The Championship FFP Thread (Merged)

[Mr Popodopolous]

Not had a chance to look properly at accounting standards etc yet but two interesting lines on ground valuations etc.

After some digging I eventually found in plain sight that St Andrews was apparently as per Al Majir sold for £30m to owners in sale and leaseback- sounds reasonable tbh! Profit 3.5-4 x net book valuie though if that transaction true, net book value seemingly somewhere between £7.5m and £8m could make it interesting again?

The second one is the PL but I see that the company that purchased Upton Park for £40m- Boleyn Phoenix- sold it on for £60m. Profit according to WH Holding, £8.7m (or thereabouts) on sale of Upton Park to Boleyn Phoenix. Yet, it's unclear in the accounts as neither Cashflow nor Profit seem to show £40m but I could be missing something!

As per Kieran Maguire of course, the 2nd one!

Still have significant doubts over Hillsborough and Pride Park in particular though- Villa Park may pass the test, unfortunately but I wonder given a £44.8m impairment of Villa Park in 2015/16.

EDIT:

Have looked further back and yes, the £40m is somewhat explained- by Kieran Maguire, at a prior date.

http://priceoffootball.com/west-ham-united-2017-financial-results-fools-gold/

Edited October 8, 2019 by Mr Popodopolous

[Mr Popodopolous]

Shaun Harvey speaks- including on FFP!

https://www.telegraph.co.uk/football/2019/10/09/wanted-hold-carabao-cup-draw-space-ousted-efl-chief-reveals/

The relevant sections...the headline with one of his ideas is a cracker though!

Incidentally, I think he actually raises one or two good points, but overall he was useless...

Denies a 2016 rule change was an oversight? Curiouser and curiouser...raises some serious questions IMO. I struggle to see why 18/24 clubs would vote for it when the majority comply or make serious efforts to comply with FFP!

I think they already have mandatory wage cuts in the form of relegation wage clauses, but maybe not all clubs do and could they be higher? I agree though that a closure of the loophole should be tied to other reforms.

Wage cuts repaid as a bonus in the event of promotion is in fact an interesting idea.

The first bolded bit, makes me wonder further whether they appointed him as he's an idiot who won't bother much with oversight and is just somewhat of a patsy.

@Davefevs @downendcity @chinapig @BobBobSuperBob @CyderInACan @Coppello you might be interested in this. Varied others too I suspect.

Quote

 

It is not just fans of Bury but those of many other clubs to have faced – or still facing – a similar fate who have found somebody to blame in Harvey. So much so that, on his final day at the EFL, the hashtag #SHAT began trending on Twitter in the UK after someone posted the sarcastically-titled ‘Shaun Harvey Appreciation Thread’.

“I got hammered by supporters for actually doing the job I was paid to do, which was to run the league for the benefit of the clubs,” Harvey says.

Even Steve Gibson branded the Harvey regime “absolutely hopeless”, a barb the latter refuses to rise to – instead hailing the Middlesbrough chairman as one of the league’s best owners.

Which brings us to the other current crisis to have begun on Harvey’s watch: the legal action by Boro over stadium sales by Derby County and others.

 

Harvey denies a 2016 rule change opening the door to such a practice for the purposes of complying with Financial Fair Play regulations was an “oversight” and says it is for clubs to decide whether they close it again.

But he adds this should be in conjunction with other reforms to improve competitive balance across the professional game and help curb mounting losses by sides. They include slashing parachute payments to relegated clubs and introducing mandatory wage cuts for their players, cuts that could be repaid as a “bonus” to the same players in the event of promotion.

 

 

Edited October 10, 2019 by Mr Popodopolous

[chinapig]

4 hours ago, Mr Popodopolous said:

Shaun Harvey speaks- including on FFP!

https://www.telegraph.co.uk/football/2019/10/09/wanted-hold-carabao-cup-draw-space-ousted-efl-chief-reveals/

The relevant sections...the headline with one of his ideas is a cracker though!

Incidentally, I think he actually raises one or two good points, but overall he was useless...

Denies a 2016 rule change was an oversight? Curiouser and curiouser...raises some serious questions IMO. I struggle to see why 18/24 clubs would vote for it when the majority comply or make serious efforts to comply with FFP!

I think they already have mandatory wage cuts in the form of relegation wage clauses, but maybe not all clubs do and could they be higher? I agree though that a closure of the loophole should be tied to other reforms.

Wage cuts repaid as a bonus in the event of promotion is in fact an interesting idea.

The first bolded bit, makes me wonder further whether they appointed him as he's an idiot who won't bother much with oversight and is just somewhat of a patsy.

@Davefevs @downendcity @chinapig @BobBobSuperBob @CyderInACan @Coppello you might be interested in this. Varied others too I suspect.

 

Thanks for the link. The interview comes across as a journalist giving Harvey a free pass to whitewash his reputation. Why not ask him straight out why the rules were changed and who instigated the change?

Somehow I don't think Harvey will be agreeing to an interview with the likes of David Conn.

[Mr Popodopolous]

34 minutes ago, chinapig said:

Thanks for the link. The interview comes across as a journalist giving Harvey a free pass to whitewash his reputation. Why not ask him straight out why the rules were changed and who instigated the change?

Somehow I don't think Harvey will be agreeing to an interview with the likes of David Conn.

That is the million dollar question- why were they changed, who instigated it? Would also add when exactly they were changed? We believe 2016 but I still feel the when is quite important.

Yes, it seems a bit of a soft line of questioning on reflection. David Conn or Kieran Maguire for example would be a very different proposition! Potentially the two Matts who actually swapped papers, possibly even direct job roles- Lawton and Hughes- both seem pretty sharp. None will be on his interview list!

