Investment Perspective

[HarrowbyOwl]

An intersting article from one of the C9S guys Jo Kosich (of Tranmere e-Bay fame)

http://www.bigsoccer.com/forum/blog.php?b=7539

Edited February 4, 2010 by HarrowbyOwl

[Guest Walkley_Owl]

good find

[Guest JonR]

very interesting read. this stood out for me.

Evaluating Opportunities

Financial analysis of football clubs is not terribly onerous and focuses on a number potential value drivers:

1. The grounds must be owned by the club;

2. Size of grounds must be in upper quartile of its respective league;

3. [Fan support (as defined by average attendance) in top quartile of its respective league;

4. The club must maintain a well-respected academy;

5. Positive EBITDA (exc. Player transfers);

6. Pro-Forma debt less than £10 million post acquisition;

7. Must be in Championship or Premiership; and

8. Wages/Turnover must be maintained at 60% or less and be competitive in its respective league.

now i see why attendance figures are so important to Lee. I also see why the co-op will restructure the debt to 11 million.

apart from those two points i think we are in the criteria for investment. so we will have to wait and see.

clearly it is possible to make profit from SWFC

[Guest DonnyOwl85]

Could someone please copy and paste the full article, the site won't load up for me, cheers

[SiJ]

Well we certainly fit the criteria.

Wait and see i geuss.

Have been saying that for about 4 years though.

[sacré bleu]

there ya go.....

A Case In Favor of English Football Investment

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Posted Today at 10:36 AM by Anglofile

The recent smattering of insolvencies and financially distressed situations in English football has once again placed the spotlight on the current football league model as well as the financial management of clubs in the top four leagues of the FA. The resulting financial disarray has not only caused many clubs as well as their financial partners to seek the restructuring of existing bank loans but those same clubs to seek additional equity capital or outright sale of the club.

The Perfect Storm

English clubs from a period beginning in 2003 through 2009 relied increasingly on leverage to fund club acquisitions as well as to fund football operations and ongoing earnings deficits. English football was awash in bank liquidity from their major financial institutions including but not limited to RBS, Lloyds Bank, Barclays and other middle market players such as Co-Operative Bank plc. In many circumstances, these loans were structured and secured by first mortgage facilities on club grounds and extended on an overdraft or demand basis. Even foreign competition entered the markets with Wachovia Bank’s syndicated financing in concert with RBS on the refinancing of Liverpool FC’s debt in 2008.

While the loans were secured by first mortgages and so called hard collateral, in effect, most of the secured by the enterprise value of the clubs typically modeled after some multiple of EBITDA or turnover. As a result, many of the banks were extending credit with the assumption that the club would be a going concern and turnover from television revenues and higher attendance figure would drive increases in value for the foreseeable future.

Starting with the 2008 credit crisis, the party ended for many football clubs and the punch bowl taken away by the banks. The years of calling the club’s banker to increase as well as extend the club’s credit facility were over. All of a sudden, senior credit officers and credit committees were taking an increasingly critical eye of their loan portfolios including those extended to football concerns. Most, if not all banks were tightening their credit policies and balked at any additional facility increases and in many cases requiring that clubs raise substantial equity to reduce the bank’s exposure. Between the years 2001 and 2009, the FA typically has experienced between 1 and 3 clubs filing for administration/CVA per year. Entering the 2010 season, Crystal Palace has already filed administration in January and it appears that several more clubs may soon follow by April. Notts County and Cardiff City are also face a winding-up petition from HM Revenue & Customs over unpaid tax bills, while Watford has warned that it could go into administration. On the same day that Cardiff City has a winding up hearing (February 10, 2010); Portsmouth FC will also have a hearing conducted with HMRC. Portsmouth, currently in the relegation zone in the Premiership, is feared to have debts in excess of £40-50 million. Currently on many fans’ watch list are: West Ham United as well as Hull City. It is well within the realm of possibilities that the Premiership may see the first side ever to file for administration. Two of the largest clubs facing major refinancing of their debt in 2010 are Manchester United and Liverpool FC which have a total amount of funded debt in excess of £900 million.

Valuations

If you can keep your head when all about you are losing theirs…… Rudyard Kipling

The dearth in new bank financings as well as the overall economic malaise has caused a withering of football club values in the last 1-2 years. New investment funds have sought a respite from the current market volatility and moved to more traditional bond and equity investments as well as cash. Additional concerns over football spending by supporters in the form of season tickets, merchandise and concessions has spooked many an experienced investor. Finally, the latest extension of Sky Sports television contract through the 2012/13 season provided little to be encouraged by in terms of a significant uptick in revenues.

