Burnleys takeover leaves club 90 million in debt

[Badger 2,405]

20 minutes ago, Graham Paddons Beard said:

1. the new Burnley owners use the extra money raised to strengthen the squad. Burnley rise up the Premier League over the next few seasons , consistently qualifying for Europe and increase their income on and off the pitch. Hurrah ! All good and the debt has worked well. 
I wish we were Burnley 

What extra money?

Burnley had £40 million in the bank before the takeover - this was used to partly fund the takeover itself. So far, the transfer kitty is £40 million lower. 

Of course, they have made promises - how long do you recommend that Burnley fans hold their breath?

[BigFish 1,986]

Just imagine the outcry on here if Smith & Jones followed this approach..........when it was realised they walked away with+£100 million.......and the club was in debt to the same amount! 😀

[dylanisabaddog 4,914]

This discussion is interesting but also irrelevant. Our major shareholders have made it quite clear they wouldn't consider it. It just won't happen here. 

The difficulty that Burnley have is that they're always only 1 season from relegation and let's face it, they're not exactly attractive to foreign players in the same way that the top 10 are. Hopefully the first victim will be Dyche and it may at least be worth switching on the TV when they're playing. 

[PurpleCanary 5,557]

14 minutes ago, dylanisabaddog said:

This discussion is interesting but also irrelevant. Our major shareholders have made it quite clear they wouldn't consider it. It just won't happen here. 

The difficulty that Burnley have is that they're always only 1 season from relegation and let's face it, they're not exactly attractive to foreign players in the same way that the top 10 are. Hopefully the first victim will be Dyche and it may at least be worth switching on the TV when they're playing. 

I don't believe their position is quite as intransigent and set in stone as that. But equally I don't think for a moment they would agree to anything like the Burnley deal as it seems to be, on the basis of the available evidence, given that the new owner has not so far been explicit about the details.

[king canary 7,604]

42 minutes ago, Badger said:

Sorry but that's nonsense, the "outside investment" has mainly been used to buy the club!

1. The old owner has sold the club and made a lorry load of cash.

2. The new owners have put very little of their own money into the deal and have a "no lose bet" on making some money.

3. MSD, who financed most of the deal, lend the money at 9.5% with the debt secured against all the assets including the trademarks/ grounds/ players etc

Everyone wins - except of course, the fans!

Rather than showing the limitations of the self-funded model, it shows the dangers of external investment!

There is a good point about why the takeover has happened- is it just the owners looking to cash out? It could be but it also true that Dyche has been applying pressure with regards to transfer spend. We don't know what it shows about external investment yet. 

[Graham Paddons Beard 2,431]

49 minutes ago, Badger said:

What extra money?

Burnley had £40 million in the bank before the takeover - this was used to partly fund the takeover itself. So far, the transfer kitty is £40 million lower. 

Of course, they have made promises - how long do you recommend that Burnley fans hold their breath?

Not sure I've made any recommendations Badger , or indeed come down on one side or another . 

The “promises” are around the extra liquidity that this deal purports to achieve . If there is no such debt funded  liquidity then there won’t be any extra cash. You seem to know more than I. 

I’m merely reflecting on various scenarios. 

[keelansgrandad 6,679]

12 minutes ago, king canary said:

There is a good point about why the takeover has happened- is it just the owners looking to cash out? It could be but it also true that Dyche has been applying pressure with regards to transfer spend. We don't know what it shows about external investment yet. 

Be interesting to see if they do give him any more than he usually gets.

[king canary 7,604]

23 minutes ago, PurpleCanary said:

I don't believe their position is quite as intransigent and set in stone as that. But equally I don't think for a moment they would agree to anything like the Burnley deal as it seems to be, on the basis of the available evidence, given that the new owner has not so far been explicit about the details.

There was an interesting point that they've also invested in a couple of football analytics/scouting firms which suggests one of two things to me...

1) They are serious about football and Burnley and will use an analytics based approach to try and be a bigger Brentford.

2) They think the real money is to be made in these analytics/tech firms and Burnley are just a part of trying to grow this.

