All change of ownership and Red Knights related posts here please

roodboy said:
As far as I am concerned that bottom line figure is hugely manipulated by creative accountancy to be as low as possible so does not reflect the real story.
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But Amortisation is debt repayments.


i.e. a cost of the business.



So the left over 25 million is taking into account the massive windfall of 80 million Ronaldo money.


Otherwise, we would be well, well in the negative. Just like the last couple of years.


We can't keep losing money. Especially if we're going to stay competitive on the field.
 
Julian Denny said:
Take off the Ronaldo money from 2009 and what have you got ?
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2009 EBITDA of £90m DOES NOT INCLUDE any profit on selling players - that is why I am using it because it strips out the exceptional effect of the Ronaldo sale.
Annual profits from selling players are IN ADDITION to the numbers I am using.

See for yourself Joga Bonita posted the figures on the previous page:

EBITDA
2007 £75m
2008 £80m
2009 £90m


KingMinger22 said:
But Amortisation is debt repayments.


i.e. a cost of the business.
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Eh? Amorisation is NOT debt repayments - I thought I was talking to someone who knew what they were on about - I guess not.
 
olesmyhero said:
But why look at it that way? Selling Ronaldo was part of the business of the club. So why say 'without that we would have been fecked'. The point is we did that, so saying what if is pointless.
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Because we're not going to get that type of cash this summer. It was a one off.
 
datura said:
The amortisation is the write down of the goodwill arising from the purchase of the club.
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Finally - someone who knows what they are talking about !

There is also the amortisation of the players registrations in there as well, but the goodwill write off alone accounts for something like £35m a year :eek:
This is not an annual expense of the club but the accounting practise used to make our accounts makes it look like it is.
 
roodboy said:
Finally - someone who knows what they are talking about !

There is also the amortisation of the players registrations in there as well, but the goodwill write off alone accounts for something like £35m a year :eek:
This is not an annual expense of the club but the accounting practise used to make our accounts makes it look like it is.
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I have no knowledge of finances but is EBDITA calculated after taking away amortisation costs? If so then our EBDITA is actually £125 mill?

Thanks in advance for clearing it up.
 
Devil_forever said:
I have no knowledge of finances but is EBDITA calculated after taking away amortisation costs? If so then our EBDITA is actually £125 mill?

Thanks in advance for clearing it up.
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No - EBITDA (operating profit) for 2009 is £90m.
The relevance of the £35m goodwill amortisation is that the accounts make it look like an annual cost to the club when really it was cash that was already spent years ago.

I realise this all is pretty confusing - Im sure it means absolutely nothing to 99% of people on here!
 
I'm not sure whether the change of rules applies in England, and it would appear that they do not. I'm surprised that you haven't explained all of this, roodboy. It's almost as if you are learning as you go along, like everyone else, only you've decided to patronize people, because they are struggling with something that, were you as knowledgeable as you make out, you could explain quite easily.

Note: the following article is somewhat out-of date since the accounting rules were subsequently changed to no longer require amortization of goodwill. In retrospect, Nortel was not the best example to use...
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Why Goodwill Amortization is not a real expense

Nortel, in 2000, lost a staggering US$3.5 billion as reported under Generally Accepted Accounting Principles ("GAAP"). But they made US$2.3 billion in earnings before acquisition related costs (amortization of goodwill and write-off of acquired research costs), stock option compensation from acquisitions/divestitures and one-time gains and charges.

That's a swing of US5.8 billion dollars depending on which income figure you want to believe. So it's pretty important to understand the difference between the two figures.

The biggest item of the difference, by far, is the amortization of goodwill. You may have noticed that most companies with an amortization of goodwill expense will report and focus on earnings prior to that expense. It seems that they don't think that amortization of goodwill is a "real" expense.

This is quite confusing for most investors. I must admit that I was rather confused myself, despite being a Professional Accountant and an amateur stock analyst. So I decided to analyse what this is all about.

