31 October 2018

More questions than answers - Saracens Copthall LLP

Having read the entire committee paper which was introduced by the above recommendations, Mr Mustard had a few questions to ask of the committee. He will now set out the words which caused him to ask questions and the responses, such as they were.

As you see the answer is top secret, so presumed to be inadequate. What Mr Mustard wanted to know was how admission fees & other income paid to Saracens Ltd were going to be ring-fenced so that they weren't used to pay any other costs. A simple statement that the answer is in the exempt report isn't an answer at all.

Mr Mustard wanted to know who was providing a loan guarantee so he could assess if they were good for £22.9m or not. We don't know.

In the absence of an answer there is no public evidence that the loan guarantees are satisfactory.

This answer tells us that the combined rents paid by Saracens Ltd and Middlesex University are sufficient to repay the loan. That of Middlesex University alone is not enough. Should anything happen to the fortunes of Saracens Rugby, such as the premier league collapsing, there will be repayment problems.

Given the scale of the transaction it isn't unreasonable for the public to be told who is guaranteeing 44% of the loan. Who cares about the other 56%? not the council. None of the questions look like they should have exempt answers, having been carefully worded so as not to ask for specific numbers.

It is of no comfort to be told nothing at all.

Without knowing if the estimated (synthetic) credit rating is on, say £1,000 or £1,000,000 it isn't of any value. Assessments were not sought from the three credit rating providers who are specified in the Treasury Management Strategy. Clearly the council have cast about for some crumb of good news they could put in the report.

It concerns Mr Mustard that the shareholders are not legally obliged to make good any losses of Saracens Ltd. This makes the assurances almost worthless and the moving around of debits and credits doesn't really matter as losses will still be incurred. What matters more are the accounts of Saracens Copthall LLP (SCLLP).

Mr Mustard had seen recommendation 3 but the meeting could have amended it. The Audits may get brought forward this year by Saracens.

Of course Saracens have got a costed build plan in place otherwise they wouldn't know the cost of the stadium or the expected completion date. This information should not have been exempt.

It looks to Mr Mustard that instead of matching the borrowing and the loan for the entire 30 year term the council are going to juggle their needs in the hope of saving a few quid. There is the risk that rates will rise, or that public borrowing will become harder to obtain, and then extra costs could be incurred. If they were to nail the PWLB loan in place at the same time as they lend out they would eliminate any timing and capacity risks.

Even the council, before they have lent Saracens a single penny, have doubts about the repayments starting on time. Mr Mustard worries that this loan might be made on an interest only basis.

The July report was wholly inadequate to identify just four risks. The council were not at all forthcoming and Mr Mustard doubts that they have thought this through at all. They aren't however, gambling with their own money but yours and mine, the council tax payer.

If this was a bank doing the due diligence and taking the proposed loan to the credit committee, it would be much more thoroughly researched, every possible negative item would have been documented and stress tested and in all probability the loan would have been refused. Oh wait;

Despite the minimal facts in the answers Mr Mustard will keep on asking the difficult questions because unless he and other members of the public do so even more doubtful ventures will come into being.

Yours frugally

Mr Mustard

30 October 2018

Saracens Ltd pay Saracens Copthall LLP

As ever there is a complex corporate structure when property is involved. The above, from the published accounts, shows the state of play at June 2012 of Saracens Ltd which is the trading company of the club.

Move forward 5 years and the financial situation is worse. When will the losses end?

In the July committee report the council said this:

That may well be the case but doesn't now matter as the loan vehicle was changed in the October report to Saracens Copthall LLP. It was also a cosmetic move with assets and liabilities being moved from one pocket to another without any fundamental change in underlying profitability.

The council planned to ask for assurances.

Sounds marvellous doesn't it, an assurance from rich shareholders. The trouble is that if you go back up to the statements made in the published publicly available accounts an assurance (a letter of support) isn't legally binding, it's like a weak promise that you can legally walk away from.

What the council needs to obtain in the way of assurance is a proper personal guarantee for the entire length of the loan, for the full amount of the loan and which cannot be rescinded and from a person with sufficient financial standing to make good their undertaking if it comes to it. In Mr Wray's case he is 70 years old so we need a guarantee that will run until he is 100. Not an attractive proposition is it?

