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Reading in a financial mess


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Wow, the figures are crazy,,, i would like to think that football is going to have to take a step back to realistic levels after it restarts, but if city and reading happened to be competing for the same player, inevitably they would start pushing the salary up to compete... its never going to end.

 

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Didn't they reduce allocations of away fans as they didn't want them to create an disadvantageous atmosphere. I remember we used to take 4,000 plus, but only allowed around 2,000 now

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10 minutes ago, The Bard said:

So blatantly flouting all the rules about sustainability.  

 

Yeah, i just checked, their average attendance is 14500, and they spent at least 10 million of jaio and puscas this summer, sooner or later the sums dont add up

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2 minutes ago, pillred said:

£26.5 million for the stadium? I know it's a bit tinpot but that wouldn't buy you the south stand, definitely a bit suspicious.

The stadium values are wierd.... perhaps a rugby club might be interested but who is going to spend money to buy a stadium in reading? 
unless its to rent it back tonthe football club, like what happened at Coventry....

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5 minutes ago, Simon bristol said:

The stadium values are wierd.... perhaps a rugby club might be interested but who is going to spend money to buy a stadium in reading? 
unless its to rent it back tonthe football club, like what happened at Coventry....

It seems they pay £1.5 million a year in rent, but even that seems a bit low and there is no way that stadium is only worth £26.5 million there's a fiddle going on somewhere. 

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Kieran Maguire is a man to follow on this.

Worth looking at his account, Swiss Ramble for Reading 2017/18 to get a bit of a handle on losses minus allowable costs plus of course Reading accounts and Renhe Sports Management Limited- the latter seem to be a parent of some sort.

To June 2020 though, the period beginning in 2017/18, their FFP position- well it reminds me of Birmingham a few years ago.

To get a decent handle though, both Reading and Renhe Sports Management Accounts to June 2018 and June 2019.

The Madejski Stadium is quite interesting as it appears to have been or be in the process of being sold from Renhe to another commonly owned company, this one based in China I think.

RPTs and notes in each of those 4 accounts, esp. to June 2019 are worth a read.

Edited by Mr Popodopolous
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Read a little bit more and it appears that Renhe Sports Management Limited, the ones who purchased the Madejski last year for £26.5m, in turn sold it for £37.5m.

They (as in the immediate parent company) of Reading, sold on the Madjeski which they had brought the previous season to their parent company, which surely is based in Asia.

The rent which was £750,000, now £1.5m- which fits nicely for 25 years or 24 years rent for sale price, pretty well in line. About 4% of second sale price.

Included within other borrowings...got to wonder about them with FFP in the 3 years to June 2020, really have.

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Quite possible that.

Also quite possible that they gambled on promotion this season and it hasn't quite yet come off...

Do you mean like front-loaded losses which could in theory get wiped now due to this? To me, pandemic or no pandemic make adjustments for the loss of income post March for all clubs but that aside, I hope there isn't just a wiping of the slate.

In other words, keep it as an open case ready to analyse as and when some normality returns. The fact the EFL are appealing a verdict for a pretty minor accusation for Birmingham- the talk was a max of 3 points and a fine over a technical breach- makes me think they won't be letting clubs off the hook just yet.

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12 hours ago, Mr Popodopolous said:

.

Do you mean like front-loaded losses which could in theory get wiped now due to this? To me, pandemic or no pandemic make adjustments for the loss of income post March for all clubs but that aside, I hope there isn't just a wiping of the slate.

 

this is what crossed my mind.if it got wiped clean,they could have another go next season and borrow loads more??

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43 minutes ago, redsquirrel said:

this is what crossed my mind.if it got wiped clean,they could have another go next season and borrow loads more??

That'd make sense but there is no reason to wipe it clean.

Make some tweaks to account for this but nothing much beyond that.

No free passes I always say!

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https://www.getreading.co.uk/sport/football/transfer-news/reading-fc-stars-risk-chop-18166847

This is a further suggestion that SOME FFP issues could be on the horizon.

Remember, they signed Joao and Puscas AFTER these accounts were released- I wonder if it was in terms of FFP and the promotion bid shit or bust somewhat? They still had a profit from 2016/17 on the books for the 3 years to June 2019 after all but that is now wiped...they were even under a soft embargo for a while in summer 2019 too.

The new starting point or latest starting point is the 2017/18 accounts now, for FFP.

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My print screen is acting up but...the RPTs from the relevant companies in the last two seasons worth of accounts we have (2017/18 and 2018/19)- when I say the RPTs, I mean the substantive ones.

2017/18 Accounts

The only real one was below- and not even listed in RPTs, hence my wording.

Quote

The Reading Football Club Limited

Reading sells Madejski Stadium to Renhe Sports Limited for £26.5m.

