Excellent article from the Athletic which features analysis on Leicester City’s news from football finance expert Kieran Maguire. After all of the gushing from some of our fans yesterday, it turns out the reality is this is nothing more than a housekeeping exercise. Have a look at the below as to why it really changes very little
From The Athletic
“According to Kieran Maguire, football finance expert and author of The Price of Football, this is probably just the club’s owners trying to tidy up their balance sheet.
“It is more of a cosmetic housekeeping exercise," he tells The Athletic. “The football club would never have been in the position to repay King Power the loans, so it is formally acknowledging the nature of the relationship between the two. It has no impact on the value of the club."
According to Maguire, it is certainly not an indication that Aiyawatt Srivaddhanaprabha, chairman of the club and CEO of King Power, is looking to sell to serious investors.
“If I was tasked with selling the club, to be able to project it to potential buyers as having no debt, it looks nicer," he says. “It is the type of thing you might consider if that was your objective, but to a serious investor it wouldn’t make any difference.
“I sometimes see sale brochures of individual clubs, which I can’t name, and it looks glossy, it looks more persuasive, and might attract some people who might not have been otherwise interested, but a hardcore investor would not be bothered."
It isn’t a new move by King Power. In 2013, they converted £103million of loans handed to the club following their £39m takeover from Milan Mandaric in 2010 into equity. That initial investment paved the way for promotion to the Premier League and the incredible success the club has enjoyed since
But they never intended the loans to be repaid — it is the same now.
“It is a bit like me giving one of my kids a few grand for a deposit for their first house," says Maguire. “I am never expecting to get that back, even though it is a loan.
“It is the owners effectively becoming the bank of mum and dad, and formalising the position."
But the fact that they don’t expect the loan to be repaid doesn’t mean the owners may not get their money back someday if they sold the shares, especially as the value of Premier League clubs continue to rise.
“I think they would get their money back," Maguire says. “The asking price for Leeds United is around £500million and Newcastle went for £300million, which looks a bargain now. There is increased value in Premier League clubs, so they could recover that money from the sale of the shares, certainly."
Regarding the reduced interest costs, there has been talk of the impact of the conversion when it comes to financial rules. The club’s ambition — until their struggles this season — was to compete regularly in European football, which means obeying UEFA’s financial fair play (FFP) rules. However, this latest move won’t make a significant difference.
“The interest payments were never cash payments," Maguire explains. “They just got added to the value of the debt. Charging interest on a debt that was never going to be paid is a bit farcical.
“From an FFP perspective, if you are no longer going to be charging interest then that is one less expense in your FFP calculations. So there is a small benefit."
So there we have it from someone who actually knows what he’s on about. It changes nothing. It means very little - they were never getting the debt repaid and they’re doing this with the full knowledge that the debt write off will pay itself back when they eventually sell the club.
It’s very much business as usual. You can put the party hats away
What the debt write off is really about…
posted on 3/2/23
Interesting reading this thread being someone that’s married into a Leicester family and been to a few games over the years.
Personally I don’t think either of your owners or Rodgers are doing particularly a bad job. Your recruitment hasn’t been as good as it was and you’re amongst a set of clubs where getting there right or wrong in just one or two windows can mean the difference between a comfortable top ten finish or a bit of a battle in the lower half.
posted on 4/2/23
Interesting view point Melton - good to get a neutrals view. I certainly agree we are in that group of clubs where you have to get everything consistently right to compete near the top. Trouble is we’ve been getting most things consistently wrong
posted on 4/2/23
99P - ignore STS, this board has been revitalised and far more interesting since you came back, so keep on posting please.
I still don't agree on the owners, I don't think they are in it for investment purposes, I'm going with the love of the game scenario, maybe with a dash of ego trip added. Putting money into football in the expectation of turning in significant profits is generally a mug's game, and the owners don't strike me as idiots.
I think the main problem occurred with the loss of Vichai, forcing a situation where Top took over perhaps 10 years earlier than planned without the guidance of his dad in the background; I suspect that is the main reason we're in the mess we have today (the pandemic hasn't helped obviously, particularly with the impact on the main KP business). I don't think for a second that we'd be where we are if he was still around - for a start I doubt very much that Brendan would still be managing the club.
