|Were We Ever a Crisis Club and Did We Really Need a Saviour In The Form Of Marcus Evans?|
Written by SanityBlue on Wednesday, 16th Dec 2009 06:26
My last blog about the brave new world under Marcus Evans provoked quite a response which was the purpose of the exercise. I don’t have a crystal ball and I cannot say with certainty what would have happened if different decisions had been taken or what will happen from now on.
My intention was to challenge the lazy assumption that because we have a millionaire owner we’re assured of financial stability and promotion to the Premier League. I wanted to bring some balance and rationality to the debate. There were many points of criticism, some more valid than others, which I’ll deal with now.
It's all very well to be critical now that Ipswich is struggling. Why didn't you express your concerns at the time the takeover was announced?
I made my opposition known in fans forums. I also sent detailed information to the Supporters Trust urging it to campaign against the takeover. However, there was so much euphoria at the time that my views were ignored.
What have you got against Marcus Evans and so what if a businessman has total control of the club? Wasn't it the same under the Cobbolds who were Tory businessmen?
Marcus Evans might be a really good bloke for all I know. He might even have developed a real affection for Ipswich Town. However, he had no prior connection with our club and only became involved because he thought he could profit from it. I don’t care if the Cobbolds were Tories, Liberals, Labourites or moles for the old Soviet Union. I only care about the way my club is being run.
The Cobbolds had a long association with Ipswich Town and it was clear they cared deeply about the club. During their time, our club was admired throughout England for the way it was run. The Cobbolds didn’t see themselves as owners; they saw themselves as custodians. Furthermore, during their time, most of the members of the board were prominent local people who didn’t owe the Cobbolds a thing. The club was run by a truly independent board. We now have a one man band.
Football is big business and rich businessmen are the best people to run clubs. Do you think they should be run by the local butcher, baker of candlestick maker? Could you even be a communist?
I never advocated running Ipswich Town as a small-time outfit nor did I suggest that it should be run as some kind of socialist collective. Ipswich Town should be run by a skilled chief executive supported by competent people in the areas of finance, administration, commercial development, marketing, stadium management etc who report to a board or management committee which is elected by the fans.
There are numerous professional sporting clubs all over the world run in this way, including most of the football clubs in Spain and Germany. Essentially, that is how Ipswich Town was run for a brief period before the sell-out to Marcus Evans.
Marcus Evans owns Ipswich Town, it is his money that is at risk so why shouldn't he do whatever he likes?
Marcus Evans does not own 100% of the club. He paid £3.9 million to acquire 87.5% of the shares in the entity that actually owns the club – Ipswich Town Football Club Company Ltd. It is the only equity he has put into the club. Everything else represents debt.
The shares he acquired were on the cheap. When the club was floated in 2004 the existing directors and about 3,500 fans paid a total of £2.5 million for their shares but their stake in the club was subsequently diluted from 100% to 12.5%.
Under company law, Marcus Evans cannot run the club as though it was just another one of his group companies. He has to be mindful of the interests of minority shareholders. The financial affairs of the club cannot be conducted recklessly. He and his companies must deal with the club on proper commercial terms. The name of Marcus Evans seems to be emblazoned on everything, whether it moves or not. He has to pay arm’s length fees for the advertising.
The minority shareholders have only one representative on the board therefore they are powerless to influence the direction of the club. Let’s hope however they are closely scrutinising what is going on.
Didn't Marcus Evans save the club from a crisis on and off the field?
In the four seasons up to 2006/07 being the period between the club coming out of administration and before the takeover, we finished fifth, third, 15th and 14th. In the year ended 30 June 2006 the club made a loss of £2.7 million and in the following year it made a profit of £200,000. We would have liked the club to have done better, but it was hardly a crisis.
If being 14th or 15th in the league and having a profit and loss result at or near break even constitutes a crisis, what do you call the current situation where we are just above the relegation zone having recorded an operating loss in the year ended 30 June 2009 of £12.2 million and a loss of £5.8 million the year before?
We should also remember that Ipswich Town was a much more transparent club before the takeover and it cost much less to watch football at Portman Road than it does now.
Given the crushing debt level how could the club have survived if a major investor hadn't been found?
In 2007 the club owed approximately £4 million to Barclays Bank and about £28 million to Norwich Union. It was struggling to meet the interest payments not because it wasn’t generating sufficient cash flows, but because it made a strategic decision to allocate more funds towards strengthening the team in the hope of winning promotion.
For three years starting from 2003 Norwich Union agreed to capitalise part of the interest. The strategy almost paid off with Town finishing fifth in 2004 and third in 2005. For the period 1 January 2006 to 31 August 2007 Norwich Union agreed to accept a shareholding stake of 9.98% in the club in return for the interest that would have been payable. The board did well to negotiate such a deal but again the strategy did not succeed.
There is a great deal of speculation as to how much Marcus Evans paid to settle the loans. Barclays had a long-term loan agreement with Ipswich Town secured by an assignment over future medium income streams and had never shown any inclination to compromise on the debt. It is unlikely Barclays would have taken a haircut.