First we need to understand what goodwill is. It is an intangible asset that arises whenever one company buys another company at a price which exceeds the book value of the assets acquired.

Consider a manufacturing plant that has assets (after accumulated depreciation) of $2 million dollars and total liabilities of $400,000. The net book value or equity of the plant is therefore $1.6 million. ($2 million minus $400,000). Now suppose the plant consistently earns a profit of $800,000 per year. If another company buys the plant they are not going to be able to buy it for its book value of $1.6 million, which is only 2 times the annual earnings. Instead they might have to pay say 10 times the annual earnings so 10 x $800,000 = $8,000,000. The acquiring company would pay out $8 million in cash and receive only $1.6 million in net book asset value. The company then records an intangible asset called goodwill equal to $8 million less $1.6 million = $6.4 million.

The accounting entry might look like this: (assume the land is leased)

Building $2.0 million (increased building asset)

Goodwill $6.4 million (intangible asset purchased)

Loan $0.4 million (took over the existing loan)

Cash $8.0 million (paid out $8 million cash)



The intangible asset of $6.4 million represents the fact that the assets, although valued at $1.6 million, can generate $800,000 per year in profit. For a variety of reasons such as having an established customer list and proprietary manufacturing methods, the earnings power of the plant is a lot higher than the physical value of the plant itself. So goodwill is the intangible portion of the value of a purchased business or asset which is in excess of the value of the purchased tangible assets.

Under accounting rules the Goodwill is amortized or expensed over a period of no longer than 40 years. For example if a company buys another company and creates a goodwill asset of $40 million, it will expense $1 million in Amortization of Goodwill expenses each year. The value of Goodwill on the balance sheet will therefore decline by $1 million each year until it reaches zero after 40 years.

As an accountant, that seemed fair to me. The Goodwill was purchased in order to earn income and it seems fair to charge it against earnings over a period of time. Amortization of Goodwill is very much like charging depreciation of a building to expense.

But wait a minute. Goodwill is not like a building, it does not necessarily deteriorate or wear down. And even if it did become worthless, unlike a building, it does not have to be replaced.

And, that most trustworthy and reliable authority and legendary investor, Warren Buffettt has said "To begin with, we agree with the many managers who argue that goodwill amortization charges are usually spurious. … Economic goodwill does not, in many cases, diminish. Indeed, in a great many cases - perhaps most - it actually grows in value over time." (From his 1999 letter to shareholders section of the Berkshire Hathaway annual report at page 12.)

So, Warren Buffett seems to agree with Nortel that amortization of goodwill is not a real expense and should be added back to the GAAP net income to get a truer picture of reality.

Being an independent thinker, and an accountant who thinks that GAAP matters, I was not completely convinced. How could the accounting GAAP be so wrong?, What does Warren Buffett know anyway? (well I mean besides how to earn a 24% continuously compounded return over 35 years and become a multi billionaire!). Since, I had the greatest respect for Mr. Buffett I thought I had better ponder this some more.

A simple thought experiment convinced me that Warren Buffett was right (surprise!).

Imagine a company that has just one asset, a plant with a book value of $5 million, which earns $1 million per year in profit and is expected to continue to do so indefinitely. If an average investor requires a 10% rate of return on such an investment it is worth $1 million/ 0.10 = $10 million, or twice its book value. The company has no debt so the company is worth $10 million.

Now if another company with no assets manages to buy the first company in exchange for $10 million of its shares, it would end up with the plant worth $5 million on its books and also an intangible Goodwill asset of $5million. The new company would also earn $1 million per year from the plant. But, under GAAP the new company has to amortise the goodwill at the rate of at least $5,000,000 / 40 = $125,000 per year. So the net earnings of the second company are $1,000,000 - 125,000 = $875,000 per year. If I accept the accountants figure then I would now calculate the acquiring company to be worth $875,000 / 0.10 = $8.75 million. But that does not make sense, the second company is making the same income as the first company was. The amortization of goodwill is not a real expense in economic terms.

