Watford Finances Update...

For West Brom yeah. No issue for us. We were due to pay them £2m in 2021 but their owners have borrowed against the instalment now. That’s up to them.

It’s a small town version of what we did by borrowing against all this season’s tv deal cash.

 

Did you listen to the rest? £80m in debt to the Pozzos. Standard I guess. But £90m in unpaid transfer fees on top!

 

No, will go back. Got bored with them droning on about amortisation and presumed the Watford related bit had ended.

 

I would guess we wouldn't have been able to have built up that debt if the bank(s) had not been okay enough with the numbers to sanction it. (?)

Quite an interesting podcast series though, I've listened to some of the other episodes as well, thanks for the link.

The part where one of the two presenters said that "[Dawson]'s played quite well for Watford" has made me question its validity a bit however.

 

So it said West Brom sold the debt to a bank and now we have to pay the interest? Seems a bit strange doesn’t it? Surely West Brom owe the bank not us?

 

Is that unusual for a prem club?

All fees are paid in instalments

 

Isn't the reason we have the large debt as the interest payments are how Gino makes his money. As far as we know, football is his main (only?) business interest, a stark contrast to almost all other owners. So he could try to run a really tight ship and take money out as profit but we wouldn't be able to compete, but by us running a debt up with him and the club paying him interest every year (think the Swiss Ramble Twitter account remarked that it was an eye watering interest rate), we can compete and he can live a rather nice lifestyle.

I don't really understand accounts so that could be complete nonsense but the debt restructuring and the attempts to get investors suggest to me that maybe they thought it wasn't sustainable to keep doing that long term. That's my layman's take on things, makes sense in my own head but happy to hear a better explanation from someone with some knowhow. Unless that explanation is that we're ****ed, in which case, allow me to continue in blissful ignorance.

 

Nothing to see here.

I'm not sure who Kieran is but Kevin sounds like Kevin Day, who is a Palace fan. He actually usually comes across quite well on the radio when I've listened to him in the past, but it seems like he's barking up the wrong tree, or taken the wrong end of the stick (are those terms correct?)

Anyway, I think Kevin thought we couldn't pay the £2m to West Brom, rather than we are paying in instalments which is due in 2021. This is a normal football structure for paying transfer fees. He said "why do clubs keep selling to Watford if they don't pay. They owe £90m to clubs in the past three years." He thought it was a major story that they've just stumbled on, but it's just normal business. I'm surprised they've sensationalised it, but I think they've just misunderstood the entire thing.

We may well owe £90m in transfer fees, but these are all budgeted for over the terms of the players contracts. This is one of the reasons why Watford offer these 5 year deals, because a by-product of that is the payment terms. They have longer to pay these fees. It might be £90m in total, but this is spread out over 5 years or so.

Don't forget, Watford do sell players, and loan players out. Watford will be receiving money from other clubs too. Ok, it may not be as high as £90m, but Everton will certainly be still paying us for Richarlison. We're probably still getting payments for Ighalo as well.

Not sure why Watford are paying the bank West Brom's interest, so that must be another inaccuracy, unless they had agreed to pay West Brom interest as part of the deal, which was then passed on to the bank. That's the only reason why they would be paying the bank's interest. Although I should imagine had West Brom received money from a bank in advance using the IOU from Watford, then that's their call. Watford would still pay West Brom, and West Brom would pay directly to the bank, but we obviously would not get directly involved with any arrangement West Brom made with their own bank.

I believe Watford have also structured deals like this with their own bank on the promise of money from Everton for Richarlison. They took out a £25m loan on the back of that. It's all very normal football business practise.

 

I believe that the Glazer family do pretty much the same thing with Man Utd, though they have other business interests as well.

 

The length of a player contract is not relevant to the instalments we agree to pay to a seller. The contract length is relevant to the speed of player amortisation on the balance sheet. You are confusing cash flow with asset value.

edit: I should add that I agree with the thrust of your post that the podcast bloke has uncovered a complete non story.