Southampton FC who competed in the EPL as late as the 2004-05 season filed for administration in April of 2009. As a result of this administration, the club was relegated to League One status for the 2009-10 season. The sale of the club out of administration provides an interesting data point in terms of valuation. Southampton Soccer News Topics, who had spent 25 years in England’s top division, was reportedly sold at a valuation metric (assuming turnover of £13 million) of approximately 1x. This is a significant departure from previous sales multiples for Championship level clubs in recent years (Coventry 2007 for 6.0x, Ipswich 2007 – 4.2x, Birmingham City 2007 – 2.0x, Wolverhampton 2007 – 2.52x). The only club acquisition approaching that of Southampton’s was Derby County in 2008 following its relegation to the Championship where previous turnover was inflated from the Premiership.

Recent equity raises and outright sales of Championship clubs have met with continued tepid response, at best, over the past two years with no new sales of clubs occurring in the 2009 calendar year. Clubs such as Crystal Palace Soccer News Topics, Watford, Charlton Athletic, Sheffield Wednesday and Reading had reportedly tested the markets for new investors and were met with little success.

The Specter of Administration

Administration has a significant cost associated with it in English Football. League rules specify that any club filing for administration will be assessed a 10-point penalty in the league tables. As a result of Crystal Palace’s recent filing, the club went from a potential playoff contender for promotion to 21st place just above the drop zone. While administration may appear at first blush as a viable financial alternative, the penalties associated with it can force a club into relegation into the next lower football division and diminish the overall value of the club. Due to this hefty penalty, clubs as well as banks are reluctant to force a club into administration. Many banks have chosen instead to work cooperatively with the banks in terms of finding new equity investors to repay debt (causing dilution in the existing equity holdings), increased supervision by the bank (as has been reported in the case of Scottish FA giant Glasgow Rangers) or an overall restructuring and forgiveness of debt (‘cram-down’ in American parlance).

Due to the above intervening factors, the FA has turned into a relative treasure trove for the experienced sports entrepreneur or investor. Banks and equity stakeholders as of late have shown a greater propensity to be more flexible in their negotiations with potential investors and purchasers. This new-found flexibility will result in clubs emerging from restructurings without having to go through the process of administration while providing reasonable purchase multiples which were non-existent as recent as two years ago.

Evaluating Opportunities

Financial analysis of football clubs is not terribly onerous and focuses on a number potential value drivers:

1. The grounds must be owned by the club;

2. Size of grounds must be in upper quartile of its respective league;

3. Fan support (as defined by average attendance) in top quartile of its respective league;

4. The club must maintain a well-respected academy;

5. Positive EBITDA (exc. Player transfers);

6. Pro-Forma debt less than £10 million post acquisition;

7. Must be in Championship or Premiership; and

8. Wages/Turnover must be maintained at 60% or less and be competitive in its respective league.

Adhering to the above screening criteria provides a strong foundation in order to build a financially viable club long-term. Many of us will look back upon this time in this space and realize that this was a once in a lifetime change in an industry where some will capitalize and reap huge rewards.

Joseph M. Kosich is the founder of Dornoch Capital Advisors LLC, a merchant banking and advisory firm specializing in professional sports finance and located in Pinehurst, NC. Previously, Joe founded and served as a managing director and head of originations and syndications for Wachovia’s Structured Finance Group which specialized in sports and entertainment finance. Joe was responsible for structuring and syndicating complex corporate finance transactions in the United States, Canada and U.K for ultra high net worth families and individual sponsor groups. Joe’s primary focus was on enterprise value lending, preferred, mezzanine and other subordinated debt structures. Prior to joining Wachovia in 2005, Joe spent 16 years, in various structured finance and corporate/private banking positions, with Citigroup, UBS, AG and Bank of America

[HarrowbyOwl]

apart from those two points i think we are in the criteria for investment.

clearly it is possible to make profit from SWFC

Last season we were in sixth place on average attendances for the CCC, putting us into the top quartile

[The Batman]

"Adhering to the above screening criteria provides a strong foundation in order to build a financially viable club long-term. Many of us will look back upon this time in this space and realize that this was a once in a lifetime change in an industry where some will capitalize and reap huge rewards."

He sounds interested I recon!

[gurujuan]

Also explains why maintaining the tight wages budget is so important. I couldn't understand when there seemed to be a desperate need to bring in some squad cover why we couldn't temporary increase the budget, well the need to maintain that 60% figure is the answer.

[fife_owl]

SWFC + Club9 = Perfect partnertship?

[Guest ashjam]

I'm a member of big soccer but haven't visited for a while. I might start logging on again more frequently now.

