ALL issues relating to the bond issue and club finances

[Rood]

But answer me this: why your obsession with EBITDA? We all know that as a football and related activities business, United rakes it in, which is basically what EBITDA tells us. But the whole point is that it's all disappearing to pay off the Glazers debts, as shown in the net profit the rest of uus are interested in.

So I bought this here from the G+G thread ...

The secret of my obsession with EBITDA (often called operating profit) is not actually in the IT (interest and tax), but actually in the DA (depreciation and amortisation). Basically huge annual amortisation expenses are put through our accounts to hide our true profits and make it look like we make much less money than we actually do - in fact in 2007 and 2008 our accounts even showed a loss due to this type of 'creative accounting'.

For those who want to understand what I am on about:

Firstly, this is the page from our financials that you need to look at to follow my logic (I have robbed this from here if anyone wants to go back and reread the original discussion on all this):
https://www.redcafe.net/f6/all-chan...s-here-please-287713/index20.html#post7698876

The starting point is 2009 EBITDA of £91m.
The first thing to realise is that this number DOES NOT include the £81m 'Profit from disposal of players' (that comes further down) so in effect our actual incoming cash from operating activities was £172m.
Obviously you still need to take off interest payments (£41m) and then also tax (£22m) so that leaves £109m.

Now our actual bottom line figure is shown in the accounts as a post tax profit of only £25.5m (this is one of the figures widely reported by the press as our 'net profit') - so where did the other £80m or so of cash go?
Just look at the 'Amortisation and Depreciation' line (just under the EBITDA) and there it is - almost £82m of non-cash expenses (i.e. this money never actually left the club bank account but is shown in the accounts as a cost to the business). Note that there is actually a good argument for keeping in the depreciation so you could knock that off my profit figure as well if you want to be conservative.
This is basically a massive tax dodge, our true profits are hidden by amortisation write offs to avoid paying corporation taxes.

So that is why I prefer to use EBITDA and add any other exceptional earnings (i.e. the Ronaldo money) and then manually calculate the tax and interest deduction to get to what I believe is the real cash profit we made last year.

Of course, if you then go and check our Balance Sheet in the prospectus you will see that there was £146m of cash sat unused in the club bank account after the close of last summer's transfer window (30 Sept 2009).
At first I couldnt understand where all this cash had come from but after a bit of digging it started to become clear (I know that many people still refuse to believe that this cash exists but you just have to look at the prospectus to see that it was there).

Anyway I have no idea if any of this actually makes any sense so feel free to ask questions!

 

[VoetbalWizard]

So I bought this here from the G+G thread ...

The secret of my obsession with EBITDA (often called operating profit) is not actually in the IT (interest and tax), but actually in the DA (depreciation and amortisation). Basically huge annual amortisation expenses are put through our accounts to hide our true profits and make it look like we make much less money than we actually do - in fact in 2007 and 2008 our accounts even showed a loss due to this type of 'creative accounting'.

For those who want to understand what I am on about:

Firstly, this is the page from our financials that you need to look at to follow my logic (I have robbed this from here if anyone wants to go back and reread the original discussion on all this):
https://www.redcafe.net/f6/all-chan...s-here-please-287713/index20.html#post7698876

The starting point is 2009 EBITDA of £91m.
The first thing to realise is that this number DOES NOT include the £81m 'Profit from disposal of players' (that comes further down) so in effect our actual incoming cash from operating activities was £172m.
Obviously you still need to take off interest payments (£41m) and then also tax (£22m) so that leaves £109m.

Now our actual bottom line figure is shown in the accounts as a post tax profit of only £25.5m (this is one of the figures widely reported by the press as our 'net profit') - so where did the other £80m or so of cash go?
Just look at the 'Amortisation and Depreciation' line (just under the EBITDA) and there it is - almost £82m of non-cash expenses (i.e. this money never actually left the club bank account but is shown in the accounts as a cost to the business). Note that there is actually a good argument for keeping in the depreciation so you could knock that off my profit figure as well if you want to be conservative.
This is basically a massive tax dodge, our true profits are hidden by amortisation write offs to avoid paying corporation taxes.

