Debt Free?

[Google Bot 3,259]

As someone who follows the team on a footballing level, i''ve never really spent time looking at our finances or trying to understand what kind of state we were in when sinking to league one.

But i was just wondering, now we''re prem for another season i keep reading little bits that we''re now debt free - Does that mean we are, unlike many other clubs, actually ''Debt free'' and therefore we must be operating on a profit now?

Like i say, not a follower of the financial side of the game as such, but that is great news if true and something to truly celebrate!

But at the same time, anyone feel that it''s a sad reflection on how out of balance the premiership is with the rest of football that this seemly, has been easily achieved within 2 seasons in the top flight?

(Not that we''re worried of course- this is OUR time!!!) :)

[CJ 0]

Believe me we will be debt free, the amount of money for being in the premiership next year is phenomenal even if relegated we would still be in the money.

We also have a board who have not got sucked into a survival at any cost ( hence Lambert left ) mcnalley has made it his number 1 objective to clear the debt so we can move forward safely (unlike qpr ).

Afigure of one hundred million income next year is about correct given massive leap in tv income . The only worry is the gap between our league and the Championship is going to get way wider.

[Gaz06 0]

CJ - I wouldn''t say its a worry that the gap between the Premier League and the Championship is going to get wider. Means even if we do get relegated we are in a far better position to get promoted than any other Championship team. However, if I was a small team in the Championship such as Leeds or Ipswich i''d be very concerned with the rising levels of income in the Premier League!

[Salopian 1]

I think that they mean external debt free, i.e. money owed to banks. The club will still owe Delia a lot of money. I am not quite sure how much we pay her in interest on all the money we have lent her.

 

At one point the external debt was over £20m, and would have cost the club perhaps over £1m a year in interest, so it does make a contribution.

 

We now have to build up some reserves towards enlarging the stand(s), but I hope that even with a larger wage bill we shall still be able to make one or two good signings.

[flecky76 0]

Delia and Michael do not take any interest in the internal loans given.

[super canary 0]

Papers, Telegraph i think, are saying that, due to a new broadcasting deal, the team who finishes bottom of the prem next season will receive 63 million, 20 million more than last season. Mo'' money.

[NorthWalesCanary 0]

We aren''t officially debt free but we virtually are. As others have mentioned we owe money to Delia and her husband but I don''t think they''ll be calling that in any time soon.

[ellis206 0]

I was under the impression that Delia turned most of her debt in to shares?

(few on here slaughtered her for this btw)

[Mr Brownstone 0]

[quote user="ellis206"]

I was under the impression that Delia turned most of her debt in to shares?

[/quote]

 

I was also under this impression.

[BroadstairsR 2,138]

That''s what I thought. Delia and MWJ = "majority shareholders." Therefore, in theory, they would collect a dividend and if they wanted out then they would have to sell the shares. There is no debt.

 

Delia therefore does not "own" the Club in the same way that Evan''s does down the road.

 

I cannot recall much of the detail as I was away a lot at the time so somebody might be able to put me right here about the exact situation involving Delia''s money and just what exactly the Club might owe her.

[Bill 1,788]

" mcnalley has made it his number 1 objective to clear the debt"

Not so, and neither has he or the club has ever stated that either.The rapid decrease in debt is more to do with the terms of the re-negotiated payment structure agreed in the summer of 2009, whereby our being in the PL meant that we would have to pay back the money owed to the banks much sooner - Oct 2013, I believe,There is a much misunderstood believe that debt is automatically a bad thing and a measure of a failing within a club. Debt is only a problem if the repayments cannot be met, likewise it is not a problem (more a need) with those who have a mortgage or car loan etc.As it stands I cannot see us being in a position where we would not be able to meet our commitments. The biggest charge on income is wages, however I believe the club has recruited players who are fairly level headed and will have accepted that wages will vary depending on the clubs success/league position so relegation would not leave us with a PL wage bill on a Championship budget.The only other problem is an enforced charge ie replacing the South Stand. That was a one off and there''s nothing of that size that might crop up in the forseeable future.So unless the TV money dramatically changes I cannot see the club having any serious financial problems bar how to spend the money wisely - and even with a possible drop in TV money I would expect the club to have covered that within the players contracts.

