The £750k and Khaled's Response

Long Post Alert (in fact, so long that I've exceeded the allowable character count and had to split it):-

I've started a separate thread on this specific issue so that it's not lost within the general discussion of Khaled's interview. This post is with specific reference to the questions raised regarding the £750k payment, the response from Khaled El-Ahmad, and the possible implications of such.

This is my interpretation of what was discussed and I encourage anyone interested to listen to the specific section of the interview should they wish to sense check any of the interpretation directly. It begins at around 55:56 on the interview footage and ends at around 1:02:15.

Summary Of The Interview
To start with, I'll summarise Khaled's answer, in which he referred to an agreement made "4 years ago", and that he's asked "all parties involved" about this. He then proceeded to read from a document on his screen stating that, "on contractual contingency between OH Ltd and BFC Investments the club was to pay the £750k amount accurately described in the 31/05/20 accounts."

He then intimated that to get any further information on this, beyond the statement, we will ultimately need to "ask the owners."

Subsequent to this, he then took advantage of reference being made to the court case to essentially "no comment" on queries relating to the source of the other £2.75m outstanding payments potentially payable under this agreement.

Within this discussion, both @Gally and @Loko the Tyke provided significant additional context, including referencing the Cryne family's statement stating that the debt is payable by the investment company, not the club.

Who's Who
For clarity, "OH Ltd" is Oakwell Holdings Limited, the company owned by the Cryne family, which is the entity that receives any monies due in relation to the purchase of BFC.

"BFC Investments" refers to BFC Investment Company Ltd, a company registered in Hong Kong, which is currently the ultimate parent company of Barnsley Football Club Limited, owning 100% of the shares in it. BFC Investments is 80% owned by the Chien Lee/Paul Conway Group of investors (the exact split of holdings between these parties is not known), and 20% owned by Oakwell Holdings Limited, this representing the 20% interest retained in BFC by the Cryne family.

Accounts Extract
Despite the brevity of the exchange in the interview, there is a significant amount of information to dissect within it in terms of attempting to resolve this issue, which I'll attempt to break down below. For clarity, and ease of reference, I've attached the section of the accounts referring to the payment, to which Khaled referred, below:



ANALYSIS
I will now try to break down my thoughts on this. I've tried to split it into sub-headings, for easier reference.

Source Of Statement
My immediate query is with regard to who provided Khaled with the statement from which he read. I'd like to know this as there's a significant difference in that statement having come from, say, Paul Conway than it would coming from Robert Zuk, the Finance Director, on the basis that I'd consider the latter to be impartial. Until such time as any information to the contrary is received, and given the similarity to the content to the email read out at the last meeting, the logical assumption is that it came from Paul Conway.

Who Pays?
Essentially, the argument that the ownership are falling back on here is that the contingency agreement to pay additional funds, which is undisputedly an agreement between BFC Investments and Oakwell Holdings (Khaled's reply confirms such) allegedly states that the payments are to be made by the club (i.e. Barnsley Football Club Limited). Should this be the case, then the payment flow shown in the accounts would make sense, from a contractual perspective at least.

My immediate issue with this interpretation is that is contradicts earlier information relating to this matter. To date, the publicly available data beyond that in the accounts comes primarily from 4 sources, each of which I've linked below, and will comment on individually in chronological order:

1) Court Case Details - BBS Post 18/08/20 - Spirit of 81

This, I believe, is the first source of information that highlighted the court case, posted by @Spirit of 81, who had found reference to a case, for which he provided relevant details. The case is Oakwell Holdings Limited v BFC Investment Company Limited, so was very clearly stated as being between the two investment companies, not the football club, from the outset.

2) Barnsley FC statement from August 2020 - 18/08/20 - BFC Statement - August 2020

This is the statement posted on BFC's website later that day, presumably in response the above news breaking. It sets out a lot of background detail, including confirmation that £750k had been paid to Oakwell Holdings as at 27/1/20, and also includes the, now infamous, comment, "Since investing in the Club in 2017, the new investors have not withdrawn £1 from the Club and received no compensation as Board members."

Much of this is stated within the context of "The Club", defined as being 'Barnsley Football Club', which I presume is intended to be a reference to Barnsley Football Club Limited. It then goes on to essentially give a defence of the majority owners stance with regard to their dispute with the Crynes, all in the context of being "The Club" which is the injured party. "The Club would never have agreed to the incentive consideration", "the Club has made a variety of proposals" and, most pertinently, "On August 12, 2020, the Cryne family filed a claim of £2.75m against the Club".

In isolation, reading this statement would appear to support the version of events read out by Khaled, in that the reference to "The Club" is defined as relating to Barnsley Football Club. However, the final statement very obviously contradicts the details of the legal case, which is against BFC Investment Company Limited, as per the referenced case details.

