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Club News

Club Grants BST Extended Deadline

27 August 2015

Club Again Seeks Written Response To Questions

Dear Christine Seddon, Steve Rowland and Kevin Borudowicz,

Subject to Contract and Without Prejudice

Thank you for your letter of 11th August 2015.

For simplicity and as before, when I refer to "the club" I am referring to both Blackpool Football Club Limited and its parent company Segesta Limited.

Thank you also for your kind and supportive words which have helped to remove some of the pain caused by the false allegations that I was an asset stripper, rather than a true Blackpool fan.  I am pleased that you accept now that I am a fan of the football club.

My parents came to Blackpool when I was two-and-a-half years old and bought a boarding house at 20, Wellington Road, South Shore. The roar from the stadium, four or five hundred yards away, was like a magnet to me and my older brothers who used to take me to all the home games. That's why I have tangerine blood in my veins today. Without Blackpool, and my mother's strong will, my brothers and I would have had to follow in my father's footsteps and become coal miners in Stanley, County Durham.

You say in your letter, "We believe that Blackpool FC's promotion to the Premier League changed the paradigm at Bloomfield Road since 2010".

I agree with your sentiment. This promotion saw Blackpool FC's finances strengthened, and able to consolidate support from the Oyston Group companies in the future. I have always stood behind the club as have my companies.

This historic 27-year union between my family, my companies and the club, often during the very dark days which you have recognised in your letter, was a matter of life and death for Blackpool Football Club.

I believe it will be just as vital for the club to have support from the Oyston Group of companies or a similar organisation in the future. Indeed, I heard no criticism of this union from anyone during the 24 years before we entered the Premier League. The union worked very well when I was pouring vast sums of money, interest free and unsecured, into the club. Nor did I hear any criticism on reaching the Premier League.

Most people, and certainly my financial advisers, believed that I had poured these vast sums of money down the black hole of the Club. However, I always believed that with the help of this risk capital and the strong support of the fans we could attain our dream.  The club is in a much stronger financial position now than it was when we reached the Premier League.

You are right also in noting the increase in "supporter expectations" since our season at the top. This is most true of the younger fans who do not know how tough it was in the eighties and nineties or when we had to seek re-election to the league.

Most clubs have bad runs. But this is no consolation or excuse. The directors of Blackpool Football Club, and obviously I am included, have made some bad decisions, the consequences of which we are suffering from.  However we are doing our utmost to put things right and learning from our mistakes but we need the support of the fans if we are to start to climb back. 

I love the passion of you and all the fans. I share their concern. I share their distress. They have certainly made their views known nationally and internationally, and to the directors in no uncertain manner giving us a good thrashing in the process. I know how depressing it can be, and how hard it is for me thinking about the club's problems. So I know how you and the fans feel. I hate being in conflict with any of our fans, whoever they may be, or whatever they may have done.  There was a time that I knew all of the fans personally and not so long ago.  Our present position is all the more difficult to accept when we have had such a long and successful run, culminating in achieving amazing premiership status. The single most important objective in my life is for the Club to get back to winning ways. It is simply unbearable when we lose.

To return to your letter, I think the biased and hostile media coverage has distorted your view of the club's value or you haven't done your due diligence on the club and on its accounts when you say:

"We believe that the huge sums of money that have accrued to the club via TV and sponsorship revenues and parachute payments as a result of that year in the top flight have allowed you to more than recoup the millions you have invested to bankroll the club over twenty-five years. We have no issue at all with that - for it is entirely reasonable for businessmen to make a suitable return on their investment."

This is simply wrong. However, it is true, as you say, that we did "bankroll" the club for 24 years.

The massive sums of money put at serious risk into a loss making club by me, by my family and by Oyston Group companies, the fact that we have not charged interest or allowed for inflation or the fact that I worked personally for going on 28 years without salary or dividends and that the club has no borrowings from third parties or UK banks, has cash in the bank, is profitable and, as any accountant will tell you, in terms of market value is worth substantially more than the net asset value shown in our last accounts, means that your claim that we have had "a suitable return on investment" - is untenable. What is a suitable return when you turn round a bankrupt football club that is about to become extinct and build it up to a net asset value of £32m at cost and a market value of substantially more than this?

I note that you say to me, "You are correct in your understanding that this is a leveraged bid and at this stage BST is not putting any new money into the club. That situation would change only once we had acquired the 97% holding in Segesta Limited.”

