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Villa and FFP (2017/8/9)

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On 6 September 2019 at 12:59, TRO said:

I just hope Kevin Friend is not on the investigative committee for FFP......

Not quite the sentence involving "Kevin Friend" and "investigative committee" that I have been hoping to read.

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On 05/09/2019 at 14:51, LakotaDakota said:

The Premier league are apparently looking at the Sale of VP.

https://www.bbc.co.uk/sport/football/49600851

 

 

On 05/09/2019 at 18:01, LakotaDakota said:

A 2 year old could see that we did it to get around ffp rules so that isn't really the question. I guess the one thing that could potentially hurt us in any sort of investigation is the price, If Derby sold their ground to themselves for 80 million and the cost of building a new stadium is rapidly heading towards a billion then the 56 million paid would massively undervalue VP and trying to explain that away may not be quite so easy.

If the financial reports that the new owners were having to pump in about 5 million quid a month to cover Xia's reckless spending then this is a really clever valuation. A season is about 10 months so that covers the last year of terrible ownership. Ownership that was approved by the EFL. 

How can they possibly punish the new owners when the leagues approved a charlatan who got one of the finest, oldest clubs in the country into a complete mess?

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7 hours ago, KentVillan said:

I don't understand how undervaluing Villa Park could be a problem? Surely the FFP scam would be overvaluing it?

People are just annoyed we didn't go bankrupt. Logic has nothing to do with it. 

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13 hours ago, KentVillan said:

I don't understand how undervaluing Villa Park could be a problem? Surely the FFP scam would be overvaluing it?

It's just more a case of how you explain it i guess. If we had sold/bought it for 120m or so and this was based on a few independent valuations then sure we have still sold/bought it but at a fair market price so it is easy enough to explain away.

New owners come in, Want to make sure that they own everything completely themselves, stadium is worth 120m so they bought it...

Does anyone actually think that 56m is a realistic price? If we stuck a big for sale sign on it and invited offers i would imagine that they would be for an awful lot more than 56m. By doing the deal at this price it just looks like we had to find 50 or so million to balance the books so expoilted a loophole to get around ffp without a care if the price was even somewhat realistic. If there was a big earthquake in B6 tomorrow and the stadium completely collapsed i'm pretty sure it would cost more than 56m to rebuild

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1 hour ago, LakotaDakota said:

It's just more a case of how you explain it i guess. If we had sold/bought it for 120m or so and this was based on a few independent valuations then sure we have still sold/bought it but at a fair market price so it is easy enough to explain away.

New owners come in, Want to make sure that they own everything completely themselves, stadium is worth 120m so they bought it...

Does anyone actually think that 56m is a realistic price? If we stuck a big for sale sign on it and invited offers i would imagine that they would be for an awful lot more than 56m. By doing the deal at this price it just looks like we had to find 50 or so million to balance the books so expoilted a loophole to get around ffp without a care if the price was even somewhat realistic. If there was a big earthquake in B6 tomorrow and the stadium completely collapsed i'm pretty sure it would cost more than 56m to rebuild

It would be a lot more damning, though, if we had sold it for say £1bn and used that to finance £1bn of transfers. That would be a clear attempt to inject money into the club for transfers.

I think this is why Derby are being challenged - because at £80m they have over-, rather than underpriced their stadium, allowing them to inject an extra £30m or whatever into the club.

Villa Park is obviously an iconic stadium, but it doesn't sit on prime real estate. Perhaps £56m isn't far off a fair estimate of market value for the purchase. I suspect we've done this by the book to be honest, even if we've exploited a convenient loophole. Would be interesting to hear from someone who works in construction or property what they think about the valuation.

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I would have thought the underlying value of the sale would have been the undeveloped land next to VP,  not the stadium itself. A stadium surely offers only depreciation issues. You can't exactly liquidate the entire stadium. Lets have @Risso enter the thread. 

Edited by KenjiOgiwara

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The clubs need to take strong action at some point and get FFP abolished. Its just a useless bit of bureaucracy now. I dont look back at the Lerner era with much fondness but he was bloody right about FFP, I am proud we voted against this failed system.

