Stephen Pearce on Radio Derby 6pm Tuesday

[kevinhectoring]

47 minutes ago, G STAR RAM said:

From the findings of the IDC it was valued even higher than that but the EFL asked us to reduce the valuation, which we duly did only to then be charged with using the EFLs recommended valuation.

Are these really findings of the IDC   ?

[duncanjwitham]

26 minutes ago, Leeds Ram said:

As I said, even if it was a correct valuation it should still have rung alarm bells that assets were being 'sold' in this way.

I think if the stadium had been sold off to a 3rd party because we needed cash into the club quickly, then absolutely that should have set off alarm bells.  What actually happened was basically shuffling bits of paper around.  The ultimate owner of the stadium never really changed, it was still Mel Morris's to do with as he wanted.  We made a paper profit to offset the paper losses from the amortization on player purchases a few years earlier.  And the only reason we were doing that is because the FFP rules insist on tracking profit/loss over everything else.  I'm not claiming it was a good thing or anything, but it's not necessarily a flashing red alarm that we were going into admin or anything.

Part of the problem with this stuff is we never really got to see what the actual endgame was.  The amortization policy was basically shifting paper losses further into the future (and if you are going to claim anything is dubious about the accounting methods, then this is the thing to look at, not overvaluing assets).  We never really got to see if and what the plan for dealing with those future-problems actually was, or if we were just going to end up with a big points deduction for failing FFP in a few years time.  The EFL basically rewriting years of our accounts by retroactively cancelling the amortization policy, and then COVID blowing everything up, meant we got hit with all those problems before we had a chance to put anything in place to deal with them.  Maybe we had a plan, maybe we didn't, but we'll never know.

And as an aside, there's definitely an argument that the stadium sale turned out to be a good thing in some ways.  If the stadium had still been in our ownership when we went into admin, the very first thing Quantuma would have done is sold it off for as much as they could to get some cash into the club.  And that's not a slight on Quantuma or anything, it would have been legally the correct thing for them to do.  So there's a decent chance we would have ended up with the stadium being owned by some random Panamanian loan sharks, and it would have cost us a whole lot more to buy it back than we ended up paying Morris/MSD for it.  Ironically, I seem to remember Morris making that argument when the sale occurred - something about wanting to prevent a potential unscrupulous owner from flogging the stadium to make a quick buck and screwing the club.  I'm not sure he ever thought he would kind of end up being that owner.

[G STAR RAM]

8 minutes ago, kevinhectoring said:

Are these really findings of the IDC   ?

Perhaps not the findings but, yes, it was recorded in the report by the IDC.

[kevinhectoring]

1 hour ago, YorkshireRam said:

Meanwhile trust can't even be started being rebuilt because he can't or won't do anything to alleviate the inherently logical mistrust hanging over him... That's how I see it. 

I think it’s a bit weird that he’s still around.
 

Word has it he was remorseful when Q was appointed, feeling he should have ‘stood up’ to MM (as his duties required). He then worked his balls off to help Q and this - as well has his expertise - would have been readily apparent to DC as the sale negotiations were ongoing. I’d also assume he was not going to be employed by any other club on the planet after the debacle, so the detailed terms of his ongoing role would have been largely dictated by DC and his team. Perhaps the initial intention was to keep him short term, and it then seemed to make sense for him to stay…? 

But given the intent to ‘reset’ the culture and business of the club, and for that to be seen to be the case … yeah it’s pretty weird he’s still around. 

Edited February 23 by kevinhectoring

[Leeds Ram]

36 minutes ago, Ghost of Clough said:

Selling the stadium was a mechanism to spend MORE under P&S rules, and isn't a sign of an owner unwilling to continue funding the club - as per all the other clubs to have done the same and not gone into administration.

I didn't say it was a sign that an owner was unwilling to continue to fund the club. In my reply to Angieram I described the situation you have just said. I think it's a sign of a poorly run business that is having to sell assets to facilitate potentially greater capital spend to either get under the loss limiting mechanisms defined for clubs or to accumulate cash. 

