Southampton - Possible Points Deduction

[mr carra 0]

Of course the accounts include the activities of the football club.

 

Holding companies of groups do not produce accounts that include just themselves - they produce (as they are required to by law) consolidated accounts covering the activities of the whole group (including all the subsidiary companies).  In this case that includes the football club, so it''s activities will be included in the accounts.

 

I think the problem the league have is that they really want to punish Southampton but are worried that Southampton will be able to overturn any such decision in court.  The league rules only cover football clubs going into administration, not their holding companies, and in the Derby precedent the League showed that they considered there to be a distinction between the two.

 

They will probably change the rules now to explicity state that holding companies are covered, but they couldn;''t apply any such rule retrospectively to Southampton - it''s the rule that was operating when they went into admin that counts.

The delay is probably because they are trying to think of a way to cover themselves legally if they are to punish Southampton (as they''d like) when Southampton don''t appear to have broken the rules as they currently stand.

[Camuldonum 0]

I think that is a very good summary.  The Administrators have already made it clear they will take it as far as the High Court and the Appeal Court if necessary because they claim that FL''s own rules don''t cover the club itself.  When the story first broke that is what the FL themselves said.

One novel suggestion in legal circles is that the Adminstrators might have a case for suing the FL for interfering in an attempted sale by Administrators.  Sounds like one to keep a couple of Judges occupied for a while as they study Case Law. 

I would not be surprised if this drags on for many weeks. 

[Jim Smith 2,314]

I am sure you are right and they are just trying to make sure it is watertight but if you read that annual report its not just that they publish the accounts of the football club as a subsidiary. Read the text and tell me who is running that football club. Southampton Fc appears to be nothing but a shell company.

I have tried to find the actual football league rule on this online but don''t seem to be able to find it. i am unsure if it refers to "clubs" expressly or if the word "club" is even defined. I am not sure its even as straight forward as that as when the Leeds, Rotherham and Luton episodes were kicking off one of the relevant issues was the transfer of the share in the football league to the newly formed company so which of the Southampton companies owns the share may be relevant as well.

[mr carra 0]

As I understand it the debts causing the problem relate to the ground, which the football club does not own.  The football club (I assume) just pays rent to whichever company in the group does own the ground, and as such is just a tenant.

A key issue here is, I suspect, is whether a) the football club is paying a reasonable market rate to rent the use of the ground, or whether b) it is being allowed to pay an artificially low rate in order to subsidise the football operation and ensure that losses are incurred by the ground-owning company.

 

If the former then Southampton will (rightly) get away without punishment, since their football operation is not running a loss (i.e. it is making enough money to cover its wages and the rent of the ground - a decent rent that any independent company which happened to own the ground would charge).

 

If the latter then the football club is not running an independently viable operation and the holding company is being forced to incur losses that would actually hit the football club if it was paying a ''proper'' amount for use if the ground.  In this case the League may well be able to argue that the substance of what is happening is at odds with the strict legal position and so the Derby precedent is not relevant.

 

Might take a while this...

 

 

[William Darby 0]

way beyond this season, and by the time it''s sorted it''ll be too late anyway

[Jim Smith 2,314]

[quote user="mr carra"]

As I understand it the debts causing the problem relate to the ground, which the football club does not own.  The football club (I assume) just pays rent to whichever company in the group does own the ground, and as such is just a tenant.

A key issue here is, I suspect, is whether a) the football club is paying a reasonable market rate to rent the use of the ground, or whether b) it is being allowed to pay an artificially low rate in order to subsidise the football operation and ensure that losses are incurred by the ground-owning company.

 

If the former then Southampton will (rightly) get away without punishment, since their football operation is not running a loss (i.e. it is making enough money to cover its wages and the rent of the ground - a decent rent that any independent company which happened to own the ground would charge).

 

If the latter then the football club is not running an independently viable operation and the holding company is being forced to incur losses that would actually hit the football club if it was paying a ''proper'' amount for use if the ground.  In this case the League may well be able to argue that the substance of what is happening is at odds with the strict legal position and so the Derby precedent is not relevant.

 

Might take a while this...

 

 

[/quote]

 

I must confess i do not know how these accounts generally work in group situations but the report appears to suggest the company in admin owns the players, ground, manages the ground, deals with the tv revenues, catering and just about everything else. maybe its just misleading in the way its phrased but I cannot see how these two companies can be divorced albeit \i accept that legally they are separate entities.

 

During the 13 months ended 30 June 2006,

Southampton Leisure Holdings Plc incurred an

operating loss before player trading of £7.2m on

a turnover of £25.7m. Our profits on player trading

amounted to £5.9m; net interest payable was £2.0m,

resulting in a loss before tax of £3.3m.

[mr carra 0]

Ok, Jim, I can explain that.

The group accounts have to present the figures of all the group companies combined as though it was a single entity (i.e. a single company), as the affairs of (in this case) the Southampton Leisure Holdings Plc group.  So the activities of all subsidiaries and the holding company will be lumped together in the accounts as the activities of Southampton Leisure Holdings Plc.

This is basically true for all groups of companies, whatever they do.