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Tangible Fixed Assets anyone?

NCFC Plc Accounts to 31/5/09 - some observations

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[quote user="YankeeCanary"]

Amusing Cherub. It takes you one sentence to go from asking a question to converting it to a fact as you go for the jugular.

[/quote]

I''m flattered . . . thank you [:D]

 

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[quote user="PurpleCanary"][quote user="Bobzilla"]

[quote user="PurpleCanary"]
Well, those figures at least are interesting, because they show there are (or were a few months ago) still around 33,000 shares available for someone to buy and so inject close to £1m in the club.
[/quote]

No it doesn''t. Just because there are authorised shares doesn''t mean you can issue. And doesn''t mean that you will get anything like the net asset value for them.

[/quote]

Er, it almost certainly does in this case. Since those extra shares were authorised in October 2007 at least some of them HAVE been issued (ie bought). And under the current circumstances, with the club short of money, it is inconceivable that anyone offering to buy the 33,000 that remain unissued would be turned down. Why on earth create the possibility of £1m-worth of extra funding if you don''t want to make use of it?

As to "And doesn''t mean that you will get anything like the net asset value for them." I''m afraid I''m not sure what is the relevance of that statement. The price of the shares is £30. That is what the club will get for them. That is the only thing that matters.[/quote]

Many companies have significantly more authorised share capital than is issued. I presume you have an overdraft facility on your bank account, yes? If so, do you have it permanently drawn to the maximum? If not, why not? Extra capital = extra cost. It really is as simple as that. And when borrowing money, that extra capital may make a big difference. Too much capital and earnings per share is depressed. Too little, and the banks won''t like the risk. It is nowhere near as simple as ''there''s an extra £1m sitting there''.

The relevance of the statement is that the market value of the shares will be driven by what the market thinks the shares are worth, and not what the net assets of the club are divided by the number of shares. As a measure of value, that method is only useful in very specific circumstances, and not at all in the case of trading companies (or groups) like NCFC plc. I don''t really give a monkey''s what the supporter trust paid for their shares, as they are a very specific group of investors (who already hold shares in the club, lets not forget), and I don''t believe that they are investing at market value.

And whilst the club/shareholders may have a ''price'' in mind that they want for the shares, whatever they will get will depend on the investors, not what the club wants. It may transpire that no further funds will be forthcoming because there is no common ground between existing investors, new investors and the club (as has already been shown with the Cullum saga), in which case no deal. I hate to say it, but I believe that most of the value of the club is not able to be unlocked whilst the club remains a going concern. Its the land that the club owns where the value is locked up.

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I have a few comments on that bobzilla.

1) just in case you didn''t know, the CA2006 has removed the need for an authorised share capital.

2) I''m not sure what you mean by "extra capital = extra cost".

3) you''re right that net assets is a poor approximation to a businesses worth. However, earnings based models don''t suit a football club very well to my mind.

The objective of an investor in a football club is unlikely (one would hope) to maximise the return on their investment. On the basis, there should be little need to pay dividends and therefore the cost of equity should be very low. This clearly differentiates a football club from a normal business. Traditional corporate finance would suggest a mixture of debt and equity is necessary to achieve the lowest possible average cost of capital, however, surely a football club would be all equity financed ideally?

I think this then comes back to it being very difficult to value a football club. An earnings based model seems inappropriate, as would any kind of multiple based model, arguably net assets makes the most sense as, if maximising return on investment is not the goal of incumbent or potential investor, why take into account future earnings?

Not an easy answer to this one...

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[quote user="Bobzilla"][quote user="PurpleCanary"][quote user="Bobzilla"]

[quote user="PurpleCanary"]Well, those figures at least are interesting, because they show there are (or were a few months ago) still around 33,000 shares available for someone to buy and so inject close to £1m in the club.[/quote]

No it doesn''t. Just because there are authorised shares doesn''t mean you can issue. And doesn''t mean that you will get anything like the net asset value for them.

[/quote]Er, it almost certainly does in this case. Since those extra shares were authorised in October 2007 at least some of them HAVE been issued (ie bought). And under the current circumstances, with the club short of money, it is inconceivable that anyone offering to buy the 33,000 that remain unissued would be turned down. Why on earth create the possibility of £1m-worth of extra funding if you don''t want to make use of it?As to "And doesn''t mean that you will get anything like the net asset value for them." I''m afraid I''m not sure what is the relevance of that statement. The price of the shares is £30. That is what the club will get for them. That is the only thing that matters.[/quote]

Many companies have significantly more authorised share capital than is issued. I presume you have an overdraft facility on your bank account, yes? If so, do you have it permanently drawn to the maximum? If not, why not? Extra capital = extra cost. It really is as simple as that. And when borrowing money, that extra capital may make a big difference. Too much capital and earnings per share is depressed. Too little, and the banks won''t like the risk. It is nowhere near as simple as ''there''s an extra £1m sitting there''.

The relevance of the statement is that the market value of the shares will be driven by what the market thinks the shares are worth, and not what the net assets of the club are divided by the number of shares. As a measure of value, that method is only useful in very specific circumstances, and not at all in the case of trading companies (or groups) like NCFC plc. I don''t really give a monkey''s what the supporter trust paid for their shares, as they are a very specific group of investors (who already hold shares in the club, lets not forget), and I don''t believe that they are investing at market value.

And whilst the club/shareholders may have a ''price'' in mind that they want for the shares, whatever they will get will depend on the investors, not what the club wants. It may transpire that no further funds will be forthcoming because there is no common ground between existing investors, new investors and the club (as has already been shown with the Cullum saga), in which case no deal. I hate to say it, but I believe that most of the value of the club is not able to be unlocked whilst the club remains a going concern. Its the land that the club owns where the value is locked up.

