6.7 million profit

[Sun Tzu]

Is the picture further confused by the fact that hardly any fees are paid in full up front ?

Kitson won't bring us anything like the £5.5 million quoted when we sold him.....

[Mr Angry]

The hypothetical situation of Sir John calling in the money he has loaned to RFC is a red herring, because he would be calling in a debt from himself.

The hotel has always been a valuable asset that helps RFC - I was told a number of Years ago that a % of the profits it make are chanelled back into the football club.

As for the ground, I'm sure this has been discussed before - doesn't Sir John own the ground? If he sells the club, the ground WOULDN'T be included; instead, RFC's new owners would rent out the ground from Sir John. He has the arrangement with London Irish - RFC doesn't.

[westendgirl]

My main question is, in the hypothetical scenario that JM called in these loans, is RFC in any way responsible for the 17 million in addition to the 9 million?

This leads to further questions about the relationship between the football club and the hotel. Previous posters have suggested that the hotel provides the football club with an income stream and you said that it had been, historically, subsidising the club. If that's the case, does it follow that, in a scenario where the football club was making a vast profit and the hotel a loss, the reverse would be true?

Finally, if the hotel went bust, can creditors recover their money from the football club on the grounds that the debt becomes the responsibility of the holding company and the football club is an asset of that company?

It be grateful if you could answer these points, not for any alterior motive, but simply out of curiosity as i'd never previously appreciated the apparant interdependence between the hotel and the football club. Thanks

Why would JM call in loans if in doing so he would bankrupt the holding company and so destroy the asset he owns? After all be own 4+million shares of the 4++million shares so it would be only one pocket to another.

Yes the football club and the hotel are both owned by the holding company and so there can be cross subsidising from one to the other. However I think the chance of the football club making a vast profit (to the point of wiping out the current accumulated losses even) is still some way off in the current football arms race of transfer fees and wages/ And if that arms race was destroyed in the current economic climate the chance of vast profits is even more unlikely.

The companies owned by the holding company are separate limited companies - at the risk of being patronising, a company that is limited has a liability limited to that companies assets and so unless someone loaning to hotel asked for guarantees from the holding company there is no way the holding company (or any other of the companies owned by it) is vulnerable to the debts of the hotel. In essence that is why this structure is used to keep companies associated but still separate in terms of liability.

HTH

[westendgirl]

I have the full set of consolidated accounts and it quotes the group having tangible fixxed assets of £59 million but the company (ie RFC Holdings plc) having fixed assets of 750k. Therefore the holding company does not appear to own the ground. I would guess therefore, without seeing the individual company accounts, that RFC limited owns the ground and the hotel company the hotel.
I think this whole debate is somewhat spurious since what happens to the club is down to JM and him alone. It becomes academic in many ways as to what accounting treatment is used to record ownership of assets in differents compamies.

Also the holding company was not in existence when the stadium was built.

[Schards#2]

My main question is, in the hypothetical scenario that JM called in these loans, is RFC in any way responsible for the 17 million in addition to the 9 million?

This leads to further questions about the relationship between the football club and the hotel. Previous posters have suggested that the hotel provides the football club with an income stream and you said that it had been, historically, subsidising the club. If that's the case, does it follow that, in a scenario where the football club was making a vast profit and the hotel a loss, the reverse would be true?

Finally, if the hotel went bust, can creditors recover their money from the football club on the grounds that the debt becomes the responsibility of the holding company and the football club is an asset of that company?

It be grateful if you could answer these points, not for any alterior motive, but simply out of curiosity as i'd never previously appreciated the apparant interdependence between the hotel and the football club. Thanks

Why would JM call in loans if in doing so he would bankrupt the holding company and so destroy the asset he owns? After all be own 4+million shares of the 4++million shares so it would be only one pocket to another.

Yes the football club and the hotel are both owned by the holding company and so there can be cross subsidising from one to the other. However I think the chance of the football club making a vast profit (to the point of wiping out the current accumulated losses even) is still some way off in the current football arms race of transfer fees and wages/ And if that arms race was destroyed in the current economic climate the chance of vast profits is even more unlikely.

The companies owned by the holding company are separate limited companies - at the risk of being patronising, a company that is limited has a liability limited to that companies assets and so unless someone loaning to hotel asked for guarantees from the holding company there is no way the holding company (or any other of the companies owned by it) is vulnerable to the debts of the hotel. In essence that is why this structure is used to keep companies associated but still separate in terms of liability.

