Originally posted by James P
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Okay, in the interests of getting some real answers rather than continuing to deal in conjecture, I've got hold of a set of the Kop Football (Holdings) Limited accounts, and there are a number of things that are worth reporting.
Firstly, the group acutally made a profit before player amortisation and trading, and interest, of £25.9m. Player amortisation and trading led to a loss of £31.6m (£45.9m in expenses, £14.3m gain on disposal of player registrations). Overall, therefore, there was a £5.7m loss before interest and tax, and the £36.5m of interest costs, plus a £1.6m tax bill and some sundry other investment income, took us to the £42.6m loss being bandied around.
What this means is that if player amortisation and trading had been neutral, then the loss would have only been £11m, which would hardly raise the same level of concern.
For those of you who aren't members of Accountants.com, player amortisation is the write-down of a player's value over the life of his contract. In simple terms, what this means is that if we sign a player for £10m on a 5 year contract, that £10m goes onto the balance sheet as an asset. Each year the value of that asset is reduced by £2m (i.e. one fifth) and that reduction goes to the profit and loss account as a £2m hit so that by the end of his contract, his value is zero. Changes in contract length (i.e. contract extensions) obviously require a recalculation of the asset life and annual charge.
When a player is sold, we obviously get the cash proceeds, but the accounting entries may be very different. If the player was bought for £10m on a five year contract, kept for three years and then sold for £5m, we'd all view that as a £5m loss. However, for accounting purposes, that would equate to a £1m profit (£10m less 3 years at £2m per year equals £4m - this is the player's amortised value).
Before anyone points out to me that this is vastly oversimplified, and ignores the notion of residual value, I know - but it gives the basic principles.
Anyway, back to the details. Looking a little deeper, the total charge for amortisation of intangible assets (players and goodwill on the purchase of the football club) is £54.3m - namely more than the total loss. Furthermore, depreciation on tangible assets is £14.5m.
The club itself actually turned a 8.1m loss in 2007 tinto a £10m in 2008, so the news is far from all bad.
Bank loans total £269.3m, of which £185m is secured by means of letters of credit and personal guarantees from the owners - i.e. LFC may be servicing the cost of the debt, but the majority of it is secured against Gillett and Hicks, not LFC. A further £58.2m is owed to Kop Football (Cayman) Limited, a company owned by Gillett and Hicks, and repayment cannot be demanded if to do so would force the company into administration. Interest accrues on that loan at 10% per annum (£2.4m in 2008), but none has been paid over to the Cayman company as at 31 July 2008.
One other interesting point - there were £19.8m of additional contingent transfer fees owed, and £11.6m potentially due, if certain conditions were met.
In short, these accounts aren't great, but they aren't the disaster waiting to happen that some parts of the media would have us believe. The high interest costs are not ideal, but it as much down to the fact that the club has bought a number of players, and sold others at a lower value, that the company is reporting such a loss. The refinancing issue is key (IMO the SOS protest is counter-productive posturing, as it means nothing in the real world), but even if the refinancing is granted a sale seems inevitable unless Hicks and/or Gillett can raise some serious cash by disposing of other assets, and use it to help to fund a new stadium or substantially reduce the debt burden.
I hope this post is more useful than boring!
Firstly, the group acutally made a profit before player amortisation and trading, and interest, of £25.9m. Player amortisation and trading led to a loss of £31.6m (£45.9m in expenses, £14.3m gain on disposal of player registrations). Overall, therefore, there was a £5.7m loss before interest and tax, and the £36.5m of interest costs, plus a £1.6m tax bill and some sundry other investment income, took us to the £42.6m loss being bandied around.
What this means is that if player amortisation and trading had been neutral, then the loss would have only been £11m, which would hardly raise the same level of concern.
For those of you who aren't members of Accountants.com, player amortisation is the write-down of a player's value over the life of his contract. In simple terms, what this means is that if we sign a player for £10m on a 5 year contract, that £10m goes onto the balance sheet as an asset. Each year the value of that asset is reduced by £2m (i.e. one fifth) and that reduction goes to the profit and loss account as a £2m hit so that by the end of his contract, his value is zero. Changes in contract length (i.e. contract extensions) obviously require a recalculation of the asset life and annual charge.
When a player is sold, we obviously get the cash proceeds, but the accounting entries may be very different. If the player was bought for £10m on a five year contract, kept for three years and then sold for £5m, we'd all view that as a £5m loss. However, for accounting purposes, that would equate to a £1m profit (£10m less 3 years at £2m per year equals £4m - this is the player's amortised value).
Before anyone points out to me that this is vastly oversimplified, and ignores the notion of residual value, I know - but it gives the basic principles.
Anyway, back to the details. Looking a little deeper, the total charge for amortisation of intangible assets (players and goodwill on the purchase of the football club) is £54.3m - namely more than the total loss. Furthermore, depreciation on tangible assets is £14.5m.
The club itself actually turned a 8.1m loss in 2007 tinto a £10m in 2008, so the news is far from all bad.
Bank loans total £269.3m, of which £185m is secured by means of letters of credit and personal guarantees from the owners - i.e. LFC may be servicing the cost of the debt, but the majority of it is secured against Gillett and Hicks, not LFC. A further £58.2m is owed to Kop Football (Cayman) Limited, a company owned by Gillett and Hicks, and repayment cannot be demanded if to do so would force the company into administration. Interest accrues on that loan at 10% per annum (£2.4m in 2008), but none has been paid over to the Cayman company as at 31 July 2008.
One other interesting point - there were £19.8m of additional contingent transfer fees owed, and £11.6m potentially due, if certain conditions were met.
In short, these accounts aren't great, but they aren't the disaster waiting to happen that some parts of the media would have us believe. The high interest costs are not ideal, but it as much down to the fact that the club has bought a number of players, and sold others at a lower value, that the company is reporting such a loss. The refinancing issue is key (IMO the SOS protest is counter-productive posturing, as it means nothing in the real world), but even if the refinancing is granted a sale seems inevitable unless Hicks and/or Gillett can raise some serious cash by disposing of other assets, and use it to help to fund a new stadium or substantially reduce the debt burden.
I hope this post is more useful than boring!
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