Loans/ Debt to the owners

[hertsmackem]

The reason is I hate conspiracy theories. The reason why I've tried to explain that the PP money doesn't matter is that I genuinely believe that.

e.g.
We know Short wanted £37M in total for the club

Scenario 1: SD pays ES £12m, then the £25M PP. ES writes off all the debt - which is near enough what happened. The press release says "SD buys club for £37m, ES writes off all debt" - both look good.

Scenario 2: SD pays ES £12M, but ES leaves £25M of debt which he later gets back equalling £37M. The club is £25M in debt, we get paid the PP money, the club is debt-free. The press release says "SD buys club for £12M, ES writes off all but £25M of debt" - not as good.

The point is, it's all about perception. Scenario 1 looks like they've some underhand dodgy deal has gone, whereas Scenario 2 doesn't. But the outcome is no different. In both scenarios, the SD has paid £12m and the club ended up debt-free.

I fully and wholeheartedly agree that the way they've shared information with the fans is nowhere near good enough, but we need to focus on the right problems.

What that problem is, is are the ownership team prepared to invest additional money at risk to try and increase the club's value by a return to the premier league, and secondly are they capable of investing that money in a way that will lead to that success?

So yes, I'm a bit over passionate about this issue, because we're chasing the wrong outcome. If KLD has money to invest I do not want him to buy SDs shares, I want him to invest it in SAFC and then SD will have a choice to match it or be diluted. Personally, I want him to match it. Getting a stronger squad is more important than anything else.

It would depend on what they do with the loan. It could be there for years. It's only a problem if it's taken back out, but that's not the only outcome.

Or have a right issue, which means SD is diluted and KLD puts more money in and is then even more tied to the club and its success ?

They had no intention of paying anything Back when they could.Just a quick get out profit.

I thought that part was obvious

 

[10 Gary Rowells]

It would depend on what they do with the loan. It could be there for years. It's only a problem if it's taken back out, but that's not the only outcome.

Sorry to dwell on the point. If they frame the money as a loan rather than a re-payment then surely they still have an asset in the loan. The bottom is that they owe the money to the club, they borrowed it to enable them to buy the club as they afford it without that loan from the club. To use a loan as the vehicle to repay makes no sense at all. Surely its like me repaying my mortgage in a loan - I don't think the mortgage company would see that as a good idea. They have to pay back that money, that is accepted by everyone, why would saying I'll just loan that money back be acceptable? I'm not trying to be thick but if it is a loan to pay back the parachute payments that would be outlandish - KLD should surely say 'no, thanks very much but I'll have re-payment rather a loan'. I'm not saying you are wrong but I can't see the logic.

 

[Hep]

Sorry to dwell on the point. If they frame the money as a loan rather than a re-payment then surely they still have an asset in the loan. The bottom is that they owe the money to the club, they borrowed it to enable them to buy the club as they afford it without that loan from the club. To use a loan as the vehicle to repay makes no sense at all. Surely its like me repaying my mortgage in a loan - I don't think the mortgage company would see that as a good idea. They have to pay back that money, that is accepted by everyone, why would saying I'll just loan that money back be acceptable? I'm not trying to be thick but if it is a loan to pay back the parachute payments that would be outlandish - KLD should surely say 'no, thanks very much but I'll have re-payment rather a loan'. I'm not saying you are wrong but I can't see the logic.

It doesn't give a good perception, but it's one way of getting money into a company. The club doesn't have to pay it back until the board agrees (assuming no terms/conditions have been set). It's not like a standard consumer loan.

Remember, there is no legal obligation for SD to pay this money back. It's purely moral. If he loans us millions and never asks for it back, so be it.

 

[Guinness Guzzler]

The reason is I hate conspiracy theories. The reason why I've tried to explain that the PP money doesn't matter is that I genuinely believe that.

e.g.
We know Short wanted £37M in total for the club

Scenario 1: SD pays ES £12m, then the £25M PP. ES writes off all the debt - which is near enough what happened. The press release says "SD buys club for £37m, ES writes off all debt" - both look good.