[/quote]Bobzilla, that post is a nonsense from start to finish, I''m afraid. And

that is leaving aside the bizarre idea that raising money from equity

has the same consequences as raising money from debt, which SEEMS to be

the point of your incomprehensible overdraft analogy.

And leaving aside the charming idea that the club can do backroom deals with minority investors over

the share price, getting £30 from mugs like me and the supporters''

trust but selling at a lower price to others. There is a word for that, actually.And leaving aside various specific notions you seem to have that make no sense. What difference, to take just one example, does the supporters'' trust already owning shares make to the price it pays for a new lot?The reason why that post is a nonsense is because you are obviously

treating NCFC plc as a listed company when it is an unlisted one.

Earnings per share? Market value of the shares? What on earth have

these got to do with an unlisted company? They are concepts that simply

do not apply here. And as a result pretty much everything you have said is wrong.

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[quote user="PurpleCanary"][quote user="Bobzilla"][quote user="PurpleCanary"][quote user="Bobzilla"]

[quote user="PurpleCanary"]
Well, those figures at least are interesting, because they show there are (or were a few months ago) still around 33,000 shares available for someone to buy and so inject close to £1m in the club.
[/quote]

No it doesn''t. Just because there are authorised shares doesn''t mean you can issue. And doesn''t mean that you will get anything like the net asset value for them.

[/quote]

Er, it almost certainly does in this case. Since those extra shares were authorised in October 2007 at least some of them HAVE been issued (ie bought). And under the current circumstances, with the club short of money, it is inconceivable that anyone offering to buy the 33,000 that remain unissued would be turned down. Why on earth create the possibility of £1m-worth of extra funding if you don''t want to make use of it?

As to "And doesn''t mean that you will get anything like the net asset value for them." I''m afraid I''m not sure what is the relevance of that statement. The price of the shares is £30. That is what the club will get for them. That is the only thing that matters.[/quote]

Many companies have significantly more authorised share capital than is issued. I presume you have an overdraft facility on your bank account, yes? If so, do you have it permanently drawn to the maximum? If not, why not? Extra capital = extra cost. It really is as simple as that. And when borrowing money, that extra capital may make a big difference. Too much capital and earnings per share is depressed. Too little, and the banks won''t like the risk. It is nowhere near as simple as ''there''s an extra £1m sitting there''.

The relevance of the statement is that the market value of the shares will be driven by what the market thinks the shares are worth, and not what the net assets of the club are divided by the number of shares. As a measure of value, that method is only useful in very specific circumstances, and not at all in the case of trading companies (or groups) like NCFC plc. I don''t really give a monkey''s what the supporter trust paid for their shares, as they are a very specific group of investors (who already hold shares in the club, lets not forget), and I don''t believe that they are investing at market value.

And whilst the club/shareholders may have a ''price'' in mind that they want for the shares, whatever they will get will depend on the investors, not what the club wants. It may transpire that no further funds will be forthcoming because there is no common ground between existing investors, new investors and the club (as has already been shown with the Cullum saga), in which case no deal. I hate to say it, but I believe that most of the value of the club is not able to be unlocked whilst the club remains a going concern. Its the land that the club owns where the value is locked up.

[/quote]

Bobzilla, that post is a nonsense from start to finish, I''m afraid. And that is leaving aside the bizarre idea that raising money from equity has the same consequences as raising money from debt, which SEEMS to be the point of your incomprehensible overdraft analogy.

And leaving aside the charming idea that the club can do backroom deals with minority investors over the share price, getting £30 from mugs like me and the supporters'' trust but selling at a lower price to others. There is a word for that, actually.

And leaving aside various specific notions you seem to have that make no sense. What difference, to take just one example, does the supporters'' trust already owning shares make to the price it pays for a new lot?

The reason why that post is a nonsense is because you are obviously treating NCFC plc as a listed company when it is an unlisted one. Earnings per share? Market value of the shares? What on earth have these got to do with an unlisted company? They are concepts that simply do not apply here. And as a result pretty much everything you have said is wrong.[/quote]

Blunt stuff Purple Canary.

But I agree that whilst Bobzilla''s points may have some credence in a Plc, they make little sense in the case of a football club, to which normal corporate finance principles do not apply as they are built around the notion of the purpose of a company being to maximise shareholder wealth which shouldn''t be the case for NCFC.

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I wish I knew what all you accountant types were on about lol.I''m guessing we''re broke though, right?

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[quote user="PurpleCanary"]Bobzilla, that post is a nonsense from start to finish, I''m afraid. And that is leaving aside the bizarre idea that raising money from equity has the same consequences as raising money from debt, which SEEMS to be the point of your incomprehensible overdraft analogy.[/quote]

I never suggested that raising equity had the same consequences as raising debt. What I said is that equity is not consequence free. Most people who invest in football clubs want some sort of return, be it capital or income. The money usually has a cost. Supporters trusts excepted.

[quote user="PurpleCanary"]And leaving aside the charming idea that the club can do backroom deals with minority investors over the share price, getting £30 from mugs like me and the supporters'' trust but selling at a lower price to others. There is a word for that, actually.[/quote]

Agree, but I don''t expect that the club came rushing to the supporters trust for money. I rather suspect that it is the other way round. In which case, the word for it is business.

[quote user="PurpleCanary"]And leaving aside various specific notions you seem to have that make no sense. What difference, to take just one example, does the supporters'' trust already owning shares make to the price it pays for a new lot?[/quote]

Come now, I would have thought that this would be obvious. Firstly, the supporters trust already has access to make the negotiations. Secondly, it already has an interest to protect. Think about the price that RBS got for its rights issues. How many external investors were thinking that the price was fantastically good to be buying in at? Not so many.