Rent due to Renhe on a 25 year lease is £750,000 per season.

Quote

Renhe Sports Management Co Limited

Apart from the other half of the above, none.

2018/19 Accounts

Quote

The Reading Football Club Limited

The Company invoiced Sun Elegant Group £13,000,000 (2018: £nil) in respect of the disposal of the club's training facilities at Hogwood Park. Amounts due from Sun Elegant Group at the end of the Year. Amounts due from Sun Elegant Group at the end of the year is £13,000,000 which is included in loans from group undertakings. Mr Yongge Dai is a director and the ultimate owner of Sun Elegant Group.

The Company invoiced £3,000,000 (2018: £nil) to Beijing Renhe Football Club Co Ltd in respect of the loan of a player. The amount due from Beijing Renhe Football Club Co Ltd at the year end is £3,000,000 (2018: £nil). Ms Xiu Lu Hawken is a director of Beijing Renhe Football Club Co Ltd & Mr Yongge Dai is the ultimate owner of Beijing Renhe Football Club.

Quote

Renhe Sports Management Co Limited

Renhe Sports Management Limited invoiced Prestige Fortune Asia Limited £37,500,000 (2018 - £nil) in respect of the disposal of the Madejski Stadium. This amount was owing at the year end and is included in other borrowings. Mr Yongge Dai is a director and the ultimate owner of Prestige Fortune Asia Limited.

RFC Bearwood Limited invoiced Prestige Fortune Asia Limited £4,833,3333 (2018 - £nil) in respect of the disposal of the residential part of the land owned by the company. This amount was owing at the year end and is included in loans from group undertakings. Mr Yongge Dai is a director and the ultimate owner of Prestige Asia Fortune Limited.

Think you might be interested in this @Davefevs @downendcity @Vincent Vega

Oh yeah, almost forgot but just checked- rent for the Madjeski now £1.5m per season.

How it gained that extra £11m in a season ie it was sold in 2017/18 to Renhe and then in 2018/19 to Prestige Fortune Asia Limited...Quite interesting..?

Biggest mystery for me though,is the £3m loan fee for Sone Aluko ! 🤣

Edited by Mr Popodopolous
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I may as well take a look at the 3 year figures. Both for Reading FC and Renhe Sports Limited.

Reading FC 2016/17-2018/19

2016/17- PROFIT £4,661,550

INCLUDES LOAN WRITE OFF £9,252,004.

2017/18- LOSS £20,952,868

INCLUDES PROFIT ON STADIUM DISPOSAL OF £6,518,222.

2018/19- LOSS £30,115,218

INCLUDES PROFIT ON FIXED ASSET DISPOSAL OF £8,173,614.

INCLUDES £3m Aluko loan fee.

Total losses £46,406,536.

This is before FFP allowable exclusions and surely shows a PASS. 

However, loan write off are not meant to be permitted. Exclude that and it rises to:

£55,658,540.

Selling a stadium to a parent company is curious. Surprised it doesn't cancel out given Renhe and Reading are both in the UK. 

It's included but if it was deemed to be suspect it'd be:

£62,176,762.

The profit on disposal of fixed assets to related parties, in successive years. Would Parry have accepted it had he been in charge during these reporting periods?

Anyway, we're we to disregard all of the above  it's 3 year losses of:

£73,350,386. 

£73M!?!

Granted allowable costs but they've been really pushing it!

For what too? A playoff final, a relegation battle, another in the bottom third for large periods and a midtable/lower midtable season. 

God knows what their accounts could look like for 2019/20. (Excluding Covid related losses obvs).

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Think Loader was linked with Wolves the other summer. Meite of course is relatively young IIRC, Puscas was quite sought after- not really sure if striker an area we need to be looking at atm though.

Always thought Yiadom decent- could be a useful squad addition, think he can cover both RB and LB. He's 29 though, probably in peak years. Think he can play Wing Back certainly- good versatility.

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On 06/05/2020 at 05:45, Pickle Rick said:

They've got a cluster of young, talented players who we would've been looking at no doubt.

There may be a time to pounce and bolster our quality.

A fire sale beckons I think. Followed by relegation next year... Never to be seen in the top 2 divisions again. 

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3 hours ago, havanatopia said:

A fire sale beckons I think. Followed by relegation next year... Never to be seen in the top 2 divisions again. 

Could be a long road back.

Only big unknown in this scenario is if FFP gets suspended due to Covid 19. Their losses are a nonsense though so no existing cases or existing season cases should be let off. All clubs should get an adjustment for losses that are directly attributable to having been incurred due to Covid 19 but even without these...?

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The Renhe Sport Management Co Limited 3 years.

