Club Statement: Freehold Purchase

Please vote in the poll.
Please.
Pretty please with bells on.

BBC1 wrote:

Please vote in the poll.
Please.
Pretty please with bells on.

what poll is that BBC 1

The one on the club statement.
Oh please do vote!

Trying to get the silent majority to get engaged again.

BBC1 wrote:

The one on the club statement.
Oh please do vote!

Trying to get the silent majority to get engaged again.

You have a pm.

Flat_Track_Bully wrote:

The real danger isn't the stadium being sold to a third party. It's the current (or future) owners of PAFC borrowing against the value of the stadium (which is in real terms probably a lot more than £1.7m) and then falling into debt because they can't service those payments. That's pretty much what happened last time we owned the ground.

I disagree with that. I acknowledge that last time around the straw that ultimate broke the proverbial camel's back was the club's inability to pay it's creditors. An inability to service its debts, including the various mortgages on the ground, certainly contributed to that. But looking in isolation at the debts that were secured against the ground, they should really have been manageable. The real issue behind the cashflow problem, in my opinion, was the reported 80%+ wages to turnover ratio. That's just not sustainable.

Had that ratio been kept at a lower, more sensible level, the rest of the club's obligations to its creditors should have been easy to fulfil.

Given the 55% salary cap that's in place now, I think it would be significantly less risky to mortgage the ground now (if the club buys the freehold, and if they choose to raise funds for to redevelop the grandstand by using the ground as collateral for a loan - which seems like a likely scenario, imo).

I also think JB has a much better handle on budgets than the last board. These much derided one-year contracts, for example. Clearly not great for keeping a team together for more than a single season. But it means you don't have to worry about much in terms of salary commitments beyond the end of any given season - so if you get relegated, or suffer a decline in turnover for another reason, you can reassess the finances and cut your cloth accordingly at the start of the next season.

Consider this scenario; there are several players (most of the first team) on 2 or 3 year contracts that, when originally signed, committed say 50% of your turnover to wages... but then the attendances drop off and/or you get relegated and turnover drops by 25%, so you find that ratio is suddenly 66%, and there's nothing you can do about it because the players have legally binding contracts... So you try to sell them - at any price - to get them off the wage bill. And you bring in cheaper replacements (but still on 2 or 3 year contracts), which weakens the team, and you get relegated again. And then the cycle starts again; attendances continue to decline, turnover drops further, but the wages to turnover ratio remains too high because the players you brought in are still on long contracts. Eventually you hit rock-bottom -  you can't offload enough players, but you still have to pay them before anyone else because of the football creditors rule... finally there comes a point where the wage bill takes up so much of your turnover that you can no longer pay your creditors or service the loan repayments.

Sound familiar? I'm not saying that's the whole story, but it's not hard to see how it can happen.

So - one-year player contracts... I'm in favour. Probably much more effective at mitigating the risk of going back into administration compared to, say, not taking up the option to buy-back the freehold at a knock-down price.

Flat_Track_Bully wrote:

A lot of Akkeron businesses have recently folded, and Brent's other 'development' projects seem to be stuck for one reason or another. That doesn't signal to many fans that Akkeron are necessarily a safe owner of the stadium. Even if they were, should Akkeron decide to sell the club (and therefore the stadium with it) then who know why might get their hands on it.

Can't argue with the first bit of that - Brent's recent development projects haven't gone well, by anyone's standards. And I agree to some extent that, on the basis of those failed projects, Akkeron probably aren't the most desirable owner for the stadium. But, fortunately, Akkeron won't own the it. PAFC will. And Akkeron can't sell the club, nor the stadium (which would become an asset of the club, not Akkeron) because they only own 2/3 of the company that owns the asset. They can conceivably sell Brent's 66% share of the club, but only with the consent of the other shareholders.

Our Guile wrote:

I think it would be significantly less risky to mortgage the ground now (if the club buys the freehold, and if they choose to raise funds for to redevelop the grandstand by using the ground as collateral for a loan - which seems like a likely scenario, imo).

I'll ask again...

Rickler wrote:

How on earth do you use a sports stadium that is of no use to anybody else as collateral against a  loan?

green_genie wrote:

Putting a couple of points together raises a familiar question

Quote :

The club’s turnover in 2015-16 was £6m. This represents an increase of 15.6% per annum over the last four years.

Quote :

and £135,000 x 10 is more than the total football budget of most of our competitors

If we had a turnover of over £5M in each of last four seasons and PAFC reported £2.4M and £1.6M losses, where is the rest of the money going if our football budget has been middling for the division? The total post admin debt doesn't come near to accounting for it all.

That first quote is interesting.