 

This is all correct- i have looked at the the filings at companies house for WBA. Watford are due to pay £2.395m in September 2021 for Dawson. Watford also have to pay Rochdale £480k as part of their sell on fee at the same time so Dawson costs us c£2.9m. The loan agreement between WBA and the Australian bank who have financed the IOU relates only to the £2.395m and is confidential so there is no way Joe Public can see how much WBA got-it will be less than £2.395m so that mail the "professor" got which said we are paying interest cannot be right. We are due to pay that sum only-if a bank wants to lend WBA say £2m today and receive the £2.395m in September 2021 thats good business for the bank.

As to why we chose not to pay the money up front and agree to issue an IOU was down to negotiation between the clubs on Dawsons value. Its conjecture to say we couldn't afford to pay say £2.2m upfront so agreed to pay £2.395m in Sept 2021

 

Of course not every deal is the same and tied in to player contract lengths and that's down to the negotiation, but it's normal practise to pay the selling club over the term of player contract in instalments. Obviously if the player extends his contract or is sold before the end of contract, this does not effect how the selling club receive their instalments.

In general, if we sign a player on a 5-year deal, the instalments to the selling club would be over a 5-year term, unless otherwise agreed.

It's actually something that selling clubs like. It's because they will have a guaranteed income over a period of years. This is good when it comes to budgeting for future transfers or payments to creditors. It's helps with revenue streams. Sometimes clubs can ask for a lump sum up front, and even though that's not unheard of, it's highly unusual.

 

Unfortunately there is another inaccuracy in the podcast-we don't owe £90m to the Pozzos

Watford FC the club borrow from its parent company Hornets Investments Ltd "HIL" who in turn have external debt. HIL is owned by Gino. As at the last published accounts "we" owed

£81m net in transfer fees
£55m to a Secured (charges over all assets including the ground and players contracts) 3rd party debt fund -no relationship with Gino. Interest rate charged 7%
£25m to an overseas Pozzo entity-totally unsecured -interest rate 5% charged

So £161m of debt in total-and the 9th largest debt in the PL

Late last year we refinanced the Secured Creditor by taking out a facility from Barclays secured against future PL income. Whether the Pozzo loan was repaid/reduced/increased we will not know until the next set of accounts to 30/6/19 are out-they may reveal more-they are due out in a month or so-

 

Instalments are up for negotiation. The purchaser may want to match cashflow to depreciation but as a seller I don’t care whether you give the guy a 4/5/6 year contract.

 

Maybe you would buck the trend if you were a football owner and that's fine. But what I'm saying is how things are done in the majority of cases for football trades.

 

Your last point isn’t correct for two reasons:

1) £45 million today is worth more than £15 every year for 3 years (time value of money)
2) Credit Risk

In reality it’s probably a case of either 45m in instalments or 40 million upfront to account for these factors but the point is all things being equal nobody logical prefers instalments over upfront cash for the reasons stated above.

 

Man City paid 3 instalments for Mahrez for 5 year contract. 2 instalments for Rodri for 5 year contract. In fact Spanish transfer fees involving buy out clauses are often lump sums without subsequent negotiation?

 

Instalments is certainly the way football transfers are structured. It's highly unusual to sign a player and pay the full amount up front. This is the football industry. Clubs do go into administration, but when that happens every effort is made for football clubs who are owed money in instalments to be paid as well as the HMRC. They are the highest priority creditors. Selling players is a risky business, especially to non-European countries.

 

I don’t disagree that instalments happen in most transfers and buying club would like to tie them to contract length. I just disagree that

a) selling club prefers it (all things being equal)
b) selling club cares about tying it to length of player contract at new club.

Technicalities only. Goodnight!

 

Everton coughing up £4.5m for pinching the Snake.

 

Wow, sexual harassment payouts have gone up

 

Not since my day. Hang on...not ‘my’ day.

 

Best Euphemism so far this year.

 

That snake pay out basically pays for the Jerome Sinclair mistake.

