I know where the money has gone.

[The Fish Seller 0]

Norwich City FC~ The only whole business securitisation in football.An alternative to the secured loan structure is the whole business securitisation. This is a more recent development in football securitisation. The first (and so far the only) whole business securitisation has been that of Norwich City (in April 2003) with its £15 million securitisation (Eversheds, 2003). This was an interesting securitisation because £7.5 million of the sum raised went to increase the capacity of the stadium and the other half of the fund was used to re-finance the club by clearing the club’s costly short and medium term debt. The whole business securitisation technique uses a variant of the concept of a secured loan rather than a true sale structure (Davidson et al, 2003, pp. 459-460). The essential difference between the two models is that in a whole business structure it is the cash flows from the entire range of operating revenues generated by a whole business, or a segregated part of a larger business, that are securitised. Deacon defines the nature of the whole business deal as a “ transaction [that] does not attach to certain contractual payments over time (as is the case with mortgage or auto loan transactions) and does not operate within a particular contractual framework (such as the customer card agreement for a credit card transaction). It also cannot be defined by means of eligibility criteria (as in the case of future flows receivables), but rather attaches to the general cash flow arising from a business” (Deacon, 2004, p. 173). This means that a wider range of assets could be offered to support the securitisation, which in some cases might lead to larger sums being raised. However, this type of deal can also be more costly to establish because of, inter alia, the additional legal costs of setting up the appropriate corporate structures to manage the cash flows and the additional costs of arranging the necessary credit enhancements and appropriate covenants to achieve a high credit rating from the credit rating agencies.    The structure of the whole business securitisation is very similar to that of the secured loan model insofar as the aim of the structure is to ring-fence the operating cash flows from both the claims of other creditors of the club and from the risk of the club’s insolvency. The basic structure of the WBS rests upon the parent company of the club incorporating a wholly owned subsidiary to hold all the shares in a second subsidiary, which operates the business, owns the assets and borrows the money from the SPV. The SPV will also be a wholly owned subsidiary of the parent and it will act as the issuer of the bonds and its memorandum of association will restrict its activities to the activities required by the transaction. The bondholders obtain security for this deal by this corporate group granting the investors fixed and floating charges over all of the group’s assets. Often the securities are not given to the SPV directly, but to a security trustee who holds them on trust for the SPV. The SPV will typically give a fixed and floating charge over all of its assets to the security trustee, who will hold that security on trust for the bondholders. This structure is also likely to be supported by an unsecured guarantee from the football club and a secured guarantee from the parent.

Source. linkQuite an interesting though disturbing read.

[yellow hammer 131]

It''s well worth the time and effort to read the link to have a good understanding of securitisation. It seems that we have borrowed not just on the basis of our fixed assets, but on the value of future gate receipts. This was done at the time when we were in the Premiership and earning Premiership income. Now most of that income has gone, we''re still left with the repayments on the securitised loan and this is no doubt why we cannot afford to invest more that a few 00k in the team.

Should the worst happen and we are relegated, if season ticket sales plumment then we are in the sticky stuff from a financial as well as a footballing point of view. That last home win of the previous season probably saved our club from administration in the next few months.It can very easily all come tumbling down.

[Grumpy Old Blogger 0]

Two other quotes from the full article give us some interesting insights. Clearly the club are hugely dependant on maintaining the 25,000 home attendances and ensuring that season ticket sales remain at current levels. Any drop off will be a disaster in financial terms. It also appears that a relatively small change in income stream that isn’t matched by corresponding overhead savings can quickly tip the arrangement.

Quote -

“…….. some of the other clubs that had thousands of dedicated supporters who were ready to turn up to matches regardless of how badly their team was performing on the pitch were receiving favourable investor attention as being good potential candidates for securitisations.”

 

We can also see an explanation for the reluctance to be seen to spend on transfers at the same level as other clubs that, on the face of it, are not as well supported or financed as we appear to be.

