West Ham's losses

[Dirk Gently]

An article today shows the full extent of West Ham's palous financial situation.

http://www.guardian.co.uk/football/2009/sep/03/west-ham-financial-crisis-37m-loss

....
The accounts set out a loss of more than £37.4m for the year ending 2008, which was covered by an injection of £30.5m of cash from the holding company of the former owner, Gudmundsson, and £17m of new loans negotiated with the banks in January 2008. Now that the club's parent company, CB Holding, is effectively a subsidiary of Iceland's now defunct bank Straumur, even a marginal loss this year could result in a return to the 2008 crisis.
...
In addition, the Hammers have net debt and contingent liabilities approaching £100m.
...
It is believed five syndicate banks have together raised their loans to the club to £50m and whether the auditors, Deloitte, will sign off the most recent accounts is an important consideration.
...
West Ham have embarked on a series of cash-saving measures but, despite net transfer proceeds in the 12 months to 5 June this year of £11.67m, troubled times still lie ahead.
...
Of paramount concern is the stark admission that the club had breached their debt covenants. This meant that the five banks that had then loaned them more than £20m could have demanded immediate repayment, a move that would have plunged the Upton Park club into administration. Only what the board has termed the "goodwill" of those banks prevented West Ham becoming the first Premier League club to suffer that fate
....

[Thaumagurist*]

Do those accounts show that they have paid the compo to Sheff Utd?

[Dirk Gently]

Do those accounts show that they have paid the compo to Sheff Utd?

No. Those are on the sheet as future liablities of £21M , spread over 4 years.

There are further financial pressures off the pitch that will continue to hit home. The collapse of the former shirt sponsor, XL, is estimated to have cost the club £4m. The settlement with Sheffield United after the Carlos Tevez inquiry has added another £21m in future liabilities, to be paid in four equal tranches each year to February 2013.

[exileinleeds]

So, what are you saying DG- that even if you have a really rich Chairman with his own bank, spend millions to get to and stay in the Prem, that your club is still in danger of going tits up?


Thank God Sir John does not know how to run a company.

[cmonurz]

When did Bundesliga bring in the rule that no club must be run in debt? I'm wondering whether this coincided with German clubs' struggles in Europe. Not long ago that Bayern, Leverkusen and Dortmund were amongst the top clubs on the continent, but they don't get close now.

[Dirk Gently]

When did Bundesliga bring in the rule that no club must be run in debt? I'm wondering whether this coincided with German clubs' struggles in Europe. Not long ago that Bayern, Leverkusen and Dortmund were amongst the top clubs on the continent, but they don't get close now.

Yes, but the bottom line is that while some clubs are allowed to run up massive debt tehy will do better - that's why UEFA is focusing on det levels. They see is that teh answer isn't to let all clubs be run in an unsustainable to compete, it's that all clubs should be run without dbet and to level the playing field that way.

Interestingly, though, German clubs are now the most profitable in Europe. They have had to learn to budget and to manage their finances properly to get around this rule, and are now much better for it - and they don't have a business plan which depends upon TV contracts getting bigger and bigger.

[Seal]

Most profitable I would question. Depends how you define profit. Man U made a profit of £70m, which would dwarf any German club. They just had to use most of it to service interest on their debt.

So in your opinion should Man U be able to operate in this way? They are managing their debt responsibly. Isn't it just like having a mortgage? Should people not be allowed to take out an interest only mortgage?

Also UEFA's model does nothing to combat the Man City phenomenom. Therefore if you forced every club to be debt free, then surely that would just allow clubs like City to totally dominate, as their competitive market would be infinitely weaker.

Finally, German clubs may be profitable. However, have you seen their performance in Europe recently? They are currently performing at a level comparable with Dutch and Portugese clubs, and have slipped well behind the 'Big 4' nations in terms of competiveness. Do you think the fans in Germany want sound accountancy or a European trophy? Or maybe at least some middle ground?

[Thaumagurist*]

Most profitable I would question. Depends how you define profit. Man U made a profit of £70m, which would dwarf any German club. They just had to use most of it to service interest on their debt.

So in your opinion should Man U be able to operate in this way? They are managing their debt responsibly. Isn't it just like having a mortgage? Should people not be allowed to take out an interest only mortgage?

