Burnleys takeover leaves club 90 million in debt

[PurpleCanary 5,557]

16 minutes ago, king canary said:

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!

 

Sorry, I hadn't seen that specific quote from Badger. But otherwise I don't think posters have been using the Burnley deal as a general warning. No two takeovers are the same.

[king canary 7,605]

8 minutes ago, PurpleCanary said:

Sorry, I hadn't seen that specific quote from Badger. But otherwise I don't think posters have been using the Burnley deal as a general warning. No two takeovers are the same.

I agree, that is basically my point.

What does this say about Norwich? No idea.

Is it good or bad for Burnley? Impossible to tell at this stage.

Debates over ownership and finances on here have become so polarized though (and I know that this is something I've played a part in) that any news like this has people confidently asserting that it proves their already held view. 

[Badger 2,405]

3 hours 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.

It is a reasonable assumption that ALK had to involve external investors because they didn't have the money themselves - why else would they borrow so much money at so high a rate of interest? 

They wanted to buy and the previous owners only wanted to sell for a huge amount of money - which they got!

[Badger 2,405]

21 hours ago, king canary said:

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. 

It's not at all "amazing:" it is entirely rational and consistent with a general set of beliefs.

People like myself are aware that when people talk of "external investment" it is normally a euphemism for borrowing. Borrowing is not in all circumstances a bad thing, but you would want to look at how the money borrowed is spent.

In Burnley's case it seems to be that the money borrowed is being used to buy the club in the first place which is particularly dangerous, but in other circumstances it often tends to be spent on risky player acquisitions, which rarely pay off in the long run. Your information about the analytics approach is interesting and if they have great expertise there there might be positive outcome but on then basis of the evidence available thus far it looks like a disastrous deal for fans of Burnley. At present, the cash pile that they had saved for investment including player purchases (not strictly investment) has been used to buy the club, so is likely to lead to less money used in the transfer market rather than the cash ile many assumes arrives with "external investment."

[Parma Ham's gone mouldy 2,219]

4 hours ago, Badger said:

People like myself are aware that when people talk of "external investment" it is normally a euphemism for borrowing. Borrowing is not in all circumstances a bad thing, but you would want to look at ‘how the money borrowed is spent.’

....and indeed how it is borrowed...

( what rate of interest, what liabilities are incurred, what it is secured on and what assets or liquidity - if any - is introduced as part of the transaction....)

Who stands to benefit and how is always interesting. What liabilities are added or removed (and from who) are often instructive. When a new entity uses existing assets (of the entity it is buying) to leverage, it is not unreasonable to liken it to buying someone’s fully paid up debt-free property by taking out a (say a very high interest, uncompetitive) mortgage on that very same property to pay for its own purchase. That does not mean it cannot work or that debt is per se bad. 

The answers to the above are often indicative of the ‘type’ of takeover (and allows for a reasonable judgment of its ultimate purpose and a considered view of its chances  of success and - I would like to think crucially - the benefits to the fans as stakeholders)

If a speculative investor has limited liabilities, takes over from someone unable to continue and needing to sell, uses (someone else’s) existing assets and unsecured borrowings, then it would not be unreasonable to assume that the initial seller may have sold out to anyone with access to the funds to buy (or perhaps more accurately the ability to effect the mechanism necessary to purchase) without necessarily acting as a trustee might and thus might reasonably be observed to be risking going against the odds of what might be considered beneficial to fans.

The said speculator might have a free hit, though the fans (‘the club?) might face far more negative consequences (further into the future). The often-heard term `historic debt‘ might relevance here, in that a 'mortgage-type‘ debt might last 25 years or more if extended or rolled over into another product or form). The upside for the speculator would thus be low risk, though the risk liability has been hedged by them via the purchase mechanism and the downside risk is loaded onto to sporting club which ‘only’ hurts fans via decreased  sporting level and the debt on the fixed assets not being  cleared (see earlier data on Manchester United Glazer 2005 turnover: £660m debt taken on at takeover, £1bn paid by club in interest and fees, £510m still owed 2019)

Burnley as a club had no debt and had cash. Now it doesn’t. There is a new name above the door, promising great things - as any new entrant tends to do - though name-changes (as Delia herself said) changes nothing for the club unless the new buyer can change fundamentals or has the capacity to withstand harder financial hits, sustain ongoing losses better or has the capacity to take greater risks.

Intention and motivation  - as Delia has often stated - therefore really matters. It is a football club, not a chain of cinemas.