[king canary 7,604]

57 minutes ago, BigFish said:

Just imagine the outcry on here if Smith & Jones followed this approach..........when it was realised they walked away with+£100 million.......and the club was in debt to the same amount! 😀

I'm not knowledgeable enough to have a strong opinion on leveraged buyouts but I will say I've got zero problem with Smith & Jones walking away with a healthy profit if they do sell.

[BigFish 1,986]

28 minutes ago, king canary said:

There is a good point about why the takeover has happened- is it just the owners looking to cash out? It could be but it also true that Dyche has been applying pressure with regards to transfer spend. We don't know what it shows about external investment yet. 

We do, the article is clear that external investment is minus £90 million, the investors have taken money out.

[king canary 7,604]

47 minutes ago, BigFish said:

We do, the article is clear that external investment is minus £90 million, the investors have taken money out.

I'm just going to refer back to this post.

 

5 hours ago, sgncfc said:

The description of a "leveraged buyout" is a little disingenuous. A company buying back its own shares at an agreed price is a pretty standard transaction - it's the way many achieve the transition from say, a retiring owner to a successor. The crucial thing is that the company is performing well enough to firstly borrow the money (if it doesn't have it) and secondly comfortably pay the interest. The ultimate objective is to repay the loan in most circumstances but (particularly at the moment) that may not be the best thing.

"loading with debt" is also a very emotive phrase. We claim to have "no external debt" but as we know, that doesn't suit many supporters who claim we are unambitious. Having no debt is not necessarily a good business plan for a club which targets the top 26 - and that will get harder to justify. Of course, if Burnley are relegated that might become a problem.

Most businesses function on debt, as do most households. It has a bad reputation, but it's not necessarily justified.

So know we don't know yet. If Burnley can use this takeover to kick on next season then many will think it's worth it. Its amazing people are already trying to draw conclusions as to why this takeover backs up the position they already held despite it only happening a couple of weeks ago. 

[BigFish 1,986]

17 hours ago, king canary said:

I'm just going to refer back to this post.

 

So know we don't know yet. If Burnley can use this takeover to kick on next season then many will think it's worth it. Its amazing people are already trying to draw conclusions as to why this takeover backs up the position they already held despite it only happening a couple of weeks ago. 

You can refer to @sgncfc's post all you like but his analysis is flawed. This is not a share buy back scheme, where a company uses it's own cash or borrowing to swap equity to debt or reduce equity debt. It is the very definition of a leveraged buyout which in its simplest term is gaining control over a company using borrowing.

According to Conn, who has spent years reporting football finance the deal values Burnley at £200 million which includes a cash balance of more than £40 million. First step in the takeover was the club borrowed an additional £60 million at 9%+ interest from Michael Dell. This appears to be mortgaged on the clubs physical assets, player contracts etc. Conn reports that the club then paid the majority of the cash balance c£90 million to the existing shareholders. Ownership of the club was then transferred to the new owners in return to certain performance add-ons, probably continued survival in the EPL. If these are not met ownership reverts back to the original owners.

The result is the previous owners are £90 million richer, Burnley are £90 million poorer and owned by venture capitalists. All the fans have are proomises of investment from the new owners, yet to be seen.

How this helps Burnley kick-on is pure supposition.

 

 

Edited February 3, 2021 by BigFish

[king canary 7,604]

2 minutes ago, BigFish said:

How this helps Burnley kick-on is pure supposition.

Exactly.

Yet people are already drawing conclusions about what it says about outside investment. And- surprise surprise- these conclusions already back up the posters pre held points about it!

Saying 'it shows the dangers of external investment' is no more a valid conclusion that 'it shows Burnley have more ambition than us!' 

[BigFish 1,986]

4 minutes ago, king canary said:

Exactly.

Yet people are already drawing conclusions about what it says about outside investment. And- surprise surprise- these conclusions already back up the posters pre held points about it!

Saying 'it shows the dangers of external investment' is no more a valid conclusion that 'it shows Burnley have more ambition than us!' 

True, but it appears that Burnley have become more of a financial instrument than a football club. The club has mortgaged their current assets and their future assets e.g. the EPL TV money. It is in the VCs interest to keep the show on the road in order that they can milk it for profit but that is different from running a club for sporting success.

[Badger 2,405]

18 hours ago, king canary said:

There is a good point about why the takeover has happened- is it just the owners looking to cash out? It could be but it also true that Dyche has been applying pressure with regards to transfer spend. We don't know what it shows about external investment yet. 

