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Reading in a financial mess


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14 hours 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.

Readings ground is in Green Park which had high land values pre Covid and is likely to recover sooner than many others due to its proximity to the M4 into Heathrow and London so the patch of dirt the ground and associated parking etc sits upon is worth a whole lot more per acre than say Pride Park, Villa Park Hillsborough (or AG) (Unless any restrictive covenants are in place to retain a "leisure "type use which is unlikely given what is around it)

Edited by Natchfever
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4 hours ago, Natchfever said:

Readings ground is in Green Park which had high land values pre Covid and is likely to recover sooner than many others due to its proximity to the M4 into Heathrow and London so the patch of dirt the ground and associated parking etc sits upon is worth a whole lot more per acre than say Pride Park, Villa Park Hillsborough (or AG) (Unless any restrictive covenants are in place to retain a "leisure "type use which is unlikely given what is around it)

Exactly!

The values of the above grounds without the clubs is just the land value minus the cost to develop. To think dirt in Derby etc is worth more than that huge plot 60 seconds from the M4 is laughable.

Thats not to say that there are not shenanigans going on with the buying and selling of the stadium and adjacent land, there probably are, but if someone is looking at these transactions then Reading FC wont be the centre of attention.

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7 hours ago, Natchfever said:

Readings ground is in Green Park which had high land values pre Covid and is likely to recover sooner than many others due to its proximity to the M4 into Heathrow and London so the patch of dirt the ground and associated parking etc sits upon is worth a whole lot more per acre than say Pride Park, Villa Park Hillsborough (or AG) (Unless any restrictive covenants are in place to retain a "leisure "type use which is unlikely given what is around it)

 

2 hours ago, REDOXO said:

Exactly!

The values of the above grounds without the clubs is just the land value minus the cost to develop. To think dirt in Derby etc is worth more than that huge plot 60 seconds from the M4 is laughable.

Thats not to say that there are not shenanigans going on with the buying and selling of the stadium and adjacent land, there probably are, but if someone is looking at these transactions then Reading FC wont be the centre of attention.

There may be valuation issues of which I am unaware or missing, but surely all these grounds can only be valued as what they are - football stadia.

Whether they might have huge potential value as commercial or residential sites has to be completely academic if they are being valued and sold as stadia, given that the sales are being made to raise a profit to enable each club  to meet the financial criteria of it's governing body ( the EFL ) and thereby continue to play and ply it's trade within the football league as a professional football club. 

To do this they need their stadium!

Funnily enough, if a ground attracted an inflated valuation, because, say, the ground and surrounds were granted outline planning permission for , lets say, residential development and which would mean a massive financial windfall to the club, then the club would probably look to see and finance a new ground elsewhere. In that case there would be no jiggery pokery with valuations because the sale would be on the open market to a genuine third part purchaser ( as would have been the case had we sold to Sainsburys to fund Ashton Vale)

 

 

 

 

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1 hour ago, downendcity said:

 

There may be valuation issues of which I am unaware or missing, but surely all these grounds can only be valued as what they are - football stadia.

Whether they might have huge potential value as commercial or residential sites has to be completely academic if they are being valued and sold as stadia, given that the sales are being made to raise a profit to enable each club  to meet the financial criteria of it's governing body ( the EFL ) and thereby continue to play and ply it's trade within the football league as a professional football club. 

To do this they need their stadium!

Funnily enough, if a ground attracted an inflated valuation, because, say, the ground and surrounds were granted outline planning permission for , lets say, residential development and which would mean a massive financial windfall to the club, then the club would probably look to see and finance a new ground elsewhere. In that case there would be no jiggery pokery with valuations because the sale would be on the open market to a genuine third part purchaser ( as would have been the case had we sold to Sainsburys to fund Ashton Vale)

 

 

 

 

Don't know the ins and outs of the valuation approach but alternative use value must be a factor or should be in establishing the true value of a real estate asset. 

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36 minutes ago, Natchfever said:

Don't know the ins and outs of the valuation approach but alternative use value must be a factor or should be in establishing the true value of a real estate asset. 

As I mentioned, if a ground has outline or absolute planning permission for commercial or residential development, then a sale price or valuation would properly reflect that. In such circumstances the vendor would almost certainly be selling to cash in on the enhanced value resulting from such planning permission and the purchaser would be more than likely prepared to pay the enhanced price in order to take his/her own advantage of the development potential e,g, a house builder.

In the cases about which we are talking, in the absence of any such planning permissions, any suggestions that valuation should reflect enhanced value due to "alternative use" would be completely speculative. In the context of the already "vague" nature of stadium sales in the context of avoiding ffp sanctions this would make such transactions look even more dubious. Otherwise an owner in, say, Mel Morris' position could argue that residential development of the Pride Park site would make it worth £100m+. despite the fact that there would be not a cat in hells chance of planning approval for housing ever being obtained.

In Derby's case, if Pride Park has such an enhanced value due to potential alternative use, then why are the new owners not charging Derby a rental commensurate with that valuation?  The very nature of the transaction  ( the vendor and purchaser are effectively one and the same) means that Pride Park will be protected as Derby's stadium, so there is no way the purchaser can realise that enhance potential value. As Ive mentioned previously because these are paper transactions t related third parties the scope for manipulation is huge, not least because of the difficulty in determining the accuracy of any valuation. 

This being the case, it is clear why this type of transaction should never be allowed within the framework of a ffp regime. Clubs cannot be blamed that the EFL's cock up left this loophole, but it does to make it right if clubs have then inflated valuations to give a sale price sufficient to solve their individual ffp problems.