Quote -

“The problems with football securitisations became apparent when Leicester City and Ipswich Town went into administration………The reasons for these difficulties were structural, economic and managerial. Many clubs had spent too much of their money on buying new players and on paying increased wages to the existing players……….. Ipswich Town and Leeds United were prime examples of clubs that had spent too much money on players”.

 

It has to be remembered that half of the securitisation that NCFC took onboard was for the replacement of the old South Stand which was at the point of being condemned and therefore unusable and this replacement itself increased the capacity of the ground and probably became self funding. Much of the other debt was probably taken on in “Chase years” as a result of the land deals around the ground which have be largely profitable.

 

Overall, probably the right thing to have done at the time but the nett result is that we have a huge debt to service and nervous investors. This would explain the board’s comments relating to the debt needing to repaid in the event of any change of ownership. I’ll bet they can’t wait to get their money out without forcing administration.

 

So the message is – keep turning up in huge numbers to support your team, don’t expect any significant investment on the playing side and be grateful you still have team to support whatever league they are playing in. That, I guess, is the depressing reality of football life outside the Premiership and I’ll bet there are a lot of supporters who visit Carrow road and go away envious.

[Mister Chops 7]

[quote user="Grumpy Old Blogger"]

 

So the message is – keep turning up in huge numbers to support your team, don’t expect any significant investment on the playing side and be grateful you still have team to support whatever league they are playing in. That, I guess, is the depressing reality of football life outside the Premiership and I’ll bet there are a lot of supporters who visit Carrow road and go away envious.

[/quote]Well said, and good points... though I imagine the envy of visiting away fans is tempered by the fact they are likely to take at least one point with them if not all three.  That''s the other variable in this equation - the inability to divert funds to strengthening the team.  Nobody wants to "do a Leeds", or even "do a Gretna", but neither do we want to decay and sink into League One because minimal funds were available.

[Mello Yello 2,572]

Andy Cullen''s gone to ply his trade at the town of the concrete cows, the MK Dons......I hope his replacement here at Carra, has the same quality and ability to convince the free-paying die-hard support to part with their dosh come next February/March, (especially if we have another dire and mediocre season)......

If we stay away and don''t buy the ''hype''......."Oh Dear!"

Let''s make a mental note of the current MK attendance''s......and see what they are, come April next year?

[Nice and Peaceful 0]

Interesting read I agree, although I am not sure I agree that it answers the question of where all the money has gone. This question, I assume, can better be anwered from the accounts: the money arising from this securitisaion was spent on paying for the new stand and clearing the balance of the short-term loan deals, and this was presumably at a lower interest rate than had previously been charged to the club so represents good business on behalf of the club

 

As for the precise terms of the loan, beyond what will have been disclosed in the notes to the accounts I do not think that anyone who has not had the chance to view the loan agreement is in a position to comment. You could review the accounts from the previous 3 years and compare by how much long-term creditors have been reduced within the balance sheet, and also see how much interest has been charged in the profit and loss account. These would be the biggest indicators of the level of interest and capital repayments payable under the loan agreement and also, more crucially, how capable the club is of meeting these payments as the payments fall to be payable. Just because the cashflow of the club has been used as securitisation against the deal does not mean that the club is on a one-way street to bankruptcy, although it does explain why there is so little cah flow available to fund the immediate payments that most transfer deals require.

 

As for the 2nd paragraph, I am not aware of our club being run via a special purpose vehicle: if we were to be brought out by a serious investor I have no doubt that we would be as this makes perfect commercial sense to operate a business''s finances and control it''s debt in this way.

 

As an aside, are the clubs financial reports to be published in a few weeks time? I think these will give a much clearer view of the current position of the club, and I would not expect them to make very comfortable reading for the Board...

[Mello Yello 2,572]

.....and I would not expect them to make very comfortable reading for the Board...

Or the stakeholder''s and ''proper'' shareholder''s. Probably.

[Nice and Peaceful 0]

.....and I would not expect them to make very comfortable reading for the Board...

Or the stakeholder''s and ''proper'' shareholder''s. Probably.