Doesn't this rely on Man Utd having a lion's share of the TV money and being in the Champions League? If they were to finish up outside the top 4 and had their TV money reduced, do you think this debt will still be manageable?

[Seal]

Absolutely not. They would be losing significant amounts of money.

However, that's just like any other business. If you fail to peform your profits and reward will suffer. It's a calculated risk. In Man U's case it is working, in Leeds' it did not.

Also you must remember the business reasons for the Glazers purchase of Man U. It is not about YOY profitability per se, it is about market value. In simple terms, the Glazers bought Man U for £800m, what was it, 4 years ago? At latest estimates Man U is now worth something in the region of £1.2bn.

Therefore if all they do is service the debt, then if they decided to sell the club today they would have still made a tidy £400m profit in 4 years. That's the business model.

[Royal Rother]

Of paramount concern is the stark admission that the club had breached their debt covenants. This meant that the five banks that had then loaned them more than £20m could have demanded immediate repayment, a move that would have plunged the Upton Park club into administration. Only what the board has termed the "goodwill" of those banks prevented West Ham becoming the first Premier League club to suffer that fate

Breaching covenants isn't as bad as it sounds - there's a lot of it about in some very big, very well-run companies these days.

The banks will send in independent consultants (at great cost to the company itself of course) to review the accounts, systems, infrastructure, contracts, longer-term revenue streams etc. etc. and assess the viability of the business and suitability of its management to deal with the pressures and come out of it with a model that will work - if the report is favourable they will "allow" it to continue uninterrupted, but with amended covenants. Woe betide them if the new covenants are breached....

It is reasonable to assume that the goodwill the banks have shown will only have been done on the basis of significant future restructuring - don't be surprised to see Portsmouth style player trading in the next window.

[Rev Algenon Stickleback H]

When did Bundesliga bring in the rule that no club must be run in debt? I'm wondering whether this coincided with German clubs' struggles in Europe. Not long ago that Bayern, Leverkusen and Dortmund were amongst the top clubs on the continent, but they don't get close now.

The bigger factor is that German TV doesn't have the massive tv deal that the premiership has. Add to that the detail of ticket prices generally being lower (although they aren't low across the board as seats can be just as much as they are here).

Overall the way they run the league is the right way. Clubs should be regulated to stop them living on debt.

Any club that's in debt and losing money should be banned from signing players as far as I'm concerned. Or at very least they should be banned from increasing their wage bill to a higher level, so they'd be able to bring players in if they ship some out.

The reality is that we lost our premier league place because we were trying to compete with clubs around us who were spending money they didn't have. Clubs live beyond their means because they feel they have to as everyone else is doing it, and if they didn't they'd be at a disadvantage. That needs to stop, and if it takes some bigger clubs "doing a Leeds" then it'll be for the best in the end.

[Royal Rother]

Your last paragraph sums it up perfectly.

RFC is beautiful by being different and trying to live within its means as a proper business should. Shame that many just cannot appreciate it.

[Jerry St Clair]

Finally, German clubs may be profitable. However, have you seen their performance in Europe recently? They are currently performing at a level comparable with Dutch and Portugese clubs, and have slipped well behind the 'Big 4' nations in terms of competiveness. Do you think the fans in Germany want sound accountancy or a European trophy? Or maybe at least some middle ground?

Being able to stand for €10 in a stadium with an atmosphere whislt drinking beer > winning trophies at any cost.

[The whole year inn]

Clever Trevor will worm money out of the FA should West Ham need it.

Nothing will happen, and if it does the punishment will be laughable - 20k fine or something

[Thaumagurist*]

Clever Trevor will worm money out of the FA should West Ham need it.

Nothing will happen, and if it does the punishment will be laughable - 20k fine or something

How can they pay the fine if they've no money?

[Huntley & Palmer]

Absolutely not. They would be losing significant amounts of money.

However, that's just like any other business. If you fail to peform your profits and reward will suffer. It's a calculated risk. In Man U's case it is working, in Leeds' it did not.

Also you must remember the business reasons for the Glazers purchase of Man U. It is not about YOY profitability per se, it is about market value. In simple terms, the Glazers bought Man U for £800m, what was it, 4 years ago? At latest estimates Man U is now worth something in the region of £1.2bn.

