Kilmarnock FC´s financials (part 2)

Kilmarnock FC´s balance sheet is a relatively simple one. Intangible assets (player registrations) have been extremely low, and in may 2013 the value was down to 0. That is simply because when a club buys a player, the transfer sum is marked in the intangible assets and amortised over the duration of the contratc. In Kilmarnock´s case, there haven´t been too many players bought during the last few years. New players have arrived mainly through free transfers and loans. 

While there haven´t been too many intangible assets, tangible assets in something the club has had no shortage of. The total value of tangible assets in May 2013 was £ 14 million. This consists of ”conference, banqueting & leisure activities” (the Park Hotel), worth £ 2,8 million, the Rugby Stadium, worth £ 11,0 million and plant and machinery, worth £ 17 261 million, Fixtures, fitting & equipment, worth £ 61 823 and motor vehicles, worth £ 17 176. Frankly, the book value of the stadium seems very high. The value of the Park Hotel was substantially lowered in the latest accounts due to an impairment of £ 1 478 504. This impairment cost is the exceptional item that caused the result of the latest financial year to sink as low as £ -2,2 million. According to the annual report, the Park Hotel was sold on March 2014 to The Park Hotel Ayrshire Limited with £ 2,4 million. The impairment cost is the difference of this sum, and the carrying value that the asset had (£ 3,8 million). 

The structure of the club´s creditors and net debt is presented in the following figure:

 In the  latest accounts, chairman Michael Johnston states that he has been able to reduce the loans of the club significantly. During the last four seasons, the debts haven´t been reduced quite that much, though. The club has been forced to rely on bank overdrafts with their payments, and there hasn´t really been much change with the overdraft-amounts. Long term loans have been reduced, but once again, not by much. At least, not enough to make any kind of radical difference to the club´s financial position. As the profit & loss account shows, interest payments were substantial all the way until last accounts. And it is those interes payments that have made life so difficult for Kilmarnock. It is also worth noting that almost £ 10 million in loans is a huge amount for any company that operates with a turnover of £ 6-7 million. There is no way that those kind of loans could ever be repayed. A slight reduction in total amounts makes very little difference. 

Billy Bowie has reportedly now invested heavily in to the club´s finances. First £ 250 000 and then £1,4 million as part of the debt reduction deal that took place earlier this year. The Park  Hotel was sold to Bowie´s company, who then converted the balance of the bank debt into equity. The loan by Former director Jamie Moffatt was apparently written off. Consequently, the club is now said to be practically debt free. It will be interesting to see the new financial report and figure out just how the whole thing was done. Since Michael Johnston´s share of the stocks was reduced from 87 % to below 50 %, a share issue to Bowie seems likely. Some sort of capital loan would also be a possibility. 

Nevertheless, what is vital for Kilmarnock FC is that being debt free it is also free of the vicious cycle of restructuring debts it can´t pay. It is also free of interest payments, that consumed much of the EBITDA. The downside is, that the club is now without the Park Hotel, so their turnover will diminish. Still, it is a healthy situation for the club. 

What is interesting to see is where the club (and Bowie) will go from here. In august 2014 Bowie told the BBC: "I would like to get away from [being seen as the money man]," Bowie said. "What I've put in is far more than I expected, but I was in a fortunate position where we could restructure the debt. It would be better to make the club work financially rather than to look for another investor. If I was to put in more money then I would be letting myself down as well. We've got a budget forecast, we're working with that”.

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Nothing wrong with Bowie´s statement. That´s how you do solid business. Unfortunately, that´s rarely how you run a football club. The fans are most likely more than happy to see the club in a healthy financial position. But results-wise, they would most likely want to see some improvements as well. And that doesn´t happen without investments to the squad and facilites. Since probably no one at Kilmarnock wants to see the club go back to bank loand and overdrafts, the only way to do that is raise funds the other way. We need to remember that the club´s EBITDA has been nothing to get too excited about. And without the Park Hotel, the turnover will get smaller. So financing any kind of heavy investments will not happen through profitable business. Therefore, only one option remains: Raising funds by increasing equity. Most likely through share issues or capital loans. Bowie would be the logical person to supply those funds, and my guess is the fans certainly wouldn´t mind that to happen.

Is it fair to expect that from Bowie? Probably not. Bowie has done more than his share in freeing the club of it´s debts. It would optimistic to expect him to pour cash into the club straight away. But that´s just how football clubs are operated these days. Smart financial operations and success on the pitch rarely go hand in hand. Success requires investments, investments require cash. And all eyes are on Bowie. 

Having said that, the club is certainly not doing badly on pitch at the moment. The Rugby Park currently has a modern artificial grass surface. At the time of writing this, Kilmarnock FC are sitting at 5th place of the Scottish Premiership with 20 points from 11 matches. That is not too bad. Where to club goes from here depends largely on Bowie and his willingness to inject funds. Whatever happens, the club is in a healthy position now, and therefore the future looks relatively bright. And that is not something to belittle. In fact, in a current economic climate, it is actually a nice place to be in.