 

Very true Mellow. I have feeling that the music will start again and the dance could resume....

[Joanna Grey 0]

Lesson 1 for today; Financial Accounting for Dummies.

Seriously guys, do you really think you understand the finances of NCFC? Everyone asks the question yet no one has ever put up a simple year-on-year list of money coming in and money going out at NCFC.

[Mello Yello 2,572]

[quote user="bunny"]

Lesson 1 for today; Financial Accounting for Dummies.

Seriously guys, do you really think you understand the finances of NCFC? Everyone asks the question yet no one has ever put up a simple year-on-year list of money coming in and money going out at NCFC.

[/quote]

You''re just a dummy unfunny bunny.....and a 20 carrot plonker.

[Syteanric 1]

[quote user="bunny"]

Lesson 1 for today; Financial Accounting for Dummies.

Seriously guys, do you really think you understand the finances of NCFC? Everyone asks the question yet no one has ever put up a simple year-on-year list of money coming in and money going out at NCFC.

[/quote]

so the annual accounts dont tell us this then?

jas :)

[Mr.Carrow 394]

[quote user="bunny"]

Lesson 1 for today; Financial Accounting for Dummies.

Seriously guys, do you really think you understand the finances of NCFC? Everyone asks the question yet no one has ever put up a simple year-on-year list of money coming in and money going out at NCFC.

[/quote]

Why not get hold of the accounts and educate yourself?

The stock response to any figures posted on here from the accounts that board supporters are uncomfortable with is "you don`t understand them therefore they are meaningless", "you are quoting out of context" or "there is no such thing as absolute truth so we can disregard your figures".  The figures are only valid if they support one side of the argument.  Pathetic, schoolyard stuff.

[Joanna Grey 0]

[quote user="jas the barclay king"][quote user="bunny"]

Lesson 1 for today; Financial Accounting for Dummies.

Seriously guys, do you really think you understand the finances of NCFC? Everyone asks the question yet no one has ever put up a simple year-on-year list of money coming in and money going out at NCFC.

[/quote]

so the annual accounts dont tell us this then?

jas :)

[/quote]

I don''t know, never bothered to look. But if they do jas, just do a quick summary for me would you? It can''t be that hard can it? One column money in, another column money out, simple.

 

Oh, and have it on my desk before 14:30.

[Mello Yello 2,572]

[quote user="bunny"][quote user="jas the barclay king"][quote user="bunny"]

Lesson 1 for today; Financial Accounting for Dummies.

Seriously guys, do you really think you understand the finances of NCFC? Everyone asks the question yet no one has ever put up a simple year-on-year list of money coming in and money going out at NCFC.

[/quote]

so the annual accounts dont tell us this then?

jas :)

[/quote]

I don''t know, never bothered to look. But if they do jas, just do a quick summary for me would you? It can''t be that hard can it? One column money in, another column money out, simple.

 

Oh, and have it on my desk before 14:30.

[/quote]

Would that be a school-desk?

[Joanna Grey 0]

[quote user="Mr.Carrow"][quote user="bunny"]

Lesson 1 for today; Financial Accounting for Dummies.

Seriously guys, do you really think you understand the finances of NCFC? Everyone asks the question yet no one has ever put up a simple year-on-year list of money coming in and money going out at NCFC.

[/quote]

Why not get hold of the accounts and educate yourself?

The stock response to any figures posted on here from the accounts that board supporters are uncomfortable with is "you don`t understand them therefore they are meaningless", "you are quoting out of context" or "there is no such thing as absolute truth so we can disregard your figures".  The figures are only valid if they support one side of the argument.  Pathetic, schoolyard stuff.

[/quote]

And you, for all your financial knowledge have never explained anything to any measure of satisfaction. I was not educated in finance or accounting, all I am asking is for someone to explain the money side of NCFC to me in simple terms - something no-one has ever done on this Forum.