It means £6m (turnover to 2016) is 115.6% of last years turnover and so on for each pf the last 4 years. This enables us to calculate an estimate for turnover for each of them giving, in reverse order:

2016 - £6,000,000
2015 - £5,139,311
2014 - £4,489,888
2013 - £3,883,986

From there we can estimate the maximum playing budget (which it is reasonable to assume we have not edged very close to):

2016 - £3,300,000
2015 - £2,862,621
2014 - £2,469,438
2013 - £2,136,192

And the difference between the 2 would give us break even expenditure on a minimum for everything else (approximately):

2016 - £2,700,000
2015 - £2,300,000
2014 - £2,000,000
2013 - £1,700,000

Makes me wonder how we racked up losses of £2.4m and £1.6m (especially in the early years when we weren't paying rent or rates at all)?

Rickler wrote:

Our Guile wrote:

I think it would be significantly less risky to mortgage the ground now (if the club buys the freehold, and if they choose to raise funds for to redevelop the grandstand by using the ground as collateral for a loan - which seems like a likely scenario, imo).

I'll ask again...

Rickler wrote:

How on earth do you use a sports stadium that is of no use to anybody else as collateral against a  loan?

Sorry - missed that one in my eagerness to reply to the other thread. Like London busses, my posts. Nothing for 4 years and then a dozen come along at once.

It's a good question, and I can't really answer it with any authority, other than to echo what was said by another poster above. Someone somewhere would lend against it. It's a big bit of land in a nice place. It will have intrinsic value - nothing is worth nothing. Plus there's a multi-million pound business that's completely reliant of the stadium; it is worth something to PAFC, and that would effectively act as a guarantee they'd repay any loan.

Another factor was the planning legislation pushed through by Eric Pickles in the last parliament.

Essentially planning permission is to be rubber stamped on demand (I exaggerate a little) with the onus being on the planning authority to have a damned good reason for turning it down and even then the applicant can submit an appeal directly to the minister who can over-ride whatever he likes.

So covenants and all the rest are nowhere near as immutable as they used to be...

Obviously this would be a highly speculative path to take and the minister might not consent to the appeal should there be one but it would suggest that the land is not necessarily always and forever guaranteed to be a sport's stadium and if somebody was prepared to roll the dice...

[quote="Our Guile"]

Flat_Track_Bully wrote:

Flat_Track_Bully wrote:

A lot of Akkeron businesses have recently folded, and Brent's other 'development' projects seem to be stuck for one reason or another. That doesn't signal to many fans that Akkeron are necessarily a safe owner of the stadium. Even if they were, should Akkeron decide to sell the club (and therefore the stadium with it) then who know why might get their hands on it.

Can't argue with the first bit of that - Brent's recent development projects haven't gone well, by anyone's standards. And I agree to some extent that, on the basis of those failed projects, Akkeron probably aren't the most desirable owner for the stadium. But, fortunately, Akkeron won't own the it. PAFC will. And Akkeron can't sell the club, nor the stadium (which would become an asset of the club, not Akkeron) because they only own 2/3 of the company that owns the asset. They can conceivably sell Brent's 66% share of the club, but only with the consent of the other shareholders.

Where are you getting your percentages from? Are you party to the clubs articles? It may be possible sell with a simple majority 50%?

I have absolutely no insider knowledge of the clubs articles or the shareholder agreement. But you can't sell what's not yours. Akkeron only own 2/3 of the club, so that's all they can sell. It's normal for other shareholders to retain first refusal should a shareholder wish to sell or transfer their shares. It's also common for the sale or transfer of shares to a third party to require the approval of the other shareholders.

I can't be certain that is true for PAFC, but it's fairly standard practise, I think.

Our Guile wrote:

I have absolutely no insider knowledge of the clubs articles or the shareholder agreement. But you can't sell what's not yours. Akkeron only own 2/3 of the club, so that's all they can sell. It's normal for other shareholders to retain first refusal should a shareholder wish to sell or transfer their shares. It's also common for the sale or transfer of shares to a third party to require the approval of the other shareholders.

I can't be certain that is true for PAFC, but it's fairly standard practise, I think.

Its actually normal for any shares to be offered back to the other shareholders or indeed the company first and only then to be offered for resale outside the "group". "Only" owning 66% is plenty enough for control of a company.

Our Guile wrote:

Rickler wrote:

Our Guile wrote:

I think it would be significantly less risky to mortgage the ground now (if the club buys the freehold, and if they choose to raise funds for to redevelop the grandstand by using the ground as collateral for a loan - which seems like a likely scenario, imo).

I'll ask again...

Rickler wrote:

How on earth do you use a sports stadium that is of no use to anybody else as collateral against a  loan?

Sorry - missed that one in my eagerness to reply to the other thread. Like London busses, my posts. Nothing for 4 years and then a dozen come along at once.

