NUFC - A leveraged buyout?

[NG32]

How much is our current shirt deal worth?

 

Dont know that but it ends this season, it was a 2 year deal for sure.

 

It was aye, I wonder who is next in line.

[Guest Rainforest]

Did the £138m include the club's debt at that time? Because if not I can't see he's 'owed' that either. I wouldn't buy a car then try and hold the previous owner accountable for the work it needed to pass an MOT.

 

as the sole owner I guess he can decide hes owed whatever the fuck he wants, Wont ever get the thing sold with those conditions, mind... so we are stuck with him.

[quayside]

Did the £138m include the club's debt at that time? Because if not I can't see he's 'owed' that either. I wouldn't buy a car then try and hold the previous owner accountable for the work it needed to pass an MOT.

 

Don't know if that was in response to my post but the £138 million he paid was for the club and thus all it's assets and liabilities. I would say that what people think he is owed morally is a debate that could take a long time but the fact is, at the last count, he was out of pocket by a total of £278 million.   

[Zero]

When Ashley bought the club for 140m (which wouldn't appear inside the NUFC balance sheet), he didn't know the club is in huge debt and was immediately mature upon change of shareholders (thanks the mutha fucka Freddy Shepherd)

At that time he just thought like "ok i have got spare money around 300m, i can do an abramovich and become a Geordie hero" because he did prepare another 100m for huge spending.  Thought back the time when he wear the Smith and Coloccini shirt. He did want to be a big spender.

 

But then 2 things happen and completely change his plan:

1.  he has to put another 140m in order to save the club from meltdown (this appears as a loan to the club WITH NO INTEREST BEARING)

2.  the financial tsunami

 

And then together with extremely poor results and fall-out with the fans, his next plan was to sell the club.  This was probably not for profit, but just a loss-cutting measure.  However it didn't materialize and this caused us a relegation and a huge depreciation in club value for him.  Then his next plan, the one that I personally agree (not as a NUFC fans but as an investor) with, is to "increase the club value". How?

1.  Ensure the club is in EPL and try to go upstairs and nick an European Competition spot

2.  Keep the spending below revenue, i.e. no more net loss

 

Then what can Ashley get from this plan? By increasing the club's value, he can get his money back by attracting a higher bid.  The point is, he cannot get all his money back solely from the loan repayment because there is no interest bearing.  Milking out dividends is also impossible because it means the club has to generate 140m profit from "football business".  I can bet everything I have that this is impossible.  The only way is to sell the club, and the best timing is when the club is having regular European competition and is quite reputable in the world.

 

That's the reason why we are able to get those ridiculous bargain deals (5m for Cabaye, Santon, 3m for Tiote, free for Marveaux) because everything else would be too risky to his plan.  These deals are the only deals he would approve and so all our scouts are trying their best to find gems and loopholes instead of scouting an established player.

 

I cannot disagree much with this plan because the best thing we are hoping for is a new owner and that's probably the same for him.  And by doing so we have to be successful on the pitch as well and that's where I saw the goal alignment. To be honest I feel like Ashley started to manage the club like his own company after relegation and that's why except for spending big on key players, all the other major decisions he made were pretty spot on. He is a very clever and mean businessman and there is a reason why he became a billionaire.

[Teasy]

Umm, no. Ashley paid SJH and Shepherd a sum of money to buy the club and assume all of its debts. His mistake was not realizing that the debt had to be paid back immediately, which is why Ashley had to lend money to the club. He has invest 200m+ into the club. That's not something that can be doubted. He's probably trying to recoup a bit of that money, but if he sells for below 200m then he'll have made a loss.

 

 

But the clubs debts are larger than they were because of this.

 

The company he owns that he used to buy the club and the club are not the same company.  SJHoldings owns the club and owes Ashley £138m (something he'll get back if SJHoldings managed to sell the club for at least £138m).  The Newcastle United is also owned by Ashley through SJHoldings and owes Ashley £150 or there abouts, which is the money he had to put in to pay off debts.  They are seperate debts, Newcastle United Football Club doesn't owe Ashley £288M.

 

Obviously like with any business he can decide to sell it for whatever he wants.  So IF ha managed to pay back the £150m he leant to the club and then sells it for £200m he'll be in profit.  Or he could start giving himself a salary, or he could make interest payable on the debt.  But so far he's done none of this.

[hoppaz]

Did the £138m include the club's debt at that time? Because if not I can't see he's 'owed' that either. I wouldn't buy a car then try and hold the previous owner accountable for the work it needed to pass an MOT.

 

Wasn't that to but the shares off hall and shepherd and essentially the ownership of the club though?

