19/20 accounts released

[Mr Popodopolous]

I think there is both sustainability and future proofing with respect to HMRC potentially at play.

@BTRFTG mentions HMRC looking at football club loans. Skimread this thread tbh but do you mean owner to club loans? Charging market rate would cover bases just in case.

Not City related but I've never fully got my head around (you might know a bit more) Aston Villa selling Villa Park in 2019, to their owners paid for it in the form of Other Loans Receivable. Tax and general accounting for it as Profit has always confused me.

[BTRFTG]

21 minutes ago, Mr Popodopolous said:

@BTRFTG mentions HMRC looking at football club loans. Skimread this thread tbh but do you mean owner to club loans? Charging market rate would cover bases just in case.

As I say I'm no tax expert but you'll know for something to comprise a loan it must have certain components: a repayment schedule, start and end dates and charge commensurate with the risk of the loan defaulting. If these aren't apparent then the loan might be considered a 'gift'.  NB not all loans incur interest but such are usually linked to other charges (ie assets that may be sold to meet any repayment else a Sharia-compliant benefit not paid as interest.)

Clearly SL can't secure club assets as charge, it doesn't have sufficient so to do and he effectively owns them anyway, such ensuring loans have commercial terms is a good protection should the taxman come prying. It's not him taking money out of the club, rather there's method in his madness. Now SL might fall foul should he personally decide to write off loans in his lifetime, but should he die and his beneficiaries decide debts due are not realistically able to be recovered, thus reducing the value of his estate, it strikes me there could be a mechanism to reduce City's debt upon his passing without incurring the taxman's wrath. Perhaps monies owed to tax havens is also easier to write off?

Should have added that the loan charge scandal in which players didn't receive all their salaries in pay, rather some were given loans it later transpired didn't have to be repaid (shock horror,) have now been outlawed and retrospectively and heavily penalised.

[BTRFTG]

36 minutes ago, Mr Popodopolous said:

Not City related but I've never fully got my head around (you might know a bit more) Aston Villa selling Villa Park in 2019, to their owners paid for it in the form of Other Loans Receivable. Tax and general accounting for it as Profit has always confused me.

Its not illegal and is common in other business areas but where it stinks here is it wholly undermines the principles FFP was supposedly introduced to combat. Grounds are little different from transfers and are accounted for in a similar way. We sell 'X' for £20m and that's reflected as income or deferred income in year. We may only have received £5m in cash plus £15m in IOUs. Even though the monies may not be due for years or ever received, it simply appears as credit due in the accounts for that year. It's banked but not accessible. If it doesn't get paid it's depreciated out. In our latest accounts we owe £17m to other clubs for players but are due to receive £24m. Sometimes clubs sell on the credit, that's the way most Premier clubs finance their aquisitions (I'll sell you my £15m IOU for £11m cash and you own & collect the debt and I write off £4m.) It fools nobody in the investment market but allows loss making clubs to meet the FFP criteria.

[Hxj]

The individual company accounts are being processed by Companies House and will be available to view some time soon.

The payment by way of loans doesn't really bother me at all, whilst it may alter the cash position in reality the cash if paid would simply flow around a circle - Owner pays Stadco, Stadco pays Footballco, Footballco pays money to owner.

18 hours ago, BTRFTG said:

I'll sell you my £15m IOU for £11m cash and you own & collect the debt and I write off £4m.  It fools nobody in the investment market but allows loss making clubs to meet the FFP criteria.

 In this particular case the £4 million loss would be a P&L expense and would count for FFP.

As to loans being gifts, it is much more likely that HMRC would argue that the amount was equity rather than a gift, and also bear in mind that insistence on a commerical interest rate will tend to reduce the UK tax take as it would increase the company's allowable deductions.  I guess that for FFP purposes the lack of interest on a loan, probably should create an adjustment, but is ignored in practice.  

[M.D]

Most clubs are losing money, Brighton have just posted losses of £67 million up from a £21 Million loss the year before so the premiership may not be the holly grail some think..

[Kid in the Riot]

On 27/01/2021 at 10:23, Bristol Rob said:

Reading this makes my spidey-senses tingle slightly, and putting 2+2 together neatly arriving at the number 5, if we (well, SL and Bristol Sport) considering 3rd party investment....

My money would be on investment from the other side of the pond and funding from the States being a possibility.

Rugby is (apparently) a growing sport in the States, the popularity of 'soccer' seems to be only heading in one direction and Basketball already being firmly established, there could be opportunities for loans, tie-ins, sponsorship and who-knows-what with a US partner.

And that's partner without a 'Howdy!' in front of it.

Tis only a guess mind, and nothing more than an initial thought.

Oooh, and we had that Stateside pre season a couple of years back.

Bloody good guess.

[Bristol Rob]

2 minutes ago, M.D said:

Most clubs are losing money, Brighton have just posted losses of £67 million up from a £21 Million loss the year before so the premiership may not be the holly grail some think..

Guess it depends how you go about your business.

Webster (for example) seemed to undergo 19 million quids worth of improvements in a season. Nothing stopping Brighton from grabbing him before we did. 

Get the idea that wages will sky rocket in the top flight, but if the transfer market goes the way most are expecting it to, I won't be surprised if there are a few clubs in the top flight thinking long and hard about their recruitment strategy.

Do you lay out 30k a week on a 3 year contract on a player you have taken a 10million quid punt on (if we assume they have never played top flight before), or do you go for 40k a week on a 2 year contract for a free signing and limit your liability?