Thanks for the heads up Harrowby. Well spotted Sir

[bobtheowl]

Excellent read, which actually makes me feel a bit more optimistic about our situation.

Slowly, but surely......

[latemodelchild]

Certainly ties up with what we've been hearing re wages and crowds etc. Unfortunately, the nature of the beast is that a club thats winning will see bigger crowds. We've had a terrible season, crowds have fallen and that could be seen as a negative. However, we haven't lost fans for good, well, not in the numbers that will really screw us. If the team can keep this little run going the average will rise.

Looking at it though we're 6th in the averages table with the 2nd highest capacity. We're ripe for picking.

[steelowl]

there ya go.....

A Case In Favor of English Football Investment

Submit "A Case In Favor of English Football Investment" to Facebook Submit "A Case In Favor of English Football Investment" to Yahoo! Buzz Submit "A Case In Favor of English Football Investment" to Digg Submit "A Case In Favor of English Football Investment" to Google Submit "A Case In Favor of English Football Investment" to del.icio.us Submit "A Case In Favor of English Football Investment" to StumbleUpon Submit "A Case In Favor of English Football Investment" to Furl Submit "A Case In Favor of English Football Investment" to Reddit

Posted Today at 10:36 AM by Anglofile

The recent smattering of insolvencies and financially distressed situations in English football has once again placed the spotlight on the current football league model as well as the financial management of clubs in the top four leagues of the FA. The resulting financial disarray has not only caused many clubs as well as their financial partners to seek the restructuring of existing bank loans but those same clubs to seek additional equity capital or outright sale of the club.

The Perfect Storm

English clubs from a period beginning in 2003 through 2009 relied increasingly on leverage to fund club acquisitions as well as to fund football operations and ongoing earnings deficits. English football was awash in bank liquidity from their major financial institutions including but not limited to RBS, Lloyds Bank, Barclays and other middle market players such as Co-Operative Bank plc. In many circumstances, these loans were structured and secured by first mortgage facilities on club grounds and extended on an overdraft or demand basis. Even foreign competition entered the markets with Wachovia Bank’s syndicated financing in concert with RBS on the refinancing of Liverpool FC’s debt in 2008.

While the loans were secured by first mortgages and so called hard collateral, in effect, most of the secured by the enterprise value of the clubs typically modeled after some multiple of EBITDA or turnover. As a result, many of the banks were extending credit with the assumption that the club would be a going concern and turnover from television revenues and higher attendance figure would drive increases in value for the foreseeable future.

Starting with the 2008 credit crisis, the party ended for many football clubs and the punch bowl taken away by the banks. The years of calling the club’s banker to increase as well as extend the club’s credit facility were over. All of a sudden, senior credit officers and credit committees were taking an increasingly critical eye of their loan portfolios including those extended to football concerns. Most, if not all banks were tightening their credit policies and balked at any additional facility increases and in many cases requiring that clubs raise substantial equity to reduce the bank’s exposure. Between the years 2001 and 2009, the FA typically has experienced between 1 and 3 clubs filing for administration/CVA per year. Entering the 2010 season, Crystal Palace has already filed administration in January and it appears that several more clubs may soon follow by April. Notts County and Cardiff City are also face a winding-up petition from HM Revenue & Customs over unpaid tax bills, while Watford has warned that it could go into administration. On the same day that Cardiff City has a winding up hearing (February 10, 2010); Portsmouth FC will also have a hearing conducted with HMRC. Portsmouth, currently in the relegation zone in the Premiership, is feared to have debts in excess of £40-50 million. Currently on many fans’ watch list are: West Ham United as well as Hull City. It is well within the realm of possibilities that the Premiership may see the first side ever to file for administration. Two of the largest clubs facing major refinancing of their debt in 2010 are Manchester United and Liverpool FC which have a total amount of funded debt in excess of £900 million.

Valuations

If you can keep your head when all about you are losing theirs…… Rudyard Kipling

The dearth in new bank financings as well as the overall economic malaise has caused a withering of football club values in the last 1-2 years. New investment funds have sought a respite from the current market volatility and moved to more traditional bond and equity investments as well as cash. Additional concerns over football spending by supporters in the form of season tickets, merchandise and concessions has spooked many an experienced investor. Finally, the latest extension of Sky Sports television contract through the 2012/13 season provided little to be encouraged by in terms of a significant uptick in revenues.