So that is why I prefer to use EBITDA and add any other exceptional earnings (i.e. the Ronaldo money) and then manually calculate the tax and interest deduction to get to what I believe is the real cash profit we made last year.

Of course, if you then go and check our Balance Sheet in the prospectus you will see that there was £146m of cash sat unused in the club bank account after the close of last summer's transfer window (30 Sept 2009).
At first I couldnt understand where all this cash had come from but after a bit of digging it started to become clear (I know that many people still refuse to believe that this cash exists but you just have to look at the prospectus to see that it was there).

Anyway I have no idea if any of this actually makes any sense so feel free to ask questions!

are you trying to say that the glazers are good for this club and fergie has the ability to spend to his hearts content?

this is the same ferguson that complained when we had wage/transfer issues in the early-mid 90's when looking and ronaldo and batistuta.

this is the same ferguson who had no problems breaking the british transfer record multiple times.

to now come and peddle this market is narrow shite when we were market makers (by selling for 80 million quid), when it is painfully obvious we are over reliant on injury prone/aging players in attack goes against everything fergie has shown in his track record.

 

[Rood]

just had a PM from GCHQ in the newbies (who really would be a good addition to the mains if any Mod is watching) who has pointed out that I have actually UNDERESTIMATED our true profits in my calculation above - this is what he has to say...

Just saw your post in the bond issue thread.

You don't have to actually take away that £22m of corporation tax from the 09' operating profit (EBITDA) because it was offset against previous losses and is purely in there for accountancy purposes. So none of that £22m of tax was in fact paid and there was no cash outflow.

Like you've said previously one of the main advantages of the Glazers financial model for United is its tax efficiency and of course the ''non-cash loss'' accountancy items, particularly goodwill amortisation which you have alluded to in the past, but also depreciation of tangible fixed assets and amortisation of player registrations, are key to that efficiency which does essentially hide the ''real profit'' from the layman/average fan.

I mean that whole argument about how the club had to sell Ronaldo last year otherwise they would have lost £40m is absolutely absurd.

Regards,

GCHQ

 

[Rood]

are you trying to say that the glazers are good for this club and fergie has the ability to spend to his hearts content?

this is the same ferguson that complained when we had wage/transfer issues in the early-mid 90's when looking and ronaldo and batistuta.

this is the same ferguson who had no problems breaking the british transfer record multiple times.

to now come and peddle this market is narrow shite when we were market makers (by selling for 80 million quid), when it is painfully obvious we are over reliant on injury prone/aging players in attack goes against everything fergie has shown in his track record.

Wrong thread mate - take your transfer muppetry elsewhere, there are plenty of other threads for that already.
I prefer to keep this thread for serious financial discussion.

In fact there is a perfect thread for you to winge in right here:
https://www.redcafe.net/f6/we-dont-have-money-spend-myth-296505/

 

[Rood]

Balance sheet = shows where the money comes from and where it goes.

Depreciation and Amortisation is not a black art but the calculations have to provided to the IR so they can't just be plucked out of thin air.

As to the player amortizations we did by Berba - not sure which accounting year it could have fallen into but that would account for some of the player amortization.

How does a Balance Sheet show that? I think you are getting confused with something else.

No one is saying the D+A figures are 'plucked out of thin air' - obviously they will be calculated according to standard accounting regulations but that is beside the point really.

 

[sammsky1]

Interest grows in the Glazer family’s handling of Manchester United


Helen Power, Business Correspondent and James Ducker, Northern Football Correspondent
From Times Online
May 19, 2010

Interest grows in the Glazer family's handling of Manchester United | Manchester United - Times Online


Manchester United are facing a hefty interest rate of 16.25 per cent as of August after breaking financial rules governing their loan.

The 2 per cent rise will strengthen fears that the Glazer family, United’s unpopular owners, will try to pay off the high-interest loans rather than spend money on the team, a move that would infuriate supporters.

