What do Hull City’s recently posted accounts tell us? Reader LizinEDI casts an eye on the books of both City and their parent company…
Hull City AFC (Tigers) Ltd is part of a group of companies under the aegis of Allamhouse Ltd. Also in the Allamhouse stable are the Stadium Management Company, Allam Marine and Tempest Diesel (dormant).
The obvious reason for placing the different companies Assem Allam holds into this structure would be to reduce the tax liability on Allam Marine’s profit, as a way of reducing the tax bill. This is known as ‘group relief’, discussed on Wikipedia thus: “The UK does not permit tax consolidation, where companies in a group are treated as though they are a single entity for tax purposes. Instead, the UK permits a form of loss relief called “group relief”. Where a company has losses arising in an accounting period in excess of its other taxable profits for the period, it may surrender these losses to a group member with sufficient taxable profits in the same accounting period. The company receiving the losses may offset them against their own taxable profits.” So, the gross profit of Allam Marine has been transferred to debt riddled Hull City AFC (Tigers) Ltd to keep them afloat.
These are filed season to season, so cover the twelve months ending 31st July 2011. Some facts listed straight off the pages need no real interpretation:
Turnover (comprising ticket sales, sponsorship, broadcast deal revenue, retail etc) dropped from £47.4m to £27m, largely because relegation from the Premier League resulted in a precipitous drop in television contract monies, offset slightly by ‘parachute payments’.
The loss before tax increased from £6.8m in 2010 to £20.4m in 2011. In accounting, money owed to you is listed as an asset because it is assumed you will eventually get the money; a loss is only posted when you have given up getting any of that money back. Creative accountants can exaggerate company assets allowing recorded losses to be reduced, and for football clubs it is easy to inflate the value of your playing squad (intangible assets of the company) as the values are subjective and not easily verifiable. In recording these losses, the Club appear to have bitten the bullet somewhat, and are posting realistic values for our players. The club has also taken a loan for £2.8M to Russell Bartlett that the Allams have not retrieved and have agreed to write it off as part of the change of ownership. Interestingly the restructuring of finances saved us £1m in interest compared to the previous season. Both items are posted as exceptional items, this is accounting language to indicate they do not expect such occurrences in the future.
The column for 2010 shows we made a profit of £3.8m, which seems somewhat farcical. I suspect the way the increments were structured to pay for players versus us asking for cash up front for players sold in the past results in a positive value.
Net debt has significantly increased from £16.7m to £40.4m, this is primarily due to the loan from Allamhouse (the parent company) which does not appear to have a due date against it. Looking closer at our creditors (people we owe money to) we can see that in July 2010 as we were relegated, we had over £43m due within the next twelve months. By July 2011 this had been reduced to £10m, and I suspect these have since also been repaid as there was all the fanfare about us paying the last of the money owed from the last regime.
Moving onto the notes: The directors from the previous regime took a total of £613,483 out in the 12 months to July 2010, with the highest paid director taking £275,000. This was reduced to £166,684 the following year.
Note 12 discusses the creditors in more detail. We have no bank loans / overdrafts or finance outstanding in the clubs name and as the loan from Allamhouse has no repayment due date, a further breakdown is unnecessary. This compares to the club owing £16.8m in bank loans & overdrafts alone the previous year.
Note 22 details the contingent liabilities. This is likely to be the £3.2m due in bonuses to players based on appearances and/or results and any payout due to Jimmy Bullard. These have NOT been included as actual liabilities, and it isn’t known if they’ll become liabilities to be paid. Accounting does not look at variables, but it is best practice to note these should they suddenly need to be paid out in the following years accounts.
The Allamhouse accounts are far less interesting in comparison, though they appear to show Allam Marine profits used to bail out the club with a loan. The books forecast a sales increase to £170m with an expected profit of £20m.
Allam Marine have seemingly posted a healthy profit every year since the Allams took over Tempest Diesel and renamed the company. That money has not always been ploughed back into the business, so the company is cash rich. Some of that cash has been transferred, via the parent company and in the form of a loan, to the club. It is listed on the football club’s books as a loan, but with no interest due and no repayment date. Crucially it does not appear to have been financed by debt on the part of the parent company or Allam Marine.
If something went horrendously wrong with Allam Marine, they could pull back that money from the football club to prop it up, however on the face of things there are no banks or other external finance companies that are likely to come knocking. Simply put, two years of profit have been wiped off the Allam Marine Balance sheet in the form of a loan to another company (the club) in the group.
Things will become much clearer next year as the figures in this set of accounts cover both Bartlett & Allam ownership. Also the next year’s group Allamhouse accounts to December 2011 should show the 2nd amount of £20m being paid out to the club as only the initial payment is included in this set of accounts.The accounts note: “An immediate cash injection of £22.5m was made up to December 2010, and a further £20m has been injected during the first six months of 2011.”
Some have said the debts have not really been paid off, but knowing how business finance works that statement is wrong. The only person the club owes money to is the man who owns it as the major shareholder in the parent company that has lent money. If there was a large debt obligation showing in the parent company accounts I would be more concerned, but as it stands it does look as if Assem Allam has taken cash from his large and profitable business to pay everyone who was knocking on the door.
Like all owners if he falls out of love with the Club or if his other businesses suffer he can legitimately start taking back the money loaned, but that’s as much true for Roman Abramovich as it is Assem Allam. It is not a Glazer type takeover as far as these accounts read and Allam Marine looks to be in a very healthy financial position.