Therefore if all they do is service the debt, then if they decided to sell the club today they would have still made a tidy £400m profit in 4 years. That's the business model.

What he said

[1960]

What pisses me off the most about this is that all the money sloshing around serves only to give the vastly overpaid players even more money. Terry now on a reported £170,000 a week.

I'd REALLY laugh out loud if Man City break up the big four and one of them therefore doesn't make it into Big Cup. Preferably Liverpool for me after their bleating when they came fifth and got UEFA to give them a special deal - it was never about "defending the Cup", it was purely panic and desperation at missing out on the cash.

Anyway, Man City would of course be using money for this purpose, but if just one of the big four missed out they would be struggling and would have to cut wages or offload players. The other three might then look over their shoulders and start trimming wages. Probably not, but if it did work out, Man City's money will have had a good effect.

As far as West Ham are concerned it would be Karma if they went into administration and got relegated.

[Mr Angry]

Man City's Arab owners haven't spent £120M on players since June simply to get into the Champions League; they are thinking much more strategically and far longer term than the attention span of the average fan.

The HUGE money will come with a World League, with each club able to negotiate its own TV deals.

At the moment, there is collective bargaining for the Sky money in the prem; sure, some teams will get more if they are on the TV more often, but they all start with an equal share of the cash. However, how valuable are the rights to say, Stoke v Hull, or Reading v Wigan?? Quite - apart from the fans of the 2 clubs involved, a very limited appeal.

But what about Man Utd v Chelsea? Arsenal v Liverpool? The rights for those games will be worth a vast amount, and if each club could negotiate its own deal with each broadcaster, then the sky's the limit. Imagine how much interest there would be in Man City v Pompey in the Middle East at the moment? Individual broadcasters might pay £3 - £5M for the game (which they would recoup on advertising revenue) which might not sound a lot, but imagine 20 broadcasters each paying that money...... £100M for a single game.

As for a Man Utd v Liverpool clash, instaed of £3-£5M for 20 broadcatsrs, it might be £20M from 50 broadcasters, or, if it were a World League decider, £50M from 100 broadcasters.......THATS where the return on the investments will come.

Scary thought, but if I had the ability to front up £80M to buy Newcastle, I would do it, cos give it 10 Years or less, and that will be a gold mine for someone.

[Seal]

Man City's Arab owners haven't spent £120M on players since June simply to get into the Champions League; they are thinking much more strategically and far longer term than the attention span of the average fan.

The HUGE money will come with a World League, with each club able to negotiate its own TV deals.

At the moment, there is collective bargaining for the Sky money in the prem; sure, some teams will get more if they are on the TV more often, but they all start with an equal share of the cash. However, how valuable are the rights to say, Stoke v Hull, or Reading v Wigan?? Quite - apart from the fans of the 2 clubs involved, a very limited appeal.

But what about Man Utd v Chelsea? Arsenal v Liverpool? The rights for those games will be worth a vast amount, and if each club could negotiate its own deal with each broadcaster, then the sky's the limit. Imagine how much interest there would be in Man City v Pompey in the Middle East at the moment? Individual broadcasters might pay £3 - £5M for the game (which they would recoup on advertising revenue) which might not sound a lot, but imagine 20 broadcasters each paying that money...... £100M for a single game.

As for a Man Utd v Liverpool clash, instaed of £3-£5M for 20 broadcatsrs, it might be £20M from 50 broadcasters, or, if it were a World League decider, £50M from 100 broadcasters.......THATS where the return on the investments will come.

Scary thought, but if I had the ability to front up £80M to buy Newcastle, I would do it, cos give it 10 Years or less, and that will be a gold mine for someone.

Barca and Real negotiate their own deals, hence why they are so dominant in Spain.

However, it is easier said than done in the the UK. Whilst Man U, Chelsea et al are part of the Premier League, as much as they would like to, they cannot negotiate their own media rights deals. A collective distribution model is what they have signed up for.

I'm not saying it won't happen, but as an investor, you could not justify investing a football club on the basis of it happening, as at this current point (and for the foreseeable future) it cannot. I would fire my advisors if they tried to use that as a legitimate element of any football club investment strategy....unless they were looking long long term (10 years+).