 

 

 

 

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12 hours ago, downendcity said:

As I mentioned, if a ground has outline or absolute planning permission for commercial or residential development, then a sale price or valuation would properly reflect that. In such circumstances the vendor would almost certainly be selling to cash in on the enhanced value resulting from such planning permission and the purchaser would be more than likely prepared to pay the enhanced price in order to take his/her own advantage of the development potential e,g, a house builder.

In the cases about which we are talking, in the absence of any such planning permissions, any suggestions that valuation should reflect enhanced value due to "alternative use" would be completely speculative. In the context of the already "vague" nature of stadium sales in the context of avoiding ffp sanctions this would make such transactions look even more dubious. Otherwise an owner in, say, Mel Morris' position could argue that residential development of the Pride Park site would make it worth £100m+. despite the fact that there would be not a cat in hells chance of planning approval for housing ever being obtained.

In Derby's case, if Pride Park has such an enhanced value due to potential alternative use, then why are the new owners not charging Derby a rental commensurate with that valuation?  The very nature of the transaction  ( the vendor and purchaser are effectively one and the same) means that Pride Park will be protected as Derby's stadium, so there is no way the purchaser can realise that enhance potential value. As Ive mentioned previously because these are paper transactions t related third parties the scope for manipulation is huge, not least because of the difficulty in determining the accuracy of any valuation. 

This being the case, it is clear why this type of transaction should never be allowed within the framework of a ffp regime. Clubs cannot be blamed that the EFL's cock up left this loophole, but it does to make it right if clubs have then inflated valuations to give a sale price sufficient to solve their individual ffp problems.

 

 

 

 

The valuation was set to suit the parties. In valuation terms "hope" value is most certainly a consideration and in the case of Reading a genuine one. I would suggest their stadium is substantially more valuable than any mentioned previously. The point being that the other valuations are false and if anything Reading's is on the low side. 

In terms of rent set that  is down to the purchaser and the return they seek. 

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20 hours ago, downendcity said:

 

There may be valuation issues of which I am unaware or missing, but surely all these grounds can only be valued as what they are - football stadia.

Whether they might have huge potential value as commercial or residential sites has to be completely academic if they are being valued and sold as stadia, given that the sales are being made to raise a profit to enable each club  to meet the financial criteria of it's governing body ( the EFL ) and thereby continue to play and ply it's trade within the football league as a professional football club. 

To do this they need their stadium!

Funnily enough, if a ground attracted an inflated valuation, because, say, the ground and surrounds were granted outline planning permission for , lets say, residential development and which would mean a massive financial windfall to the club, then the club would probably look to see and finance a new ground elsewhere. In that case there would be no jiggery pokery with valuations because the sale would be on the open market to a genuine third part purchaser ( as would have been the case had we sold to Sainsburys to fund Ashton Vale)

 

 

 

 

Supply and Demand applies. Villa Park has one user for example Aston Villa FC.

If the club sells its stadium to raise funds, the value of the stadium should be based upon a number of factors. Revenue created from rental to Aston Villa FC plus other revenues as a concert venue etc. See Ashton Gate, its used as a conference center, meeting rooms etc apart from the obvious football and concert revenue. With those factors how long will it take to make back the original investment (P/E)

However Villa Park also has value just for its position. It is in a residential area. If the owners were to sell, much like Arsenal, Spurs, West Ham etc etc there is no reason to expect the local authorities would not allow development. 

The difference in these cases is, as happened with SL, clubs are selling assets to board members of the FC. There is nothing wrong with this all the time the persons buying are devoted to their football team and the club are paying the going rate for usage of the stadium. Nevertheless that can change, then you have trouble like Coventry and Richo Stadium. 

Pride Park is one of the original updated stadiums, to my knowledge Derby County is the only club to play there and I have no memory of it as a concert venue, although they probably have revenue from Other business.

If Derby sold there ground for 55m the question is What are they paying in rent and what other revenues are coming in and how long will it take to make back the original investment (and what is the value of the dirt) If the P/E is high by comparison to other clubs This will be the first sign that the sale is iffy, before even looking at Books and payments

 

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33 minutes ago, REDOXO said:

Supply and Demand applies. Villa Park has one user for example Aston Villa FC.

If the club sells its stadium to raise funds, the value of the stadium should be based upon a number of factors. Revenue created from rental to Aston Villa FC plus other revenues as a concert venue etc. See Ashton Gate, its used as a conference center, meeting rooms etc apart from the obvious football and concert revenue. With those factors how long will it take to make back the original investment (P/E)

However Villa Park also has value just for its position. It is in a residential area. If the owners were to sell, much like Arsenal, Spurs, West Ham etc etc there is no reason to expect the local authorities would not allow development. 

The difference in these cases is, as happened with SL, clubs are selling assets to board members of the FC. There is nothing wrong with this all the time the persons buying are devoted to their football team and the club are paying the going rate for usage of the stadium. Nevertheless that can change, then you have trouble like Coventry and Richo Stadium. 

Pride Park is one of the original updated stadiums, to my knowledge Derby County is the only club to play there and I have no memory of it as a concert venue, although they probably have revenue from Other business.

If Derby sold there ground for 55m the question is What are they paying in rent and what other revenues are coming in and how long will it take to make back the original investment (and what is the value of the dirt) If the P/E is high by comparison to other clubs This will be the first sign that the sale is iffy, before even looking at Books and payments

 

I stand to be corrected if I'm wrong, but as far as I'm aware the sale of Ashton Gate to SL ( or one of his companies) was about restructuring rather than as a "capital raising " excercise, notwithstanding that there was probably some benefit to SL for so doing. 

