NUFC - A leveraged buyout?

[oldtype]

To rephrase, what I'm trying to say is that I don't disagree with his general philosophy. Cutting costs, looking to turn a profit, not just spending just for the sake of it.

 

What makes him such an odious owner for me is two things: his employment of an arrogant douchebag as face of the club, the completely inexplicable footballing decisions he makes, and the classless and inconsiderate moves like the whole sports direct signs fiasco.

 

Mike Ashley executed properly would be an okay owner for a mid-table club like us to have.

[Guest PhilB]

Most fans were a bit dubious of Commolli, or any director of football, at first,  but he made it clear when KD was appointed that the manager would have the last word.  That would suit KD, because he always left the fees and wages to Peter Robinson anyway, last time he managed us, he just named the players he wanted.   It's worked out very well up to now and Commolli  certainly knows his business.   Hopefully the players brought in won't provide any flops but we won't know that until the end of the season really.

 

Your ownership is doing exactly as our last ones were doing, but whereas ours weren't only starving our team of players they were using the club to pay for their acquisition of it, and each time they were allowed to refinance the interest payments went up staggeringly.  In the end it was the world wide crunch that helped us (fans) to rid ourselves of the blood suckers.  They didn't have enough of a personal fortune to refinance themselves, and the fans bombardment of emails, and other actions  to RBS,  and anyone else who were thought could lend them the money, made financial institutions think twice. 

 

It's hard to see what Newcastle fans can do because Ashley doesn't need help from financial institutions.  Boycotts don't work because there are too many fans who will still go but you could have a merchandise boycott, email sponsors en masse about your displeasure at the way the club is being run down.  Ashley might be prepared to lose a bit of money to spite the fans but sponsors rarely are. 

 

 

 

[Consortium of one]

Ashley without Llambias and without the periodic fits of complete idiocy would be a pretty decent owner tbh.

 

You think Llambias does anything Ashley doesn't tell him to do?

 

outside of the occasional extra lick of Ashley's hairy starfish, no.

[Guest Rainforest]

but you could have a merchandise boycott, email sponsors en masse about your displeasure at the way the club is being run down.  Ashley might be prepared to lose a bit of money to spite the fans but sponsors rarely are. 

 

 

 

 

Interesting idea, however as long as the fans show up for home games I doubt they would care. However in the wake of repeated half-full stadium games they might actually lend an ear.

[GuyP]

People seem to be getting very hung up on the word 'debt'. The Glazers borrowed money from financial institutions to buy Man U, with the aim of funding that debt with the profits that they were going to make from the club. Ashley paid cash for NUFC and its existing stadium debt, but registered the purchase as a debt owed by the club to a company also owned by him.

 

It's an accounting trick, made I think for tax purposes. It's possible that he thought he was on safe ground with this purchase because the club would increase in value, but I can't see that he would have thought it possible - then or now - to reduce his debt by making a profit out of the running of the club on a yearly basis. Man U are virtually the only football club that runs at a profit.

 

The really important distinction is that whereas the Glazers have to rake off a profit in order to service the debt, Ashley doesn't because effectively he owes money to himself and doesn't charge any interest or have a deadline to clear the debt completely.

 

People also seem worried that if a buyer comes along, they'll have to repay the debt to Ashley. Well of course if the purchase price is such that they don't fancy doing that, then they won't buy. What I can imagine happening is what happened at Liverpool - where the buyers simply buy the club for the amount of debt, with either no charge or a small charge for the club itself. We've all heard of debt-ridden clubs or businesses being bought for a £1.

 

Having said that, I don't think Ashley wants to go down that route. I can't imagine that he enjoys owning the club, but he doesn't want to walk away as a failure.

 

Massive claim...depends whether you include transfers in or not but id say that is a massive overexaggeration...

[Guest Rainforest]

To rephrase, what I'm trying to say is that I don't disagree with his general philosophy. Cutting costs, looking to turn a profit, not just spending just for the sake of it.

 

What makes him such an odious owner for me is two things: his employment of an arrogant douchebag as face of the club, the completely inexplicable footballing decisions he makes, and the classless and inconsiderate moves like the whole sports direct signs fiasco.

 

Mike Ashley executed properly would be an okay owner for a mid-table club like us to have.

