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CaptnCanary

Clarification from someone who understands 'Debt'

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Why do many people on here keep insisting that the clubs £20m debt increases the value of the club??? It does not! Its a DEBT! If you wanted to buy a house for £160k but the seller said I have a £200k mortgage on the property would you think the house was worth £360k? No of course you wouldn''t, you would say the owner is in negative equity by £40k. So if someone was willing to take on the property and the debt for nothing it would be a pretty good deal. I hope that clarifies things for those who keep insisting the club is worth £36m.

 

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The thing is, the value of a business is not necessarily the difference between assets and liabilities as with a house. It will also be related to turnover, past profits and likely future profits. In the case of our football club it is essentially a loss making business and so this would deduct from the value of the club as a company.

If the clubs debt cannot be refinanced upon change of ouwnership (unlikely in the case of Cullum I believe) then yes, the debt would add to the cost of taking over the club. However, this is completely different to adding to the VALUE of the club which many posters keep insisting upon. The total value of the club based upon £30 a share is £16m. However, that figure is basically just a made up figure based upon the share issue price. This being because the share price does not vary according to market forces as it would on the stock exchange. The real value of the club lies within the accounts and in the case of our club would actually be very little unless the value of our stadium and other assets vastly outweigh the current debts. Anyone have any idea on the value of the clubs assets?

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This is absolutely correct, some of you may remember Ken Bates buying Chelsea for £1, he was in fact taking all the debts on.

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Your analysis is correct - The value of the net assets after deducting the debt is 16m which is the basis for the share value. The nominal share value is completely irrelevant

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Debt doesn''t increase the value, but it may increase the cost to buy the club if we assume that the debt has to be repayed.  If we take the assumtion that it does not then the debt figure can be removed.

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[quote user="T"]Your analysis is correct - The value of the net assets after deducting the debt is 16m which is the basis for the share value. The nominal share value is completely irrelevant[/quote]

Are you saying that you know the clubs assets to be worth around £36m? I have no idea on this figure so would appreciate confirmation from someone that knows. If the assets are indeed worth £36m then a valuation of the club at £16m would be correct.

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Yep the last Balance Sheet shows the club has assets of £51 million and debts of £35 million, take one from the other and you are left with £16 million.

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Yes the total assets less the current liabilites are actually 38m at 31 may last year per the accounts so yes after you deduct the debt and other items you get 16m of net assets.Most of the value comes from the freehold value of land and buildings of 34m.

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Yep the last Balance Sheet shows the club has assets of £51 million and debts of £35 million, take one from the other and you are left with £16 million.Where has that extra £15m of debt appeared from?

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Wow £35m debt? Where did that come from?

Anyway, if the difference between assets and liabilities is indeed £16m as suggested then that is the initial valuation. However, if we assume the club will make losses over the next few years then that figure must be reduced downwards to make a realisted ''purchase value''. Say for arguments sake we said the club was actually worth £10m then Cullum would need only pay £5m for 50% of the shares and then have £15m left over from his £20m to invest in players. I believe that this ''purchase value'' is the most likely source of the disagreement between D&M and PC. D&M are probably insisting on the £16m valuation whereas Cullum probably sees the real value as closer to nothing (and he is probably correct).

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[quote user="T"]

Yes the total assets less the current liabilites are actually 38m at 31 may last year per the accounts so yes after you deduct the debt and other items you get 16m of net assets.Most of the value comes from the freehold value of land and buildings of 34m.

[/quote]

Hmm I suspect that figure of 34m is dropping rapidly in the current housing market

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Our only assets are in the general infrastructure as the current squad are pretty much worthless in the scheme of things, I would have thought that any offer to to take the club for effectively nothing would have to include the removal of the debt, otherwise if the debt was to remain then one would have to match the asking price.

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[quote user="Salahuddin"]Our only assets are in the general infrastructure as the current squad are pretty much worthless in the scheme of things, I would have thought that any offer to to take the club for effectively nothing would have to include the removal of the debt, otherwise if the debt was to remain then one would have to match the asking price.[/quote]

Its not clearing the debt that is required so much as taking on ownership of the debt

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[quote user="CaptnCanary"][quote user="T"]

Yes the total assets less the current liabilites are actually 38m at 31 may last year per the accounts so yes after you deduct the debt and other items you get 16m of net assets.Most of the value comes from the freehold value of land and buildings of 34m.

[/quote]

Hmm I suspect that figure of 34m is dropping rapidly in the current housing market

[/quote]

You may not have noticed but the assets are a football stadium, training facilities and other associated functions - I have not got the accounts to hand but I think you will find that the Property is amortised (ie counted) at cost value rather than market value therefore the value will be pretty constant.

The remainder of the "debt" i think you will find relates to pre payments on Season tickets (20,000 x £300 = £6m) aand other short term creditors included in the accounts which are covered by similarly liquid assets.

The fact of the matter is that the offer on the table was a sum of £0 for control of the club. Basically Cullum is reported as effectively saying I will willingly pay to have your car filled up with petrol - on the proviso that when it is full it will become my car.

