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Bolton Wanderers on the Brink

Bolton Wanderers were in court yesterday defending a winding up order. The company, founded in 1895 and one of the founding members of the football league was just moments away from execution. HMRC is owed £2.2m in unpaid taxes and are seeking to liquidate the club. In the end the judge granted an adjournment until 22nd February. The case continues and Bolton’s future hangs by a thread.

In the media commentary about the club a lot is made of how poor performance on the pitch has led to Bolton’s financial woes. But that is only part of the story. Clubs can of course survive in the lower leagues. After all, if being bottom of the Championship led to bankruptcy, then there would be no League One, or League Two.

We take a look at the money and how Bolton managed to put itself on the hook to a mysterious offshore creditor.

Bolton’s debts

Bolton are drowning in debt. According to their latest accounts the club owes around £180m to a company called Moonshift Investments Limited. To put that into perspective the annual revenue of the club was £30.5m in 2014 so they owe almost 6 times their annual income. Not even Northern Rock in 2007 would have given them a mortgage like that.

So who are Moonshift, and why are have they showered the club with cash?

The company has had a long relationship with the club. In 2009 companies house filings reveal that Bolton signed away all of their rights to Premier League fees to Moonshift for security over loans made to the club.

The company also appears to have some economic interest in the players. Over several years the company accounts of Bolton list a ‘player success fee’ as being owned to Moonshift.

Who are the owners of Moonshift? Public statements from club representatives suggest that Eddie Davies is the real owner of the club’s debt, but in the annual accounts of Burnden Leisure Limited, the parent company of Bolton, Eddie Davies is described as having ‘a’ beneficial interest in the company. The use of the indefinite article is here significant. The accounts do not say that Eddie Davies is “the” beneficial owner of Moonshift Investments. There is no way we can check, because the company is registered in the British Virgin Islands.

As an aside a similar confusion is created over the ownership of Bolton itself. Although the club’s website states clearly that Eddie Davies is the majority shareholder of the Bolton Wanderers Football and Athletic Company Limited, the company accounts studiously avoid stating the same. Indeed in court yesterday, mention was only made of ‘the beneficial owner’. For the record, on paper Burnden Leisure Limited is the majority shareholder in Bolton Wanderers Football and Athletic Company. Burnden Leisure is in turn 95% owned by the Fildraw Private Trust of Bermuda.

The BVIs and Bermuda are two of the most secretive corporate jurisdictions in the world. Given that everyone at the club seems happy to put on the record that Eddie owns the club and the debt, there is a real question as to why the companies have taken such measures to obscure their ownership from the official record. For now, we are leaving this discussion there, but the lack of a clear ownership record of Bolton large debt is a concern, given that the owners of Bolton’s debt, Moonshift, are the real power behind the throne.

Bolton’s Cash Crisis

Bolton Wanderers are technically insolvent. According to the 2014 accounts the entire playing squad is worth £3.5m. The Stadium is worth £32.5m. In total the assets of the club are a worth a little over £50m.

This is less than 1/3 of the money it owes to Moonshift Investments. In other words if Moonshift asked for their money back and the club sold absolutely everything they owned they would only be able to pay back less than 1/3 of the money they owe. Regardless of the outcome of the current issue with HMRC, Bolton’s existence is entirely dependent on a company based thousands of miles away in the Caribbean, about which we know very little about. If Moonshift were to pull the plug, it would be the final whistle.

Fans should be asking their club how they allowed themselves to become so dependent on such a mysterious company.

The problem currently facing Bolton is not Moonshift however. The taxman is owed £2.2m and the club have not been able to come to an agreement over when they can pay.

This raises another question. Why is Bolton Wanderers having such difficulty in paying their taxes, to the point where they went to the brink of bankruptcy? The amount owned to the tax man is relatively small, given the large amounts of money that their creditors have already sunk into the club.

The issue here is that as well as having liabilities greater than their assets, Bolton Wanderers continue to make a loss every year. As the company has no spare cash, this means they need to borrow even more every year to meet their commitments (like taxes, wages etc).

It seems that the directors of the club have known that Moonshift was not a bottomless pit since at least July 2014. The company accounts for 2014 contain a long note which states that there is a material uncertainty that the club will be able to continue in business in the absence of further funding from Moonshift. They acknowledge that the amount being spent was greater than the funding available to them and that they were considering action to raise money. This included selling players and mortgaging future season ticket sales to balance the books.

Now, it seems that Moonshift have finally turned off the money taps, causing a cash crisis for the club. As we learned in court, players have not been paid, and the club is desperately trying to sell land it owns and players in order to raise the money needed to pay off the taxman.