 

The only hole in that argument would be the fact that he never looks to strengthen the squad for that purpose alone, its all just part of a bigger plan to sell them on for a profit.

As a result of that we have a very narrow view of potential signings, instead of mixing up young talent with more experienced "work horses"  for example. Yes they would cost more in wages but would make for a more balanced team imo.

[GuyP]

To rephrase, what I'm trying to say is that I don't disagree with his general philosophy. Cutting costs, looking to turn a profit, not just spending just for the sake of it.

 

What makes him such an odious owner for me is two things: his employment of an arrogant douchebag as face of the club, the completely inexplicable footballing decisions he makes, and the classless and inconsiderate moves like the whole sports direct signs fiasco.

 

Mike Ashley executed properly would be an okay owner for a mid-table club like us to have.

 

The only hole in that argument would be the fact that he never looks to strengthen the squad for that purpose alone, its all just part of a bigger plan to sell them on for a profit.

As a result of that we have a very narrow view of potential signings, instead of mixing up young talent with more experienced "work horses"  for example. Yes they would cost more in wages but would make for a more balanced team imo.

 

nailed it

[quayside]

Quayside, if the debt held in the holding company is not owed by the club itself then why is it being paid down? The £138m figure owed to MA by SJH Ltd in 2008 reduces to £132m in 2009. How and why?

 

I really hadn''t thought that there had been any reduction in any of the sums owed to Ashley in the published info. But I'll have a look at the accounts tomorrow and get back with an answer.

 

I've had a look at the accounts and although, during the years concerned, there are fluctuations in the balance on Ashley's loan, the overall trend is upwards year on year. In 2010 St James Holdings ceased to be the ultimate parent company as Ashley has set up a company called MASH Holdings and that has all his business interests in it, including his shares in Sports Direct. 

 

Anyway I think we can now forget any notion that Ashley borrowed the money to buy the club.

I never said that was the case, I was asking why the debt held by SJH Ltd had been reduced by £6m and whether that £6m came from the club's income. If it did, it would mean Ashely was paying himself back out of the club's finances rather than using all available income to drive the club forward.

 

 

 

I was responding to the tread title about a leveraged buyout, and Ashley's buyout was not leveraged. I thought I had answered the question about Ashley's loan, it's fluctuated but year on year it's increased so there had been no net repayment up to June 2010. And like I say I don't see a reduction of £6 million. 

[wyn davies]

I didn't understand what a leveraged buyout was but having found this below it all makes sense.

 

 

A leveraged buyout is where an investor group acquires a business using mainly borrowed money. The amount of equity finance used in these deals is usually very small and 80% or more the finance for the deal takes the form of debt. Much of this debt is likely to take the form of 'junk bonds', which carry a high rate of interest, reflecting the risks of carrying such a high level of debt. This means there is a strong incentive for the investors to pay down the debt as quickly as possible. Investors aim to use the cashflows of the acquired business to repay the interest on the debt. Frequently, the bidder will also raise cash to pay down the debt by selling parts of the acquired business. As the debt is paid off, the value of the investors' equity rises. Their aim is ultimately to realise the value of their equity by selling the business or floating it on the stock market.LBOs became common in the US in the late 1980s but were slower to take off in the UK. During the 1990s, there was a sharp rise in the number of private equity groups looking for LBO deals. But LBOs are highly risky, particularly in an economic downturn when it becomes harder to repay debt or to find a suitable 'exit' - i.e. sell the business.

 

 

 

It appears to me this is exactly what he (Ashley) is upto "Paying down the debt quickly to palm us of and him to make a buck, problem of course nobody wants us!!!

[Optimistic Nut]

Liverpool are thinking football that's for sure. Interestingly they seem to be able to do it while still cutting costs. Imagine that!

 

Easy to do that when you have clubs prepared to take the likes of Cole, Poulsen & Jovanovic.

 

Not so easy to get rid of the likes of Smith & Lovenkrands.

[quayside]

I didn't understand what a leveraged buyout was but having found this below it all makes sense.

