Topic: Financing

[Abrak]

This whole forum thread which I used to find very interesting has gone very stale since Xerxes left.

Most of the debate was about the relative profitability of the various solutions to the stadium issue.

What I felt was missing from both sides of the argument was the cash flow implications for LFC. There are a couple of issues here. First of all football clubs are generally cash flow negative so that say to a bank the concept that a loan might be repaid for a stadium is perhaps optimistic on the basis that the incremental cashflow will disappear. If this sounds stupid to people consider what supporters think. Build a stadium, huge numbers of new match day attendance, gives us cashflow to buy new players.

Also there is a tendency for supporters to see a stadium a bit like a mortgage on a house. Additional revenue will finance the debt. Any lender will never look at it that way because the resale value of a stadium in the case of default is very low.

This is not an area where I have expertise but my guess is this. Say total cost 350m, 150m securitized sponsor revenues, 50m long term bank debt, 100m revenue backed debt security (10 yr) the first cash flow benefit from a new stadium we might receive to invest in the squad would be around 7 years after the completion of the stadium.

I know that there are people who fully understand the stand financing on this thread. But much of the focus has been profit based rather than cash flow based and I wondered if my assessment (which I feel is negative against expectations) is broadly realistic. Obviously the Emirates seemed to imply that an element of 'equity' had to be repaid.

[ultimatewarrior]

I also admittedly have no finacial clout ,but, someting i always wonder about regarding the FFP rules, is just how much we expect to spend "only" on players.
If we were to build a stadium for £250m (cant see the AFL design costing more) with a capacity of 60k then i assume we would be aiming to match Arsenal's annual income of £100m . We are not in London so lets scale it back to £80m per year. Does this mean that along with the rest of our revenue streams combined , we will have well over £100m per year to spend on players. Some of our income will have to be spent on paying for the stadium. With a suitable naming rights deal reducing the size of the loan repayments , surely the club can afford a new stadium without sacrificing squad quality.

[RhodyRoadie]

I have no financial knowledge whatsoever, that being said it appears that the club and the stadium would be considered two separate entities or companies, both owned by FSG. They have a similar arrangement with the Red Sox and Fenway Park. I would think that the new stadium would fall under this category of being its own company, with the club basically paying rent to FSG for use of the facility and in-return the stadium gets, lets say 5% of the gate and sales inside the ground.

This would allow for the club to operate separately while not assuming any additional debt, and the stadium would be financed on its own with naming rights, and a 'tenant' ready to go once built.

[gorgepir]

Don't remember perfectly, but loans and costs on building and upgrading stadiums do not enter the FFP rules and are considered free (to encourage clubs to upgrade their stadiums). So essentially, we may be losing money in normal economics if the loan payments and the cost of building the stadium is high, but be well positive and have tons of money to spend on players with regard to FFP because we get the added 15k seats money.

[CraigDS]

I have no financial knowledge whatsoever, that being said it appears that the club and the stadium would be considered two separate entities or companies, both owned by FSG. They have a similar arrangement with the Red Sox and Fenway Park. I would think that the new stadium would fall under this category of being its own company, with the club basically paying rent to FSG for use of the facility and in-return the stadium gets, lets say 5% of the gate and sales inside the ground.

This would allow for the club to operate separately while not assuming any additional debt, and the stadium would be financed on its own with naming rights, and a 'tenant' ready to go once built.

I highly doubt this will be the way the club organise the ownership, as will then start to have issues with the FFP and the stadium income, etc.

The FFP allows for expenditure on certain items which then fall outside the rules, I believe a stadium is one of these things.

[west_london_red]

As I understand it, under FFP clubs are not allowed to run up huge debts to sustain themselves (the way Abramovich financed Chelsea originally was by lending them millions at very low or no interest). However if a club runs up huge debts to build a stadium, that is acceptable, and the increase in revenue will be available to spend on players and wages, although from that increase we will also need to service the interest on the stadium debt so how much additional reveue is left over is the question.

[Cheshire_Cat]

I have wondered whether something similar to the "Share Liverpool" scheme could work for generating some finance for the stadium. Selling shares for £50 each, with no restrictions on how many shares an individual could own might bridge the gap between naming rights and bank-borrowed money.

The club could administer the trading of shares. They could match prospective purchasers with people who want to cash in - perhaps during a specified "transfer window". Or the club can buy them back in the short-term and either keep them or offer them back to the fanbase. If there are concerns about blocks of shares going to companies or corporations, then restrictions can be put in place to cap the number of shares owned, or allow private ownership only.

The value of the shares could increase by a nominal percentage each year, but that percentage would be much lower than commercial loan interest rates. Something like National Savings Bonds? Most fans would put in what they could afford and probably wouldn't want to cash in, although the option is there and the investment is growing.

