Gillett and Hicks (ownership saga)

[The Acolyte]

Thought this was interesting reading. From RAWK.

 

Game's up for clubs that took their eye off the ball

 

Excessive debt and massive wages for players have left vulnerable teams facing financial meltdown. The industry must change, say Simon Bowers and Elena Moya, but can it ever be match fit?

 

* Simon Bowers and Elena Moya

* The Observer, Sunday 5 April 2009

 

Britain's beautiful game faces some ugly off the pitch financial meltdowns this summer, as clubs of all shapes and sizes struggle to rein in the excesses of debt financing and spiralling player wage bills - toxic trends that raise fundamental questions about the sustainability of the business of football.

 

Player salaries and levels of indebtedness make the bonus culture and risk-taking of the investment banking industry look conservative by comparison. As a result, the companies behind some of the best-loved names in the game have been left perilously exposed.

 

About £7 in every £10 of turnover is paid out to players in the Premier League and Championship, according to figures from accountancy firm Deloitte. Danny Davis, head of insolvency at law firm Mishcon de Reya, says: "There is no other business that I know of that borrows, as a percentage of operating profits, as much as football."

 

In the midst of one of the deepest recessions in living memory, many clubs locked in annual end-of-season relegation battles are fighting not just to stay up but to stay alive financially. So stretched are their finances that the inevitable drop in revenues that accompanies demotion - even after it is offset by a "parachute payment" - could be enough to push them to the wall.

 

Bankruptcy experts suggest that clubs in the Championship and, in particular, the lower leagues, are the most vulnerable because, in the absence of the substantial media rights income enjoyed by top-flight teams, they are heavily reliant on gate receipts, which are expected to dip sharply next season.

 

This has been the story at Southampton, where the parent holding company last week called in administrators as a securitisation deal - that is, a loan secured against future ticket sales - appeared to be turning sour. The move comes less than six weeks after League Two's Darlington called in insolvency experts for the second time in six months. Both have spent substantial sums on new stadiums in recent years.

 

Lawrence Schechter, a director at boutique finance house Schechter & Co, says: "Southampton used to be run very well, by former investment bankers who managed the club like a business. But the fans got upset that they weren't spending ridiculous amounts of money on star players.

 

"Now the fans should point the finger at themselves and say: is this what you wanted? They forced the guys out in 2005, those who were doing a good job, but the fans wanted Southampton to be like Chelsea or Man United. The fans bit the hand that fed them."

 

A string of other clubs, including Chester, Port Vale and Stockport County, have been forced to issue statements amid rumours of looming bankruptcy. Charlton Athletic's chairman, Richard Murray, has played down fevered speculation about the financial health of his club, which is bottom of the Championship, after its bankers withdrew overdraft facilities. The club relies on directors for 70% of its £21m borrowings.

 

However, even among the most successful top-flight teams the financial question marks are growing. Wigan Athletic owner David Whelan has suggested that at least one Premier League club will topple. Davis, of Mishcon de Reya, suggests that the situation is likely to be most acute for relegation contenders Portsmouth, Middlesbrough, Blackburn and Bolton.

 

"If you look at Middlesbrough, for example, you can't imagine Steve Gibson being too enamoured by the prospect of relegation. And I imagine that for Portsmouth, too, it would be a horrendous experience." Others facing relegation, particularly newcomers to the Premier League, may be better financially prepared for the financial shock of demotion.

 

Meanwhile, those fortunate enough to remain in the Premier League can rest assured that they will - for another season at least - receive a generous slice of media rights earnings from viewers at home and abroad. With the league's global audience, however, comes pressure to attract the best players in the world, whatever the cost. The likes of John Terry and Frank Lampard at Chelsea, and Cristiano Ronaldo at Manchester United, are reportedly earning more than £120,000 a week.

 

Philip Long, partner at PKF accountant and business advisor, says: "I think there will be quite a few insolvencies during the summer - in that period clubs have little income and the same expenditure on overheads, so you get the pressure on the cash flow." Falls in season ticket sales, sponsorship earnings and corporate box deals could transform the fortunes of clubs that are highly geared, both financially and operationally.

 

Even among some of the biggest Premier League clubs, having built huge amounts of debt during the years of the credit bubble, many find themselves straining to meet loan commitments and their lending banks are now less willing to give waivers or inject more capital after losing billions of pounds in the credit crunch.

