Burnley's Leveraged Buyout

[adexkola]

Surprised there isn't a thread on this, given similarities to our own situation with Malcolm et al... Feel free to delete/merge if I'm wrong mods...

Report from the Guardian: https://www.theguardian.com/footbal...-left-club-90m-worse-off-and-loaded-with-debt

Sources with knowledge of the deal did, however, confirm some essential elements: the initial payments to Garlick, Banaszkiewicz and the other sellers have been financed with a loan from MSD UK Holdings, the investment firm of the US tech magnate Michael Dell, said to be approximately £60m. The loan is charged like a mortgage on Turf Moor and the club itself, which will have to repay it from its own revenues, with interest at a rate ALK has not yet publicly stated.

Amazing how this obtained approval from the PL and FA. Should be outlawed. At best it's using resources that could go into transfers and club development. At worst it's asset stripping.

 

[Bastian]

Yeah, it's mad that this has not been completely stopped since that hideous takeover of United.

 

[RUCK4444]

Most clubs wouldn’t be bought without external lending to fund it surely?

Not saying I like this sort of thing but not a lot of potential owners have 60 million they want to spend out of their own bank account for Burnley FC.

 

[adexkola]

Most clubs wouldn’t be bought without external lending to fund it surely?

Not saying I like this sort of thing but not a lot of potential owners have 60 million they want to spend out of their own bank account for Burnley FC.

That's fine but they should not be allowed to put the club up as collateral.

 

[NinjaFletch]

Absolutely horrible deal for Burnley and pathetic how both parties tried to present this as somehow good for the club.

It stunk a mile off too so I'm not sure why Burnley fans weren't more vocal opposing it. But still, if it brings some misery to the white lives matter cnuts then at least some good will come from it.

 

[Counterfactual]

A bank lends you money to buy a house, secured on the... house.

 

[Uniquim]

The Athletic also did an article about the takeover last month, and this part stood out:

"Pace, however, is adamant he and his ALK partners can grow the club’s international brand, marketing Burnley as “Britain’s favourite underdog”, and increase commercial income. Only five top-flight clubs made less than Burnley’s £16 million in commercial revenue in 2018-19, with 83.5 per cent of the club’s total income of £138 million coming from the Premier League’s central broadcast deals."

 

[tomaldinho1]

I get we hate the Glazer buyout but, from a business perspective, it has been a successful investment for them. LBOs are really common, we just hate the Glazers/would be better off with a sugar daddy owner.

 

[duffer]

A bank lends you money to buy a house, secured on the... house.

They're not buying a house.

 

[Red_toad]

A bank lends you money to buy a house, secured on the... house.

But you don’t expect the house to pay the mortgage for you

 

[Bastian]

I get we hate the Glazer buyout but, from a business perspective, it has been a successful investment for them. LBOs are really common, we just hate the Glazers/would be better off with a sugar daddy owner.

At the risk of derailing this thread, this is such a false dichotomy. We don't need a sugar daddy, we just wanted owners who would not saddle the club with debts and drain it from within, neglecting important aspects that need to be maintained (stadium, playing squad, training ground, etc.). The club makes enough money to sustain itself as an elite club. No extra money needed.

 

[Buchan]

They're not buying a house.

 

[Amerifan]

But you don’t expect the house to pay the mortgage for you

For a rental house you do.

Virtually every business operates on financing secured by business assets and the expected future revenue stream. It’s only because foreign billionaire plaything / state ownership have been sanctioned that it seems normal in the PL. To the detriment of the league, in my opinion.

 

[tomaldinho1]

At the risk of derailing this thread, this is such a false dichotomy. We don't need a sugar daddy, we just wanted owners who would not saddle the club with debts and drain it from within, neglecting important aspects that need to be maintained (stadium, playing squad, training ground, etc.). The club makes enough money to sustain itself as an elite club. No extra money needed.

I said 'we would be better off with a sugar daddy' not that we need one.

 

[Berbaclass]

Surprised there isn't a thread on this, given similarities to our own situation with Malcolm et al... Feel free to delete/merge if I'm wrong mods...

Report from the Guardian: https://www.theguardian.com/footbal...-left-club-90m-worse-off-and-loaded-with-debt



Amazing how this obtained approval from the PL and FA. Should be outlawed. At best it's using resources that could go into transfers and club development. At worst it's asset stripping.

I started one back when it happened but no one was really interested.

 

[2ndTouch]

They're not buying a house.

Well, they used that analogy to justify it. LBOs are just another disgusting example for well connected people rigging the business into their favour. Imagine being able to own a football club without even putting a penny of your own money into it...

 

[ivaldo]

They're not buying a house.