Why did this happen? It could be that the people behind the offshore trusts controlling Bolton Wanderers simply grew tired of throwing money at the club, however, the accounts of Burnden Leisure PLC, the immediate parent company of Bolton Wanderers, give us another clue as to what is going on behind the scenes.

The Fildraw Private Trust of Bermuda, the beneficial owner of Bolton appears to have itself been losing vast amounts of money recently. The company lost £19m in 2014 and a huge £124m in 2013.

Perhaps the creditors of Bolton Wanderers simply ran out of money themselves. We can’t say for sure; these are just some of the risks of playing the offshore game.

Photo Credit, Darren Riely on Flickr. 

  • George Bower

    Thanks for the blog post. It’s interesting and as a Wanderers fan I have more than a passing interest. I want to explain to you how Davies, Moonshift, and Fildraw can be the same thing from a control perspective and therefore when it comes to power & decision making.

    The structures you describe are often used by wealthy individuals to protect assets they own from taxes like Inheritance Tax and Capital Gains Tax, and also to create some form of efficiency & continuity if they shuffle off this mortal coil or become otherwise incapacitated. The need for drawn out probate is removed and the beneficiaries can enjoy the use and benefits of the assets without getting their grubby hands on the ownership of them.

    My hunch is that Fildraw Trust has been set up by ED as an “umbrella” trust. When he buys different assets he sets up different companies. He gifts cash into these and has the trustees nominate directors to enact the company decisions. The companies with the cash go and buy the assets, like shares in a football club or a fancy house in the Bahamas or a golf course in Scotland or a yacht in Monaco, in the name of the company. The trustees then assign the rights to use those assets to Eddie or whoever he wants to have the benefit (wife, kids, etc). Typically, these trusts are set up as Reserved Power Discertionary Trusts, which means the trustee takes direction from the person who controls the trust (in technical garb Eddie is likely the settlor of Fildraw Trust & controls it through instructions to the trustee). The beneficiaries of the trust are likely to be his wife and kids. He tells the trustees, through a letter of wishes, how he wishes the assets to be controlled in the event of his incapacity. The trustees have very limited powers to act against his directions or wishes.

    In this way Fildraw (Trust), Moonshift (SPV)’ and Eddie Davies (Settlor or controller) become the same person. Hence how Eddie has it in his gift, as he says he has, to forgive or haircut the loan. Now, I’m not a lawyer or a STEP professional so I may have oversimplified some aspects but I think I have set out the mechanics about right. I have knowledge of these structures from some business experience of rescuing some of the losses of a foreign business family and had to unwind some of these structures to “follow the money”.

    I can see how some of these structures were used for sinister purposes but I don’t see it in Eddies case at least from what we know presently. After having recently studied the Wanderers accounts for the past nine years my questions would be more on what happened with the transfers, what money was paid, who was it paid to, and what relationship was there between insiders at the club and all the recipients of payments. significant sums have been written off in recent years suggesting that the prices paid for players were too high, the wages & fees were too high, and the contracts were over generous and in fact onerous for the club. There are indications that if Davies put in 100 - 120 mil of cash over the years that at least 70mil has had to be subsequently written off through “poor” player trading & contracts.

    • George Turner

      Thanks for writing this. Very interesting stuff.

    • Lee Birchall

      My understanding is that a couple of years back the huge amount owed to moonshift was made interest free and could only be collected if moonshift gave ten years notice.

      Whilst your correct on the face of it the club is insolvent surely if the debt was called in today then the club would have ten years to find the money

      As you say the real problem at the moment is day to day more is going out than is coming in and nobody wants to put any of their own money in to make up the difference. ED via Trevor Birch has said that he will wipe the huge debt if a buyer can come in and inject funds to make up the shortfall.

      With the large debt wiped the assets of the club are greater than the debt so the club would be ‘solvent’ once more - on paper though it still looks like we are insolvent this the HMRC pushing the winding up order

      I believe the whole huge debt is just smoke and mirrors that was there to stop the club ever paying tax. As long as it losses money the revenue won’t get any tax on profit. Let’s say for a minute BWFC unearthed the next Messi and sold him for £150m - as it stands the club could use all that money to repay moonshift (ED) so the P+L still showed a loss and we didn’t pay tax on the profit. When in effect it’s only going to the owner of the club anyway like it would if he took the £150m as a dividend from the club.