The amortization of goodwill should be added back to reported net income to get the "true" net income. Effectively as an analyst, Warren Buffett and others are saying the accountants are mistaken when they deduct the amortization of goodwill, we need to add it back. For the purposes of valuing a company on the basis of earnings, amortization of goodwill is simply not an expense. In fairness, Accountants have other goals in mind when they deduct this "expense". Accountants are being conservative and they want to write-down the value of the intangible goodwill over a period of years.

But this does not mean that the amount paid for goodwill is irrelevant. If Nortel or any other company buys another company, the amount that they pay for goodwill affects the company in another way. Nortel has purchased billions of dollars in goodwill. When they have borrowed money to finance the purchase this has increased their interest expense and lowered their net income. When they have issued more shares to buy goodwill then this reduces their earnings per share since there are more shares to spread the earnings over.

So, when a company buys goodwill, the more they pay for the goodwill the lower their earnings per share will be, all else being equal. So the company has a strong incentive to pay as little as possible for every acquisition.

But the companies are right when they say that amortization of goodwill is not a real expense. The financing of the goodwill has already reduced their earnings per share. If we deduct amortization of goodwill, we are in some sense double counting the expense of the acquisition.

But what if they really paid too much and the goodwill really is worthless? The goodwill was paid for to get earnings. If the goodwill is worthless then the earnings will not be there. The lack of earnings will lower our calculated valuation of the company. Again, we don't need to deduct more for a write-off of goodwill. That would be double counting.

In summary, amortization of goodwill is not a "real" expense. Nortel is correct to focus on earnings before amortization of goodwill.

But there is one quid-pro-quo to all of this. In calculating book value of a company I believe that goodwill should be assumed to have a value of zero. In most cases a company is valued for its earnings. Its book value is important only as a possible safety margin in the event that earnings dry up. We could sell off the assets. But if the earnings have dried up then presumably this would be evidence that the goodwill was worthless. So we should deduct goodwill in calculating book value.
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M13_RED said:
:eek::eek: I think that's a huge overestimate. Unless the television deal changes significantly, I think the football bubble is not far off bursting. There is no way that it can keep 'growing' at the rate it has up to now.
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Unfortunately it's showing no sign of bursting.

Some figures were released last week by Gill and matchday revenue is up 19% during a recessional period.

roodboy said:
I do wish you would stop going on about this debt of '£86m at 12%' - it doesnt exist !
Without the PIKs the interest on the bond is max £45m and that is clearly what they are aiming for.
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Roodboys right here.

I make the debt roughly:

510m Bond
202m PIK

We have a further facility of 75m if required.

I expect 130m of the cash reserves we have to be paid when the PIks can be bought back and the 75m will be used to fund player acquisitions after sales and any potential funding gap from non-renewal of STs.
 
Joga_Bonito said:
I'm not sure whether the change of rules applies in England, and it would appear that they do not. I'm surprised that you haven't explained all of this, roodboy. It's almost as if you are learning as you go along, like everyone else, only you've decided to patronize people, because they are struggling with something that, were you as knowledgeable as you make out, you could explain quite easily.
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:lol: Whatever you reckon mate

I don't mind if people come on here and say they have little financial knowledge and ask questions but there are others who claim they know what they are talking about so I assume they have enough knowledge to follow what I am saying - then it turns out that they quite clearly don't have a clue (see KingMinger in this thread for a prime example) - these types deserve to be patronised as far as I am concerned.

Anyway I dont profess to know everything - in fact I am sure I have misunderstood things myself and welcome comment from those more knowledgable than myself to pull me up on it.
 
theimperialinn said:
Roodboys right here.

I make the debt roughly:

510m Bond
202m PIK

We have a further facility of 75m if required.

I expect 130m of the cash reserves we have to be paid when the PIks can be bought back and the 75m will be used to fund player acquisitions after sales and any potential funding gap from non-renewal of STs.
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I am not an expert by any means and I need to work through this whole issue of what I call gross profit and EBTIDA and what I call net profit or what is commonly known as the bottom line. The former looks fine, the latter doesn't.
Unfortunately, for me, I do not have the time to read through or follow every word of this most interesting thread. Not right now anyway.