As an example, an NS&I Child Savings Bond of £50 is worth £53.80 in 4 years time, and £56.58 with a 5-year bonus payment. So you won't get rich buying the shares, but you will get your money and a bit back if you sell.

At £50 a share, then 1 million shares raises £50m. It won't pay for the stadium outright, but surely it helps?

[1club1loveLFC]

I have wondered whether something similar to the "Share Liverpool" scheme could work for generating some finance for the stadium. Selling shares for £50 each, with no restrictions on how many shares an individual could own might bridge the gap between naming rights and bank-borrowed money.

The club could administer the trading of shares. They could match prospective purchasers with people who want to cash in - perhaps during a specified "transfer window". Or the club can buy them back in the short-term and either keep them or offer them back to the fanbase. If there are concerns about blocks of shares going to companies or corporations, then restrictions can be put in place to cap the number of shares owned, or allow private ownership only.

The value of the shares could increase by a nominal percentage each year, but that percentage would be much lower than commercial loan interest rates. Something like National Savings Bonds? Most fans would put in what they could afford and probably wouldn't want to cash in, although the option is there and the investment is growing.

As an example, an NS&I Child Savings Bond of £50 is worth £53.80 in 4 years time, and £56.58 with a 5-year bonus payment. So you won't get rich buying the shares, but you will get your money and a bit back if you sell.

At £50 a share, then 1 million shares raises £50m. It won't pay for the stadium outright, but surely it helps?

I must admit, I think this is a fantastic idea, not sure how many people would agree but still a great idea 

It would be very interesting to see what other fans think of this idea....

[shelovesyou]

I have wondered whether something similar to the "Share Liverpool" scheme could work for generating some finance for the stadium. Selling shares for £50 each, with no restrictions on how many shares an individual could own might bridge the gap between naming rights and bank-borrowed money.

The club could administer the trading of shares. They could match prospective purchasers with people who want to cash in - perhaps during a specified "transfer window". Or the club can buy them back in the short-term and either keep them or offer them back to the fanbase. If there are concerns about blocks of shares going to companies or corporations, then restrictions can be put in place to cap the number of shares owned, or allow private ownership only.

The value of the shares could increase by a nominal percentage each year, but that percentage would be much lower than commercial loan interest rates. Something like National Savings Bonds? Most fans would put in what they could afford and probably wouldn't want to cash in, although the option is there and the investment is growing.

As an example, an NS&I Child Savings Bond of £50 is worth £53.80 in 4 years time, and £56.58 with a 5-year bonus payment. So you won't get rich buying the shares, but you will get your money and a bit back if you sell.

At £50 a share, then 1 million shares raises £50m. It won't pay for the stadium outright, but surely it helps?

Nice idea but if the owners arent open to discussing even the most basic of issues regarding the ground with the fans, then doubtful they'd even consider it.

[Cheshire_Cat]

Nice idea but if the owners arent open to discussing even the most basic of issues regarding the ground with the fans, then doubtful they'd even consider it.

True. I hope that the club would explore all avenues of raising finance and I can't think of a more willing party than the supporters. It's almost a "loan" that they'd never have to repay, because supporters are the least likely to treat the money as a "loan".

Obviously the idea is more of an investment bond rather than shares. There can't be voting rights or anything like that. And the ownership & returns need to be considered carefully so that share ownership is not a "get rich quick scheme" for city investors!

I don't know if there are legal reasons why this couldn't work. And I don't know whether there would be genuine support when it comes to stumping up the cash.

[CraigDS]

I imagine their are easier (although maybe not cheaper) ways of doing it than managing a bond sale to supporters, and then managing the trading/sale/etc of these during their lifetime.

[Alan_X]

The OP is so far off the mark it's tempting to lock and start again. Same with the Share Liverpool discussions. I'll leve it open for a bit to see if anything useful comes out of it.

[bigsamih]

I have wondered whether something similar to the "Share Liverpool" scheme could work for generating some finance for the stadium. Selling shares for £50 each, with no restrictions on how many shares an individual could own might bridge the gap between naming rights and bank-borrowed money.

The club could administer the trading of shares. They could match prospective purchasers with people who want to cash in - perhaps during a specified "transfer window". Or the club can buy them back in the short-term and either keep them or offer them back to the fanbase. If there are concerns about blocks of shares going to companies or corporations, then restrictions can be put in place to cap the number of shares owned, or allow private ownership only.

The value of the shares could increase by a nominal percentage each year, but that percentage would be much lower than commercial loan interest rates. Something like National Savings Bonds? Most fans would put in what they could afford and probably wouldn't want to cash in, although the option is there and the investment is growing.