2016/17- Though listed as 2 month figures, but a LOSS of £1,562,411. Oddly, the party who seemed to control Reading before had a profit of £13m for that season, Reading Football Holdings Limited- they got taken over sometime in that financial year IIRC.

Broken down as Loss Attributable to:

  1. Owners of Parent Company- £1,341,773.
  2. Non-controlling interests- £220,638.

2017/18- LOSS £29,893,815

Broken down as Loss Attributable to:

  1. Owners of Parent Company- £27,781,920.
  2. Non-controlling interests- £2,111,895.

2018/19- LOSS £11,753,640.

INCLUDES:

PROFIT ON SALE OF TANGIBLE FIXED ASSETS- £29,929,818.

APPEARS TO INCLUDE ALUKO LOAN FEE WITHIN TURNOVER- £3M.

Broken down as Loss Attributable to:

  1. Owners of Parent Company- £10,073,427.
  2. Non-controlling interests- £1,680,213.

Though, the profit and loss reserves are more interesting.

Shown since the inception, though they mostly stack up, there is a differential in the controlling vs non controlling interests.

2016/17 appears to take their losses to £8,808,960.

P&L Reserves show as follows- and this is for 2016/17 alone:

  • Controlling Interests- £1,123,611
  • Non-controlling Interest- £7,865,069.

Edit- This is under "Group Statement of Changes in Equity".

Also worth noting though, that Reading's Supporters Trust analysis seems to think they're fine with FFP. 🤔

https://star-reading.org/news/2018-19-accounts-analysis

Bit odd for a start how the Madejski went up £11m in a year? That will have been included in their nearly £30m of profit on disposal last season, in the Renhe figures.

To be clear on that last point- EFL should be all over it incidentally.

Sold in 2017/18 from Reading to Renhe for £26.5m. Annual Rent £750k on a 25 year lease.

Sold AGAIN in 2018/19 from Renhe to Prestige Fortune Asia Limited for £37.5m. Annual Rent £1.5m on a 25 year lease.

Adding 41.5% in valuation in a year, with zero reference to independent advice taken with respect to these disposals- a requirement to disclose in accounts I believe, or if it isn't, then both clubs in Birmingham who sold their ground had this somewhere contained within. Happy to look again of course.

From what I've seen, I don't see how they have bolstered revenue or slashed wages drastically.

In Summer 2019, after the reporting period, they added:

  1. Morrison from Birmingham- free.
  2. Adam from Stoke- free.
  3. Rafael from Sampdoria- free.

No fee but not sure it's tiny wages x 3? The first two have good Championship experience, the latter is a goalie from Serie A. Middling squad player, but again would he come for little?

Then Joao from Sheffield Wednesday and Puscas from Inter Milan- fees maybe £11m in total so amortised out but tiny wages? Don't think there would be the latter!

Also amongst the loanees:

  1. Virginia- Everton
  2. Miazaga- Chelsea

Both youngsters but PL.

  1. Boye- Torino and Pele (not that one!) Monaco surely wouldn't be tiny wages. Both mid to late 20s at time of loan so not kids.
  2. Ejiara of course, loan renewed.

How about big savings in players going?

Well, yes- quite a lot did go but not much in the way of fees.

Even took a hit of £1-1.5m to get rid of Meyler. That Impairment means he's off the wage bill but it's still accounted for in terms of FFP.

https://en.wikipedia.org/wiki/2019–20_Reading_F.C._season#Transfers

Fine- subject to transactions being at fair value of course- to June 2019 but I really have to wonder about June 2020...

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Swiss Ramble and the Reading finances.

It's unclear to me whether we should use Renhe Sports or Reading, but either way it seems like they would face a significant challenge to hit the target this season.

I think a few sets of fans- and Reading quite likely to be one of them- will be pinning their hopes on an abolition of FFP for this season.

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On 08/04/2020 at 09:27, pillred said:

£26.5 million for the stadium? I know it's a bit tinpot but that wouldn't buy you the south stand, definitely a bit suspicious.

The value of the football ground isn't the stadium as without the FC the stadium has no income . The value lies in what could be built if the land was free and clear. 26m for building land the size of the ground, I also guess the car park which is huge, I reckon might not be far off that close to the M4. Any Reading area developers on here?

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40 minutes ago, REDOXO said:

The value of the football ground isn't the stadium as without the FC the stadium has no income . The value lies in what could be built if the land was free and clear. 26m for building land the size of the ground, I also guess the car park which is huge, I reckon might not be far off that close to the M4. Any Reading area developers on here?

You seem to know your stuff a bit, on this.

To add to the stadium sale thing, I note that it was sold again the following year from Renhe (immediate parent) to another of the owners companies- £37.5m.