Southampton FC who competed in the EPL as late as the 2004-05 season filed for administration in April of 2009. As a result of this administration, the club was relegated to League One status for the 2009-10 season. The sale of the club out of administration provides an interesting data point in terms of valuation. Southampton Soccer News Topics, who had spent 25 years in England’s top division, was reportedly sold at a valuation metric (assuming turnover of £13 million) of approximately 1x. This is a significant departure from previous sales multiples for Championship level clubs in recent years (Coventry 2007 for 6.0x, Ipswich 2007 – 4.2x, Birmingham City 2007 – 2.0x, Wolverhampton 2007 – 2.52x). The only club acquisition approaching that of Southampton’s was Derby County in 2008 following its relegation to the Championship where previous turnover was inflated from the Premiership.

Recent equity raises and outright sales of Championship clubs have met with continued tepid response, at best, over the past two years with no new sales of clubs occurring in the 2009 calendar year. Clubs such as Crystal Palace Soccer News Topics, Watford, Charlton Athletic, Sheffield Wednesday and Reading had reportedly tested the markets for new investors and were met with little success.

The Specter of Administration

Administration has a significant cost associated with it in English Football. League rules specify that any club filing for administration will be assessed a 10-point penalty in the league tables. As a result of Crystal Palace’s recent filing, the club went from a potential playoff contender for promotion to 21st place just above the drop zone. While administration may appear at first blush as a viable financial alternative, the penalties associated with it can force a club into relegation into the next lower football division and diminish the overall value of the club. Due to this hefty penalty, clubs as well as banks are reluctant to force a club into administration. Many banks have chosen instead to work cooperatively with the banks in terms of finding new equity investors to repay debt (causing dilution in the existing equity holdings), increased supervision by the bank (as has been reported in the case of Scottish FA giant Glasgow Rangers) or an overall restructuring and forgiveness of debt (‘cram-down’ in American parlance).

Due to the above intervening factors, the FA has turned into a relative treasure trove for the experienced sports entrepreneur or investor. Banks and equity stakeholders as of late have shown a greater propensity to be more flexible in their negotiations with potential investors and purchasers. This new-found flexibility will result in clubs emerging from restructurings without having to go through the process of administration while providing reasonable purchase multiples which were non-existent as recent as two years ago.

Evaluating Opportunities

Financial analysis of football clubs is not terribly onerous and focuses on a number potential value drivers:

1. The grounds must be owned by the club;

2. Size of grounds must be in upper quartile of its respective league;

3. Fan support (as defined by average attendance) in top quartile of its respective league;

4. The club must maintain a well-respected academy;

5. Positive EBITDA (exc. Player transfers);

6. Pro-Forma debt less than £10 million post acquisition;

7. Must be in Championship or Premiership; and

8. Wages/Turnover must be maintained at 60% or less and be competitive in its respective league.

Adhering to the above screening criteria provides a strong foundation in order to build a financially viable club long-term. Many of us will look back upon this time in this space and realize that this was a once in a lifetime change in an industry where some will capitalize and reap huge rewards.

Joseph M. Kosich is the founder of Dornoch Capital Advisors LLC, a merchant banking and advisory firm specializing in professional sports finance and located in Pinehurst, NC. Previously, Joe founded and served as a managing director and head of originations and syndications for Wachovia’s Structured Finance Group which specialized in sports and entertainment finance. Joe was responsible for structuring and syndicating complex corporate finance transactions in the United States, Canada and U.K for ultra high net worth families and individual sponsor groups. Joe’s primary focus was on enterprise value lending, preferred, mezzanine and other subordinated debt structures. Prior to joining Wachovia in 2005, Joe spent 16 years, in various structured finance and corporate/private banking positions, with Citigroup, UBS, AG and Bank of America

Obviously the guy's been reading owlstalk

[Furious George]

Good read.

My question though after reading this, is why the delay?

We want investment, they pretty much have summed us up in that article, accordingly they havea been interested since November last year if I recall correctly.

So when can we expect some development?

[steelowl]

Good read.

My question though after reading this, is why the delay?

We want investment, they pretty much have summed us up in that article, accordingly they havea been interested since November last year if I recall correctly.

So when can we expect some development?

read the req league bit IMO

[eckingtonblue]

Good read.

My question though after reading this, is why the delay?

We want investment, they pretty much have summed us up in that article, accordingly they havea been interested since November last year if I recall correctly.

So when can we expect some development?

I'd imagine when they know we're staying in the championship !

[Anthndav]

That's an excellent article. I'm more confident about investment after reading that than I was before.

[Furious George]

read the req league bit IMO

But thats listed as point seven of eight conditions.

Are you suggesting then that investment will not be concluded until safety is assured, bearing in mind that could be as late as May?

Pfft.

[steelowl]

But thats listed as point seven of eight conditions.

Are you suggesting then that investment will not be concluded until safety is assured, bearing in mind that could be as late as May?

Pfft.

Can see no other reason why the deal wasn't concluded can you?