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Maybe this question has been asked before, but why doesn't building a new stadium come under FFP? 

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As a fan of a club who follows it and makes very big efforts to do so, this debate rather interests me,

Villa Park- £56.7m right? Some may seven say undervalued...

Well, yes but then again was it not impaired to the tune of £44-45m in 2015/16?

Unless it was in the accounts where it was sold and leased back, how does that work- remember in that remaining book value post Impairment was also some- well I'll get the key figures up.

Freehold Land and Buildings would represent Villa Park in the accounts I presume.

2014-15

  1. Cost- £106,763,000
  2. Minus Accumulated Depreciation- £18,970,000
  3. Minus Depreciation for the Year- £2,506,000
  4. Net Book Value by 31st May 2015- £85,287,000- INCLUDED within that is land of £7,931,526 which has not been depreciated

2015-16

  1. Cost- £106,763,000
  2. Additions- Presumably enhances value by this- £303,000.
  3. Minus Accumulated Depreciation- £21,476,000
  4. Minus Depreciation for the Year- £1,817,000.
  5. Minus Cost of Impairment- £44,593,000
  6. Net Book Value by 31st May 2016- £39,180,000- INCLUDED within that is land of £7,931,526 which has not been depreciated.

2016-17

  1. Cost- £107,066,000
  2. Minus Accumulated Depreciation added onto the One Off Impairment £67,866,000
  3. Minus Depreciation for the Year- £1,454,000.
  4. Net Book Value by 31st May 2016- £37,726,000- INCLUDED within that is land of £7,931,526 which has not been depreciated.

2017-18

  1. Cost- £107,066,000
  2. Additions- Presumably enhances value by this- £2,533,000
  3. Disposals- Presumably knocks it down a bit again- £1,505,000.
  4. Minus Accumulated Depreciation added onto the One Off Impairment- £69,340,000.
  5. Minus Depreciation for the Year- £1,446,000.
  6. Disposals of Depreciation- £174,000.
  7. Net Book Value by 31st May 2016- £37,482,000- INCLUDED within that is land of £8,959,526 which has not been depreciated. Roughly the difference if not exactly the difference between Additions and Disposals for the year.

With that in mind, I struggle to see how it is £56.7m- that Impairment was BIG! Unless Plant and Equipment included within it maybe, or some Depreciation added back on. I know Net Book Value and Market Rate certainly aren't the same but that Impairment from 2015/16 has a big downward effect on value does it not?

In fairness, there could be a Revaluation Reserve- but I sure have not found it yet!

Edited by CityInPeace
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Well I can't edit which is annoying!

What one of the bits on the most recent accounts should have said was that the difference was £1,028,000 when it comes to land which has not been depreciated. That land was equal to the net difference between Additions and Disposals for Tangible Fixed Assets in 2017/18, which suggests that the transactions on that, that the movement on that took place on the land which has not been depreciated.

Yet your Recon Group accounts for that season do not make reference to the Disposals on Freehold Land and Buildings- whereas your Recon Sports ones do, ie the £1,505,000 with Disposals of Depreciation of £174,000.

Anyway regardless yes some more additions perhaps in Recon Group but also more land which was not depreciated- I still don't see how it's the value that transpired in the not so Arms Length Transaction.

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I'm not sure I understand quite what you're getting at, @CityInPeace?

Is the point that the value of the asset in our books was written down? If it is, it's irrelevant as I have done asset valuations for a lot of organisations who might write an asset down when they can afford to and increase it when they need to show better results.

On what basis do you think £56m is overvaluing it? I ask because I've seen a lot of people who clearly don't know how these things work say that is overvalued because The Madjeski as valued at X or it is potentially too low because Pride Park is valued at Y. The valuation will be based on the price to rebuild the stadium at the same quality with the current land (or local equivalent of). Obviously there would be large downward adjustments to account for obsolescence, but £56m seems fairly sensible to me when you look at the build costs of these large projects. It also looks sensible from the point of view of someone who has carried out these valuations professionally before, albeit not for stadiums.