Furthermore you say to me, "You are also correct in your understanding that we are asking you to give us that 97% as a bequest to Blackpool Supporters' Trust. The quid pro quo is that you would keep the assets specified in the letter of intent as your own and Segesta/BFC would relinquish all rights to them. We have devised this split based on moral and business considerations, but are very happy to discuss and negotiate on the detail of the letter of intent."

I have therefore two further points to make:

1.   A leveraged bid is "a takeover bid with borrowed finance." This is the first time you have admitted to leveraging.  So clearly you intend to borrow against the club's assets when and if you take them over.  

For over 27 years I have protected the club from such borrowings because I have always believed that clubs of our size, as big as we have now become, unlike the Manchester United's, do not long survive substantial leveraged borrowings as is shown by the terrible financial state of so many Clubs that have borrowed in the way you are proposing to borrow.

2. You say I am correct in my understanding that you have asked me to give you "that 97% as a bequest to Blackpool Supporters' Trust". You then say that as a "quid pro quo" I would keep "the assets specified in the letter of intent" as my own. This cannot be a  “quid pro quo" when I already own these assets and you are not offering one new penny for the Segesta shares.

I am puzzled why suddenly you want our negotiations to be “private and confidential”. Your penultimate paragraph of your letter to me of the 11th August states:

“We have been sanctioned by our members to take negotiations ‘offline’ at this stage and out of the public domain, as befits a professional approach to the initiative. This correspondence, therefore, is private and confidential.”

You will understand my surprise and confusion when only a few days after receiving your letter, to see you, Christine, in full song being interviewed outside the stadium before the last home game discussing these very same negotiations in the full glare of the public domain.  You said in that interview:

“We were trying to literally save the club because we feel that the only way forward is for the Oystons to go. We were trying to give them an option with some remuneration, not for nothing.”

I think we are entitled to ask the question did your BST members sanction you Christine and Steve to go back ‘on line’ and back into the public domain on YouTube or did they as stated in your letter sanction you to take the negotiations ‘offline’, ‘out of the public domain’ and ‘private and confidential’.

You clearly misled the public in your interview when you said you were giving me an option with some remuneration, not for nothing. You are in fact offering me nothing for multi-million pounds of assets. However you are permitting me to keep a small proportion of these assets which I already own. 

I have to tell you that I believe that if you were serious about the proposal you have made to me, and if it isn’t just a publicity stunt, you would have taken the time and effort to answer the questions under the heading "Further Queries" in my letter of 27 July.   I am very disappointed that you did not attempt even to answer any of those questions which are fundamental to my understanding your proposal and also to understand how you would operate the club and deal with the major issues, one of which is the serious matter of tax, set out in the second of my Further Queries in the same letter.

I find it worrying that you say, "We consider that it is not appropriate for us to provide full and frank responses to all ten queries in advance of any discussion, especially as we are at such an early stage in the process".  You go on to say, "We are happy to answer many of the queries during the course of that dialogue." I am puzzled that you think it "not appropriate" to provide me with "full and frank responses" in writing and yet you would be able to answer the same questions during a dialogue, verbally.

After all, you as virtual strangers to me are asking that I give to you something that I have built up of immense value, and which has been my life for going on 28 years. 

In the best interests of the club, the fans, the directors and the share holders, it would be totally irresponsible of me to accede to your request for a meeting, without the information, which I say again, is fundamental to my consideration of your proposal and is normal business practice anyway. I know you love the Club and are passionate about it but this is not enough to run a complex, multi-faceted organisation. Please remember I have no knowledge of your background or whether you have any experience of running a football club, or even a business. That is why I am raising the queries and asking the questions.  I believe that the majority of fans would never forgive me if I simply handed over the whole operation without establishing these basic and vital answers. 

If you were making a cash bid for the business rather than asking me to give the business to you for free, I would not need to know the answers to these vital questions at this stage. However I would still want to know before completion that whoever bought the club had the necessary cash reserves to avoid putting the club in hock and had a good chance of making a success of it or at the very least of survival. This is because of my deep regard for the history of the club and all the fans.

Your failure to answer routine, normal and reasonable commercial questions before I hand over the assets to you without charge as you are requesting might give rise to the view that you don’t know how to answer the questions.
 
If you have doubts that the Further Queries in my letter of 27 July are not fundamental to our progress, I hope these doubts will be dispelled by sight of the letter from one of my professional advisers, which I have recently received and which is set out below.

This letter is intended to assist you. It is deeply concerning that if I had agreed to your proposal to me and had completed the transactions, we would now all be facing the payment of tens of millions of pounds in tax.  Surely, neither you nor I, in our right minds, would want to face this. 