Therein lies the underlying issue with the likes of Derby, Wednesday, Reading and ( as far as we believe) Villa, as all of them used the stadium sale as the means of generating a paper profit sufficient to avoid problems with ffp. where all other options had failed. Consequently there is widespread suspicion that the valuations were conveniently at the right figures to suite each club's financial needs and therefore lacking proper objectivity.

Im sure Mr P, in one of his previous missives, detailed the rental Derby will be paying the "new" owner and I am certain that the yield it represents is paltry. If it were a genuine commercial transaction then no purchaser would have paid such a price for so poor a return - unless, of course, they were being advised by Morris's professional valuer!

 

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35 minutes ago, downendcity said:

I stand to be corrected if I'm wrong, but as far as I'm aware the sale of Ashton Gate to SL ( or one of his companies) was about restructuring rather than as a "capital raising " excercise, notwithstanding that there was probably some benefit to SL for so doing. 

Therein lies the underlying issue with the likes of Derby, Wednesday, Reading and ( as far as we believe) Villa, as all of them used the stadium sale as the means of generating a paper profit sufficient to avoid problems with ffp. where all other options had failed. Consequently there is widespread suspicion that the valuations were conveniently at the right figures to suite each club's financial needs and therefore lacking proper objectivity.

Im sure Mr P, in one of his previous missives, detailed the rental Derby will be paying the "new" owner and I am certain that the yield it represents is paltry. If it were a genuine commercial transaction then no purchaser would have paid such a price for so poor a return - unless, of course, they were being advised by Morris's professional valuer!

 

Yes exactly with your last two paragraphs. 

As far as SL and AG, its impossible to know what was in mind back then. However what we do know is there has been massive investment in Bristol Sport, particularly City and The Bears. The ground if it ALL goes tits up is some small collateral on that investment, however the likelihood of that under any normal circumstance Is very low for us THANKFULLY!

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38 minutes ago, REDOXO said:

Yes exactly with your last two paragraphs. 

As far as SL and AG, its impossible to know what was in mind back then. However what we do know is there has been massive investment in Bristol Sport, particularly City and The Bears. The ground if it ALL goes tits up is some small collateral on that investment, however the likelihood of that under any normal circumstance Is very low for us THANKFULLY!

When SL embarked on the 5 pillars , which evolved into the sustainability model that's been in place now for a few seasons, it drew much criticism and ridicule from many fans, who saw it as an excuse for the owner not using his own money.

With hindsight, and seeing the desperate steps to which clubs like Derby, Wednesday etc have had to resort, in order to avoid ffp sanctions, makes us realise that SL's strategy and plan  was in fact  well considered foresight.

Indeed, when the Derby fan ( I think it was) posted on here that our attitude towards his club's actions regarding the stadium sale was in fact jealousy, because we could not do the same. His implication was that having "sold" AG a long time back, we were deprived of the same opportunity as other clubs,  the irony of his argument being that even if we could, we did not need to sell AG, due to the prudent financial management we have undertaken for a few seasons and which club's like Derby have failed to do.

Returning to the valuation issue, it is shambolic thanks to the EFL cock up with the new rules. Having left the loophole, which some clubs have gratefully exploited, whereby sale of grounds in itself does not break the rules, the EFL are trying to save face by questioning the valuations. While everyone might think they are highly questionable proving it is a much tougher task, not helped by the fact that the EFL effectively approved the sales at the outset and then allowed the resulting profits to be included in the latest accounts. 

I suspect that should the EFL persue clubs for overstated valuations, and thereby penalise them for ffp breaches, the clubs will feel they have strong enough grounds to counter with their own legal action. The one thing that might sway the balance is if the majority of championship clubs gave there full support to the EFL's actions, but that seems to have been sadly lacking up to now!

 

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1 hour ago, downendcity said:

When SL embarked on the 5 pillars , which evolved into the sustainability model that's been in place now for a few seasons, it drew much criticism and ridicule from many fans, who saw it as an excuse for the owner not using his own money.

With hindsight, and seeing the desperate steps to which clubs like Derby, Wednesday etc have had to resort, in order to avoid ffp sanctions, makes us realise that SL's strategy and plan  was in fact  well considered foresight.

Indeed, when the Derby fan ( I think it was) posted on here that our attitude towards his club's actions regarding the stadium sale was in fact jealousy, because we could not do the same. His implication was that having "sold" AG a long time back, we were deprived of the same opportunity as other clubs,  the irony of his argument being that even if we could, we did not need to sell AG, due to the prudent financial management we have undertaken for a few seasons and which club's like Derby have failed to do.

Returning to the valuation issue, it is shambolic thanks to the EFL cock up with the new rules. Having left the loophole, which some clubs have gratefully exploited, whereby sale of grounds in itself does not break the rules, the EFL are trying to save face by questioning the valuations. While everyone might think they are highly questionable proving it is a much tougher task, not helped by the fact that the EFL effectively approved the sales at the outset and then allowed the resulting profits to be included in the latest accounts. 

I suspect that should the EFL persue clubs for overstated valuations, and thereby penalise them for ffp breaches, the clubs will feel they have strong enough grounds to counter with their own legal action. The one thing that might sway the balance is if the majority of championship clubs gave there full support to the EFL's actions, but that seems to have been sadly lacking up to now!

 

Derby fan saying the Board of Directors of City are jealousy of Derby County.....Love it!