In the meantime a question. How much are the cash reserves of which £70m is to be allocated to pay down part of the PIKs ? There was an indication that some of the balance would be for Fergie, some for the Glazers themselves - fees/loans ? But how much is then left to further reduce the PIKs - which appears to be a real killer at 14.25% pa and rising ?

Another observation is, and without going into details, the bond issue is split between £ & $ with different interest rates. Because of the recent depreciation of the $ this means there is less interest to be paid in £ terms - unless of course I have this very wrong.
 
Gross Operating Profit is a measure I prefer to use to EBITDA - EBITDA basically hides the truth behind amortisation (which can include debt repayments and sinking funds).

Stone Cold Steve Austin prefered the bottom line. It's a reasonable barometer I'd say. We had £25m losses in two of the last three years because we didn't cash in on stars. We cashed in on Ronaldo - it's not like flogging off the land from The Cliff for houses - there was revenue associated with the little winker's image and his general presence. Without that cash in, we were scheduled to turn in a £37m loss (£25m - £80m + £18m Valencia unneeded spend). That's despite increased revenues. Yes, we did sell him, but the point is that it papered over the cracks just like Arsenal capitulating in 2003 papered over the cracks that were appearing in our squad.
 
honestly the way accounting is
the most important thing to look at is the cashflow statement

that will show you what our net cash position was relative to last year and will take into account the interest payments

the only adjustment I would throw into that is the PIKs as I understand they basically accumulate interest but don't have any cashflows

if total cashflows - PIK interest expense (and for the pedantics, less ronaldo sale) is still positive we are in a decent position


I'm sure I'm oversimplifying but coming from an accounting background the OPAT is not necessarily a good indicator of how the club is actually performing in a practical sense as there are alot of non-cash expenses (such as amortisation/depreciation) as noted above
 
UnitedRoadRed said:
Gross Operating Profit is a measure I prefer to use to EBITDA - EBITDA basically hides the truth behind amortisation (which can include debt repayments and sinking funds).

Stone Cold Steve Austin prefered the bottom line. It's a reasonable barometer I'd say. We had £25m losses in two of the last three years because we didn't cash in on stars. We cashed in on Ronaldo - it's not like flogging off the land from The Cliff for houses - there was revenue associated with the little winker's image and his general presence. Without that cash in, we were scheduled to turn in a £37m loss (£25m - £80m + £18m Valencia unneeded spend). That's despite increased revenues. Yes, we did sell him, but the point is that it papered over the cracks just like Arsenal capitulating in 2003 papered over the cracks that were appearing in our squad.
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That's the way I look at it but I'm still trying to find the time to study it all. There appears to be little doubt that the financial situation has already had an effect on the team. Ok, the sale of Ronaldo, it could justifiably be argued, would have happened whatever our situation. However, it is the lack of expenditure - even in another part of the team - which is cocerning. Fergie said he couldn't see any value but if we are big enough and we need players we should, in normal circumstances, be able to go and get them, with the market, overvalued or not, determine the price. Bringing in Owen instead of investing in a younger and more reliable striker was also strange but possibly indicative. Possibly the sending out on loan of Danny Welbeck, when we are thin on the ground in the striker dept, was also a strange decision. Then there is the report that Fergie has been told to cut the playing staff in the summer. Presumably all are cost saving measures because of the financial situation.

My contention that the club could save interest on the USD part of the loan is wrong because those investors presumably have to be paid in dollars. So, in effect, in pound terms the outlay is now greater because of the recent depreciation. I think that's right anyway.
 
There are too many unknowns to do much better than Imp/Roodboy have done above. It will be interesting to see how much PIK is paid down in the summer (I think it may be as much all of it) - after that things will be a lot clearer
 
EZee would know about this stuff.


Anyways, who saw the double page spread in the news section of todays The Times about the RK's and G&G?