That is why I need the answers to my questions.

As a gesture of goodwill and in the hope that we can make progress, I offer you more time to respond to the Further Queries in my previous letter of 27 July.

May I suggest that you provide me with this information before close of business on Friday, September 18, 2015. I hope this is sufficient time for you. If not, please let me know.

I have never agreed to treat our discussions as private and confidential. You never asked me to, and you gave me no choice in the matter. Your proposal with its attached documentation and all your interviews were made in the glare of the public domain and you put me on trial by media. However I was prepared to accede to your request that our correspondence should be ‘off line’ and private and confidential but your interview in the public domain now on YouTube in contravention of the sanctions imposed on you by your BST members has changed my view. Firstly I now do not believe the contents of this letter would remain private and confidential and secondly I believe it is in the best interests of the Blackpool fans, the Fylde Coast Community and the wider world to see our exchanges and in particular your answers to our queries.

However in view of the contradiction expressed above, I will need assurances that the BST membership are really part of the decision making and that they have full knowledge of what you are proposing in your last letter. 

It would be another step forward, as I have no knowledge of your business credentials, if I could see the CVs of the three of you as you are the ones trusted by your members to negotiate and acquire a huge multi million complex operation.

It is appropriate that I should just set out perhaps for posterity a few of the things that ‘those Oystons’ have done which may be ignored by some fans but will be of interest to the wider Fylde Coast fraternity:

1.  Saving the club from bankruptcy.

2.  Preventing the demolition of BFC.

3.  Pouring multi millions unsecured and interest free into the club over 24 years.

4.  Supporting a club that had a history of large losses and no status to be able to borrow even one penny from UK banks to be able to leverage against the assets.

5.  Funding and achieving the whole of the stadium development enabling us to tear down a series of old tin and wooden sheds in which we had to abandon a game if the wind blew over 40 miles per hour.  For decades prior to our investment virtually no maintenance or upgrading was carried out.

6.  The building of a safe, modern stadium which has no borrowings and where we have arranged that most of the assets are owned by the club with most of the income flowing to the football club  including the income built up from assets funded by the Oystons which are unconnected with football revenue.

7.  Building the net asset value from a minus figure when the club was bankrupt to the current net asset value of £32m at cost and of course worth substantially more than this in market value terms.

8.  Taking the club on the best ride ‘we have ever been on’ from bankruptcy to the premier league

9.  Never taking a salary or dividends over 27 years.

10.  Supporting the Community Trust which operates from the stadium to provide assistance and guidance where it is most needed across the Fylde Coast.

11.  Bringing in large numbers of people to the Fylde coast, not just through football or through our year in the premier league but through lots of other initiatives and activities including Rod Stewart and Neil Diamond in concert with many more to come – which fill the car parks, the taxis, hotels, restaurants, boarding houses, guest houses, bars and nightclubs.

12.  Providing large scale employment and development to Blackpool and the Fylde and beyond bringing wealth, jobs to help bring stability to the area and soon to start one of the biggest developments that Blackpool and the Fylde has ever seen and which will produce even more jobs and substantial revenues for the Local Authorities and local businesses.

This is a lesson to anyone out there who wants to save his local football club, become a hero and wants to avoid death threats – your record of achievements could be consigned to the dustbin if you have a bad run on the pitch.

Yours sincerely,

Owen Oyston
 

Letter referred to above:

Dear Owen

Re: Offer from the Blackpool Supporters’ Trust

1.  Please find below my brief comments on the tax laws relevant to the proposal made by the Blackpool Supporters’ Trust. I include an overview of the potential tax liabilities relating to the offer in section 6 of this letter.

2. Capital Gains Tax

2.1. It is important to recognise when a transaction is 'otherwise than by way of a bargain made at arm's length'. This is because for a transaction carried out 'otherwise than by way of a bargain made at arm's length' the market value of the asset should be used as the consideration for the disposal, and/or as the acquisition cost in the computation, instead of the actual disposal proceeds or amount paid.

2.2. You use the market value of the asset instead of the actual consideration which passed between the parties where the transaction is otherwise than by way of a bargain at arm's length. In particular, a gift or a distribution of assets by a company to its shareholders.

2.3. If one gifts shares in a company, the ‘proceeds’ for the purpose of calculating capital gains tax will be the market value.

2.4. If a shareholder is gifted assets by their company, the ‘cost’ of those assets going forward for the purpose of calculating capital gains tax will be the market value.