With the season over, it is almost certain that United will breach the financial rules set out in the Payment in Kind (PIK) loan taken on by the Glazers to fund their investment in the club. The rate hike means that United will owe an extra £75 million in interest on an already ruinous £138 million loan taken out in 2006. That total will have ballooned to £662.6 million by the maturity date of 2017.

If, as the club hope, they can move back within their financial covenants quickly, the PIK debt will still rise to more than £590 million.

United were placed under a veil of financial secrecy when the Glazers completed their takeover in 2005, but the club have been forced into an era of openness by the £504 million bond issue that the Americans launched in February as a means of raising money.

Bond-holders will be provided with their first formal financial update before the end of this month and they are expecting to be told that the Glazers have taken a £70 million dividend out of the club to pay off the PIKs.

Jonathan Moore, an Evolution Securities analyst who covers United’s bond, said: “People knew this [interest rate hike] could happen, but it increases pressure on the Glazers to get money to pay down this PIK debt. And the obvious place for them to find that money is in the club itself.

“The Glazers said in the bond prospectus they could take out a dividend of £70 million. We expected them to do that sooner rather than later and for them to have done it already, although they haven’t told us that yet.”

Manchester United Supporters Trust said yesterday that the club have racked up £437 million in advisory fees and interest under five years of Glazer rule, while debts have soared to more than £700 million. The fees are before any dividend taken out by the Glazers this year.

Under the terms of the PIK notes, United must keep the debts of their operating company at less than five times the level of their profits before interest — which will be tested on August 14. Company debt stands at £539 million but the club’s profits will result in a shortfall of several million.

It is understood that United’s commercial management team believe they can increase profits through a series of new deals, allowing the club to get their interest rate back to 14.25 per cent next year.

Commercial revenues were £66.9 million last year — 25 per cent of total turnover — and United’s commercial team, led by Ed Woodward, have signed a series of niche deals including, recently, a partnership with Concha y Toro, a South American wine exporter.

A spokesman for the Glazer family said that the owners are entirely comfortable with the level of the club’s debt and the interest bill. Some supporters, who are alarmed by United’s enormous debt, are supportive of the Red Knights, the group that are trying to put together a bid for the club.

Red Knights, who are led by Jim O’Neill, the chief economist of Goldman Sachs, the world’s most successful investment bank, are working on an offer, but the chances of a successful bid appear to be fading.

 

[Rood]

I was waiting for someone to mention the PIKs! Seems that article was written just in time

It is as usual an unecessarily negative article. The 2% hike is not good but not a big deal in the grand scheme of things, hopefully it will come back down next year anyway.
Talking about the PIK ballooning to £600m+ by 2017 is stupid as they will pay at least some, if not all, of it back by then.

Anyway we already knew that £70m will be (or already has been) used to pay some of it off (we should find out for sure in the next 1/4ly set of results). In turn, this cash has been replaced by new £75m credit facility (at much lower interest rate) which can be used for players transfers so there is no need to worry about whether cash will be used for debt payment or players.

 

[Rood]

But you don't think all clubs do the same? I wouldn't think what United are doing is in anyway exceptional financial engineering - it's pretty standard.

Now if they tried something crazy like trying to securitise future income streams then that would be different.

To be honest I have absolutely no idea what other clubs do!
I assume other clubs treat player amortisation in the same way but our level of goodwill amortisation is probably unique as no other club will have had the huge amount of goodwill that we had at takeover.

 

[peterstorey]

To be honest I have absolutely no idea what other clubs do!
I assume other clubs treat player amortisation in the same way but our level of goodwill amortisation is probably unique as no other club will have had the huge amount of goodwill that we had at takeover.

Football clubs are probably unique in the levels of 'goodwill' they can generate, since player values cannot be included in the balance sheet (though they can be sold to make cash).

 

[Sir A1ex]

Football clubs are probably unique in the levels of 'goodwill' they can generate, since player values cannot be included in the balance sheet (though they can be sold to make cash).