Like I said he seemed to have one or two interesting ideas but for me, the rule change- this leaves more questions than answers. I am assuming he did not instigate fair market valuations when Derby and Reading in 2017/18, possibly Sheffield Wednesday that said same season though it's not in the public domain, when the contract in place etc, Aston Villa season just gone- should he have been quizzed on this too? I know it's being done now but it's far too late in some respects, even were we to reach the final outcome with an adjustment made. Certainly in Aston Villa's case!

Additionally, in the case of Sheffield Wednesday should he not have been all over the fact there was a possible discrepancy between sale date of Hillsborough and accounting period? Again, an ideal q for him!

The interview thinking about it should also have asked him about Projected Accounts- did the EFL just ignore/forget these? Because for a long time the system was mooted as 2 years of real accounts and then third year of projected accounts as submitted by the club in order to prevent what we've seen in the past of sides who have clearly breached and by a good margin going up and flourishing as only judged retrospectively. If there were legal concerns about this fair enough but again, more questions than answers unfortunately!

Serious note, I wonder if the EFL could take legal action against Harvey if it turns out that certain rules were just blatantly overlooked, disregarded or at best, significantly misinterpreted etc when he was in charge- ie projected accounts. Let alone valuations and even possibly on one case, the correct accounting period!

Edited October 10, 2019 by Mr Popodopolous

[OwlsonlineAdmin]

The issue the EFL have is should they go at us, Derby etc they are opening a can of worms by questioning the professionalism of the accountants, who are under stringent review by their governing body and same with the valuers. 

I've 20 years of accountancy experience and know that signing accounts off is something not done lightly, so if they have then it's cos they trust their judgements. The delays and new companies did concern me but I'm absolutely certain that they took advice from people that do this time and again. 

That said if we've done wrong then we deserve any EFL sanction.

[Port Said Red]

3 hours ago, OwlsonlineAdmin said:

The issue the EFL have is should they go at us, Derby etc they are opening a can of worms by questioning the professionalism of the accountants, who are under stringent review by their governing body and same with the valuers. 

I've 20 years of accountancy experience and know that signing accounts off is something not done lightly, so if they have then it's cos they trust their judgements. The delays and new companies did concern me but I'm absolutely certain that they took advice from people that do this time and again. 

That said if we've done wrong then we deserve any EFL sanction.

Without wishing to denigrate you and your profession, when one sees that certain businesses (e.g. Thomas Cook) were not actually overnight disasters, but had been building year on year on financial incompetency, one can’t but help look at who was signing off the books and why.

[Davefevs]

6 hours ago, OwlsonlineAdmin said:

The issue the EFL have is should they go at us, Derby etc they are opening a can of worms by questioning the professionalism of the accountants, who are under stringent review by their governing body and same with the valuers. 

I've 20 years of accountancy experience and know that signing accounts off is something not done lightly, so if they have then it's cos they trust their judgements. The delays and new companies did concern me but I'm absolutely certain that they took advice from people that do this time and again. 

That said if we've done wrong then we deserve any EFL sanction.

I guess there’s two sides to this:

1. the companies house official accounts 
2. FFP submission

for 1. All the accounting principles can be followed legally.

for 2. It seems like there is quite a big grey area.

[Mr Popodopolous]

 

8 hours ago, OwlsonlineAdmin said:

The issue the EFL have is should they go at us, Derby etc they are opening a can of worms by questioning the professionalism of the accountants, who are under stringent review by their governing body and same with the valuers. 

I've 20 years of accountancy experience and know that signing accounts off is something not done lightly, so if they have then it's cos they trust their judgements. The delays and new companies did concern me but I'm absolutely certain that they took advice from people that do this time and again. 

That said if we've done wrong then we deserve any EFL sanction.

Think the valuation is the bigger issue personally.  However we can't say for certain whether the right reporting period was adhered to, not without actually seeing the documents- IF it was the incorrect reporting period and that's merely an if, then the right step is to exclude it from the 2015/16-2017/18 accounting period and impose a points penalty based on the adjusted FFP result. Then it would be needed to checked for fair market value and would be adjusted accordingly.

Of course if there has been a significant overstatement of value AND a dodgy accounting period vs transaction then that in turn should lead to further penalties.

The ones I really want to see hammered are Aston Villa- had parachute payments, yet still did it- their fanbase seems to contain a high ratio of arrogant belters too.

4 hours ago, Port Said Red said:

Without wishing to denigrate you and your profession, when one sees that certain businesses (e.g. Thomas Cook) were not actually overnight disasters, but had been building year on year on financial incompetency, one can’t but help look at who was signing off the books and why.

Yep, auditors themselves have come under scrutiny in recent times.

Conflicts of interest in these sorts of things should be very much avoided and without looking to question professionalism, certain things make me wonder a bit with 2 clubs in particular on this front.

Edited October 12, 2019 by Mr Popodopolous

[Mr Popodopolous]

Interesting- seems Leeds owner turned down the whole suing of the EFL thing, despite an offer by Gibson to join the case.

Said he agreed in principle but wanted to focus mainly on the football.

I've got a set of sanctions in mind if any valuations were significantly overstated line and tests for sanctions which I'll post later.

Another interesting story is that Derby are for sale for £60m apparently- well it's a story anyway.

I wonder if it would include the ground- because if it does...serious questions to answer there IMO.

Edited October 14, 2019 by Mr Popodopolous

[Davefevs]

10 hours ago, Mr Popodopolous said:

Interesting- seems Leeds owner turned down the whole suing of the EFL thing, despite an offer by Gibson to join the case.