 

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I think you will find that alot of building land is owned by the club which has a value related to the value of the properties that can be built on it.

I also said earlier that I suspect Delia values the shares at £16m whilst Cullum values them closer to zero and that this is probably where the problem lies. I also explained why Cullum is probably correct.

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The land is at a valuation which is slightly higher than cost and the building are in at depreciated cost

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[quote user="sxcanaree"][quote user="CaptnCanary"][quote user="T"]

Yes the total assets less the current liabilites are actually 38m at 31 may last year per the accounts so yes after you deduct the debt and other items you get 16m of net assets.Most of the value comes from the freehold value of land and buildings of 34m.

[/quote]

Hmm I suspect that figure of 34m is dropping rapidly in the current housing market

[/quote]

You may not have noticed but the assets are a football stadium, training facilities and other associated functions - I have not got the accounts to hand but I think you will find that the Property is amortised (ie counted) at cost value rather than market value therefore the value will be pretty constant.

The remainder of the "debt" i think you will find relates to pre payments on Season tickets (20,000 x £300 = £6m) aand other short term creditors included in the accounts which are covered by similarly liquid assets.

The fact of the matter is that the offer on the table was a sum of £0 for control of the club. Basically Cullum is reported as effectively saying I will willingly pay to have your car filled up with petrol - on the proviso that when it is full it will become my car.

[/quote]

Booger Me![:O] If he can afford to fill my car up with petrol and with the present ridiculous prices at the pumps....He must be MINTED!

Shame it''s diesel though.....

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The idea of valuing a club based on it`s break-up value- ie. what the club would be worth if it was wound-up, assets sold and debts payed- is utterly ridiculous to me because it simply won`t ever happen.  It`s been tried at Wrexham and Cambridge (and probably others) and the fans and local media unite to make it impossible.

T, i think i could find some threads where we were discussing the value of the club a few months ago in which you state that on future earnings/profits Delias` shares are basically worthless.  Now you say £30 per share with Delia receiving more than double what her shares initially cost is fair and reasonable??

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[quote user="Badger"]

camuldonum on another thread says that Callam said that £56 million was a fair valuation. I enclose the link.

 

http://www.eveningnews24.co.uk/search/story.aspx?brand=ENOnline&category=News&itemid=NOED09%20Jul%202008%2008:34:17:123&tBrand=ENOnline&tCategory=search

[/quote]Of course this statement was made before Mr. Cullum became involved enough in negotiations to have his financial advisers audit the latest accounts.At face value £36m for a Club like ours seems a fair valuation, start looking into it and there''s £20m publically acknowledged debt and £15m not so well broadcast debt .Stick any other Business with assets of £51m and liabilities of £35m (and by the admittance of it''s own CE having no way to make a profit in the forseeable future) up for sale for £36m you will be laughed at.

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[quote user="Ralph Wright"][quote user="Badger"]

camuldonum on another thread says that Callam said that £56 million was a fair valuation. I enclose the link.

 

http://www.eveningnews24.co.uk/search/story.aspx?brand=ENOnline&category=News&itemid=NOED09%20Jul%202008%2008:34:17:123&tBrand=ENOnline&tCategory=search

[/quote]

1. Of course this statement was made before Mr. Cullum became involved enough in negotiations to have his financial advisers audit the latest accounts.
At face value £36m for a Club like ours seems a fair valuation, start looking into it and there''s £20m publically acknowledged debt and £15m not so well broadcast debt .2. Stick any other Business with assets of £51m and liabilities of £35m (and by the admittance of it''s own CE having no way to make a profit in the forseeable future) up for sale for £36m you will be laughed at.
[/quote]

1. Surely it can''t have changed all that much?

2. I''m not sure if that is the case at all. Company pricing is far more complex than assets minus liabilities.

I genuinely don''t know why the talks broke down and nobody has yet convinced me that they do either. People just end up resorting to their previous prejudices and assume that it was either all Delia''s or all Cullams.

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The book value of the shares per last accounts is 16 million. This is based on the assumption that the stadium and buildings etc are worth 34 million. At the moment you look at the business on a going concern basis as it is trading normally but as an investor there is little point in paying 16 million for what is virtually a nil return because the club are barely making a profit and in fact could be operating at a loss. Few clubs will make a profit because the moment there is a bit of spare cash the supporters will demand it is spent on players. You only have to look at this website !!!!! If the financial situation deteriorated to an extent that the club had to go into liquidation i.e. bust and went out of the football league then we are basically left with a building site. Taking into account the costs of dismantling the stadium the residual value would not be a lot. In that scenario the shares are probably worthless

Of course the worst situation rarely happens because football is a bit different and when the club starts to find it difficult to pay its bills a saviour of some description will appear. The local business community will unite and ultimately some deal will be done. In those circumstances the shares will be of little value so we see situations as someone else has mentioned whereby the likes of Ken Bates buys Chelsea for a pound.