[Holtcantshoot 0]

Very true. The main areas that need to be focused on is the organisations level of gearing (debt compared to capital investment), their interest cover (amound of net profit compared to the interest required to pay for debts) and the overall cost of the debt held by the company. If for instance they could get a bank to loan them £10m at 1% interest rates for 20 years they could quite easily put it in an ISA and make a profit on the debt for that time period the fact that they had £10m debt would be near irrelevant.

[OxShireCanaryYellow 0]

[quote user="CJ"]The only worry is the gap between our league and the Championship is going to get way wider.[/quote]

3 teams must always go down, and 3 teams must always go up.

[PurpleCanary 5,554]

For what it is worth i will post a summary of where we stand with debt in a few days'' time.

[Webbo118 0]

[quote user="Holtcantshoot"]Very true. The main areas that need to be focused on is the organisations level of gearing (debt compared to capital investment), their interest cover (amound of net profit compared to the interest required to pay for debts) and the overall cost of the debt held by the company. If for instance they could get a bank to loan them £10m at 1% interest rates for 20 years they could quite easily put it in an ISA and make a profit on the debt for that time period the fact that they had £10m debt would be near irrelevant.
[/quote]

A couple of questions:-

1)   Do you think any Bank would lend at 1%?

2)  Who can have an ISA?

[Holtcantshoot 0]

[quote user="Webbo118"]

[quote user="Holtcantshoot"]Very true. The main areas that need to be focused on is the organisations level of gearing (debt compared to capital investment), their interest cover (amound of net profit compared to the interest required to pay for debts) and the overall cost of the debt held by the company. If for instance they could get a bank to loan them £10m at 1% interest rates for 20 years they could quite easily put it in an ISA and make a profit on the debt for that time period the fact that they had £10m debt would be near irrelevant.[/quote]

A couple of questions:-

1)   Do you think any Bank would lend at 1%?

2)  Who can have an ISA?

[/quote]To answer your questions No and I don''t know. It was just general hypothetical statements that came into my head as I was typing. Kind of indicating that "debt" in itself is not bad, only debts that you don''t have the appropriate current assets to cover is the problem.

[Webbo118 0]

In answer to your reply:-

1) Yes, you are correct in saying "no"

2) The clue is in the letters ISA (Individual Savings Account)

[Holtcantshoot 0]

Ok...sorry? I''ll rephrase to say that they can take long-term debt and reinvest it in a project that provides a higher return than the original cost of the debt. This is the main practice of all business.Is that better?

[Webbo118 0]

[quote user="Holtcantshoot"][quote user="Webbo118"]

[quote user="Holtcantshoot"]Very true. The main areas that need to be focused on is the organisations level of gearing (debt compared to capital investment), their interest cover (amound of net profit compared to the interest required to pay for debts) and the overall cost of the debt held by the company. If for instance they could get a bank to loan them £10m at 1% interest rates for 20 years they could quite easily put it in an ISA and make a profit on the debt for that time period the fact that they had £10m debt would be near irrelevant.
[/quote]

A couple of questions:-

1)   Do you think any Bank would lend at 1%?

2)  Who can have an ISA?

[/quote]

To answer your questions No and I don''t know. It was just general hypothetical statements that came into my head as I was typing. Kind of indicating that "debt" in itself is not bad, only debts that you don''t have the appropriate current assets to cover is the problem.
[/quote]

This is not totally correct. A lending institution will be concerned that a company it has advanced money to has a regular flow of reliable income to service the debts it has taken on. Whilst there is some comfort in knowing that assets can be sold to repay such debts, there may not be a long-term future for any company that has to follow this policy; what happens when the assets start to disappear and eventually all go? How does the company continue to function?

[Webbo118 0]

[quote user="Holtcantshoot"]Ok...sorry?

I''ll rephrase to say that they can take long-term debt and reinvest it in a project that provides a higher return than the original cost of the debt. This is the main practice of all business.

Is that better?
[/quote]

It is fair to say that when a business borrows money, it is the intention to put itself in a better position that if it hadn''t taken that course of action. That is to say, all the additional costs associated with the borrowing need to be more than covered by the extra income generated. Otherwise, there is no point in doing it. Or, in other words, what you said.