The press coverage of this has been awesome
 
Times says RK looking at Far East super-rich for investment

They are still reporting the '10-minute boycott' as a Facht though :rolleyes:


Red Knights battle for United as Beckham returns to Old Trafford | Manchester United - Times Online



The Times learnt yesterday that the Red Knights’ search for cash is heading east, with their adviser Nomura, Japan’s biggest investment bank, set to begin a trawl of Asia for new super-rich investors next week. The Knights will announce within the next two days that they have formally signed up Nomura to advise them on a takeover bid. The bank’s top-level contacts in Asia were a key reason for its appointment on this campaign.

Asia is United’s fastest-growing market and the club, according to its own research, has at least 40 million supporters in the region, particularly in China, Japan and South Korea. However, the main focus for Guy Dawson, who is leading Nomura’s team on this project, will be to find dozens of high net-worth supporters who can afford to contribute between £5 million and £20 million each to the Knights’ coffers.
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Nomura, Japan's largest investment bank will be officially announced as advisers to the RK's. Nomura will be looking for potential RK's in Asia and have major contacts throughout the continent. (The Times)
 
FT.COM (Financial Times)

Nomura overture from Red Knights
By Roger Blitz, Leisure Industries Correspondent

Published: March 8 2010 22:46 | Last updated: March 8 2010 22:46

The Red Knights have approached Nomura in a further signal of their intentions to wrest control of Manchester United football club from the Glazer family, according to people close to the situation.

The Japanese investment bank was contacted on Friday by the group of financiers to see if it would act as corporate adviser, although no decision has yet been made.

Nomura and the Red Knights both declined to comment.

The recruitment of Nomura would be a significant boost to the fledgling Red Knights campaign, which is being orchestrated by Jim O’Neill, Goldman Sachs’ chief economist who was a United board member until the Glazers’ £790m ($1.2bn) leveraged buy-out.

The campaign is up against some formidable obstacles, not least the Glazers’ determination to hold onto the club.

The Red Knights also want to put together a complex investor base, involving a large number of wealthy investors and ordinary club supporters.

They have received offers of £500m from each of two individual would-be investors.

However, the group is aligned with the Manchester United Supporters Trust and Mr O’Neill is keen that the fans get a stake in the club.
 
peterstorey said:
There are too many unknowns to do much better than Imp/Roodboy have done above. It will be interesting to see how much PIK is paid down in the summer (I think it may be as much all of it) - after that things will be a lot clearer
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What makes you think they will be in a position to pay down £130m odd in the summer ?
 
Will anyone be buying into the bid if the option became available?

I've got about 500 quid I would lob in lol
 
Chapster said:
honestly the way accounting is
the most important thing to look at is the cashflow statement

that will show you what our net cash position was relative to last year and will take into account the interest payments

the only adjustment I would throw into that is the PIKs as I understand they basically accumulate interest but don't have any cashflows

if total cashflows - PIK interest expense (and for the pedantics, less ronaldo sale) is still positive we are in a decent position


I'm sure I'm oversimplifying but coming from an accounting background the OPAT is not necessarily a good indicator of how the club is actually performing in a practical sense as there are alot of non-cash expenses (such as amortisation/depreciation) as noted above
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You are 100% correct Chapster - glad to see there are some posters here who understand the situation.

The OPAT, or 'bottom line' as most like to call it, is really a worthless indicator in our case.
Of course, this is exactly the angle that the media jumped on as it is a great story to report that Manchester United needed to sell their top player just to avoid a loss - it is just a shame that many people cant see past a sensationalist newspaper headline.
I do find it strange that when there is any negative news story about Fergie or one of our players, that most on here just dismiss it as ABU media bias - however when there is a negative story about our finances, the same people believe every word!