Scenario 2: SD pays ES £12M, but ES leaves £25M of debt which he later gets back equalling £37M. The club is £25M in debt, we get paid the PP money, the club is debt-free. The press release says "SD buys club for £12M, ES writes off all but £25M of debt" - not as good.

The point is, it's all about perception. Scenario 1 looks like they've some underhand dodgy deal has gone, whereas Scenario 2 doesn't. But the outcome is no different. In both scenarios, the SD has paid £12m and the club ended up debt-free.

I fully and wholeheartedly agree that the way they've shared information with the fans is nowhere near good enough, but we need to focus on the right problems.

What that problem is, is are the ownership team prepared to invest additional money at risk to try and increase the club's value by a return to the premier league, and secondly are they capable of investing that money in a way that will lead to that success?

So yes, I'm a bit over passionate about this issue, because we're chasing the wrong outcome. If KLD has money to invest I do not want him to buy SDs shares, I want him to invest it in SAFC and then SD will have a choice to match it or be diluted. Personally, I want him to match it. Getting a stronger squad is more important than anything else.

It would depend on what they do with the loan. It could be there for years. It's only a problem if it's taken back out, but that's not the only outcome.

The worry for me (well, one of them) is that it isn't at all certain that kld can dilute Donald's shares. Its all over my head mind but I'm sure it's been suggested that his shares might be protected, indeed that he'd be daft not to have protected them, because what's the point in keeping shares to profit from later if the new person can effectively force you out straight away? I think we need him gone completely, along with Methven and, although I can largely take or leave sartori, I'd be quite happy having the lot of them out. Then we can judge kld purely on how he performs, knowing that he's only limited by his own ambitions and abilities.

I agree with the lad above mind, not good if you're getting abuse on the thread. Fair to say we have very different takes on how much we should be concerned by Donald and co staying involved and how much we trust them in general, but it's been a civil discussion, nowt wrong with differing views

 

[Hep]

The worry for me (well, one of them) is that it isn't at all certain that kld can dilute Donald's shares. Its all over my head mind but I'm sure it's been suggested that his shares might be protected, indeed that he'd be daft not to have protected them, because what's the point in keeping shares to profit from later if the new person can effectively force you out straight away? I think we need him gone completely, along with Methven and, although I can largely take or leave sartori, I'd be quite happy having the lot of them out. Then we can judge kld purely on how he performs, knowing that he's only limited by his own ambitions and abilities.

I agree with the lad above mind, not good if you're getting abuse on the thread. Fair to say we have very different takes on how much we should be concerned by Donald and co staying involved and how much we trust them in general, but it's been a civil discussion, nowt wrong with differing views

I'm not one to agree with people out of fear of abuse. If people want to have a different point of view, let's hear it. When people do post abuse, I just assume it because that cannot articulate anything else. However, your responses have been exceptionally well balanced and civil, thank you.

I think I mentioned on a previous thread, if I was SD, I'd want KLD to dilute me. Far better to have 10% of £200m than 34% of £12m.

 

[KittenMittens]

I think I mentioned on a previous thread, if I was SD, I'd want KLD to dilute me. Far better to have 10% of £200m than 34% of £12m.

But there's a fundamentally wrong assumption here, that the asset appreciates commensurately with how much money is put in. It doesn't. People put boatloads of cash in, and things don't change in value, or even get lower (see: Short, E).

Let's take at face value the idea that Donald paid £37.6m, which I doubt, but let's just pretend it's true.

Now let's say KLD dilutes him from 34% to 10% by issuing lots of shares at great cost to KLD, and of which Donald cannot buy for whatever reason.

To achieve a profit, Donald would need us to be sold for more than £376m if he holds 10%.

If the club succeeds, then maybe in an outlandish, unheard of scenario, it can be sold for that, however let's say we get to the PL and KLD decides he's had enough, has put a lot of money in already, and decides to sell for a pretty good figure of £120m.

With his 10% of shares, Donald takes away £12m for his £37.6m outlay, whereas KLD walks away with £100m+.

Do you understand? The money doesn't just go into the company and it definitely gets more valuable, it's a risk. If the money goes in, it can still fail, or more importantly, the more diluted you are, the higher the bar for success. There is no way Donald wants to be diluted. He wants KLD to put the money in and make his 34% more valuable, but he doesn't want to be in a situation where he's needing a moon shot to break even.

