Derby County Accounts 13/14

[ramblur]

​It may be the case that the covenants on the loan have been breached, meaning that the Co-op have the power to call the loan in, but given the security it has (stadium etc), it probably won't.

I'll be interested to see the Group accounts when they finally become available. The Gellaw accounts show a creditor due to the parent company. I don't know yet but is that essentially where the shareholder debt is? It's quite a clever, if dishonest, method of getting round the FFP rules if that's the case. I wouldn't be surprised if other clubs adopt this method.

I also read something about the accounts being late. From working in the audit field myself, I know that there's currently a 2 week delay between submitting accounts and uploading them to the system, which may explain why it took a while for the results to appear.

​Hi Diag Ram,I'll try and answer this in language others might have at least a chance of understanding (not a dig at you btw).When the loan capital first arose,and up to the time of conversion to equity within DCFC, the loot was first loaned by investors to GS Derby (UK) Ltd (now Global Derby) ,the 'senior' UK holding company,which in turn loaned it on to Gellaw 101,the 'junior' holding company,from whence it was loaned to DCFC. Because both holding companies owed and were owed the same amounts,these cancel out and hence the net effect was a loan from the investors to DCFC.

The conversion of loans to equity within DCFC has effectively cancelled out the Gellaw -DCFC loan,thus the net effect now is a loan from the investors to Gellaw,so you're correct in what you're saying.

I think "dishonest" is a bit strong,and the kind of language that might worry fans,and I'm not so sure about "clever" either.I think one has to appreciate the problems that FFP may have brought to our owners.From what I can see, the amount of equity that they would have had to put in to satisfy FFP is less than the funding that would have been needed overall,hence they had the options of either just injecting enough equity,and leaving the balance as investors to DCFC loan capital,or simply injecting equity into DCFC (the whole amount).Thus I don't think it's particularly clever,rather the simplest option.We don't know if all the investors are loaning money,neither do we know the complications that this mix of equity and loans throws up for them (in the early years the investors' loot bought shares in GS Derby,which in turn bought shares in Gellaw,which then bought shares in DCFC).

I'm quite relaxed about the situation,as there's no investor debt within DCFC. If they wanted to call in the Gellaw debt,I'm not sure what they would do as there's no cash in that company.They could sell Gellaw shares,but there again they could sell the club at any time anyway.

I just know that your post is going to throw up questions from others (eg why did the loans go through the holding companies,why not direct from the investors to DCFC?). I'll let you field any such questions!

The delay at CH probably rules out my suggestion of stage managing the release of accounts.

[ramblur]

Would love to know the breakdown of our player purchases. Flummoxed.

​Wouldn't we all,Chris! I'm convinced that this must purely relate to the summer activity -it's purely the sheer magnitude of the figure that creates a nagging doubt (though fans should appreciate that League levy + agents' fees could bring the total down by as much as a million,giving actual transfer fees).

I've found another angle on this,as PBSE also says we received net proceeds on player sales of £119,077. Now if this included both windows,it would mean that we'd sold Coutts and others for this total figure,which looks unrealistic,thus I'm still convinced PBSE relates only to the summer window (and the fact that the auditors signed off the accounts in Nov should really mean there's no argument anyway).

[ramblur]

When the club reported on the accounts,I noticed that a fan on 'comments' asked how the income could have gone up £5m,the wages £3m (though it looks like this figure excluded compo),and yet the loss was virtually the same. I've gone through the ups and downs and here are the results:-

Firstly the income side. Turnover up £4.74m, Fixed asset profit £98k, Windfall from waived interest £1.069m. Total £5.907m

Expenditure. Wages up £4.337m,Impairment of players' regs £581k, Reduced profit on sale of players' regs £173k, Compo £867k.  Total £5.958m .

There'll be other changes that aren't itemised in the accounts,but the above shows up the main reasons.