3. Inheritance Tax

3.1. A gift of shares during your lifetime may have implications in respect of inheritance tax. which I consider below. Any gifts you make to individuals will be exempt from Inheritance Tax as long as you live for seven years after making the gift. These sorts of gifts are known as 'Potentially Exempt Transfers' (PETs).

3.2. However, in the unfortunate event you do not survive seven years after making a lifetime gift and the lifetime gift is valued at more than the Inheritance Tax threshold, Inheritance Tax will need to be paid on its value, either by the person receiving the gift or by the representatives of the estate.

3.3. If you only survive between three and seven years after making a lifetime gift, and the total value of lifetime gifts that you made is over the threshold, any Inheritance Tax due on the lifetime gift is reduced on a sliding scale. This is known as 'Taper Relief.

3.4. Inheritance Tax is charged on gifts at 40%. But if the person only survived between 3 and 7 years of making a gift, you can apply Taper Relief to the amount of Inheritance Tax due to reduce the amount payable. The percentage of taper relief available depends on the number of years survived after the gilt was made.

4. Income Tax

4.1. If you are gifted assets by a company in which you were a shareholder there may be implications in respect of income tax, which I consider below.

4.2. If a company transfers an asset at less than market value to an employee or director, the difference between the market value and the transfer price will be taxable on the recipient in some way.

4.3. However, if the employee/director is also a member, the tax treatment depends on whether that person acquired the asset in the capacity of an employee/director or a member.

4.4. To be assessed as income, and subject to income tax, from an office or employment the transfer of value must flow from the employment or office. This will be subject to income tax at 40% or 45%.

4.5. To be a distribution the employee/director must have received the asset in his or her capacity as a member. The distribution will be subject to income tax at the member’s marginal dividend rate (effective rate 25% for higher rate tax payers and 30.55% for additional rate tax payers).

5. National Insurance

5.1. Liability for Class 1A National Insurance Contributions will arise where the benefit provided is chargeable to income tax on an amount of general earnings.

5.2. The BFC Group would incur Class 1A National Insurance Contributions on the £16m asset distribution at 13.8% being £2.2m.

6. Proposal from the Blackpool Supporters’ Trust (BST)

6.1. It is difficult to understand exactly how the bid will work but the basic outline appears to be:

(i) You gift your 97% shareholding in the Blackpool Football Club Group (BFC Group) to the Blackpool Supporters’ Trust (BST); and

(ii) You take certain assets from the BFC Group amounting to say £16m.

6.2. I will now briefly set out how the tax implications I have set out in this letter would apply to the offer presented by the BST.

6.3. At 31 May 2014 the value of the BFC Group, based on cost, was £32m. Transferring your 97% shareholding would therefore mean you are effectively gifting, at the very least, £31 m to BST.

6.4. The gift of shares would result in a personal capital gains tax bill of £8.7m (£31m x 28% capital gains tax).

6.5. The transfer of assets of £16m could be classified as an employment distribution by way of your directorship. This would result in a personal income tax bill of £7,2m (£16m x 45%).

6.6. Your total personal tax bill would be £15.9m (£8.7m + £7.2m) which is roughly the same as the proposed distribution to you of £16m.

6.7. The BFC Group would also incur Class 1A National Insurance Contributions on the £16m asset distribution at 13.8% which equates to £2.2m. It is not clear from the details in the offer how the BFC Group would fund this liability due to the transfer of cash to you.

6.8. In terms of potential inheritance tax implications, your estate would be deemed to have been diminished by the difference between the market value of the shares and the actual proceeds.

6.9. If you assume the 97% shareholding is worth say £75m, this would be a reduction of £59m (£75m market value - £16m assets as consideration).

6.10. This would give rise to an inheritance liability of £23.6m (£59m at 40%).

6.11. As you are already aware, your shares in Segesta Limited (the BFC Group) currently qualify for 100% business property relief. This means there would be no inheritance tax liability on the 97% shareholding.

6.12. In summary your/or your companies could incur the following:

        OJO Capital Gains Tax     8.7
        OJO Income Tax             7.2
        OJO Inheritance Tax      23.6
        OJO Personal Liabilities  39.5

        BFC Group Class 1A National Insurance Liability    2.2
        Total Liabilities                                                  41.7

6.13.  There are clearly significant tax ramifications relating to the offer from the BST. If you were to consider accepting the offer you would need a tax indemnity backed by a bank guarantee for the potential liability of £41.7m otherwise you would leave yourself exposed to the liabilities noted above.


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