Dyche was worried about transfer spending because they had £40 million in the bank and couldn't spend it because they were in the middle of a takeover.

We don't know for certain yet about external investment, but given the huge amount of money that they have borrowed at 9.5%, it suggests that there won't be too much, why borrow at that rate when you have loads of spare cash to invest?

Also remember the £40 million they had saved up was used to pay for the takeover when it could have been spent on players!

[Badger 2,405]

18 hours ago, Graham Paddons Beard said:

Not sure I've made any recommendations Badger , or indeed come down on one side or another . 

The “promises” are around the extra liquidity that this deal purports to achieve . If there is no such debt funded  liquidity then there won’t be any extra cash. You seem to know more than I. 

I’m merely reflecting on various scenarios. 

Nobody knows for certain GPB, but I can't see the logic in borrowing loads of money at 9.5% if you have spare cash to invest. 

[Graham Paddons Beard 2,431]

27 minutes ago, BigFish said:

You can refer to @sgncfc's post all you like but his analysis is flawed. This is not a share buy back scheme, where a company uses it's own cash or borrowing to swap equity to debt or reduce equity debt. It is the very definition of a leveraged buyout which in its simplest term is gaining control over a company using borrowing.

According to Conn, who has spent years reporting football finance the deal values Burnley at £200 million which includes a cash balance of more than £40 million. First step in the takeover was the club borrowed an additional £60 million at 9%+ interest from Michael Dell. This appears to be mortgaged on the clubs physical assets, player contracts etc. Conn reports that the club then paid the majority of the cash balance c£90 million to the existing shareholders. Ownership of the club was then transferred to the new owners in return to certain performance add-ons, probably continued survival in the EPL. If these are not met ownership reverts back to the original owners.

The result is the previous owners are £90 million richer, Burnley are £90 million poorer and owned by venture capitalists. All the fans have are proomises of investment from the new owners, yet to be seen.

How this helps Burnley kick-on is pure supposition.

 

 

Very detailed . Thanks . 
Question. You are saying the deal is structured based on criteria such as staying in the Prem? If now the ownership reverts back? 
This is similar to an “earn out” that is used in my industry (financial services- M and A is rife at the moment ) - but do the selling owners have to pay back the money? That would seem like a remarkable deal if so? 

[Graham Paddons Beard 2,431]

Just now, Badger said:

Nobody knows for certain GPB, but I can't see the logic in borrowing loads of money at 9.5% if you have spare cash to invest. 

Agree completely Badger - makes little sense to a simpleton like me. Wouldn’t mind earning 9.5% though - might see if I can lend them a few quid 😂

[Badger 2,405]

1 minute ago, Graham Paddons Beard said:

Agree completely Badger - makes little sense to a simpleton like me. Wouldn’t mind earning 9.5% though - might see if I can lend them a few quid 😂

I was tempted to do the same, but I would see it as a high risk loan! (Simple law of economics - the higher the return, the higher the risk).

[BigFish 1,986]

Just now, Graham Paddons Beard said:

Very detailed . Thanks . 
Question. You are saying the deal is structured based on criteria such as staying in the Prem? If now the ownership reverts back? 
This is similar to an “earn out” that is used in my industry (financial services- M and A is rife at the moment ) - but do the selling owners have to pay back the money? That would seem like a remarkable deal if so? 

That is my reading of what Conn wrote e.g. the Burnley are committed to further payments should they remain in the Prem, but if they fail to achieve this ownership reverts. Nowhere does it say the old owners repay the £90 million in that case. Effectively it looks like Dell and they have charges on the club for mortgages secured on the current assets and future revenue.

[Foxy2600 301]

Highest Average attendance just after the war - 33,621

Ever since then 16,000 to 20,000 max

never seen and kids round here with a Burnley Shirt on lol!

[sgncfc 1,227]

35 minutes ago, BigFish said:

You can refer to @sgncfc's post all you like but his analysis is flawed. This is not a share buy back scheme, where a company uses it's own cash or borrowing to swap equity to debt or reduce equity debt. It is the very definition of a leveraged buyout which in its simplest term is gaining control over a company using borrowing.

