Apologies if this is Offtopic- it's Accounting Relevant though?

[JohnnyChip]

Hi.

New member, longtime reader. Actually looking to get further into accounting potentially, in the Football Sector sounds pretty interesting!

I don't know if any of you are aware but there has been a pretty new practice within the Football Industry over the last 2 seasons- Sale and Leaseback of Stadia, to related parties! Is possible that there are other Fixed Assets that also have had this but Stadia are the Primary freehold ones, to extract value owned by clubs.

The related parties have either been to companies who are part of the group, companies owned by the owners or to the Holding Company in the case of Reading.

Oh yeah, the clubs in question, the grounds in question and the valuations:

Pride Park, Derby County- £81,100,000 in 2017/18 season.
Madejski Stadium, Reading- £26,500,000 in 2017/18.
Hillsborough, Sheffield Wednesday- £60,000,000 in 2017/18- yet dated on 22nd June 2019 curiously. Many many curious aspects to that one but more on that another time.
Villa Park, Aston Villa- £56.7m.

It turns out that there is now an EFL inquiry with independent valuers appointed by the EFL into Derby, Reading and Sheffield Wednesday and looks like a Premier League one into Aston Villa as they won the playoffs last season.

Pride Park was sold to Gellaw Newco 202 Limited on 28th June 2018- company incorporated 19th June 2018. Profit about £39-40m on net book value.
Madejski Stadium, actually seen no entry on Land Registry for that one- but seemed to have been sold to Renhe Sports Management Co Limited in 2017/18 season and accounting period. Profit just over £6.5m on Net Book value.

Hillsborough was sold to Sheffield 3 Limited- and this is where it gets interesting as it is controlled by Sheffield 5 Limited which is controlled by the Owner. Nothing wrong with that, except the transaction was during 2017/18, or on those accounts, yet see below.

The company which purchased it, seemingly within 2017/18, Reporting Period, was incorporated at CH on 21st June 2019. Sale occurred/was completed on on 28th June 2019.
Footnote to that is that Accounts were dated as signed by the Owner on 20th June 2019 and the auditor on 21st June 2019.
Further footnote, accounts were originally due at CH on February 28th 2019, the period ran until May 31st 2018, 2 months extended hence meant 2 months of due date, ie July 31st 2018 to April 30th 2019. Oh and the owner declared at a Fans Forum in December or January of the 2018/19 season that FFP was failed, if they stayed down it would be 'Big trouble' because they had failed by 8 figures. At least the value was market rate though eh? Wait, what! 2014 valuation had Hillsborough at £22.25m and with depreciation but also some additions and the revaluation reserve of £6.5m, even with all that I can't see it much above £30m.

A very interesting transaction indeed!?! That really stretches CH, FFP and accounting rules to the limit eh?

Aston Villa's was a profit of somewhere between £25-30m on Net Book Value. Sold to NSWE Stadium Limited- new company to represent the new owners? Well, yes and no.

Incorporated on 25th July 2017 as Vilden Limited.
Same owner renamed to Aston Villa Limited on 7th August 2017.
That ran through the owners tenure until 23rd March 2019 (there was new investment in 2018 and possibly still ran by owner A with the investors to Recon Football Limited on 13th May 2019.
New owners in sole control change it to NSWE Stadium Limited- same company though surely, just new ownership and name.

As it goes, £56.7m sounds alright for cost but their accounts and costing model make me wonder- nearly £45m lopped off in impairment 3 seasons before, and notes to their financial statements suggest the following- from 2017/18 accounts so the most recent ones prior to the sale and leaseback:

Tangible Fixed Assets
"Tangible Fixed Assets are stated at historical cost less accumulated depreciation and any provision for impairment. Cost includes the original purchase price of the assets and the costs directly attributable with the purchase of the asset. Depreciation is calculated on a straight-line basis to write down the assets to their own residual value over the anticipated useful lives, which are re-assessed on a periodic basis". Rate seems to be 1-2%.

For context, the clubs got these independently valued- as is their right indeed, but also for context worth remembering, is that the EFL have the right to value down Related Party Transactions stipulated in their FFP regs and adjust accordingly- will be very interesting to see how this develops!