Said he agreed in principle but wanted to focus mainly on the football.

I've got a set of sanctions in mind if any valuations were significantly overstated line and tests for sanctions which I'll post later.

Another interesting story is that Derby are for sale for £60m apparently- well it's a story anyway.

I wonder if it would include the ground- because if it does...serious questions to answer there IMO.

Exactly my thoughts too.

[chucky]

10 hours ago, Mr Popodopolous said:

Interesting- seems Leeds owner turned down the whole suing of the EFL thing, despite an offer by Gibson to join the case.

Said he agreed in principle but wanted to focus mainly on the football.

I've got a set of sanctions in mind if any valuations were significantly overstated line and tests for sanctions which I'll post later.

Another interesting story is that Derby are for sale for £60m apparently- well it's a story anyway.

I wonder if it would include the ground- because if it does...serious questions to answer there IMO.

Was going to post about the Derby for sale story. As the club and ground have 2 different owners, does he mean it's just the club for sale? Or "buy a stadium and I'll throw in a free club to play in it" 

[Bristol Rob]

19 hours ago, chucky said:

Was going to post about the Derby for sale story. As the club and ground have 2 different owners, does he mean it's just the club for sale? Or "buy a stadium and I'll throw in a free club to play in it" 

Didn't Ron Noades manage to sell Palace without Selhurst Park for an astonishing fee, almost to the point where it was just assumed that the stadium was included.

[Mr Popodopolous]

19 hours ago, chucky said:

Was going to post about the Derby for sale story. As the club and ground have 2 different owners, does he mean it's just the club for sale? Or "buy a stadium and I'll throw in a free club to play in it" 

The reports are unclear- whether it'd be gifted, sold separately or continue being rented from Morris- maybe it's the latter, he would still own the ground but the club and new owner still own the stadium.

Read it's rent until 2038 at £1.2m or something- for an £81.1m transaction- very nice commercial terms and truly arms length I'm sure!

The other bit is that once every 5 years, rent is or would be subject to upward only free market tests. That has potential to change the equation down the track.

[Lanterne Rouge]

6 hours ago, Bristol Rob said:

Didn't Ron Noades manage to sell Palace without Selhurst Park for an astonishing fee, almost to the point where it was just assumed that the stadium was included.

I think when Barry Fry bought Posh he thought London Road was included but it wasn`t. 

Their first game afterwards was v Northampton and their fans were singing `He`s fat, he`s round, he thought he owned a ground, Barry Fry`

[Mr Popodopolous]

Story on the current investigations- wonder if PL and EFL jointly coordinating, as there seems to be nothing on Aston Villa.

https://www.telegraph.co.uk/football/2019/10/16/efl-step-investigation-derby-sheffield-wednesday-reading-stadium/

This one isn't fading away quietly.

Some interesting exerts from the article:

Quote

Derby, Sheffield Wednesday and Reading are under scrutiny from the EFL over the valuations of their stadiums, with an unscheduled board meeting held in London on Wednesday to discuss the situation.

Interesting.

Quote

An EFL Spokesman said: “Further investigation is still required on a number of issues in respect of the Profitability and Sustainability (P&S) submissions of some Championship Clubs.  The EFL, however, does not discuss or disclose any of the details regarding individual P&S cases of its members.”

Standard.

Quote

Yet the EFL are understood to be closely examining the valuations and have enlisted QC's from Blackstone Chambers - the central London firm who advised government on Brexit in the Supreme Court - to assist their independent investigation.

Some serious players then!!

Quote

The threat of possible future legal action against the three Championship clubs cannot be discounted at this stage.

This last bit, although mooted in a previous article, nonetheless is a very interesting twist!?

One more thing, I notice there are a lot less leaks than there were for the Birmingham Investigation. Better run post Harvey?

Edited October 17, 2019 by Mr Popodopolous

[Mr Popodopolous]

Punishments and criteria- a flow chart would outline it ideally but don't have time for that.

Test 1- Applicable to all.

Is the EFL valuation roughly in line with the amount it was sold for- Fair Market Value the key thing for most.

If yes, then fair enough if no, proceed to Test 2...

Test 2- Applicable to all.

If reduced and restated to the EFL figures, how does this affect the FFP submissions to May/June 2020 ie for 2017/18. If still in line then carry on, if not...proceed to Test 3.

Test 3- Applicable to all.

If the restated value pushes them into breach- and I suppose you could test the period of 2015/16-2017/18, 2016-17-2018-19 and 2019-20- essentially any season or period in which the transaction is applicable, then it's an EFL Commission as per Birmingham. Mitigating and aggravating factors etc, all legal style. 

OR 

Test 3- Applicable to all- Version B.

Simply deduct points as per the formula outlined in the Birmingham case setting the precedent.

Further points for consideration- Applicable to all:

a)

1. Should a significant overstatement of valuation be included in the EFL Commission or should this be a separate charge? You can argue this either way IMO.
2. Should there in this instance be yet further charges for inaccurate accounting and submissions? Deliberately misleading the EFL in other words!!
3. Should the methods of valuation be tested? For example I read in an early article that one had been valued as if sold for housing yet there it is, still being leased. Misleading at the very least and if the methods of valuation vs the reality are not commensurate with each other then- yes you've guessed it, even more charges?

b)

Specific to Sheffield Wednesday- IF it is proven that they have put something from 2018/19 into 2017/18, should this be yet another separate charge? Because say what you will about the other clubs, at least their transactions seem to have been clearly and definitively within the right accounting periods. To say nothing of the wildly delayed accounts- which again the other clubs have not done.