[Syteanric 1]

i dont have my copy of them anymore im afraid bunny.. others on here do and im sure can come up with the information

 

jas :)

[They need to EARN the right to play us 0]

[quote user="Roedy the 5th Columnist"]Norwich City FC~ The only whole business securitisation in football....

The basic structure of the WBS rests upon the parent company of the club incorporating a wholly owned subsidiary to hold all the shares in a second subsidiary, which operates the business, owns the assets and borrows the money from the SPV. Source. linkQuite an interesting though disturbing read. [/quote]

Interesting but here''s the problem: since Norwich City is not structured as outlined above, then either the author is incorrect in stating that Norwich City is a whole business securitisation, or the author doesn''t actually understand how a whole business securitisation works - which then begs the question: what other errors are there? My recollection is that it is only the season ticket moneys that are securitised and that our deal was not structured in a unique way - we followed the structure used by Manchester City (but that is from the memory of an old man).

[They need to EARN the right to play us 0]

[quote user="yellow hammer"]

It seems that we have borrowed not just on the basis of our fixed assets, but on the value of future gate receipts. This was done at the time when we were in the Premiership and earning Premiership income.

[/quote]Incorrect: the securitisation was negotiated and the first tranche released in mid-2003. Of course your point about what would happen if the season ticket revenues ever fall is spot on.

[Mr.Carrow 394]

[quote user="bunny"][quote user="Mr.Carrow"][quote user="bunny"]

Lesson 1 for today; Financial Accounting for Dummies.

Seriously guys, do you really think you understand the finances of NCFC? Everyone asks the question yet no one has ever put up a simple year-on-year list of money coming in and money going out at NCFC.

[/quote]

Why not get hold of the accounts and educate yourself?

The stock response to any figures posted on here from the accounts that board supporters are uncomfortable with is "you don`t understand them therefore they are meaningless", "you are quoting out of context" or "there is no such thing as absolute truth so we can disregard your figures".  The figures are only valid if they support one side of the argument.  Pathetic, schoolyard stuff.

[/quote]

And you, for all your financial knowledge have never explained anything to any measure of satisfaction. I was not educated in finance or accounting, all I am asking is for someone to explain the money side of NCFC to me in simple terms - something no-one has ever done on this Forum.

[/quote]

You seem to have some very strong opinions on here bunny yet it seems they are founded on ignorance.  10/10 for honesty, 0/10 for substance.

[astrodyne 0]

And you expect more than excrement to be issued from an animal that eats its own excrement?

[norfolkbroadslim 225]

If you want Cullum in, vote with your feet and stay away from matches.

[Empty Mirror 0]

I don''t understand what difference the "whole business" structure would make in practice to our cash flow or ability to buy players.  Surely any loan is likely to be secured by a fixed and floating charge over all the assets and would therefore crystalise over the cash receipts at the moment of a default event?

[Nice and Peaceful 0]

That''s correct. The only difference is that it gives the charge holder the ability to have an element of control over the cashflow. in addition to taking poseession of capital assets. Football is obviously a slightly different case to many securitisation deals - the fixed assets of a business (EG the stands) are essential to the maintenance of the cashflow itself, and cannot be transferred to another trade.

[7rew 0]

[quote user="Mr.Carrow"]

Why not get hold of the accounts and educate yourself?

[/quote]Since Bunny won''t ask this, I will.  Could you explain to me how someone (who isn''t a shoreholders) would obtain a set of accounts. Are they available online/in an electronic format or would you have to write to someone and be sent a paper copy?I would quite like a set of the accounts, since I would better understand where you are coming from and they may convince me of your views.

[whoareyou? 0]

If my memory is correct, the first english club to borrow money in this way were Leeds Utd under Ridsdale. Once they got knocked out of the Champions league and then didn''t qualify next season, they were well and truly in deep do-do as they couldn''t afford to repay the loan instalment.

Since we have survived in the Championship with this loan, i guess the biggest problem for the board would be if season ticket sales fell dramatically and/or we got relegated.

Also the problem was that the money raised was not spent on the team but spent on the Jarrold Stand and repaying other loans.