HTH

It does help and it's in no way patronising as I'm happy to admit I had no idea of the answers to the questions I was putting.

[rabidbee]

Yeah. Nice to see HTH used and not actually meant in a patronising way, for once.

[Platypuss]

As for the ground, I'm sure this has been discussed before - doesn't Sir John own the ground? If he sells the club, the ground WOULDN'T be included; instead, RFC's new owners would rent out the ground from Sir John. He has the arrangement with London Irish - RFC doesn't.

Sounds similar to the training ground in that case - isn't that also owned by JM and rented by the club?

[JC]

The tfr fees and parachute payment should hopefully mean we'll be close to profit I'd have thought - depending on what happens in January of course!!

(Although it should be remembered that if we buy someone for £5m on a 3 year contract, the cost in the accounts would only be a proportion of the fee, probably 1/6th, (representing 6 months of 3 years if you see what I mean). If we sell Hunt it will all show as income with no part of a signing on fee to write off as a cost.)

Therefore if in January we sell Hunt for £5m, and buy someone else for same fee on a 3 year contract we would effectively make an accounting profit to show in the 2008/9 accounts of £4.17m, (being £5m less £833k).

Hope that's clear!!

That doesn't make any sense. How can the whole outgoing fee not show up!? It's been spent already. Wages fine, but fee doesn't make any sense to me at all.

The rest of the £5m in my example sits in Intangible Assets on the Balance Sheet and is only recorded as a cost in the Profit & Loss account (reducing the profit) as it is written off over the period of the initial contract.

e.g. if £5m is spent in Jan 09 on a player on a 3 year contract, the fee will be effectively spread at £1.67m per year for the 3 year term. At the start that fee is treated as a (Intangible) Fixed Asset of the club so does not impact on the Profit recorded which tends to be what most supporters are most interested in, in discussions about the accounts.

(Comany's year end is June.)

In the accounts to June 2009 6 months' worth of player's £5m fee is written off, i.e. £883k. At that point the Balance Sheet now has a value of the player in Fixed Assets of £4.17m.

In the accounts to June 2010 a full year of his contract value is written off (thus reducing the profit recorded in the accounts), being £1.67m, so now a cumulative 18 months' has been written off - unsurprisingly he is now worth £2.5m in the Balance Sheet... I'm sure you can extrapolate this to the end of the contract...

To put the above into context the actual figures in the consolidated accounts to June 08 are as follows

Cost
At 1st July 2007 11,482,890
Additions 9,474,418
Disposals (3,032,865)
At 30th June 2008 17,924,443

Amortisation
At 1st July 2007 5,876,066
Charge 4,968,826
Disposals (1,800,722)
At 30th June 2008 9,044,170

So in a nutshell we paid out 9.4 million on new players (who said earlier we had not spent anything?), we received back 1.6 million in sales on which we made 0.4 million profit and we charged nearly 5 million to P&L in writing off transfer fees previously paid.

[JC]

My main question is, in the hypothetical scenario that JM called in these loans, is RFC in any way responsible for the 17 million in addition to the 9 million?

This leads to further questions about the relationship between the football club and the hotel. Previous posters have suggested that the hotel provides the football club with an income stream and you said that it had been, historically, subsidising the club. If that's the case, does it follow that, in a scenario where the football club was making a vast profit and the hotel a loss, the reverse would be true?

Finally, if the hotel went bust, can creditors recover their money from the football club on the grounds that the debt becomes the responsibility of the holding company and the football club is an asset of that company?

It be grateful if you could answer these points, not for any alterior motive, but simply out of curiosity as i'd never previously appreciated the apparant interdependence between the hotel and the football club. Thanks

Why would JM call in loans if in doing so he would bankrupt the holding company and so destroy the asset he owns? After all be own 4+million shares of the 4++million shares so it would be only one pocket to another.

Yes the football club and the hotel are both owned by the holding company and so there can be cross subsidising from one to the other. However I think the chance of the football club making a vast profit (to the point of wiping out the current accumulated losses even) is still some way off in the current football arms race of transfer fees and wages/ And if that arms race was destroyed in the current economic climate the chance of vast profits is even more unlikely.

The companies owned by the holding company are separate limited companies - at the risk of being patronising, a company that is limited has a liability limited to that companies assets and so unless someone loaning to hotel asked for guarantees from the holding company there is no way the holding company (or any other of the companies owned by it) is vulnerable to the debts of the hotel. In essence that is why this structure is used to keep companies associated but still separate in terms of liability.

