In this financial article I will attempt to explore and explain West Ham’s remaining debt position. I believe many West Ham fans still believe we have debts of £100 million or we have to clear £70 million of bank debt before we can move to the Olympic stadium. That is the not the case as I hope to explain.
Net debt is just a metric that shows a company’s overall debt situation by netting the value of a company’s liabilities and debts such as bank loans with its cash held in the bank.
In 2010 David Sullivan after the take over famously revealed in a press conference that West Ham were over £100 million in debt.
Sullivan explained “We’ve paid down some of the debt and injected some working capital but there’s still more than £100 million of debt. In that there’s £50 million owed to banks, there’s £40 million owed to other clubs. There’s not a penny to come in, they (the previous owners) have borrowed against the next two years of season-ticket money.
The sponsors have paid 70% of their three-years up front. In addition there’s the club’s settlement to (former manager) Alan Curbishley, so the real debt is about £110 million.”
Of this non bank debt Sullivan spoke about Sheffield United is believed to have agreed £21m in an out of court settlement although Gold & Sullivan said they inherited around 75% that debt on takeover.
The Alan Curbishly settlement was believed to be £2.2m and the advance on season ticket sales were £7.7m the first year and £7.25m the second year. The SBOBET sponsorship was believed to be worth £1.2m per year much of which was advanced also.
A massive financial mess by anyone’s standards!
The 2009 accounts were the first to be released under Gold & Sullivan ownership showed which a net bank debt of £55.47m with a further £33.65m in other long term liabilities. These included £10m owed to a major shareholder, £3.8m owed to other clubs for transfers and £18m to be paid to Sheffield Utd.
In 2010 this quickly reduced to £33.5m of long term bank debt with an extra £24m in long term liabilities which were principally £7.7m of advance season ticket sales and £16m left to pay of the settlement to Sheffield Utd. In the company accounts Chairman’s statement David Sullivan confirmed that David Gold & himself invested £24m into the club which resulted in a reduction of £12m of bank borrowing and £22m of overall liabilities that year.
In 2011 Sullivan and Gold invested another £3m into the club on top of buying further shares. In his chairman’s statement of that year Sullivan revealed that Gold and himself had invested £29m of equity and loans to the club in the past 18 months. Despite this the bank net debt this increased by £8.1m to £41.6m. Long term liabilities added an £27m which included the remaining £10.5m due to Sheffield United, £3.1m owed to other clubs for transfers and £7.25m for second year of the Season Ticket advance.
In that same statement Sullivan said “Since 31 May 2009 bank debt has reduced from £44.9m to £38m while total net creditors have reduced from £112.7m to £91.2m. In addition during this period we have refinanced the bank debt and we are now on schedule to reduce bank debt to under £21m by 2013.” The figure quoted by Sullivan of £91.2M obviously included creditors due within 12 months which were offset by income that year.
In the latest 2012 financial year accounts revealed Gold and Sullivan invested another £32.2M of cash in the form of loans after West Ham’s turnover fell drastically to £46.2m in our drop to the championship.
This further increased our net debt to £70.7m although £35m of this debt is now owed to Sullivan & Gold through loans so actually it is only £35.7m of external bank net debt when you remove share holder loans. Although £16m of these share holder loans are owed to Sullivan’s property company Conegate Holdings.
Of this remaining £35.7m £5m was due in the year ending 31st May 2013 so should already be paid off wit the remaining £30m due more than 12 months.
Of this £30M longer term bank debt only £25M is secured against the Boleyn Ground as a mortgage so it must be paid off before we move to the Olympic stadium. The remaining £5M of loans are unsecured so do not have that same restriction.
I saw many papers published the £70M figure that West ham had to clear before moving to the Olympic Stadium. Well by my calculation it is more like £25M.
Outside of bank debts our long term liabilities mentioned by Sullivan back in 2010 are also vastly reducing.
We owe West Ham bond holders £611,000 since 1997 which we will pay back after 150 years of the scheme. By the time it is payable in 2148 I am sure £611,000 will be average weekly wage of Premier league footballer so it not a debt that should bother us too much.
We owe other football clubs £4.6M from player transfers from staggered payments. It will be interesting how this increases in 2013 with the Carroll & Downing transfers but more clubs want money up front now or within 12 months so staggered payments are now becoming a thing of the past unless they are desperate to get shot of a player.
In the ‘other creditors’ section of our 2012 accounts there is a sum of just over £5M, this is almost definitely the last payment to Sheffield United which David Gold confirmed we paid very recently.
We are now also finally free of the advance of season ticket money of £7.25M in 2011 & £7.7M in 2010. This like a new revenue stream to West Ham as the Icelandic’s banked 2 years of season ticket sales up front!
We also account for £2.5M from the Football Stadia Fund grant scheme in our long term liabilities even although I understand this is not repayable.
So with the remaining long term liabilities listed in the 2012 accounts we can add on another approx £5M to bring the total West Ham debt to around £37M or £72M if you include the loans from owners Sullivan & Gold.
The 2013 accounts are released early next year and I will update the overall debt picture as soon as they become available. The owners have certainly put their money where their mouth is and for that I am grateful.
David Sullivan speaks debts on takeover