[North Sea Canary 0]

This deal was done in 2003 for £15m and is described as a long term managed debt by the club.  However am I being too simple to ask when will it be paid off in full? and nearly 5 years down the line how much is still outstanding?  Whether it is secured on fixed assets or future total cash flows I take it has a repayment date?

[WeAreYellows49 0]

[quote user="yellow hammer"]

It''s well worth the time and effort to read the link to have a good understanding of securitisation. It seems that we have borrowed not just on the basis of our fixed assets, but on the value of future gate receipts. This was done at the time when we were in the Premiership and earning Premiership income. Now most of that income has gone, we''re still left with the repayments on the securitised loan and this is no doubt why we cannot afford to invest more that a few 00k in the team.

Should the worst happen and we are relegated, if season ticket sales plumment then we are in the sticky stuff from a financial as well as a footballing point of view. That last home win of the previous season probably saved our club from administration in the next few months.It can very easily all come tumbling down.

[/quote]

 

It''s very strange to come home and read this, a shareholder we were talking today in Squares said that the club are financially in the doo-doo''s, now having read this thread and the link, it''s quite worrying, or maybe I''m alone in worrying?

[Bury Yellow 2]

Now we all now Mr Cullum is an astute business man.

Whatever went on between him and representative(s) of this board, I have a feeling Mr Cullum is looking forward to the end of year figures.

[ron obvious 1,711]

[quote user="norfolkbroadslim"]If you want Cullum in, vote with your feet and stay away from matches.[/quote]Hear hear

[The Fish Seller 0]

[quote user="WeAreYellows49"][quote user="yellow hammer"]

It''s well worth the time and effort to read the link to have a good understanding of securitisation. It seems that we have borrowed not just on the basis of our fixed assets, but on the value of future gate receipts. This was done at the time when we were in the Premiership and earning Premiership income. Now most of that income has gone, we''re still left with the repayments on the securitised loan and this is no doubt why we cannot afford to invest more that a few 00k in the team.

Should the worst happen and we are relegated, if season ticket sales plumment then we are in the sticky stuff from a financial as well as a footballing point of view. That last home win of the previous season probably saved our club from administration in the next few months.It can very easily all come tumbling down.

[/quote]

 

It''s very strange to come home and read this, a shareholder we were talking today in Squares said that the club are financially in the doo-doo''s, now having read this thread and the link, it''s quite worrying, or maybe I''m alone in worrying?

[/quote]You are not alone in worrying. Believe it or not I didn''t post this as an anti board type thread but simply because this to me looks like a very worrying financial deal at the moment and I''m hoping some of the financial experts out there can clarify matters as I''m genuinely worried about our club..Seems we are all in agreement that future ticket sales are an important part of the deal which is all the more worrying in light of the recent departure from the Club of Andrew Cullen the man responsible for the high levels of season ticket sales.I''ve looked for more information on the matter and found the following newspaper article.Might answer some questions but also raises more.Anyone able to clarify the following?if we borrowed 15m fixed over 15 years in 2003 then why do we not owe £10m five years later. We don''t seem to be reducing the initial  loan sufficiently to meet the 15 year repayment schedule IMO.I''m worried that the Club seem to be placed second in the list of those who can decide what happens to our income, especially when the track record of securitisations in football is so poor and we are in a harsh economic environment.A wbs also regulates the amount of liability to which the creditor is exposed presumably by setting a cap on alternative borrowing sufficiently low enough to ensure the creditors liabilities are secured.As a Club we have assets of £51m and liabilities of ££35m leaving equity of £16m as reflected in the "share price" recently advertised.Add another mill or two in Directors loans this summer and I dread we are sailing perilously close to the line at which the creditor under the wbs has decided secures their loan in a worst case scenario. Cullum may have been portrayed as many things by those with a tendency to support the current regime but can anyone convince me we would not be safer with him in control and the securitisatioon deal renegotiated for an alternative source of finance than staying as we are?Here''s what I found on the matter from 2003, apologies in advance for the standard muddying of facts as we (now) know them (or currently  understand them to be in good faith).