[Diag Ram]

​Hi Diag Ram,I'll try and answer this in language others might have at least a chance of understanding (not a dig at you btw).When the loan capital first arose,and up to the time of conversion to equity within DCFC, the loot was first loaned by investors to GS Derby (UK) Ltd (now Global Derby) ,the 'senior' UK holding company,which in turn loaned it on to Gellaw 101,the 'junior' holding company,from whence it was loaned to DCFC. Because both holding companies owed and were owed the same amounts,these cancel out and hence the net effect was a loan from the investors to DCFC.

The conversion of loans to equity within DCFC has effectively cancelled out the Gellaw -DCFC loan,thus the net effect now is a loan from the investors to Gellaw,so you're correct in what you're saying.

I think "dishonest" is a bit strong,and the kind of language that might worry fans,and I'm not so sure about "clever" either.I think one has to appreciate the problems that FFP may have brought to our owners.From what I can see, the amount of equity that they would have had to put in to satisfy FFP is less than the funding that would have been needed overall,hence they had the options of either just injecting enough equity,and leaving the balance as investors to DCFC loan capital,or simply injecting equity into DCFC (the whole amount).Thus I don't think it's particularly clever,rather the simplest option.We don't know if all the investors are loaning money,neither do we know the complications that this mix of equity and loans throws up for them (in the early years the investors' loot bought shares in GS Derby,which in turn bought shares in Gellaw,which then bought shares in DCFC).

I'm quite relaxed about the situation,as there's no investor debt within DCFC. If they wanted to call in the Gellaw debt,I'm not sure what they would do as there's no cash in that company.They could sell Gellaw shares,but there again they could sell the club at any time anyway.

I just know that your post is going to throw up questions from others (eg why did the loans go through the holding companies,why not direct from the investors to DCFC?). I'll let you field any such questions!

The delay at CH probably rules out my suggestion of stage managing the release of accounts.

​Thanks Ramblur, that's what I thought had happened. In esscence, they have moved the shareholder debt out of DCFC up to Gellaw. I guess that if there is a formal agreement with Gellaw regarding this loan, which says they can only call on Gellaw Ltd, and not Gellaw Ltd and its subs, for repayment of this loan, then this would be more secure. Do the Football League look at only the DCFC accounts when considering FFP, and not the group accounts? I presume it's the former, as if it were the latter, they wouldn't see the equity injection from Gellaw as this doesn't appear in the group accounts.

I only say clever as to execute this, you need an intermediate holding company. If Gellaw didn't exist, Global Derby would have to loan directly to DCFC, and would then have to convert its own investment to equity, thus reducing the loan down. In the current way, the loan effectively due from the club remains, but it is off the club's balance sheet. Don't get me wrong, this isn't fraudulent, or on the same scale as ENRON, but two statements that Sam Rush said that "the club is debt free" and "the owners have converted their debt to equity" are slightly mis-leading, when you look at the facts. Of course, the conversion of debt to equity could be sound if the debt due from Gellaw to Global Derby (and hence Global Derby to the investors) can only be called in against the assets of Gellaw, thus protecting the club.

Hope that makes sense, happy to take questions or challenges in relation to this.

[ramblur]

​Thanks Ramblur, that's what I thought had happened. In esscence, they have moved the shareholder debt out of DCFC up to Gellaw. I guess that if there is a formal agreement with Gellaw regarding this loan, which says they can only call on Gellaw Ltd, and not Gellaw Ltd and its subs, for repayment of this loan, then this would be more secure. Do the Football League look at only the DCFC accounts when considering FFP, and not the group accounts? I presume it's the former, as if it were the latter, they wouldn't see the equity injection from Gellaw as this doesn't appear in the group accounts.

I only say clever as to execute this, you need an intermediate holding company. If Gellaw didn't exist, Global Derby would have to loan directly to DCFC, and would then have to convert its own investment to equity, thus reducing the loan down. In the current way, the loan effectively due from the club remains, but it is off the club's balance sheet. Don't get me wrong, this isn't fraudulent, or on the same scale as ENRON, but two statements that Sam Rush said that "the club is debt free" and "the owners have converted their debt to equity" are slightly mis-leading, when you look at the facts. Of course, the conversion of debt to equity could be sound if the debt due from Gellaw to Global Derby (and hence Global Derby to the investors) can only be called in against the assets of Gellaw, thus protecting the club.