Further confusion can be caused as certain things may have an Existing Use Value (value with current use ie you can't value a park as a potential devlopment site) in the accounts, but you would obviously only sell for Market Value (self explanatory). Having not done asset vals for a few years I must admit where and when each is used is a little hazy!

I've written a bit about methods of valuation and why I really can't see the club getting in trouble for this over the last couple of pages which may be worth a skim. The issue is the EFL leaving a stupid loophole open and they should just close it ASAP if they don't want clubs to use it. There is also a bigger issue of allowable losses and payments to the EFL not keeping up with the transfer market.

Feel free to ask any questions on behalf of your Bristol City friends as it seems to be the big issue of the day for some :P

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Thanks for the response @Sam-AVFC

Quote

Tangible Fixed Assets
"Tangible Fixed Assets are stated at historical cost less accumulated depreciation and any provision for impairment. Cost includes the original purchase price of the assets and the costs directly attributable with the purchase of the asset. Depreciation is calculated on a straight-line basis to write down the assets to their own residual value over the anticipated useful lives, which are re-assessed on a periodic basis".

As per your 2017/18 accounts, as part of your listed accounting policies.

Historical cost as listed in the accounts minus accumulated depreciation and impairment, no?

Am quite aware that Impairment can be reversed, but not in all cases.

The interesting thing as I am sure you know is that it was the EFL who opened the loophole themselves, for reasons best known to themselves. Should never have been opened- UEFA ones do not allow it- word of warning on that, if you qualify for Europe within the period that this took place it will be deducted from calculations the profit, as per UEFA FFP regs- surely has to be. Well aware that valuers can get in serious trouble if they fudge that aspect, professional bodies, law etc etc.

One site I read just now, briefly though it was, suggested there isn't a lot of difference between the two values ie Existing Use Value and Market Value. if it was for a different use then these would surely differ and diverge though, but same use?

The issue of allowable losses in PL v EFL I agree on but PL should move on that one, and transfer market is just a red herring in this context- an issue for debate certainly, but if enforced tightly it'll dampen down the EFL market. Actually gross expenditure was basically flat in summer 2019 from summer 2018 among Championship clubs and overall "Transfer Balance" lower, compare it to 2 or 3 years ago- it's having an effect but could be done so much better.

I think the Premier League will whitewash it incidentally in your case, if you were in the EFL still there would be more chance of a thorough investigation- the fact there was a line in the Telegraph article that said that this was never intended to open the door to this practice, or words to that effect suggests that they might go hard on it- and rightly so. UEFA would.

I also note that it was sold to an existing company within the group. NSWE Stadium Limited, formerly known as Recon Football, formerly as Aston Villa Limited and finally initially as Vilden- what differentiates this, makes this a sale and leaseback as opposed to say an internal asset transfer, or inter/intra company transfer?

Plus, and it's purely a timescale based aspect- listed as an asset of Community Value- is there not a time span where nothing can happen, before such a transaction can occur?

On the general issue, having trawled Reading's accounts their value seems in the right ballpark. Derby's seems possibly on point or sharply inflated- all depends on the Revaluation Reserve and Sheffield Wednesday's...well what to say about £60m!? All IMO.

Specifically on Derby, until I noticed Revaluation Reserve, based on a 2007 Valuation of £55m for Pride Park, subsequent depreciation and assets I had it somewhere between £50-55m, maybe towards £60m but then again when they brought it back in 2007 as they had to do a sale and leaseback from a third party for financial reasons, it was revalued up to £55m and this addition was about £34m- Revaluation Reserve was about £39m, so it is either RR + upward RV or Upward RV inclusive of RR.

Edited by CityInPeace

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Quote

 

Fair value less costs to sell is based on the sale of the asset in an arm’s length transaction between knowledgeable and willing parties.

Value in use is the present value of the future cash flows expected to be derived from the asset.