As an example, an NS&I Child Savings Bond of £50 is worth £53.80 in 4 years time, and £56.58 with a 5-year bonus payment. So you won't get rich buying the shares, but you will get your money and a bit back if you sell.

At £50 a share, then 1 million shares raises £50m. It won't pay for the stadium outright, but surely it helps?

Not a bad idea, but not sure how it would work out in a practical sense. Would these the corporate bonds? What about FSCS if LFC cant make repayments?

H&G planned to build a stadium with borrowed money but the markets crashed and so did other investments they had. Had the markets not crashed I'm confident they would have built the stadium - it made no sense for them not to do so. IMO the club MUST build a new stadium.

Im no expert but the options are Im guessing something like this;

1/ put their own funds in
2/ bring new investors in with a cash injection
3/ borrow via securitized commercial loan 
4/ issue a corporate bond, United style

Im guessing FSG dont have the cash so would look at no 2. Would out fans buy number 3 after the H&G debacle? And option 4 is pretty much the same as option 3.

[bigsamih]

True. I hope that the club would explore all avenues of raising finance and I can't think of a more willing party than the supporters. It's almost a "loan" that they'd never have to repay, because supporters are the least likely to treat the money as a "loan".

Obviously the idea is more of an investment bond rather than shares. There can't be voting rights or anything like that. And the ownership & returns need to be considered carefully so that share ownership is not a "get rich quick scheme" for city investors!

I don't know if there are legal reasons why this couldn't work. And I don't know whether there would be genuine support when it comes to stumping up the cash.

Im sure United have issued corporate bonds to the tune of 500m with a coupon of something like 8%.

Does anybody know more about this? Its an interesting idea.

[vanoord]

Not a bad idea, but not sure how it would work out in a practical sense. Would these the corporate bonds? What about FSCS if LFC cant make repayments?

H&G planned to build a stadium with borrowed money but the markets crashed and so did other investments they had. Had the markets not crashed I'm confident they would have built the stadium - it made no sense for them not to do so. IMO the club MUST build a new stadium.

Im no expert but the options are Im guessing something like this;

1/ put their own funds in
2/ bring new investors in with a cash injection
3/ borrow via securitized commercial loan 
4/ issue a corporate bond, United style

Im guessing FSG dont have the cash so would look at no 2. Would out fans buy number 3 after the H&G debacle? And option 4 is pretty much the same as option 3.

Number 2 is, apparently, being looked at. FSG would dilute their stake and raise the equity to redevelop the Main Stand; and presumably also cover investment in the playing squad.

There were some suggestions that the first transfer window under FSG was considered by them to be a "one shot" cash injection into the playing squad, but the money spent on Carroll has - effectively - been wasted and the results on the pitch are not good enough. Whether FSG have the inclination or the ability to fund further significant investment in transfers is a vital question.

The problem is that in order to move the club forwards - or even to get us back to the level we were at when they bought us (compared to the rest of the league) - they have to spend big on the stadium and on the squad.

The risk with building a stadium financed with debt is that the debt spirals out of control through renewal fees and interest - as happened with Hicks & Gillett's purchase of the club.

FSG are probably sensible enough to realise that they can't afford to fund everything themselves and I'd expect them to be looking for an injection of equity into the club.

While that might mean that they dilute their holding to - say - 50%, it could (in theory) mean they'd end up owning 50% of a club worth more than twice what it was worth before, on the basis that it would have higher matchday revenue and a better-performing squad which would also bring in more revenue.

Conversely, they may also be able to dilute their stake to 50% and extract a bit of equity at the same time, for example if a Qatari outfit were to put in £200m then that could be split between new shares issued (so effectively a cash injection) and the purchase of a proportion of FSG's shares (so cash back to FSG).

Taking some imaginary figures for that.

FSG paid £200m (give or take) for the club. There are 34,823 shares issued.

FSG value the club at £250m.

They sell 4,823 of their shares to QatariCorp for £34.625m and take that as a 'dividend'.

They issue 25,177 new shares to QatariCorp for £180.75m (it's not quite as simple as that, but think of it that way).

That brings the club up to 60,000 shares, 50/50 split between FSG and QatatiCorp. The club was worth £250m -but it's now worth that, plus the £180m which it has in cash to build a couple of new stands and buy a couple of new Andy Carrolls.

FSG paid £200m (ish) for 100% of the club, but they now have 50% of a club worth £430m (which is £215m) plus they've recovered £35m through the sale of the shares to QatariCorp.

Quite why the club should currently be worth £250m rather than the £200m they paid for it is anyone's guess - but the fact that FSG had got someone to agree to accept that sort of value to buy into the club would prove the value. 

