

Something has to give.....

[ChezGiven]

Why can companies all over the world reduce their wage bills through redundancy, wage cuts, lay-offs etc and a football club can not?

 

Am sure there is a reason but its always struck me as strange that if a big manufacturer loses a contract (gets relegated), they just adjust their labour costs accordingly.

[midds]

Are there any benefits for Ashley personally if he were to put us into administration? 

[madras]

Why can companies all over the world reduce their wage bills through redundancy, wage cuts, lay-offs etc and a football club can not?

 

Am sure there is a reason but its always struck me as strange that if a big manufacturer loses a contract (gets relegated), they just adjust their labour costs accordingly.

probably due to the type of employment contracts. those on standard contracts ie shop/office staff can go easily. those on long term fixed term contracts (players etc) aren't so easily disposed of.

[Parky]

Why can companies all over the world reduce their wage bills through redundancy, wage cuts, lay-offs etc and a football club can not?

 

Am sure there is a reason but its always struck me as strange that if a big manufacturer loses a contract (gets relegated), they just adjust their labour costs accordingly.

 

I know it's ridiculous these Football league rules about players being first in the queue for cash. I suppose they were turned over a couple of times (Leicester/Leeds) and have over corrected.

[Parky]

Are there any benefits for Ashley personally if he were to put us into administration?  

 

It's a tough one Midds cause the structure of SJH and it's relationship to Barclays and the club is so secretive (as MA would want it I guess). Others know more about this than me, but at a guess there must be a point where he bank will cap the overdraft if MA is refusing to underwrite it (if he is).

[TRon]

Why can companies all over the world reduce their wage bills through redundancy, wage cuts, lay-offs etc and a football club can not?

 

Am sure there is a reason but its always struck me as strange that if a big manufacturer loses a contract (gets relegated), they just adjust their labour costs accordingly.

 

Most football clubs have the sense to build relegation clauses into the contracts so the issue doesn't usually arise.

[midds]

Are there any benefits for Ashley personally if he were to put us into administration?  

 

It's a tough one Midds cause the structure of SJH and it's relationship to Barclays and the club is so secretive (as MA would want it I guess). Others know more about this than me, but at a guess there must be a point where he bank will cap the overdraft if MA is refusing to underwrite it (if he is).

 

Am I right in thinking that the only major people we (the club) owe money to are Barclays (the overdraft) and Ashley himself?

 

If we go into administration, could the club write some of that debt off?

[Parky]

Are there any benefits for Ashley personally if he were to put us into administration?  

 

It's a tough one Midds cause the structure of SJH and it's relationship to Barclays and the club is so secretive (as MA would want it I guess). Others know more about this than me, but at a guess there must be a point where he bank will cap the overdraft if MA is refusing to underwrite it (if he is).

 

Am I right in thinking that the only major people we (the club) owe money to are Barclays (the overdraft) and Ashley himself?

 

If we go into administration, could the club write some of that debt off?

 

Administration is primarily a tool so that the club can survive in its present form, who is going to get cash out and where I think we can only guess. But it is clear MA didn't pay off the debt, he just moved it.

[ianovthetoon]

I'm not 100% sure how all of these things work within the confines of the law, but could Ashley "sell" himself assets such as the training ground, the stands at SJP and land adjacent to SJP then lease them back to the club via another holding company. I seem to remember something similar happening when Leeds went through difficulties and one of the directors purchased Thorp Arch and leased it back to the club.

 

If this was feasible would it make administration more appealing to Ashley? The only reason I ask is because the only saleable assets the club would have are the players and matchday revenue generated by 25000 plus people coming through the gates of SJP. Ashley could then watch as all the high earners are sold to cover the overdraft and a small percentage of his loan to the club, whilst the club is sold for about 20-30M. He could then sell the training ground, football ground and land back to the club owners for a similar sum, still taking a huge loss but recouping as much as he could reasonably hope to by selling the club as a going concern now

 

It's a bit far fetched I know, and probably fraudulent but I'd put nothing past this man

[Teasy]

My mind hasn't changed no, it makes no sense to either put or allow the club to be put into administration.  If that happened administrators would sell the club for the highest offer available and use that money to pay off as much external debt as possible (Barclays, people we owe transfer money too) and the administrators fee.  Ashley would see very little to nothing from the sale of the club and I'm pretty sure any loan the club owes him would go up in smoke.