[quote user="PurpleCanary"]The reason why that post is a nonsense is because you are obviously treating NCFC plc as a listed company when it is an unlisted one. Earnings per share? Market value of the shares? What on earth have these got to do with an unlisted company? They are concepts that simply do not apply here. And as a result pretty much everything you have said is wrong.[/quote]

Might I respectfully suggest that you have completely missed the point here. Every single ratio that is relevant to a listed company is still relevant to an unlisted company. Do you think that AXA have no interest in our EPS, our interest cover, our debt equity ratios etc when assessing what to do with the debt? Our equity may not be publicly listed, but our debt is freely tradeable, and as a result, all ratios are very important. Especially when it comes to refinancing time. Do you really believe that the banks are going to want to refinance debt on a company that has pulled in a ridiculous amount of money in capital from its supporters, but still is in a mess? Its not ever as simple as more capital = good. Its how that capital is employed. And that is the bit of the business that needs fixing. We need to be reducing our costs, as do a whole load of other clubs.

Further, MV of the shares is still relevant - NCFC may be unlisted, but it has every right to go and sell its shares publicly. The only difference that the lack of a listing makes is to restrict the market. Unless you''re dealing with ''mugs'' like the supporters trust, of course, where club needs over-rule market finances.

 

Simon, I would respectfully suggest that it is naive to suggest that the aim of a football investor is not to maximise their return. For a great many, it is. Just perhaps not in the traditional sense. For some it is prestige (Abramovich?). For some it is services they can sell to the club (Chase, perchance?). For some it may even be to launder money. I agree that earnings based models do not work in football, but that is not to say that net assets based models work any better. Market value of the assets only works if the club is no longer a going concern (but not in forced sales situations). I wouldn''t want to be valuing a football club. And re the debt/equity mix, you are missing one thing - tax. If tax is an issue, then the debt equity mix can be very important, especially for clubs owned by non-doms who have options as to where they lend from, and how they lend.

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[quote user="morty"]I wish I knew what all you accountant types were on about lol.

I''m guessing we''re broke though, right?
[/quote]

We have more debt than we did last year. It doesn''t look pretty, but we''re not broke. But we do need more investment. We need to be able to refinance the debt so that it is a shareholder debt, as I doubt we will have the funds to repay it any other way, and won''t be able to refinance it in the market in the current environment. Either that, or we need to get to the premiership and get the TV money without spending a whole load more on players.

So yeah, we''re pretty screwed. Along with a whole load of other clubs. 

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[quote user="Bobzilla"]

[quote user="morty"]I wish I knew what all you accountant types were on about lol.I''m guessing we''re broke though, right?[/quote]

We have more debt than we did last year. It doesn''t look pretty, but we''re not broke. But we do need more investment. We need to be able to refinance the debt so that it is a shareholder debt, as I doubt we will have the funds to repay it any other way, and won''t be able to refinance it in the market in the current environment. Either that, or we need to get to the premiership and get the TV money without spending a whole load more on players.

So yeah, we''re pretty screwed. Along with a whole load of other clubs. 

[/quote]Without having the financial qualifications to pick through the figures, it doesn''t really come as much of a surprise.Looking at the likes of Liverpool and Man U I think they are starting to realise also that they have been spending way beyond their means for some time now.

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[quote user="morty"]I wish I knew what all you accountant types were on about lol.

I''m guessing we''re broke though, right?
[/quote]

Sssshhhh Morty, don''t interrupt them. A decimal point in the wrong place and they''ll have to go out and buy another twenty Lambert & Butler to do their calculations on [;)]

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[quote user="SimonOTBC"]

Blunt stuff Purple Canary.

But I agree that whilst Bobzilla''s points may have some credence in a Plc, they make little sense in the case of a football club, to which normal corporate finance principles do not apply as they are built around the notion of the purpose of a company being to maximise shareholder wealth which shouldn''t be the case for NCFC.

[/quote]Dear me, Simon, and I thought I was being overly gentle![:)] Heavens knows how I would have reacted, though, if I''d seen Morty''s description of me as an accountant...[8-|]Just, seriously, to stress one point. It is not the difference between a plc and a non-plc that is the point here. NCFC is a plc. It is the difference between a listed company and an unlisted company that is crucial when talking about the share price and what potential minority investors would have to pay, which is the issue here.Some football companies are listed, and in their case some of what Bobzilla said might apply. But not with NCFC, which is unlisted.I hope that is sufficiently accountant-geeky for Morty.[:D]

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[quote user="Shack Attack"]

[quote user="morty"]I wish I knew what all you accountant types were on about lol.I''m guessing we''re broke though, right?[/quote]

Sssshhhh Morty, don''t interrupt them. A decimal point in the wrong place and they''ll have to go out and buy another twenty Lambert & Butler to do their calculations on [;)]

[/quote]Hahahaha.

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Bobzilla, thanks for the reply. I have a simple suggestion to make. If you think market value applies to NCFC shares then phone up the club and offer, say, £10 or £15 a share for some of those 33,000 shares, and see what response you get.

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[quote user="PurpleCanary"]Bobzilla, thanks for the reply. I have a simple suggestion to make. If you think market value applies to NCFC shares then phone up the club and offer, say, £10 or £15 a share for some of those 33,000 shares, and see what response you get.[/quote]

One, I have neither the money nor the inclination to invest in the club. Two, I rather suspect that they will tell me where to go. However, I would make a similar request to you that you ask the club to call Mr Cullum and ask him to invest at £30 per share. I rather suspect that he too will tell them where to go. And that he did long before these accounts came out.

