Randy’s new company, is it for ground development

Andrew knows his stuff !! and this is what he has written about my piece a couple of days ago about the new company, looks positive.

On the back of the piece written by Robo a few days ago asking the question “whats going on – new company – RAL realty”…….I thought I’d do a bit of digging into that and also the financials relating to our great club – for the year up to 31 May 2010 – as no accounts are filed for the year to 31 May 2011 as yet.

Firstly regarding the RAL Realty company that was set up in october 2010, I suspect the name gives us a clue as to what’s going to go on there – and it’ll be for the ground development. Interestingly there are 2 classes of shares that have been set up – one set of shares will have voting rights and one not. This leads me to suspect that a development partner will be sought for any ground development and they’ll have the non-voting shares as and when they’re brought on board. Whether the ground gets transferred into the new company I don’t know, but can see it happening, as it will in effect mean that the new company will have only assets in it and no loans against it, which should enable money to be raised against the assets to develop the ground. The new company is currently wholly owned by RAL LLC so it is in effect part of the RAL group – so the ground isn’t being transferred out of the club’s hands. That also makes sense, because if it was transferred out, then no buyer at all would buy a company that makes significant losses with no assets behind it.

Whilst numbers are a bore to most people I thought i’d try and shed a bit of light on what seems to be happening at Villa park, and try and analyse what that might mean in terms of transfer implications this summer – especially on the back of McLeish’s statement of “we’re only in for one major outfield signing this summer”…..and whether thats a bluff – or not as the case maybe.

The numbers are broadly spit into three sections: profit & loss account, balance sheet and cash flow.

profit & loss deals with sales, and ultimately – as the name suggests any profits or losses. balance sheet lists assets and liabilities – so in effect, players, ground, and any loans/debt cash flow in effect combines the both, and lets people see whether there is any hard cash being generated by the company (cash inflow) or whether its losing money (cash outflow).

The p&l shows losses last year (and this includes the £18m exceptional profit – presumably the Milner sale) of roughly £38m. No Milner sale = losses of £56m. When sales are c£91m, you can see how much is eaten up in terms of (mainly) player wages c£80m, and also depreciation on players c£30m.

The balance sheet shows assets of roughly £180m (£112m property and £68m players), but there’s short and long term debt in there (and accumulated losses from the profit & loss account) which reduce the assets to a net asset position of £21m. Bank overdraft and loan notes are roughly £110m. Interestingly in the loan notes that are issued by Reform Acquisitions LLC – i.e. the ultimate US company that owns the club have a repayment date of August 2019. What this means is that by that time Randy will either have to have sold the club or convert all of those loans into equity (a debt for equity swap as its known in my M&A trade) – and in effect write them off. As it currently stands, the loan notes are interest bearing and that interest goes to RAL LLC.

The cash flow shows a net outflow (i.e. haemorraging cash) of c£20m. Not too bad I hear you say…….well Randy it would have been worse had Randy not pumped in an additonal £25m. 50% of thast has gone in via Loan notes, and 50% as equity – which means in effect Randy has no return on that equity and has simply stuck it in. The year before by the way, he pumped in £70m – again 50% loan notes, 50% equity.

If I haven’t lost you all by now, what does it mean? Financially the club (like most clubs) is in a bit of a mess. Without Randy’s support and cash we’d be right up the creek without a paddle.

He has clearly supported previous managers (MON in particular), and we can see how £50k a week salaries being chucked around like sweeties to some very average players (some very good ones as well mind) has left us with an £80m a year wage bill, and without doing anything to address it we’d be in trouble. Yes we’ve gotten rid of a lot of players this year to help with that – roughly £310k a week by my rough calculations – and thats £15.5m per year. But we have added Benty and Given and I’m estimating they’re both on £60k per week = combined £6m per year…….so we’re roughly down to £71m wage bill if I’m right

Most of Randy’s support has been via Loan notes, but he has also invested money via way of equity which he won’t get a return on.

If he sold the club/business tomorrow he would probably look to sell it on a cash free debt free basis, which means that if he can sell it for more than £110m then the first £110m would go to repay the loans he’s made to the club and anything else is “equity value” for his shares. Given he paid £62m for the club when it had no debt, I suspect therefore that he’d be looking for at least £172m to sell it – so he gets his equity back which he paid for the club and the debt is paid off. Would any sane person pay that? No chance………but as we’ve seen with Chelsea and Man City, football clubs are really rich people’s playthings, and how you value one is finger in the air time.