Yes the whole thing with Ground sales is shambolic, but the finances of clubs doing this and obviously not paying market rates for the sale or the rent shows how shambolic the accounts of those clubs are..

I cant remember what the value of AG was prior to the transfer,  at that time BCFC would have been the only client versus what it is now with multiple revenue streams plus an overarching sports group, but the value now is immense even without the Football Club

Next season Bristol Bears have a shot at real silverware and City will be on another promotion push....Yep I reckon I’d rather be in Derby‘;s position, still dreaming of getting that 7th point!

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Very interesting stuff on here, definitely.

Quick note on Sheffield Wednesday...saw this on their forum and still makes me wonder about their valuation...

Screenshot_20200521-185224_Dropbox.thumb

Now I've often wondered, does the valuation method make a tangible difference to the price? The valuation method for all of these transactions was not disclosed- just said independent advice sought and not even sure it did that for Derby and Reading.

The reason I bring up the valuation method differentials is:

Pride Park- £81.1m sale price, apparently an independent valuation sought.

EFL hired valuer commissioned valuation- £49-50m. An article did suggest it was using their own criteria:

Quote

Derby said that they had been told by the EFL that the league itself had made a mistake when it approved its submissions, and the league is understood to have had its own independent valuation of Pride Park carried out, using different criteria according to its rules.

This is an article from January of course. I assume it is referring to this:

Quote

1.1.8 Fair Market Value means the amount for which an asset could be sold, licensed or exchanged, a liability settled, or a service provided, between knowledgeable, willing parties in an arm’s length transaction.

Which feeds into this:

Quote

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.

I suppose a couple of questions here might be?

  1. How do we ascertain Fair Market Value for a football ground? It is a unique and specialised asset after all. I've always had a feeling it's linked to Depreciated Replacement Cost, ie could that be a bit of a proxy for Fair Market Value for such assets/transactions- or are they two wholly distinct and separate valuation methods?
  2. Makes me wonder what method Derby used for there to be such a large differential- and how those arose! Also makes me wonder if both valuations reached could in fact be correct.
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Reading fans appear to be quite relaxed, perhaps even bullish, about their FFP questions.

https://hobnob.royals.org/forum/viewtopic.php?f=1&t=186841&hilit

It's only a few posts tbh but some of their figures are questionable:

Quote

We won't be punished because we sold the stadium to ourselves (allowed by the EFL) at a fair market value (~£20m).

Err, was £26.5m or thereabouts. Again no issues on that score but...

How was it resold a year later for £37.5m?

Quote

As for us, we haven't broken any rules. FFP is over 3 seasons, we have just spent 3 seasons in one so are all clear......at the moment.

This one has a touch more caution.

Quote

Doesn't affect us. The EFL cleared us of any wrong doing when selling the Madstad to the owners. Derby however vastly vastly over-priced their pudding bowl and deserve everything coming to them.

Thought it was still technically under investigation?

Remember too, it wasn't just the stadium they sold (twice, when we include the Renhe deal last season) but a variety of other assets-  plus of course a £3m loan fee for Aluko (ha!) to Beijing Renhe, the owners Chinese club, which was £3m worth of their income for last season.

See a couple of them are posting on Twitter, under the Swiss Ramble thread about how FFP should be cancelled due to Covid 19. I don't think there is a case for that- amended yes, cancelled nope.

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19 hours ago, Mr Popodopolous said:

 

I suppose a couple of questions here might be?

  1. How do we ascertain Fair Market Value for a football ground? It is a unique and specialised asset after all. I've always had a feeling it's linked to Depreciated Replacement Cost, ie could that be a bit of a proxy for Fair Market Value for such assets/transactions- or are they two wholly distinct and separate valuation methods?
  2. Makes me wonder what method Derby used for there to be such a large differential- and how those arose! Also makes me wonder if both valuations reached could in fact be correct.

Had the EFL made the sale of clubs' stadia to  related third party allowable within ffp, then I am pretty certain that even the then inept administrators would have determined the basis of valuation that clubs should apply, in order to avoid any ambiguity.

As it is, stadium sales have been " allowed" due to the  EFL's error, meaning the valuation can of worms has been opened as there is no clear definition as to what is the acceptable method of valuation. As you say, football stadia are unique and specialised assets, and because of this I can see any club put in the dock defending itself on the basis that their valuation, and method by which it was obtained, is as valid and correct as any the EFL puts up in contradiction.

I can only see legal action being joined and especially given the current situation, will the EFl want to get embroiled in such litigation on top of the other pressing issues they have to face at the moment?

Having said that, if the season is to end (without being completed - of that makes sense)  I can easily see that clubs adversely affected might well flex their muscles if they see the EFL failing to punish clubs that appear to have flouted ffp through the sale of their stadium. 

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12 minutes ago, downendcity said:

Had the EFL made the sale of clubs' stadia to  related third party allowable within ffp, then I am pretty certain that even the then inept administrators would have determined the basis of valuation that clubs should apply, in order to avoid any ambiguity.

As it is, stadium sales have been " allowed" due to the  EFL's error, meaning the valuation can of worms has been opened as there is no clear definition as to what is the acceptable method of valuation. As you say, football stadia are unique and specialised assets, and because of this I can see any club put in the dock defending itself on the basis that their valuation, and method by which it was obtained, is as valid and correct as any the EFL puts up in contradiction.

I can only see legal action being joined and especially given the current situation, will the EFl want to get embroiled in such litigation on top of the other pressing issues they have to face at the moment?