Edited October 17, 2019 by Mr Popodopolous

[Mr Popodopolous]

One thing I did notice when re-reading the article and checking the Birmingham case is that the law firm hired by the EFL were the same ones used in the Birmingham Independent Disciplinary Commission- ie Blackstone Chambers.

Charles Flint QC works for them and was the Chairman for the Disciplinary Commission, before whom it was heard.

Should anything be read into that law firm being hired for this one?

Edited October 18, 2019 by Mr Popodopolous

[Mr Popodopolous]

It's not new material as such but I'd love to know how the following teams are in compliance and their current FFP positions- accounts for varied big European clubs are out by now, why does it take 9 months in the UK?? Look how quickly Birmingham's were out at the HKSE- 3 months after the accounting period until 30th June 2019 and 3 months sharp.

Okay, mini rant over.

Reading- soft embargo in summer, we know they sold Madjeski for £26.5m so that's a profit of £6.5m or so. Took their losses down to "only" £20m or so in 2017/18. They sold some and yes some high earners go, but then again to purchase Puscas, Joao,neither of whom I suspect will be on tiny wages, then to loan in Miazga, Ejaria and Boye- the latter a fresh one, the first 2 renewals. Rafael, Morrison, Pepe on frees and Charlie Adam too- may have raised a bit in the market but I can't see how they will be compliant by the end of this season, given the 2016/17 small loss/profit drops off the books. Still some of the departures and wage savings surely cancelled out by some of the free/loan additions. They apaprtently have an option or obligation to buy Ejaria for £3m in the summer too.

QPR. I know that they have cut back certainly, and yes a fairly small loss in 2016/17, ably assisted by a frankly ludicrous 4 years of parachute payments despite yoyoing were lucky enough to catch the tailend of that, but they loaned both Wells and Hugill- surely not cheap- look at our terms for Afobe after all!

Yes I know FFP deductions and that, but QPR being able to sign two on loan in a post parachute payment season seems incongruous- but then the lack of clarity over whether projected accounts are applied means it's possibly legit.

Oh yeah, Birmingham. Their situation is clear as mud.

• Will their UK Accounts differ to their Hong Kong ones?
• Will there be e.g. a stadium sale and leaseback that was mooted in the former which didn't appear in the latter?
• Is it now 3 years of £13m which get judged next season to eliminate the 2018/19- or is it a separate one year period of £13m for last and this season? Because if it's the former they lost £31m in 2018/19 but tbh that seems not to include the Adams sale, oddly- at least according to HKSE results.

Edited October 23, 2019 by Mr Popodopolous

[Mr Popodopolous]

No update on the story as a whole but news at the other Sheffield club that makes me wonder still further on the £60m valuation.

Read an interview with Kevin McCabe yesterday. Was interesting stuff- relevant to this was the fact that he owned Brammall Lane and the training ground, Hallam FM Academy.

Prince Abdullah acquiring these for the club as parr of the takeover is far closer to, perhaps even a complete, arms length commercial transaction, though there was a court case too.

The combined total- £50m!! Training ground cost £20m to construct based on some fuerher research of mine, so a breakdown of this would be interesting to see...unsure when was constructed so I'd have to look more.

@Davefevs @BobBobSuperBob @Coppello @downendcity @chinapig

Any Sheffield Wednesday fans too, I'd be interested to see your take.

EDIT: That combined total may also include the hotel but article made no reference.

Some of these transactions go beyond FFP for me, these sale and leaseback arrangements with related parties!

Edited October 27, 2019 by Mr Popodopolous

[Mr Popodopolous]

Possibly too much to hope, but I see Keith Wyness Employment Tribunal over his Aston Villa departure is up soon.

I wonder if any FFP regulation 'flexibility'/dealings will come out from the summer of 2018- I wonder...the answer would be probably not but!

https://www.dailymail.co.uk/sport/football/article-7614755/AHEAD-GAME-Aston-Villa-braced-explosive-revelations-ex-chief-Keith-Wyness.html

Regards some of the other valuations, these should be examined in some detail- all of them actually- as to whether the correct method was used, and whether there was yet another layer of misleading to add...ie valuation as if sold for commercial, residential and other property- by sold I mean sold outright- as opposed to sold for a lease to a third party, sold for existing use to a third party- or what we saw, a third party doing sale and leaseback. I remember one article did state, or at least intimated the idea that this had been done for one of the transactions- well if this is true, then as we can see they are still playing in the ground...FALSE INFO!

Best case scenario is you deduct the difference between Existing use and sale for commercial, but it feels a lot bigger than that to me.

Quote

 

Former Aston Villa chief executive Keith Wyness has prepared an explosive statement to open his case against the club for unfair dismissal, which is due to be heard at Midlands (West) Employment Tribunal on November 4.

Wyness resigned from the club having been accused of being a whistleblower, which he denies, although that will not prevent him from lifting the lid on events at the club during his tumultuous period in charge between 2016 and 2018. 

As chief executive, Wyness was closely involved in the takeovers of both Dr Tony Xia and current owners Wes Edens and Nassef Sawiris, as well as the financial turmoil that led to Villa missing several payments due to the taxman and almost going into liquidation 18 months ago.  

 

Edited October 28, 2019 by Mr Popodopolous

[Mr Popodopolous]

Dunno the context but when searching for something else an amusing Tweet- wonder who it could be about.

They who laugh last though...because we're in safe hands and nowt to fear from any FFP regs- they OTOH, have a very interesting £60m transaction that it basically hinged upon, plus questions over whether Reporting Period matches Transaction date.

If one or both of those 2 factors are wrong, wow.

