On Monday 10 June 2024 both the club Board and Well Society Board released statements on the proposed investment from Erik and Courtney Barmack.
Prior to a formal vote on that proposed investment, a period of consultation was built in.
This was to ensure that when shareholders and WS members cast their votes that they do so in possession of any additional information they want – they were actively encouraged by both boards to communicate all those information requests.
It has been suggested that the original club Board statement was too long, but the overwhelming view since its issue is that voters would like more information.
There is also a need to address a large body of inaccurate information being shared on social media as fact.
While differing views are to be expected on various aspects of the deal (external investment was never going to be met with unanimous approval) what should be a given is that the way people decide to vote is based on accurate information.
Consequently, this is a lengthy statement and contains a lot of financial and legal technical details.
It has also been suggested that the club Board should be informing voters on the investment proposal by public meeting.
The view of the club Board is that given over 3,000 people are entitled to vote on the proposal, communicating through the publication of statements ensures all voters are privy to the same information. Public meetings, where many will be unable to attend, cannot achieve the same coverage.
The overwhelming requests for more information can be broadly grouped into four main areas –
- The current club finances – why did the club seek investment?
- The valuation of the club
- The club’s share ownership
- The club Board
Current club finances and why did the club seek investment
The club is not in any imminent financial difficulty – we are not examining investment because of short term pressures.
As the club board noted to the shareholders at its last AGM, the club did end the financial year to 31 May 2024 with sufficient cash in the bank to cover all its short-term debt.
The club’s financial results for the financial year to 31 May 2024 are still to be finalised mainly because some of the club’s key income figures are determined by awards from football bodies etc. These are not within the club’s control and will not be finalised until the autumn. This situation occurs every year and at all football clubs.
However, as previously reported by the club Board its financial monitoring shows the significant losses reported in the last two financial years have not re-occurred. This is primarily due to a significant increase in transfer income, some of which is still to be exactly quantified by the FIFA clearing house process, and this will play in a major role in how much profit the club will report or whether it has simply achieved a financial result around break even before depreciation and the Covid loan notional interest.
For the financial year to 31 May 2025, if there were to be no transfer income and no significant cup runs, then for the first time in many years the club would require significant financial support from the Well Society reserves to cover its operational costs.
This requires a number of clarifications, but it also has to be understood the club Board is limited in certain areas in the information it can release.
Under legal and commercial confidentiality clauses etc. it cannot release details of transfer agreements, player contracts, SPFL contracts, club commercial contracts etc., therefore, requests for this information cannot be met.
The club does not currently have an increase in season ticket income built in for the season ahead – the club reported season ticket sales during the early bird window were higher than last year but that does not automatically mean it will have an increase in season ticket numbers and sales at the start of the season.
SPFL central revenues are very likely to show a small increase next season. While the SPFL has recently announced some new commercial deals, the figures connected to these deals being reported by some supporters on social media are wildly inaccurate.
As noted previously, we cannot advise what the financial numbers on these deals are, but they are only likely to make a very limited difference to our income.
We cannot allow voters on this very important matter to be under the impression that the club will not require access to Well Society reserves due to massive increases in SPFL central revenues, massive increases which don’t exist.
A similar situation exists in regard to UEFA solidarity revenues. There is, as widely reported, a new UEFA solidarity award system coming into operation from next season.
The exact rules for distribution are not finalised but, in a season, where Scotland has a team in the new Champions League group stage there is almost certainly a significant increase in the Club’s UEFA solidarity award. That will be the situation next season.
However, both the club and Well Society’s boards were aware that in these challenging economic times many supporters were struggling with the cost of attending football and supporting the team.
Therefore, the club Board agreed with the Well Society board that there would be a season ticket and gate price freeze for next season which effectively the club is “funding” through the anticipated increase in its UEFA solidarity award monies.
In years where no Scottish club plays in the new Champions’ League group stages, and Scotland has no automatic place the season after next, UEFA solidarity awards are vastly reduced. So future income from this source would come down significantly.
The club’s ability to finance its operations in recent years has been mainly down to transfer income. This will be further highlighted in the valuation part of this statement.
Transfer income is by its nature unpredictable especially in an era where players can run down contracts and players in our academy system are targeted by other clubs at earlier and earlier ages with very limited or no compensation involved.
The club has also been facing the same cost pressures as households up and down the country and like many businesses its payroll costs have been ever increasing – salaries in the football player market have been impacted by record spending from English clubs and the national living wage has increased by at least 30% in every age category over the last 3 years which drives up salary structures throughout the club.
If the club was unable to generate significant transfer income for a period of time, then it has a number of options.
It could seek financial assistance from the Well Society, however there is a limit to how often that can be done especially if the Well Society is on its own as a source of finance.
It could seek to raise finance via debt which would be expensive, impossible to achieve without putting up the club’s assets, such as Fir Park, as security and therefore not a practical answer.