It's a good question, and I can't really answer it with any authority, other than to echo what was said by another poster above. Someone somewhere would lend against it. It's a big bit of land in a nice place. It will have intrinsic value - nothing is worth nothing. Plus there's a multi-million pound business that's completely reliant of the stadium; it is worth something to PAFC, and that would effectively act as a guarantee they'd repay any loan.

Unless PAFC went bust.  

It's strange...  But a lot of people say the ground can be used as collateral, but like you, they can't actually say how it possibly can be done.

Anyone else want to give it a try?

Rickler wrote:

Our Guile wrote:

Rickler wrote:

Our Guile wrote:

I think it would be significantly less risky to mortgage the ground now (if the club buys the freehold, and if they choose to raise funds for to redevelop the grandstand by using the ground as collateral for a loan - which seems like a likely scenario, imo).

I'll ask again...

Rickler wrote:

How on earth do you use a sports stadium that is of no use to anybody else as collateral against a  loan?

Sorry - missed that one in my eagerness to reply to the other thread. Like London busses, my posts. Nothing for 4 years and then a dozen come along at once.

It's a good question, and I can't really answer it with any authority, other than to echo what was said by another poster above. Someone somewhere would lend against it. It's a big bit of land in a nice place. It will have intrinsic value - nothing is worth nothing. Plus there's a multi-million pound business that's completely reliant of the stadium; it is worth something to PAFC, and that would effectively act as a guarantee they'd repay any loan.

Unless PAFC went bust.  

It's strange...  But a lot of people say the ground can be used as collateral, but like you, they can't actually say how it possibly can be done.

Anyone else want to give it a try?

PAFC going bust is the risk the lender takes. And in turn, that's why the FSA regulates lenders and imposes rules on suitability of borrowers and affordability of repayments. The idea is that it's best for everyone if you don't sell borrowers products they can't afford to repay. Otherwise the borrower goes bust, and the lender ends up having to recover or write-off a bad debt.

In terms of how you use the ground as collateral; you go to a lender - a traditional commercial mortgage lender, or a commercial finance company offering asset based lending facilities secured against property, and ask them for a loan. It's not until you do that, and they do their survey, that you find out how much they'll lend you.

Chancellor wrote:

Our Guile wrote:

I have absolutely no insider knowledge of the clubs articles or the shareholder agreement. But you can't sell what's not yours. Akkeron only own 2/3 of the club, so that's all they can sell. It's normal for other shareholders to retain first refusal should a shareholder wish to sell or transfer their shares. It's also common for the sale or transfer of shares to a third party to require the approval of the other shareholders.

I can't be certain that is true for PAFC, but it's fairly standard practise, I think.

Its actually normal for any shares to be offered back to the other shareholders or indeed the company first and only then to be offered for resale outside the "group". "Only" owning 66% is plenty enough for control of a company.

50%+ would give you effective operational control. But ordinarily you can't change the company's articles unless you have 75% of shareholders' in agreement - which means with 66% you can't change the rules pertaining to the sale or transfer of shares. So, as I understand it, JB can't sell his 66% share to a third party without the approval of (at least 9% of) the other shareholders.

Our Guile wrote:

In terms of how you use the ground as collateral; you go to a lender - a traditional commercial mortgage lender, or a commercial finance company offering asset based lending facilities secured against property, and ask them for a loan. It's not until you do that, and they do their survey, that you find out how much they'll lend you.

I think most of us know the general process..

I am talking specifically how Argyle would pull it off? What do they have that somebody else wants or can use that the bank can sell if the club were to go bust and default on the loan. Please don't say a football stadium - who wants that apart from Argyle?

This is what nobody ever has an answer to...

Rickler wrote:

Our Guile wrote:

In terms of how you use the ground as collateral; you go to a lender - a traditional commercial mortgage lender, or a commercial finance company offering asset based lending facilities secured against property, and ask them for a loan. It's not until you do that, and they do their survey, that you find out how much they'll lend you.

I think most of us know the general process..

I am talking specifically how Argyle would pull it off?  What do they have that somebody else wants or can use  that the bank can sell if the club were to go bust and default on the loan.   Please don't say a football stadium - who wants that apart from Argyle?

This is what nobody ever has an answer to...

Well - again being slightly flippant - history tells us that even if Argyle were to go bust, the next incarnation of Argyle would be likely to pay circa £1.7m for the ground 5 years later.

And, as said by someone else (Sir Francis Drake, I think), the 'permanent' covenant is not really permanent in the true sense of the word. It can be lifted on appeal, so I'm sure there will be lenders out there willing to take a risk / play a waiting game on that basis. Without a covenant on it, the value of the ground for commercial or residential development is much more apparent.

Well...

Once again the collateral question is skirted around and no answer given.

As for the covenants...  This one is another dark star area.  The club give the impression that any 'covenants' in force, are just between them and the club.