 

"Football is in the same boat as every industry, if you are adequately capitalised, people will weather the storm, but if today is the day you have to raise debt or equity, it's tough to do it," says Lawrence Schechter.

 

The parent company of Manchester United, which hasn't delivered last year's accounts yet, lost £58m in 2007 as it bears the debt borrowed by US investor Malcolm Glazer to buy the club. Though its future earnings arguably look as if they are the most secure of any football club in the world, United was bought in 2005 in a deal valuing the business at £777m, or a record 4.7 times its revenues.

 

The latest published accounts also raise questions about the club's ability to pay an annual interest bill of £81m in 2007 - almost twice the profits of the club. The accounts of the parent company show debt of £682m, about 8.5 times the company's stated equity of £79m.

 

"If the Manchester United accounts show further debt, like they did last year, they will be in trouble," Long says.

 

Elsewhere among the Premier League's "big four", Liverpool is battling with RBS and Wachovia as some of its more than £300m of debt has to be refinanced by July. Part of the club's borrowings were to build a new stadium - a project now on hold.

 

For years, clubs around Europe saw new stadiums as the main profit driver, with numerous new owners pursuing ill-fated real estate ambitions. Even financially conservative Arsenal looks as if it has been caught out over its property dealings. The club is renegotiating a £135m loan from Highbury Square Development, the company set to develop flats in its old Highbury stadium. The loan, which matures in April 2010, will have to be extended as sales have been disappointing, according to one source familiar with the situation. Arsenal is believed to be expecting a fall in the planned £50m to £60m profit from the development.

 

Overseas, meanwhile, other top clubs are rushing to rein in costs. Financially-sound Barcelona may postpone, or cancel, its Norman Foster-designed facelift of the Camp Nou.

 

Valencia, one of the oldest and most prestigious clubs in Spain, started building a new stadium without selling the old one. The global credit crunch struck in the middle of the process and the new building has stalled, while the club remains collapsed under almost €500m of debt. Valencia hasn't paid its stars, such as David Villa, since February. Bancaja, a local savings bank, has already appointed a director to start selling some land at knock-down prices to recover money as soon as possible.

 

Clubs owned by wealthy individuals who bought them as trophy assets may survive, depending on the wealth of the main holder - such as Mike Ashley in Newcastle or Roman Abramovich at Chelsea. Other clubs that don't have such support, such as Everton, may suffer.

 

"If you look at the accounts, some clubs, without their wealthy owners, would have trouble supporting themselves," Schechter says.

 

And even if a club has an owner's support, the credit crunch may have reduced some of their holdings, forcing them to start selling some assets.

 

Owners looking for an exit won't have it easy. About 10 Premier League clubs are believed to be up for sale, but bankers can't find buyers - not even in the richer countries of the Middle East and Asia.

 

Mike Ashley's proposed sale of Newcastle never materialised, while Liverpool's co-owners Tom Hicks and George Gillett have failed to find someone who will buy one of them out. At West Ham, meanwhile, the club's parent holding company is effectively bust, and last month agreed to settle a legal claim against it by Sheffield United for a reported £26.5m. It faces intense pressure to find a buyer before next season.

 

Banks have also cut their football deal groups as the crisis has forced them to focus on their traditional markets. Société Général got rid its sports banker in New York, while General Electric, which established a team in London to help finance club expansion, also dismantled the group.

 

Some clubs, however, may survive purely for public relations reasons - few financial institutions would like to see their name associated with dumping a local team, or sending it to administration, bankers say.

 

Still, the recession will change football and impose tighter limits on its finances. "It's a big reality check," Long says. Others believe the game will move towards its origins.

 

"Football has become a lot more about the money and a lot less about the sport, so the events that will happen will help the league realise this has to be about the sport and not about the money," says Schechter.

 

Time for a new formation?

 

So with football in crisis, should its owners be dreaming up new financial tactics? Here are some ideas for a new football model:

 

Salary caps: Limits on players' salaries could reduce gearing at football clubs, which now spend on average more than half of their income on paying stars. John Terry and Frank Lampard, of Chelsea, are the Premier League's top-paid footballers with a weekly salary of £140,000, more than Manchester United's Ronaldo, who receives £125,000 a week, according to the UK Football Finder website.