Turning to the current situation at Carrow Road the crux of the matter seems to be that Peter Cullum does not regard the club as being worth 16 million but Delia will take a chance and hope someone else with money to throw away does agree with her. At the end of the day its all about negotiation but understandably Peter Cullum is not prepared to put in 20 million - far more than anyone else - unless he has control. I do think the club has not handled matters very well and comments such as legal issues and inability to re-negotiate the existing loans is just a smokescreen although I suspect the "Delia Catering Brand" etc must come into play. I would guess that Delia relies on her other directors and senior staff to advise her and obviously they are concerned as to their future if Peter Cullum takes control. Delia is obviously hoping that in 12 months time there will be considerable improvement on the football side albeit on limited resources, and she will be in a better negotiating position.Sadly I cannot see it happening.

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[quote user="vos"]

The book value of the shares per last accounts is 16 million. This is based on the assumption that the stadium and buildings etc are worth 34 million. At the moment you look at the business on a going concern basis as it is trading normally but as an investor there is little point in paying 16 million for what is virtually a nil return because the club are barely making a profit and in fact could be operating at a loss. Few clubs will make a profit because the moment there is a bit of spare cash the supporters will demand it is spent on players. You only have to look at this website !!!!! If the financial situation deteriorated to an extent that the club had to go into liquidation i.e. bust and went out of the football league then we are basically left with a building site. Taking into account the costs of dismantling the stadium the residual value would not be a lot. In that scenario the shares are probably worthless

Of course the worst situation rarely happens because football is a bit different and when the club starts to find it difficult to pay its bills a saviour of some description will appear. The local business community will unite and ultimately some deal will be done. In those circumstances the shares will be of little value so we see situations as someone else has mentioned whereby the likes of Ken Bates buys Chelsea for a pound.

Turning to the current situation at Carrow Road the crux of the matter seems to be that Peter Cullum does not regard the club as being worth 16 million but Delia will take a chance and hope someone else with money to throw away does agree with her. At the end of the day its all about negotiation but understandably Peter Cullum is not prepared to put in 20 million - far more than anyone else - unless he has control. I do think the club has not handled matters very well and comments such as legal issues and inability to re-negotiate the existing loans is just a smokescreen although I suspect the "Delia Catering Brand" etc must come into play. I would guess that Delia relies on her other directors and senior staff to advise her and obviously they are concerned as to their future if Peter Cullum takes control. Delia is obviously hoping that in 12 months time there will be considerable improvement on the football side albeit on limited resources, and she will be in a better negotiating position.Sadly I cannot see it happening.

[/quote]

I enjoyed reading that, and wholly concur with what you have to say, thanks vossy.[Y]

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I''ve noticed a hard but fair challenge from a least a couple of posters today on an apparent difference between my views. I basically agree with VOS. I''ve said most of this in various other places elsewhere and have even been using it as an unusual and interesting case study for interviews/training so here goes

1 your starting point is market value of shares but shares are not publicly traded so that does not help here

2. then you look at cash flows - most clubs are break even because the money goes back into players - here cullum and delia are agreed that you don''t get any return - eg Delia does not get any dividend, interest or salary so the majority of football clubs are worthless economically.

3 so you look at the net assets which are 16m but I agree with VOS analysis - most of it is buildings which are only useful as a football club - in fact I doubt you would realise enough to cover your debt - the argument is that 16m is the net money that has been sunk into the club and that 16m equates to the shareholders getting their money back adjusted for inflation and a bit of interest and in that sense 16m is a fair price which is different to saying it has an economic value.

4 but normal valuation rules don''t apply as football clubs are like diamonds or other rare commodities - you don''t pay for the cash flows you pay for the rarity, desirability factor and therefore you would look at what clubs in a similar financial position are worth. There was a report on bbc based on a deloitte report -which I can''t recall in detail but eg Hull when they were in the championship were valued at 10m. Delia has a rare asset which you can not make cash out of and few people can afford but it has unique desirability factor.

So in conclusion football clubs do not have a cash flow value but 16m is a fair price. However, what it is worth is simply whatever 2 parties agree as NN for instance pointed out. My point is that most people if they were being honest would want their money back if they were selling control of a unique and desireable asset it to someone worth 1.7bn. That does not mean that I was not starting to dream again of another night like the night we knocked Bayern Munich out of the UEFA cup but I try to see things as if I was in their position. I hope that clarifies my views. I also think while its interesting, all of us including myself should move on. I suspect PC might have flushed out some more money for players and he will be back when he has sold up if he feels for the club as most of us on here do even if we have different views on this matter.

Incidentally and I know this will wind a certain poster up but that is not my intention - there is absolutely nothing wrong in investing in say a car park or a new stand for example providing that the revenues exceed the cost of the finance used to develop the project as this gives net cash flows which can be used to pay for players - and this is the same principle that applies to any business

 

 

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Thank you Vos and T.

Although you come at it from slightly different angles feel better informed.

Shame we can''t get the same degree of information/ analysis fro the local press.

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[quote user="colneycanary"]Can you explain this to Delia and the Board then. They couldn''t agree on a valuation of the club, thats why the talks broke down![/quote]How do you know? were you there? did you take minutes? NO.  you dont know what happened, no one does until the club or cullum make an official statement to tell us why and we dont think that is gonna happen.

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