UEFA disallow such transactions as sale and leaseback or even profit on disposal of fixed assets from FFP and adjust down such RPTs e.g. say sponsorship by a company linked to the owner.

 

[The Byre]

And the question is . . . ?

 

[JohnnyChip]

Well I saw it as more of a discussion point tbh.

Good thing, bad thing- in keeping with accounting conventions? A thread basically.

 

[The Byre]

Sale and lease-back - this is a British thing done by businesses that are all mouth-and-trousers and cannot plan long term. I expect businesses to OWN their premises and to have much less than 50% total debt and at least 30% equity.

Fortunately, I don't have to deal often with football clubs (though two of them in the PL have been customers of ours) and I certainly do not want to watch people playing football or any other silly ball games - so I suppose these idiots getting themselves into mountains of debt can only be a good thing - it takes them so much closer to collapse!

 

[JohnnyChip]

Oh yeah, footballonomics are nuts!

Especially the Sky Bet Championship- selling and leasing back to a company or a dormant company or whatever owned by their own owner is quite something though! Especially when it exceeds the net book value at that time by so much!

 

[Mark T Jones]

Football isn't a business in reality - only a handful of clubs are actually profitable - for the most part they are run as ego-trips.

That said (and in total ignorance of Governing rules); sale and leaseback certainly isn't a new thing. It can be done for many legitimate reasons, such as securing better rates/ fixed terms or investing in other assets.

It can also be done for less good reasons, such as propping up a terminally ill 'business'.

One oddity of football is that clubs seldom go fully 'bust' - they are nearly always bought out.

 

[STDFR33]

We (Leeds) are now being run quite well and despite having more money that in recent years, we are still operating within FFP. We still struggle to make a profit.

Clubs like Derby, Sheff Wednesday, Birmingham etc have taken the p1ss massively.
Aston Villa would have been whacked with a big stick had they not got promoted.

 

[JohnnyChip]

I think Derby not so terrible because they have sold players as well- Birminmgham belatedly had but acted like buffoons when they signed Pedersen for £2m under a soft embargo despite being specifically told not to, possibly made their punishment worse?

Aston Villa and Sheffield Wednesday, I have serious serious issues with.

All legit then? Just had a wariness of Sale and Leaseback to a related party for double the net book value- and I know fair and net book are not the same...the EFL ARE investigating these valuations though.

Birmingham were bad but are making amends- sold Jota and Adams.

My club Bristol City have in last 2 seasons got very good at selling talent for high prices- we'll make losses, the Championship is like that but we won't IMO fall foul of FFP- our owner, manager and CEO have all made reference to this and our intention to stick within the regs.

Will be very in teresting to see how the EFL appointed independent valuations correspond with the club ons for Aston Villa, Derby and especially Sheffield Wednesday though!

Am I overly cynical to think that a ground valued £22.25m in 2014 accounts and with a revaluation reserve of £6.4m in 2016/17 accounts with a bit of work and a bit of depreciation could be vastly inflated at £60m??

 

[JohnnyChip]

I suppose another issue I have with it is that, with the possible exception of Reading's transaction, the other 3- human nature factors into this too, urgency to sell vs financial (or FFP) position.

Given how late in the FFP accounting window that the transactions occurred and actually in Sheffield Wednesday's case, theirs could well have been in a different accounting period- accounting period revised to be until July 31 2018, transaction confirmed at Land Registry 28th June 2019- after their accounts were due at CH (April 30th 2019), dated 20th June 2019 and signed off 21st June 2019 etc etc. Forgetting theirs from the timing angle, surely if a club is looking to raise the capital quickly someone at arms length, in a third party transaction would not pay this rate, for a sale and leaseback! Goes for almost all, but £26.5m for Reading's ground seems not the worst.

Surprised it's all kosher tbh, Sheffield Wednesday one especially- who says accounting is dull eh!

They've not listed it as a post balance sheet event, but the dates suggest a lot of questions.

 

[JohnnyChip]

Objectively speaking, would be interested to hear the view from more experienced accountants than me about a valuation at DRC of £22.25m in 2014, and a Revaluation Reserve at the most recent date it applied- so the accounts to May 31st 2017- which was about £6.5m, leading to a £60m transaction? How does Hillsborough inflate so much so quickly to £60m??