And that was rather my point. The principal reason that the shares cannot be sold is that the club want a price for them that is inconsistent with the market''s expectation of the price. You can sell whatever you want, so long as you get the price right. If you want a higher price, you need to justify it in some way, and the board have some way to go before they can justify a price of £30 per share to anyone but existing shareholders.

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[quote user="PurpleCanary"]Bobzilla, thanks for the reply. I have a simple suggestion to make. If you think market value applies to NCFC shares then phone up the club and offer, say, £10 or £15 a share for some of those 33,000 shares, and see what response you get.[/quote]But any potential purchaser of those shares would do both calculations surely whatever their motives for purchase and would see that the clubs valuation differs wildly from the ''accounting valuation''. To purchase all these shares involves writing off nearly half a million pounds using one method of calculating their value thus precluding the much touted rarely seen "Investor" and narrowing the prospective purchasers down to altruistic benefactors, a much smaller group indeed. Perhaps this is why those shares remain unsold and perhaps also this explains why the majority shareholders of the club have been so reticent to convert loans into shares this time around? The fact that those shares are available for purchase and have been for some time is indicative that the perception by potential purchasers is that they are overpriced.Is it not also true to say that the clubs shares are ultimately only worth what somebody is prepared to pay for them?If so these 33,000 available shares appear to prove that nobody (not even the directors of the business) is prepared to pay £30 per share for them, £17 and some pennies seems to be the bottom end starting price the true worth is probably somewhere in between.Of course our club could continue to bleed money and the shareholders could find themselves in a position where they were forced to seriously consider offers for their holding. I doubt very much if this happens that £30 will be the offer price, I''d be surprised in those circumstances if it even reached the £17 mark, it could as you know be much lower.Whatever their "true value", it appears that the club has reached stalemate with potential share purchasers by valuing the shares at £30 a pop and I feel the gap in valuation is widening with time.

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[quote user="Bobzilla"]

Simon, I would respectfully suggest that it is naive to suggest that the aim of a football investor is not to maximise their return. For a great many, it is. Just perhaps not in the traditional sense. For some it is prestige (Abramovich?). For some it is services they can sell to the club (Chase, perchance?). For some it may even be to launder money. I agree that earnings based models do not work in football, but that is not to say that net assets based models work any better. Market value of the assets only works if the club is no longer a going concern (but not in forced sales situations). I wouldn''t want to be valuing a football club. And re the debt/equity mix, you are missing one thing - tax. If tax is an issue, then the debt equity mix can be very important, especially for clubs owned by non-doms who have options as to where they lend from, and how they lend.

[/quote]

I think you''re pretty much agreeing with what I''ve said there Bobzilla.

Traditional corporate finance methodologies are based on a financial return on an investment. Yes, other factors may impact on whether an investor thinks they are getting some value in return, but it ruins the traditional theories on a debt/equity mix as all of a sudden equity is cheaper (debt is considered cheaper up to a high D/E ratio because it is lower risk therefore lower return required). Therefore, equity finance would be considered optimal surely?

Regarding tax, yes, agreed the tax implications of debt/equity are different. Tax reduces the cost of debt to the company (on the assumption they can get credit for tax losses, which I imagine we probably can''t). Also, directors should be able to get a tax deduction for money borrowed to finance the club (as it''s a close company I believe). Withholding tax is likely to come into play for both (if paying overseas).

I find it difficult to see how debt becomes preferable from the clubs perspective (the perspective that we are all interested in isn''t it?) in any case.

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[quote user="SimonOTBC"][quote user="Bobzilla"]

Simon, I would respectfully suggest that it is naive to suggest that the aim of a football investor is not to maximise their return. For a great many, it is. Just perhaps not in the traditional sense. For some it is prestige (Abramovich?). For some it is services they can sell to the club (Chase, perchance?). For some it may even be to launder money. I agree that earnings based models do not work in football, but that is not to say that net assets based models work any better. Market value of the assets only works if the club is no longer a going concern (but not in forced sales situations). I wouldn''t want to be valuing a football club. And re the debt/equity mix, you are missing one thing - tax. If tax is an issue, then the debt equity mix can be very important, especially for clubs owned by non-doms who have options as to where they lend from, and how they lend.

[/quote]

I think you''re pretty much agreeing with what I''ve said there Bobzilla.

Traditional corporate finance methodologies are based on a financial return on an investment. Yes, other factors may impact on whether an investor thinks they are getting some value in return, but it ruins the traditional theories on a debt/equity mix as all of a sudden equity is cheaper (debt is considered cheaper up to a high D/E ratio because it is lower risk therefore lower return required). Therefore, equity finance would be considered optimal surely?

Regarding tax, yes, agreed the tax implications of debt/equity are different. Tax reduces the cost of debt to the company (on the assumption they can get credit for tax losses, which I imagine we probably can''t). Also, directors should be able to get a tax deduction for money borrowed to finance the club (as it''s a close company I believe). Withholding tax is likely to come into play for both (if paying overseas).

I find it difficult to see how debt becomes preferable from the clubs perspective (the perspective that we are all interested in isn''t it?) in any case.

[/quote]

Agree to a certain extent, but you appear to be forgetting one thing. The club is often not the only business of the company. Debt is often raised to finance a commercial venture for the club that is expected to generate revenue above and beyond the cost of the debt, either including the capital repayments or sometimes not. In that case, debt can often make sense, especially if equity is not available. For instance player purchases to try and get into Europe or a higher league with greater revenue. Where it goes wrong is that naturally form can take a short dip, and the debt has to be affordable (including capital repayments) even if form dips. Too often an insufficient margin for error is left (see Leeds about 10 years ago). Don''t think we''re entirely at cross purposes though.