Another amusing thing was I- though far from alone- posted in some depth about Sheffield Wednesday date of transaction vs reporting period back in the summer and then again one week in September except more succinctly...then about a week later, a story arose that the EFL were investigating this very matter!

Now I take no credit in all seriousness, but the EFL were dragging it out somewhat...

Quote

 

2 Profitability and Sustainability

2.1 Rules 2.2 to 2.9 shall apply with effect from Season 2016/17.

2.2 Each Club shall by 1 March in each Season submit to the Executive:

2.2.1 copies of its Annual Accounts for T-1 (and T-2 if these have not previously been submitted to the Executive) together with copies of the directors’ report(s) and auditor’s report(s) on those accounts;

2.2.2 its estimated profit and loss account and balance sheet for T which shall:

(a) be prepared in all material respects in a format similar to the Club’s Annual Accounts; and

(b) be based on the latest information available to the Club and be, to the best of the Club’s knowledge and belief, an accurate estimate as at the time of preparation of future financial performance; and

2.2.3 if Rule 2.5 applies to the Club, the calculation of its aggregated Adjusted Earnings Before Tax for T, T-1 and T-2 in a form approved by the Executive from time to time and which as at the date of these Rules is set out in Appendix 1.

Guidance

The Executive will in due course consider the Annual Accounts for the Accounting Reference Period in respect of which information pursuant to Rule 2.2.2 is submitted and in particular examine whether any material variances indicate that the estimated financial information was not prepared in accordance with Rule 2.2.2(b).

2.3 The Executive shall determine whether consideration included in the Club’s Earnings Before Tax arising from a Related Party Transaction is recorded in the Club’s Annual Accounts at a Fair Market Value. If it is not, the Executive shall restate it to Fair Market Value.

2.4 The Executive shall not exercise its power set out in Rule 2.3 without first having given the Club  reasonable opportunity to make submissions as to:

2.4.1 whether the said consideration should be restated; and/or

2.4.2 what constitutes its Fair Market Value.

2.5 If the aggregation of a Club’s Earnings Before Tax for T-1 and T-2 results in a loss, any consideration from Related Party Transactions having been adjusted (if appropriate) pursuant to Rule 2.3, then the Club must submit to the Secretary the calculation of its Adjusted Earnings Before Tax for each of T, T-1 and T-2.

2.6 If the aggregation of a Club’s Adjusted Earnings Before Tax for T, T-1 and T-2 results in a loss of up to the Lower Loss Threshold (calculated in accordance with Rule 3), then the Executive shall determine whether the Club will, until the end of T+1, be able to fulfil its obligations as set out in Regulations 16.19.8(a), (b) or (c).

2.7 Where the Executive determines, in its reasonable opinion and having considered any information provided to it by the Club, that the Club may not be able to fulfil its obligations as set out in Regulations 16.19.8(a), (b) or (c), the Executive shall have the powers set out in Regulation 16.20.

2.8 If the aggregation of a Club’s Adjusted Earnings Before Tax for T, T-1 and T-2 results in a loss that exceeds the Lower Loss Threshold, then the following shall apply:

2.8.1 the Club shall provide, by 31 March in the relevant Season, Future Financial Information to cover the period commencing from its last accounting reference date (as defined in section 391 of the 2006 Act) until the end of T+2 and a calculation of estimated aggregated Adjusted Earnings Before Tax until the end of T+2 based on that Future Financial Information;

2.8.2 the Club shall provide such evidence of Secure Funding as the Executive considers sufficient; and

2.8.3 if the Club is unable to provide evidence of Secure Funding as set out in Rule 2.8.2, the Executive shall have the powers set out in Regulation 16.20.

2.9 If the aggregation of a Club’s Adjusted Earnings Before Tax for T, T-1 and T-2 results in a loss that exceeds the Upper Loss Threshold (calculated in accordance with Rule 3) then:

2.9.1 the Executive may exercise its powers set out in Regulation 16.20;

2.9.2 the Club shall be treated as being in breach of these Rules and accordingly The League shall refer the breach to the Disciplinary Commission in accordance with section 8 of the Regulations.

 

Serious note, for those who are interested- will be interesting to see how these Investigations into stadia valuations are doing.

Edited October 29, 2019 by Mr Popodopolous

[Mr Popodopolous]

Had a look back at Derby and their takeovers, both by Mel Morris and in the late 2000's.

Mel Morris 2015/16 season- Sevco 5112 Limited- NO Fair Value Adjustments made, ergo the Net Book Value may not have differed all that much from the Fair Market Value.

in 2008 or 2009, Global Derby UK Ltd- the club possibly at or preceding their takeover got it revalued in December 2007 yes, at £55m- guess how many Fair Value Adjustments made? Zero!

Other notably- or possibly not- aspects include a Revaluation Reserve on the Derby accounts but not the parent company at time of takeover- in both cases.

I wonder then, given that it was Revalued to £55m in 2007, why then was there still a Revaluation Reserve thereafter- Pride Park truly worth nearly £95m in 2007?? How was that Revaluation Reserve accounted for in 2008 and subsequent years? Is there some formula of Net Book (Carrying) Value + Revaluation Reserve?

In 2007/08, the Unrealised surplus on revaluation of Stadium was equal to, the Revaluation Reserve- certainly the numbers were the same. Yet I struggle to believe that as of December 2007, Pride Park was worth £55m + £39,554,000=so about £94,554,000. Unrealised in terms of profit maybe?

Will post a few screenshots later- still inclined to think Pride Park in the range of £50-55m, £60m at a push at time of sale. Yes there was work done, yes that enhances value- but remember the Depreciation.