 

 

A leveraged buyout is where an investor group acquires a business using mainly borrowed money. The amount of equity finance used in these deals is usually very small and 80% or more the finance for the deal takes the form of debt. Much of this debt is likely to take the form of 'junk bonds', which carry a high rate of interest, reflecting the risks of carrying such a high level of debt. This means there is a strong incentive for the investors to pay down the debt as quickly as possible. Investors aim to use the cashflows of the acquired business to repay the interest on the debt. Frequently, the bidder will also raise cash to pay down the debt by selling parts of the acquired business. As the debt is paid off, the value of the investors' equity rises. Their aim is ultimately to realise the value of their equity by selling the business or floating it on the stock market.LBOs became common in the US in the late 1980s but were slower to take off in the UK. During the 1990s, there was a sharp rise in the number of private equity groups looking for LBO deals. But LBOs are highly risky, particularly in an economic downturn when it becomes harder to repay debt or to find a suitable 'exit' - i.e. sell the business.

 

 

 

It appears to me this is exactly what he (Ashley) is upto "Paying down the debt quickly to palm us of and him to make a buck, problem of course nobody wants us!!!

 

Read the first sentence of the second paragraph of your post again and explain how Ashley buying us was a leveraged buyout.

[AyeDubbleYoo]

Ashley didn't borrow any money to buy us, did he?

[Stu]

Christ, this place is like a beacon for the unwashed at times. Are we SURE there hasn't been a board invasion from RTG?

[Guest Vinkent]

As MA is gunna have to wait a few years before he has recouped his money / made a profit, reckon the 5 year deals he keeps dishing out to players is an indication of when he plans to try and sell?

[Guest Rainforest]

I think he wants out ASAP, just maximizing his profits meanwhile until an acceptable offer comes along.

Unfortunately I dont think it will happen for a while, seeing as probably wants around 250 mill for us, whereas in reality I reckon prospective buyers are looking to pay maybe half...

[Guest Vinkent]

I can't see him being the type to settle for a small profit if he's apparently ploughed in about £200 mill. He'd probably be more stubborn and likely hold out for more like the £350 mill to £400 mill region (even  though no one would be stupid enough to pay that).

[Guest Rainforest]

I can't see him being the type to settle for a small profit if he's apparently ploughed in about £200 mill. He'd probably be more stubborn and likely hold out for more like the £350 mill to £400 mill region (even  though no one would be stupid enough to pay that).

 

Yeah Id expect a champions league club for that amount of cash.

[Hughesy]

It is NOT a leveraged buyout.  Fact.  End of discussion.

[Cronky]

People seem to be getting very hung up on the word 'debt'. The Glazers borrowed money from financial institutions to buy Man U, with the aim of funding that debt with the profits that they were going to make from the club. Ashley paid cash for NUFC and its existing stadium debt, but registered the purchase as a debt owed by the club to a company also owned by him.

 

It's an accounting trick, made I think for tax purposes. It's possible that he thought he was on safe ground with this purchase because the club would increase in value, but I can't see that he would have thought it possible - then or now - to reduce his debt by making a profit out of the running of the club on a yearly basis. Man U are virtually the only football club that runs at a profit.

 

The really important distinction is that whereas the Glazers have to rake off a profit in order to service the debt, Ashley doesn't because effectively he owes money to himself and doesn't charge any interest or have a deadline to clear the debt completely.

 

People also seem worried that if a buyer comes along, they'll have to repay the debt to Ashley. Well of course if the purchase price is such that they don't fancy doing that, then they won't buy. What I can imagine happening is what happened at Liverpool - where the buyers simply buy the club for the amount of debt, with either no charge or a small charge for the club itself. We've all heard of debt-ridden clubs or businesses being bought for a £1.

 

Having said that, I don't think Ashley wants to go down that route. I can't imagine that he enjoys owning the club, but he doesn't want to walk away as a failure.

 

Massive claim...depends whether you include transfers in or not but id say that is a massive overexaggeration...

 

I'm sure there are quite a few clubs who, by remaining within their means, are able to turn a small profit now and then.

 

What distinguishes Man U is their huge income, based on their world-wide fan base, large stadium and regular success on the field. They haven't depended on sugardaddies or going into debt, like other major clubs. Unfortunately, that made them prey to the kind of takeover that the Glazers instigated.

 

Hicks and Gillett thought that Liverpool, who have a similarly huge following and potential commercial income, could be taken over by the same method. However, although they've got the following, they don't have the stadium or the on-field success, and they came a cropper.

 

The profitability of other clubs is so slight that a buyer would be mad to go into significant debt to make the purchase, and a lender would be made to lend the money.

