A Subtext to the Freehold Deal

Over the years we have had many statements from James Brent. One of those is that he might not be the man able to move the club forward once it progresses and that he'd have to step aside and allow somebody new to take the helm. Fair enough.

Now look at the Freehold deal. It's not been proposed, so far as I know, that the club will save a significant amount of money on the new deal and even if it saved all of the rent it currently pays then that would only be £140,000 per year (which I suppose is the annual wage of one player). Rather closer is that the club should pay a mortgage rather than rent because ultimately it will own the ground and that rent is just money down the drain. I'm not sure where I saw this but a 10 year deal was talked about. So we'll benefit financially not now but in 10 years time.

Let's just assume that on the back of the Freehold deal the club does actually become more successful than we have become accustomed to over the last 10 years or so and that we do win a promotion (not that unreasonable - if we're not hoping to be promoted within 10 years then what the hell are we heading towards?). We'll then be looking to push on into the CCC and the CCC is an animal which has markedly changed since we were in it. To compete, by which I mean simply avoid relegation, at that level every club now needs significant investment and, according to James Brent's own numerous remarks, he is not that man and somebody else yadda yadda yadda.

So, if Brent is true to his words, he'll be buying the freehold for the club so that some other club owner will eventually reap the benefit from the saving.

Does this ring true to you? Well it doesn't to me.

Therefore, even if the basic premise is true that a mortgage is better for the club than renting, there must be some other so far unspecified reason as to why Brent is so keen to purchase the freehold and since he isn't saying then all we can do is speculate as to what it might be.

A ten year commercial mortgage at 3.5% on an amount of £1.7m would mean a monthly repayment of £16,811.

That's an annual payment of £201,732.

You can take any James Brent Statement, and then run a parallel statement pointing out exactly what the first one really means.

For James Brent saying that he probably won't be the man to take us beyond the Championship, then read...

'By the time Argyle get back to the Championship, I will have acquired the Freehold and the club will be worth a shitload more than I paid for it, so rather than try and compete with parachute payment receiving clubs, I'll simply sell up to the highest bidder and make a financial killing.'

The above would also apply to a lesser degree in League 1, but after the Freehold purchase, he'd even make his money in League2.

My guess is the freehold will be bought by some sort of holding company, perhaps 'Akkeron Stadiums limited' will be created for that purpose. PAFC will pay rent to Akkeron, who will pay the mortgage. Assuming rent payments > mortgage payments then tidy little profit for Akkeron.
When Brent wants out of the club he can sell the club and maintain the Stadium company, or he can sell the mortgage + the club to the new owner depending on which deal is more suitable to him.

Sort of linked to this is the post on the farm titled ''Strange occurings'' What a laugh - having a pop at multi's when we know Chief Piggy and his piglets do it regularly.
Oh .. and PasotiMods can't spell either.

Answer [You must be registered and logged in to see this link.] was interesting..."If PAFC buys the freehold, no rent will be payable to JB, or indeed to anyone".
What about mortgage repayments?...if the new share issue to raise the money is irredeemable, does this mean the board are buying the freehold outright and mortgage free and giving it to the club for nothing?

Really?

yes, nothing to pay, no rent to pay, no mortgage to fund, it's a free ground for the club, great deal, great times, great board.........

PatDunne wrote:

yes, nothing to pay, no rent to pay, no mortgage to fund, it's a free ground for the club, great deal, great times, great board.........  

You've been won over Pat .....it's great that we're all now pushing in the same direction.

Homeslice wrote:

A ten year commercial mortgage at 3.5% on an amount of £1.7m would mean a monthly repayment of £16,811.

That's an annual payment of £201,732.

Couldn't that percentage be significantly lower due to current interest rates?

nzgreen wrote:

Answer [You must be registered and logged in to see this link.] was interesting..."If PAFC buys the freehold, no rent will be payable to JB, or indeed to anyone".
What about mortgage repayments?...if the new share issue to raise the money is irredeemable, does this mean the board are buying the freehold outright and mortgage free and giving it to the club for nothing?

Really?

The board would not be buying the freehold. The existing shareholders (I am not clear if that's the same as 'the board' - are there existing shareholders who are not on the PAFC board? Tony Wrathall, maybe?) would be buying newly issued shares in PAFC, to the tune of £1.7m. PAFC would then use that £1.7m to buy the freehold outright.

