Quick Notes on Eleonora Sport June 2017 Accounts

Eleonora Sport Accounts to June 2017

This is just a quick look at the Eleonora Sport accounts to clear up some of the speculation that surrounded the sale of Leeds United to Mr Radrizzani.

There is a not a great deal of information relevant to today to be gleaned from these accounts so I’ll try and keep it brief: However there does seem to be some confusion about “Note 17” which is easily mistaken as profits that Eleonora Sport will make from future cash receipts; there is also a reference to “present day value” in Note 17 which is a term many people will not have come across.

Sale Price
The accounts are clear that they sold the club for £45m (more precisely stated later as £44,757,193 which accounts for currency differences). Closer inspection of the accounts indicates a likelihood that this sale price was not paid up in cash immediately but has been paid in two installments of £36.5m with £8.5m held back to be paid in annual installments up until August 2026.

In financial terms this gives a “headline” sales price of £45m but is realistically worth less to ESL because it doesn’t get the money immediately.

This “write down” of value is often hard to understand and is known as “Present Day Value” of an income stream. I’ll try and explain more about Present Day Value (PDV) later but the net effect is that the sales price is better expressed as £2.5m less at £42.5m. This lower price has implications for the profit that ESL make and the tax that they will pay

Profit On Sale
Eleonora Sport (ESL) made a paper profit on sale of Leeds United shares of £3.5 million – this is simply the profit that the two 50% sale transactions brought about and is the difference between the cost ESL incurred in buying the shares and the sales price they achieved on sale.

But matters are a little more complicated than that. As I’ve said above the present day value of the sale was only £42.5m and so the present day value of the profit is also lower at around £900,000 rather than the £3.5m on first look.

Why do accountants use present day values? To put it simply, when a payment is not going to be received for some time its true value is eroded due to inflation. This means that year by year the £3.5m headline profit gets eroded too.

If ESL were charged full tax immediately on the full £3.5m profit they would then get back a tax refund each year to reflect the erosion in the profit due to inflation – this repetitive practice is wasteful of money and resources at HMRC so accounts will work out what the effect will be and tax is paid on that final effect just once.

Closer inspection
ESL had running costs during their time in operation – they themselves had to borrow money to fund Leeds United and had various expenses in keeping the company going. They also charged Leeds United a management charge (note – LUFC isn’t specifically mentioned as the company they charged management fees to so that is an assumption on my part) and received interest on cash they held at the bank.

When ESL’s losses in previous years are combined with the profit made selling the club and accounting for the erosion of future values the overall profit ESL achieved in their time as Leeds United owners was just over a million at £1.2 million.

Mike Thornton 26th February 2018