But yes, debt is generally never good from a club perspective (as opposed to an owner perspective).

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[quote user="Buckethead"][quote user="PurpleCanary"]Bobzilla, thanks for the reply. I have a simple suggestion to make. If you think market value applies to NCFC shares then phone up the club and offer, say, £10 or £15 a share for some of those 33,000 shares, and see what response you get.[/quote]But any potential purchaser of those shares would do both calculations surely whatever their motives for purchase and would see that the clubs valuation differs wildly from the ''accounting valuation''. To purchase all these shares involves writing off nearly half a million pounds using one method of calculating their value thus precluding the much touted rarely seen "Investor" and narrowing the prospective purchasers down to altruistic benefactors, a much smaller group indeed. Perhaps this is why those shares remain unsold and perhaps also this explains why the majority shareholders of the club have been so reticent to convert loans into shares this time around? The fact that those shares are available for purchase and have been for some time is indicative that the perception by potential purchasers is that they are overpriced.Is it not also true to say that the clubs shares are ultimately only worth what somebody is prepared to pay for them?If so these 33,000 available shares appear to prove that nobody (not even the directors of the business) is prepared to pay £30 per share for them, £17 and some pennies seems to be the bottom end starting price the true worth is probably somewhere in between.Of course our club could continue to bleed money and the shareholders could find themselves in a position where they were forced to seriously consider offers for their holding. I doubt very much if this happens that £30 will be the offer price, I''d be surprised in those circumstances if it even reached the £17 mark, it could as you know be much lower.Whatever their "true value", it appears that the club has reached stalemate with potential share purchasers by valuing the shares at £30 a pop and I feel the gap in valuation is widening with time.[/quote]Buckethead, you''re thinking purely like the accountant I''m supposed to be but am not![8-|]The point about this tranche of 33,000 shares is that

anyone wanting to buy most or all of it would do so effectively to buy

a seat on the  board, and so buy influence at the club.

Such a person is not going to worry too much about the share price or

any theoretical loss of value, especially given that total amount to

buy their way in would be under £1m.

As for purchasers of small numbers of shares, as an emotional gesture,

then I doubt it makes much difference if their £120, say, buys four

shares at £30 or six shares at £20. They, too, are not going to care

about losing theoretical value. And that applies to pretty much anybody

buying a minority stake in an unlisted football club. Shareholder value

(even if its exists with unlisted companies) is the last thing on their

mind.

Whether the £30 price is a bar to someone buying a majority stake, ie Smith and Jones out, is

entirely another matter, although I still doubt it would be. I come

back to the point I have made a few times before, that the share price

has to be looked in relation to the number of shares. £30 LOOKS high,

but values the club at most at only £16m, with an effective purchase

price of £10m. Compare that with £81m for Birmingham.

As for Bobzilla''s idea of getting the club to ask Peter Cullum to buy

the 33,000 shares, Cullum is on record as having no interest in being a

substantial minority shareholder but only in owning the business. And

it cannot seriously be suggested, presumably, that Cullum could not

afford £10m. Especially since he has since donated that amount to the

Cass Business School.

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[quote user="PurpleCanary"][quote user="Buckethead"][quote user="PurpleCanary"]Bobzilla, thanks for the reply. I have a simple suggestion to make. If you think market value applies to NCFC shares then phone up the club and offer, say, £10 or £15 a share for some of those 33,000 shares, and see what response you get.[/quote]

But any potential purchaser of those shares would do both calculations surely whatever their motives for purchase and would see that the clubs valuation differs wildly from the ''accounting valuation''. To purchase all these shares involves writing off nearly half a million pounds using one method of calculating their value thus precluding the much touted rarely seen "Investor" and narrowing the prospective purchasers down to altruistic benefactors, a much smaller group indeed. Perhaps this is why those shares remain unsold and perhaps also this explains why the majority shareholders of the club have been so reticent to convert loans into shares this time around?

The fact that those shares are available for purchase and have been for some time is indicative that the perception by potential purchasers is that they are overpriced.

Is it not also true to say that the clubs shares are ultimately only worth what somebody is prepared to pay for them?

If so these 33,000 available shares appear to prove that nobody (not even the directors of the business) is prepared to pay £30 per share for them, £17 and some pennies seems to be the bottom end starting price the true worth is probably somewhere in between.

Of course our club could continue to bleed money and the shareholders could find themselves in a position where they were forced to seriously consider offers for their holding. I doubt very much if this happens that £30 will be the offer price, I''d be surprised in those circumstances if it even reached the £17 mark, it could as you know be much lower.

Whatever their "true value", it appears that the club has reached stalemate with potential share purchasers by valuing the shares at £30 a pop and I feel the gap in valuation is widening with time.
[/quote]

Buckethead, you''re thinking purely like the accountant I''m supposed to be but am not![8-|]

The point about this tranche of 33,000 shares is that anyone wanting to buy most or all of it would do so effectively to buy a seat on the  board, and so buy influence at the club.
[/quote]

A 5% stake would neither buy you a seat on the board nor influence at the club, especially when Smith and Jones between them hold more than 50%. It would be money down the toilet. And that is why Cullum would not invest. Its majority or nothing to be paying a ''control'' premium.

