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“Statement of Affairs or Statement of Financial Mismanagement?”

Since Derby County passed into Administration on 22 September, thousands of words have been written on the subject. Some of it educated guesswork, some of it pure conjecture. Today, with the long-awaited filing of a Statement of Affairs for each of the 6 companies in Administration, we finally have some hard facts to look at.

So, where do we start. Firstly, it’s important to understand that these documents are a snapshot of the group’s assets & liabilities on one day - in this case 22 September, the date Quantuma were appointed. Some of the figures will have changed since; perhaps for the better, perhaps for the worse. Secondly, as a separate report has been prepared for each of the companies individually, they contain a lot of inter-company entries, which need to be stripped-out. Other entries have to be aggregated; for the example the HMRC debt on each company, to understand the true position.

Let’s begin with the liabilities - in other words, what is owed.

HMRC - The total amount outstanding is £29.4m; almost all of it VAT, PAYE & NI. This is important, because other than employer’s NI contributions (which will be a relatively small part of the overall figure), the remainder will all be treated as a secondary preferential creditor - in other words, ahead of other unsecured creditors. This is the first Administration case in football since HMRC achieved that enhanced status, so it’s likely that they will want to drive a hard bargain in terms of how much they will demand in settlement (their dividend). Quantuma said last week, “our proposal has not yet been accepted, but equally it hasn’t been rejected”. Sounds like it’s in the balance. We will need to watch this space!

Football Creditors - Under EFL rules, these liabilities have to be paid in full. Players’ registration fees outstanding are £8.4m, with another £0.5m of agents’ commission thereon. So, £9m in round terms. We know that a recent instalment on Bielik was deferred until early next year by Arsenal & Lech Poznań also confirmed that “the largest instalment” on Jozwiak is also due in January.

MSD - The single secured creditor; MSD have security over Pride Park Stadium (provided by Mel Morris personally) and Moor Farm (given by the club). Their loan is recorded at £20m. However, we know from reports, that Quantuma have since secured emergency funding to keep the club trading until January. Logically, this would be via MSD. So, might the debt now be £23/24m?

Other Unsecured Trade Creditors - Across the group, creditors in this category total £6m - the majority on Derby County Football Club Ltd. Entities owed money are numerous; in the region of 200. Many are local businesses/organisations, to whom even a modest bad debt might be fatal. A sad consequence of Administration; along with the job losses we’ve already seen. Within this category of creditor, a number are worth highlighting.

Wasserman (including their Dutch subsidiary & Key Sports Management who they recently bought) are owed £1.1m.

BlueFin Insurances are owed £352k.

Derby City Council are owed £115k and Erewash Borough Council £46k.

GL Dameck who supply sports goods are owed £191k.

Office Care (cleaning) are owed £109k.

Kucharski Investment SKA (evidently a real estate/investment brokerage in Warsaw) are owed £86k!

Journey East Ltd (Director Steve McClaren) is owed £47k.

Chelsea FC are owed £135k (an interesting one, why not shown as a Football Creditor?).

Triple S Sports (owned by Rooney’s agent Paul Stretford) are owed £60k.

On exiting Administration, these unsecured creditors have to be paid a minimum of 25pence in the £, or 35pence in the £ over 3 years.

Mel Morris - Director’s Loan Account shown as £123m. He is unlikely to see a penny on this. In addition, of course, he is owed £81m by Gellaw Newco 202/204 (not in Administration) regarding the purchase of Pride Park from the football club in 2018.

Accruals & Season Ticket Income - The best way to describe accruals are where the club receives cash up-front (ie before it provides the services/products), or where it benefits from a product/service before it has to pay for it. A good example is gas/electricity used, where payment is made at the end of the quarter. In total, accruals stand at £3.9m. This is a big number - with no explanation given. Season ticket monies (also received in advance, of course) are shown separately at 6.1m.

Across these 2 entries, the benefit to cash is £10m - worth reflecting on when you consider that such a significant number of bills haven’t been paid! If nothing else, it illustrates the magnitude of the trading losses (poor financial management ).

Time now to look at the assets.

We know, of course, that Pride Park isn’t owned by the club. Its main assets, therefore, are the players and Moor Farm (a long lease from the Trustees of Locko Park Estate). The latter is a specialist asset and it’s shown in the Statement of Affairs at c£7m.

The player valuation is interesting, at £33m. No breakdown by individual is given, but it is important to remember that only 7/8 senior players are in contract beyond June 2022. If we assume that values are written down on a straight-line basis (controversial!) then those out of contract soon will have very little book-value left. In fact, should they choose, they can sign pre-contract agreements with other clubs from 1 January. This figure should therefore be treated with caution.

So where does this leave us?

We know that to acquire the club, buyers will have to repay or take on the liabilities.

MSD £20m (plus emergency funding since September) and Football Creditors £9m have to be covered in full. Let’s say those two come to £32m.

In addition, let’s assume HMRC accept 40p in the £ and unsecured creditors get 25p. That’s another £13m. So, we’re looking at £45m plus costs…….and unless Mel Morris hands Pride Park over for free, that doesn’t include the stadium!

In addition, we know that the club is still loss making (confirmed by Quantuma) and these ongoing losses have to be covered too. That’s a big ask for a club potentially heading into League 1, which will mean an immediate loss of c£6m pa in EPL solidarity payments & EFL broadcast fees. That will hurt.

Oh and let’s not forget that the club is still facing legal claims from Middlesbrough and Wycombe!

An attractive proposition? Only time will tell.

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