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canary cherub

The board's biggest cockup

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(this is a thread about finance so if you''re not interested you can stop here)

1.  In 2003 the board decided to borrow £15m, £8m or so to rebuild the South Stand and the rest to reschedule the club''s existing debt so that they could borrow even more.  The loan was secured against matchday income (including season ticket sales). 

2.  Servicing the loan left a substantial hole in matchday income, and in the hope of replacing it they borrowed another £2.5m to buy the LSE land, which they thought they could sell for development at a substantial profit.  

3.  The land turned out to cost them double once they''d paid for access roads, planning permission, interest on the loan etc.  It didn''t sell even at the height of the property boom and right now you couldn''t give it away. 

4.  £15m loan still has to be paid on a rigid schedule until 2018 or the club will go bust, and so does the £2.5m loan to buy the land - hence drastic cutbacks in every department especially football.  That''s why we can only afford £1.9m for player wages, which won''t even pay for a decent League 1 side.

5.  Having got themselves into a huge financial hole, along comes Peter Cullum with an opportunity to dig themselves out of it provided they paid the price by relinquishing control of the club they had so royally screwed up.  They turned it down . . .

. . . you know the rest

 

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I`m interested CC [;)].

From what i`ve been told "from the horses mouth", there should be an article asking serious questions about the financial running of the club printed by Archant in the close season.  I`m sure i`m not the only one thinking "about bloody time too.....".

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[quote user="Mr.Carrow"]

I`m interested CC [;)].

From what i`ve been told "from the horses mouth", there should be an article asking serious questions about the financial running of the club printed by Archant in the close season.  I`m sure i`m not the only one thinking "about bloody time too.....".

[/quote]

I phoned the sports desk at Archant this morning to ask whether they intended to ask some serious questions of the board and was told the same thing.

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I am not disputing any of this, but I am asking, what should the board have done about the South Stand? Surely the old one had to be replaced; surely we needed a bigger stand with larger capacity. Surely they had to borrow to do that?

The non-essential expenditure has clearly been a total disaster, but I can''t see how the Jarrold stand comes in to that category.

Could someone enlighten me?

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IMO the Boards biggest cock up was not spending more in the summer of 2005 just before our Premier League campaign, we could have signed Peter Crouch for 2m there and then but decided not to, then come January we spent 3m on Dean Ashton but that proved too little too late! Had we have signed Crouch at the start of that season then I truely believe we would have stayed up, well done to the Norwich City board for that cock up!

 

IF THE MONEY WAS THERE ALL ALONG WHY DIDN''T WE SPEND IT SOONER RATHER THAN LATTER, THAT''S THE NORWICH CITY WAY OF DOING IT ON THE CHEAP!

 

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I think the point being made was that they took the loan out for the other stuff aswell, and should have stuck with the loan for the stand.  In hindsight it''s difficult to argue with that.  But life doesn''t happen in hindsight.

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I think this is very interesting, and thanks for putting it so clearly - a nice change from some of the ranters.

The £8m for the Jarrold Stand is surely reasonable spending, as the South Stand needed replacing and wasn''t going to last forever. You say it cost £7m more to reschedule the club''s debt so they could borrow more - what was this extra borrowing originally intended for? Players? And are you saying that most of it then got eaten up by the LSE deal?

Who at the club makes these sort of decisions? People always talk about ''the board'', but who would it have been that came up with the plan to buy this land, and, from what you''re saying, didn''t research what the true cost would be? I think we''d get further if people stopped having a go at Delia and we worked out who had really made the cock-ups.   

  

 

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[quote user="Robert N. LiM"]

I am not disputing any of this, but I am asking, what should the board have done about the South Stand? Surely the old one had to be replaced; surely we needed a bigger stand with larger capacity. Surely they had to borrow to do that?

The non-essential expenditure has clearly been a total disaster, but I can''t see how the Jarrold stand comes in to that category.

Could someone enlighten me?

[/quote]

No one''s disputing that Robert.  They had to borrow £8m or so to replace the South Stand, no question.   They didn''t have to borrow another £10m on top of that.  

 

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[quote user="Mazy Run"]

I think this is very interesting, and thanks for putting it so clearly - a nice change from some of the ranters.

The £8m for the Jarrold Stand is surely reasonable spending, as the South Stand needed replacing and wasn''t going to last forever. You say it cost £7m more to reschedule the club''s debt so they could borrow more - what was this extra borrowing originally intended for? Players? And are you saying that most of it then got eaten up by the LSE deal?