It could drastically scale back its budgets / operations.
It could seek to raise new equity.
These scenarios have been discussed for a number of years with Well Society Boards.
Fresh equity, with the correct investors, was always considered to be the preferred option of both boards and has also been discussed with shareholders at club AGM’s.
It was also agreed by both boards that option is likely to be best achieved in times when the club is in a position of financial health, which is what we are trying to do.
This process has been ongoing for months, not hastily rushed through for any financial reasons.
The valuation of the club
The club Board, which contains directors with experience of valuing businesses along with their network of contacts in the field of sports finance, undertook an extensive valuation exercise before negotiating terms with investors.
There are several different commonly used methodologies in valuing a business where the shares are not publicly traded.
The value of the equity of the club i.e. the shares in the club, in this transaction is £4m.
Many supporters believe that a value of £4m for the club significantly undervalues the club and have queried why we would progress such a deal.
The club Board has a different opinion and it is important to record that a number of investors withdrew from preliminary negotiations because having undertaken their own valuations they believed the club Board was significantly over valuing MFC.
This can only be explained by going through some very detailed technical accounting using the club’s publicly available accounts (it should be noted that the club Board’s exercise had the benefit of more up to date plus the underlying financial information which it cannot for reasons previously explained fully disclose).
Since Season 16/17 (when the Well Society took its majority shareholding) until Season 22/23 (the last publicly available accounts) the correct aggregate of the club’s accounting profit and losses is £2,336,944 (we are aware several different incorrect figures have been posted on social media).
However, as the club Board has explained in its Strategic Reports and at its AGMs these figures contain a very unusual and complex set of accounting entries connected to the Scottish Government Covid Loan.
These arise from the fact that the loan is interest free while most loans from parties unconnected to the club would involve interest charges.
These accounting entries have two major impacts which require to be adjusted for in any valuation exercise.
In Season 20/21 the Club’s Profit includes £1,501,767 of noncash accounting profit and the Club’s balance sheet excludes £1,501,767 of long-term debt.
These hugely significant values are then reversed in subsequent accounts over the lifetime of the Scottish Government Covid Loan (over the next twenty-one years).
Therefore, the profit over the Well Society’s ownership period is not £2,336,944 but by correctly excluding all the Scottish Government Covid Loan entries since Season 20/21 is actually £1,051,694.
This then results in an average annual profit for the club over the Well Society’s ownership period of £150,242.
Many prospective investors made further adjustments to this figure for two main reasons.
The results of more recent years should be given more weight than the results from 6 or 7 years ago and we have made over £1m loss in each of the last two years.
In addition, this profit includes £7,392,281 of transfer income which is inherently volatile.
Applying those caveats would reduce the average annual profit for the club over the Well Society’s ownership period in the context of a business valuation to be a break even position.
The most common way to value a business is to take a multiple of its average annual profit.
This is also the only valuation method which requires the use of multiple years of data.
For a less than 50% stake in a business a multiple of 8 would be considered very high end.
If that multiple were to be applied to the non discounted club’s average annual profit of £150,242 that would result in a club valuation of £1.2m.
The value we are discussing is £4m – which is 3.3 times higher than the average annual earnings valuation (above).
Utilising the average annual profit of £150,242, to reach a valuation of £4m would require a multiplier of 27 which would be unheard of for a business valuation of a football club.
Therefore, £4m is not a significant undervaluation in the view of the club Board.
Many supporters have noted that Fir Park and the playing squad are worth more than £4m.
They undoubtedly are – but one of the absolute safeguards in this proposed investment is that Fir Park remains in the club and cannot be sold.
On a similar point the subject of valuing players when you cannot force them into contract extensions along with the risks around injury etc. is also a significant issue. So, to state that the club is worth much more than £4m by simply aggregating our net assets with a “value” for players is completely wrong.
There has also been some correspondence about whether we are effectively debt free as a club. Without prolonging that there are two very clear points to make.
As previously noted, the very unusual and complex set of accounting entries connected to the Scottish Government Covid Loan create a situation whereby £1.3m of long-term debt does not appear on the club’s balance sheet in its last set of published accounts.
In calculating the club’s available cash, the details of the component elements of the club’s available cash need to be fully considered.
A prime, but not the only, example of this would be that the club’s available cash at the end of every financial year contains the majority of next season’s season ticket sales.
This ensures the club is in a position to meet all its short-term debts over the summer but to suggest that can be offset against long-term debt in some way is again completely inaccurate.
The club’s share ownership
The club currently has just over 300,000 shares in issue.
The Well Society own 71% of these shares with 29% owned by other individual club supporters.
In terms of the 29%, the majority are Well Society members to whom the Well Society sold some of its originally acquired shareholding.
Others are individuals who owned their shares before the Well Society existed and indeed some of these shares have been in their families for generations. Some of them have also joined the Well Society.