 

[Super Mario]

The worry for me (well, one of them) is that it isn't at all certain that kld can dilute Donald's shares. Its all over my head mind but I'm sure it's been suggested that his shares might be protected, indeed that he'd be daft not to have protected them, because what's the point in keeping shares to profit from later if the new person can effectively force you out straight away? I think we need him gone completely, along with Methven and, although I can largely take or leave sartori, I'd be quite happy having the lot of them out. Then we can judge kld purely on how he performs, knowing that he's only limited by his own ambitions and abilities.

I agree with the lad above mind, not good if you're getting abuse on the thread. Fair to say we have very different takes on how much we should be concerned by Donald and co staying involved and how much we trust them in general, but it's been a civil discussion, nowt wrong with differing views

The dilution is something that needs to be asked when the fans group gets to speak to KLD.

 

[hertsmackem]

But there's a fundamentally wrong assumption here, that the asset appreciates commensurately with how much money is put in. It doesn't. People put boatloads of cash in, and things don't change in value, or even get lower (see: Short, E).

Let's take at face value the idea that Donald paid £37.6m, which I doubt, but let's just pretend it's true.

Now let's say KLD dilutes him from 34% to 10% by issuing lots of shares at great cost to KLD, and of which Donald cannot buy for whatever reason.

To achieve a profit, Donald would need us to be sold for more than £376m if he holds 10%.

If the club succeeds, then maybe in an outlandish, unheard of scenario, it can be sold for that, however let's say we get to the PL and KLD decides he's had enough, has put a lot of money in already, and decides to sell for a pretty good figure of £120m.

With his 10% of shares, Donald takes away £12m for his £37.6m outlay, whereas KLD walks away with £100m+.

Do you understand? The money doesn't just go into the company and it definitely gets more valuable, it's a risk. If the money goes in, it can still fail, or more importantly, the more diluted you are, the higher the bar for success. There is no way Donald wants to be diluted. He wants KLD to put the money in and make his 34% more valuable, but he doesn't want to be in a situation where he's needing a moon shot to break even.

but the money from the dilution goes into the club, gives the club working capital or money to buy players and although the dilution has taken place it should increase the value long term/with promotion etc. If it's a right issue then Donald will have to cough up as well and his money plus KLD's will be used to better the club and the value. The 2nd scenario is better for Donald, but it depends on the value should we get promoted. If the club is worth say £30 Mil now how much would it be worth once promoted to the Championship?

The dilution is something that needs to be asked when the fans group gets to speak to KLD.

as far as I am aware the major shareholder can vote for a rights issue meaning if approved and it goes through they all have to put cash in or get diluted if they don't

 

[KittenMittens]

but the money from the dilution goes into the club, gives the club working capital or money to buy players and although the dilution has taken place it should increase the value long term/with promotion etc.

How much did Short buy us for? I believe it was somewhere between £60-£80m.

How much did he get back? Less than half.

How much did he put in? Around £200m.

Money put into a football club is an inexact science, but it certainly hasn't improved the value of our club in the past.

 

[hertsmackem]

How much did Short buy us for? I believe it was somewhere between £60-£80m.

How much did he get back? Less than half.

How much did he put in? Around £200m.

Money put into a football club is an inexact science, but it certainly hasn't improved the value of our club in the past.

yes agreed but this does not apply here. We all think our club is worth more and certainly SD thought so when he 'bought' it for buttons. Ellis put in too much, wasted too much the 2 scenario's are not comparable. We are on the floor now, the value will just go down unless we go up. Then the owners may have a winner on their hands

 

[sir rowell cummins]

considering we claim to have a mostly working class fanbase, there appears to be an abundance of newly qualified business analysts and accountants amongst us.

The thing that makes Methvens comments stupidly arrogant…. The north east who don’t get business will have a diverse crowd including many a person involved in business at all levels and since he said it we’ve seen the said infuriated belittled people come to the fore and rip their failing unethical business practices to shreds. There really isn’t anything worth doing other than honesty or it’ll be found out by one of the 50000 odd fans.

