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!