 

No problem with the 2nd bolded bit, but arms' length??

Quote

For individual assets, reversals are recognised in profit or loss (or in other comprehensive income, for previously revalued assets in accordance with the requirements of the relevant section). The asset carrying value is never restored to more than what it would have been had the impairment never occurred.

I didn't see any Revaluation Reserve or Revaluation surplus in any of your accounts- whether there will be an upgrade in value, a revaluation or a reversal of impairment in 2018/19 accounts will be very interesting to see...by rights your projected accounts and I guess those of Derby and especially Sheffield Wednesday- no idea when Reading's transaction took place- surely would not have mentioned it so those submitted to the EFL in March 2019 would show a loss in excess of FFP and points as per projected accounts should'be been deducted. Actually, the EFL should publish Projected Accounts and FFP submissions or lat least FFP position of compliance based on these.

Edited by CityInPeace

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@CityInPeace Thanks for the detailed response!

I must admit my knowledge of accounts is lacking so a lot of what you have written I couldn't even begin to try and answer. I'm an chartered surveyor specialising in valuation hence why I focus on the issue of the stadium valuation.

37 minutes ago, CityInPeace said:

One site I read just now, briefly though it was, suggested there isn't a lot of difference between the two values ie Existing Use Value and Market Value. if it was for a different use then these would surely differ and diverge though, but same use?

They could be exactly the same thing, but they could also differ hugely. The difference is an existing use value can only value what is there for the use, whereas a market value assumes the most valuable use as that is how the market would operate. For example, a community centre valued as market value would likely take into account the potential for development and assume this (all risks would be calculated in the valuation) whereas an existing use value could only value it as a community centre so would probably be based on comparable rents and yields of similar D4 properties in the locality.

6 minutes ago, CityInPeace said:

I think the Premier League will whitewash it incidentally in your case, if you were in the EFL still there would be more chance of a thorough investigation- the fact there was a line in the Telegraph article that said that this was never intended to open the door to this practice, or words to that effect suggests that they might go hard on it- and rightly so. UEFA would.

I just don't see how they can go hard on us. By definition loopholes are within the rules. Intention is irrelevant as the EFL acted completely incompetently in changing the wording and left a great big hole for people to navigate.

44 minutes ago, CityInPeace said:

I also note that it was sold to an existing company within the group. NSWE Stadium Limited, formerly known as Recon Football, formerly as Aston Villa Limited and finally initially as Vilden- what differentiates this, makes this a sale and leaseback as opposed to say an internal asset transfer, or inter/intra company transfer?

Plus, and it's purely a timescale based aspect- listed as an asset of Community Value- is there not a time span where nothing can happen, before such a transaction can occur?

Now this is a very interesting point. II'm not sure they can say you can't sell between subsidiaries as it will all come down to whether the valuation was carried out correctly and professionally. Definitely raises further questions though.

46 minutes ago, CityInPeace said:

On the general issue, having trawled Reading's accounts their value seems in the right ballpark. Derby's seems possibly on point or sharply inflated- all depends on the Revaluation Reserve and Sheffield Wednesday's...well what to say about £60m!? All IMO.

This is my point on people forming opinions based on the value of others. Do you have an insight into rebuild costs etc or are you simply basing this on 'feel' and comparable valuations? As someone who has carried out these types of valuations, £56m seems completely reasonable. All the other accounting tricks I'll have to defer to you on.

11 minutes ago, CityInPeace said:

No problem with the 2nd bolded bit, but arms' length??

Fair Value actually differs slightly from EUV, but without getting into minutae I think you've used the correct term (with me in the wrong) as I'm pretty sure accounting standards changed after I stopped working on asset vals.

The bolded bits simply mean that the valuer has to value it in that way, not that the actual transaction needs to be arms length. This is specifically to stop any problems with people questioning impartiality and is why I still can't see the club being punished specifically for overvaluing the stadium. If we were and had a pop at our surveyors' PII, would this count in FFP transactions?!