Okay, the above figures have been plucked out of the air, but it hopefully shows how FSG could go about diluting their holding and enhance the value of their holding at the same time.

[CraigDS]

Number 2 is, apparently, being looked at. FSG would dilute their stake and raise the equity to redevelop the Main Stand; and presumably also cover investment in the playing squad.

Source?

There were some suggestions that the first transfer window under FSG was considered by them to be a "one shot" cash injection into the playing squad, but the money spent on Carroll has - effectively - been wasted and the results on the pitch are not good enough. Whether FSG have the inclination or the ability to fund further significant investment in transfers is a vital question.

Well given we have spent more 'net' in windows since I'd suggest that's a load of rubbish.

The problem is that in order to move the club forwards - or even to get us back to the level we were at when they bought us (compared to the rest of the league) - they have to spend big on the stadium and on the squad.

The risk with building a stadium financed with debt is that the debt spirals out of control through renewal fees and interest - as happened with Hicks & Gillett's purchase of the club.

FSG are probably sensible enough to realise that they can't afford to fund everything themselves and I'd expect them to be looking for an injection of equity into the club.

While that might mean that they dilute their holding to - say - 50%, it could (in theory) mean they'd end up owning 50% of a club worth more than twice what it was worth before, on the basis that it would have higher matchday revenue and a better-performing squad which would also bring in more revenue.

Conversely, they may also be able to dilute their stake to 50% and extract a bit of equity at the same time, for example if a Qatari outfit were to put in £200m then that could be split between new shares issued (so effectively a cash injection) and the purchase of a proportion of FSG's shares (so cash back to FSG).

Taking some imaginary figures for that.

FSG paid £200m (give or take) for the club. There are 34,823 shares issued.

FSG value the club at £250m.

They sell 4,823 of their shares to QatariCorp for £34.625m and take that as a 'dividend'.

They issue 25,177 new shares to QatariCorp for £180.75m (it's not quite as simple as that, but think of it that way).

That brings the club up to 60,000 shares, 50/50 split between FSG and QatatiCorp. The club was worth £250m -but it's now worth that, plus the £180m which it has in cash to build a couple of new stands and buy a couple of new Andy Carrolls.

FSG paid £200m (ish) for 100% of the club, but they now have 50% of a club worth £430m (which is £215m) plus they've recovered £35m through the sale of the shares to QatariCorp.

Quite why the club should currently be worth £250m rather than the £200m they paid for it is anyone's guess - but the fact that FSG had got someone to agree to accept that sort of value to buy into the club would prove the value. 

Okay, the above figures have been plucked out of the air, but it hopefully shows how FSG could go about diluting their holding and enhance the value of their holding at the same time.

Pie in the sky really. You've also WAYYY over simplified the valuation of a business by assuming the cash held (and will then be spent on the stadium and players) comes out equal.

They have never shown any interest in past business dealings to fund things in this way. They spent a hell of a lot more on Fenway without doing so, and can't see them having any issues finding sources of funding for a £150m redevelopment.

[vanoord]

Source?

Sufficiently credible to mention it in passing, but sufficiently tenuous for me to put 'apparently being looked at' rather than 'FSG are going to flog half the club to some Qataris'.

Pie in the sky really. You've also WAYYY over simplified the valuation of a business by assuming the cash held (and will then be spent on the stadium and players) comes out equal.

They have never shown any interest in past business dealings to fund things in this way. They spent a hell of a lot more on Fenway without doing so, and can't see them having any issues finding sources of funding for a £150m redevelopment.

Again, I couched this in terms that I'd hoped made it theoretical rather than a nailed-on certainty.

FSG may well choose to fund any redevelopment by raising the money themselves, but one of the possible routes is to sell an equity stake in the club to bring that money in directly without the need to service the debt on it.

I'd be surprised if FSG were not actively considering that route, but I wouldn't be surprised if they chose a different option.

[CraigDS]

Sufficiently credible to mention it in passing, but sufficiently tenuous for me to put 'apparently being looked at' rather than 'FSG are going to flog half the club to some Qataris'.

Sounds legit.

Again, I couched this in terms that I'd hoped made it theoretical rather than a nailed-on certainty.

FSG may well choose to fund any redevelopment by raising the money themselves, but one of the possible routes is to sell an equity stake in the club to bring that money in directly without the need to service the debt on it.

I'd be surprised if FSG were not actively considering that route, but I wouldn't be surprised if they chose a different option.

They could also stand outside Anfield against QPR with buckets, maybe Werner busking on the corner of the Kop and Main Stand, asking for spare change.

There is nothing to suggest they'd do either option, either in past deals or 'rumours'.

[Alan_X]

This is all pie in the sky and the figures are fantasy. Locked unless someone has some real information.