Thursday, June 16, 2011

CAFC: The Movie

Film makers are known to use the description, "..based on a true story..", permitting them a degree of artistic flexibility, whilst they fill in the gaps in their knowledge.

As I explained in my last post, I received information about Charlton's takeover which greatly enhanced my understanding of how things might pan out from here.

In addition I’m fortunate to be in regular communication with a fellow fan (not a blogger), who also received information which was both consistent, and importantly derived from different but highly relevant sources.

By corroborating what each of us heard, yet acknowledging some 'artistic licence' as alluded to above, here’s our take on recent events at the club.

However first a small caveat - there is a lot of speculation in all of this and thus we may have misinterpreted some of the information we have received.

Whilst we think the ‘movie’ makes sense given the evidence we have, we certainly do not warrant that it is 100% accurate, let alone complete or even up-to-date.

Work commitments (rather than an explicit desire to seek further supporting evidence) have prevented me from writing this post earlier, but reassuringly developments at the club in the intervening period strongly support the thesis we espouse below.

The first thing to understand about the formal legal structure of the Club is that it is likely exactly what it appears to be, i.e. the club is owned by Baton Ltd (of which Richard Murray retains 10%), whilst Jimenez and Slater between them own 51% of CAFC Holdings (CAFCH), which in turn owns 90% of Baton Ltd.

To be clear, what this means is that if you did formal due diligence on CAFCH, or if you were the FA asking questions about the Club’s ownership, you’d be no wiser than the Club’s fans are today based on what has already been publicly disclosed.

You might find out who the minority shareholders are (and by definition there are at least five), and indeed that might well be interesting, but we don’t believe it would shed any more light on how the club is likely to be funded going forward.

In short, we doubt whether a mysterious ‘Mr or Mrs. X’ indirectly owns the club. Instead we are going to call Mr or Mrs. X the funder because that’s the role we believe he/she fulfils instead.

We believe we know who the funder is.

However given that he/she is keen for their identity to remain out of the public domain, we see no reason not to respect this wish and anyhow it is not especially relevant, except to add that we believe the funder to be considerably wealthier than anyone on the club’s Board.

Jimenez and Slater (plus Murray) own a majority of the Club and thus control it, and that should not be in any doubt. However we believe they don’t have enough capital personally to propel it forward, and that’s where the funder comes in.

So, how did the takeover come about? Why is the funder involved? What is his/her role and what might we expect going forward?

We are going to start with the assumption that his spell under Mike Ashley at Newcastle, led Tony Jimenez to fancy running a club himself someday.

Indeed if you are willing to look through the anti-Cockney bias of the Newcastle fans, he reportedly did a good job in the specific role that Ashley asked him to perform (whether the fans liked it or not is a different matter).

During his brief nine months in the North-East, the club brought in Gutierrez, Guthrie and Coloccini (all first team regulars today). They also brought in Xisco, but we won't talk about him.

Apparently, Jimenez had also lined up a deal with Luka Modric (who was ready to sign) but Ashley apparently rejected it. It seems he’s no mug in the transfer market.

However whilst it’s rumoured Ashley wishes he never set eyes on Newcastle United, unlike Jimenez he is stuck with it for now.

But imagine that the brief experience on the ‘Toon got Jimenez thinking about what could be achieved if a club could be found requiring limited upfront outlay, having less restless fans and ready for the similar type of top-down overhaul that Ashley tried to install.

Jimenez knows after all that he can get deals done, whilst his fellow ex-Newcastle pal Jeff Vetere is well-respected across Europe for his in-depth scouting knowledge.

Importantly they both know that the market for footballers is highly inefficient, because they see it with their own eyes every day (underrated gems lurking away from the spotlight; overrated mercenaries draining clubs of their capital etc.).

The loan market is another source of players of course, although not one that Charlton have used optimally in recent seasons.

Meanwhile Paul Hart's appointment clearly also signals they view the Academy as an important source of talent for the first team, as well as obviously as a source of ongoing transfer cash to be recycled back into the club.

The ideal target for their experiment would presumably be a 'one club city' outside of the Premiership (think Norwich/Southampton/Derby etc.), and/or a club in the rich South-East with more scope for higher ticket prices and commercial tie-ins.

The problem is that most football investors agree the above criteria are appealing, and thus most of the obvious candidates had already been picked off.