Wonder which is right- if not both? Would have thought though I am certainly no expert, land in Reading surely above that of the sites of Hillsborough, Pride Park and Villa Park- St Andrews more central so less sure. 

That's interesting stuff though given the apparent independent valuations obtained for the following- grounds and values listed:

  1. Villa Park- £56.7m
  2. Hillsborough- £60m
  3. Pride Park- £81.1m

EFL hired valuer had Pride Park at £50m, really wonder about Hillsborough too...Villa Park I can't make my mind up on.

...OTOH, St Andrews at £22.25m I think it was, seems okay. Feels okay.

@downendcity I seem to recall you talking of valuation and valuation methods in the past- interested in your take, especially on Reading selling theirs in successive years, for an £11m- or roughly 41.5%- increase in Year 2 from 1.

As I recall too, you had a strong feeling that the sale price/profit reached might have been just about in line with necessity to comply with FFP.

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1 hour ago, Mr Popodopolous said:

You seem to know your stuff a bit, on this.

To add to the stadium sale thing, I note that it was sold again the following year from Renhe (immediate parent) to another of the owners companies- £37.5m.

Wonder which is right- if not both? Would have thought though I am certainly no expert, land in Reading surely above that of the sites of Hillsborough, Pride Park and Villa Park- St Andrews more central so less sure. 

That's interesting stuff though given the apparent independent valuations obtained for the following- grounds and values listed:

  1. Villa Park- £56.7m
  2. Hillsborough- £60m
  3. Pride Park- £81.1m

EFL hired valuer had Pride Park at £50m, really wonder about Hillsborough too...Villa Park I can't make my mind up on.

...OTOH, St Andrews at £22.25m I think it was, seems okay. Feels okay.

@downendcity I seem to recall you talking of valuation and valuation methods in the past- interested in your take, especially on Reading selling theirs in successive years, for an £11m- or roughly 41.5%- increase in Year 2 from 1.

As I recall too, you had a strong feeling that the sale price/profit reached might have been just about in line with necessity to comply with FFP.

At the risk of repeating my previous comments, the issue ( as I see it) revolves around the fact that there is no established or active market in the sale of football stadia on which anyone can draw readably accurate comparable values, such as would be the case when valuing a 3 bed semi.

The clubs defend their figures by saying that these were obtained by professionally qualified  "independent" valuers. However the cynic in me can't help but think that the circumstances under which Derby's owner retained his valuer to carry out the valuation of Pride Park are a little different from those applying to a valuer being appointed to cary out a mortgage valuation for a mortgage lender. 

A mortgage valuer knows that if his valuation is widely out, causing a mortgage application to be declined, he/she might then be required to defend the valuation knowing that market comparable might compromise his/her valuation. More importantly , he has no reason for providing anything but a truly impartial valuation as the lender ( from who he/she receives the instructions) has no motive for trying to influence the valuation up or down.

However, in, say, Derby's case the valuer would have been aware ( or if not, I'm certain that Derby would have made certain he/she was made aware) of the reason for, and importance of, the valuation to the club, who had instructed him to act for them. I would also be pretty certain that the valuer would have been made fully aware of the valuation figure that Derby needed, in order that they could realise sufficient profit to avoid ffp.

This being the case and given that there were no market comparable,  the valuer could then arrive at his valuation knowing that it would be difficult for anyone to question the accuracy of the valuation due to the absence of market comparable. Derby had run the stadium sale idea past the EFL before embarking on that course of action, and being given the green light. I suspect that this being the case, and knowing the lack of proper governance,oversight and calling account by the EFL they probably thought they had a clear run and that there would be no questioning of the transaction.

The above would also explain why the Madjesky increased in value over a 12 month period. If there were a market, it is highly doubtful there would have been that much of an increase ( unless there are other market factors of which I am unaware) but the valuer on the second sale would value at the level that Reading needed to achieve the paper profit necessary to include in their accounts.

I think I previously mentioned that there are  number of ways a commercial valuation of this nature can be based. One of those is to use the rental as the basis for the value. IIRC the rental Derby will be paying represent a pitiful yield when compared to the "sale price". If that rental was used to provide the market value then I suspect the value would be substantially lower than was produced. Of course, we know that the rental was agreed post sale, and undoubtedly to suite Derby from a financial point of view. If the rent reflected the market value, i.e. a full market rent, then it would impact on Derby's future profits, potentially compromising ffp again.

The simple bottom line is that because the the vendor, purchaser, valuer's client, the person agreeing the "sale price" and deciding the level of rent paid by the football club post sale is one and the same it is hardly surprising that a transaction of this nature and undertaken for the purpose it was/is,  is highly questionable. 

 

 

 

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