Based on this, I would therefore be extremely wary with regard to any reference made by the majority owners with regard to anything that relates to Barnsley Football Club as being conclusively relating the the limited company operating the football activities. This document contains one clearly provable mis-use of this term, whether via mis-understanding on the author's part, or otherwise.

3) The Cryne family's response to this - Barnsley Chronicle 19/08/20 - Cryne Family Statement

This was issued via their solicitors to the Chronicle and published on the following day to items (1) and (2). Compared to the BFC website statement it is explicitly clear as to which parties are in dispute, and includes the direct reference read out by Gally during the interview with Khaled. "The club is not liable to pay the deferred element of the purchase price, it is the Hong Kong company which owes the money.”

Additionally, it includes the following, again clearly referencing that the liability lies with the Hong Kong company and that payment has consistently been sought from it. "Despite requesting payment from the Hong Kong company several times, payment has still not been forthcoming and therefore, with huge reluctance and great regret, Oakwell (Oakwell Holdings Limited, the family's company) has been forced to issue a claim in the High Court to recover those monies due. It is hoped that the matter can be resolved before the claim progresses much further but the Hong Kong company are yet to submit any defence to the claim."

 

4) A BFCST update on the court case and other issue - 16/09/20 - BFCST Court Case Update

This article was written by Gally on the BFCST website, and provided a great deal of background information based on his discussions with a "club insider". Gally is obviously aware of who this is, and I've made no enquiries of him as to who this might be. I also don't expect that Gally should be expected to reveal the source. The only assumption I make here is that the source is reliable, and this would appear to be confirmed in the level of additional information provided within the article which, to my knowledge, has never been challenged by anyone as being inaccurate in any way.

This article gives information on the reduction in price reference in the Cryne statement. Originally, a sum of £6m would have been due if BFC had stayed up under Morais or been promoted from League One at the first attempt. This was then renegotiated, during Stendel's League One campaign, to be a £3.5m payment which was not subject to winning promotion. This amount is made up of the £750k payment on which we are focused, with the unpaid element being the £2.75m which is subject to the legal action.

The important point to note for the purposes of this post, is that everything within the statement is in the context of monies and liabilities relating to BFC Investment Company Ltd, not the football club.

So, taking the 4 sources as a whole, 3 of them are consistent with the debt being one related to the investment company, whilst the other (being the one issued directly via the football club) references the football club, including incorrectly identifying it as being the party subject to the court case.

Based on an overall assessment of this, my conclusion is that I would have concerns with regard to the accuracy of any reference coming internally from BFC senior management referencing 'the football club' as being conclusive evidence that this is the case contractually. This includes the response from Khaled, as it was a pre-prepared statement provided to him from someone within the club (hence my earlier query as to who exactly was the source of this statement).

Let's Assume That BFC Is The Liable Party
Arguably, all of the above could be regarded as speculation, which is why I've tried to reference it back to source data as far as possible to at least provide some context to it.

However, let's also take Khaled's response at face value as being accurate and think about this in more detail.

The very first part of his response referred to this, almost dismissively, as something that had been agreed 4 years ago (i.e. at the time the club was purchased). We now know that the contingent consideration originally agreed was £6m, and that the figure was only negotiated down to £3.5m at a much later date.

Let's think about that in the context of Barnsley Football Club Limited being the entity that is liable to make that payment, as is being claimed. This would mean that the original agreement made with Patrick Cryne, prior to his death, included a £6m liability potentially becoming payable by the football club based on it simply retaining Championship status, or upon being relegated and winning back promotion (i.e. simply doing nothing more than what it had achieved throughout his ownership and for which he'd had to invest several million pounds of his own money, in the form of loans to the club). Regardless of anyone's thought on how Patrick ran the club I would argue that even his fiercest critics would not believe that he would agree to sell it with such a massive contingent liability hanging over it.

Then we also need to consider the same agreement from the perspective of outside investors who's operating model we now know relied on the club being financially self-sustaining without any injection of capital from them once purchased. Their due diligence process (which we already know failed to turn up basic data about the covenants on Oakwell) would surely have identified that a £6m liability in those circumstances was not consistent with being able to sustain that model. A basic cash-flow analysis would have told them that and would undoubtedly have formed part of the due-diligence process.

So, if we apply the logical argument of this relating an agreement made 4 years ago, as Khaled states, then there is simply no logical reason as to why either party would be incentivised to have agreed for such a substantial sum to have been paid by the football club, in the certain knowledge that this would have a hugely adverse impact on the football club operations.

A Bit More Accounts Analysis
The final piece of information I want to review to scrutinise Khaled's statement is the content of BFC's own accounts, in particular with regard to the Contingent Liabilities shown within them.