Parma

 

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

[Badger 2,405]

7 minutes ago, Parma Ham's gone mouldy said:

The club had no debt and had cash. Now it doesn’t.

Exactly PLUS it also has big debts! If Burnley are relegated the matchday revenue does not even cover the interest costs!

 

 

[Parma Ham's gone mouldy 2,219]

30 minutes ago, Badger said:

Exactly PLUS it also has big debts! If Burnley are relegated the matchday revenue does not even cover the interest costs!

 

 

An analyst might - quite reasonably with the available information - judge that a speculator had seen Burnley were at the top of their capacity, with a fear that this is their ceiling, added to an emotionally-attached owner needing to sell, being then susceptible to grand promises, with upside risk a free hit for the speculator and downside risk amortised by being passed on to someone else. 

The speculator could be seen to be borrowing hard on a Wonga credit card at the 29.9% instead of (say) 6% for average business bank loans, because the deal is structured in such a way that the speculator has no real liability on the downside. Others appear to be on the gravy train at high interest rates too. 

In the meantime there is certainly currently the capacity to pay the high interest for a while, guaranteeing nice-looking investment returns and all is well provided things continue on an upward trajectory. 

Who carries the liabilities is always key. 

In the case of football if it is ‘only’ sporting level, happy fans and owning your own assets then these factors are rather esoteric in investment return terms and rather overlookable....especially if I put it in 10 and get out 20 in the meantime.

Manchester United have grown considerably in all areas, dramatically so. But then so has football.  Perhaps the £1bn that has gone out of the club can thus be justified. Perhaps the takeover was just good timing and the crazy high PIK note rates thus payable. 

If United (Burnley..Norwich?) owned everything without debt - and no takeover had occurred - where would that £1bn have gone and what could they have done with it?

Better off or worse off? Genuine question and not necessarily an obvious answer. If the Glazers brought know-how and generated the growth via wit and wiles then all can be justified. 

If they just timed it with a power-vacuum, loose structure and naivety then that Billion looks a little less justifiable. Mind you, that’s capitalism for you. It’s the worst system of all, apart from all the others. 

Perhaps Delia’s care over would-be buyers should be more scrutinised in context. Just having access to the money to buy should never be enough for Norwich City. It is and must always be more than a commodity or vehicle. 

Parma 

nb: As stated previously, this does not mean that good models allowing for investment and valuable, desirable growth do not exist. 

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

[sgncfc 1,227]

All of this discussion does of course assume that everything in the original Guardian article is true. My experience of the media would suggest that that might not be the case. It is very difficult to trot out things as "fact" when you don't actually have any evidence yourself that it is true - for instance that Burnley really did have £40m unencumbered cash in the bank which we assume was earmarked for transfer for some reason (unlikely, in the current environment).

I'm not defending the deal as reported, just that I suspect the report is not completely true in all respects.

What does appear to have happened though, without question, is that Burnley have become a financial transaction rather than staying as the self funded, locally valued, community club they were before. That change has happened because the previous owners wanted out and this was the way they chose to get what they considered full value. In doing so, to contradict Parma somewhat, they have indeed ceased to be a "club" and have become a chain of cinemas. MDL will get their money back, even if ultimately that means selling off assets.

In terms of the relevance to Norwich, a deal like this is clearly an option for our current owners. We have no idea what their thoughts really are or how they are transferring ownership but I guess we have to hope they've already started gifting their shares or their nephew will have a massive IHT bill to pay in a few years time, and he might need to raise some cash........

[PurpleCanary 5,557]

16 minutes ago, sgncfc said:

All of this discussion does of course assume that everything in the original Guardian article is true. My experience of the media would suggest that that might not be the case. It is very difficult to trot out things as "fact" when you don't actually have any evidence yourself that it is true - for instance that Burnley really did have £40m unencumbered cash in the bank which we assume was earmarked for transfer for some reason (unlikely, in the current environment).

I'm not defending the deal as reported, just that I suspect the report is not completely true in all respects.

What does appear to have happened though, without question, is that Burnley have become a financial transaction rather than staying as the self funded, locally valued, community club they were before. That change has happened because the previous owners wanted out and this was the way they chose to get what they considered full value. In doing so, to contradict Parma somewhat, they have indeed ceased to be a "club" and have become a chain of cinemas. MDL will get their money back, even if ultimately that means selling off assets.