The investment proposal revolves around the issuing of new shares.
Consequently, all of the just over 300,000 shares currently in issue remain in issue – they do not cease to exist and none of them are transferred to Erik Barmack.
In return for each of his annual investments Erik Barmack receives new shares issued by the club.
If no other new shares were issued, then Erik Barmack would own all of the new shares and in time far more shares than the current shareholders.
If that situation was allowed to occur, then he would become the majority shareholder and have all the many resulting rights of a majority shareholder.
To avoid any new investor becoming the majority shareholder the only way this can be achieved is for the club to issue new shares (at the exact same price) to be purchased by the Well Society and the current 29% other shareholders if they so wish, who have the legal right to be involved in any new share issue.
This is to preserve fan ownership.
All of the club board believe in fan ownership.
The longer serving board members were all heavily involved in the inception of the Well Society and all sums they have invested in the club since the society’s inception have been made to the Well Society and not directly to the club.
They do not receive remuneration from the club, they gain no financial benefit from this proposal and have the same one vote on the proposal as every other Well Society member.
The investment proposal requires the Well Society to invest further sums to the club and as equity rather than an increase in its loan.
This is also why the investment is being done in instalments over 6 years.
If Erik Barmack invested all of his near £2m investment at the very beginning, then to avoid him becoming the majority shareholder the Well Society would need to almost match his investment at the same time.
The Well Society does not have the cash reserves to do this hence the agreement to stage the investment over six years.
Under the investment proposal in year 6, Erik Barmack would own 49% of the club’s shares.
At this point, he would have become, for the first time, the largest shareholder in the club.
Although the Well Society will have acquired many new shares on top of its existing shares it will have a lower % of the club’s much increased total new share capital having invested less than Erik Barmack and this would also apply to the other shareholders.
This, however, very importantly would not make him the majority shareholder in the club.
A majority shareholder needs to own more than 50% of the club shares.
Most prospective investors immediately withdrew when they realised that they could not acquire at least 51% of the club.
By ensuring the Well Society plus the other club supporters, who as previously noted are also mostly society members (and presumably when the Well Society sold them part of its shares it did so on the assumption it could still rely on their support in future years) had a block vote of 51% it is considered by the club Board that fan ownership has been retained.
It has also been asserted that once Erik acquires his first shareholding the club is effectively stuck with him.
That is inaccurate.
The deal contains a buyout option after two years, which is also a concept which most prospective investors refused to consider.
The buyout option which can be partly funded from any significant transfer fees in the next two years also does not return the Well Society back to where it started.
If enacted the Well Society’s shareholding in the club would increase from its current 71% to close to 90%.
There has also been discussion about asset stripping in future years.
Given the nature of our assets and the safeguards built into the transaction its is very very difficult to see any way that could happen. It is also very rare for an investment to be made in a private company where no value can move in the first six years of that investment.
The club Board
The club Board has historically consisted of 2 business people with connections to the club, 2 Well Society representatives and the club CEO.
A proposal made in conjunction with the Well Society Board was unanimously passed at the last club AGM in February that the club Board should be expanded to 8 persons to improve governance and the club Board’s diversity of skills and views.
Moves to achieve this commenced immediately although a period of transition was always likely.
The Well Society were invited to add a third representative to the club Board and are currently identifying who that person will be.
The current club Board members with the approval of the Well Society Board appointed the club CEO and club FD (Finance Director) to the club Board.
Under the investment proposal the current club chairman (who has delayed his announced retirement to maintain a working quorum on the club Board) would be replaced by Erik Barmack and he will bring with him 2 experienced business professionals to complete the new 8-person board.
It has been asserted that this new board structure results in Erik controlling the club board and therefore the club.
However, even if we assume the 2 experienced business professionals he appoints always vote with him, which is not guaranteed, that still only gives him 37.5% of the board votes.
The exact same % as the Well Society representatives hold and in no circumstances can that be considered to be a controlling % even allowing for the casting vote in a tied vote.
The presence of the club CEO and club FD will be crucial in maintaining an independent balance should it be required, and this has been recognised by both Erik and the Well Society Board (and hopefully it will not be required as both parties have agreed in the preliminary discussions they have had, that they believe they can work well together otherwise the process would not have reached this stage).
It has also been suggested their presence is unimportant or that they will just do as they are told by Erik and in the event of a tie as chairman, he would have the casting vote.
However, leaving aside the integrity of the individuals involved and that they only accepted their board appointments on the grounds that no side would try to unduly influence them, it should also be remembered that neither have any previous connections with Erik or his team.
Indeed, the Well Society Board were heavily involved in the recruitment process of the club CEO who has openly declared the importance of working closely with them and the club FD has been at the club for several years and provided his services to the Well Society on many occasions so it is therefore the Well Society that has an existing relationship with both of them and it is Erik and his team who have to build a relationship with them.