 

The accounts for last season (to 30/6/19) are out on the club website. My take on them is as follows

Trading from being in PL

We made a profit-£10m. However even though revenue was up by nearly £20m (due to 11th place finish and cup run) to £147m and player wages were £2m lower at £83m we still made a trading loss of £17m but profits on player sales (£22m) and compo from Everton (£4.5m) for Silva turned this into a profit.

Noticeable information released
a) new 30 year lease signed at London Colney
b) Duxbury salary package up by £130k to £768k
c) Player sale profits included Amrabat and Zante as well as Richarlison so we could only have made c£20m on the sale to Everton so maybe it wasn't £40m after all, given we paid Fluminese c£12m for him i seem to recall
d) post year end we spent £39m on players (Sarr mainly i guess) with £19m of sales-(Lukbakio)
e) we borrowed £25m from Santander against the balance of the Richarlison sale price with Everton of £29m

Summary

We are loss making on normal activity unless we sell players at a profit and this is after a good season

Debt

In addition to the £25m borrowed from Santander, we owe £52m in respect of player purchases plus £80m to XXIII Capital plus another £6m of sundry loans and we have a £25m overdraft at Barclays which wasn't used at the year end.

Total £163m of debt (albeit£25m is self liquidating once Everton pay Santander for the balance of the Richarlison sale)

The £80m of debt from XXIII Capital is via Hornets Investment Ltd which own the club-the accounts for that entity are not yet out but on the face of it, the £25m loan from the Pozzos in place last year has been repaid so they have no cash investment in the club having bought it for very little from Baz back in 2012.

Looking forward (guesswork)

As i understand it, the PL money changes this year so we would have got c£10m more if we finished 11th but assuming we (just) stay up we are looking at revenue being £20m lower i reckon so although we will make a c£17m profit on the Lukbakio sale, the trading loss will be back up above £30m unless sell more players once the season ends. We also have compensation to pay for Gracia and QSF plus their staff which will increase that trading loss.

The accounts were signed by Duxbury in October and reference that the £80m loan from XXIII Capital has been reduced to £70m.

Summary

A lot of debt exists in our club which doesn't make a profit being in the PL unless we sell players. As for the value of the players if we get relegated, then we have £70m of debt owed to a third party as well as £52m in outstanding payments for some of them, so hopefully the owners are keeping their cash nearby in case they need to support the club when income will drop by 50% if we play in the Championship next season.

All IMHO

 

An interesting piece in The Athletic. It claims Watford hierarchy have a plan in place for relegation, and even though they don't specifically say this, it's heavily implied the others expect Watford to be relegated this season.

We owe £88.2m in loans, but if you take away the assets including players, stadium etc, we stand at £17.4m. Basically we have the means to service the debt if we so wished.

So if we were relegated, there would not be the need for drastic actions, certainly in the first season.

Importantly auditors seem quite relaxed too, which is important. They do not see Watford as a matter of major concern.

Interestingly, there seems to be a firm commitment from Gino Pozzo to continue his investment. It is quoted from one source "he is here for the long term" and are not actively seeking outside investment for the club.​

 

They mentioned clubs were sniffing around Sarr and Doucoure in January, but we held firm. It's unlikely we'll keep these players after relegation. I don't see it as a major fire-sale, but the most talented players will certainly go for sure.

We could raise a lot of money by selling Pereyra, Sarr, Deulofeu, Doucoure. Trouble is, because we'd be a Championship club so I'm not sure that we'd be able to demand top dollar. Also, would there be relegation clauses in contracts.

We're in a mess, but we shouldn't go under by any means. We'll just have to start over again.

 

Straight into Pozzo's back pocket, they're businessmen.

 

As i read the accounts we have £190m in assets (including players valued at £92m) but owe £207m in total liabilities so we are minus £17.4m not plus.

 

The players are worth far more than £92m.

 

they are but the accounts have their balance sheet value which is amount paid minus yearly depreciation over contract length.

 

So cutting to the chase - will my season ticket price go up next year?