Yeah, more of a shed or a hovel.

 

[Bastian]

I said 'we would be better off with a sugar daddy' not that we need one.

Fair enough. I just laid out why we hate them.

 

[Champ]

I'm glad owning and buying a football club is like buying a house,

Never realised the two were the same until now.

 

[roonster09]

Initial reports that the club’s own cash reserves have also been used to pay the selling shareholders were accurate, the Guardian understands. Sources with knowledge of the deal put that figure at between £30m-£40m of the club’s money.

The club’s cash was built up handsomely in the Premier League years since promotion in 2016, through careful husbandry by Garlick and his fellow owners. Burnley’s most recently published accounts, for the year to 30 June 2019, stated that it had no borrowings at all, and £42m in the bank. That makes it difficult not to conclude that just to pay for ALK to take over, the club is now approximately £90m worse off, with interest to pay.

So they have used the cash reserves too, well this is fecked up.

 

[Siorac]

That's fine but they should not be allowed to put the club up as collateral.

But this sort of thing is allowed in pretty much everywhere else in the business world, isn't it?

I'd be very happy with making it illegal in football, I just can't see on what basis would that be possible. How would a law or rule justify football clubs being different from other businesses?

 

[Counterfactual]

I'm glad owning and buying a football club is like buying a house,

Never realised the two were the same until now.

People are familiar with houses and mortgages, which is why I used that example. You don't have to have all the money up front to buy the house. You use leverage to buy the house. The same leverage principle is used here to buy a football club, based on its projected revenue/profit.

 

[RUCK4444]

That's fine but they should not be allowed to put the club up as collateral.

Yeah true, I agree with that for sure.

 

[adexkola]

But this sort of thing is allowed in pretty much everywhere else in the business world, isn't it?

I'd be very happy with making it illegal in football, I just can't see on what basis would that be possible. How would a law or rule justify football clubs being different from other businesses?

There is a cultural aspect to football clubs that other businesses don't have. For one, clubs are recognized as extensions of their communities. Many supporters don't jump from club to club seeking the "best bang for their buck".

I'm not sure why it would be impossible for the government in collaboration with football authorities to ban something that could end up ruining the club, long after the buyer moves on.

There is enough demand for ownership of lucrative clubs in the PL that can be satisfied without resulting to leveraged buyouts.

 

[Champ]

People are familiar with houses and mortgages, which is why I used that example. You don't have to have all the money up front to buy the house. You use leverage to buy the house. The same leverage principle is used here to buy a football club, based on its projected revenue/profit.

That makes sense, and I can see how the principle is similar, just when buying a house to live in you then have to carry on paying that 'debt' out of your own money, whereas in Burnley's point of view they will now be expected to pay off that 'debt' (read Burnley as the house!)

Unless I am getting that wrong or missing something (which is entirely feasible as business isn't my strong point)??

 

[P-Nut]

This has always confused me, they basically put nothing in and then take money out. What's to stop the average person off the street doing exactly the same thing? Do you need a degree of wealth behind yiu and if so for what reason?

 

[adexkola]

That makes sense, and I can see how the principle is similar, just when buying a house to live in you then have to carry on paying that 'debt' out of your own money, whereas in Burnley's point of view they will now be expected to pay off that 'debt' (read Burnley as the house!)

Unless I am getting that wrong or missing something (which is entirely feasible as business isn't my strong point)??

Plus, if you default on the house, the bank takes the house back, and apart from you now being homeless/shacking up with your mum, there is no harm done to the original asset.

On the contrary, Burnley could be irreparably damaged by mismanagement going forward.

 

[VorZakone]

This has always confused me, they basically put nothing in and then take money out. What's to stop the average person off the street doing exactly the same thing? Do you need a degree of wealth behind yiu and if so for what reason?

Leveraged buyouts legit confuse me. I've done tons of reading on it (looking up corporate raiders) but I still don't have a good grasp of what happens next.

 

[ThatsGreat]

Yeah, it's mad that this has not been completely stopped since that hideous takeover of United.

Utd is a runaway success story of how a LBO is good for everyone. If anything, Utd would be used to prove that that model works.

 

[Champ]

Plus, if you default on the house, the bank takes the house back, and apart from you now being homeless/shacking up with your mum, there is no harm done to the original asset.

On the contrary, Burnley could be irreparably damaged by mismanagement going forward.

Thats a good point too,

Whats to say that fans will not be allowed into ground for the rest of the season, and Burnley go down.