You can’t value the business of a multiple of profits basis, as there are no profits. It you tried to sell it on a net asset basis, then its worth £21m. Unless you can find some wealthy Arabs or Russians/chinese/Yank etc, then I think no-one’s going to buy the club for the money Randy would want, which leaves us with him (at least until 2019 – see earlier – or unless he decides to take a huge bath and write off the loans.

On the back of these numbers, then I suspect that McLeish’s statement where he said “only more major outfield signing” is true unfortunately. As a fan I’d say “we need more than that and we need to spend”, but as an M&A guy who looks at numbers with a cold head/heart, then I do understand the need to trim the wage bill and curtail spending. Basically I think we had our shot when MON spent big, and if we’d gotten into the Champions League then we’d have been ablke to build. As it is, we’re left with a sky high wage bill and some still average players on big wages (Beye, Heskey, Petrov, Marshall anyone?).

But we sold Young and downing for £36m we have to invest that? Unfortunately, at least £15m of the loans had to be repaid by 31 May 2011 – i.e the Young money. £3m to be repaid for the year to 31 May 2012 – so not so bad, but i can definitely see us not making many huge splashes in the transfer market for a while. Ironically, given his contracts and scouting networks I personally think Houllier would have been able to deal with that and wheel and deal and still get quality players in. I’m not sure sure re McLeish, but lets wait and see, and give him time.

Consequently, I think its “credit crunch” time for AVFC, and spending will be curtailed and I don’t think McLeish is bluffing about no major signings.

Right……I’m off to the Middle East to try and find a buyer for the club!

43 comments on “Randy’s new company, is it for ground development

  1. Excellent read and very knowledgable on his facts and figures.

    Don’t have to be a rocket scientist to see how poorly the club was run by the likes of O’Neill & others paying ridiculous salaries to IMHO less than average players Beye etc etc.

    We have to cut our cloth accordingly and the panic buy of Bent saved RAL his buisness empire.

    Relegation would have been a financial disaster to AVFC

    • “how poorly the club was run by the likes of O’Neill & others”

      The others would have been the board who would have sanctioned MON’s spending.

      Whatever, an interesting read, albeit somewhat depressing.

      • I am fed up that MON gets all the blame, I mean he has made roughly £20m profit for the club on three players, players we have not replaced and will not replace with just as good or better.

        Perspective is needed

        something’s excellent, something’s good, something’s bad

        • O’Neill, Lerner, Krulak and Faulkner are all to blame for this shambolic club we have been left with

        • So am I, Ian.

          Some people seem to have it in their heads that MON was the only one who had his hands on the purse-strings and the board had fuckall to do with it.

          As if any sensible businessman would let a manager make all the financial decisions.
          It’s just pathetic.

          But hey, I guess we all need a scapegoat.
          The only problem is MON won his wrongful dismissal case, which says it all, imo.

          But that’s old ground, I suppose.

          • what Randy could not do is to say no but is a 5 year contract for Given good sense ?

            I know we may have had to offer it to compensate for loss of wages but other clauses could have been put in.

            With MON it has never been confirmed he negotiated wages and fees and even the General has not said that

          • It doesn’t matter Ian.
            Given being given a 5 year contract will still be MON’s fault to some people.

          • he spent £11m pounds on west ham and man cities 2/3rd choice centre halfs in the summer Cannavaro and Mellberg (who he forced out in the first place) went for a combined £3m. Even with one’s most bigoted pro islander footballer stance must see this for the lunacy that it was. But it was probebly somebody else who did that not MON.

  2. Happy Hunting BTW in searching for a rich Sheikh

  3. Great read, will have to read this another 5 times but you present the case very well. So its belt tightening time but that’s the real world and perhaps where McLeish shows a particular strenght. Let’s show our support!