 

Also what nobody seems to have mentioned yet is that on the 30th of June 2009 the clubs financial year will have ended and its accounts will have been scrutinized by auditors.  Those auditors will only sign off on those accounts if the club, or Ashley, can prove that the clubs debts can be paid over the next 12 months.

[Teasy]

I'm not 100% sure how all of these things work within the confines of the law, but could Ashley "sell" himself assets such as the training ground, the stands at SJP and land adjacent to SJP then lease them back to the club via another holding company. I seem to remember something similar happening when Leeds went through difficulties and one of the directors purchased Thorp Arch and leased it back to the club.

 

If this was feasible would it make administration more appealing to Ashley? The only reason I ask is because the only saleable assets the club would have are the players and matchday revenue generated by 25000 plus people coming through the gates of SJP. Ashley could then watch as all the high earners are sold to cover the overdraft and a small percentage of his loan to the club, whilst the club is sold for about 20-30M. He could then sell the training ground, football ground and land back to the club owners for a similar sum, still taking a huge loss but recouping as much as he could reasonably hope to by selling the club as a going concern now

 

It's a bit far fetched I know, and probably fraudulent but I'd put nothing past this man

 

I don't think any of that is possible, not sure but I really don't think so.

 

You've got the wrong idea of what administrators do by the way.  They wouldn't be there to asset strip the club for Ashley's benefit, they would be there to stabilise the club and help sort out its debts.  Ashley would have no say in how they do that and he would not be a proirity for them when it comes to paying debts.  So who knows how much, if anything, he might get from them.  Put it this way, I'm sure he'd rather sell the club for nothing and leave the 100m loan in place for any new owner to pay back then have the club go into administration, because he couldn't possibly hope to get 100m pounds from administrators if they were called in.

[Dokko]

Why can companies all over the world reduce their wage bills through redundancy, wage cuts, lay-offs etc and a football club can not?

 

Am sure there is a reason but its always struck me as strange that if a big manufacturer loses a contract (gets relegated), they just adjust their labour costs accordingly.

 

Because you cannot buy and sell shop assistants.

 

 

 

Every day is a step closer to administration.

 

 

[ChezGiven]

Why can companies all over the world reduce their wage bills through redundancy, wage cuts, lay-offs etc and a football club can not?

 

Am sure there is a reason but its always struck me as strange that if a big manufacturer loses a contract (gets relegated), they just adjust their labour costs accordingly.

 

Because you cannot buy and sell shop assistants.

 

 

 

Every day is a step closer to administration.

 

 

 

People get head-hunted by competitors and senior executive pay is bigger than a footballers wage. They are on fixed long-term contracts too.

 

I just dont get it.

 

 

[ChezGiven]

Are there any benefits for Ashley personally if he were to put us into administration?  

 

It's a tough one Midds cause the structure of SJH and it's relationship to Barclays and the club is so secretive (as MA would want it I guess). Others know more about this than me, but at a guess there must be a point where he bank will cap the overdraft if MA is refusing to underwrite it (if he is).

 

Am I right in thinking that the only major people we (the club) owe money to are Barclays (the overdraft) and Ashley himself?

 

If we go into administration, could the club write some of that debt off?

 

Administration is primarily a tool so that the club can survive in its present form, who is going to get cash out and where I think we can only guess. But it is clear MA didn't pay off the debt, he just moved it.

 

What riles me most is that he tied up his capital in 'moving' this debt at the expense of investing in the squad.

[Guest ObiChrisKenobi]

If we go into administration before the season starts are we still docked 10 points?