Allam’s Exit Strategy

Club for Sale

Assem Allam’s “gift to the City of Hull” was to save the football club from administration in 2014. During his first season in charge he injected over £40m in the form of loans to pay off existing debts. He went on to increase this loan to over £70m to secure promotion to the Premier League. Allam is charging the club 4% interest on his loans.

After his unpopular name change was rejected by the FA in 2015, Allam announce he had put up the club for sale. In June 2016 the Hull Daily Mail reported a price tag of £100m.

allam-price-tag-100m

Earlier in the summer a price was agreed with a US consortium headed by Peter Grieve which was rumoured to be around £80m. After the club got promoted the Allams moved the goalposts and asked for more money. An offer from a Chinese consortium headed by Dai Yongge was accepted only for a member involved to fail the Premier League “fit and proper” owners test. A lower offer from US/Chinese consortium headed by Chien Lee has since been rejected.

The summer saw the owners fail to invest in the playing squad causing the club’s most succesful manager Steve Bruce to quit. Unable to attract a high calibre replacement Ehab Allam gave the job to coach Mike Phelan. Some last minute signings were completed including a £13m fee for Ryan Mason but with a weak squad the club now finds itself staring relegation in the face.

So if the Allams aren’t going to sell can they get their loan back after relegation?

A theory currently doing the rounds on social media and fans forums is that the Allams will accept relegation and siphon off the TV parachute payments to repay themselves.

Is this possible?

If the club gets relegated in their first season back in the Premier League they will receive parachute payments for the next two seasons totalling over £70m (see table below from Swiss Ramble)

parachute-payments-2016-17

 

According to Hull City Tigers Ltd. accounts for the Championship season 2015/16 the club made a loss of £20m. Of this amount over £10m was attributed to payments relating to promotion e.g. player bonuses and transfer add-ons. The club’s wage bill for that season was over £30m.

The club took out a bank loan of £23.4m to cover the Championship losses which presumably needs to be paid back from this season’s income. If the club finishes bottom of the Premier League in 2016/17 they will have received a minimum £100m in TV payments. But with a wage bill of over £55m and transfer fees of over £20m, along with the bank loan repayment, that money is already accounted for.

accounts-june-2016

With this information in hand let’s take an educated guess at the finances for next season in the Championship IF the club were to be relegated:

Income
PL payments = £39.5m
Transfer income = £30m
Attendance = £7m
Other match day = £2m
Commercial = £2m
Retail = £1.5m

Total Income = £82m

Expenditure 
Wages = £30m
Transfer expenditure = £15m (inc. payments due from previous transfers)
Loan Interest = £3.5m (to Allamhouse)
Other Costs = £5m (Admin expenses, rentals etc.)
Academy costs = £1.5m

Total Expenditure = £55m

Estimated profit before tax = £27m

Conclusion

This is very basic maths but shows that any profit would have to come from player sales. In this example I estimated £30m income from the sale of 3-4 of the clubs most prized assets (e.g. Snodgrass, Hernandez, Robertson, Maguire).

So in theory the Allams could start to repay their £77m loan after relegation but with only two years worth of parachute payments it’s unlikely they would be able to claw it all back.

Surely it would’ve been easier to accept an £80m offer and come away with a small profit?