Edited February 23 by Leeds Ram

[Foreveram]

12 minutes ago, duncanjwitham said:

I think if the stadium had been sold off to a 3rd party because we needed cash into the club quickly, then absolutely that should have set off alarm bells.  What actually happened was basically shuffling bits of paper around.  The ultimate owner of the stadium never really changed, it was still Mel Morris's to do with as he wanted.  We made a paper profit to offset the paper losses from the amortization on player purchases a few years earlier.  And the only reason we were doing that is because the FFP rules insist on tracking profit/loss over everything else.  I'm not claiming it was a good thing or anything, but it's not necessarily a flashing red alarm that we were going into admin or anything.

Part of the problem with this stuff is we never really got to see what the actual endgame was.  The amortization policy was basically shifting paper losses further into the future (and if you are going to claim anything is dubious about the accounting methods, then this is the thing to look at, not overvaluing assets).  We never really got to see if and what the plan for dealing with those future-problems actually was, or if we were just going to end up with a big points deduction for failing FFP in a few years time.  The EFL basically rewriting years of our accounts by retroactively cancelling the amortization policy, and then COVID blowing everything up, meant we got hit with all those problems before we had a chance to put anything in place to deal with them.  Maybe we had a plan, maybe we didn't, but we'll never know.

And as an aside, there's definitely an argument that the stadium sale turned out to be a good thing in some ways.  If the stadium had still been in our ownership when we went into admin, the very first thing Quantuma would have done is sold it off for as much as they could to get some cash into the club.  And that's not a slight on Quantuma or anything, it would have been legally the correct thing for them to do.  So there's a decent chance we would have ended up with the stadium being owned by some random Panamanian loan sharks, and it would have cost us a whole lot more to buy it back than we ended up paying Morris/MSD for it.  Ironically, I seem to remember Morris making that argument when the sale occurred - something about wanting to prevent a potential unscrupulous owner from flogging the stadium to make a quick buck and screwing the club.  I'm not sure he ever thought he would kind of end up being that owner.

Surely the endgame was promotion to the premier league and all of the riches it brings.

We would just have been another club promoted with massive debt like QPR, Bournemouth, Leicester,Villa and Forest to name a few.

[alexxxxx]

What wound me up about the charges (and still does) is the fact that it appeared that they were approved then retrospectively the decision or view changed.

The later charges are a direct consequence of the inadequacy of oversight of the EFL. If we'd known they weren't going to be seen as compliant, then business would have been different. It's not evident in the findings by the tribunals that this was ever considered.

An independent office of football regulation is needed.

[duncanjwitham]

19 minutes ago, G STAR RAM said:

My only argument against this is that I am very doubtful that any money changed hands with regards to the stadium sale.

I think instead it reduced the amount owed to MM via his inter-company loans.

So it was used to cover his previous financing of the club, rather than his financing going forward.

Just to be clear hear that is my own thoughts on what happened, not facts!

I don't think it was anything to do with that.  From what I understood at the time (so my memory could be a bit flaky on this), it was basically a way of re-valuing the stadium as an asset the club held.  We went from having a stadium valued at ~£40m (or some similar figure, I can't remember exactly) to one valued at ~£80m, meaning the club had made a paper profit of £40m without doing anything.  But those type of profits were explicitly excluded from FFP calculations, so to actually be able to use that profit for FFP, we had to physically sell the stadium out of the direct ownership group.  So that £40m profit basically offset the amortization on the purchases of Johnson/Butterfield/Ince etc for a few years (because of the rolling 3-year FFP windows).  

[Foreveram]

10 minutes ago, kevinhectoring said:

I think it’s a bit weird that he’s still around.
 

Word has it he was remorseful when Q was appointed, feeling he should have ‘stood up’ to MM (as his duties required). He then worked his balls off to help Q and this - as well has his expertise - would have been readily apparent to DC as the sale negotiations were ongoing. I’d also assume he was not going to be employed by any other club on the planet after the debacle, so the detailed terms of his ongoing role would have been largely dictated by DC and his team. Perhaps the initial intention was to keep him short term, and it then seemed to make sense for him to stay…? 

But given the intent to ‘reset’ the culture and business of the club, and for that to be seen to be the case … yeah it’s pretty weird he’s still around. 

If you believe that people with a dodgy past don’t get jobs at other football clubs or even the governing body you must be very naive.

[duncanjwitham]

4 minutes ago, Foreveram said:

Surely the endgame was promotion to the premier league and all of the riches it brings.

We would just have been another club promoted with massive debt like QPR, Bournemouth, Leicester,Villa and Forest to name a few.