April 30, 2003 08:41

Norwich City Football Club is taking out a £15m loan to help it survive

the financial crisis that is threatening to drive many football clubs

out of business.

The club''s securitisation deal comes in two £7.5m chunks – one to wipe

out a number of urgent debts and the other to pay for its new South

Stand.

Details of the crucial deal, which is repayable over 15 years at a

fixed rate, are revealed today as the club prepares to announce a £4m

loss for 2002-03.

In another key move, Canaries president Geoffrey Watling, whose

generosity has saved City from ruin on at least two occasions, has

agreed to put off repayment of a seven-figure loan to the club.

Mr Watling, who has been involved with the Canaries for 46 years, was

due to be paid back in September, but will now receive his money in

April 2008.

Chief executive Neil Doncaster said the £15m loan was essential as the

Canaries were expecting to make a loss for at least another three years

because of the collapse of the transfer market and the liquidation of

ITV Digital.

Its demise left City with a gap of £2m in this and the next financial year.

This year''s shortfall was offset by the £2.4m raised in last year''s

share issue, but no such scheme is lined up to cushion the blow in

2003/4.

The securitisation package is the first to be agreed with an English

football club outside the FA Premier League, and will be secured on the

club''s assets, including its Carrow Road stadium.

Mr Doncaster said last night: "We are borrowing to get through the next

few years. Doing nothing wasn''t an option. This is part of the club''s

strategy of moving as much of its debt as possible from short and

medium-term to long-term, which will allow us to work through the

financial pain caused by ITV Digital and the virtual collapse of the

transfer market."

The second instalment of £7.5m is needed to pay for the new South

Stand, despite the fact the club is going to receive £6m from Wilson

Connolly for a piece of riverside land behind the Norwich and

Peterborough Stand.

The planning consent for the development of 330 flats on that land and

the development of the South Stand came last week from Norwich City

Council, and the two were regarded as dependent upon each other.

But the nature of the agreement with Wilson Connolly means the £6m is likely to arrive in staged payments over about four years.

The first instalment of £7.5m, which has already been received by the club, will go to:

fill the £2m ''black hole'' left by the collapse of ITV Digital;

repay £3m of short to medium-term debt to Girobank, of which up to £1.75m was repayable on demand;

repay £750,000 of other secured and unsecured club debts;

cover the £1.5m of costs already incurred towards the new South Stand – including planning fees, design and architects'' fees.

Mr Doncaster said the securitisation deal protected City from having to

make large debt repayments in the next couple of years, which were

"simply not achievable".

Securitisation is a form of debt finance that allows borrowers to raise

money on the strength of predictable revenue flows, like ticket sales.

The cash is raised by issuing bonds which are repaid over time from those revenue flows.

Clubs like Newcastle United (£55m), Southampton (£25m), Leicester City

(£28m) and Ipswich Town (£25m) have taken out securitisation deals to

finance new stadia development.

More recently, Everton (£30m), Leeds United (£60m) and Manchester City

(£30.3m) have used the funding stream to restructure their debts and

fund player acquisitions.

Mr Doncaster said the loan was based solely on the premise that City

would remain in Division One, and was not negotiated against the dream

of future promotion to the Premiership.

"This is not a gamble that requires us to go into the Premiership to support it," he said.

"The assumption is that we stay where we are."

He added that the loan would give the Canaries breathing space to bring

players'' salaries – still high because of the money that had been

expected from ITV Digital – down to a level "in line with what the club

can afford".

And he said: "The decision of the institutional investor to provide

this facility to a First Division club for the first time was

significantly influenced by our success in attracting record season

ticket sales and sell-out crowds.

"This deal and the decision to give permission to us to develop the

land behind the Norwich and Peterborough Stand and build the new South

Stand have saved the club from some drastic measures.

"For example, we are not in the position of having to make fire sales of players to bring in urgent cash."