Hope that makes sense, happy to take questions or challenges in relation to this.

​Hi again -that makes perfect sense to me.I know that the League only look at DCFC accounts,because these are the onl;y accounts to be signed off prior to December 1st,the deadline.

I might question something you said in your second paragraph.Gellaw (initially) own the share capital of DCFC,a legacy of the LOG's tenure.If Gellaw didn't exist,then Global Derby would own this (they do now in effect anyway,as they own the Gellaw share capital). Now the investors' (based in the ultimate US parent company,though we don't yet know where Mel Morris 'resides') loot could still go to Global Derby as a loan,with the proceeds then being used to buy shares in DCFC,even if Global Derby were the only holding company.

I've always been fairly relaxed about owners' share capital for the following reasons:-

1) They could sell club assets anyway (subject to discharging any debt attached),irrespective of the existence  (or otherwise) of any loan capital.

2) Even if loan capital existed,I could hardly see owners undermining the overall asset that they own. 

Now I was a bit reluctant to reply tonight,as I've just returned from a gruesome out patients' clinic,involving lots of travel,which absolutely kills me.However,I've got 3 more of the damn things in the next week or so, and I want to deal with stuff on here pretty quickly......so go easy on me if I've made any gaffes in my reasoning!

[ramblur]

I'm still on the case of this perplexing £6.77m,and have looked through the last 4 years accounts, 13/14 to 10/11,concentrating on  note 8 "Intangible fixed assets". On additions for the year,this gives a breakdown over players' registrations (transfer fees),transfer fee levies and associated costs (the latter will be agents' fees and,I suppose,maybe legal fees in relation to drawing up contracts),and the total asset cost.Thus it's possible to calculate the percentage of transfer fees that the other charges represent.I set out below the 3 figures for each year,together with the calculated percentages ,in the order given in my first line:-

£855k/£471k/£1.326m/55.09%..£3.9m /£828k /£4.728m /21.23%..£2.071m /£626k /£2.697m/30.23%..£1.078m /£323k/£1.401m /29.96%.

Now I'm damned annoyed with myself because I'd looked at the 12/13 figure before and decided that it looked like a reasonable figure to use as a rule of thumb,hence my suggestion that up to £1m of the £6.77m could be agents' fees /league levies.What I'd forgotten was that even free transfers would involve agents' fees,which would then be the capital cost of acquisition.If you get enough of these,it pushes the %age figures up,as demonstrated by the wildly fluctuating %ages above.

There's something else as well,particularly relevant to this season.If you extend a contract,you're effectively enhancing an asset,and the enhancement cost would be the (almost inevitable) agent's fees.Could such things be viewed as purchases? Definitely in my view,as you're 'purchasing' the enhancement of the asset.

If you think of all the contract extensions and the 'frees',particularly amongst development squad additions,then the £6.77m starts to look a bit more viable.Frightening really.

So if anyone (myself included) criticised past spending,then perhaps we should all remember all the extras.

 

Signing on fees aren't capitalised (ie form part of the asset cost) ,but are charged direct to P/L as and when paid.

[ramblur]

Sorry Diag Ram .I omitted to field a couple of your points. SR would be right to say that the club itself is debt free and also that investor debt (within DCFC) had been converted to equity.However,as one who has himself complained of 'half stories' in the past, I fully appreciate where you're coming from on this.

[ramblur]

The missing %age in my earlier post is 30.23%,so apologies.If any mod could please insert this in the relevant place,it might help readers considerably.

[ramblur]

Diag Ram, I suspect the 2 holding companies only came about because of the initial AP factor.AP retained some of his holding of Gellaw shares following takeover,and therefore 'resided' within Gellaw-he wasn't a member of the majority US registered grouping.Thus I suspect General Sports Derby(UK) Ltd (the company) may have been created to separate out the majority's interests.(AP was depicted as a minority interest in the GS Derby consolidated accounts.It will be very interesting to see (if we can) what Mel's position is.He may even just have bought out someone within the main grouping,and then contributed to the loans? 