As I understand it, player values are ammortised separately under "Amortisation of player's registrations". The goodwill is the same as it would be on any company, based on what the Glazers paid for it.

 

[peterstorey]

As I understand it, player values are ammortised separately under "Amortisation of player's registrations". The goodwill is the same as it would be on any company, based on what the Glazers paid for it.

I'm talking about the balance sheet where the players do not appear as tangible assets. Player values are one of the reasons football club valuations are difficult compared to pie factories. Man Utd's asset value is only about £300M which is why there's such a heap of good will to be written down.

 

[Sir A1ex]

I'm talking about the balance sheet where the players do not appear as tangible assets.

So what is "Amortisation of player's registrations" against?

 

[Rood]

As I understand it, player values are ammortised separately under "Amortisation of player's registrations". The goodwill is the same as it would be on any company, based on what the Glazers paid for it.

So what do you have to say about my answer to your question?
Took me fooking ages to put that together and I dont even get a thank you for my time

 

[ciderman9000000]

So what do you have to say about my answer to your question?
Took me fooking ages to put that together and I dont even get a thank you for my time

As always, it'll get brushed aside because it doesn't tie-in with the LUHG ideal. MUST have no interest in the truth; or at least, they have no interest in bringing unnecessary attention to it.

 

[Sir A1ex]

As always, it'll get brushed aside because it doesn't tie-in with the LUHG ideal. MUST have no interest in the truth; or at least, they have no interest in bringing unnecessary attention to it.

Sorry Roodboy - was just getting round to find a minute to get back to you on that.

Unless, of course, what you really wanted was more of Ciderman's ridiculous, emotive, empty rehtoric? In which case, I guess you're sorted.

 

[UnitedRoadRed]

The two simple bits of truth are the massive ticket price rises since the takeover and the ACS.

Unfortunately it's a heartstrings situation and the Glazers have simply toyed with the price elasticity model to see what they can squeeze out of fans. No other teams' fans give a shit because their overall bill for a season of home and away support has increased for one game only.

2017 is the next big test when the bond matures; what financial situation will the club be in then?

 

[Rood]

2017 is the next big test when the bond matures; what financial situation will the club be in then?

Who knows? I dont have a crystal ball unfortunately

I can just tell you what the financial situation is right now and it seems pretty comfortable from where I am sat.

 

[UnitedRoadRed]

Who knows? I dont have a crystal ball unfortunately

I can just tell you what the financial situation is right now and it seems pretty comfortable from where I am sat.

Even though the £504m has committed us to an extra £300m+ worth of payments over the next six years with the £504m still to find at the end of it? That's a lot of money leaving the club in 6½ years.

 

[ciderman9000000]

Sorry Roodboy - was just getting round to find a minute to get back to you on that.

Unless, of course, what you really wanted was more of Ciderman's ridiculous, emotive, empty rehtoric? In which case, I guess you're sorted.

Well roodboy's posted the exact same information plenty of times before and it's always been overlooked in favour of either shouting, 'We're in debt!' over and over or simply trundling out MUST's usual misinforming soundbites. So please excuse me if i have little faith in anyone paying this its due attention this time around.

 

[ciderman9000000]

Even though the £504m has committed us to an extra £300m+ worth of payments over the next six years with the £504m still to find at the end of it? That's a lot of money leaving the club in 6½ years.

Wouldn't they just re-finance again though?

 

[peterstorey]

So what is "Amortisation of player's registrations" against?

That's the P&L amortisation of cost to acquire. Eg Rooney's transfer fee is written off but in terms of the balance sheet he is worth £0 (like the whole squad who actually have a market value of £4/500M).

 

[UnitedRoadRed]

Wouldn't they just re-finance again though?

Quite probably. It's the PIKs being paid off together with the bond divis that are the key though. By 2017, the £500m will be worth more like £300m now so a good shirt deal then will kill off most of it, as long as the whole PL/Sky bubble doesn't burst.