An additional bonus would be finding a club where the sellers are if not 'forced' then at least 'motivated' sellers, whilst the books should be as free as possible from any nasty surprises.

Regardless of the selling motivation of its owners at the time, it's not surprising that Charlton might fit the bill.

It has a modern stadium with a sufficient capacity for the foreseeable future, a terrific London location within sight of Canary Wharf and the booming O2 complex, a respected role in the local community, and a solid (albeit shrinking) fanbase.

Many of you might at this stage be saying, “I don’t disagree with any of this, but what’s the point?”.

Our point is a simple one. We believe strongly that it was Tony Jimenez who decided he’d like to own a football club and that it was Jimenez who developed and ‘sold’ the vision designed to ensure it worked. It is also likely that it was Jimenez that identified Charlton as an ideal club.

Unfortunately the Charlton ownership structure until recently was complicated, with a holding company/subsidiary structure, dual Boards and multiple directors who were holders of both debt and equity.

Although one can only speculate whether Richard Murray's original Baton Ltd deal (to wrest control of the club whilst restructuring the debt to directors), was done knowing that Slater/Jimenez were poised to buy the club, we're tempted to think the choice of the name 'Baton' implied a handing over of some sort.

Either way, once completed the club was now a far cleaner takeover proposition, a vital obstacle now removed.

However, there was an important problem with Jimenez’s desire to own a football club and with his vision for how to make it work.

There is little evidence to suggest that he is especially wealthy, and indeed even if he were, buying a League One club without any backing would be a surefire way to ensure he wouldn’t be wealthy for long.

After all, buying a football club is easy (many clubs are effectively available for free). It's the ongoing financing requirements that wipe you out.

Jimenez therefore needed someone to back him. He needed someone wealthy enough to give his plan a chance, to whom he could sell his vision and trust him. That person is our mystery person ie. the funder.

The funder may not even care much for football, though we don’t know either way. What we do know is that he/she has no desire to be publicly associated with the deal, at least for now.

Indeed, this need for secrecy is typical of him/her and seemingly extends almost to paranoia. It is possibly also reflected in the decision not to even own shares in the CAFCH BVI structure, even though it is specifically designed to enable anonymity.

We don’t know which key people at the club know for sure who this person really is (as opposed to who might merely speculate). When people say they don’t know, they may well be telling the truth.

The important thing is that the funder knows Jimenez well, and believes that he knows his stuff. Presumably he/she likes him and is thus willing to indulge him, so long as he's kept on a tight leash and that there’s a clear route to making some money.

And yes, we’re confident we are dealing with a motivated money-maker here, not someone willing to spend money on football as a luxury alternative (or complement) to a private jet or yacht.

This will no doubt be significant at some point. Michael Slater’s recent comment, “I would like to have at least one season as chairman of a Premier League club,” is interesting in this regard.

We assume that the funder’s expectation is that this investment will make money at some stage and that means in real hard cash, not merely on paper. We’ll return to this in a moment.

An interesting question, of course, is how does the ‘funding’ work? Unfortunately we are not privy to the arrangements here, although we note that it may be that they are directly between the funder and Jimenez/Slater, rather than CAFCH.

However, there is something we can say with a little more confidence - it is likely that Slater was instrumental in making the arrangements work and he was also probably the architect of the ownership structure, i.e. the structuring of the offshore CAFCH entity. He appears to have had prior experience in this area.

So how could Jimenez develop a plan to make money from Charlton which would entice the funder to get involved?

Clearly the ‘Newcastle-lite’ theory espoused above makes enormous sense in this context now, and especially so now that both Vetere and now Paul Hart are now onboard.

The signings agreed to date (eg. Hollands) and those rumoured to be agreed soon (eg. Hayes) do not seem to fit this model so far, but we believe this is because the ‘real plan’ will take time and these types of journeymen signings will at least keep the team reasonably competitive for now.

For now they can thus keep the club ticking over, whilst aiming to make some small money trading players and selling on youth prospects like Carl Jenkinson

As the plan is executed over time, surely promotion from League One must be a realistic goal within 3-4 seasons, if only they get just a few things right from here.

The correlation of on-pitch success and relative financial resources is too high to suggest otherwise.

This is not so far a route to great riches, but if done right it would show sufficient progress to the funder along promising lines.

Over time, if a place in the Championship can be consolidated then the carrot of eventual Premiership promotion remains in their sights by definition, especially so if they continue to execute on the plan.