Who at the club makes these sort of decisions? People always talk about ''the board'', but who would it have been that came up with the plan to buy this land, and, from what you''re saying, didn''t research what the true cost would be? I think we''d get further if people stopped having a go at Delia and we worked out who had really made the cock-ups.   

  [/quote]

The need to replace the old South Stand isn''t in dispute.  The extra borrowing was partly for the LSE land and partly for the NU Corner, which could and should have waited until some of the existing debt had been paid off.  It should have been obvious that we couldn''t carry a debt of that size without scrimping on the club''s core activity, namely football.  True, the NU Corner and the South Stand will both pay for themselves eventually, but not for years to come.

I''m not sure how we paid for the extra costs associated with the LSE land, but it was money spent over two or three seasons and could have come out of the club''s income.  I don''t know whether they anticipated these extra costs in advance or failed to do their homework.  But the whole enterprise was flawed because speculating in land very rarely brings short term rewards, which is what they were looking for.  Robert Chase made exactly the same mistake in the 1990s - before the land he bought could yield a return we''d got relegated from the Prem because we''d had to sell too many players to balance the books. 

In my view Delia must take a large slice of responsibility.  Ask yourself how else we could have raised money?  The answer is, by bringing in new investment, but any major new investor would rightly expect a say in the running of the club.  Not bloody likely as far as Delia is concerned.  In my view she is far too personally involved and too determined to retain absolute control to listen to advice that she doesn''t want to hear and make rational objective football focused judgements about the club''s best interests.  She and her husband are the majority shareholders, they have the final say and no one has the power to overrule them. 

But the bank must also take some of the responsibility for lending the club far too much money.  It occurred during the credit madness when many people who should have known better borrowed beyond their means simply because they could. 

 

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[quote user="canary cherub "]

(this is a thread about finance so if you''re not interested you can stop here)

1.  In 2003 the board decided to borrow £15m, £8m or so to rebuild the South Stand and the rest to reschedule the club''s existing debt so that they could borrow even more.  The loan was secured against matchday income (including season ticket sales). 

2.  Servicing the loan left a substantial hole in matchday income, and in the hope of replacing it they borrowed another £2.5m to buy the LSE land, which they thought they could sell for development at a substantial profit.  

3.  The land turned out to cost them double once they''d paid for access roads, planning permission, interest on the loan etc.  It didn''t sell even at the height of the property boom and right now you couldn''t give it away. 

4.  £15m loan still has to be paid on a rigid schedule until 2018 or the club will go bust, and so does the £2.5m loan to buy the land - hence drastic cutbacks in every department especially football.  That''s why we can only afford £1.9m for player wages, which won''t even pay for a decent League 1 side.

5.  Having got themselves into a huge financial hole, along comes Peter Cullum with an opportunity to dig themselves out of it provided they paid the price by relinquishing control of the club they had so royally screwed up.  They turned it down . . .

. . . you know the rest

 

[/quote]

 

Same thing as Ridsdale did at Leeds, similar to what the banks have just been doing - borrowing/lending money based on future income and values. Great idea when the income is good and values are increasing, bad idea when you are relegated to League One.........big, big problem coming up. I don''t believe that administration is impossible - everything depends on what the players contracts say. If we can''t save money on wages, it will be our only option.

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This was the Boards biggest cockup doubtless undertaken on the advice of a young and inexperienced solicitor by the name of Doncaster.

Deal Details

£15 million securitization

Norwich City Football Club, Purchaser, Shechter & Co

Norwich City

Football Club has closed a £15 million, whole-business securitization

arranged by Shechter & Co. The club has issued £7.5 million of

Series A Senior Secured Notes due 2018 (at an undisclosed interest

rate) and has the option to issue further £7.5 million of Series B

Senior Secured Notes due 2018. The proceeds will be used to refinance

existing indebtedness and to fund the construction of the new South

stand at the club''s Carrow Road stadium. The notes will be repaid from

ticket and hospitality income at the stadium as well as from

sponsorship income and media revenue streams. This is the first securitisation of a football club outside the FA Premier League. An unnamed UK institutional investor purchased the securities.

Value: £15 million

Closed: April 30 2003

Parties involved

Legal advisers

Norwich City Football Club

(Media & Entertainment)

Issuer

Eversheds

- Norwich

Purchaser

Ashurst LLP

- London

Shechter & Co

(Speciality & Other Finance)

Arranger

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To put things into perspective, Norwich City''s debt is minuscule when compared with the likes of Man Utd, Liverpool and Arsenal and other league clubs. There are very few league clubs that don''t have some debts. Football clubs have lived beyond their means for many years now. As others have said, replacement of the South Stand was essential and was by no means some sort of whimsical indulgence. Have our board been simply unlucky?