[Bristol Rob]

3 minutes ago, Kid in the Riot said:

Bloody good guess.

Yeehaa!

Ride 'em cowboy!  

[BTRFTG]

1 hour ago, Hxj said:

 In this particular case the £4 million loss would be a P&L expense and would count for FFP.

But not retrospectively in the year in which the sale was banked and in FFP terms that's the con. FFP isn't about accounting or financial prudence, it's about elite clubs restricting the practices of potential upstarts 

Gifts/Loans Vs Equity is an interesting point and I guess depends upon any charges related or any residual ownership which if offshore could be difficult to establish, though in our case I believe SL has said he is Pula Sports et al. If one offers a loan without related charge I don't see why that person would have any right over shareholder equity should there be insufficient to meet liabilities including loan repayment.  Suppose for example offshore SL transfers ownership of the holding but continues to make personal loans to the club. If he does so on commercial terms that later happen to have to be written off that's his bad luck (sic), whereas should he offer a loan interest free with no realistic requirement ever to have it repaid I think most tax authorities would classify that as being a gift.

[Hxj]

18 minutes ago, BTRFTG said:

But not retrospectively in the year in which the sale was banked and in FFP terms that's the con. FFP isn't about accounting or financial prudence, it's about elite clubs restricting the practices of potential upstarts 

Personally I don't see the con here.  There are two different transactions, the sale and purchase of a player, and a financing transaction.

In respect of the sale and purchase both clubs reflect the £15 million price in their accounts as a sale in respect of intangible assets (with the appropriate profit or loss on sale) and an acquisition of intangible assets and the appropriate depreciation charge.  Assuming no cash changed hands by the accounting dates then the selling company would show a debtor amount due to it of £15 million and the purchasing company a creditor amount to pay out of £15 million.

If the selling company sold the right to receive the £15 million to FinanceCo for £11 million, then it would set the £11 million it received against the debtor balance and have to write the £4million off as an expense.  The write off would be included within FFP expenditure.  At the appropriate time the buying company would simply pay FinanceCo £15 million to clear the creditor balance.

As regards the loan/gift/equity point I was just commenting on the tax implications.  A loan is a loan is a loan, but for tax purposes it can be treated as equity, but legally it remains a loan. 

[BTRFTG]

56 minutes ago, Hxj said:

Personally I don't see the con here

There's an obvious con where mutually agreed deals are contrived.

I need £20m this year to avoid a £4m penalty. I sell you 'x' for £5m cash and £15m promissory due 3 years hence. In two years when I've wriggle room I sell you back the promissory for £10m and take the £5m hit.  You ultimately pay the £15m you were originally willing to pay and that I wanted but for FFP purposes we've contrived to move numbers within relevant years to suit. I've saved myself £4m, you've not had to fund anything upfront. The biggest, richest clubs are able to do this across multiple deals and multiple 'supplies'. 

[Mr Popodopolous]

Swiss Ramble content on it.

 

Think that for all the talk of our wage bill being big and the biggest ever, it was only in and around midtable for Championship. Clubs can and do exceed their baseline expectation of course but this League financially...

[Mr Popodopolous]

One of Swiss Ramble's Tweets on that very subject- though treat with a bit of caution because some are 2018/19 and some (cough, two clubs anyway) are 2017/18.

Still mid to lower midtable I suspect. Aston Villa, Norwich and Sheffield United all include promotion bonuses and Derby- I think he perhaps should be using the consolidated accounts for that one, which were more like £46.8m in 2017/18!

Brentford are outstanding and wow, is that only £8m for Rotherham??

Wigan at £18m well that's for 2018/19, but fairly sure things accelerated a bit in 2019/20. Ah just noticed they did 13 months.  Brentford's might have gone up too, in 2019/20- though they make/made such huge profits on disposal- even paid down some debt in 2018/19! A net loan Repayment of £13.95m in the season/financial year to June 2019.

Ah yes, Wigan- courtesy of Kieran Maguire. No idea if it goes into a bigger breakdown but costs seemed to just accelerate in 2019/20/

That's in Hong Kong Dollars, think it might have been 10 to the £, so you're looking at nearly £20m in Pre-Tax losses maybe. I don't know, maybe there isn't a proper reconciliation with when they were purchased.

[Mr Popodopolous]

Ashton Gate Limited- these accounts are at CH now and will appear in up to 10 days. The football club ones were released, not really anything noteworthy IMO.

Group relief payable and receivable seems to cancel out between 2019 and 2020, although there is also a Group Relief Relief Receivable of £35,000.

Indeed there are/have been Operating Leases in the Club accounts- the amount seemed to be:

Quote

"The amount of non-cancellable operating lease payments recognised as an expense during the year was £291,489 (2019- £286,571).

The Ground Rent and Service Charge, with respect to Ashton Gate Limited was quite high last year, has been for a few years. Some was Rugby related, but some definitely won't have been- interesting to see how it will look this time.

[Mr Popodopolous]

To summarise, having had a brief look at the Accounts of AGL going back to 2006.

I don't think SL is actively making money out of us/his general Sports Operations but every so often he might be clawing some back- see also Benham at Brentford, more loans received than repaid in 2018/19. In the case of the latter, a Profit and Loss but Balance Sheet thing- he's still a net benefactor though, so is SL I suspect- but then again Interest and Operating Lease Rental Payments WOULD count towards Profit and Loss.

Over the course of his time here though, I'm sure he's spent a lot more than he's gained- to date.