Well, what about when the land was originally donated?  Wasn't there a covenant when given, that stipulated it had to be used for sporting purposes?  Well we know that covenants can be 'stretched' a little, but to have it overturned completely is not that easy (for very obvious reasons).  In fact, it's a lot more difficult than most people would have you believe.  I doubt that the covenant regarding Home Park being used primarily for sport could ever be overturned.

That's the dead hand of state control and statuatary law holding back the entrepreneur at a cost to the local economy and all that for you.

We live in a bonfire of the quangoes, open for business, ditch the red tape, let entrepreneurs be entrepreneurial and the market will provide whatever it is that society needs to function and we'll take back control and make Britain great again sort of age these days.

And like I said the planning regs all changed in the last parliament.

I've a feeling the old covenenants were re-drawn when we came out of admin too.

I don't think it is law that will endlessly protect Home Park but local opinion might - not that an investor would necessarily worry too much about that; politicians might though.

The Herald vote has of 0930 this morning is, out of 718 votes 73% NO 27% yes

I still don't believe there has been a precedent where a restrictive covenant has been wholly binned. Even the last time when the covenants where changed, it was to ensure that a hotel could be built. I doubt the central plank of home park being used as a sports stadium for a professional football club or howsoever it is worded could be removed.

That may well be right but equally it may well not be and until it goes to law and is tested we won't know either way.

That's the gamble a dice roller would be looking at were he to try to develop something else there (and the lender would have to assess if they were to lend against Home Park).

What if Argyle was to relocate? A stadium wouldn't be much use to anybody else so presumably it would be flattened or more likely left to just disintegrate because an eyesore would apply pressure To Get Something Done About It.

The covenants make things much more difficult, fore shore, but that's a long way from making them impossible.

Hugh Watt wrote:

I still don't believe there has been a precedent where a restrictive covenant has been wholly binned. Even the last time when the covenants where changed, it was to ensure that a hotel could be built. I doubt the central plank of home park being used as a sports stadium for a professional football club or howsoever it is worded could be removed.

Restrictive covenants get binned all the time, all over the country. The problem is that the vastly overwhelming number of these are because the covenant is dead (as someone else said, if Argyle moved to a new location, and no other teams showed an interest, an applicant could build a case that the covenant was no longer relevant and have the Lands Tribunal strike it down) or because a deal, financial or otherwise, can be done with the beneficiaries.

Does anyone actually know what covenants are in place, and who the beneficiaries are? The info will be held by the Land Registry - I think it's £7/document, from memory.

With regards to Rickler's point, I'd be pretty certain that someone will take a punt on that land. The applicant might not like the interest rates they offer, or the amount they are willing to lend, but there's plenty of companies specialising in potentially risky debt. I imagine lenders would look at how many clubs have actually ceased to exist, and do the sums. It's more likely that, if PAFC Ltd goes bust, the lender will have an asset that that they can sell or let back to the repackaged company, or to the local council.

Even if the club went to the wall, they would still have an asset that a lot of enterprising developers would look at and think that they could get the covenant struck down on. They may not want to lend to the full value of the land, and they may charge significantly above market interest rates, but the odds on no-one wanting to lend anything on that land must be pretty slim, imo.

MikeWN wrote:

Hugh Watt wrote:

I still don't believe there has been a precedent where a restrictive covenant has been wholly binned. Even the last time when the covenants where changed, it was to ensure that a hotel could be built. I doubt the central plank of home park being used as a sports stadium for a professional football club or howsoever it is worded could be removed.

Restrictive covenants get binned all the time, all over the country. The problem is that the vastly overwhelming number of these are because the covenant is dead (as someone else said, if Argyle moved to a new location, and no other teams showed an interest, an applicant could build a case that the covenant was no longer relevant and have the Lands Tribunal strike it down) or because a deal, financial or otherwise, can be done with the beneficiaries.

Does anyone actually know what covenants are in place, and who the beneficiaries are? The info will be held by the Land Registry - I think it's £7/document, from memory.

With regards to Rickler's point, I'd be pretty certain that someone will take a punt on that land. The applicant might not like the interest rates they offer, or the amount they are willing to lend, but there's plenty of companies specialising in potentially risky debt. I imagine lenders would look at how many clubs have actually ceased to exist, and do the sums. It's more likely that, if PAFC Ltd goes bust, the lender will have an asset that that they can sell or let back to the repackaged company, or to the local council.

Even if the club went to the wall, they would still have an asset that a lot of enterprising developers would look at and think that they could get the covenant struck down on. They may not want to lend to the full value of the land, and they may charge significantly above market interest rates, but the odds on no-one wanting to lend anything on that land must be pretty slim, imo.

Your thinking on covenants is way off base.

Is it? We've had a few removed on properties ourself in the line of my work, and that's how it worked. I'd be happy to hear where I'm wrong though.