  4. Great read and agree with your point about houlier handling the lack of cash better than mcleish. I’m still not sure why people assume this new company is to do with ground re-development? Yes we know Randy has looked in detail at redeveloping the north stand but why do it now when we can’t fill the ground we have. I’m still confident Randy is in this for the long haul and won’t ruin our club, people just need to accept that he’s no Sheikh and we’ll have to earn any success we get. Tough times ahead but nowhere near as tough as the blue half of the city

  5. Good article, should shut up the people that claim Randy has never put any money in.

    I though we pulled out of hosting Olympic football so we could redevelop the north stand next summer? Surely they wouldn’t have turned down that money-spinner if they were not planning the ground improvements?

    We don’t fill our current ground, but neither did clubs like Sunderland, Derby, Middlesbrough, etc before developing theirs, yet their new grounds had much higher attendances. It’s because groups of friends get the chance to sit together, whereas now it is impossible to get seats by your mates. A big end holding 15,000 would be great and would definitely lead to increased attendances. Plus we’d have more space for the big game fans, meaning even more revenue.

    • Dave- don’t know which figures you’ve looked at, but I’d dispute whether Derby and Sunderland didn’t manage to fill their old grounds before moving. As I recall both were very well supported clubs before the move, barring the odd seasons when they were in lower divisions, etc.

      As for Middlesborough – they used to get decent croeds, but I don’t think they’ve managed to fill the Riverside more than a couple of times, and it’s not any bigger than Ayresome in it’s heyday?

      Much as I’d like to see us back among the really big grounds again, I don’t believe we’d manage to fill a 50,000+ ground more than once or twice a season, at least not until we’ve had a few years of success and/or attractive football.

  6. I think we must now be in a considerably better financial position than when the data was taken. Wage bill will have come down greatly with Carew, Young, Downing, pires all big earners and a load more out the door which together also make a differenc plus £36m in.

    The accountancy treatment always makes this kind of thing look worse than it is for a club like us (a selling club for now unfortinately) with income from player sales treated as an exceptional item whereas player values written down over the life of their contract and charged straight to the P&L

    Also, not sure the Milner sale would be an £18m exceptional item as that should represent the profit against the book value which seems to assume his book value was zero, should have been around £10m

    Good article though and I agree we are probably going to have to tighten our belts and who’s to say that’s wrong, we need to live within our means more and if that means the kids get more of a chance that could be a positive thing in the long run

  7. Good we are finally excepting that our best days are behind us…….. i will give my support once someone (lerner) comes out and tell us the position instead of playing the messiah role that he clearly cant fulfil. That statement is not meant to be disrespectful to RL but shows as much respect as RL is showing to us fans. Again i have renewed my season ticket (trinity middle) but wont be taking up my seat until i hear just what AVFC plans are………….

  8. Andrew – good read [for accountants…] but I’d just add my own view to sidcowanslovechild’s comment that the £18m profit on disposals of player registrations is NOT going to be Milner’s sale.
    That would have fallen into 2010/11 and hence not included in last year’s P&(L).

    I’m glad you’ve reminded everyone that RL pumped yet more cash in during the 10/11 season – I’ve been trying to get that message accross since Ian sent me last year’s a/c’s – but still people moan that somehow the Board are not supporting the club!

  9. How would you deal with player assets increasing in value i.e. the kids, in an accounting sense. Would this make any difference if they a few went from 0 value to 10million say 30m new assets

    • The accounting policy is that “internally generated intangible assets are hld at £nil value” ..only external costs in extending a player’s initial contract are capitalisedand amortised.

      Basically, the likes of Albrighton are not valued on the balance sheet at all, although the academy costs will have been written-off to P&(L) somewhere along the way.

  10. Great read.
    Surely Beye and Heskeys contract must be up by now! Seems like I’ve been wishing them away for ages!

  11. the club is a joke

  12. Excellent article…I fully agree about MON. WE all can say they better buy this or that, there is not point in arguing a lot of what they need, etc. The bottom line is that MON was basically Villa’s big push under RL’s ownership. He put all his “transfer splurging” money behind MON and he ended up with some good buys, very good yes, some profits in sales…but ultimately there were so many players sitting on the bench on 50+K a week..from the last year of MON through this year…and Petrov, is an absolutely deadweight…Heskey, Beye. if Cuellar stays and is not used again then HE is also a deadweight.