Having said that, if the season is to end (without being completed - of that makes sense)  I can easily see that clubs adversely affected might well flex their muscles if they see the EFL failing to punish clubs that appear to have flouted ffp through the sale of their stadium. 

Thanks, yeah you really need a valuation basis- just like you need an amortisation basis- see Derby and their unique way of accounting for it, which forms part of the EFL's current case against them.

Parry has clearly come in, took one look at things, at what he has inherited and said "WTF" or similar. I have faith in Parry, him vs Harvey night and day.

The only thing it does say in the regs is "Fair Market Value".Lot of ambiguity as you say.

There could easily be some very busy sports related lawyers whichever way it goes. We have something to work with though, in theory- £50m for Pride Park vs £81.1m. I believe the £50m is the basis for which FFP was recalculated for those 3 years.

God knows what Hillsborough is worth- I somehow doubt it is £60m however!

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3 minutes ago, Mr Popodopolous said:

Thanks, yeah you really need a valuation basis- just like you need an amortisation basis- see Derby and their unique way of accounting for it, which forms part of the EFL's current case against them.

Parry has clearly come in, took one look at things, at what he has inherited and said "WTF" or similar. I have faith in Parry, him vs Harvey night and day.

The only thing it does say in the regs is "Fair Market Value".Lot of ambiguity as you say.

There could easily be some very busy sports related lawyers whichever way it goes. We have something to work with though, in theory- £50m for Pride Park vs £81.1m. I believe the £50m is the basis for which FFP was recalculated for those 3 years.

God knows what Hillsborough is worth- I somehow doubt it is £60m however!

Parry is an experienced administrator, and will understand how clubs work. The crucial question is whether he has the balls to face down clubs , even if they threaten legal action.

It is a shame that the corona virus has caused such disruption, as without it I think things might have got quite "interesting" at the tail end of the season for clubs that had sold their grounds. What Parry could do is canvas the opinions of top valuation firms, to find a consensus ( or as near as) as to the most acceptable method of valuation, apply that to each stadium and the, if there are big discrepancies and he takes punitive action under ffp, he has a strong basis to fight the EFL's corner.

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12 minutes ago, downendcity said:

Parry is an experienced administrator, and will understand how clubs work. The crucial question is whether he has the balls to face down clubs , even if they threaten legal action.

It is a shame that the corona virus has caused such disruption, as without it I think things might have got quite "interesting" at the tail end of the season for clubs that had sold their grounds. What Parry could do is canvas the opinions of top valuation firms, to find a consensus ( or as near as) as to the most acceptable method of valuation, apply that to each stadium and the, if there are big discrepancies and he takes punitive action under ffp, he has a strong basis to fight the EFL's corner.

Agreed. His track record is great- he was an early, possibly even the original head of the PL. Senior at Liverpool. He was even on the UEFA FFP committee.

Plus crucially for this kind of thing, he was an accountant by trade AND has experience auditing- you couldn't ask for a better arbiter for this kind of thing, IMO- in terms of quality and experience. Harvey had a range of experiences too at a number of clubs...most of them bad! 

Have a look at his track record- on the face of it, it's not very good, Harvey that is! How on earth did he get anywhere near head of the EFL!?

https://beta.companieshouse.gov.uk/officers/MgdjpUB-G2dMg2lu_BhNdMrcMEg/appointments

Agreed-that is a million dollar question, facing down clubs that threaten legal action. In theory as the EFL is a members club, I wonder if that risk maybe overstated a little in some ways but yes the million dollar question.

Oh I think so. As it goes, Sheffield Wednesday's hearing is in July and Derby's mooted as that too- Reading is an interesting one as they surely will run into difficulties for the 3 years to June 2020 unless FFP scrapped. That seems a good way for me, the first we have seen is Derby at £50m vs £81.1m- it's all quite fuzzy though- I assume the EFL will have access or be able to request access to valuation methods used by the clubs, the accounts at CH show no such transparency though- simply on those that bothered says something like "Sought Independent advice" or words to that effect- under old accounting standards I believe you had to disclose the valuation company, the price and the valuation method. Still do possibly in Hong Kong- Wigan's stadium was valued at £29m or thereabouts, I saw online and it disclosed:

  • The price/value.
  • The method.
  • The company used.
  • Hell, even the guy who valued it!
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19 hours ago, Mr Popodopolous said:

Agreed. His track record is great- he was an early, possibly even the original head of the PL. Senior at Liverpool. He was even on the UEFA FFP committee.

Plus crucially for this kind of thing, he was an accountant by trade AND has experience auditing- you couldn't ask for a better arbiter for this kind of thing, IMO- in terms of quality and experience. Harvey had a range of experiences too at a number of clubs...most of them bad! 

Have a look at his track record- on the face of it, it's not very good, Harvey that is! How on earth did he get anywhere near head of the EFL!?

https://beta.companieshouse.gov.uk/officers/MgdjpUB-G2dMg2lu_BhNdMrcMEg/appointments

Agreed-that is a million dollar question, facing down clubs that threaten legal action. In theory as the EFL is a members club, I wonder if that risk maybe overstated a little in some ways but yes the million dollar question.

Oh I think so. As it goes, Sheffield Wednesday's hearing is in July and Derby's mooted as that too- Reading is an interesting one as they surely will run into difficulties for the 3 years to June 2020 unless FFP scrapped. That seems a good way for me, the first we have seen is Derby at £50m vs £81.1m- it's all quite fuzzy though- I assume the EFL will have access or be able to request access to valuation methods used by the clubs, the accounts at CH show no such transparency though- simply on those that bothered says something like "Sought Independent advice" or words to that effect- under old accounting standards I believe you had to disclose the valuation company, the price and the valuation method. Still do possibly in Hong Kong- Wigan's stadium was valued at £29m or thereabouts, I saw online and it disclosed:

  • The price/value.
  • The method.
  • The company used.
  • Hell, even the guy who valued it!