It would be a further investment in the club by the existing shareholders. And it would be an attractive investment as well, because (I assume) the extra £1.7m they put in will be (probably significantly) less than the consequent increase in value of the club once it owns the freehold. The asset itself is worth more than £1.7m, so the value of the club would increase by at least that much.

So, if/when the shareholders sell their shares at some point in the future, all of their shares (not just the new ones they buy to raise the £1.7m) will be worth more than they are now. Effectively they are investing in something which will almost immediately increase in value (the undervalued / attractively priced freehold), plus by doing so, it will increase the value of their currently held (pre freehold purchase) shares as well.

And the club effectively gets a free ground. So, assuming all the existing shareholders are happy to chip in the required amount, and they can afford to do so, it seems like a win-win.

Unless I am missing something??

It is who they will be selling on to when time comes, What will happen if one shareholder needs to sell his/her shares to rise some money to pay off a big debt.

If a shareholder has a big debt to pay off, that's basically their problem - nothing to do with the club.

I don't think it's clear what would happen if one shareholder did want to sell their shares, for whatever reason. That process, and any associated obligations, will be defined in the shareholder agreement, and I doubt that has been made public. The important point is that shares in PAFC aren't publicly traded, so any sale or transfer of share ownership would have to be authorised and approved by all of the other shareholders / company directors. So if someone new was to come on board via the acquisition of shares, they'd only be able to do so if the current shareholders allowed them.

Potentially more of a concern is what would happen if all the shareholders decided it was time to sell up, and PAFC was sold in its entirety to someone else. Even if we assume the current shareholders and directors are trustworthy and will always act in the best interests of the club, it is at that point - when they sell to someone else - that it becomes a trip into the unknown.

But that's always going to be the case. No owner or shareholder will remain an owner or shareholder forever. Their shares will be sold to someone else eventually, and that will happen regardless of whether the club owns the freehold or not.

The contentious point in all of this - which I do understand - is that, by buying-back the freehold, the club makes itself a more attractive proposition to future buyers whose intentions may not be in the best interests of the club. It introduces a risk that a future owner could do something unscrupulous, such as mortgage the ground x4 to raise cash or to line their own pockets, and (again) threaten the viability of the club.

There are some (small) safeguards that would / could mitigate that risk somewhat... there would be a due diligence process carried out on the new owner as part of the sale process, the EFL's 'fit and proper person' criteria would have to to be satisfied, and (perhaps most importantly) anyone lending money against an asset such as a football ground would need to satisfy themselves that the borrower could afford to service the debt.

But we all know those safeguards counted for very little five years ago.

Right now, however, someone is offering to sell you the house you're renting, and they're asking for the equivalent of 12 years rent, which is significantly below the real market value of the house. You can afford to buy it at that price. As the current tenant you have first and only refusal; it's your decision and no-one else's. You know you're going to look after the house while you own it. And, frankly, you care little very about what happens to the house when you decide to sell it several years down the line.

That's where James Brent and PAFC are right now. I think we have to accept it's going to happen. We just need to be extra-vigilant when they do eventually sell.

James Brent should not be allowed to buy the freehold, as Our Guile says - by buying-back the freehold, the club makes itself a more attractive proposition to future buyers whose intentions may not be in the best interests of the club. It introduces a risk that a future owner could do something unscrupulous, such as mortgage the ground x4 to raise cash or to line their own pockets, and (again) threaten the viability of the club.

What happened back in the dark days are still fresh in the mind and i for one do not wish to see Argyle go through all that yet again.

How on earth do you use a sports stadium that is of no use to anybody else as collateral against a loan?

Rickler wrote:

How on earth do you use a sports stadium that is of no use to anybody else as collateral against a  loan?

I am sure the money men would (will) find ways of figuring that one out. You could very easily see James Brent buying the freehold, applying for a loan from a bank and building his mini Grandstand (and possibly smartening up HP). He could then sell the lot later down the line or sell only the football side of things and charge rent. He then pays so much to the bank and so much to himself.