Just by way of background explanation, for non-financial readers, a contingent liability is something that you typically have to disclose within your accounts if there's a potential for you to have to pay a liability at a future date, subject to a certain event taking place which triggers it. If the event doesn't occur, then no such liability arises, so it is treated differently to a debt which is certain as to whether it will fall due.

BFC's accounts regularly include a statement on contingent liabilities, as a very good example of these are payments that would fall due to other clubs due to them having "retained an interest in the future" of a player that we have purchased from them. This, as we all know, is a much used phrase when BFC sell players, but we also buy them subject to similar clauses. I've included below the statement from BFC accounts for the year-ending 31/05/18, which are the first set of accounts published after the takeover.



Now, unless I'm mistaken (in which case I fully anticipate that @Archerfield will be able to point this out), but an agreement for the club requiring it to pay a potential amount of up to £6m based on it's on-field performance, would also be something which it would need to disclose as a contingent liability. However, there isn't any such disclosure in those accounts.

Taking the argument further, I considered whether this might be due to the qualifying event of immediate promotion being considered too remote at the time these accounts were published. However, this would not have applied to the accounts for the following year, to 31/05/19, which were published after we had been promoted back to the Championship, at which point the £3.5m liability would have been certain.

Again, I can see no reference to any contingent liability relating to the purchase in the accounts to 31/05/19. Potentially, given that the debt had now become certain, this could be due to the liability being recorded as a normal liability falling due. However, there is nothing within the creditors analysis for that year to indicate a liability of £3.5m or £2.75m within the figures. It is relevant to note that these accounts were signed on 22 February 2019, which pre-dates the subsequent dispute over payment (which originated on 27/1/20 according to BFC's own statement regarding it) so any argument that the debt wasn't recognised due to the dispute would not have been relevant at this stage.

Consequently, from a purely accounting perspective, I can find no corroborating evidence in the club's published accounts which would support the fact that this debt is a liability of Barnsley Football Club Limited, as is claimed. If this did ultimately prove to be the case it would raised serious questions as to the accuracy of the published accounts and the subsequent audit of them. I have no reason to question the professionalism of Robert Zuk or Gibson Booth (the auditors) in this regard, so can only assume that the published accounts are accurate.

Conclusion
I think it's fair to say that I've been somewhat at the forefront of the criticisms regarding the £750k payment to date. However, I have attempted within this post to try to provide an objective appraisal of the comments made by scrutinising them against other sources of information, as far as possible.

Having done so, based on the available information, I find it extremely difficult to believe that Khaled's comments regarding the £750k payment as being an agreed liability of Barnsley Football Club Limited are accurate.

In fact, should this have been the case, then I have potentially greater concerns regarding the running of the football club, given that such a liability was agreed in the first place.

Consequently, I think we need to continue to apply pressure for the club to provide absolute clarity on this matter. The only person within the football club who is likely to be able to present the facts in an unambiguous and impartial way would be Robert Zuk, and my suggestion would be that BFCST now make representations for him to do so in light of the continuing ambiguity regarding this, so that we can get absolute clarity on the matter so that, as Ben stated in the interview we can "put this to bed" on behalf of supporters.

 

Thanks for that seems balanced and reasonable. My first thought as a layperson was neither seller or buyer would agree to a commitment of the club to pay £6 million. Completely unviable.

 

I doubt you'll get any response from anybody on the subject until after the court case.

 

I'm actually more confused now that you've raised the point of that level of liability not being referenced in the accounts - something I hadn't considered before. I don't really know what to make of this.

 

Wasn't the payment made via a loan from BFC to the investment company, that was then written off? If BFC was liable, you'd expect it to just show as a direct payment to Oakwell Holdings?

 

Yes, that's one of the more obvious things that was referenced when questions first started to be asked about it. However, it's one of the many things that has been conveniently disregarded in the consistent response line of "it was a liability of the club."

 

The smoking gun is the screenshot of the accounts stating payment has been made to oakwell holdings ON BEHALF of BFC investments and subsequently written off as an expense

It's in black and white in the company accounts

It's bleeding clear who the money should have come from and who to

 

This is one of the issues with the response given in the interview, as it acknowledges that the payment is accurately described in the accounts, within a prepared statement that contradicts this.

 

Thanks for going into so much detail and for cross referencing all of the available sources to position your view.

My instinct at the time of this latest interview was the CEO didn't want to spend a lot of time on the question, and in his mind, as soon as he read out the answer, he wanted to move on (I don't think finance is a strong point of his for what its worth).