I'm certain that if big hitting firms of surveyors were involved. the valuations could be justified in every instance simply because they will have a basis. Whether that basis is contentious remains to be seen of course. DRC is a long established method of valuing "unique" properties and was (maybe still is ?) used by local authorities on libraries, swimming pools etc in the days when creativity over the alternative use of such buildings wasn't prevalent.A stadium located in a shithole is probably going to be valued that way whereas Reading for example has a much more lucrative alternative use. Even Pride Park has a lot of office development around it. One factor to consider though is the return required by the "purchaser" If they want 5% for example and the tenant is prepared to pay a high rent then the sale price will reflect that.

In a different life I was involved in the sale and leaseback of the freehold portfolio of a company and in essence, because they had an excellent covenant the purchaser was happy to base the purchase price upon the annual leaseback rent provided its required yield was met.This is important because a "special" purchaser can argue it has a different yield requirement than the so called market.Where it gets indefensible if if there is absolutely zero correlation between sale price and the subsequent annual rent.

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1 hour ago, Natchfever said:

I'm certain that if big hitting firms of surveyors were involved. the valuations could be justified in every instance simply because they will have a basis. Whether that basis is contentious remains to be seen of course. DRC is a long established method of valuing "unique" properties and was (maybe still is ?) used by local authorities on libraries, swimming pools etc in the days when creativity over the alternative use of such buildings wasn't prevalent.A stadium located in a shithole is probably going to be valued that way whereas Reading for example has a much more lucrative alternative use. Even Pride Park has a lot of office development around it. One factor to consider though is the return required by the "purchaser" If they want 5% for example and the tenant is prepared to pay a high rent then the sale price will reflect that.

In a different life I was involved in the sale and leaseback of the freehold portfolio of a company and in essence, because they had an excellent covenant the purchaser was happy to base the purchase price upon the annual leaseback rent provided its required yield was met.This is important because a "special" purchaser can argue it has a different yield requirement than the so called market.Where it gets indefensible if if there is absolutely zero correlation between sale price and the subsequent annual rent.

Your last sentence was my point earlier. Valuation methods are all very well and i know we have a couple of high flying (please forgive the terms guys) accountants who come to this place, however this is a sale of fixed assets, in this case a stadium. The correlation has to be between sale price and yield of the stadium. (Plus what is the dirt worth if the FC leaves to recapture so0me loss/profit?)

Thus the time to recapture the initial capital in rent At the time of sale is the best indicator of if the sale is iffy. 

Edited by REDOXO
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Some interesting lines from Mark Bowen. Happy to get onto the valuation stuff later or tomorrow as it's very interesting, but some interesting lines:

Quote

Recruitment on hold

Reading boss Mark Bowen says all areas of recruitment are on hold as the club seeks to manage a way through the coronavirus pandemic.

Reading's latest set of accounts made for grim reading and highlighted the urgent need to cut costs and sell players to help balance the books and meet the Football League's guidelines.

A massive clear-out of players is expected, therefore, as the club looks for some financial stability.

So far, so normal...

Quote

"Even with FFP (Financial Fair Play) at this moment in time we're not 100 per cent certain where we'll be and at what level we'll be able to bring players in," Bowen said.

"It's very hard and very complicated because if you don't know what level you can bring in at in terms of money - how much you can spend - then it certainly limits where you can look in the market place.

"You've got to keep tabs on many, many players at different levels.

"With FFP if we go in to an embargo then that affects us in a different way. If club A goes into an embargo then the club has to sell players for certain money to get to a certain level to get out of that embargo.

"But in today's climate I don't know how or when you're going to be able to sell players to a certain level. Who knows what's going to happen to the transfer market?

"So if you haven't got any possibility to get out of the embargo restrictions then how can they be enforced?

Shouldn't overspend then should you!! Shouldn't spend and then sell assets not just in season 1 but season 2! Indeed, one of the asset sales was the stadium in successive seasons!

Clear to me they gambled on promotion this season.

Continued.

Quote

"I don't know how you can go and imply an embargo onto a club if they haven't got a chance of getting out of it.

"I understand you only go in because the club didn't do things at the right time but two wrongs don't make a right.

"Maybe, and I say this tongue in cheek, they will have to delay these financial restrictions for a year or 18 months until the game gets back to normal again."

Check your spending!

Most others managed it- and you were clearly very close in summer 2019!

Delay? No! Tongue in cheek? I hope! Modify? Maybe! I'd be happy for losses and only losses directly incurred through Covid 19 to be added onto the £39m + allowables, or waived or whatever but if you're on course to fail regardless, ie even after the deductions that's your own fault! Nobody elses!

The cheek of them eh? @Davefevs @Vincent Vega @downendcity

Selling the Madejski was one thing- £26.5m in 2017/18 though the rent seemed a bit low at £750,000.

Selling further assets from Renhe to Chinese companies- that is something else.

Selling the Madejski again- this was curious. Rent did double though so on one level it seems to match- £37.5m price, £1.5m rent x 25 years.

£3m loan fee for Aluko was a joke! Worse than the asset sales if anything.

The worst thing was they did NOT use this to restructure significantly. Well they did at first- but when released from embargo they signed Joao and Puscas!

NO. BLOODY. SYMPATHY.

