Football Finances

I'll start by saying I'm not really knowledgeable on football finance and thats why I haven't joined the debate about the 750k payment at Oakwell.
My post regards the purchase of Burnley.I was reading last night that the American group who took over at Turf Moor paid 170 million pounds to the previous owner.What then intrigued me was the new owners paid the old owners the 170 million from Burnley club funds leaving the club 90 million in debt over night.
They claim they will invest in the future but it will be loans with a 5.5 interest charge.They are also trying to buy the shares from Burnley supporters.
The only person I can see who has come out laughing is Mr Garlick the old Burnley owner who now also remains on the board.
Considering the large sums of money involved don't you think the Premier league should have investigated this?

 

Did the Glazers do something similar at United as well?

 

I'm not sure, it scrambled my brain reading about Burnley ne 'er mind Man Utd

 

It looks like how the Americans do their business.

 

Yep, Glazers have made also taken out more money that they borrowed.

 

Say what you like about Islam, but it has a point when it comes to Usury.

 

I am like you BMW not very clued up on football finance.But reading all the comments about our owners taking out £750 thousand pounds out of the club isn’t it their money to to whatever they want to do with it.I mean if you bought a business and then spent what you earn isn’t it the same.Somebody will give me the Gen on this no doubt.

 

I think the issue is that the 750K is likely to be part of the payment for the club. So they are in effect buying the club, with the club's money. That's the theory anyway, can't say for definite because nobody in the club will comment on it.

 

This is one area that I do feel able comment on.

First of all the private equity model which has made its way in to football along with many other businesses works like this:

Investors buy a business for say £100m. The business at the time makes, for arguments sake, £10m pa. The investor may only have had £10m but secures debt of £90m to finance the deal. The debt is then put in to the business (£90m). The business at that point then has £90m of debt and profit of £10m pa. If over the next 12 years the profits of the business are used to pay the interest on the debt and repay the debt, hey presto after 12 years (depending on interest rate) the shareholders, all things being equal, have a business paying £10m pa in dividends with an initial outlay of just £10m. This is an example of a leveraged buy-out.

This is totally legal and Manchester United are a perfect example of this. Because debt was used to finance the deal the club ended up paying tens of millions a year simply to fiance the debt.

What the owners of BFC investments have done is also not illegal. The difference here is that the Glazers bought United and at no point did they say they wouldn't take a penny out. They saddled the club with significant debt repayments and have been paying significant dividends to themselves.

The owners of Barnsley Football Club have claimed that they would not take money out of the club and all cash would be reinvested. The payment of £750k to Oakwell Holdings on behalf of BFC Investments and the subsequent cancellation of the loan is £750k being disinvested to pay a deferred purchase installment. Again not illegal but some what at odds with their clams of not taking a penny out.

 

Didn't they buy the club for £1 or something stupid?

 

Our owners haven't bought the club fully yet though.

 

So what actually happens if you buy something in instalments and fail to make the payments, doesn't it get repossessed?

 

I thought the Glazers borrowed from a 'hedge fund' to buy Man U. They then used the profits to pay that off and keep their 70 shopping malls going because they were in negative equity and only running at 40% occupancy. I think a number of these malls have subsequently gone bust.

 

Surely part of the 750k belongs to the 20%'s so in effect the debt owed to them is being paid by some of their own money How's that work?

 

Glad you’ve popped up as have a question but couldn’t recall which of you to ask:

When PC sold the club was there a lump sum paid with the promise of more (the disputed part) later of which the £750k is part of?

Mainly interested in the lump sum part as thought they did but keep seeing people saying they have not spent a penny so wondering if I am wrong?

TIA

 

It’s the people saying they’d not paid a penny that were wrong as best I understand it.

 

Based on the receipts and debtors in Oakwell Holdings’ accounts the purchase price was an initial amount of £6,288,071 (this was the outstanding debt that Patrick was owed at the time of the transaction) plus £1m.

There was a further £4m to be paid over the next four years at £1m pa

Patrick certainly didn’t give the club away but equally for a football club with £5m of cash on the balance sheet the purchase price, nett of cash, was £6.3m.

 

Thank you

 

I love stuff like this. The bulk of financing for the Glazers was from JP Morgan in the form of debt. The reference to hedge funds is correct as payment in kind notes were bought by hedge funds, unlike debt these notes allow deferral of interest payments but the interest on these notes can be well in to double digits.

 

Can I get some further clarification from you about the £750k, and in particular, the way that the payment has been made.

There is not much doubt in my mind that the £750k was an installment of a debt owed to the Crynes by the 80%ers. In order to pay that debt, the 80%ers took £750k from BFC funds. On the 2020 Accounts, it was deducted as an expense on the P&L. However, surely the correct treatment would have been to either declare a dividend or to pay themselves Directors Remuneration. If it was declared as a dividend, then the 20%ers would also have received a dividend, at the same rate per share. However, the major point is this, no matter how the sum was extracted, Tax is due to the Inland Revenue on the sum paid, be that tax on the dividend or PAYE on the Directors Remuneration. In either case, the 20%ers appear to have been treated badly by the majority because the value of their share of the company (BFC Ltd) has been reduced. Effectively, they paid 20% of their debt themselves.

I am not sure why the majority shareholder would chose to upset a minority shareholder in this way, especially a minority shareholder who was running an extremely valuable database that allowed the club to beat the transfer market. It is almost as if the majority shareholder had no alternative.