It had been clear for some time Norwich Union was prepared to walk away for an amount significantly less than it was owed. There are reports Marcus Evans paid as little as £6 million. I doubt it was as low as that because Norwich Union held a fixed and floating charge over the assets of the club and a securitisation agreement for the repayment of the loan from future season ticket and matchday sales and had been able over the years to collect most of the interest payable to it. A settlement at just £6 million would not have reflected the strength of its bargaining position.
It would be more realistic to assume Marcus Evans paid something like £14 million, ie he received a 50% discount to settle the debt. To its credit, the board negotiated an agreement that he could not sell the debt except as part of the sale of the club and the amount received could not exceed the amount he paid for it.
The question I have is this: if Marcus Evans was able to negotiate such a deal with Norwich Union why couldn’t the board under David Sheepshanks have done the same? It would have had to find another lender of course but let’s not forget this was during the days of easy credit. It’s hard to believe that in the world of finance there was not one lender prepared to take a risk on Ipswich Town, particularly when it would be a secured loan for an amount much less than the debt that was being replaced. With a much reduced interest burden, the club would have had the capacity to meets its loan obligations and strengthen the team.
Why are you being so alarmist about Marcus Evans possibly demanding that the club pay interest on the debt owed to him? Surely he has nothing to gain by running the club into the ground?
I gave what is the worst case scenario but only to balance it against the other extreme scenario assumed by most fans that Marcus Evans will indefinitely underwrite the club’s losses for no return.
Good businessmen don’t fund losses on an open-ended basis and from what I can see Marcus Evans is a good businessman, if the deal he managed to negotiate for himself in the takeover of Ipswich Town is any indication. Good businessmen impose a strict deadline on getting a return from their investment and if it doesn’t pay off they salvage what they can and move on.
None of us has any idea how it will play out. How could we? There is absolute secrecy as to what the strategy is.
There is big money in the Premiership and Ipswich Town will get there eventually. Won't Marcus Evans be able to recoup his investment from the huge revenue flows?
When discussing how much promotion to the Premiership is worth, figures like £30 million and £40 million are bandied about. I don’t know what the true figure is. I haven’t researched it. What I do know is that every club will get this money, not just Ipswich Town. The bigger clubs of course will get even more because their matches are televised more often.
Clubs that provide their owners with a financial return will be at a competitive disadvantage because it is money that could have been invested in the playing squad (unless you’re Manchester United and can afford to pay the Glazers a big fat dividend and still have enough left over to outspend the opposition).
Fans need to understand just how large the club’s debt is and what implications it will have for the future. As it currently stands, the debt to Marcus Evans is approximately £48 million. But because of trading losses caused by a high wage structure and compounding interest, the debt is ballooning.
The club will not be promoted to the Premiership this season unless there is a miracle. Even if the highly optimistic assumption is made that promotion will be achieved the following season, based on the current rate of losses, the debt by then will be in excess of £60 million. Yes, the revenue will be there for Marcus Evans to recoup at least some of his investment. But what implications will it have for Ipswich Town’s ability to stay competitive in the Premiership?
Why be so concerned about the debt level? Won't the slate be wiped clean if Ipswich get into the Premier League and Marcus Evans sells to another investor?
Marcus Evans can sell his shares to whoever he likes provided the buyer satisfies the pathetically weak fit and proper persons test imposed by the football authorities. We could end up with an owner like Ken Bates who has done the rounds of various league clubs, a corrupt former politician, a porno king, a shady businessman from a developing country, a local businessman with eccentricities a la Mike Ashley at Newcastle United. Let’s hope that when it’s time to pass the parcel, we end up with an owner that will not make us a laughing stock.
If, for argument’s sake, the debt is £60 million, the amount recoverable by Marcus Evans will be around £46 million because of the agreement that he can only sell the debt for what he paid for it. He has also put into the club £3.9 million by way of equity. Therefore, he will need to find a buyer who is prepared to pay him around £50 million just to break even. And remember, this figure is based on the optimistic scenario the club is promoted in 2011.
Will there be buyers out there for Ipswich Town at such a price? I have my doubts. But even if you assume there will be someone who will be prepared to play the pass the parcel game for that sort of money, it will not really change anything because the new investor will also require some kind of return for the outlay.
I fear that even as a Premiership club we will find ourselves plagued by under-investment in the playing squad because of the highly leveraged structure of the club’s finances. I hope I’m proved wrong, but even if we do make it to the Premiership I cannot see Ipswich Town as a financially stable club that will be able to stay there for long.
What was the alternative to the takeover?
I believe Ipswich Town would have been better off renegotiating the debt with Norwich Union itself and retaining its character as a grassroots club. The current corporate ethos with its spending orgies and slugging of fans with well above-average Championship prices is no solution for the long term wellbeing of our club.
Everyone in the world of football once knew what Ipswich Town stood for. Is there anyone today who believes the brand name has not suffered since the takeover?
The old model of boardroom stability, respect for the fanbase, the sensible appointment of managers who were then given time to build a team, a strong youth development policy and prudent activity in the transfer market, served our club well.
There were lean years under such a model as we all know, but we had a strong club culture and never looked seriously in danger of being anything less than an established Championship club. But a few lean years constituted a crisis to most fans whose vision does not extend beyond the short term.
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