I'd imagine they wouldn't recoup a huge amount of cash from player sales, leaving them with reduced income for the next season as well as a whole season of missed income.
Also based on the fact they have already iterated that majority of their income is on TV rights and they want to grow commercial income, would saddle them with debt repayments and vastly reduced income due to being in the Championship...

 

[Champ]

Utd is a runaway success story of how a LBO is good for everyone. If anything, Utd would be used to prove that that model works.

Is there not a case of saying United were too big to fail with a LBO?

United were in a strong position in terms of income already with strong saleable assests and a global fanbase, Burnley however do not have that luxury, nor any income other than TV rights due to poor commercial income.

 

[DanClancy]

Its disgusting its still allowed and what's worse is there's clowns on here who don't have an issue with it, football clubs aren't normal businesses. There's not a great deal that can be done with Burnley, they won't be challenging for Europe with this lot in charge so can only assume their expecting TV revenues to grow.

Sounds like Burnley heading for huge trouble if they get relegated in the next few years.

 

[Oranges038]

Genuinely don't see how the league can allow this to happen, especially at a club like Burnley where if they have a sticky patch and end up relegated, the financial implications could be huge, even with the parachute payments. They hardly have a global marketing appeal, the Tv money is probably their biggest source of income.

A couple of ways I can see this going.

In a couple of years the owners will get antsy about progress and success at the club. They want to earn more money (to help pay off the loan and give themselves a nicer return) and to get that they have to improve the squad to move up the table. They spend the money. The fans feel that based on the spending the club should be doing better. While Dyche is quite happy to persevere and maintain the hardworking player ethos and keep club safely in mid table.

Eventually, they lose patience. They sack Dyche and replace him with some guy who wants to "play football the right way", to move the team up the table and maybe get a Europa League place. He brings in some fancy ball playing players to get this done, but they can't mix with the hard working type cloggers Dyche has left behind. So you end up with a confused mish mash of a team who can't gel. They end up dropping out down of the PL and finally end up like Stoke have done in recent times, maybe in 6 or 8 years they will trouble for a play off place again.

Or, they stick with Dyche and are happy with the steady return year on year, finishing around 10th. It'll keep the money coming in to pay themselves just enough to survive on whilst also covering the repayments on the loan against the club.

 

[sun_tzu]

Its disgusting its still allowed and what's worse is there's clowns on here who don't have an issue with it, football clubs aren't normal businesses. There's not a great deal that can be done with Burnley, they won't be challenging for Europe with this lot in charge so can only assume their expecting TV revenues to grow.

Sounds like Burnley heading for huge trouble if they get relegated in the next few years.

Aren't they? ... I mean they are registered at companies house like a normal business - they pay taxes like a normal business - I'm not sure why they would be treated differently from a legal perspective if somebody wants to buy them?

 

[Infra-red]

I was once told by Duncan Drasdo (of MUST) that he had received assurances from those working in football governance that an LBO would never again be allowed in the Premier League after what happened at United.

I feel sorry for Burnley and the fans.

 

[Bastian]

Utd is a runaway success story of how a LBO is good for everyone. If anything, Utd would be used to prove that that model works.

I can see how it's used as a model (even though United is quite a unique club in that sense and Burnley are a world apart) but it most definitely is not good for everyone. That should be obvious.

 

[Infra-red]

Aren't they? ... I mean they are registered at companies house like a normal business - they pay taxes like a normal business - I'm not sure why they would be treated differently from a legal perspective if somebody wants to buy them?

All of this is true, but they are also community assets with captive audiences, that in my view deserve extra safeguards to prevent them going to the wall.

 

[TwoSheds]

But this sort of thing is allowed in pretty much everywhere else in the business world, isn't it?

I'd be very happy with making it illegal in football, I just can't see on what basis would that be possible. How would a law or rule justify football clubs being different from other businesses?

Because they're not supposed to be just businesses. In the Bundesliga for example they have to be majority fan owned (with some notable exceptions) which recognises that they are community organisations as well as just businesses. Exactly the way it should be.

If tomorrow I decided I liked Nike trainers more than Adidas ones then I would switch the brand I buy from. I would never do that with my football team because it's about more than just business. I am therefore effectively subject to a monopoly as the "consumer" and the regulations around the way the club is run should reflect that.

 

[P-Nut]

Leveraged buyouts legit confuse me. I've done tons of reading on it (looking up corporate raiders) but I still don't have a good grasp of what happens next.

Yeah doesn't make any sense to me.

 

[Infra-red]

Utd is a runaway success story of how a LBO is good for everyone. If anything, Utd would be used to prove that that model works.

It has worked by luck (the TV rights boom) as much as by design (the commercial strategy). Thanks to a once in a lifetime manager working miracles, the gamble has paid off for the Glazers.