Getting around FFP

[Chester Perry]

Appears that the Hull owners have exercised a route around FFP in the Championsip - they avoided it by injecting fresh capital into the company in return for shares - now they have returned to the previous share balance while returning the cash value back to the share holders - Is it really that simple - you would have thought the brains trust at QPR could have come up with that one

- here is the thread on the Hull board that covers it

http://www.not606.com/threads/documents ... se.345559/" onclick="window.open(this.href);return false;

[Royboyclaret]

QPR did something similar when they were promoted via the play-offs. They wrote off over £60m of debts with a double entry to Income within the P/L account.

As with the Hull tactic, it was bound to fail as a poor attempt to circumvent FFP rules and both will ultimately lose out.

[Spijed]

Didn't Roman Abramovich turn the money he'd put into Chelsea into Shares to do something similar?

[dsr]

Putting money into the club is one thing - that's a legitimate way of getting round FFP, and it's also the normal way of giving (rather than lending) money to the club. What the Allams have done is sign a sworn statement, punishable if proved false by up to 2 years in jail, that the company (Hull City) is in no financial difficulty at all and can pay its debts, including the £23m owed to banks and the £8m owed to other clubs, without any possibility of failure. Paying back shareholders while insolvent is a criminal offence - so why they didn't repay £2m of loans instead is beyond me. It's stupid. Quite apart from being so obvious that they're sticking two fingers up at the FFP regulators.

I'd have doubts about the financial advisers, too. Apart from the fact that someone is unable to spell "its", twice, or "from", once, it's very rare for a company that is £73m in debt, not to have that mentioned in the audit report. The auditor might not qualify the report, but they would put in an 'emphasis of matter' - ie. make sure that the readers of the accounts know about it. If I was the bank, I'd be asking for money back right now.

[Sidney1st]

Did you just say Hull have debts of £73 million???

[dsr]

Did you just say Hull have debts of £73 million???

They did as at 30th June 2016. Actually, they had debts of £95m but fixed assets (ie. players) worth £22m in the books; they may have sold players for more than that to reduce the debt; and we don't know how much of the extra TV money they have kept back for debt repayment. So we don't know what the figure is now, but it's not solvency, and IMO it's overconfident of the directors to declare that they are.

[Sidney1st]

Kin hell.

Unfortunately Hull fans are a bit scarce on FB so I cant even go fishing with that one.

[aggi]

Kin hell.

Unfortunately Hull fans are a bit scarce on FB so I cant even go fishing with that one.

I don't think you'd get many bites, Hull fans are well aware of the precarious position of the club

[Sidney1st]

That's true, even Boro fans have stopped gobbing off lately.

Rovers are still good for a bit of a laugh though, so it isn't all bad.
Plus there's Derby.

[aggi]

Putting money into the club is one thing - that's a legitimate way of getting round FFP, and it's also the normal way of giving (rather than lending) money to the club. What the Allams have done is sign a sworn statement, punishable if proved false by up to 2 years in jail, that the company (Hull City) is in no financial difficulty at all and can pay its debts, including the £23m owed to banks and the £8m owed to other clubs, without any possibility of failure. Paying back shareholders while insolvent is a criminal offence - so why they didn't repay £2m of loans instead is beyond me. It's stupid. Quite apart from being so obvious that they're sticking two fingers up at the FFP regulators.

I'd have doubts about the financial advisers, too. Apart from the fact that someone is unable to spell "its", twice, or "from", once, it's very rare for a company that is £73m in debt, not to have that mentioned in the audit report. The auditor might not qualify the report, but they would put in an 'emphasis of matter' - ie. make sure that the readers of the accounts know about it. If I was the bank, I'd be asking for money back right now.

Assuming the Allam's continued support (and the significant revenue from the Premier League and parachute payments and flogging a load of players) it's unlikely there'll be issues with them fulfilling their debts in the next year.

Given that there's a Going Concern note (and I assume a letter of rep) with the Allams attesting to the fact that they will continue to support the club and that the club is 100% owned by the Allams I don't think there's a material uncertainty about the Going Concern position and so I don't think that an emphasis of matter is required. Same as Blackburn or West Ham's accounts, they've got significant debts and an emphasis of matter is not deemed necessary.

It is an unusual route to take for a company with so many debts though.

[dsr]

Assuming the Allam's continued support (and the significant revenue from the Premier League and parachute payments and flogging a load of players) it's unlikely there'll be issues with them fulfilling their debts in the next year.

Given that there's a Going Concern note (and I assume a letter of rep) with the Allams attesting to the fact that they will continue to support the club and that the club is 100% owned by the Allams I don't think there's a material uncertainty about the Going Concern position and so I don't think that an emphasis of matter is required. Same as Blackburn or West Ham's accounts, they've got significant debts and an emphasis of matter is not deemed necessary.

It is an unusual route to take for a company with so many debts though.

If there was a material uncertainty about the Allams' support, the audit report would surely be qualified. It's only because they have given firm assurances about their continued support that the accounts are on a going concern basis.

The audit report lasts for 12 months from signature, which takes it well into next season - no matter what promises the Allams have made, I wouldn't care to sign my name to a report that blithely accepts there isn't a problem at all, even if the club is relegated.