It is no different to Joe Bloggs using his one or two bedroomed flat as collateral for a mortgage on a house he has his eye on. He rents out the flat to pay off the mortgage etc-etc.

The fact that any such move by Brent would probably lumber the debt on to Argyle is the galling part of it.

VillageGreen; could you take my quote any more out of context?? Buying back the freehold probably makes Argyle more vulnerable than they are now, as I made reference to in my earlier post. But no more vulnerable than any other football club who own their own ground.

James Brent, isn't being offered the opportunity to buy the freehold. It's PAFC. Some people may not see the difference, but there is a difference. PAFC has other directors and shareholders, their responsibilities include jointly making decisions for the good of the club, and upholding corporate governance standards. James Brent, despite being majority shareholder, can't do anything related to PAFC without convincing Simon Hallett et al that it's a good idea.

James Brent couldn't apply for a loan secured against the freehold. PAFC could. James Brent (alone) couldn't split the ground from the club. PAFC's directors and shareholders could decide to do that (but why would they?).

Our Guile wrote:

. PAFC has other directors and shareholders, their responsibilities include jointly making decisions for the good of the club, and upholding corporate governance standards. James Brent, despite being majority shareholder, can't do anything related to PAFC without convincing Simon Hallett et al that it's a good idea.

James Brent couldn't apply for a loan secured against the freehold. PAFC could. James Brent (alone) couldn't split the ground from the club. PAFC's directors and shareholders could decide to do that (but why would they?).

The first paragraph I don't for a minute believe is true. I cannot see Brent giving up control - simple as that. Hasn't Brent kept a majority of the (voting) shares simply to remain in absolute control?

Second Paragraph... Pretty much the same. Brent's majority PAFC vote surely out trumps everyone else combined?

I can't see someone with the track record and business background of Simon Hallett stumping up half a million quid (or whatever it was) of his own cash if he didn't have any say over how the business he'd bought into was run. He must have influence over the decision making and direction of the club.

Perhaps he does... In the sense that money talks?

But legally is another matter.

But perhaps you have first hand knowledge?

Afraid I don't have first hand knowledge of the inner workings of the PAFC boardroom. Through my job I have regular exposure to commercial finance deals, corporate mergers and acquisitions, etc. So I have a reasonable understanding of how it works, although, of course, it's difficult to generalise because no two deals are the same.

Somewhere in the PAFC shareholder agreement it will set out exactly how many shares one party needs to 'trump' the rest. A majority shareholding doesn't necessarily mean that person has carte blanche over all decision making. It means they probably retain a right to veto any decisions they don't agree with, but they can't necessarily just impose / implement their own ideas without the backing of the (at least some of the) other shareholders.

I can't imagine for one minute someone like Hallett would get involved if JB could just steamroller him every time they didn't agree on an important decision.

charleymouse wrote:

Homeslice wrote:

A ten year commercial mortgage at 3.5% on an amount of £1.7m would mean a monthly repayment of £16,811.

That's an annual payment of £201,732.

Couldn't that percentage be significantly lower due to current interest rates?

No. Commercial mortgages are 3-4% above residential rates.

Hmmmm Our Guile, I think I know who you are............

Do you, PatDunne? I'd be surprised if you did. I am just a normal fan - no-one particularly interesting, and I certainly wouldn't expect anyone other than my friends and family to know who I am! :-)

Our Guile wrote:

Afraid I don't have first hand knowledge of the inner workings of the PAFC boardroom. Through my job I have regular exposure to commercial finance deals,  corporate mergers and acquisitions, etc. So I have a reasonable understanding of how it works, although, of course, it's difficult to generalise because no two deals are the same.

Somewhere in the PAFC shareholder agreement it will set out exactly how many shares one party needs to 'trump' the rest. A majority shareholding doesn't necessarily mean that person has carte blanche over all decision making. It means they probably retain a right to veto any decisions they don't agree with, but they can't necessarily just impose / implement their own ideas without the backing of the (at least some of the) other shareholders.

I can't imagine for one minute someone like Hallett would get involved if JB could just steamroller him every time they didn't agree on an important decision.

I think you are wrong in this particular case - I can't imagine Brent being beholden to anyone regarding his 'Argyle train set'.

Who in their right mind has complete control and then gives it up when there is no need to do so?