The expert who suggested it was worth <£41m though is most intriguing!

Sheffield Wednesday? Well there's been nothing of note Infrastructure wise at Hillsborough for a while. Valued at DRC in 2014 at £22.25m- there was a Revaluation Reserve- unrealised- of £6-7m- can only assume ground worth not much more and quite possibly less than £30m surely? That Revaluation Reserve did of course decline between 2014 and whenever the ground was sold!

Aston Villa intrigues me owing to their Impairment of Villa Park in 2015/16- yes it's an accounting trick but interested in how it works, add back on Impairment or a chunk of it.

Surely there would be strict Tests, criteria, formula- etc.

The Cost of Impairment was £44.8m in 2015/16, yet they sold it for £56.7m in 2019- or roughly double Net Book Value- which makes me think that £28m or thereabouts was added back on at time of sale.

Quote

 

FRS 102 Impairment of Assets

10.16 Impairment of assets (FRS 102 Section 27) An impairment loss occurs when the carrying amount of an asset exceeds its recoverable amount. ... A company should also disclose a description of the events and circumstances that led to the recognition or reversal of the impairment loss.

 

 

 

 

 

Very interesting to read what this is- how they shall justify it in their accounts! The PL, EFL and yes other clubs should be looking very closely at this.

 

Mind you, what exemptions applied to lack of disclosure of 2018 independent valuation for Derby, 2018- we assume- one for Sheffield Wednesday, likewise for Reading. Wonder if Aston Villa will disclose theirs too.

 

Oh yeah, Hillsborough- probably £30m or so at Depreciated Replacement Cost.

Edited October 30, 2019 by Mr Popodopolous

[Mr Popodopolous]

Hi @Coppello

Apologies if I've already asked, or referred to this one- I've asked about similar before but this is quite specific.

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5 Clubs Ceasing to be Members of the Championship

5.1 If a Club is promoted or relegated out of the Championship Division that Club shall, notwithstanding promotion or relegation, remain bound by these as if it were still a Championship Club, until such time as it has complied with all of its obligations relating to its last Season as a Championship Club.

 

Thinking specifically about Aston Villa if they have significantly overstated the value of Villa Park for example.

In short, to your knowledge is this just an EFL declared thing or a fairly watertight agreement?

Certainly, I'd interpret that as leaving the door open to future action on return, or the possibility of parking a punishment if PL wouldn't enforce, or holding a possible EFL Hearing in reserve etc.

While I'm at it too, is it at the discretion of a club as to when to review/amend impairment of assets? Can't see how Villa Park down by £44.8m in 2015/16 then up again by £28m or so 3 years later.

Is regular testing, and equally regular disclosure of such not required then? 

Plus reasons being stated- I haven't found these anywhere to date. Seems quite a shift up and down in value for an asset- Villa Park- that has remained largely the same between 2015/16 and 2019.

Edited November 1, 2019 by Mr Popodopolous

[Coppello]

On ‎01‎/‎11‎/‎2019 at 12:22, Mr Popodopolous said:

Hi @Coppello

Apologies if I've already asked, or referred to this one- I've asked about similar before but this is quite specific.

Thinking specifically about Aston Villa if they have significantly overstated the value of Villa Park for example.

In short, to your knowledge is this just an EFL declared thing or a fairly watertight agreement?

I think that's why the clause is in there to deter clubs from loose financial management knowing it will get them in the Premier League. It's deliberately vague so it can be applied in a number of situations. Has this rule changed since the days of QPR and Bournemouth FFP settlements? There's definitely a focus from the EFL on combating FFP failures before the club has benefited from exuberant spending. I know this hasn't happened this year to Villa given they saved themselves by selling Villa Park but there is a noticeable shift in thinking. The revaluation of the stadium point is just a major balls up by the EFL and sadly they can't claw back the provision that they removed. 

On ‎01‎/‎11‎/‎2019 at 12:22, Mr Popodopolous said:

While I'm at it too, is it at the discretion of a club as to when to review/amend impairment of assets? Can't see how Villa Park down by £44.8m in 2015/16 then up again by £28m or so 3 years later.

Is regular testing, and equally regular disclosure of such not required then? 

Plus reasons being stated- I haven't found these anywhere to date. Seems quite a shift up and down in value for an asset- Villa Park- that has remained largely the same between 2015/16 and 2019.

You should assess for an impairment trigger annually for each Cash Generating Unit (ie a stadium or each factory if you are a manufacturing company). An impairment trigger is something that will result in a significant decrease in value to the CGU or the amount of cash it will generate over its life. In reality, there are very few triggers that could arise for a stadium. If you think about it logically, this can only really occur with things such as a sudden unexpected decline in the condition of the stadium or the capacity or ticket price is suddenly reduced.

Again, this appears to be a little suspect to me and I would really struggle to justify an impairment reversal. I've worked in the oil and gas industry where impairment reversals are more common given that the amount of future cash an oil asset can generate fluctuates hugely with the oil price. Reversing an impairment of a football stadium doesn't really sit right with me and I would question the reasoning behind the initial write down. 

 

Sorry @Mr Popodopolous, I started writing this on my work laptop on Friday and thought I'd revisit it when I got home. I didn't realise that OTIB messages you've drafted weren't carried across different computers so I've had to open up my work laptop to find it! 

[Mr Popodopolous]

 

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Now, back to the breaking news.

Wednesday were informed by the English Football League in April that they were under a transfer embargo for breaking profitability and sustainability regulations.

 

An embargo of some sort seems to be, if we follow the Birmingham pattern a holding pattern- notice that there is a problem, a first stage? Perhaps was even a full embargo!