 

 

[thewellander]

I think the team we have now is capable of keeping us in mid table and a lot of them are on long term contracts. If buying players cheap and selling them in a couple seasons means that Ashley can make his money back and leave, I'm not so concerned about it, so long as we're staying in the premier league.

 

But on the whole, I'm not as displeased with this summer's business as some others on here. If we had exactly the same players come in but paid more in transfer fees, I think a lot of supporters would think we did good business. The only reason people don't consider Ba as a replacement for Carroll is that he came for free. He had about the same number of decent games in the Premier League as Carroll, after all. Had we spent £10 million to bring him here, would we think Ashley was great for reinvesting the money?

[Dell Boi]

I think the team we have now is capable of keeping us in mid table and a lot of them are on long term contracts. If buying players cheap and selling them in a couple seasons means that Ashley can make his money back and leave, I'm not so concerned about it, so long as we're staying in the premier league.

 

But on the whole, I'm not as displeased with this summer's business as some others on here. If we had exactly the same players come in but paid more in transfer fees, I think a lot of supporters would think we did good business. The only reason people don't consider Ba as a replacement for Carroll is that he came for free. He had about the same number of decent games in the Premier League as Carroll, after all. Had we spent £10 million to bring him here, would we think Ashley was great for reinvesting the money?

 

Agreed for the most part.

 

I don't think anyone thinks we haven't done good business this summer on the lads we've brought in, but it's frustrating how much stronger we could be with just a little more investment. A lot of our deals this window probably broke down over a couple of million.

[Zero]

I think the team we have now is capable of keeping us in mid table and a lot of them are on long term contracts. If buying players cheap and selling them in a couple seasons means that Ashley can make his money back and leave, I'm not so concerned about it, so long as we're staying in the premier league.

 

But on the whole, I'm not as displeased with this summer's business as some others on here. If we had exactly the same players come in but paid more in transfer fees, I think a lot of supporters would think we did good business. The only reason people don't consider Ba as a replacement for Carroll is that he came for free. He had about the same number of decent games in the Premier League as Carroll, after all. Had we spent £10 million to bring him here, would we think Ashley was great for reinvesting the money?

 

Agreed for the most part.

 

I don't think anyone thinks we haven't done good business this summer on the lads we've brought in, but it's frustrating how much stronger we could be with just a little more investment. A lot of our deals this window probably broke down over a couple of million.

 

I understand.  But on the other hand, I couldn't deny that, say, paying 12m for Maiga or Ruiz involves huge risk.  Remember the Brazilian Ace signed by Middlesbrough?

[GuyP]

People seem to be getting very hung up on the word 'debt'. The Glazers borrowed money from financial institutions to buy Man U, with the aim of funding that debt with the profits that they were going to make from the club. Ashley paid cash for NUFC and its existing stadium debt, but registered the purchase as a debt owed by the club to a company also owned by him.

 

It's an accounting trick, made I think for tax purposes. It's possible that he thought he was on safe ground with this purchase because the club would increase in value, but I can't see that he would have thought it possible - then or now - to reduce his debt by making a profit out of the running of the club on a yearly basis. Man U are virtually the only football club that runs at a profit.

 

The really important distinction is that whereas the Glazers have to rake off a profit in order to service the debt, Ashley doesn't because effectively he owes money to himself and doesn't charge any interest or have a deadline to clear the debt completely.

 

People also seem worried that if a buyer comes along, they'll have to repay the debt to Ashley. Well of course if the purchase price is such that they don't fancy doing that, then they won't buy. What I can imagine happening is what happened at Liverpool - where the buyers simply buy the club for the amount of debt, with either no charge or a small charge for the club itself. We've all heard of debt-ridden clubs or businesses being bought for a £1.

 

Having said that, I don't think Ashley wants to go down that route. I can't imagine that he enjoys owning the club, but he doesn't want to walk away as a failure.

 

Massive claim...depends whether you include transfers in or not but id say that is a massive overexaggeration...

 

I'm sure there are quite a few clubs who, by remaining within their means, are able to turn a small profit now and then.

 

What distinguishes Man U is their huge income, based on their world-wide fan base, large stadium and regular success on the field. They haven't depended on sugardaddies or going into debt, like other major clubs. Unfortunately, that made them prey to the kind of takeover that the Glazers instigated.

