Wednesday, September 20, 2006

Incredibly, building a new stadium = more debt, and Saturday preview

Our financial results are in, and, astoundingly, it seems building a fantastically expensive new stadium leaves us more in debt than before. Who'd have thought it. I for one am panicking.

Keith Edelman spelt it out in a short statement:

"It is like an individual buying a new bigger house into which you have put more equity - you will have a bigger mortgage, but overall be in a stronger financial position. The two things are completely separate and you do not say 'you have no money to spend because you have a mortgage'.

"A mortgage is something you pay off every month, X amount over a number of years then you look how much cash you have in your pocket to spend. Well, we ended the year with £36million of cash in the bank, in our pocket to spend now, so we are very cash-rich, although we have got high debts, which relate effectively to the mortgage on our stadium."

So effectively, we have a higher debt, but because we have a greater income from the stadium, and a greater amount of capital [surely?] the club will be in a healthier finanical situation, as long as revenues from the stadium remain high. Which they will as long as all us lot keep going. Regular Champions' League football is also important, but perhaps less vital than we once thought.

And, not all revenues go towards debt financing - a significant amount has been budgeted for us to sign new players, or for other cash-needy eventualities. Hence us being 'cash rich', whilst over £200m in debt. It is possible.

This was also significant - if already known by most:

"Previously we had a 14-year repayment schedule, on which the interest rate was quite high.

"Because we sold the stadium out and it was being delivered on time and on budget, we were able to go into the financial markets and get a deal which was very attractive for the club which moves the debt out to 25 years and reduces the interest rate by about 2 per cent.

"So we have lowered our debt repayments substantially every year. It is a good deal for the club and it means we have more money to invest in players and team development."

We have a longer term debt, but a more secure one at a lower rate of interest. Re-financing the debt was, to my mind, very important to our future financial security, and its a good sign that the city sees us in such a positive light. We're not the 'Bank of England club' for nothing.

I didn't see the Panorama last night, but the BBC havn't accused of anything - after the last fiasco - so I'm not too bothered. Seems old Sam Allardyce could be in hot water though. I did love one of the agent's subsequent defence, which amounted to - 'I knew it was a setup, so I lied to try and expose what was really going on'. A defence about as convincing as the legendary 'Chewbacca defence'. [google it].

This should be the last post before Saturday, and a game which will hopefully see the first win at the Emirates. Sheffield will have to 'park the bus' if they realistically want to get anything from the game, but, who knows, some post OldT hubris could affect our play. We've played SheffU a number of times in the past and prevailed over them each time - including the infamous Kanu incident - so this shouldn't be any different.

The only team news i can give so far, is that Arsene has said that Baptista is still a little unfit, and unlikely to start. I should imagine he'll get a half hour run about. The players should be fresh after nearly a full week off. I'm hoping Tel has a stormer to kick-start his season.

See you at the Emirates,



Anonymous said...

We may have a fair bit of debt but it's still a fraction of the debt the Glazers have taken out on Manure....

According to some sources, Glazer financed over £600 million to purchase the theatre of losers!!!

Anonymous said...

At least the value of our assets exceeds our debts. If you're Chelski, you owe Abramovitch so much money that the only thing stopping you being insolvent is that he hasn't asked for it back - yet.

Goonerboy said...

I don't think Abramovic will ever ask for the money back; there's more of a chance that he might remove his position as a guarantor for their wider debts, which could bankrupt them.

The Gun said...

We need to push on from Sunday and I'd rather Wenger didn't rotate his squad too much at this stage, the players should be fresh. We need to find form and consistency so I would keep the same side as on Sunday, unless Henry's fit in which case drop Freddie and stick the skipper up front with Adebayor. This is just as much a must-win game as the OT one because a first victory at home would also get that particular monkey off our backs.

For what it's worth, I would give Ade cool the first hour and then replace him with Baptista who can act as a deep lying forward.

Anonymous said...

chewbacca is a a wookie but lives on Endor.........that does not make sense. Ladies and Gentlemen that does not make sense!

Anonymous said...

No need to panic

The debt has been rescheduled properly and on to a significantly cheaper basis. There seems to be money available for players (not in Chavski scale though!) and a much much higher income stream.

I think the board shouild be congratulated for managing to build the stadium and give the team the right business base to operate into the 21st century without damaging the club.

Also we still have the best manger in the world at finding talent and making it great.

Anonymous said...

I don't think that Chelsea have any debt at all. In the purchase of the club, Abrahamovich would have had to satisfy all debts. And, when he sells the clubs any new debt will have to be satisfied as part of the purchase. If he is personally a guarantor, he can't just say he wont guarantee anymore, he's still lianle.

Where Chelsea will be in dire starits is the long-term contracts for obscene money they have with marginal players. They won't even be able to sell a few these players becasue no club will pay the contracts.

Anonymous said...

What I did find confusing was the fact that we went to the Champions league final, and increased turnover massively, but profits went down significantly. how come?
I think this was operating profit so wasn't affected by the stadium. Thoughts?

Anonymous said...

much of our profit last year was home-unit sales. that's not there this year. we'll get a more sustainable bump next year from increased gate traffic

Anonymous said...

A lot of misinformation flying around here. The nominal increase in debt was known at the time of refinancing months ago. Edelman announcing that fact today doesn't change anything. Due to the decrease in the interest rate and projected inflation, the real value of the debt is actually less after refinancing. Anon, 8:13, where did you get that from? What home units? They hadn't begun selling any Highbury flats, and also stated they couldn't include those sales in the upcoming report in any case until they were delivered, which won't be for another 2-3 years. Review the AGM report if you want proof.

Anonymous said...

Ok - so can anyone explain the lower profits after a reasonably successful season?

Deise Gooner said...

Yeah Edelman can :o)

Anonymous said...

The football business made profit of £16.8M for the first 6 months as opposed to £8.9M last year. They lost money on the Highbury developments (due to lower sales than last year) and the cost of physically moving from Highbury to emirates.