Everton annual accounts

[Moomin]

Not necessarily, would depend on what they did with the cash instead of paying down debt.

It's an option, use the money from player sales and new TV deal to pay down the debt increasing the equity for the shareholders.

 

[pfim]

It's an option, use the money from player sales and new TV deal to pay down the debt increasing the equity for the shareholders.

Paying down debt has zero impact on the equity of the business. By paying off the debt, you're subtracting the same amount in assets (cash) as you are in liabilities (debt). There is no change in equity.

 

[Moomin]

Paying down debt has zero impact on the equity of the business. By paying off the debt, you're subtracting the same amount in assets (cash) as you are in liabilities (debt). There is no change in equity.

I get what you are saying, but it will look better to potential buyers if the debt was dramatically reduced. Player sales would not show up as the same amount in assets on the books, ie Barkley.

 

[pfim]

I get what you are saying, but it will look better to potential buyers if the debt was dramatically reduced. Player sales would not show up as the same amount in assets on the books, ie Barkley.

The debt is irrelevant to the purchase price, assuming the purchase price exceeds the debt level. As another example, let's say I'm buying a house. Why would I care how the previous owner financed it? Does the fact that the previous owner paid off his mortgage instead of hoarding cash make the house a better proposition for me? No.

Everton hasn't had a debt problem, it's had a revenue and cash flow problem.

 

[Moomin]

The debt is irrelevant to the purchase price, assuming the purchase price exceeds the debt level. As another example, let's say I'm buying a house. Why would I care how the previous owner financed it? Does the fact that the previous owner paid off his mortgage instead of hoarding cash make the house a better proposition for me? No.

Everton hasn't had a debt problem, it's had a revenue and cash flow problem.

Totally agree on the cash flow problems.

Ok then, with our net debts being 45 million and the club apparently been valued at 120 million ( according to the talksport stuff last year ) who would pay that debt?? Bill and the other directors from the 120 million or the new owners stumping up an extra 45 million on top of the 120 million??

 

[pfim]

Totally agree on the cash flow problems.

Ok then, with our net debts being 45 million and the club apparently been valued at 120 million ( according to the talksport stuff last year ) who would pay that debt?? Bill and the other directors from the 120 million or the new owners stumping up an extra 45 million on top of the 120 million??

The 45 million would be subtracted from the 120 million. Though in your instance, you've omitted the 45 million in cash we assumed earlier in the conversation.

If the club is valued at 120 million, then that is the enterprise value of the club. Enterprise value does not include cash. The value has nothing to do with either debt or equity. That isn't a balance sheet number (the book value of assets wouldn't be 120M), but I'm sure some sort of cross of a discounted cash flow and player valuation (and much negotiating).

This wouldn't include cash on hand as I stated, which is what I think we're stuck on here. So if the enterprise value of the club is 120M and it had 45M in idle cash on hand, the club's ASSETS are actually valued at 165M. So would I pay 165M to acquire a 120M club and 45M in cash? No, of course not. Why would I pay cash to acquire cash (other than some working capital needs)?

So if the club is purchased for 120M with 45M in cash and 45M in debt, the return to the previous shareholders is 120M. If it's purchased for 120M with no cash and no debt, the return is 120M.

To answer your question specifically, it depends on how the deal is structured as to who is responsible for the debt. That's more of a logistical issue than a financial one, it hasn't nothing to do with the return to the shareholders as the debt is part of the 120M enterprise value.

 

[pfim]

To answer your question specifically, it depends on how the deal is structured as to who is responsible for the debt. That's more of a logistical issue than a financial one, it hasn't nothing to do with the return to the shareholders as the debt is part of the 120M enterprise value.

I edited my last paragraph for clarity.

 

[The Esk]

If the main shareholders of Everton Football Club Company Limited value the Company's equity at £120 million then the new owner pays existing shareholders £120 million for all of the shares in the Company (35,000). Regardless of the Company's financial position the shareholders receive their money.

In return the new owner now owns the Company and within that Company there will have been no change to the assets and liabilities. Subject to restrictions from existing lenders the owner is now free to do as he (or she) sees fit with the finances of the Company. So if the owner wishes to pay off the debt they have to inject money into the Company, similarly if the owner wants to purchase new players and spend more than is available within the Company he/she must inject further funds into the Company.