[Dell Boi]

Cheers for the info guys.

 

So the Northern Rock deal will expire in 3 seasons time. Can't imagine anything else being there it'd been so long.

 

How much is our current shirt deal worth?

 

Dont know that but it ends this season, it was a 2 year deal for sure.

 

Wonder who will take over after this season. You can tell it was a 2 year deal though, milked for all it's worth, 3 kits last season, 3 kits this season. We don't even need a third strip! 

[teohgk]

When Ashley bought the club for 140m (which wouldn't appear inside the NUFC balance sheet), he didn't know the club is in huge debt and was immediately mature upon change of shareholders (thanks the mutha fucka Freddy Shepherd)

At that time he just thought like "ok i have got spare money around 300m, i can do an abramovich and become a Geordie hero" because he did prepare another 100m for huge spending.  Thought back the time when he wear the Smith and Coloccini shirt. He did want to be a big spender.

 

But then 2 things happen and completely change his plan:

1.  he has to put another 140m in order to save the club from meltdown (this appears as a loan to the club WITH NO INTEREST BEARING)

2.  the financial tsunami

 

And then together with extremely poor results and fall-out with the fans, his next plan was to sell the club.  This was probably not for profit, but just a loss-cutting measure.  However it didn't materialize and this caused us a relegation and a huge depreciation in club value for him.  Then his next plan, the one that I personally agree (not as a NUFC fans but as an investor) with, is to "increase the club value". How?

1.  Ensure the club is in EPL and try to go upstairs and nick an European Competition spot

2.  Keep the spending below revenue, i.e. no more net loss

 

Then what can Ashley get from this plan? By increasing the club's value, he can get his money back by attracting a higher bid.  The point is, he cannot get all his money back solely from the loan repayment because there is no interest bearing.  Milking out dividends is also impossible because it means the club has to generate 140m profit from "football business".  I can bet everything I have that this is impossible.  The only way is to sell the club, and the best timing is when the club is having regular European competition and is quite reputable in the world.

 

That's the reason why we are able to get those ridiculous bargain deals (5m for Cabaye, Santon, 3m for Tiote, free for Marveaux) because everything else would be too risky to his plan.  These deals are the only deals he would approve and so all our scouts are trying their best to find gems and loopholes instead of scouting an established player.

 

I cannot disagree much with this plan because the best thing we are hoping for is a new owner and that's probably the same for him.  And by doing so we have to be successful on the pitch as well and that's where I saw the goal alignment. To be honest I feel like Ashley started to manage the club like his own company after relegation and that's why except for spending big on key players, all the other major decisions he made were pretty spot on. He is a very clever and mean businessman and there is a reason why he became a billionaire.

Back to the original question, the answer is no it is not.

 

A leveraged buy out is when someone uses third party debt from a bank for example to buy something (i.e. a football club), and then places the debt into that thing (i.e. into the football club) so that the football club is responsible for paying the interest, rather than the person who bought it. These interest costs are high, and they reduce the club from a profit making thing to a loss making thing, which for football clubs who rely on profits to invest on players etc. Instead they are being spent on interest payments, and that is why they are considered a bad thing.

 

If the club is owned by a shareholder with no debt, there is no interest payments, so no reduction in profits available to spend.

 

The Ashley purchase was simply structured so that he made the original purchase by acquiring all of the shares for £130m or so, and then loaned another £110m, but interest free. So the problems generally associated with a leveraged buy out don't apply. That lack of an interest charge like it or not was a good thing for the club, it meant we were not paying the £7m - £8m a year to Northern Rock.

 

 

 

 

[Guest bimpy474]

How much is our current shirt deal worth?

 

Dont know that but it ends this season, it was a 2 year deal for sure.

 

It was aye, I wonder who is next in line.

 

Adidas left us because of all the crap with Ashley didn't they, may go back to them, never know we might go for something different like Legea or Umbro.

 

As long as they have a decent striped template i'll be happy.

[Guest johnson293]

Cheers for the info guys.

 

So the Northern Rock deal will expire in 3 seasons time. Can't imagine anything else being there it'd been so long.

 

How much is our current shirt deal worth?

 

Dont know that but it ends this season, it was a 2 year deal for sure.

 

Wonder who will take over after this season. You can tell it was a 2 year deal though, milked for all it's worth, 3 kits last season, 3 kits this season. We don't even need a third strip! 

 

In fairness Adidas had been producing a 3rd kit for a fair few seasons too - though they called it a European kit, even though it wasn't always (ever?) necessary.