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I agree our debt is minuscule compared to the likes of Man Utd, Liverpool and Arsenal but then again so is our income and attendance and our ambition levels too! The ground issue is part of modernising the facilities but the additional loan was just pure specualtion and that has come back to haunt them!

This board hasn''t been unlucky whatsover,they have been misguided and un-ambitious  as they should have improved the team if they wanted the income to steadily increase too but that has been done on the cheap!

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[quote user="Pablos pubic perm"]To put things into perspective, Norwich City''s debt is minuscule when compared with the likes of Man Utd, Liverpool and Arsenal and other league clubs. There are very few league clubs that don''t have some debts. Football clubs have lived beyond their means for many years now. As others have said, replacement of the South Stand was essential and was by no means some sort of whimsical indulgence. Have our board been simply unlucky?[/quote]Have our board been simply unlucky?No.If you max out your credit card and then just pay the minimum payment each month you''ll be lucky if you ever manage to get the debt back down to zero, you need to cover the interest and capital repayment and that is where our board have fallen flat on their faces time and again.The first tranche of the securitisation money was used to renegotiate the shortfall of approx £6m the board inherited from the Chase years.Boo hiss Robert Chase I hear you say but let''s not forget that the £6m was apparently paid off when Delia and Co ''saved the club'' and we also though it had been reduced when some very valuable players from the Chase years were sold by the present board during 1997-2000, and if that wasn''t enough he passed on a handy bit of land they sold for £6.25m in 2005.Unfortunately the board chose not to use the player income for such practicalities as reducing the debt and instead maintained the same level of debt using this money for more ''visible'' enterprises such as the restaurant thus giving the doubly false impression that they had saved us and we had money spare to spend.So from 1996 ''til 2003 we paid interest on the £6m debt left by Chase then we simply renegotiatiated this debt as part of a much larger debt incurred for the stand rebuild and wrapped it up in a cosy securitisation so the hard of thinking could not differentiate that nigh on half this ''new debt'' was actually already six years old. We''ve paid interest on that money for thirteen years now, in good years when we''ve made a profit we have made no attempt to repay a lump sum just simply maintaining the minimum repayments each year with the end result being that a whopping thirteen years after inheriting £6m of debt from Chase our Board have managed to pay thirteen years interest on it and still owe slightly more than they inherited on that debt alone.Let''s not forget that the board made something like £15-20m from player sales from players inherited from Chase and also trousered £6.25m from the Chase land deal so passing on a £6m debt but £25m of asset income to cover that debt with the benefit of hindsight paints a rather different picture of Chase than the one we all were given way back when.So simply unlucky you ask?No!No because they have had the money time and time and time again to repay the existing club debt prior to the stand being built and made no effort to reduce the capital and neither have they made any such effort since the business was securitised. A few hundred £kkk''s here and there over a 13 year period would have made a huge difference to the debt level and interest payable but we made no effort not even when posting record profits of £10m in 2006.Frankly they never have appeared to make any effort to reduce the debt being abundantly content just to roll it over year upon year with interest repayments, convinced that whenever a new owner turns up they will just be able to hand them a whopping debt of their own creation and hidden in amongst it the original debt inherited from Chase. As with the Huckerby deal they are slow to come forward and dispel the myth obviously preferring us fans to think they''ve saved the club and done a good job.Fact is we owed £6m from Chase years and £8m from the stand we''ve paid interest on one for 13 years and interest on the other for 6 years and still owe more than we borrowed. How this can be called ''good business'' or ''unlucky'' is beyond me. They''ve had huge incomes to budget with during their tenure and have simply borrowed when they should maybe have been repaying.And if we do get relegated the securitisation deal is in grave danger of collapsing, ticket and hospitality  incomes will be down, tv/media money will be nearly £2m down, sponsorship is likely to drop and these are the revenues upon which the club was securitised and the SPV will still have to be serviced but at a cost to the core product. (FWIW I suspect this has been the case for a while now but the income has been just enough to be able to cover the fact our creditor gets the first slice of the pie ).

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Buckethead, despite the size of our debt I can''t escape the feeling that with the Prem income, parachute payments, sale of Chase''s land and profits on player sales there''s money unaccounted for that doesn''t show up in the club''s accounts.  I know nothing about creative accounting but aren''t there ways of moving transactions off the balance sheet?