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1 hour ago, CityInPeace said:

Thanks for the response @Sam-AVFC

As per your 2017/18 accounts, as part of your listed accounting policies.

Historical cost as listed in the accounts minus accumulated depreciation and impairment, no?

Am quite aware that Impairment can be reversed, but not in all cases.

The interesting thing as I am sure you know is that it was the EFL who opened the loophole themselves, for reasons best known to themselves. Should never have been opened- UEFA ones do not allow it- word of warning on that, if you qualify for Europe within the period that this took place it will be deducted from calculations the profit, as per UEFA FFP regs- surely has to be. Well aware that valuers can get in serious trouble if they fudge that aspect, professional bodies, law etc etc.

One site I read just now, briefly though it was, suggested there isn't a lot of difference between the two values ie Existing Use Value and Market Value. if it was for a different use then these would surely differ and diverge though, but same use?

The issue of allowable losses in PL v EFL I agree on but PL should move on that one, and transfer market is just a red herring in this context- an issue for debate certainly, but if enforced tightly it'll dampen down the EFL market. Actually gross expenditure was basically flat in summer 2019 from summer 2018 among Championship clubs and overall "Transfer Balance" lower, compare it to 2 or 3 years ago- it's having an effect but could be done so much better.

I think the Premier League will whitewash it incidentally in your case, if you were in the EFL still there would be more chance of a thorough investigation- the fact there was a line in the Telegraph article that said that this was never intended to open the door to this practice, or words to that effect suggests that they might go hard on it- and rightly so. UEFA would.

I also note that it was sold to an existing company within the group. NSWE Stadium Limited, formerly known as Recon Football, formerly as Aston Villa Limited and finally initially as Vilden- what differentiates this, makes this a sale and leaseback as opposed to say an internal asset transfer, or inter/intra company transfer?

Plus, and it's purely a timescale based aspect- listed as an asset of Community Value- is there not a time span where nothing can happen, before such a transaction can occur?

On the general issue, having trawled Reading's accounts their value seems in the right ballpark. Derby's seems possibly on point or sharply inflated- all depends on the Revaluation Reserve and Sheffield Wednesday's...well what to say about £60m!? All IMO.

Specifically on Derby, until I noticed Revaluation Reserve, based on a 2007 Valuation of £55m for Pride Park, subsequent depreciation and assets I had it somewhere between £50-55m, maybe towards £60m but then again when they brought it back in 2007 as they had to do a sale and leaseback from a third party for financial reasons, it was revalued up to £55m and this addition was about £34m- Revaluation Reserve was about £39m, so it is either RR + upward RV or Upward RV inclusive of RR.

I am no accountant, but I would imagine accounts like ours of a byzantine nature are difficult to judge......and that interpretation would be a key to the conclusions.

I would suspect many accountants could find themselves disagreeing.

In such cases punitive measures of FFP  would be equally difficult to prove.

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Out of interest. I am not as knowledgeable about accounting as some of you it seems. But how do you define intangible assets and Villa Park? Obviously a brand in itself, but as a historically and future household Premier League name (hopefully)  how do you value that bit? 

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43 minutes ago, KenjiOgiwara said:

Out of interest. I am not as knowledgeable about accounting as some of you it seems. But how do you define intangible assets and Villa Park? Obviously a brand in itself, but as a historically and future household Premier League name (hopefully)  how do you value that bit? 

It wouldn’t come into the stadium value at all as it’s simply a rebuild cost, but I’m also interested in how this is treated by one of our accounts experts.

I’d assume it wouldn’t be included, but I was reading something about the value of the Trump brand recently that makes me think maybe it is.

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But is it just a rebuild cost? Wouldn't the brand name of one of England's most famous sports venues carry weight? Biggest sports venue in the midlands (I am guessing). Played in tournaments, concerts etc. A fundamental facility in a billion pound industry.  I am probably a bit of a simpleton here now, but wouldn't all of this hold a value?  It's probably a drop in the ocean relatively speaking, but I was just curious about how you would set a value to it. 

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