[Unbelievable]

Is it true Ashley didn't know about the loan for the stadium extension as some seem to imply? It's always been my understanding he didn't know it was instantly repayable upon change of ownership, not that he wouldn't have known about it's very existence when he bought the club?

[Teasy]

"In spite of this, the club’s previous excesses have resulted in significant debt of £282 million

 

That line is such a load of toss like, and gives an idea of the perspective the article was written with.

 

£134m of that is the money Ashley paid for the club

£45m of it is the remainder of the debt for the stadium extension

£83m is additional debt from when Ashley bought the club to 2009

 

None of that is to do with the so called "club’s previous excesses" which account for around £22m of that figure. Far too high a price to pay for 15 years of semi-regular European football obviously.

 

You've also failed to mention that club debt isn't £282m, its £148m, the other £134 is held by the company that he used to buy the club and is not owed by NUFC.

[Guest bimpy474]

Cheers for the info guys.

 

So the Northern Rock deal will expire in 3 seasons time. Can't imagine anything else being there it'd been so long.

 

How much is our current shirt deal worth?

 

Dont know that but it ends this season, it was a 2 year deal for sure.

 

Wonder who will take over after this season. You can tell it was a 2 year deal though, milked for all it's worth, 3 kits last season, 3 kits this season. We don't even need a third strip!  

 

I dont get the problem with having new kits every year, if you dont have the money you dont buy one, i buy every single one as they last forever, its my treat to me, i never really buy any other t-shirts at all, also you can get them real cheap if you shop around and are prepared to wait a little bit.

 

Also the thing about the kids wanting every new one people bring up, i have this novel idea, i earn the money if i can afford it i'll get my kids a new one, if i cant i just say no, if my kids dont like that its tough.

[Guest bimpy474]

Is it true Ashley didn't know about the loan for the stadium extension as some seem to imply? It's always been my understanding he didn't know it was instantly repayable upon change of ownership, not that he wouldn't have known about it's very existence when he bought the club?

 

He didn't do due diligence to find out what he was liable for, that was a stupid thing to do and as a business man he should have known better.

[UV]

Is it true Ashley didn't know about the loan for the stadium extension as some seem to imply? It's always been my understanding he didn't know it was instantly repayable upon change of ownership, not that he wouldn't have known about it's very existence when he bought the club?

 

The whole thread is pretty much a make shit up as you go along free for all.

[Dell Boi]

I dont get the problem with having new kits every year, if you dont have the money you dont buy one, i buy every single one as they last forever, its my treat to me, i never really buy any other t-shirts at all, also you can get them real cheap if you shop around and are prepared to wait a little bit.

 

Also the thing about the kids wanting every new one people bring up, i have this novel idea, i earn the money if i can afford it i'll get my kids a new one, if i cant i just say no, if my kids dont like that its tough.

 

Wouldn't say they last forever like, they seem to be getting thinner every year.

[Guest bimpy474]

I dont get the problem with having new kits every year, if you dont have the money you dont buy one, i buy every single one as they last forever, its my treat to me, i never really buy any other t-shirts at all, also you can get them real cheap if you shop around and are prepared to wait a little bit.

 

Also the thing about the kids wanting every new one people bring up, i have this novel idea, i earn the money if i can afford it i'll get my kids a new one, if i cant i just say no, if my kids dont like that its tough.

 

Wouldn't say they last forever like, they seem to be getting thinner every year.

 

True but i wear a different one to work everyday so mine dont get overworn like.

[Dell Boi]

Haha fair enough

 

Might just be a Puma thing like, the Adidas ones were definitely thicker.

[Teasy]

I thought Owen was bought with the Northern Rock sponsorship money, the full wack of it.

 

Have I made that up?

 

No, I'm pretty sure Chris Mort said as much once they bought the club and saw the books - Club sponsorship money had been used in one hit for Owen, hence no future sponsorship money in the pot.

 

Cheers mate, thought it was right.

 

When does Northern Rock expire? He'll walk into another 20m+ when the next shirt sponsor comes along, wonder how much of that will be reinvested.

 

pretty sure the Northern Rock deal was just recently renewed, not sure how long the deal is for though.

 

We went from £5m/year for 5 years unconditional to £2.5m/year for 4 years conditional on staying in the Prem.

 

It's called turning round the finances.

 

You mean the £5m a year we weren't receiving because Shepherd blew 4 years of it on Owen all in one go?  That's called selling your future mate and not doing it now is what will turn the finances around.

[Consortium of one]

There was no leveraged buyout of Newcastle.

 

Ashley set up a company called St James Holdings and has put his own money into it to fund what he has done at Newcastle. The only way it would be a leveraged buyout is if he had borrowed the money to put into St James Holdings, he hasn't done that as he's used his own cash.

