Saturday 4 May 2013

A bleak outlook

As businesses go in this part of the world, Scarlets Regional Limited is quite a big one, and so the very late publication of its results for the year to 30 June 2012 is striking. The report should have been published by the end of March 2013 at the latest, but the auditors and the board did not finally sign off until 13 April, and the results were not submitted to Companies House until last week.

Delays like this are normally an indication that all is not well, and that a lot of arm twisting and convincing needed to take place before people were prepared to put pen to paper.

The first thing to emerge from the report is that the company is insolvent, with liabilities exceeding assets by £3.24 million. That would be bad enough, but the auditors remind us that a very large question mark hangs over the valuation of the company's assets, of which by far the largest is the stadium itself. The value put on the stadium at the year end was £10.3 million.

Bearing in mind that the company does not actually own the stadium, that figure represents the hypothetical value of the lease, a sum which the directors would like the world to believe is the sort of money which could be raised if the club ever decided (or was forced) to sell the lease to someone else. The problem with that is that it is hard to think of anyone who might want to buy it.

As an old boss of Cneifiwr's used to remark, the value of something you cannot sell is nothing.

Nevertheless the chief executive of Carmarthenshire County Council told listeners to his recent radio broadcast that the council's investment in the venture was "very safe".

For the third year running, the auditors say that the losses and the excess of liabilities over assets "indicate material uncertainty which may cast significant doubt about the company's ability to continue as a going concern", as well as "significant doubt about the carrying value of the stadium".

The directors see things rather differently, and the report contains a lot of what can only be called spin. One of the few positives highlighted in the report was a reference to a very spurious consultants report commissioned by the club and Carmarthenshire County Council claiming that the Scarlets contribute £16 million to the local economy.

Match day attendance reached the third highest in the league, they point out. The turnover figures showed an increase of 5%, and by no means all of that can be attributed to higher ticket sales. In the absence of any figures, the truth is that ticket sales were probably flat, and that the match attendance figures were purely relative, and it would seem that season ticket holders are counted as attending regardless of whether they actually turn up.

"Administrative expenses" on the other hand rose by 11% to £3.82 million, and the bottom line was helped out by an unexplained entry for £175,000 in "other operating income" (previous year £nil). The notes unhelpfully explain that this was "sundry" income, and we have no way of knowing whether it will reappear next year.

What helped reduce overall operating losses was the unexplained "sundry items" and a reduction of roughly £360,000 in costs of sale, also unexplained.

A rather bleaker picture is presented by the balance sheet, where current liabilities (debts payable within one year) have risen sharply from £3.38 million to £4.6 million. Cash at hand shrank from £268,000 to £164,000.

In short, the club's indebtedness is rising rapidly, and any improvement in the performance of the underlying business has been slight. Meanwhile, despite the dire state of the club's finances, the directors paid themselves emoluments totalling £125,000 (up from £113,000).

Two things will come to the club's rescue in the current year. First, the report mentions (for the third year running) an anticipated sale of an asset. No information is provided as to what this might be, but the likelihood is that this is the sale of part of an area designated as a car park to Marston's, the pub group.

Like the rest of the site, this was leased to the club by the County Council. When the idea of flogging off the lease to Marston's leaked out, the council responded by saying that "there would normally be a division of any uplift from the sale".

It now seems that at some point in the last six months the freehold was actually sold to the club. What the sale price was is a very interesting question, and council taxpayers have a legitimate interest in knowing what profit the club has made from this transaction.

The other factor which will have helped the club was the loss of George North to Northampton. The storyline has enough skulduggery, crocodile tears and bluffs to fill the pages of a trashy airport novel. The WRU accused the Scarlets of touting the player for sale without his knowledge, while Scarlets claimed that they did everything to try to keep him before "reluctantly" allowing him to go a year before his contract ended.

Perhaps this will appear as a sundry item in next year's report, but the loss of George North is a serious loss to Welsh rugby, and the way in which the deal was handled further exacerbated the already strained relationship between the WRU and the regions at a time when both sides were trying to set aside their differences and work together more closely for the good of the game.

These rare rays of sunshine are balanced by more looming dark clouds. A debt of £2.5 million is owed to Carmarthenshire County Council, and payments of interest on the loan are due to resume this year.