In terms of the relevance to Norwich, a deal like this is clearly an option for our current owners. We have no idea what their thoughts really are or how they are transferring ownership but I guess we have to hope they've already started gifting their shares or their nephew will have a massive IHT bill to pay in a few years time, and he might need to raise some cash........

Conn has an excellent reputation, and makes clear he has at least one source who knows what the main points of the deal are.

[Parma Ham's gone mouldy 2,219]

40 minutes ago, sgncfc said:

In doing so, to contradict Parma somewhat, they have indeed ceased to be a "club" and have become a chain of cinemas.

You are not contradicting me at all. That was precisely the polemic Faustian bargain I was alluding to. 

As a financial transaction such esoteric interpretations may well have no ‘value’. Once you have trodden down this path once, it may be true - even for fans - thereafter. 

As a fan of a Club - such as Norwich - who are still following a model of (I will call it) trusteeship; the distinction is I suggest absolutely fundamental. 

Parma 

Nb: Again this is no way precludes other investment models and ownership structures that could benefit Norwich. 

In simple terms I believe it is valuable and instructive to highlight weaker, higher-risk, higher-leverage, more opportunistic models to allow for better understanding of why other models might be different, better and more suitable to (say) Norwich

nb2: Fans - and indeed owners and shareholders - should be careful of putting all investment vehicles or ownership change opportunities into the same soup pot. 

A bad example does not make takeovers (or even debt as Badger has said) bad. As with life, motivation and intention are key. 

Business is still business and you must have the chips to play at the top table or you are taking risks - straining your model - like anyone else. Just in a different way and at different seams. 

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

[Icecream Snow 761]

Close up of the Keiran Maguire graph, interesting that we did quite well.

[Badger 2,405]

1 hour ago, sgncfc said:

All of this discussion does of course assume that everything in the original Guardian article is true. My experience of the media would suggest that that might not be the case. It is very difficult to trot out things as "fact" when you don't actually have any evidence yourself that it is true - for instance that Burnley really did have £40m unencumbered cash in the bank which we assume was earmarked for transfer for some reason (unlikely, in the current environment).

The Conn article is not the first to find this. The Athletic reported more or less the same a month earlier (see link). I posted it on here on the previous thread about Burnley. It could be that that Conn did a "cut and paste job" on the previous article but given professional reputation and all that is not just as likely that they have the same sources? 

We also know that "MSD Holdings, the company that has lent to Southampton, Derby and Burnley, itself borrowed money at 9% from Guernsey Stock Exchange last year so presumably will be lending at higher rates than this to clubs to make a return."

The Price of Football also retweets someone he follows talking about: 

"Interesting talk today about owners of newly acquired Premier League scrabbling around to raise £30m (by trying to sell equity stake at far higher valuation). Cash needed to repay debt owed to previous owner. Crazy business."

Of course we don't know it's true and we don't know it's Burnley but I wouldn't lend them money!

 

 

 

 

[chicken 2,624]

On 03/02/2021 at 11:30, 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.

 

 

You can also add that @sgncfc suggests the debt/loan is made able due to predicted incomes. This also isn't entirely true. Loans can also be based upon assets. This is why in footballing terms many of the loans have shorter deadlines or expectations of certain returns within a set period. Because some of the assets have a shelf life, eg; players.

That loan is offset against whatever income is 'expected' and the value of things like the ground, the land the training facility is on, the valuation of the current squad and the club being in the premier league.

[Kenny Foggo 1,116]

Our current owners have said they want the best for the club, therefore would surely only ask for the amount they have invested back or a small profit thus making us more attractive to investment? If also, we have a season or two without saleable players how do we, in the current model, remain "self sufficient"? 

[nutty nigel 7,531]

13 minutes ago, Kenny Foggo said:

Our current owners have said they want the best for the club, therefore would surely only ask for the amount they have invested back or a small profit thus making us more attractive to investment? If also, we have a season or two without saleable players how do we, in the current model, remain "self sufficient"? 

But have they said they want what you think is best for the club? 

[nutty nigel 7,531]

22 hours ago, Icecream Snow said:

Close up of the Keiran Maguire graph, interesting that we did quite well.

I did put this on another thread. I still wonder about Watford and Bornmuff who were relegated having borrowed against future tv payments last year. Were they relegated with some parachute payments already spent?

[NewNestCarrow 191]

On 02/02/2021 at 13:09, sgncfc said:

 

"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.

 

The most recent accounts show that we absolutely DO have external debt, but it is a lot easier to boast about being debt-free than admitting otherwise [ £10.46m, fully repayable in May @ 5.2% interest ].