 

Based on the latest information Ashley has put about £278 million into St James Holdings. £138 million of that was used to buy the club and the remaining £140 million or so has been used to fund this loan that everyone has heard of. So the club owes Ashley £140 million, it does not owe Ashley £278 million. However purely from an accounting viewpoint St James Holdings is showing that it owes Ashley the full £278 million, but I stress that does not mean the club does. If the club was sold tomorrow Ashley has no legal right to receive anything other than the £140 million loan. Of course he won't sell under those terms and will be looking to get a value that clears the purchase price and the debt .i.e. more than £278 million at the last count.

 

That's a fairly simple view of the situation as it was the last time we had sight of any finances. However there are a number of other factors to take into account. Since that information was published the debt the club owes to Ashley may well have decreased with some of the Carroll money being used for that purpose. I'm not going to say it definitely has because I genuinely don't know if it has, but it's certainly a distinct possibility. Secondly there is a point that has been raised on here about Ashley at some point in the future being in a position where he owns the club but the debt has been paid off. The sums involved are as I said above. To clear the debt he needed total repayment of £140 million as at June 2010, if he wanted to also recover the purchase price of the club then he would need to find a way of taking money out to a value of a further £138 million. This would have to be done by charging interest on the loan, paying dividends, renting an asset to the club or taking a salary - he hasn't done any of those so far. I have to say if he's looking to get £278 million out of the club's cash flow to cover the loan and the purchase price then it might take some time...

 

     

 

Right, so the only way that Ashley can reduce the 140M loan is to take money out of the club and/or sell the club for more than the price he paid for it which was 138M.

 

So let's say Ashley were to talk to a prospective buyer.  If I were him, I'd show him the books.  I paid 138M for this club and all it's holdings.  This is the financial condition it was in then.  It had 80M for outstanding loans, it had already spent revenue from future periods and was still making player payments for past purchases.  Here is what the books look like now.  The finances are stable and in proper working order.  The business is a going concern that has turned a small profit.  I've increased revenue streams (naming rights) and made capital improvements to the facilities (bore holes and such) and have placed a price tag of 200M on the franchise.

 

 

Assuming that, Ashley has cut a big chunk off of the amount of his loans to the club, 60M.  That would mean if sold at that price, he would now lose 78M as opposed to 138M.  Of course if he's been taking money out of the club it has been to further reduce that debt and the prospective 78M under this scenario be less.  It's quite possible that all the Sports Direct advertising is being used to reduce that debt (depending on how Ashley has structured Sports Direct).  Also, the more (or less) he can sell the club for will have a direct impact on how much of his debt he can recoup.

 

For now though he has done a lot to make the club more attractive to a buyer.  We haven't seen the books yet but we can assume that the club was probably around break even (or a slight loss) last year and his goal for this year is to be break even or a slight profit.  That is very important in the eyes of a prospective buyer as opposed to the financial condition when Ashley bought the club.  If I was the owner I'd be doing pretty much what Ashley has done (from a financial perspective.  His public relations has been s***).  One thing I would do differently was to make a push for Europe.  With just a little more money he could have gotten the striker the club needs to get that.  That extra sparkle of continental football would be enough for a prospective buyer to seal the deal at Ashley's price.

 

Edit: pretty much the same as Zero said above.

[Guest bimpy474]

Haha fair enough

 

Might just be a Puma thing like, the Adidas ones were definitely thicker.

 

With mine i just think its just i'm getting fatter and stretching the material thinner

 

You are right though, the Adidas did seem better quality (thicker too).

[ChezGiven]

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?

[Unbelievable]

Is it true Ashley didn't know about the loan for the stadium extension as some seem to imply? It's always been my understanding he didn't know it was instantly repayable upon change of ownership, not that he wouldn't have known about it's very existence when he bought the club?

 

Can you give me a source that specifically statez Ashley was unaware of any loans the club had when he purchased it. Find that very hard to believe.. Now, not reading the loan agreement smallprint stating it was instantly repayable I can imagine if you conclude a deal in such a short space of time, but not even checking its balance sheet!? Howay man..

 

He didn't do due diligence to find out what he was liable for, that was a stupid thing to do and as a business man he should have known better.

[Benwell Lad]

Ashley may have made a few stupid and unpopular football decisions during his tenure, but it would be hard to argue that he hasn't considerably improved the financial side of the business.

[Unbelievable]

Ashley may have made a few stupid and unpopular football decisions during his tenure, but it would be hard to argue that he hasn't considerably improved the financial side of the business.

 

Are we in less debt now then we were before Genius?