The generosity of the club's other wealthy backers dropped sharply in 2011-12, with only two of the directors pumping in loans of £100,000 each.

On top of all that, the club needs to renegotiate its banking facilities by the end of May 2013. The bankers will hardly be jumping for joy at the prospect.

The likelihood is that Scarlets Regional Limited will limp on for another year or two. Unless there is a sudden and unexpected improvement in the company's fortunes, the county's taxpayers should brace themselves for more demands for help, including another moratorium on debt and interest payments.

The warning signs were always there, and the council, under the guidance of its chief executive, chose to ignore the advice they had commissioned which pointed out the high risks involved in the venture.

You would think that lessons would have been learned from this, but as austerity bites and more cuts are made to council jobs and services, the visionaries in County Hall are pressing on with their latest scheme in the shape of the Towy Community Church bowling alley (over £1.4 million in council funds committed so far).

That is loose change in comparison to the Scarlets venture, perhaps, but loose change we no longer have.


Lesley said...

As usual, a brilliant analysis of a very depressing situation. Thank you.

Pat Dodd Racher said...

Thank you for the latest on the Scarlets finances. Meanwhile, Llandovery's county-council-supported main tourist attraction, a museum at the entrance to the (now largely unoccupied) car park, was summarily closed, prompting yet more local anger. The exhibits have been taken away for 'storage'.To an extent, people abdicated responsibility at the last elections by not voting, and those who did vote chose someone who had not proved very successful at representing the views of the majority (evidenced by the number of petitioners).

Anonymous said...

Unfortunately our council at said to be "very risk adverse", unless of course parc y Scarlets is mentioned!

Sundry items may well be campaign expenses for Mr.Moon.... Their entertainments dude! Only joking.... It's probably the cost of all the meeting rooms the council has hired for training, buffets and entertaining! Or it could be for the stock in the new Scarlets shop!!!!!

It is such a shame that they are not really diversifying and utilising the stadium as other counties do. We can't have big acts... We get the Saturdays!!! We want our youth to be encouraged to attend matches via all the schools in Carmarthenshire..... Lets get some decent groups on stage in the summer, look at other stadiums around the UK and get some ideas YES you all have the Internet at Scarletsville and need to do some market research. Allow the youth to tell you what they would like to see and do..... They do have an opinion and plenty of ideas.

Lets have a youth business innovation day.... Encourage kids to do as they want and make them proud of their county and themselves! We have so many talented children that would love to plan an event for other children in the County!
THEY are our future!!!!!

Renting a fantasticly pretty shop in the wonderfully empty complex of East Gate is just GREAT..... Can't wait until they file their accounts at companies house!!

Hope the tax payer aren't funding that too!!!

Come on council and Scarlets make the facility pay for itself! YOUR JOB is to get this stadium to be financially self sufficient for the people of Carmarthenshire to enjoy..... We do not want to lose another sporting team or venue because the money isn't there and it is too late to do anything. Get motivated and get on with it!!!

YES CHIEF, the above are ideas!!! Please, please have a session of whiteboard mania and get ideas going!!

Anonymous said...

The problem with the Scarlets has always been the terrible record of its management teams. Being a rich rugby fan does not mean you can manage the finances of a rugby club and a good team does not mean automatic profits.
A larger stadium has produced a larger wages bill and out of control spending, always with the knowledge of the automatic bailout from the council when required. This is not an investment for CCC but a financial burden for all of us.
Seeing the Reds in terrible trouble raises the issue of why this facility cannot be shared with football like the Liberty Stadium?

Tessa said...

This venture was obviously doomed from the outset. Anyone with any common sense should have seen this. I still vividly remember the council meeting where the crazy investment of council taxpayers' money was voted through - it was like watching a flock of sheep being led over the cliff. And yes they were very much led - despite the officers' report stating it made no recommendation, it most certainly did. The (only) two voices of dissent were quickly and angrily silenced. Unbelievable that such huge risks could be taken with public money. Reckless and downright negligent. How could this happen? I think it was partly down to the svengali-like hold by an officer over a councillor, and partly down to a fear of disagreeing. I do remember one significant councillor was also very significantly absent from the meeting - which spoke volumes.