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[quote user="Bobzilla"][quote user="SimonOTBC"][quote user="Bobzilla"]

Simon, I would respectfully suggest that it is naive to suggest that the aim of a football investor is not to maximise their return. For a great many, it is. Just perhaps not in the traditional sense. For some it is prestige (Abramovich?). For some it is services they can sell to the club (Chase, perchance?). For some it may even be to launder money. I agree that earnings based models do not work in football, but that is not to say that net assets based models work any better. Market value of the assets only works if the club is no longer a going concern (but not in forced sales situations). I wouldn''t want to be valuing a football club. And re the debt/equity mix, you are missing one thing - tax. If tax is an issue, then the debt equity mix can be very important, especially for clubs owned by non-doms who have options as to where they lend from, and how they lend.

[/quote]

I think you''re pretty much agreeing with what I''ve said there Bobzilla.

Traditional corporate finance methodologies are based on a financial return on an investment. Yes, other factors may impact on whether an investor thinks they are getting some value in return, but it ruins the traditional theories on a debt/equity mix as all of a sudden equity is cheaper (debt is considered cheaper up to a high D/E ratio because it is lower risk therefore lower return required). Therefore, equity finance would be considered optimal surely?

Regarding tax, yes, agreed the tax implications of debt/equity are different. Tax reduces the cost of debt to the company (on the assumption they can get credit for tax losses, which I imagine we probably can''t). Also, directors should be able to get a tax deduction for money borrowed to finance the club (as it''s a close company I believe). Withholding tax is likely to come into play for both (if paying overseas).

I find it difficult to see how debt becomes preferable from the clubs perspective (the perspective that we are all interested in isn''t it?) in any case.

[/quote]

Agree to a certain extent, but you appear to be forgetting one thing. The club is often not the only business of the company. Debt is often raised to finance a commercial venture for the club that is expected to generate revenue above and beyond the cost of the debt, either including the capital repayments or sometimes not. In that case, debt can often make sense, especially if equity is not available. For instance player purchases to try and get into Europe or a higher league with greater revenue. Where it goes wrong is that naturally form can take a short dip, and the debt has to be affordable (including capital repayments) even if form dips. Too often an insufficient margin for error is left (see Leeds about 10 years ago). Don''t think we''re entirely at cross purposes though.

But yes, debt is generally never good from a club perspective (as opposed to an owner perspective).

[/quote]

Each time you reply you add an example which is irrelevant to my point.

Equity is cheaper than debt to a football club. Therefore equity is the optimum funding option. It doesn''t matter what the funding will be used for in determining whether the method of financing is the cheapest method.

Debt is used where no further equity investment is forthcoming, (and by debt I mean bank debt not shareholder debt). But that doesn''t mean you wouldn''t rather be using equity finance.

Unless you can think of an example where debt actually is preferable where a choice of debt or equity can be made?

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[quote user="Bobzilla"]

[quote user="PurpleCanary"]

Buckethead, you''re thinking purely like the accountant I''m supposed to be but am not![8-|]The point about this tranche of 33,000 shares is that anyone wanting to buy most or all of it would do so effectively to buy a seat on the  board, and so buy influence at the club.[/quote]

A 5% stake would neither buy you a seat on the board nor influence at the club, especially when Smith and Jones between them hold more than 50%. It would be money down the toilet. And that is why Cullum would not invest. Its majority or nothing to be paying a ''control'' premium.

[/quote]Michael Foulger''s much smaller stake of 18,200 shares seems to have provided him with a fair bit of influence.

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[quote user="SimonOTBC"][quote user="Bobzilla"][quote user="SimonOTBC"][quote user="Bobzilla"]

Simon, I would respectfully suggest that it is naive to suggest that the aim of a football investor is not to maximise their return. For a great many, it is. Just perhaps not in the traditional sense. For some it is prestige (Abramovich?). For some it is services they can sell to the club (Chase, perchance?). For some it may even be to launder money. I agree that earnings based models do not work in football, but that is not to say that net assets based models work any better. Market value of the assets only works if the club is no longer a going concern (but not in forced sales situations). I wouldn''t want to be valuing a football club. And re the debt/equity mix, you are missing one thing - tax. If tax is an issue, then the debt equity mix can be very important, especially for clubs owned by non-doms who have options as to where they lend from, and how they lend.

[/quote]

I think you''re pretty much agreeing with what I''ve said there Bobzilla.

Traditional corporate finance methodologies are based on a financial return on an investment. Yes, other factors may impact on whether an investor thinks they are getting some value in return, but it ruins the traditional theories on a debt/equity mix as all of a sudden equity is cheaper (debt is considered cheaper up to a high D/E ratio because it is lower risk therefore lower return required). Therefore, equity finance would be considered optimal surely?

Regarding tax, yes, agreed the tax implications of debt/equity are different. Tax reduces the cost of debt to the company (on the assumption they can get credit for tax losses, which I imagine we probably can''t). Also, directors should be able to get a tax deduction for money borrowed to finance the club (as it''s a close company I believe). Withholding tax is likely to come into play for both (if paying overseas).

I find it difficult to see how debt becomes preferable from the clubs perspective (the perspective that we are all interested in isn''t it?) in any case.

[/quote]

Agree to a certain extent, but you appear to be forgetting one thing. The club is often not the only business of the company. Debt is often raised to finance a commercial venture for the club that is expected to generate revenue above and beyond the cost of the debt, either including the capital repayments or sometimes not. In that case, debt can often make sense, especially if equity is not available. For instance player purchases to try and get into Europe or a higher league with greater revenue. Where it goes wrong is that naturally form can take a short dip, and the debt has to be affordable (including capital repayments) even if form dips. Too often an insufficient margin for error is left (see Leeds about 10 years ago). Don''t think we''re entirely at cross purposes though.