I seem to recall Danny Loader was touted as a sale last summer, to help with FFP. Now it is mooted he is leaving on a free- shame. Having said that, his age and his mooted talent- compensation? Would have to look into it further.

Edited by Mr Popodopolous
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I forgot to add too- having looked again at Swiss Ramble's breakdown.

Included within their profit for 2016/17 was £9m of loan writeoffs and maybe £2m from disposal of investments- when you total the two together anyway it comes to £10-11m or thereabouts.

Without these, especially the £9m of loan writeoffs, they may yet have even failed to June 2019- even with the asset sales, the Aluko cash etc. So I believe this from Bowen should be marked as ignored- sure allow direct costs of covid to be excluded for all clubs and independently checked by external auditors but no free passes, no years' grace, no scrapping of it etc.

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1 hour ago, Mr Popodopolous said:

Some interesting lines from Mark Bowen. Happy to get onto the valuation stuff later or tomorrow as it's very interesting, but some interesting lines:

So far, so normal...

Shouldn't overspend then should you!! Shouldn't spend and then sell assets not just in season 1 but season 2! Indeed, one of the asset sales was the stadium in successive seasons!

Clear to me they gambled on promotion this season.

Continued.

  Quote

"I don't know how you can go and imply an embargo onto a club if they haven't got a chance of getting out of it.

"I understand you only go in because the club didn't do things at the right time but two wrongs don't make a right.

"Maybe, and I say this tongue in cheek, they will have to delay these financial restrictions for a year or 18 months until the game gets back to normal again."

 

Obviously a 3 year period in which to make whatever financial adjustments were necessary in order to comply, was not enough for the likes of Reading.

 

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4 hours ago, downendcity said:

 

Obviously a 3 year period in which to make whatever financial adjustments were necessary in order to comply, was not enough for the likes of Reading.

 

Unbelievable, isn't it!

They actually started off that final 3 year period ie the 3 years for which we have accounts in the puiblic domain in receipt of parachute payments. The 4th and final year- that's all been reformed since then.

That and from a useful base is ample, ample time to get their house in order. Selling the Madejski for £26.5m in 2017/18- that's alright I suppose, though the rent of £750k could be higher.

What followed was not- absolutely not alright. Had the loan write off been excluded as it surely should have been- QPR surely set a precedent there, they may have failed in any case. There is NO excuse- if they've failed independent of Covid 19, they have failed independent of Covid 19.

God knows how big their fail would be or would have been without asset sale and leasebacks, debt write offs, profit on disposal of Investments- oh and £3m for a season of a 29, 30 year old Aluko on loan, a player whose form has been terrible for some time!

If I'm at a loose end tomorrow, perhaps I'll calculate all that- but they've run out of road, if they fail now they fail.

Edited by Mr Popodopolous
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 May as well take a look now- some of it, notably the deductible costs I take from best estimates, notably Kieran Maguire and Swiss Ramble.

The 3 years to 2017/18 from 2015/16- as that's the first real period of 3 year FFP in a sense, even if 2018/19 was the official turnaround with points deductions etc possible.

This is for Reading and not necessarily the parent company/companies- who I will cover in Part 2.

3 year loss exclusive of deductions but before any interesting accounting:

£31,323,666

Sailed through. Indeed, the deductions suggest further:

£15m in deductions, or £5m a season- or cumulative FFP losses=£16,323,666.

HOWEVER:

Quote

2015/16

Profit on disposal of Investments:

£5,625,000.

Quote

2016/17:

Profit on disposal of Investments:

£1,924,117

Amounts written off in loans:

£9,252,004

Quote

2017/18:

Profit on disposal of Fixed Assets (The Mad Stad)

£6,518,222

Quote

As we can see, that figure whereby they sail through- and bear in mind that 201516 and 2016/17 saw them in receipt of parachute payments is now very sketchy indeed.

£16,323,666- FFP loss.

Plus

£5,6265,000- Disposal of Investments, 2015/16.

Plus

£1,924,917- Disposal of Investments 2016/17

Plus

£9,252,004- Write off of loan 2016/17

Plus

£6,518,222- Sale of Madejski Stadium 2017/18

This sees them over the limit by £553,009 and by the letter of the law, a possible deduction of up to 3 points. Wasn't aware loan write offs or profit on disposal of investment counted as revenue towards FFP- perhaps they don't and that is why they sold the Stadium 2 seasons ago!

I'm not saying such a breach necessarily would absolutely get you a deduction but it is proof that they were a) Sailing close to the wind and b) Pumping up their figures through various means well before this season.

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Now we move onto the 3 years to last season- still on Part 1, b), looking at the club before any group or parent company. That 2015/16 drops off the figures of relevance.

2016-17

Profit - £4,661,150

The deductions as per Swiss Ramble- £5m per season still.

Quote

By rights though, we should perhaps be excluding/removing- and even if not, this shows how close to the wind they were sailing:

£1,924,117- Profit Disposal of Investments

£9,252,004- Loan Write Off.

Nonetheless, after removal of these but also adding back deductions, £1,514,971.

You can lose a shade under around £37.5m over the next 2 seasons PLUS £10m estimated in deductions- fantastic starting point. Fantastic- what excuse is there.

However!

2017/18 results are in.

Quote

Loss- £20,952,868.

Add back £5m in excluded costs- sounds fine right.

However that loss even includes the ground sale, profit there £6,518,222.

I make that an FFP loss of £22,471,090 exclusive of ground sale.

Quote

2018/19

Loss- £30,115,218

Add back £5m in excluded costs Once again seems absolutely fine.