Because over 10 investors could be identified at the outset,with more additions since,it must create a very difficult situation if some weren't prepared to inject more pure equity.I suspect this loan business to be the way to get over any difficulties.Of course I'm not saying as fact that some may not have wished to inject such equity,as I simply don't know.

[Tombo]

There's a lot of useful information being uncovered in this thread. Unfortunately I understand none of it. You might as well be speaking Chinese.

[ramblur]

There's a lot of useful information being uncovered in this thread. Unfortunately I understand none of it. You might as well be speaking Chinese.

​How do you know it's useful if you understand none of it ? "None of it" is a bit of a confession.

[Gypsy Ram]

There's a lot of useful information being uncovered in this thread. Unfortunately I understand none of it. You might as well be speaking Chinese.

I like tables

[ramblur]

I like tables

​Sorry mate.I had to do a lot of lines at school,and I've never quite shaken it off.

[GboroRam]

The missing %age in my earlier post is 30.23%,so apologies.If any mod could please insert this in the relevant place,it might help readers considerably.

Done. Hopefully in the right place. 

[Tombo]

​How do you know it's useful if you understand none of it ? "None of it" is a bit of a confession.

​Would you have wasted all this time on it if it wasn't useful? I trust your judgment man.

[ramblur]

Perfect shot,GboroRam. Thanks a million.

[ramblur]

Ok,sorry mate.I'm just dog tired and getting a bit grumpy too. Now what's all that in Chinese?

[davenportram]

got to say Ramblur I'm liking your posts but understanding very little. I'm picking up a general "things are going okay, there's a couple of concerns" bit in true impartial fashion you are looking to find things to eleviate the concerns (I.e. The 6.7m on purchases.)

[Diag Ram]

Diag Ram, I suspect the 2 holding companies only came about because of the initial AP factor.AP retained some of his holding of Gellaw shares following takeover,and therefore 'resided' within Gellaw-he wasn't a member of the majority US registered grouping.Thus I suspect General Sports Derby(UK) Ltd (the company) may have been created to separate out the majority's interests.(AP was depicted as a minority interest in the GS Derby consolidated accounts.It will be very interesting to see (if we can) what Mel's position is.He may even just have bought out someone within the main grouping,and then contributed to the loans?

Because over 10 investors could be identified at the outset,with more additions since,it must create a very difficult situation if some weren't prepared to inject more pure equity.I suspect this loan business to be the way to get over any difficulties.Of course I'm not saying as fact that some may not have wished to inject such equity,as I simply don't know.

​I haven't looked at any accounts before this year, but I think I understand what you're saying. I presume that when the US investors came in, Global Derby was set up to buy shares in Gellaw, as I presume the US Investors wanted a clean/new company they owned to buy the original x% of the shares, rather than a US company buying UK shares off Pearson, which may create more complicated tax issues (I think that's exactly what you've said there!)

Companies House has now acknowledged recepit of the holding company accounts, will be interesting to review these ones too.

[Diag Ram]

Interesting to see that of the £5m increase in sales, £2.5m is down to increase in TV revenues. I guess that's a combination of an improved deal, more appearances on the TV and of course the play offs. I would think that this would increase again in 2015 given that we've had more games (I think) on and should have at least 2 games in the play offs. Gate recepits also increased £800k, I'd expect this to increase again as attendances have been consistently high this season.

Worrying though is the wages levels, this has increased £4m on the previous year. Thinking back, the main ins were Martin, Ward, Wisdom, Bamford, and Thorne, and of course, McClaren who will probably be on quite a bit more than Clough was (likewise his staff).

This season though, we will see the effect of the new contracts offered to most of the senior squad, Thorne's wages, Ibe, Bent, Ince, possibly Christie, Albentonsa, and then loan fees on top. It's likely we will need another cash injection to cover losses next season.