 

Financial controls: German clubs submit their accounts to the Bundesliga every season. Introducing a similar requirement would let the league ensure that debt levels don't spiral out of control.

 

No relegation policy: This applies in the United States but would be unpopular in Europe, where relegation or promotion is a key part of the competition.

 

Lower ticket prices: The credit crunch will make fans more choosey about which matches to attend. Some clubs charge almost £50 per game, making it expensive for a family to go together.

 

If a club with a 50,000-seat stadium reduced the number of season ticket allocations from 30,000 to 20,000, it could lower the price of match-day tickets and still make more money, says Larry Schechter, director of Schechter & Co, an investment banking boutique that has raised funds for football clubs throughout Europe.

 

Let members take control of the club: Spanish giants Barcelona and Real Madrid are owned by their members - more than 100,000 in the case of Barcelona. This prevents the club being bought and sold and gives stability to the institution.

 

"I do not believe football clubs are designed to be public companies in that the goal of the fan is for the club to have the best performance on the pitch while the goal of the shareholder is to make a profit - the two goals do not always go hand in hand," Schechter says.

 

Game's up for soccer clubs that took their eye off the ball | Business | The Observer

[Guest Ulysses Everett McGill]

Sorry but if the Yank Wanks have done that they are the dumbest rich people I've ever heard of.

If you've only had one decent bid and you need to sell you don't try to drum up trade by bandying their name around as thats bound to fuck them right off!

 

 

They dealt with them once previously in confidence for them to walk away at the last moment with no explination.

 

The Kuwaities are not the only game in town, just the only one whose showing thier hand.

[Slimmy]

They dealt with them once previously in confidence for them to walk away at the last moment with no explination.

 

The Kuwaities are not the only game in town, just the only one whose showing thier hand.

These other suitors UEM, anything to get excited about? The Kuwaites, i know Tony Evans in The Game podcast has stated quite a few times that he's not convinced of the varacity of thier interest, are they in for us in real terms or just a type of bait used by the yanks to smoke out interested parties?

[The Acolyte]

They dealt with them once previously in confidence for them to walk away at the last moment with no explination.

 

The Kuwaities are not the only game in town, just the only one whose showing thier hand.

 

Yes they walked away with no explanation, THAT WE KNOW OF

Remember how long it took before that bit of info was confirmed.

The same with any possible bidders, those in the know are those around the table at the time, which for now does not appear to be Hicks or Gillet as they're back in the states trying to save their arse. Ayers and that other one seem to be doing the talking for them.

[Guest Ulysses Everett McGill]

Yes they walked away with no explanation, THAT WE KNOW OF

Remember how long it took before that bit of info was confirmed.

The same with any possible bidders, those in the know are those around the table at the time, which for now does not appear to be Hicks or Gillet as they're back in the states trying to save their arse. Ayers and that other one seem to be doing the talking for them.

 

Even Keith Harris who brokered the deal had no idea why they never completed.

 

Literally 20 minutes before they were due to sign, they went cold.

 

I have my suspicions, but that is all they are

[Slimmy]

Even Keith Harris who brokered the deal had no idea why they never completed.

 

Literally 20 minutes before they were due to sign, they went cold.

 

I have my suspicions, but that is all they are

 

Revenge for what GG pulled on the sheikh earlier in the year?

[Guest Ulysses Everett McGill]

Revenge for what GG pulled on the sheikh earlier in the year?

 

 

Nah, these are hard nosed businessmen, not School kids

[coop]

You think they were instructed to pull out by other members of the consortium Andy.

[JohnnyH]

That can be the only reason as I'd see it coop. Nothing new is going to come up in the books 20 mins prior to signing. That, or Hicks and Gillette moved the posts at the last minute,

[Guest Ulysses Everett McGill]

You think they were instructed to pull out by other members of the consortium Andy.

 

No, I know that isn't true

 

 

I do have a theory or rather a few theories rather that are all pretty similar, but I couldnt be 100% and I can't be arsed with whatever guise Momo is posting under stalking me like a bad smell.

[The Acolyte]

You think they were instructed to pull out by other members of the consortium Andy.

 

Makes sense but why?

Did they get a whisper from someone in the know with RBS, Wachovia or both that the yanks weren't gonna get refinanced and to sit tight and save themselves a few bob? Or did they realise the yanks had slipped in a dodgy clause that left them wide open to a financial gang bang? Wouldn't put it past those two wankers.

