[video=youtube;veeVGFgIq7A]https://www.youtube.com/watch?v=veeVGFgIq7A[/video] I doubt they'd actually ban us from the Europa League, but we do seem to be in a rather dodgy position.
Many others are way ahead of us in the FFP mess. Manchester City and PSG are failing it big time and top of the shop.
Man City and PSG seem to have got off already, they've come to some sort of 'arrangement' with UEFA(presumably their owners are converting loans to equity to meet the rules).
Useful explanation, I guess clubs will have to look at the owners turning loans into equity, which should make clubs generally more stable financially.
That is within the rules. I would assume that these owners don't see converting loans to equity as a big disadvantage compared to many other owners.
A bit about us specifically... "There are still some issues for Hull in that their 2013/14 accounts are probably likely to show only a modest profit and therefore some significant equity injection will probably be required. The owner will need to inject some cash to ensure club debts do now grow by more than permitted. He will have until 31 Dec 2014 to convert the debt into equity. If he does not do this, it is unclear what punishment UEFA will impose – they may withhold some of Hull’s prize money or alternatively impose a punishment for the 2015/16 season. However as Hull are by no means certain to qualify for UEFA competition in 2015/16, it seems more likely that some of the prize money may be withheld if the owner did not inject the equity. However, there is no reason to think that he won’t inject the cash."
I maybe wrong, but I seem to remember reading that the initial £40m they put in was turned into equity, but over and above this has been loans.
As per the accounts at end of July 2013, £1.3m share capital, £825k owed to Assem and £72m owed to Allamhouse. http://www.not606.com/showthread.php/240072-Hull-City-Tigers-Limited-accounts-to-31-07-13?p=5723155&viewfull=1#post5723155
I just looked back and on the HDM and BBC websites of the time they bought the club, and I think this is where I got the idea, it said the following. City’s debts amounted to at least £21.1m, with monthly outlays of at least £2.8m, a playing wage bill of around £1.35m and £600,000 debt on bank loans and transfer payments. The Allams committed themselves to invest £30m, as well as providing assurance for a further £10m. Read more: http://www.hulldailymail.co.uk/Hull...tory-20331429-detail/story.html#ixzz30NpDAB2S
I don't really understand this thing about them converting loans to equity. Don't they have 100% of the equity anyway? So surely they can't take any more, and it'd be worth nothing if they did. They'd be just throwing the money away wouldn't they? A gift after all.
The difference is the solvency of the club (solvency means the ability to pay your liabilities using your assets). Per the last accounts the club has net liabilities of £70m. If the debt to Allamhouse is converted to equity then the club's assets would roughly equal its liabilities and the club would be classed as solvent (with £75m of share capital rather than £1.3m, meaning that each share instantly becomes worth about 1.5% of what it was worth - irrelevant as Allam owns all the shares anyway and they aren't listed on a stock exchange). As it stands at the moment Allamhouse can receive the £70m straight onto its balance sheet without paying any tax (the only tax payable is on the 5% interest the loan is generating). As equity, the club's worth would go up as it would have £70m less in liabilities. The sale price would then attract capital gains tax.
Thanks, I understand bits of that. I still don't understand, however, why Allam would want to do it. Currently the club owes him money, wouldn't he just be writing off that loan by converting it to equit he already has? I could understand it if he owned half, and was gaining some equity.
He would be writing off the loan in exchange for shares (not a tax efficient move) and the ability to charge 5% interest on the loan. This is why he won't do it unless he's forced to. If UEFA witheld monies received from Europe that were in excess of the tax saving then he'd probably convert the debt to equity as it would be the most efficient move at that point. The other thing is potentially selling the club at the moment. In its current state (net liabilities of £70m+), the club would have to be sold for £1, more than it is worth, with the promise to repay the £70m loan over time (a bit like the Gaydamak / Mandaric scenario at Pompey). If he converted the debt to equity (and for the sake of argument we say that the net assets are then £0 and the share capital is now £70m higher than it was), he would try to sell the club for £70m (everything else being equal) and would be liable to capital gains on the sale of the shares to the tune of £70m. It's been a while since I did accountancy but assuming that he had to pay 28% on £70m (£19.6m) then this would have to be the ballpark of the figure UEFA witheld before he decided to convert the debt to equity.
Agreed on there being no tax in getting their money back via repayment of loans rather than dividends but there would be no difference in the capital gains tax if the club was sold. The cost would be exactly the same whether all share capital or any mixture of shares and loans.