But yes, debt is generally never good from a club perspective (as opposed to an owner perspective).

[/quote]

Each time you reply you add an example which is irrelevant to my point.

Equity is cheaper than debt to a football club. Therefore equity is the optimum funding option. It doesn''t matter what the funding will be used for in determining whether the method of financing is the cheapest method.

Debt is used where no further equity investment is forthcoming, (and by debt I mean bank debt not shareholder debt). But that doesn''t mean you wouldn''t rather be using equity finance.

Unless you can think of an example where debt actually is preferable where a choice of debt or equity can be made?

[/quote]

If you''re going down that line, then equity is always going to be preferable to debt in any given commercial situation. If you''re making the assumption that resources are limitless, which you appear to be, then a company would never choose to borrow money, it would simply tap its shareholders. Afterall, to a business, equity is always cheaper - sure, investors may make demands for money, but it is entirely discrtionary, and a cost on profits, rather than a cost reducing profits. The fact is that resources are not limitless and the incremental cost of equity when you already have a lot is more than the incrememntal cost of debt when you have a low amount. Of course, if you have a lot of debt (or badly structured debt) then the incremental cost of debt can be higher than the incremental cost of equity. But its not just about cost. Principal factor is availability.

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[quote user="PurpleCanary"][quote user="Bobzilla"]

[quote user="PurpleCanary"]


Buckethead, you''re thinking purely like the accountant I''m supposed to be but am not![8-|]

The point about this tranche of 33,000 shares is that anyone wanting to buy most or all of it would do so effectively to buy a seat on the  board, and so buy influence at the club.
[/quote]

A 5% stake would neither buy you a seat on the board nor influence at the club, especially when Smith and Jones between them hold more than 50%. It would be money down the toilet. And that is why Cullum would not invest. Its majority or nothing to be paying a ''control'' premium.

[/quote]

Michael Foulger''s much smaller stake of 18,200 shares seems to have provided him with a fair bit of influence.[/quote]

The influence is bought not by his stake in the club but what underlies his stake in the club. If he had no further funds to be giving, do you really believe that he would have the influence that he has? He can financially assist Smith and Jones without rocking their control boat.

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[quote user="Bobzilla"][quote user="SimonOTBC"][quote user="Bobzilla"][quote user="SimonOTBC"][quote user="Bobzilla"]

Simon, I would respectfully suggest that it is naive to suggest that the aim of a football investor is not to maximise their return. For a great many, it is. Just perhaps not in the traditional sense. For some it is prestige (Abramovich?). For some it is services they can sell to the club (Chase, perchance?). For some it may even be to launder money. I agree that earnings based models do not work in football, but that is not to say that net assets based models work any better. Market value of the assets only works if the club is no longer a going concern (but not in forced sales situations). I wouldn''t want to be valuing a football club. And re the debt/equity mix, you are missing one thing - tax. If tax is an issue, then the debt equity mix can be very important, especially for clubs owned by non-doms who have options as to where they lend from, and how they lend.

[/quote]

I think you''re pretty much agreeing with what I''ve said there Bobzilla.

Traditional corporate finance methodologies are based on a financial return on an investment. Yes, other factors may impact on whether an investor thinks they are getting some value in return, but it ruins the traditional theories on a debt/equity mix as all of a sudden equity is cheaper (debt is considered cheaper up to a high D/E ratio because it is lower risk therefore lower return required). Therefore, equity finance would be considered optimal surely?

Regarding tax, yes, agreed the tax implications of debt/equity are different. Tax reduces the cost of debt to the company (on the assumption they can get credit for tax losses, which I imagine we probably can''t). Also, directors should be able to get a tax deduction for money borrowed to finance the club (as it''s a close company I believe). Withholding tax is likely to come into play for both (if paying overseas).

I find it difficult to see how debt becomes preferable from the clubs perspective (the perspective that we are all interested in isn''t it?) in any case.

[/quote]

Agree to a certain extent, but you appear to be forgetting one thing. The club is often not the only business of the company. Debt is often raised to finance a commercial venture for the club that is expected to generate revenue above and beyond the cost of the debt, either including the capital repayments or sometimes not. In that case, debt can often make sense, especially if equity is not available. For instance player purchases to try and get into Europe or a higher league with greater revenue. Where it goes wrong is that naturally form can take a short dip, and the debt has to be affordable (including capital repayments) even if form dips. Too often an insufficient margin for error is left (see Leeds about 10 years ago). Don''t think we''re entirely at cross purposes though.

But yes, debt is generally never good from a club perspective (as opposed to an owner perspective).

[/quote]

Each time you reply you add an example which is irrelevant to my point.

Equity is cheaper than debt to a football club. Therefore equity is the optimum funding option. It doesn''t matter what the funding will be used for in determining whether the method of financing is the cheapest method.

Debt is used where no further equity investment is forthcoming, (and by debt I mean bank debt not shareholder debt). But that doesn''t mean you wouldn''t rather be using equity finance.

Unless you can think of an example where debt actually is preferable where a choice of debt or equity can be made?

[/quote]

If you''re going down that line, then equity is always going to be preferable to debt in any given commercial situation. If you''re making the assumption that resources are limitless, which you appear to be, then a company would never choose to borrow money, it would simply tap its shareholders. Afterall, to a business, equity is always cheaper - sure, investors may make demands for money, but it is entirely discrtionary, and a cost on profits, rather than a cost reducing profits. The fact is that resources are not limitless and the incremental cost of equity when you already have a lot is more than the incrememntal cost of debt when you have a low amount. Of course, if you have a lot of debt (or badly structured debt) then the incremental cost of debt can be higher than the incremental cost of equity. But its not just about cost. Principal factor is availability.