 

Hicks and Gillett thought that Liverpool, who have a similarly huge following and potential commercial income, could be taken over by the same method. However, although they've got the following, they don't have the stadium or the on-field success, and they came a cropper.

 

The profitability of other clubs is so slight that a buyer would be mad to go into significant debt to make the purchase, and a lender would be made to lend the money.

 

 

 

aye i agree there, the way you put it first was very binary, but i full agree with what you put here...the margins alot of clubs operate on is £0-£5mil profit...in teh context of a £100+ football club, that is a 20 year commitment which makes it a long term proposition, especially if you consider you could get those as interest rates at banks over a 5 year period...what would you rather do, trust the banks or football? (an easy question until 2008 i guess!)

[ChezGiven]

The original thread is entitled 'NUFC debt' and TT allows you to put a sub title to the thread. I used the phrase LBO to be provocative because I wanted to draw a comparison between paying back a debt that didn't exist before the takeover. There is 140m of debt in the club (it was £77m when Ashely took over) and a 138m of debt in the holding company. If this is just a vehicle to hold capital then there would be no need to transfer income from the club to pay down this debt. This is where the debate is and as far as I am concerned quayside has given an opinion which i give a lot of weight to since it's his job to know these things. However all he has said is that he doesn't see the £6m reduction. In the graph in the OP you can see it. I am prepared to accept that this is misleading or a mistake in that graph but I don't consider it conclusive as am yet to see evidence proving otherwise. It's not an LBO but if club income is being transferred to the holding company then this diverts income from our ability to compete as a club, in exactly the same way Man U have income being diverted to pay off their debt. I would assume it's not the case in much the same way I would assume that SD pay NUFC for their branding at the ground. From what I have read and in the opinion of Swiss rambler too, NUFC paid money to in relation to marketing Ashley's other companies. At £40k it was probably the expense of putting it up. If he's financially favouring SD in that relationship when it's a legitimate source of income for NUFC it's incoherent because shareholders in SD would also bear the cost of the advertising from legitimate marketing budgets. SD shareholders obviously also benefit from it and there are tax benefits.  It would seem that maximising the income of NUFC is secondary to SD and/or other concerns.

[Guest optimistic nit]

To rephrase, what I'm trying to say is that I don't disagree with his general philosophy. Cutting costs, looking to turn a profit, not just spending just for the sake of it.

 

What makes him such an odious owner for me is two things: his employment of an arrogant douchebag as face of the club, the completely inexplicable footballing decisions he makes, and the classless and inconsiderate moves like the whole sports direct signs fiasco.

 

Mike Ashley executed properly would be an okay owner for a mid-table club like us to have.

 

The only hole in that argument would be the fact that he never looks to strengthen the squad for that purpose alone, its all just part of a bigger plan to sell them on for a profit.

As a result of that we have a very narrow view of potential signings, instead of mixing up young talent with more experienced "work horses"  for example. Yes they would cost more in wages but would make for a more balanced team imo.

 

 

The way i see it, mike ashley's weakness is that he looks at buying and selling players on their individual merits rather than on the overall needs of the team. whether its in view to sell them on for a profit or because he wants value for money is neither here nor there, because at this point in time the only sale that indicates that he is looking to sell them on for profit is the sale for carroll, which at 35 million pounds is understandable. The Enrique situation is different, because Jose Enrique was worth more than the money we sold him for both in terms of his transfer value and in terms of his on field performances, and thus the way he handled that cannot be looked at as him buying a player to sell.

 

Take the Nolan situation, Ashley in my opinion looked at that as 'i dont want to give a 28 year old a 4 year contract with high wages when i 2 years time he'll be on the bench making lots of money'. Ashley didn't look at the goals he scores or his role in the dressing room, which would be worth having him on the bench on high wages for 2 years as they were substantial. Also when looking at the rb and striker situation Ashley and co look at that in terms of buying someone that is value for money, without noticing that if we dont sign anyone then the team will be disproportionately worse off overall due to our weakness down the right flank and an inability to score goals. Even if the rest of the team are playing well if we cant score and we have a defensive weakness down our right flank we wont get the results to match the ability of our other players. I think mike looks at football in a very business like way on a balance sheet in stead of properly understanding the more intricate aspects of football.