 

[Sir A1ex]

That's the P&L amortisation of cost to acquire. Eg Rooney's transfer fee is written off but in terms of the balance sheet he is worth £0 (like the whole squad who actually have a market value of £4/500M).

Sorry, I'm really not following.

Does his transfer fee get written off immediately, or does it show on the balance sheet?

If the latter, then what as - goodwill or specific "player registration value"?

If the former, then what is the amortisation for?

 

[EdWeatherall]

Talking about the PIK ballooning to £600m+ by 2017 is stupid as they will pay at least some, if not all, of it back by then.

Yeh, I noticed that when I read it in the newspaper this morning, they have this fancy graphic about how it will rise dramatically by 2017...and then in the text talk about how £70m is/has been used to pay some of it off

 

[Sir A1ex]

So what do you have to say about my answer to your question?
Took me fooking ages to put that together and I dont even get a thank you for my time

Thank you for your time.

The reason I'm focussing on exactly what those two amortisation figures mean is because they at least partly represent a genuine way of accounting for the cost of player contracts. And that is not an "accounting trick" to avoid tax, btu is a genuine cost which any club would have and which we would have had prior to the Glazers (y'know, when we used to make a profit).
Same goes for the £8m depreciation of tangible assets.

So, at the most, it is only the amortisation of goodwill that you could bring into this argument (Peter Story seems to think this also relates to player contracts, but I'm starting to suspect that he has even less of a clue about these things than I already thought).

Now I have to admit that, only having a rudumentary understanding of accounting myself, I'm not totally clear on how goodwill can and should be amortised, but even if we accept that the entire figure is a tax dodge, that only leaves £60m profit, in the year in which we sold Ronaldo for £80m - so a £20m loss were it not for his sale.

 

[EdWeatherall]

I find it disagreeable to say the least that the Glazers should be commended for their financial engineering / management of the club.

I don't think anyone is are they?

Just pointing out that the situation is nowhere near as bad as it being made out. I don't see how anyone could say they've been good owners, as they clearly haven't, the money going out of the club to the banks is not a good thing

 

[Sir A1ex]

I don't think anyone is are they?

Checkout the "business as usual" thread...

 

[Rood]

A1Dan I will write you a proper response when I have time later on tonight but in the meantime I thought it worth linking this for those who are interested: Why Amortization of Goodwill is not a real Expense

I found it when scanning through old discussions on this matter - it was posted by Joga Bonito at a time when he accused me of being patronising (which I probably am at times!) and not explaining things properly - so hopefully he will enjoy my attempt at explanation here if he is still about!

 

[peterstorey]

A1Dan I will write you a proper response when I have time later on tonight but in the meantime I thought it worth linking this for those who are interested: Why Amortization of Goodwill is not a real Expense

It may be worth pointing out that in the case of a football club purchase a percentage of the 'goodwill' is initial squad value which does diminish over time.

 

[Sir A1ex]

But there must be a separate balance sheet item for player contracts or what is that other amortization for?

 

[peterstorey]

But there must be a separate balance sheet item for player contracts or what is that other amortization for?

'The figures for cost of player registrations are historic cost figures for purchased players only. Accordingly, the net book amount of player registrations will not reflect, nor is it intended to, the current market value of these players nor does it take any account of players developed through the youth system. The directors consider the net realisable value of intangible fixed assets to be significantly greater than their book value'.

 

[ciderman9000000]

It may be worth pointing out that in the case of a football club purchase a percentage of the 'goodwill' is initial squad value which does diminish over time.

Is that true though? Whilst i'm sure Scholes' value has diminished, Rooney's has increased threefold. What i'm getting at is that, surely the increasing value of developing youngsters offsets the drop in value of the senior players?

 

[peterstorey]

Is that true though? Whilst i'm sure Scholes' value has diminished, Rooney's has increased threefold. What i'm getting at is that, surely the increasing value of developing youngsters offsets the drop in value of the senior players?