That was certainly one endgame, but it was by no means a certain one.  I really hope we weren't banking on that as our only plan. 

Maybe we had some other accounting trickery lined up that we never saw play out.  There was plenty of potential value in the academy that we could have cashed in on if we hadn't been forced into flogging them on the cheap during admin - Ebosele, Ebiowei, Plange, Buchanan, Kellyman, Williams plus Cashin, Bird, Knight etc.

[Ghost of Clough]

41 minutes ago, G STAR RAM said:

Perhaps not the findings but, yes, it was recorded in the report by the IDC.

The gave a range of £77.4-89.5m (£83.45m mid range). The IDC had the power to go with this figure ratehr than the one stated in our accounts, but felt that it was fair to stick with our recorded figure as it sat within the acceptable range.

The EFL's 'expert' not only based the value agaisnt Morecambe's ground, but also stated we would only need a 28k seater replacement as that's what our recent average was (20% less than actual capacity)

 

Refering back to the amortisation charge:
1. The IDC dismissed all particulars, excluding the failure to adequately disclose the change in policy. Importantly, the IDC dismissed the 'experts' evidence.

2. The LAP (appeal) felt the opinion of the EFL's expert should have been taken more seriously - he felt the policy wasn't FRS102 compliant, esentially becuase we couldn't reliably estimate values. Despite the IDC panel containing Chartered accountants, their own opinion shouldn't have been used in favour of the non-practicing 'expert'. The club failed to provide their own expert, but if they had, his opinions would have been enough to change the outcome of the LAP's verdict.

Prof Pope felt "no serious acccountant would deem is to be an acceptable amortisation approach based on the consumption of economic benefits". This is at odds with all of the Chartered Accountants involved in the case - the club, auditors, IDC, etc...

The LAP themselves pointed out "there is no accountant on our panel (ii) we are differing from a DC which included and was required to include an accountant member" and "However, the DC was faced with expert evidence from a distinguished academic accountant, and this was the only expert evidence which was led before them". Hence, why the LAP felt the evidence of the academic 'expert' should have stood.

The example given by the club suggested a straight amortisation to the start of the final year, then the remaining value amortised to zero. What some people with a lack of attention to the real details assumed (and I imagine this is what @Leeds Ram's BiL also assumed) was that a non-linear amortisation approach was used (ie values made up each year to suit our P&S budget). It was also not possible to uplift values (as a large number of people believed). Impairment could still be used (to drop the book value to a fairer value if deemed approriate) which is used in common amortisationn policies anyway.

3. The 2nd IDC (which contained Chartered Accountants) couldn't argue agaisnt the LAP's findings. The decision was to task the club with creating a new policy which could be proven to be reliable - this didn't have to be drastically different from the one we had been using.

4. The club then went into administration. The administrators didn't have the time or funds to argue the case of a new policy so accepted the EFL's charges.

[G STAR RAM]

1 hour ago, duncanjwitham said:

I don't think it was anything to do with that.  From what I understood at the time (so my memory could be a bit flaky on this), it was basically a way of re-valuing the stadium as an asset the club held.  We went from having a stadium valued at ~£40m (or some similar figure, I can't remember exactly) to one valued at ~£80m, meaning the club had made a paper profit of £40m without doing anything.  But those type of profits were explicitly excluded from FFP calculations, so to actually be able to use that profit for FFP, we had to physically sell the stadium out of the direct ownership group.  So that £40m profit basically offset the amortization on the purchases of Johnson/Butterfield/Ince etc for a few years (because of the rolling 3-year FFP windows).  

I was meaning I don't think the club benefited from the cash following the sale, think it merely covered cash MM had previously injected into the club.

[nottingram]

1 hour ago, duncanjwitham said:

That was certainly one endgame, but it was by no means a certain one.  I really hope we weren't banking on that as our only plan. 

Maybe we had some other accounting trickery lined up that we never saw play out.  There was plenty of potential value in the academy that we could have cashed in on if we hadn't been forced into flogging them on the cheap during admin - Ebosele, Ebiowei, Plange, Buchanan, Kellyman, Williams plus Cashin, Bird, Knight etc.

The bottom falling out of the market due to Covid the summer after Sibley, Bird and Knight established themselves was a bit of a killer. As was the Bielik knee injury just as we’d finally learned that our big purchases should have some sort of resale value.