[/quote]

The higlighted section is, in my opinion, wrong. Although I think what I''m saying below is aligned with what you say in the part below that which is highlighted.

Ignoring the context of a football club, which you seem to be, in order to maximise shareholder wealth going forward a company wants to retain as much of its profit as it can in order to grow the business. It does not therefore matter whether it''s interest going through profit or dividends going through reserves.

Debt is cheaper than equity until your debt:equity ratio gets high (what is considered high is industry specific). The reason for this is shareholders are at the back of the queue in the event of a winding up so the risk of holding equity is higher than the risk of holding debt (debtholders are at the front of the queue to get their money back). The tax shield on debt further reduces the cost to the company. The point at which debt becomes more expensive is when there is so much debt, being at the front of the queue no longer provides sufficient comfort that the debtholder will get their money back in the event of a default.

If you look to traditional corporate finance methodologies they all recommend a mix of debt and equity as the cheapest method of financing a company. My point from the word go is that this doesn''t seem to fit with a football club.

 

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[quote user="Buckethead"]My concern is that by "overextending credit" to the club the banks might be putting us in a position whereby in the event of financial difficulties a few years down the road, we find that our assets do not cover our liabilities....  By lending our club £34.5m against net assets of £9m the banks stand to find themselves twenty five million quid out of pocket even if they realise the stadium, colney, and any other assets tangible or non tangible for development etc. [/quote]How exactly is a sell and lease back scheme overextending credit or lending 34.5mill on 9mill assests?Someone buys 9mill assests and a guarenteed period of rent from a company with a good credit rating (no missed payments etc), that will have no debts and has the ammount of rent that is going out as an expense on the balance sheet that will cease to exist when the debt does.Like it or not the second part does have a considerable intangible but intrinsic value, and there are methods of hedging such deals.  There are also pricing models for these hedging products and, provided the companies are exposed to both risk and reward, no problems with them.**  Also in such a deal the risk of the club going bust and failing to make the payments becomes enitrely that of the stadium owner.  If the club went bust then the owner would have no recourse to the club for colney etc.**Credit crunch was caused by banks buying billions of derivatives (ie insurance for this kind of risk) without having the risk itself.  If they have the risk as well they are fine.

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Just a comment about sell and lease back, Leeds United have done it.

Manchester City have a deal with the Manchester council regarding Eastlands.

Colchester United and Ipswich Town rent their grounds from their local councils.  I believe Coventry do likewise.

Its not the end of the world! 

 

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[quote user="Tangible Fixed Assets anyone"]

Just a comment about sell and lease back, Leeds United have done it.

Manchester City have a deal with the Manchester council regarding Eastlands.

Colchester United and Ipswich Town rent their grounds from their local councils.  I believe Coventry do likewise.

Its not the end of the world! 

 

[/quote]

I tend to agree that it''s not the end of the world if the timing was right. If the ridiculous "living beyond our means football world" ended tomorrow then we''d be well placed if we could clear our debts. With our gates we''d probably end up back where we were before it all changed in the 90''s.

 

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[quote user="Tangible Fixed Assets anyone"]

Just a comment about sell and lease back, Leeds United have done it.

Manchester City have a deal with the Manchester council regarding Eastlands.

Colchester United and Ipswich Town rent their grounds from their local councils.  I believe Coventry do likewise.

Its not the end of the world! 

[/quote]

The Council bought Leeds''s ground when the club were about to go under.

Eastlands was a commonwealth games site.

Col U''s ground was developed in a public private partnership with the council.

Not sure what the deal with Ipswich was.

Coventry, the site was brownfield (and council owned I think). Cash for the stadium was largely provided by a private trust, and the ground is used for a lot more than just football. Indeed there are retail facilities on site, and a lot would have been funded from that.

Most of the recent council involved ground are not solely dependant on football for their revenue streams, with a mix of retail and leisure providing income streams from the land, and its mainly land that could not be used in any other way. I think we may struggle to get full value from a sale and leaseback deal, and may have to think about a move away from Carrow Road to a more out of town site with retail and other leisure activities if we want to go down that route.

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[quote user="Bobzilla"][quote user="Tangible Fixed Assets anyone"]

Just a comment about sell and lease back, Leeds United have done it.

Manchester City have a deal with the Manchester council regarding Eastlands.

Colchester United and Ipswich Town rent their grounds from their local councils.  I believe Coventry do likewise.

Its not the end of the world! 

[/quote]

Eastlands was a commonwealth games site.

Coventry, the site was brownfield (and council owned I think). Cash for the stadium was largely provided by a private trust, and the ground is used for a lot more than just football. Indeed there are retail facilities on site, and a lot would have been funded from that.

[/quote]

I''m not certain but I thought Maine Rd (the old Manchester City FC ground) was rented from the Manchester Council and when they moved to the bigger Commonwealth games site they made a new deal to reflect the increased revenue from a 48,000 seater stadium.

Coventry - I was told there was a casino as part of the ground complex plus what looks like an exhibition hall type thingy. Presumably the retail facilities you are talking about is the supermarket on the other side of the dual carriageway???

Ipswich Town - rented from the council for decades.

 

 

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[quote user="SI"]I would like to mention that the Norwich City Supporters Trust purchased £2550 worth of shares at £30 from the club in October 2009. See link.

Will they be part of the 33000 shares available?
[/quote]

The 85 shares purchased at £30 each = £2550 will be part of the number of issued ordinary shares.

Mind you the Share Trust will not get a seat on the board without the majority shareholders approval.

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