Another question.

If someone pulls out of the deal at the last minute like that wouldn't you been telling any idiot how unprofessional it was etc, especially these yanks who normally can't keep their mouth shut? What did we hear from them?

Fuck all. Maybe they know why or at least have a suspicion but don't want to start mud slinging in case the Arabs start slinging some mud back that sticks! Its all well and good those in internet forums knowing what a dodgy pair these two are but once its out in the public domain not only would they have to kiss any profit good-bye but the banks would be under public and media pressure not to lend them any more of the banks/tax payers money!

[The Acolyte]

Even Keith Harris who brokered the deal had no idea why they never completed.

 

Literally 20 minutes before they were due to sign, they went cold.

 

I have my suspicions, but that is all they are

 

Whats your suspicions.

You can PM me if you prefer.

[The Acolyte]

That can be the only reason as I'd see it coop. Nothing new is going to come up in the books 20 mins prior to signing. That, or Hicks and Gillette moved the posts at the last minute,

 

What could H&G possibly move that would have such an effect on the Arabs to the extent that they'd pull out? Besides if its not in the contract it doesn't count surely?

[James Dean]

IMMINENT.

[JohnnyH]

What could H&G possibly move that would have such an effect on the Arabs to the extent that they'd pull out? Besides if its not in the contract it doesn't count surely?

 

Don't know. Greed? They just seem to be quite stupid with some negotiations so I wonder did they try a few add ons at the last minute. Maybe the contract for signing had a few things added last minute. I do that in my business on occasion because 99.9% of the time I get away with it when I explain why I added it as we have a product that businesses are eager for. But I also know when not to do it. Total guesswork on my behalf as it's extremely odd to get within minutes of signing only for it to all fall through.

[ToxtethTerror]

It ain't over with Sheikh Mohammed.I heard the Kuwaiiti family going for us are also related to him.

[captainharris]

IMMINENT.

 

TUESDAY

[Kurt]

Okay.

 

I have no energy to read the whole thread so can anyone who can be trusted confirm if the latest development is a

 

 

 

or a

 

 

Coop? or UEM?

[Guest Kenny]

You think they were instructed to pull out by other members of the consortium Andy.

 

why would they do that Coops?

[Red Phoenix]

IMMINENT.

 

HOW SO?

 

TUESDAY

 

Damn, you beat me with the big bold response.

Edited April 6, 2009 by Red Phoenix

[Lupin]

It ain't over with Sheikh Mohammed.I heard the Kuwaiiti family going for us are also related to him.

 

I think there is added value lurking in a complex way behind this notion...in fact I'm sure there is.

[m0e]

I still wonder is this is where the meat is - I keep hearing bits about this is where the real money is coming from.

 

It ain't over with Sheikh Mohammed.I heard the Kuwaiiti family going for us are also related to him.

 

Where did u hear that TT?

 

Shk Mo has a lot more important issues to deal with than buying a football club.

 

He's closing down many of his companies, and firing the overpaid staff. DIC has no money to invest. He's struggling to finance the many ambitious projects he launched, and has in fact cancelled his 'baby' which was to be known as the Venice of the Middle East.

 

On top of that, his son (the crown prince) is putting a stop to all his investments.

 

From DIC's side, it's 100% over. I know this. From Shk Mo, although I can't be sure, I'll be extremely surprised if he's involved in any shape or form.

 

And the reaction from the locals in Dubai would not be too positive if he did invest while Dubai struggles through this transition period.

[ToxtethTerror]

Probably correct as usual m0e - but I think it is his sister or someone married to one of the Kuwaiti clan. Probably doesn't mean anything.

[Lupin]

It's not - it's secured against G&H's other assets. ONly the £105m is secured against LFC.

 

£165m is secured against the club - though £60m for the stadium start up (so far as we know) has not been used, interest should nonetheless be due on it as the fund is available. The rest is secured against Kop holdings, not US assets.

[The Acolyte]

£165m is secured against the club - though £60m for the stadium start up (so far as we know) has not been used, interest should nonetheless be due on it as the fund is available. The rest is secured against Kop holdings, not US assets.

 

Treading over old ground here pal.

Whats Kop Holdings only asset?

The club.

However they had to secure 50M against personal guarantee's and letters of credit which ain't worth 2 bob now!