If the council can't get cast irons guarantees the loan should not be made and if they can get cast iron guarantees then the backers should put their own money in, they are the ones with skin in the game, not council tax payers.

Yours frugally

Mr Mustard

26 October 2018

Saracens - the West stand

Default as inevitable as the tide coming in, just slower?
Right, so on the casting vote of 'reckless' Richard Cornelius Barnet council agreed in principle to lend Saracens Coptall LLP the kingly sum of £22,900,000 which is supposed to be repaid over 30 years and which Mr Mustard doubts will last the full term. Mr Mustard hopes he is wrong.

There is already a West stand and this will be a new modern replacement which will increase the ground's overall capacity by an extra 500 seats (for which the planning permission has been granted). For one game each year temporary stands are allowed to increase capacity to 15,000.

Now nearly everything you might want to know about the stadium's finances (apart from what is in the published Accounts, and that isn't detailed enough) to give you an idea of the profitability of a new stand simply isn't in the public domain. Mr Mustard will have to guesstimate as best he can.

An extra 500 hospitality spaces are coming. They have premium pricing and will bring in about £800 to £1,000 a season so let's say £450,000 if they can all be sold. There is no doubt that Saracens is a popular club to watch so we'll assume these all get sold in the end.

The other 2,500 seats will replace the ones that aren't under cover (in 2018!) and will generate an extra £120 to £180 per season (an extra £10 to £15 per seat) so let's say another £375,000 of income.

Middlesex University are renting 30,000 sq ft of space for which market rates are somewhere in the range of £15 to £18 a sq ft, so let's say £500,000 income from that source (probably the most reliable income stream of them all).

Those extra incomes, come to £1,325,000. 

There will be extra costs, most variable costs of a match will be up by 5% in line with the capacity increase.

There will be higher rates to pay on the new stand. The current rateable value of Allianz Park is £290,000 on which business rates are paid. They will go up when the new stand is completed, by possibly somewhere between £50,000 and £100,000. It won't need any straightaway but it would be prudent to spend 1% of the build cost on annual maintenance, so that will £290,000 p.a. in later years, as otherwise the place starts to look shabby and premium ticket prices can't be maintained. The new stand will need a lot more in the way of electricity supply for better lighting, air conditioning and heating.

Loan costs,as set out in a previous post, are almost £1,650,000 

Let's suppose that Mr Mustard has got his possible income figures way out (at least two Saracens related twitter accounts follow his tweets so might want to say his figures are wrong, he is quite happy to read the actual documents Saracens sent to Barnet Council in support of their application if they were to be forwarded). If we add 50% to Mr Mustard's projected income figures and use £2m as the potential income there still doesn't appear to be enough leeway to make the repayments particularly as Saracens are loss-making.

This company holds the headlease and derives income from Saracens Ltd

The holding company of Saracens Ltd is Premier League Holdings Ltd. In the published Accounts it says the following:

The new West stand won't now be ready until at least 2020 so Mr Mustard thinks you should expect losses for at least the next 24 months, not just 12. Those losses have got to be eradicated before any repayment can be funded. Mr Mustard notes that matches will continue during the rebuild so turnover will be down as soon as the old stadium is knocked down.

Nothing he is allowed to see has changed Mr Mustard's conclusion that this loan is very risky indeed. He told reckless Richard Cornelius it was risky. In return Richard called him 'dismal Derek' which is an equally fair comment (who is realistic? the optimist or the pessimist, answer to be provided by the actual future outcome) and that he was 'cautious Cornelius'.

Only councillors know what was in the exempt report but you cannot make a silk purse out of a sow's ear.

Mr Mustard really doesn't want to be right in this instance and predicts that by 2025 this loan being unpaid will be on the agenda at a future committee meeting and the finances of the council will be in an even more parlous state than they are now, where costs are being borne down on to get the overall budget back into balance. Why take risks that you don't have to take?

Mr Mustard would like to point out to the various supporters that his viewpoint isn't about whether rugby is better than football, whether clubs should be playing at this ground or another, the social benefits being provided by any particular sporting club, which he thinks would be provided regardless of council involvement, but about hard cash and whether a council should borrow in order to lend, rather than sticking to their knitting of providing public services.

This loan is reckless Richard (and anyone else who is reading).

Yours frugally

Mr Mustard