Football clubs are one of those rare asset classes that cannot be valued in the way a traditional commercial enterprise is. Yes the owner will look at the Balance Sheet and the P&L for due diligence purposes but it is meaningless as far as the value of the equity is concerned.

In the case of Everton, if it was not a football club how could a Company with a negative balance sheet and a normally loss making P&L be worth over £100 million? Answer is that it would never be worth that amount.

 

[lmurkder]

I must be reading this wrong, the bolded figure is "player trading" correct? And that takes into account sales but not purchases?

If that's the case, shouldn't it be much higher than 15 million (Fellaini, Anichebe, Jelavic...) I would think it should be close to 35 million

Think back one year.

 

[pfim]

If the main shareholders of Everton Football Club Company Limited value the Company's equity at £120 million then the new owner pays existing shareholders £120 million for all of the shares in the Company (35,000). Regardless of the Company's financial position the shareholders receive their money.

In return the new owner now owns the Company and within that Company there will have been no change to the assets and liabilities. Subject to restrictions from existing lenders the owner is now free to do as he (or she) sees fit with the finances of the Company. So if the owner wishes to pay off the debt they have to inject money into the Company, similarly if the owner wants to purchase new players and spend more than is available within the Company he/she must inject further funds into the Company.

Football clubs are one of those rare asset classes that cannot be valued in the way a traditional commercial enterprise is. Yes the owner will look at the Balance Sheet and the P&L for due diligence purposes but it is meaningless as far as the value of the equity is concerned.

In the case of Everton, if it was not a football club how could a Company with a negative balance sheet and a normally loss making P&L be worth over £100 million? Answer is that it would never be worth that amount.

When news and financial people quote a number like 120 million, they are not quoting what the equity in the business is worth. They are quoting the enterprise value, which includes the debt but not the cash.

The value of any commercial enterprise, football club or not, has little or no correlation to the balance sheet, even if there seems to be some resemblance.

 

[The Esk]

When news and financial people quote a number like 120 million, they are not quoting what the equity in the business is worth. They are quoting the enterprise value, which includes the debt but not the cash.

The value of any commercial enterprise, football club or not, has little or no correlation to the balance sheet, even if there seems to be some resemblance.

I am sorry but you are mistaken, the "sale" figure is exactly the price the major shareholders expect to receive for all the shares in the Company which owns the Club. It has nothing to do with the net cash position of the Company, other than if there is more cash in the Company the shareholders usually will want a higher price to reflect the cash position.

 

[pfim]

I am sorry but you are mistaken, the "sale" figure is exactly the price the major shareholders expect to receive for all the shares in the Company which owns the Club. It has nothing to do with the net cash position of the Company, other than if there is more cash in the Company the shareholders usually will want a higher price to reflect the cash position.

Respectfully, I'm really not mistaken. You cannot value the equity of the firm without first valuing the assets.

The two can be quoted separately but no, in general, if something is valued at 120 million that is the enterprise value. You can arrive a the enterprise value using many different methods, but equity is just part of the enterprise value.

So you can purchase the stock of a company for a certain price as you say, but that is not the value of the company.

You would arrive at an enterprise value of the business (based on cash flows, intangible assets etc), then subtract the debts and add back excess cash (if it is to remain in the business) to get the share price.

Purchasing the shares is not the only way to purchase a company. You can purchase the company through an asset sale where the previous owners are responsible for the debt. The enterprise value is the same in both instances, but the logistics of the deal are different.

 

[The Esk]

Purchasing the shares is not the only way to purchase a company. You can purchase the company through an asset sale where the previous owners are responsible for the debt. The enterprise value is the same in both instances, but the logistics of the deal are different.

In the case of Everton Football Club Company Limited, it is the Company not the shareholders who are responsible for the debt, just as the Company not the shareholders is the owner of any assets, cash included.

You are correct it is possible to buy assets but then that is what you are buying.... assets, not the Company. In the case of assets being purchased it would be the Company who is the beneficiary not the shareholders.

 

[pfim]

In the case of Everton Football Club Company Limited, it is the Company not the shareholders who are responsible for the debt, just as the Company not the shareholders is the owner of any assets, cash included.

You are correct it is possible to buy assets but then that is what you are buying.... assets, not the Company. In the case of assets being purchased it would be the Company who is the beneficiary not the shareholders.

And then the old shareholders would pay the debt per bank agreements and liquidate the remaining assets (cash from the sale) for the benefit of shareholders. Essentially, they will receive the same amount of money as in a share sale.