There was some bad luck in there amongst the crazy way the club appeared to be run. 

[kevinhectoring]

25 minutes ago, Ghost of Clough said:

The gave a range of £77.4-89.5m (£83.45m mid range). The IDC had the power to go with this figure ratehr than the one stated in our accounts, but felt that it was fair to stick with our recorded figure as it sat within the acceptable range.

The EFL's 'expert' not only based the value agaisnt Morecambe's ground, but also stated we would only need a 28k seater replacement as that's what our recent average was (20% less than actual capacity)

 

Refering back to the amortisation charge:
1. The IDC dismissed all particulars, excluding the failure to adequately disclose the change in policy. Importantly, the IDC dismissed the 'experts' evidence.

2. The LAP (appeal) felt the opinion of the EFL's expert should have been taken more seriously - he felt the policy wasn't FRS102 compliant, esentially becuase we couldn't reliably estimate values. Despite the IDC panel containing Chartered accountants, their own opinion shouldn't have been used in favour of the non-practicing 'expert'. The club failed to provide their own expert, but if they had, his opinions would have been enough to change the outcome of the LAP's verdict.

Prof Pope felt "no serious acccountant would deem is to be an acceptable amortisation approach based on the consumption of economic benefits". This is at odds with all of the Chartered Accountants involved in the case - the club, auditors, IDC, etc...

The LAP themselves pointed out "there is no accountant on our panel (ii) we are differing from a DC which included and was required to include an accountant member" and "However, the DC was faced with expert evidence from a distinguished academic accountant, and this was the only expert evidence which was led before them". Hence, why the LAP felt the evidence of the academic 'expert' should have stood.

The example given by the club suggested a straight amortisation to the start of the final year, then the remaining value amortised to zero. What some people with a lack of attention to the real details assumed (and I imagine this is what @Leeds Ram's BiL also assumed) was that a non-linear amortisation approach was used (ie values made up each year to suit our P&S budget). It was also not possible to uplift values (as a large number of people believed). Impairment could still be used (to drop the book value to a fairer value if deemed approriate) which is used in common amortisationn policies anyway.

3. The 2nd IDC (which contained Chartered Accountants) couldn't argue agaisnt the LAP's findings. The decision was to task the club with creating a new policy which could be proven to be reliable - this didn't have to be drastically different from the one we had been using.

4. The club then went into administration. The administrators didn't have the time or funds to argue the case of a new policy so accepted the EFL's charges.

It was a ‘policy’ decision. And probably one that overall reflected the thrust of the EFL rules. No doubt the LAP members concerned will have continued doing lucrative work in cases involving EFL 
 

Part of the problem was we claimed there was not a single document that we could produce which related to our estimation of player values. This led the LAP to believe we were engaged in manipulation of the numbers (regardless of the straight line approach you mention). The other big problem was the issue raised by MacGuire that kicked the whole thing off, namely that the rules are aimed at creating a level playing field for 72 clubs and that all except us used the same approach. We should have seen the risk and we certainly should have taken a ‘big 4’ technical opinion before stealthily adopting the policy. The problem is, a supporting big 4 opinion would probably have required a rigorous approach to player valuation. 

These are precisely the sorts of points on which a strong CEO would have challenged MM. 

(It seems very odd we didn’t put forward our own expert and it’d be interesting to know what lay behind that. I half recall we had one lined up and pulled him at the last minute. That’s not a good look)

[jimtastic56]

2 hours ago, Foreveram said:

Surely the endgame was promotion to the premier league and all of the riches it brings.

We would just have been another club promoted with massive debt like QPR, Bournemouth, Leicester,Villa and Forest to name a few.

Not if you do it right like Brentford - now valued at £400 million . No business wants to show a profit - or you pay tax . Owners get their money back when they sell up . Bournemouth aren’t doing bad either , both with tiny crowds . 

[kevinhectoring]

41 minutes ago, G STAR RAM said:

I was meaning I don't think the club benefited from the cash following the sale, think it merely covered cash MM had previously injected into the club.

The stadium was let at an undervalue for a start. And I’d think that at the very least the ongoing stadium rental payable by the club would have been set off against the deferred purchase price.

If you look at 202’s balance sheet before the sale to DC the payable to the club will indicate how much of the £82 m was actually paid over.  