Yet, that shade over £30m loss was inclusive of £8,173,614 of the sale- to a related party- of the training ground, that profit offset the loss.

Oh and £3m loan fee for Aluko from the owners company.

"Official" 3 year results come across as:

FFP loss- inclusive of 3 x £5m in legitimately excluded costs ie academy etc as £31,406,936.

However when we actually look at disposal of investments, fixed assets, loan write offs and the laughable Aluko loan fee:

Well that almost doubles it- you could add on £28,867,957!! Smashing the limit.

Shows they were and are always quite close to the wind. Dread to think what this seasons might be...

So I have zero sympathy, zero ***** given- the world's smallest violin- when they moan about FFP!!

If I was to quibble, I'd exclude the loan write off, the disposal of investments and seriously quibble with the Aluko fee- it's a fail but less of one but just again shows how many loopholes they have used, or appear to have.

I never thought I'd see the day where I get irked or worked up by a fairly nondescript club such as Reading but this, combined with their fans attitudes towards it makes me quite annoyed.

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Part 2

Complex though it maybe, Controlling Party/Immediate company- **** it. If I get the wrong one for 2016/17 so be it, there are tewo possibles- indeed total revenue for Reading oddly seems to be some kinda combo of the two. :dunno:Accounts says its Renhe and it seems the simplest...

Quote

2015/16, Reading Football Holdings Limited.

LOSS- £17,264,469.

We of course assume the £5m in deductions as per Swiss Ramble. That makes the loss £5m less.

However- as with the Reading Accounts for that year, the Profit on Disposal of Investments comes to £5,625,000

FFP loss if we exclude those- and it is or was news to me that they should count towards profit- £17,889,469. FFP loss allowable £13m- this takes them over the FFP one year allowance (the final such year of this criteria) by £4,889,469- embargo in Jan 2017 then! Also not a fantastic starting point moving forward...

Quote

This is where it can get a bit more complex due to the takeover and the stuff mentioned in the opening bit of this section.

2016/17 Early takeover time of Renhe Sports Management Co Limited and sale time or end of Reading Asia Holdings Limited (used to be known as Reading Football Holdings Limited)

LOSS- £1,562,411- Renhe Sports Management Co Limited

PROFIT- £13,629,448- Reading Asia Holdings Limited

OVERALL PROFIT- £12,067,037

We of course assume the £5m in deductions as per Swiss Ramble. That makes the loss £5m less.

However...

Included within this- as with the Reading accounts is:

£9,252,004 in terms of Loan Write off.

And (exclusive to these accounts)- Profit on Disposal on Operations of £18,359,343.

That said, there was a loss of £5,235,957 on Disposal Of Investments-which must also be excluded.

I make that a revised loss- before FFP exclusions- possibly of £8,745,942 and add on the £1,562,411 for Reading Asia Holdings Limited. Knock £5m off in FFP costs and it's £5,308,353.

Quote

Onto 2017/18!

LOSS- £29,983,815 given the parent company purchased the ground, there is no profit to offset here, save for the £5m in allowable costs- my base assumption as per Swiss Ramble.

£17,889,469 + £5,308,353 + £24,983,815=£48,181,637.

I mean why on earth did the EFL allow given it appears not to be in the regs, a profit of £5,625,000 on disposal of Investments and a £9,252,004 Loan Write Off! These two especially are suspect- Disposal of Operations I always wondered on- I've automatically excluded the loss on disposal of Investments as I have the Profit- Disposal on Operations is far from clear for FFP but seems a bit suspect to me...they should've failed FFP arguably to June 2018 and certainly evben if not that, should have had a January 2017 embargo.

If that was the end I may not be so annoyed- but the end it certainly was not!

Quote

That 2015/16 figure now drops off accounts.

£11,573,640 loss- what a remarkable decline eh!! Getting your costs down or bringing in so much from players yeah commendable and clear evidence that they're moving forward right.

Only it wasn't what it seemed.

£29,929,818- Profit on Disposal of Fixed Assets. This incorporated the second sale and leaseback of the Madejski, the sale (and leaseback)? of the training facilities, the sale of the residential part of the land owned by the company.

Plus a ridiculous £3m loan fee for Aluko- to the owners/a controlling parties Chinese club!

Let's have a look at the new figures without exceptional items but also adjusted for £5m estimated annual FFP exclusions:

£5,308,353 + £24,938,815 + £39,503,458.

£69,750,626

A £30m overspend- a deliberate overspend at that. Perhaps a point back for abiding by softy embargo, that'd be a mere 14 points then, if we're using the Birmingham precedent which was points for overspend + 3 for a deliberate breach and one back for cooperation- maybe get one back too for not allocating certain players squad numbers in summer 2019, maybe to try to move them on- only issue is they stayed and were used so perhaps not! 13-15 anyway IMO.

I have zero, zero and zero again sympathy for Reading therefore. When they complain about FFP or say it should be amended etc- yeah maybe it should- but they've had many, many chances to right the ship!

I await and look forward to the analysis of my analysis- if it transpires I should've just used Renhe for 2016/17, that'd have made my job a fair bit easier. :laugh:

They look like based on this they could have failed once had it been done right, ie to June 2019, and most certainly to June 2018 and maybe twice- plus an individual soft embargo for the final one year assessment in January 2017 (2015/16 season)- and yet they hope FFP eased!! :protest:

Think what was the final, final- most final- of straws for me was when they signed Joao and Puscas after soft embargo was removed!! God knows what their projected (independent of covid) accounts may look like to June 2020...

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