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Since, they have cut their cloth, with Jack Hunt and Jordan Rhodes leaving the club. There is also speculation that third-choice ‘keeper Keiren Westwood could depart S6 this summer.

As a result, Wednesday are now in negotiations with the EFL to have the embargo lifted.

 

He did not! Along with a number, I believe he was sidelined to try to help ease him out to show willing in terms of compliance. Birmingham did similar last season with a number of players.

Rhodes returned as well, presumably on full wages- was only a loan (with wages covered) and a loan fee- helps yes but nothing permanent or taking into 2019/20 to improve things.

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When asked by a supporter, Chansiri admitted that it would be “difficult” for the club to make any new additions before Thursday’s deadline. He did, however, allude that they may be able to strengthen before the month is out, through the loan window.

This is clearly a live situation between the EFL and Wednesday – it is still an on-going process. It’s evident Chansiri doesn’t know exactly what the club can, or can’t do in the transfer market yet.

“If we have a good positive answer, maybe I can bring players. If we don’t have a good positive (answer), maybe I need to do something,” he said.

 

Makes me continue to, and indeed increasingly strongly suspect that Hillsborough transaction appearing in 2017/18 accounts is very interesting!!

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Whilst the picture remains unclear, Chansiri was hopeful it would be resolved “soon”.

However, whilst the Owls may be able to stave off FFP for this season if they don’t get promoted this year they will be big trouble. That’s not my take on events, but the chairman’s.

Chansiri made it abundantly clear that, whilst he might be able to get the club out of the embargo this year, there is no chance of repeating that feat next season.

He stated that he is not concerned by a potential fine, but by the possibility of a points deduction, next year.

 

Line 1 here- and arguably lines 2 and 3, make me seriously question whether the Transaction of Hillsborough, combined with the reporting date, corresponded!

https://derbyunifootyjournos.wordpress.com/2018/08/07/owls-chairman-dejphon-chansiri-confirms-clubs-transfer-embargo/

The article has done nothing to assuage my suspicions and doubts- that I first voiced in July and elaborated on in September.

A full week before the Times reported on the EFL raising questions.

Saw this article earlier.

@Coppello Thank you for the response- will do so in depth later, but that is interesting stuff- the major shift in thinking.

You clearly are a lot better qualified than me, but I wonder...if Villa Park proven overvalued then it could become a live issue again. The impairment issue looks pretty interesting- my view is that these assets were impaired in order to reduce price of purchase for Xia maybe? Or in advance of a prospective sale- and Intangible ones obviously due to relegation, to maybe try to make a better profit on players sold?

I still seriously wonder about this though- clearly the EFL couldn't catch Aston Villa but it is worth noting that Purslow back in the summer was purportedly pushing for a public statement from the EFL which would confirm the passing of FFP...in the absence of one, we certainly don't know. Definitely it's deliberately vague though, to leave many options open- or the threat of many options open I reckon.

From what I've seen when looking at Aston Villa's accounts in recent times, I can't see reference so far- but will look again in more depth- to impairment testing, or anything like this. My point I'm trying to make I guess, is questioning whether the Impairment fits the relevant Accounting rules and criteria- and therefore should be looked at afresh in terms of FFP calcs. Clearly a Revaluation Reserve is if value goes upwards but can a Revaluation Reserve be applied in the same financial year as a Revaluation and subsequent sale?

It basically doubled Villa Park, on promotion- the Impairment % from the original Impairment about 62.5%, without factoring in Deprecation in the following 3-4 years, was added back on to value. £28m or thereabouts of £44.8m, possibly actually with Depreciation factored in.

Edited November 5, 2019 by Mr Popodopolous

[Mr Popodopolous]

What truly baffles me on a general note though, is how Hillsborough- valued on a DRC basis in 2014 at £22.25m and a Revaluation Reserve of £6.778m, becomes £60m in 2018 (if it was even sold that year).

Magic!! Chansiri is a magician- was there oil, gold or similar found under the site or something? Seemingly built in and around a flood plain/flood zone too, if that makes any difference. Also read that its designated use is leisure only- again, don't know if that's so relevant.

I note that in 2013, there was a Revaluation Reserve of £3,615,000- that is the accounts for 2012/13 season.

This became £6,778,000 in 2017/18. A gross uptick of £3,163,000. The total unrealised gain in the P&L was £3,276,000- Revaluation upwards in Tangible Fixed Assets for that year was £1,518,000...

£60m though?? 

Oh yeah, the reason I state 2014 is because the last time that a valuation was disclosed on the balance sheet. The Revaluation Reserve naturally decreased in the subsequent 3 seasons- there was some work done perhaps but both this and the existing Net Book Value would still have been subject to depreciation too.

Hence how I come to my valuation of around £30m or so.

Edit, just looked- in the 3 years post 2014 Revaluation in accounts, they added £1,211,000 in terms of "Additions" under Tangible Fixed Assets- but this is gross of Depreciation, which came to £1,547,000 in those 3 seasons.

If it's much above £30m I'd be interested indeed!

Edited November 5, 2019 by Mr Popodopolous

[Mr Popodopolous]

Another Aston Villa point.

Article from last year...

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The billionaire businessmen have paid Tony Xia £30 million for a 55 per cent stake in Villa and are promising further investment, which will be required imminently as much of their existing revenue has already been accounted for.

 

Back to the time of the Aston Villa takeover last summer.

 

That is £54.54m or thereabouts.

 

Villa Park alone? £56.7m.