[Ghost of Clough]

2 minutes ago, kevinhectoring said:

It was a ‘policy’ decision. And probably one that overall reflected the thrust of the EFL rules. No doubt the LAP members concerned will have continued doing lucrative work in cases involving EFL 
 

Part of the problem was we claimed there was not a single document that we could produce which related to our estimation of player values. This led the LAP to believe we were engaged in manipulation of the numbers (regardless of the straight line approach you mention). The other big problem was the issue raised by MacGuire that kicked the whole thing off, namely that the rules are aimed at creating a level playing field for 72 clubs and that all except us used the same approach. We should have seen the risk and we certainly should have taken a ‘big 4’ technical opinion before stealthily adopting the policy. The problem is, a supporting big 4 opinion would probably have required a rigorous approach to player valuation. 

These are precisely the sorts of points on which a strong CEO would have challenged MM. 

(It seems very odd we didn’t put forward our own expert and it’d be interesting to know what lay behind that. I half recall we had one lined up and pulled him at the last minute. That’s not a good look)

There was nothing to stop other clubs adopting the same approach, so it was as if it was an 'unlevel playing field'. In fact, further down the line it would have put us at a disadvantage before evening out.

The club could have called upon 'The big 4', but the audit file had been reviewed by the ICAEW and approved as compliant. The IDC also stated "[evidence] was consistent with the Club having been able to determine the pattern of its consumption of future economic benefits from its ownership of player registrations ‘reliably’"

You also must have misremembered that about our expert witness. "The Club did not serve a report from or call evidence from an expert accountant... It took the decision not to call any such expert evidence having seen the factual evidence served by the EFL". When the EFL wanted to submit a late report, the Club weere given another option to call upon a witness.

[McArthur Park]

4 hours ago, valakari said:

Stephen Pearce had the same attitude at the forum at PP before Xmas, as he did in this podcast... he considered any question re the Morris era as irrelevant and refused to talk about...well Mr Pearce, you should read the room, we, the fans, would like to know...and.... certainly deserve, at the very least, an apology!!!

Please don't speak for me.

[duncanjwitham]

10 minutes ago, kevinhectoring said:

(It seems very odd we didn’t put forward our own expert and it’d be interesting to know what lay behind that. I half recall we had one lined up and pulled him at the last minute. That’s not a good look)

I have no memory of us pulling an expert at the last minute (and I read the IDC reports very thoroughly at the time).  There was something to do with their expert witness producing a report at the last minute, and we were offered the chance to delay the hearing and prepare a counter argument to it, but we declined to.  Not sure if this is what you are thinking of?  Presumably we thought our arguments were sound enough and didn't want the whole thing dragging out even more.

From what I remember (and my retelling may be slightly biased...), we put our accountant up as a witness to explain what our policy actually was, and there was a qualified accountant on the panel, who is supposed to be there to understand the accounting stuff.  We presented our policy, we believed it clearly met the accounting rules as they were written, so further expert witness testimony was not needed.  The EFL effectively put up an expert witness to argue that standard accounting terms didn't mean what everyone thought they meant, that up is down, the sky isn't blue etc. 

So the original panel basically ignored their expert witness on the grounds he was clueless, took the evidence of our accountant and the guy on the panels own experience to rule in our favour.  The expert witness didn't even understand the rules he was there to give evidence on.  Then the appeals panels basically said you can't do that - your accountant is there as a factual witness not an expert one, and the panel member is there as a judge, not a witness.  So the only expert in the room says up is down, so for the purposes of this decision, up is officially down.

Basically, we screwed it up.  If we had found any independent expert witness to stand there and say what we did was fine, it would have been he-said she-said on expert witnesses and the appeals panel would have left the original decision as is.  And given that even the EFL's own choice of forensic accountant on the panel agreed with our policy, it shouldn't have been difficult to find some else to agree with it.  But I stand by that we shouldn't have had to do that.  The purpose of having an expert on the panel is to deal with stuff like this.

[Foreveram]

40 minutes ago, jimtastic56 said:

Not if you do it right like Brentford - now valued at £400 million . No business wants to show a profit - or you pay tax . Owners get their money back when they sell up . Bournemouth aren’t doing bad either , both with tiny crowds . 

Bournemouth are nearly £200 million in debt to a Russian and have borrowed money on the strength of two years future tv revenue from an Australian bank.