ToffeeWeb - Season 2007-08

The Mail Bag

Securitisation?

I've heard of this 'securitisation' but have never really understood its meaning. But I do think it is becoming more of a millstone around the club's neck than I previously thought. Would this be one of the reasons we don't attract 'investors' in the club? Is this the reason we cannot compete with similar/smaller clubs in the transfer market? I would appreciate some explanation from those who understand it far better than I do.

In the 'old' days season ticket sales would provide a pot of money to help the manager buy new players, this 'new' Everton way would appear to limit the amount of cash available to the manager during any one transfer window. Is it a way of ensuring that nobody does a 'Peter Johnson' and helps protect the club?
John Partick McFarlane (Junior), Lancs Posted 02/08/2007 at 19:00:24

back Return to the Mail Bag

Comments

Note: the following content is not moderated or vetted by the site owners at the time of submission. Comments are the responsibility of the poster. Disclaimer

John Charles
1 Posted 02/08/2007 at 20:18:36

Someone else correct me if I am wrong but I understand it to be:

We were a big figure in debt due to poor business management 30m i think it was. So it was like having it on your credit card... high interest, hard to pay off.

What the club did is took out like a mortgage to pay back that 30m at a much lower and more convenient long term rate. This did two things for us 1) make the payments smaller each year as they’re are now more years 2) make the interest amount of what we pay back smaller.

The word ’securitisation’ basically means that the bank needed some security in that we had the money each season to pay them the interest - this was our gurantee of shoing them all the seasons tickets we sell and are likely to continue selling in years to come - tha bank is happy lending us the 30m because they know we can afford the 3m interest per year on it from the season ticket income.

Like I said - someone correct me if I am wrong but thats how I understand it basically. (Not sure on exact figures I was purely speculating)

John Charles
2 Posted 02/08/2007 at 20:22:36

Oh.. and the reason we dont attract investors is either one of two things. I suspect reason 2.

1) Kenwright plainly doent want to sell

2) Investors are ’investing’ for a reason. That is to make an ’ROI’ - return on investment. Everton currently achieve what is considered to be an excellent turn over based on the facility available to us (Goodison). Therefore, any investor coming in has to buy out Kenwright et al (say 45m?) then they have to write a business plan of how they are going to make 45m back plus profit over the years. Goodison is worth about 15m they say - thats a net asset, so the investor needs to run the business making abck what he paid to buy it, service his debt costs with the money he bought it with and make a profit (ROI). As I say, it appears that we cannot improve the business side much without increased revenue of a new stadium (thats a different story eh!!)

So, if we got a new stadium for a low amount of debt (Kirkby - and thats not argue if its right or wrong ’ethically’) we would then have potential to increase turn over, thus giving any potential investor an opportunity to make his ROI.

Again, someone correct me if I am wrong and again I speculate with figures - but its the theory that counts.

John Patrick McFarlane JUNIOR
3 Posted 02/08/2007 at 21:03:31

Thanks for your input John, but wouldn’t that explanation mean we would pay some 75m i.e. 25 years at 3m I assume we would also reduce/clear the initial 30m debt during this period? I mean 75m that would be enough to pay for a stadium!br />

Marko Poutiainen
4 Posted 02/08/2007 at 21:20:18

Actually the rate wasn’t very low, on the contrary. I believe the lenders came knocking wanting their money back and the board had to change the borrowings to a long-term debt against future season ticket sales.

It’s definitely not cheap money, though.

John Charles
5 Posted 02/08/2007 at 21:23:40

Yes John based on those figures it would be correct. But unfortunatley this is normal.

Put it this way : I bought a flat for 125k four years ago, I was looking the mortgage statement the other week and it works out that me paying my 600 a month mortgage for 25 years means I pay back 225k to the bank. Thats why banks are rich.

In regards to building our own stadium that is exactly what we would have to do again with a 75m-100m to build ourselves - then obviously the debt repayments go up and up and up. I used the example of taking out a 100m loan to rebuild goodison/ the loop, at 7% interest meaning we’d pay 7m back per year to the bank just interest - e.g. that 7m doesnt come off the 100m balance we owe the bank.

This is why -from a business sense- Kirkby is far far and away the best deal we could hope for.

Marko: Cheaper money than the overdraft we had though right? Otherwise it was pointless securing it?

Anthony Newell
6 Posted 02/08/2007 at 22:07:21

Wouldn’t really add a lot except for saying that this method of structured financing is either sought for the benefit of acquiring lower interest rates or to move assets to a vehicle which protects in the event of bankruptcy (or a combination of both). Securitisation is very common in the mortgage sector. Mortgage lenders who have large pools of illiquid mortgage debt (money they are owed in the future) often ’securitise’ it by selling it off in the form of ’securities’ to third parties. In Everton’s case they have ’securitised’ their future ticket revenue to obtain a loan at a lower rate of interest than would be normally available in the short term money markets. The asset Everton is securitising is it’s future season ticket revenue and god forbid anything should happen to jeapordise this!