We could collectively keep pushing, and asking for further clarifications from different sources, but I don't think we're going to get anything more. The CEO will close any further enquiry down (and we won't see him until near seasons end I suspect), I'd be very surprised if Robert Zuk was allowed to comment officially, and I'm not sure we should put him in that position to be honest. And Conway will give his same answer, likely in written media and close down the dialogue. I think it highly unlikely he would give an interview in the same sort of format as the CEO endured.

I don't think there is any scope to suggest anything other than the HK holding company have used the football club to pay part of its debts to the Crynes. There is no other conclusion. Whether looking through an accounting prism, instinctive, commercial, forensic journalism, or legal.

 

I get your point, but expecting not to get anything more isn't necessarily a reason to stop asking the questions, as it continues to highlight the schism between owners and supporters if they continually refuse to engage on questions relating to their financial management of the club. This is particularly the case for me, as this is the issue, above all others, that has caused me to stop spending money at the club and will ultimately stop me renewing my season ticket later this year.

The more they continue to obfuscate on this, the more they're saying to me "we don't give a **** what you think." Ultimately, that will make my decision easier to live with (ignoring the miniscule possibility that we might get an honest answer out of them at some point).

 

Thank you for the time you've spent on that. I found it very interesting.

I want to comment on just one paragraph:

Let's think about that in the context of Barnsley Football Club Limited being the entity that is liable to make that payment, as is being claimed. This would mean that the original agreement made with Patrick Cryne, prior to his death, included a £6m liability potentially becoming payable by the football club based on it simply retaining Championship status, or upon being relegated and winning back promotion (i.e. simply doing nothing more than what it had achieved throughout his ownership and for which he'd had to invest several million pounds of his own money, in the form of loans to the club). Regardless of anyone's thought on how Patrick ran the club I would argue that even his fiercest critics would not believe that he would agree to sell it with such a massive contingent liability hanging over it.

I would describe myself as a critic of Patrick Cryne. Do I believe he would saddle the club with a £6 million liability? No, I do not. I'm unable to adequately stress just how much I believe he would not do that. Just an opinion and therefore not worthy of much, but I hadn't viewed it from that angle before.

 

Thank you.

 

@Sheriff That is a very impressive piece of forensic accountancy work.

I think there are a couple of small points to make but you are absolutely correct on the treatment of a contingent liability.

The accounts for Oakwell Holdings for the period ending 30 November 2018 show debtors of £1m in the current year and a further £3m due in over one year. If any of those payments were contingent on on-field success they could not be shown as debtors as there would be material uncertainty. The point to note here is that these accounts refer to the period to November 2018 and were signed in August 2019. The contingent nature of any payment was not set out in the accounts and promotion was somewhat doubtful in November 2018.

It has been claimed that these payments were contingent on football success but the accounts show these payments of £4m as deferred purchase not contingency. There may have been negotiation between the end of the the accounting period and signing but these account show debtors of £4m.

This accounts for OH in 2019 show that the debtors has reduced to £3m but no cash has been received, the cash balance fall with the payment out to meet a Director liability (the original loans worked their way back to the family)

By 2020 the accounts show debtors of £2.75m and there is the mention of legal action. I have no doubt based on all the information I have seen that the intention was for money to come from BFC Investments and not the club.

@Jay My analysis is that Patrick did a deal which meant the payments were, the payment of his loan £6.2m plus the value of the cash on the balance sheet of the club over 5 years. Hence the £7.2m and the subsequent £1m pa. I think the notion that £6m was contingent on football success is either not correct or the accounts do not stand scrutiny.

 

It would be interesting to work out which players would need to be sold (or season ticket income used) in order to pay the remaining £2.75m, given they appear absolutely determined not to spend any of their own money

 

One potential follow-on issue arising from this, which I forgot to mention in the original post, is with regard to Khaled also stating that the legal action was against the club, and that the club were paying the legal costs of this.

Based on the above info, this might well also be inaccurate, and the club is therefore also paying for legal costs defending a case against BFC Investment Company Ltd.

 

Well, Sheriff that was one hell of a post and good on you, I understood a lot of what you wrote, and it was very impressive, but I am only an ex-miner with very little schooling and it took me ages to read it all and to sink in. Thank You.

 

thank you for all your efforts, great post.

 

Thanks. Always happy to subject myself to a bit of peer review when making posts like this, so that will do for me as an opening line!

 

This thread should be made a sticky. It's by far the best analysis I've seen (and that's saying something, as there's been plenty of excellent work in other past threads). It's reinforced my own opinion and added a couple of important items that hadn't been in my mind before today - the contingent liability issue, and the paragraph highlighted by @Jay above.

It should also be printed out and sent to the 80% group, with the words WE'RE NOT LETTING THIS DROP added at the bottom.

Excellent work @Sheriff. Take a bow, mate.