If the ultimate promotion is achieved, then they can opt to 'twist or stick', or probably more likely ‘exit the game’ and sell the club on to a greater fool.

We're not going to join the debate about whether the new owners misled fans about likely meaningful short-term investment, but equally we don’t believe the self-serving spin that they saved the club from imminent administration (whose interests would that have served?).

Even if the funder was offering an open cheque book, we speculate that Jimenez wouldn’t mislead someone he respects, knowing full well just how dicey the football business can be.

Two big questions remain for us however to complete the picture. Firstly, why did they appoint Chris Powell? And secondly, what are their chances of making the above plan a success?

We think they decided immediately (if not before they even completed the acquisition) that Phil Parkinson was not part of their plans, whilst the type of young dynamic manager that would fit into the structure perfectly (eg. Eddie Howe) proved unexpectedly difficult to recruit.

If you are unkind, you might say they panicked and opted for Powell because he interviewed reasonably well, wouldn't upset the fans and might just with a bit of luck turn out ok.

If you are kind however, then you might conceivably view it as a very smart appointment.

After all, if you were planning a structural overhaul of a club which might take a couple of years to implement, who better to manage the team in the interim than someone totally inexperienced (yet importantly again loved by fans)?

In the event that results go poorly (as they have), he would have even less bargaining power than he had to begin with, as a plan is put in place around him. The last thing they needed was a Billy Davies-type character with attitude.

This is unfair on Powell perhaps, but he came into the job with his eyes wide open. To say that we wouldn't see him as a vital cog in the wheel would be a massive understatement; we doubt very much that he is in control of what is going on around him.

Clearly for the longer-term plan to work, it requires a manager who can mould what might conceivably be an exciting but rapidly changing combination of different talents, into a double promotion-winning team.

There is precious little evidence so far that Powell has this skill set, but the owners may be willing to be patient on the basis that smoothly implementing the plan supersedes any desire for immediate success (not that they wouldn't take it if it came along).

Moreover, if as we believe Slater and Jimenez are answering to another ‘stakeholder’ then merely saving face may be an important consideration for them too, especially if they were genuinely enamoured by Powell to begin with.

As it happens we believe we know which currently serving manager the new owners would like to take the club forward, but they will bide their time to ensure that individual gets to save face too.

In terms of the chance that this grand plan succeeds, the appointments of Vetere and Hart are highly promising, but throw Powell, Jimenez, Varney, and Slater into the mix, and you have a lot of egos rubbing up against each other.

After all we’ve been down this road before in a different form under Iain Dowie. How comfortable will Peter Varney be reporting to someone (Slater) considerably younger than him for example?

Conceptually the plan is highly appealing however. Anyone who has read 'Moneyball' by Michael Lewis (highly recommended if not) would be cognisant of the ability to have sporting success by 'thinking outside of the box'.

By viewing players merely as tradeable commodities who should be bought when undervalued and sold on when overvalued, there is certainly scope to gain an edge merely by being smarter than the rest of the market, much like the best financial investors are.

In the investment business, it would be described as a ‘value’ approach.

Clearly it requires patient fans that can see the bigger picture here too, never falling in love with individual players. You can imagine why it could never have worked at Newcastle.

However it’s always worth remembering that in professional sport, it's not as if the competition are just waiting to roll over in deference to our genius plan.

Highly talented managers are working miracles on tiny budgets all across League One, whilst the efficient operation of scouting networks and an Academy are hardly rocket science.

Clubs like Exeter, Rochdale and Bournemouth are successfully executing their own form of this same ‘value approach’, albeit on a smaller scale.

The key to success therefore will be whether Messrs. Powell, Jimenez, Vetere and Hart are genuinely superior talents, or instead what one might term mere ‘empty suits’.

There are mixed signals so far frankly, although we are willing to be optimistic on a medium to long-term view.

The decision to appoint Powell doesn’t really fit the intelligent value approach, but there may be a deeper agenda as discussed above.

Alternatively and very worryingly, perhaps his appointment signaled the new Board underestimate just how competitive League One is (presumably whilst overestimating their own talents), even despite Charlton being one of the richest clubs in it.

Finally and most importantly no-one (including Jimenez and Slater I suspect) really knows how long they have to get it right and have demonstrable success, before they too face their own searching questions from the funder.

At that point administration really might be a risk, and the fans will wonder why we ever thanked them for saving us from the same alleged fate.