HTH

As it so happens note 20 to the accounts shows that the holding company is a party to cross-guarantees for the bank borrowings of Reading Football Club Ltd and Madjeski Stadium Hotel Ltd which are respectively 7.9 million and 8.6 million.

The other point is the accounts show that the holding company owns all the shares in Reading Football Club Ltd and that company in turn holds all the shares in Madjeski Stadium Hotel Ltd. Hardly qualifies as keeping the companies separate

[Sun Tzu]

If the holding company own all the shares in RFC what company do all the other RFC shareholders (including STAR) then hold shares in ?

Isn't the point about the companies being seperate still valid, given they are seperate companies ? I don't think it was claimed they had no connection, they obviously do, but they are different legal entities.

[Schards#2]

For me, the main point is the extent to which the football and the hotel are financially intertwined. It is reassuring to read that the football club cannot be forced to meet the debts of the hotel in a worst case scenario.

It would appear that JM can choose to move money between the two entities as he wishes but, if the football club was entirely stand alone, it would still be dependent on JM's benevolance and personal priorities so this relationship is not disconcerting and from what westendgirl said, it would appear the historically the football side has benefitted rather than suffered.

[Ian Royal]

For me, the main point is the extent to which the football and the hotel are financially intertwined. It is reassuring to read that the football club cannot be forced to meet the debts of the hotel in a worst case scenario.

It would appear that JM can choose to move money between the two entities as he wishes but, if the football club was entirely stand alone, it would still be dependent on JM's benevolance and personal priorities so this relationship is not disconcerting and from what westendgirl said, it would appear the historically the football side has benefitted rather than suffered.

Don't mean to be having a dig, but apart from the bit about not being held accountable for the Hotel's debts, wasn't that all basic common sense from having been around the club and Madejski for a few years?

[Sun Tzu]

I think to be fair many of us have been around the club for many years, talk to people , hear things and still miss details or get connections wrong ( see my earlier attempt to describe the relationship between the various companies !).

None of us have access to all the key info and things also change over time.

By asking the questions it at least means we may all learn a bit more - I know I have seen some things I wasn;t previoulsy aware of, or had got wrong....

[Ian Royal]

I guess I'm just happy with the way the club is run without having to worry about details I don't really understand.

It's a long time since I've been angry with how the club has handled anything. Yes we could have done better or more on any number of occasions, but that's life.

[Sun Tzu]

That's a very fair approach !

I also feel fairly confident that the club is generally run honestly and fairly and as fans we've had a pretty good 'product' provided for a number of years.

I'm also aware that many clubs have been run incompetantly, dishonestly or carelessly over the years and in a number of cases it has only been the vigilance and persistance of fans that has uncovered or prevented disaster (stand up the late Roy Tranter....). I think it can only be healthy if there are fans who at least attempt to understand the workings of the club. I find it interesting, but am not a financial or legal expert in any shape so it's good to hear from those who may have some professional knowledge that helps get at some of the detail.

But as you say, I think we're in good shape anyway !!

[Hoop Blah]

It goes against my principles my I agree with you both there.

I might disagree with some of what happens on or around the playing staff but I think Sir John and his behind the scenes people do a pretty good job of running the club on a sound footing.

If they could just start treating the fans with a bit more respect and stop sanitising everything about the football 'match day experience' I'll be a happy man.

[Ian Royal]

There are always things we'd like to see done slightly differently to suit our view of things, but I'm glad we can agree the club is basically well run and going about things right.

[Royal Rother]

I think the next 2 years will show just how right we've got things as many clubs experience dramatic effects of the recession.

[PEARCEY]

There are always things we'd like to see done slightly differently to suit our view of things, but I'm glad we can agree the club is basically well run and going about things right.

I'm concerned everyone is starting to agree with each other on this thread. This is not the hobnob way.
Normal service needs to be resumed ASAP. Oh no it doesn't. Oh Yes it does.
He's Behindu...No he's not he's Roger The Rabbit. No he's not he's Sun Tzu...Oh yes he is. Oh no he isn't...

Sorry everyone for the above crap

[PEARCEY]

There are always things we'd like to see done slightly differently to suit our view of things, but I'm glad we can agree the club is basically well run and going about things right.

I'm concerned everyone is starting to agree with each other on this thread. This is not the hobnob way.
Normal service needs to be resumed ASAP. Oh no it doesn't. Oh Yes it does.
He's Behindu...No he's not he's Roger The Rabbit. No he's not he's Sun Tzu...Oh yes he is. Oh no he isn't...

Sorry everyone for the above crap