 

[hogesar 9,658]

1 hour ago, Kenny Foggo said:

Our current owners have said they want the best for the club, therefore would surely only ask for the amount they have invested back or a small profit thus making us more attractive to investment? If also, we have a season or two without saleable players how do we, in the current model, remain "self sufficient"? 

I mean whats best for the club isn't necessarily selling it on the cheap.

[BigFish 1,986]

17 hours ago, Kenny Foggo said:

Our current owners have said they want the best for the club, therefore would surely only ask for the amount they have invested back or a small profit thus making us more attractive to investment? If also, we have a season or two without saleable players how do we, in the current model, remain "self sufficient"? 

 

16 hours ago, hogesar said:

I mean whats best for the club isn't necessarily selling it on the cheap.

The idea that S&J should sell the club for a song isn't only not necessarily the best for the club, it is ridiculous. As a sceanrio it would attract every asset stripper looking at football for a cheap buck. The Burnley eaxmple shows how a venture capitalist could structure a deal to extract the "true" value of the club e.g. the difference between what S&J pocketed and what they could have. S&J get their money back, VCs get rich & NCFC get a massive debt.

As Parma always caveats his posts there are other ownership modele that might work. However, this is just a stupid idea.

[Parma Ham's gone mouldy 2,219]

8 hours ago, BigFish said:

 

The idea that S&J should sell the club for a song isn't only not necessarily the best for the club, it is ridiculous. As a sceanrio it would attract every asset stripper looking at football for a cheap buck. The Burnley eaxmple shows how a venture capitalist could structure a deal to extract the "true" value of the club e.g. the difference between what S&J pocketed and what they could have. S&J get their money back, VCs get rich & NCFC get a massive debt.

As Parma always caveats his posts there are other ownership modele that might work. However, this is just a stupid idea.

Indeed @BigFish.

Furthermore ‘we do not have to guess if we can read the book’. Delia has not taken the ‘Burnley route’ and sold out for any kind of profit or gain. 

Delia invested around £11m to achieve majority ownership. The value of her NCFC shareholding should really now be many times in excess of this. 

I genuinely believe her when she intimates that this is not the point of her involvement or her original intention. I also respect her statements that selling shareholdings ‘just changes the name above the door’ unless other actions accompany the share buyout. Thus it is not about ‘her’ or what she might personally gain. She wants the best for Norwich (as a fan). I totally believe this.

Naturally this does raise a question (which @Kenny Foggo may or may not have intended).   
It is actually quite hard for her to sell. There would be a (likely significant) profit in any share share. The difference between ‘true value’ and ‘transaction value’ could be exploited by investor-speculators (however well or credibly they present) as @BigFish states. It would not fit comfortably with her trusteeship stance to then cash out spectacularly and pocket the profit (though she would of course be quite entitled to do this).

There are models that would allow Delia to retain stakeholding / shareholding / influence / position whilst allowing for further investment and broader ownership structure, with increased financial power and all of the important, valuable and cherished community elements preserved and indeed enhanced. 

Whilst I am unconvinced that the nominal ‘hand-down’ to Tom will in reality actually occur, I would not at all preclude the ‘gift’ of shares (perhaps an £11m offer at most) in circumstances appropriate to all. 

Given that Delia has not ‘cashed out’ - when paper profits to her might be considerable - this may well be a sign of great decency on her part. Rare indeed. 

In this context being highly selective about who or what entity or a encouraged or allowed to invest or become involved in Norwich City  can be seen as a fine and decent piece of trusteeship, rather than any kind of obstructive protection of the status quo. 

Nevertheless the owners of NCFC did not inject significant shareholder funds to build the ‘much-needed’ new training centre developments. Transfers are funded out of Company cash. ‘Self-sustainability’ does de-facto not require or expect shareholders to inject any further funds. This is quite unusual in football. If you picked up an asset cheaply and it then runs itself on its own cash, you likely have a considerable paper asset. Not a bad position and quite unusual for high level football club owners I would suggest. 

I suspect there will be come a time - perhaps in the not too distant future - when the structure of Norwich City as an entity will change. 

We should be grateful that when that change comes it will have been carefully - and if you like ‘reluctantly’ - considered. 

Norwich City is not a chain of cinemas. But many clubs now are. We could have been. We need never be.

Parma 

 

Edited February 5, 2021 by Parma Ham's gone mouldy