 

Granted, Xia was looking to get any investment as he couldn't get cash out of China, distressed asset etc etc but when you factor in the 2015-16 Impairment too, you really do wonder...Aston Villa really were close to administration at best!

 

Xia purchased them for £60m, though that did not include £30m payable to Lerner on promotion...still I find it tenuous with these factors or at least open to question how Villa Park in isolation was worth £56.7m.

 

Recon Sports Limited (back then under Lerner, known as Reform Acquisitions Limited)- Accounts to May 2016.

 

Go to the following:

 

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"Loss on ordinary activities to May 2016"

Exceptional Items:

Impairment of intangible assets (included in 'administrative expenses') £34,482,000

Impairment of tangible assets (included in 'administrative expenses') £44,802,000

 

The impairment of tangible and intangible assets has been recognised to write down the assets to their recoverable amount.

 

Now we all know what player Valuations are like and anyway the write down of player value doesn't count so much anyway so don't worry on that score! The second one though, is what I was driving at before.

Recoverable amount? Well, it's the greater of an assets fair value less costs of disposal or value in use. To me, "disposal" is actually doing just that- selling for real. Perhaps Accounting rules say different though!

In fact, the exact Impairment for the Freehold Land and Buildings- which is surely Villa Park- is £44,593,000.

I suppose the Freehold land which has not been depreciated maybe included which could bump it up a bit? No real indication as to what that is. Then though, that would surely have a drag on the Profit on Disposal if so.

Edited November 5, 2019 by Mr Popodopolous

[Mr Popodopolous]

Part 2.

2016/17, no Additions but a further Depreciation of £1,454,000.

Interestingly in 2017/18, there were:

• "Additions"- £2,553,000.
• Disposals"- £1,505,000

A Depreciation Charge of £1,446,000- BUT also elimination of £174,000 in Depreciation on Disposals- this couild have been the Carpark sale I read about somewhere- they clearly sold a fixed asset in 2017/18 but it's not altogether clear what...

Interestingly, the Freehold Land which does not Depreciate was added to to the tune of £1,028,0000. Now £8,959,526.

Well aware that Net Book Value and Market Value not the same, but feeling that Impairment of Villa Park in 2016 leaves some quite notable unanswered questions.

Interesting thing potentially applicable to FFP too, in the wake of the Rugby story!

https://www.efl.com/-more/governance/efl-rules--regulations/section-9--arbitration/

Some interesting points in there.

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95.1 Membership of The League shall constitute an agreement in writing between The League and Clubs and between each Club for the purposes of section 5 of the Arbitration Act:

May well be that League membership is contingent on not going outside the system- possibly save for CAS?

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95.1.1 to submit those disputes described out in Regulation 95.2 to final and binding arbitration in accordance with the provisions of the Arbitration Act and this Section of these Regulations;

Looks like it could well be the case.

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95.1.2 that the seat of each such arbitration shall be in England and Wales;

95.1.3 that the issues in each such arbitration shall be decided in accordance with English law;

95.1.4 that no other system or mode of arbitration (including arbitration under Football Association Rules) will be invoked to resolve any such dispute.

95.2 The following disputes fall to be resolved under this Section of the Regulations:

95.2.1 disputes arising from a decision of The League or the Board (‘Board Disputes’);

95.2.2 Disciplinary Appeals;

95.2.3 ‘Force Majeure’ appeals pursuant to Regulation 12.3 (Sporting Sanction Appeal);

 

Key bits to FFP in bold.

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95.3 In the case of a Board Dispute, the League Arbitration Panel sits as a review body exercising a supervisory jurisdiction and this section of the Regulations shall not operate to provide an appeal against the decision and shall operate only as a forum and procedure for a challenge to the validity of such decision under English law on the grounds of:

95.3.1 ultra vires (including error of law); or

95.3.2 irrationality; or

95.3.3 procedural unfairness,

and where the decision directly and foreseeably prejudices the interests of a person or persons who were in the contemplation of The League or Board.

95.4 In the case of a Disciplinary Appeal, the League Arbitration Panel sits as an appeal body and the standard of review is:

95.4.1 where required in order to do justice (for example to cure procedural errors in the proceedings before the Disciplinary Commission), the Disciplinary Appeal shall take the form of a re-hearing de novo of the issues raised in the proceedings i.e. the League Arbitration Panel shall hear the matter over again, from the beginning, without being bound in any way by the decision being appealed;

95.4.2 in all other cases, the Appeal shall not take the form of a de novo hearing but instead shall be limited to a consideration of whether the decision being appealed was in error and the burden of establishing the decision was in error shall rest with the appellant; and

95.4.3 in the case of appeal against sanction, the grounds are that the original sanction was too severe or too lenient having regard to all the circumstances.

95.5 The grounds for appeal / review applicable:

95.5.1 to a Sporting Sanction Appeal, are as set out in Regulation 12.3; and

95.5.2 to an Appeal Application and/or Review Application, are as set out in Rule 5 of Appendix 3.

95.6 Other Disputes are dealt with by the League Arbitration Panel as a first instance body.

 

 

Edited November 5, 2019 by Mr Popodopolous

[Mr Popodopolous]

Properly surprised that Harvey and co understood all this legal and financial stuff- especially Harvey- but there we go! 

Will look in depth later or tomorrow but Norwich- the Cost of Promotion.

£9.4m in promotion bonuses apparently. They don't count towards FFP but at the same time...shows just how expensive it is to go up and how important the headroom we now have could be. No suggestion that Norwich broke FFP incidentally, that's even before we consider allowable costs etc.

Edited November 5, 2019 by Mr Popodopolous

[Mr Popodopolous]

That's courtesy of Kieran Maguire of course.