I don't have time to do a proper proforma cash flow but you only need to look at the huge amount of unused cash the club have in the bank (£140m as stated in the bond prospectus) to realise that we are we are hugely cash positive after paying all interest payments, expenses etc.


peterstorey said:
There are too many unknowns to do much better than Imp/Roodboy have done above. It will be interesting to see how much PIK is paid down in the summer (I think it may be as much all of it) - after that things will be a lot clearer
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Yes indeed - due to the bond prospectus we are starting to get a clear picture of what is going on with the club finances but the fine details of the PIK situation are still unknown.
As you say, we should get an even better idea over the next 6 months.
 
KingMinger22 said:
Will anyone be buying into the bid if the option became available?

I've got about 500 quid I would lob in lol
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Yes - I will be interested in any opportunity offered to purchase a share of the club - although I still await to see detailed proposal from the Red Knights about this.

I owned shares for years before I was forced to sell them to the Glazers agaisnt my will.
 
roodboy said:
You are 100% correct Chapster - glad to see there are some posters here who understand the situation.

The OPAT, or 'bottom line' as most like to call it, is really a worthless indicator in our case.
Of course, this is exactly the angle that the media jumped on as it is a great story to report that Manchester United needed to sell their top player just to avoid a loss - it is just a shame that many people cant see past a sensationalist newspaper headline.
I do find it strange that when there is any negative news story about Fergie or one of our players, that most on here just dismiss it as ABU media bias - however when there is a negative story about our finances, the same people believe every word!

I don't have time to do a proper proforma cash flow but you only need to look at the huge amount of unused cash the club have in the bank (£140m as stated in the bond prospectus) to realise that we are we are hugely cash positive after paying all interest payments, expenses etc.
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I've been trying to get exactly this point across for many a moon now, but they'd all much rather believe that the club is doomed than entertain the notion that the press and MUST may be misleading us.
 
Julian Denny said:
What makes you think they will be in a position to pay down £130m odd in the summer ?
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I think they'll have to find £234M. There was about £140M in the current account + £70M channelled from the bond + £75M revolving credit + season ticket advance cash (£50M-odd?). I think they'll throw the kitchen sink at it.
 
Right, accountancy gimps...

In an annual report, how come the Profit and Loss Account and the Balance are supposed to result in the same figure? I mean, they're measuring completely different things. For instance, you include fixed assets and depreciation in the balance, but not the P&L. How could they come to the same total?
 
His missus is going to kebab him when she comes back:
'What have you done about the accounts, Col?'
- 'Er. well I asked the wankers on the caf about them'.
 
Profit and Loss Accounts and Balance Sheets are two entirely different documents. The Profit and Loss Account tells .. erm .. how much profit and loss the business is making whilst the Balance Sheet gives a summary of the overall financial position of a business. It provides a financial snapshot at a given moment. It doesn't show day-to-day transactions or the current profitability of the business but many of its figures relate to, or are affected by, the state of play with profit & loss transactions on a given date.

Example, if the business takes out a short-term loan, this will be shown in the balance sheet under current liabilities, but the loan itself won't appear in the Profit & Loss Account. However, the Profit & Loss Account will include interest payments on that loan in its expenditure column - and these figures will affect the net profitability figure.

Balance sheet - overall snapshot.

P & L AC summarises a business' trading transactions - income, sales and expenditure - and the resulting profit or loss for a given period.
 
peterstorey said:
I think they'll have to find £234M. There was about £140M in the current account + £70M channelled from the bond + £75M revolving credit + season ticket advance cash (£50M-odd?). I think they'll throw the kitchen sink at it.
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At 14.25% pa rising to 16% pa it has to be a priority. With the above cash no wonder they don't want to sell ! Notwithstanding they can't be happy about the incresing fan antagonism though and possible boycott affecting revenue. My guess is that the latter will be given a considerable boost if United end up with only the LC this season, with the reverse being true if they win one or both of the others.
 
I think they'll live with it even if you end up with only the CC to polish. A nice Ribery-style signing for £50M would placate the fans (and only cost say £15M in the financial year). Harris & co seem to me to be handling this very badly - they should have got their ducks in a row before going public with an offer (but then Harris struck me as a prime bullshitter on previous sightings).
 
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