Derry Got Soul Club Accounts Special: The Derry Accountant speaks

The accounts are out and, despite Dundee’s losses increasing over the past year, the Daily Record chose not to run a front page story claiming we were on the brink of going out of business this year. It’s almost as if the rag’s former editor was an embittered DAB who epitomised everything wrong with the media by not so much speaking truth to power but abusing his own to push personal prejudices.

Anyway, the headline figure is that the Mushy Peas lost £434,000 in the year ending May 2018. Yup, that’s £434k to finish one place ahead of Hamilton Accies, who lost double that wedge when they handed over their bank details and password to a Nigerian prince. Sofien Moussa, Randy Wolters and Lewis Spence didn’t come cheap, to be fair.

Debate over how big a bang our owners got for their bucks aside, the publication of the accounts set off arguments about what they meant for the club among fans with zero qualifications to comment on fiduciary matters. In an attempt to shed some light on these figures, we asked a top accountant with a season ticket for the Derry to look them over.

 

Walking Down The Provie Road: Right, the accounts are out. What’s the story? 

Derry Accountant: Short story is the accounts show a loss-making company that is reliant on benefactors to sustain itself at the moment. That isn’t necessarily a worry and the fact that in note 3 the auditors have confidence that the business will run as a going concern for the foreseeable gives some comfort. I appreciate there are some fans who believe we should simply spend what we earn, and that’s a perfectly reasonable point of view, however the FPS strategy is clearly that they are willing (I purposely didn’t say happy) to incur losses.

Overall, the balance sheet is pretty flat. There’s not been huge movements on a line by line basis. Cash has remained consistent, debtors are flat and the increase in creditors relates to the way the loss has effectively funded by directors.

WDTPR: The report says we’ve increased turnover. That’s good but how was it possible when crowds fell and there was no discernible rise in TV money. Is it all down to the two televised League Cup derbies? 

DA: From a football club point of view, turnover is simple. It will be all income from gate receipts, TV, league and cup placings and hospo/sundry income. Without having a detailed breakdown in front of me, revenue grew by 12.5% which is good going.  I know we had three TV games in the Betfred, two of which also attracted full houses. We also got to the QF of that competition, which would have attracted more revenue. You would need to do a real deep dive on crowds/ticket price to unwind it all though.

WDTPR: How do losses and outgoings compare to last year? 

DA: Whilst wages are up they are actually down as a percentage of turnover. You have to presume that a fair chunk of that increase will the payoffs for some of Hartley’s players while Caulker was allegedly on a big wage. Re the other expenditure this looks like potentially an increase in lease expenditure (note 8).

WDTPR: A lot of figures are being bandied about for the rent on Dens. These include £500,000, £130,000 and £65,000. How much did we pay last year and how much will we pay next year?

DA: Note 17 is your friend here. Next year we will pay £65k for stadium rental and another £64k for other rentals (no idea what that is). This year per note 8 we paid £128k and its reasonable to assume this is split £65k stadium £64k other.

Looking forward it looks like this other operating lease drops off in a year or so and leaves just the stadium rental. Total payable is £1,391, 749, which is the total of 1 year and above in the narrative in note 17. In 2016 we changes account basis from UKGAAP to FRS 102. To the non-accountant (and indeed many accountants!) this wasn’t overly interesting. However as part of that we changed the way we account for leases, this has led to a provision being held on the balance sheet for leases that will be released over the life of the lease as opposed to the first lease break. This does not correspond to cash out the door and is purely a technical accounting point.

WDTPR: Are we paying directors less?

DA: Yes. Directors’ remuneration is down from £152k to £129k. I am presuming only John Nelms draws a salary from the club but obviously don’t know for sure.

WDTPR: How much is in ‘other creditors’ and what does that mean? 

DA: See note 20 for related party transactions. Directors loans are the method that FPS are funding the losses with when not buying new share capital.

WDTPR: How fucked were we if we hadn’t sold Jack Hendry? Andy why does ‘player disposals’ only show £530,000 when we allegedly sold him for £1.5 million.

DA: Impossible to say as it all depends on what we would have done in the event we hadn’t sold him. It’s perfectly reasonable to presume that we simply spent the money we received from him and therefore admin expenses are higher than they would have been had we not sold him. The signing of Caulker wouldn’t have come cheap so my guess is we spent a chunk of the £530k on that. In other words if we hadn’t sold him then the admin expenses would have been lower.

The accounts show the net figure from the transfer, i.e. proceeds less any “cost of sales”. Without any additional info I am guessing that after we clipped the ticket with payouts to Wigan and potentially the player and agents this was the net we were left with. From memory there were rumours of a 40% sell-on clause and with payments arriving in instalments it doesn’t seem a bonkers figure.

WDTPR: The report states that ‘FPS intends to increase its stake and commitment to the Company by raising its hareholding to at least 75% of the voting equity. This would allow FPS to claim Group Tax Relief and offset the trading losses of the Company against its other business activities’. In plain English, what does that mean? How does it benefit the club?

DA: This will be some tax structuring within the US that will allow FPS to use the losses that DFC are running against other companies within their group. Whilst it won’t make any benefit in DFC accounts it will obviously ensure that the owners net spend across all their businesses is lower and this will make a loss-making investment slightly more attractive. I’m not a tax expert though.

WDTPR: One of the last times Tim Keyes was in town (August 2018) it was announced he’d increased his shareholding to the tune of £500,000. Again, what’s the significance of this?

DA: Note 19 mentions something about this and a loan subsequently being written off. I would expect Other creditors to go down as a result of this and share capital to go up. This happened on 9th August so that’s why it’s not in these accounts.

WDTPR: Do we owe anyone any money?

DA: Based on the accounts the biggest creditor is the “other creditors” which spiked from £492k in 2016 to £1.3m in 2017 and again up to £1.6m this year. Per Note 20 these are amounts due to FPS. Based on the accounts we owe HMRC £319k and have some trade creditors. The accruals deferred income are accounting liabilities as opposed to actual invoices received and again I am surmising that these relate to season tickets paid before 31 May 2018 but relating to 2018/19 seasons, i.e. we have the cash but we also have the liability to provide the “service”. The service being a season worth of football.

There is no bank debt that is visible in the accounts.

WDTPR: The accounts make mention of about £1.5million being due to go out in the next year. What does this mean, what does it contain and how does it compare to last year?

DA: Whilst these loans are technically due within 12 months the ‘other creditors’ portion is unlikely to be called in unless FPS pull the plug. The fact the accounts are on a going concern suggests this is unlikely to happen.

WDTPR: We have lost £2.3m in the past five years according to accounts published since FPS took over. How is this sustainable?

DA: Short answer is we are totally at the will of FPS. Like the majority of clubs in Scotland we are running the benefactor model. The only way to move away from that is to up revenue (new streams from new stadium etc?) or to lower costs. It’s easily arguable that we have spent a lot of needless expenses on poor signings and payoffs etc.

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