I don't wholly agree with the investment argument either, you don't necessarily get equivalent enhancement in value of the club by shelling out large sums of £££ for infrastructure.
posted on 4/2/23
Thanks Nuneaton! I think you raise a valid point - I’ve provided a very simple calculation to show why I think the conversion of debt to equity may not affect a serious buyer, but I suspect you’re right - it’s not quite as simple as infrastructure investment = equivalent return
What’s worth considering though is the acquisition of Leicester is very much like buying a large but very run down house. It has a lot of potential if you spend the money on it and although you may do it because you love the house - you’ll enhance its value 10 fold as opposed to buying a modern nearly new house which doesn’t need much doing
I think that may have been the business appeal for them. The stadium expansion will be come a cash cow because of the revenues from the planned entertainment and retail complex. It will allow them to host more events at the King Power and it should generate a lot of cash which can go back into the club if it comes off
So for that reason I think the King Power group have always seen the potential. I think basically you can be both in terms of motivation. You can love football and want to make a positive difference and want to make a return.
posted on 4/2/23
No doubt about the mixed development making sense from an investment perspective, although non-football matters outside the stadium would presumably not be part of the football club finances, hence any monies put into the club from this source would be subject to FFP rules?
posted on 4/2/23
comment by Nuneaton_fox (U7936)
posted 5 hours, 10 minutes ago
No doubt about the mixed development making sense from an investment perspective, although non-football matters outside the stadium would presumably not be part of the football club finances, hence any monies put into the club from this source would be subject to FFP rules?
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It’s not anything to do with ffp, that only looks at the p&l.
posted on 5/2/23
comment by meltonblue (U10617)
posted 14 hours, 48 minutes ago
comment by Nuneaton_fox (U7936)
posted 5 hours, 10 minutes ago
No doubt about the mixed development making sense from an investment perspective, although non-football matters outside the stadium would presumably not be part of the football club finances, hence any monies put into the club from this source would be subject to FFP rules?
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It’s not anything to do with ffp, that only looks at the p&l.
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My understanding is that FFP makes it difficult to put money in to the club this way, because it would be unearned income - they are only allowed to spend what they have earned in theory?
posted on 5/2/23
comment by Nuneaton_fox (U7936)
posted 46 minutes ago
comment by meltonblue (U10617)
posted 14 hours, 48 minutes ago
comment by Nuneaton_fox (U7936)
posted 5 hours, 10 minutes ago
No doubt about the mixed development making sense from an investment perspective, although non-football matters outside the stadium would presumably not be part of the football club finances, hence any monies put into the club from this source would be subject to FFP rules?
----------------------------------------------------------------------
It’s not anything to do with ffp, that only looks at the p&l.
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My understanding is that FFP makes it difficult to put money in to the club this way, because it would be unearned income - they are only allowed to spend what they have earned in theory?
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Correct, which is why this is nothing to do with ffp. It’s essentially covering losses you’ve already incurred, not adding anything to your profit.
The caveat to that is if they’re spending anything more on infrastructure, that’s exempt from ffp so owners can invest and spend what they like on that.
This particular action is just a conversion of loan to equity though, so not new investment as such.
posted on 5/2/23
On the new retail complex earning revenues for the club and classing as ffp - doesn’t it depends who owns it? So let’s say the expanded stadium incorporates the retail complex and it’s all under the ownership of the club - then surely any revenues are classed as generated by the club? This of course also includes hiring out the stadium for events, concerts etc
My understanding is, like the new Spurs stadium, this is the reason to do it. Not only do increased attendances of an expanded stadium generate more revenue, the wider complex, if classed as part of the new stadium and owned by the club allows it to be self sufficient and generate increased revenues?
posted on 5/2/23
Yep exactly that. The expenditure is exempt but the additional revenue isn’t.
So essentially for owners nowadays, if they want to invest significantly it’s through off field ways of increasing revenue as they’re limited with what they can do directly.