 

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[quote user="canary cherub "]

Buckethead, despite the size of our debt I can''t escape the feeling that with the Prem income, parachute payments, sale of Chase''s land and profits on player sales there''s money unaccounted for that doesn''t show up in the club''s accounts.  I know nothing about creative accounting but aren''t there ways of moving transactions off the balance sheet?

 

[/quote]I''m no accountant and have never pretended to be but one of the best ways to move transactions from the balance sheet is to not put them on there in the first place.Like the £15m short term debts we have which is never mentioned because it''s accounted for in such a way as to never reach the balance sheet. Much transfer activity is always conducted ''post balance sheet'' too.

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[quote user="Robert N. LiM"]

I am not disputing any of this, but I am asking, what should the board have done about the South Stand? Surely the old one had to be replaced; surely we needed a bigger stand with larger capacity. Surely they had to borrow to do that?

The non-essential expenditure has clearly been a total disaster, but I can''t see how the Jarrold stand comes in to that category.

Could someone enlighten me?

[/quote]

So in your opinion the stand was still a good idea given the fact we will be relegated? Im glad you dont run the clubs finances. Oh wait a minute.......

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[quote user="sgncfc"][quote user="canary cherub "]

(this is a thread about finance so if you''re not interested you can stop here)

1.  In 2003 the board decided to borrow £15m, £8m or so to rebuild the South Stand and the rest to reschedule the club''s existing debt so that they could borrow even more.  The loan was secured against matchday income (including season ticket sales). 

2.  Servicing the loan left a substantial hole in matchday income, and in the hope of replacing it they borrowed another £2.5m to buy the LSE land, which they thought they could sell for development at a substantial profit.  

3.  The land turned out to cost them double once they''d paid for access roads, planning permission, interest on the loan etc.  It didn''t sell even at the height of the property boom and right now you couldn''t give it away. 

4.  £15m loan still has to be paid on a rigid schedule until 2018 or the club will go bust, and so does the £2.5m loan to buy the land - hence drastic cutbacks in every department especially football.  That''s why we can only afford £1.9m for player wages, which won''t even pay for a decent League 1 side.

5.  Having got themselves into a huge financial hole, along comes Peter Cullum with an opportunity to dig themselves out of it provided they paid the price by relinquishing control of the club they had so royally screwed up.  They turned it down . . .

. . . you know the rest

 

[/quote]

 

Same thing as Ridsdale did at Leeds, similar to what the banks have just been doing - borrowing/lending money based on future income and values. Great idea when the income is good and values are increasing, bad idea when you are relegated to League One.........big, big problem coming up. I don''t believe that administration is impossible - everything depends on what the players contracts say. If we can''t save money on wages, it will be our only option.

[/quote]

Doncasters own figures showed that out of income of £19m we had £1.9m left over for the team after all the other costs/debt repayments are taken into consideration.  I`m sure player wages will have to be cut, but the real problem (and what we should be directing our questioning about imo) is why our non player wage costs are £17m- double what they were in 2002 and £10m higher than Preston.

When Watling took over from Chase he stated that the clubs problem was that it was "asset-rich but cash-poor".  Gordon Bennett, referring to having to swing the axe at all the indulgent waste Chase was throwing the money at, called the club "all fur-coat but no knickers". 

Let`s not forget that on top of the big-ticket items everyone thinks of such as the Jarrold, infill and land, millions have been thrown at non-vital things such as new ticket office, stand refurb, yellows refurb, club 101 facility, spaces for sport facility, new pitch, new scoreboard, new conservatory, offices to let out etc., etc.

So what have our current board done to address the problems raised by Watling and Bennett, except make them ten times worse?

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I''d like to take issue with the wage bill point. Not because i know a great deal about it but just because i thought our wages were high compared to other championship clubs.

When you say £1.9m can''t pay the wages of a good league one side (which we will be soon!), what are you basing that on?

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[quote user="a1canary"]I''d like to take issue with the wage bill point. Not because i know a great deal about it but just because i thought our wages were high compared to other championship clubs. When you say £1.9m can''t pay the wages of a good league one side (which we will be soon!), what are you basing that on?[/quote]

Don''t know the figures for League 1 but it looks like you would struggle in Div 2 with less than £1m. See http://http://www.givemefootball.com/league-two/stanley-boss-coleman-backs-salary-cap

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I think their biggest mistake was appointing Doncaster as CEO. No business background, legally trained so everything has to be done according to the book

Does not wish to upset those at the Football League or the FA won''t complain about anything.