    These things really did cripple the club. That wage bill is still far too high…and STILL even with the new manager using more players, or at least professing to…there are still some who will sit the bench. Beye won’t play at all this year, maybe once or twice..they really are stuck. Unless you want him to feed the black hole and loan more money to the club. They need to organically figure out a way to finish the top 4…perhaps then they will get the extra boost to balance the books off.

    • Funny thing is that MON left Celtic in the same position-and they’ve still not got back to being a ‘spending club’ years after he went.

      • Nor have Rangers Ardent.
        What’s their excuse?

        • Rangers were in financial trouble for years – remember when they had the likes of Gazza and the rest of the English exiles?

          Part of Celtic’s problem was that they tried to compete with Rangers spending when MON was in charge – and both clubs are still in the sticky brown stuff…

      • Nor have rangers Ardent.
        What’s their excuse, I wonder?

    • “but ultimately there were so many players sitting on the bench on 50+K a week”

      But that’s the problem Geoff.
      You can’t possibly expect to challenge for the league or even CL with 11 players and a load of cheap rubbish in reserve.

      Take a look at Spurs and see some of the players not making their bench.

      Having expensive players on the bench is what it takes.
      Yes, it’s stupid, but it’s fact.

      Man City are prepared to stick it to Tevez, if he doesn’t stop fucking about.
      What’s he on a week?

  13. Accounts are subject to how you want to read them. The exceptional profit is Barry as stated before Milner was sold after the year end. In terms of assets they are depreciated at cost, so youth team players have no real term value to the club. So the accounts look worse than they are, even though belt tightening is needed. Great article though!

    • “Accounts are subject to how you want to read them.”

      Or how you want them to be presented at any particular time.
      Even an idiot like me who does his self assessment knows that.

  14. Yeah Celtic are not quite what they used to be ever since then…

    seeing our financial status might indicate that, after buying Zog (since I read Juventus just did 30M for Vargas). who do you think the free transfers should be?

    Hitz, Upson and McFadden keep coming up…Hitz is in talks with Wolves…that’s how slowly we are moving.

    • “Free” transfers are not much of a solution when you’re problem is running costs: even offer Hitz [say] £30k a week and that’s a basic salary of over £1.5m a year, and after NIC’s etc., it’ll be closer to £2m.

      It’s pretty clear that Villa have no choice but to try and stemm the outgoings, and that means there’ll be very little in the way of incoming players this summer.

  15. Surely every club outside the top 4 are in the same boat.
    I cant believe these wealthy successful business men, who buy clubs for vast amounts of money are not making huge profits somehow.
    The problem is surely they wish to make more.
    Champions league is the holy grail but if its not reached it eats into the profits.
    Admit it RL, you will settle for the milk instead of climbing the bottle to reach the cream incase the bottle tips over.
    That was quite profound!

  16. This is not a good article on any basis simply cos its the same negative rhetoric you all wanna hear from this site.

    What it say’s on paper does not necessary reflect what is actually happening at the club who is to say that some of the loan notes will not be written off ? The fact is thise loan notes will not have to be repaid until 2019 that’s over 8yrs away in that time we will have made the ground larger had atleast a few runs in Europe and I would suspect with Genting a Malaysian Powerhouse business as a sponsor we are looking to break that Asian Market so money / Rep and Revenue will go up.

    I said it once I will say it again if you think we are signing 2 players this summer your all mad the fat will be cut and players that want to play football for a top club will come.

    • yet another false hope, there is no real money in the Asian market for teams like us, it is a mirage that some like to hope for but can not happen unless you have real success and not the odd the cup win.

  17. […] in the post yesterday – LINK found something vital […]

  18. Ian, Re: Randy and stadium finance.

    Take a look at this…

    • Not a fan is he ??

      Of course for Villa, the situation would not be the same at all, if you read VT, notice how the general skipped the question on it ….

      he reads or someone does for him all the posts

      • Agreed, the situation at VP is different – at least at present, but it shows just what sort of ‘operator’ RL can be when it comes to clever property deals around a sports franchise…

        • Indeed, I knew that anyway, he is not stupid

          however with property what Villa own and where we are located is basically toxic …

          I could refer you to the serpentine deal Ellis did, which in my view was as dodgy as hell (not from Ellis I think)

  19. […] I asked Andrew who wrote this excellent piece – LINK and he replied I’m not quite sure as to the particular “tax issue”. Tax […]

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