I think so. You're taking a snapshot at the time when Man Utd was purchased. The £800M crudely bought £300M worth of assets, £400M of players and £100M of 'stuff' (marketing potential?). That 2005 squad is worth much less which is partly what the writedowns reflect.

 

[Sir A1ex]

'The figures for cost of player registrations are historic cost figures for purchased players only. Accordingly, the net book amount of player registrations will not reflect, nor is it intended to, the current market value of these players nor does it take any account of players developed through the youth system. The directors consider the net realisable value of intangible fixed assets to be significantly greater than their book value'.

So as I thought, that "amoritsation of player registrations" is just the transfer fees paid, basically. So there's no way it can be ignored when looking at profit figures... unless we ignore the Ronaldo fee too!

That 2005 squad is worth much less which is partly what the writedowns reflect.

Don't get what you mean by that...?

 

[peterstorey]

So as I thought, that "amoritsation of player registrations" is just the transfer fees paid, basically. So there's no way it can be ignored when looking at profit figures... unless we ignore the Ronaldo fee too

No one's ever suggested ignoring that - that's a real spend spread over a few years. Goodwill writedowns are the tax dodge ie no money going out.

 

[Sir A1ex]

No one's ever suggested ignoring that

I beg to differ...

Basically huge annual amortisation expenses are put through our accounts to hide our true profits and make it look like we make much less money than we actually do...

...our actual bottom line figure is shown in the accounts as a post tax profit of only £25.5m (this is one of the figures widely reported by the press as our 'net profit') - so where did the other £80m or so of cash go?
Just look at the 'Amortisation and Depreciation' line (just under the EBITDA) and there it is - almost £82m of non-cash expenses (i.e. this money never actually left the club bank account but is shown in the accounts as a cost to the business). Note that there is actually a good argument for keeping in the depreciation so you could knock that off my profit figure as well if you want to be conservative.
This is basically a massive tax dodge, our true profits are hidden by amortisation write offs to avoid paying corporation taxes.

So that is why I prefer to use EBITDA and add any other exceptional earnings (i.e. the Ronaldo money) and then manually calculate the tax and interest deduction to get to what I believe is the real cash profit we made last year.

Roodboy's been sneaking the player amotisation in all along.

To be honest, I've always avoided the technical discussion of differetn profit measures, EBITDA etc up til now, as it's exactly the sort of tedium that steered me away from accountancy early in my career.

But one afternoon looking at this has immediately made it obvious that more than half of the "extra profit" RoodBoy has been confidently claiming all this time is entirely incorrect.
I dread to think what I'd find if I had any real in-depth knowledge of this and dug further into his claims.

 

[peterstorey]

I beg to differ...

Roodboy's been sneaking the player amotisation in all along.:

Yeah but I think he's trying to talk cash there ie he's saying the money's been spent and paid over but is being accounted for later. The bottom line as it seems to me without being forensic is that Glazer is comfortable paying the bond and sticking it to the PIKS.

 

[Crerand Legend]

Yeah but I think he's trying to talk cash there ie he's saying the money's been spent and paid over but is being accounted for later. The bottom line as it seems to me without being forensic is that Glazer is comfortable paying the bond and sticking it to the PIKS.

Glazer might be comfortable but an increasing number of fans are not. God know's what financial stunt is next from the slimeballs

 

[ciderman9000000]

Glazer might be comfortable but an increasing number of fans are not. God know's what financial stunt is next from the slimeballs

I doubt the number of uncomfortable fans is increasing, Pat, probably decreasing pretty rapidly now all the furore's over and done with tbh.

 

[swooosh]

I doubt the number of uncomfortable fans is increasing, Pat, probably decreasing pretty rapidly now all the furore's over and done with tbh.

What furore is done and over with? There's a lot of United fans who aren't renewing until the last possible day and I'm pretty sure there's a few people who aren't renewing either.

If the Glazers are still here next season, the protests will still be going on and fans will aim to make every single matchday as uncomfortable as possible for them.