Fulham completely debt free!

http://www.guardian.co.uk/football/2013 ... CMP=twt_gu

 

Good news . . . as long as we dont get relegated. :shifty:

Does this mean Al Fayed wants to sell?

 

Thanks for posting Salz. Not sure what it means necessarily, but HD's theory that MAF is getting everything in order to make the club attractive to a buyer is looking stronger. The fact MAF is willing to turn the debt into equity has to viewed as a great sign for the long term financial health of the club. Keeping the team in the Prem you would think is paramount if indeed he has a mind to sell, so let's see if some money is spent in the next 48 hours.

 

Loan free, not debt free.

 

HD's theory is certainly one valid viewpoint but it is just as likely that MAF converted the debt to equity as an estate planning tool so that no heir could call in the loans or that he restructed the loans to equity to help the club meet the new financial rules that clubs will have to abide by. Whatever his reasoning this certainly looks like a very good move in terms of benefit to the club.

 

Converting debt to equity, especially for an entity that has a sole owner, is little more than a shell game. There are really only 2 reasons I can think of for doing it. One is a long term tax strategy, likely capital gains related. The other is in an attempt to get a more favorable rate on any financing MAF tries to secure for the stadium expansion.

Don is wrong in thinking it makes the club more attractive to another buyer b/c it doesn't change the value of the club. The percentage of debt to equity only affects the current owner, not a new buyer. That's why I think financing the expansion might be a factor. Lowering the percentage of debt to equity can affect interest rates on new financing depending on what that % is. For all I know, FFC's is fine and it's a non-factor. But that could be a reason and the timing would make sense. If anything, this conversion actually serves as evidence against Don's theory.

While we're on that subject, this widely circulated idea that we're selling off players to pay for the new stand is assinine. No company cuts production to build a new plant. That's what financial instituions are for. Back in olden times when clubs weren't the big business they are today, perhaps financing through banks was limited and maybe there were cases where clubs sold a player/players for that. There also wasn't the massive disparity in revenue between the leagues then either though, so dropping out of the 1st division was more a matter of pride than of finances (as compared to today).

Since FFC has a sole owner, MAFCO Holdings, I don't believe there are any protections by converting the debt to equity either. His kids comprise MAFCO, so while MAF's passing would affect their share % within MAFCO, they'd still be the owners of the club. As the sole owners, they could just as easily cash out equity as call a debt. There may be estate tax considerations (don't know Brit law on that), but that's probably why he established a holdings co for the ownership of the club in the first place.

I also don't think it's Financial Fair Play related. FIFA didn't start accounting for FFP until the 2011/12 season and it's based on losses. Past debts aren't losses. Now how much you can lose is affected by the value of your equity, but the max loss is only 45M euros for that initial 3 yr period. Fulham reported operating profits of 1.2M pounds for the first year of FFP reporting. Since FFC's calendar year ends in June, profits should only increase for this season b/c the sale of the Dems goes on this year's books. FFC already had enough equity to "cover" the max losses and it looks like we won't be having to cover any anyway.

I'm kinda having a laugh at how much is being made of this non-story in the Fulham universe. For one, he did this back in June 2012. Second, despite all of the uninformed speculation going on, this is really probably nothing more than a long term tax strategy move for the club.

 

Just like Matt to bring common sense, logic, and an informed perspective into this. That's what I get for asking I guess. Seriously though thanks for the info. I guess there is no reason to get excited over being "debt free" but no reason to worry that Mo is selling or FFC is being asinine. So I can happily return to being seriously worried about whether our players can get their act together for West Ham and the possibility that the transfer window will slam shut before FFC can bring in adequate reinforcements.

 

Nothing wrong with asking a question if you don't know, Mo. My last comment was taking a shot at some of the inferences I read elsewhere today that weren't questions, but presented as fact, despite some glaring logic flaws. But that's the internet, no?

One inference I left out is that it's probably a safe bet that MAF doesn't plan on putting any more money into FFC out of pocket, unless something drastic happens. If he did, he'd have probably waited to do the conversion after adding to the debt. Not before. This also fits with his stated goals of sustainability and the fact that FFC has recorded several profits recently.

 

From a financial standpoint convertng debt to equity in some instances may be little more than a shell game but from a legal point of view it has very legitimate business applications. The most likely reason I can think of for converting debt to equity for anyone at MAF's age is estate planning. If you want to insure the long-term viability of any orgnaization handing down callable, debt instruments to heirs in any form is a very bad idea. That is true even if that debt is held by a intermediary organization. By converting the debt to equity you insulate the formerly debt owing organization from the immediate threat of a large cash payout. In addition, if the company that owns the newly created equity in the organization is a closely held company there are ways to put restrictions on who the equity interests/shares can be traded to which protects the organization from outside takeover.

Unless the tax laws in England are fundamentally different from the tax laws in the US this is probably not a tax strategy unless MAF has some large capital losses he needs to offset. Any debt repayment would have zero tax ramifications as long as the note stipulates it is a zero interest loan unless they assign interest even in the presence of an existing note in England. The capital gain would be the excess of the funds received less the note payment less the equity with no conversion and the excess of the funds received less the new equity (formerly the debt amount) less the old equity with conversion. My guess is that the shell game comment probably applies to the capitaly gain tax ramifications because that would be the same capital gain.

 

I cant even remember what I did with my time prior to google.