 

[Hep]

But there's a fundamentally wrong assumption here, that the asset appreciates commensurately with how much money is put in. It doesn't. People put boatloads of cash in, and things don't change in value, or even get lower (see: Short, E).

Let's take at face value the idea that Donald paid £37.6m, which I doubt, but let's just pretend it's true.

Now let's say KLD dilutes him from 34% to 10% by issuing lots of shares at great cost to KLD, and of which Donald cannot buy for whatever reason.

To achieve a profit, Donald would need us to be sold for more than £376m if he holds 10%.

If the club succeeds, then maybe in an outlandish, unheard of scenario, it can be sold for that, however let's say we get to the PL and KLD decides he's had enough, has put a lot of money in already, and decides to sell for a pretty good figure of £120m.

With his 10% of shares, Donald takes away £12m for his £37.6m outlay, whereas KLD walks away with £100m+.

Do you understand? The money doesn't just go into the company and it definitely gets more valuable, it's a risk. If the money goes in, it can still fail, or more importantly, the more diluted you are, the higher the bar for success. There is no way Donald wants to be diluted. He wants KLD to put the money in and make his 34% more valuable, but he doesn't want to be in a situation where he's needing a moon shot to break even.

I agree with some of what you have said, but your numbers and gearing ratios are not right.

I fully agree an investment can end up being worthless and there is no guarantee that it will increase in value. However, if, as a shareholder, you thought the value would go down, you would look to sell quickly. SD hasn't done this, so we can assume he has a positive outlook for the value of the club and his shares.

When you say SD paid £37.6m, he didn't he paid £12.6m in effect, possibly less. So to achieve a profit he needs more than that. If 34% was worth £37.6m - the club would be valued at £110m - it's not.

If KLD then dilutes him, at that exact point in time his shares do not change in value.

e.g.

Let's say the club was still worth £12.6m and SD owned 100% (for ease). KLD Put's in £24.4m, the club's value instantly jumps to £37m as it has that money in the bank. SD now owns 34% of £37m, or £12.6m.

Now, let's say KLD invests another £63m, at that exact point in time, the club is now worth £100m, and SD has been diluted down to 12.6% or £12.6m - no change of value.

Now comes gambling, what do they do with the money. If they invest wisely, which by virtue of the fact they are keeping their shares, they think they will. If the club gets promoted and ends up being worth more than £100m, SD makes a larger profit.

If their gamble doesn't pay, they all lose.

 

[KittenMittens]

If KLD then dilutes him, at that exact point in time his shares do not change in value.

e.g.

Let's say the club was still worth £12.6m and SD owned 100% (for ease). KLD Put's in £24.4m, the club's value instantly jumps to £37m as it has that money in the bank. SD now owns 34% of £37m, or £12.6m.

Now, let's say KLD invests another £63m, at that exact point in time, the club is now worth £100m, and SD has been diluted down to 12.6% or £12.6m - no change of value.

Now comes gambling, what do they do with the money. If they invest wisely, which by virtue of the fact they are keeping their shares, they think they will. If the club gets promoted and ends up being worth more than £100m, SD makes a larger profit.

I know some of this is technically correct, but it still doesn't work for me on a fundamental level. If that cash sits in the business, then yes, the company value would be adjusted to say (for example) add the value + £24.4m as long as it is there.

But football clubs spend money, and the measure of their value is almost entirely predicated on on-pitch success that may or may not result from it. That's why even though Short raised the value of the club to £200m+ in your example, it was never worth that, and it had even lowered in value by the end.

But the overall value that Donald would need KLD to achieve becomes much, much greater if he is diluted substantially, and there are finite limits here. If he dilutes him to 1%, he needs someone to come along and pay £1bn+, for example, and that isn't going to happen, yet he could be diluted to 1% for a matter of tens of millions at the moment.

Can you see why the long term value of the club is actually separate to how much money has been invested in it? In the same way Short's investment had no material effect on it, and in that exact situation repeated again, Donald would lose out by a substantial figure were he to allow himself to be diluted? It's all a big gamble, and I see no indication that Donald would give up his 34% for 10% and a gamble that it'd get bigger, which it has failed to do in the last 13 years.

As for what he paid, you know I agree on that, but this is all an example, you can adjust on price to reflect his total investment.