What other team has been drawn away for the first and last game of the season for the last three seasons what action does our CEO take none. What other teams have had the decisions we have had taken against them by referees and what action does our CEO take none.

Norwich City supporters deserve better backing but they won''t get it.

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[quote user="canary cherub "]

5.  Having got themselves into a huge financial hole, along comes Peter Cullum with an opportunity to dig themselves out of it provided they paid the price by relinquishing control of the club they had so royally screwed up.  They turned it down . . .

. . . you know the rest

[/quote]

Somebody collated the Cullum info on a thread recently and may I remind people of part of note 3 (which was also reported in the media):

......'' At that point the question of VALUATION, over which Cullum said there had been "a friendly arm wrestle", might become more relevant.''

So we turn down £20m for the playing squad (and boy does it need it!) over valuation, now didn''t somebody say they thought their shares would be worthless or did I misunderstand this comment? If you thought your shares were worthless why were you arguing over valuation?

 

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[quote user="Robert N. LiM"]

I am not disputing any of this, but I am asking, what should the board have done about the South Stand? Surely the old one had to be replaced; surely we needed a bigger stand with larger capacity. Surely they had to borrow to do that?

The non-essential expenditure has clearly been a total disaster, but I can''t see how the Jarrold stand comes in to that category.

Could someone enlighten me?

[/quote]

I regarded the Jarrold stand (except the recent office development) and the pitch as critical expenditure and I have never criticised the club for that. Its the non critical stuff that gets my criticism.

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[quote user="blahblahblah"]I think the point being made was that they took the loan out for the other stuff aswell, and should have stuck with the loan for the stand.  In hindsight it''s difficult to argue with that.  But life doesn''t happen in hindsight.
[/quote]

Part of the loan notes was to replace other debt.

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[quote user="canary cherub "][quote user="Mazy Run"]

I think this is very interesting, and thanks for putting it so clearly - a nice change from some of the ranters.

The £8m for the Jarrold Stand is surely reasonable spending, as the South Stand needed replacing and wasn''t going to last forever. You say it cost £7m more to reschedule the club''s debt so they could borrow more - what was this extra borrowing originally intended for? Players? And are you saying that most of it then got eaten up by the LSE deal?

Who at the club makes these sort of decisions? People always talk about ''the board'', but who would it have been that came up with the plan to buy this land, and, from what you''re saying, didn''t research what the true cost would be? I think we''d get further if people stopped having a go at Delia and we worked out who had really made the cock-ups.   

  [/quote]

The need to replace the old South Stand isn''t in dispute.  The extra borrowing was partly for the LSE land and partly for the NU Corner, which could and should have waited until some of the existing debt had been paid off.  It should have been obvious that we couldn''t carry a debt of that size without scrimping on the club''s core activity, namely football.  True, the NU Corner and the South Stand will both pay for themselves eventually, but not for years to come.

[/quote]

Just to clarify, there were seperate loans for the ex LSE land (cost £2.75m  financed by a loan of £2.5m) and the Community stand. They were not funded out of the £15m Loan Notes.

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[quote user="Tangible Fixed Assets anyone"]

[quote user="blahblahblah"]I think the point being made was that they took the loan out for the other stuff aswell, and should have stuck with the loan for the stand.  In hindsight it''s difficult to argue with that.  But life doesn''t happen in hindsight.
[/quote]

Part of the loan notes was to replace other debt.

[/quote]

. . . so that we could borrow even more.  Our short term debt was restructured into long term debt and we then ran up another £6m short term debt very quickly, trebling our debt burden almost overnight.

 

 

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[quote user="canary cherub "]

I''m not sure how we paid for the extra costs associated with the LSE land, but it was money spent over two or three seasons and could have come out of the club''s income.  I don''t know whether they anticipated these extra costs in advance or failed to do their homework.  But the whole enterprise was flawed because speculating in land very rarely brings short term rewards, which is what they were looking for.  Robert Chase made exactly the same mistake in the 1990s - before the land he bought could yield a return we''d got relegated from the Prem because we''d had to sell too many players to balance the books. 

[/quote]

Unlike the current regime, Chase paid for the land at £160k per season over five and half seasons. Furthermore he was offsetting this annual cost by receiving £50k a season from Carrow Commercials plus fees for matchday car parking. In addition he wasn''t paying arrangement fees and annual interest on a loan like the current regime.

Its a red herring to blame the sale of players on this land purchase but probably  had more to do with the £3m (if I remember correctly) overdraft the club had.

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