According to Conn, who has spent years reporting football finance the deal values Burnley at £200 million which includes a cash balance of more than £40 million. First step in the takeover was the club borrowed an additional £60 million at 9%+ interest from Michael Dell. This appears to be mortgaged on the clubs physical assets, player contracts etc. Conn reports that the club then paid the majority of the cash balance c£90 million to the existing shareholders. Ownership of the club was then transferred to the new owners in return to certain performance add-ons, probably continued survival in the EPL. If these are not met ownership reverts back to the original owners.

The result is the previous owners are £90 million richer, Burnley are £90 million poorer and owned by venture capitalists. All the fans have are proomises of investment from the new owners, yet to be seen.

How this helps Burnley kick-on is pure supposition.

 

 

But what you're missing is why involve external "investors" at all? If all that was required was for the existing owners to cash out, a standard MBO could have achieved that, using the same technique. We don't know the reason for the involvement of the new owners but it might be that  MDL wouldn't lend the money without them, or their investment promises. We don't know what those promises are so can't really judge the transaction.

The interest rates are set for a reason - it's high risk in the current market that they will lose some or all of their money i.e. that Burnley might get relegated and not re-promoted within the parachute period. I suspect that Spurs and Southampton are not paying 9.5%. I also suspect that if Norwich tried to do this the rate would be substantially higher.

You're right that Burnley have become a financial instrument - but my point is simply that we don't know whether that will be a good or a bad thing yet. If the new owners do invest and Burnley stay in the EPL for a few more years this may turn out well. My post was simply to illustrate that debt in itself is not necessarily bad - for a club like Burnley it's a gamble, but perhaps the only possible gamble to get them from where they currently are to a position they want to be, namely established and challenging for the top 10. Without a wealthy benefactor, swapping equity for debt is pretty much the only way to get there quickly, and with FFP in place even that is now more difficult.

I'm not claiming it's a good thing, but in business terms it's normal.

[Parma Ham's gone mouldy 2,219]

A reasonable interpretation is that Burnley’s (previous) owners wanted out. Perhaps to cash out, perhaps they reached their financial limits and could not realistically progress further. 

The nature of the leveraged buyout - as defined by Conn -indicates that the VC have an unlimited growth ceiling (true in theory), though in return they have leveraged (loaded debt liability onto)the existing (in effect previously paid up without any debt or leverage on them) assets of the Club itself and paid for it via the Club’s cash pile, which has transferred to the outgoing owners.

The ‘unlimited ceiling’ is true - provided success continues and the VC investors see enough returns ( at a level they have deemed sufficient) - so it is speculation on future results, additional sales, increased TV money, worldwide sponsorship et al. ‘Normal’ owners often cannot take this risk as the liability is often personal. They also do not have access to theoretically unlimited funds. 

In reality this is often not how it works in practice. 

The new owners have likely limited liability and something of a ‘free hit’ with an asset-rich (stadium, training ground, players) entity that has significant ongoing revenue streams (Premier TV money) and ‘guaranteed’ ongoing revenue streams (season tickets, casual tickets, merchandising, food et al). 

The growth in these ‘could’ indeed be huge. Burnley might become like Barca. TV contracts may grow exponentially, Burnley may ‘crack’ America. 

It would be reasonable to use Manchester United as a fair case study for context. 

2005 Glazers fully takeover United. Debt loaded to £660m. Over next 19 years £1bn paid to service debt, interest and fees. Current debt £510m.

Debt is a brilliant product if you are collecting the interest returns. Particularly on c15% PIK notes. 

The true motivations of the new Burnley owners? I could only speculate....😊

Parma 

nb: Delia has not done this. She has not chosen this route. She ‘bought’ the club she loves for £11m and has repeatedly stated that selling her shares (at a likely massive profit) ‘adds nothing to the club itself’. The previous Burnley owners appear not to have quite taken such a stance.

nb2: there are other perfectly good ways to takeover / invest in / organically grow a football club via multiple share-ownership models. 

Edited February 3, 2021 by Parma Ham's gone mouldy

[Thirsty Lizard 3,161]

1 hour ago, sgncfc said:

But what you're missing is why involve external "investors" at all? If all that was required was for the existing owners to cash out, a standard MBO could have achieved that, using the same technique. We don't know the reason for the involvement of the new owners but it might be that  MDL wouldn't lend the money without them, or their investment promises. We don't know what those promises are so can't really judge the transaction.

The interest rates are set for a reason - it's high risk in the current market that they will lose some or all of their money i.e. that Burnley might get relegated and not re-promoted within the parachute period. I suspect that Spurs and Southampton are not paying 9.5%. I also suspect that if Norwich tried to do this the rate would be substantially higher.

 

The original David Conn article at the beginning of this thread states that Southampton are paying 9.14% interest on their loan from MDL. 

[Thirsty Lizard 3,161]

20 minutes ago, Thirsty Lizard said:

The original David Conn article at the beginning of this thread states that Southampton are paying 9.14% interest on their loan from MDL. 

Apparently, after last night, the rate of interest Southampton are paying has been renegotiated up to 900% 🙂😉 

Edited February 3, 2021 by Thirsty Lizard

[PurpleCanary 5,557]

2 hours ago, king canary said:

Exactly.

Yet people are already drawing conclusions about what it says about outside investment. And- surprise surprise- these conclusions already back up the posters pre held points about it!

Saying 'it shows the dangers of external investment' is no more a valid conclusion that 'it shows Burnley have more ambition than us!' 

Are posters saying that? I perhaps haven't read every post but what I see is posters looking at the publicly available detail and coming to the provisional (I stress 'provisional') conclusion that the Burnley takeover seems flawed and on the face of it not an example for Norwich City to copy.

And what is noticeable that some regular posters who are unhappy with the nephew plan and want outside investment are hardly champing at the bit to instance this takeover as a model to follow.

[king canary 7,604]

4 minutes ago, PurpleCanary said:

Are posters saying that? I perhaps haven't read every post but what I see is posters looking at the publicly available detail and coming to the provisional (I stress 'provisional') conclusion that the Burnley takeover seems flawed and on the face of it not an example for Norwich City to copy.

And what is noticeable that some regular posters who are unhappy with the nephew plan and want outside investment are hardly champing at the bit to instance this takeover as a model to follow.

I'd suggest Badger and BigFish were pretty certain about their conclusions that this is a Very Bad Thing. Each to their own but I think its early to make that call.

I also think the second paragraph is a good thing- I put myself in that category and I think it shows those who think like that aren't just desperate to welcome any new investors with open arms and no due diligence despite what some might occasionally claim.

[PurpleCanary 5,557]

2 minutes ago, king canary said:

I'd suggest Badger and BigFish were pretty certain about their conclusions that this is a Very Bad Thing. Each to their own but I think its early to make that call.

I also think the second paragraph is a good thing- I put myself in that category and I think it shows those who think like that aren't just desperate to welcome any new investors with open arms and no due diligence despite what some might occasionally claim.

Yes, that this deal is a bad thing, but you were saying posters were using it to demonise outside investment in general:

Yet people are already drawing conclusions about what it says about outside investment. And- surprise surprise- these conclusions already back up the posters pre held points about it! Saying 'it shows the dangers of external investment' is no more a valid conclusion that 'it shows Burnley have more ambition than us!' 

[king canary 7,604]

15 minutes ago, PurpleCanary said:

Yes, that this deal is a bad thing, but you were saying posters were using it to demonise outside investment in general:

Yet people are already drawing conclusions about what it says about outside investment. And- surprise surprise- these conclusions already back up the posters pre held points about it! Saying 'it shows the dangers of external investment' is no more a valid conclusion that 'it shows Burnley have more ambition than us!' 

The bit in quote marks is an exact quote from Badger. 

Rather than showing the limitations of the self-funded model, it shows the dangers of external investment!

 

[Thirsty Lizard 3,161]

2 hours ago, king canary said:

Exactly.

Yet people are already drawing conclusions about what it says about outside investment. And- surprise surprise- these conclusions already back up the posters pre held points about it!

Saying 'it shows the dangers of external investment' is no more a valid conclusion that 'it shows Burnley have more ambition than us!' 

This is not 'jumping to a conclusion' - this is a FACT!!!

Prior to this buyout Burnley had £40,000,000 in the bank. Now they don't!! 

Just imagine if we had announced that all the money from the Godfrey and Lewis sales (plus a little bit more besides) had just disappeared from the club overnight.