      The real let down with all this is the fact that we were still signing contracts over the past 12-18 months that we can now not afford. Lennon, Amos, Pratley, ALF……

      If the tap was being turned off then the club should have turned it off also in anticipation

      I can only think that an unforeseen circumstances have happened since August that has meant the situation behind the scenes have changed

      • gwb2964

        Thanks for the additional input and some good points. I have no inside knowledge of the club but you are right that the debt got restructured and in fact in December 2014 was taken over by the Private Trust company and Moonshift got relieved of the “risk”. The accounts note that ED has a beneficial interest in Moonshift, so thats why I suspect it is company largely owned under the Trust umbrella, though there could be (a) other investors in Moonshift (maybe even Gartside & Warburton) and (b) Moonshift itself might have taken on debt from a Private Bank (& hence why the amounts seem much higher than a wealthy man like ED could make). One interesting note buried in the accounts is that Bolton Wanderers Football & Athletic Club, the bit the fans are interested in, owes Moonshift just shy of £3m for “player success fees” for 2014.

        Being in debt would not shield a company from paying tax. Tax is charged on profits and gains on asset sales. What does give a tax shield is interest payments but in our case these are actually minimal. It’s the fact that we have losses & accumulated losses that make no tax liability. When we have wages running in excess of 100% of revenues and then running costs & asset impairments on top of that we see why there is nothing but losses apart from maybe a year here & there. I’ve also attached what I think is something like the ownership & funding structure. Please excuse my scrawl, i wrote it in a coffee break. When I had a go at matching the debt with the profit & cash flow I can see how a large part legitimately built up and seems to be real cash coming in the door (if it isn’t then the Auditor needs investigating). Then there is unpaid interest accumulated in the debt and fees for restructuring the debt. Add to that, what I think is very questionable, the player success fees that accrue to Moonshift via the Footballing company (BWF&A Co. Ltd) I think it is possible to demonstrate that the debt is not imaginary.

        • tomkrone

          The ‘player success fee’ seems to derive mainly from the purchase of Nicolas Anelka whilst Sam Allardyce was manager. The club had been spending all its enhanced Premiership income but Big Sam wanted to spend more. The money could only come from Eddie Davies who, though seemingly reluctant, nonetheless agreed to underwrite the purchase of Anelka (and Abdoulaye Faye) on condition that if Anelka was sold at a profit Moonshift would share in the gain.
          At the time Phil Gartside was defensive about the purchase of Anelka, ‘not a risk’, he said. Anelka was later sold at a profit but it looks like Moonshift’s share of the gain may never have been paid.
          It seems likely that similar agreements were entered into on the signing of other players but BWFC usually lost money on ‘player trading’. As the 2008 Annual Report records, all the proceeds of the Anelka sale (and more besides) were spent on Andy O’Brien, Gary Cahill, Matt Taylor, Gretar Steinsson, Johan Elmander and Fabrice Muamba.

    • tomkrone

      I have done the same as you, George, and neither detected nor suspected anything sinister. If you follow the related party notes in the Annual Reports, the Moonshift transactions are all fully explained. Some organisations that spend huge amounts of public money are not nearly so open when there is something they hope no-one will detect.

  • tomkrone

    Why would Eddie Davies, who has been resident in the Isle of Man since 1984, try to avoid personal exposure to inheritance tax or capital gains tax when these taxes do not exist in IoM?
    Don’t you really need to look elsewhere to figure out the reasoning for his investment arrangements?
    ED must have taken professional advice and the structure chosen for the investment of funds raised from the sale of his shares in Strix must have had advantages, beyond tax considerations, over other possible arrangements.
    In common with many wealthy individuals ED is less than keen on his private dealings being the subject of public comment and (for the most part, has generally shunned the media.
    Arranging worldwide investments in a jurisdiction where greater privacy could be anticipated (together with the availability in offshore financial centres of expertise and well-developed financial facilities) makes sense.
    It seems unlikely that BWFC was Moonshift’s only investment at the outset but more likely that its investments were realised over a period of years to keep BWFC afloat. Any commercial investor (without a BWFC affiliation) is unlikely to have done that. So if there was someone else involved originally it seems unlikely that they would have hung around whilst Moonshift was gambling on a saviour coming in to stop the BWFC spiral.

  • tomkrone

    There has been endless half-baked speculation about Eddie Davies’ private financial arrangements much of it malicious or ill-intentioned. Tax exiles are usually individuals who move to a low tax jurisdiction to protect the wealth they have accumulated in a more highly taxed country.
    The present owners of Bristol City and Preston North End and the former owners of Blackburn Rovers and Wolverhampton Wanderers might just have done that but Eddie Davies has done just about the opposite. He moved to the Isle of Man with not very much and after he had made a packet shipped it to the UK where it was taxed in the hands of the overpaid players and managers of Bolton Wanderers (plus a few football agents).
    How much has he got left? That’s his business but all of the money he made from the sale of his shares in Strix seems to have gone down the tubes. Hopefully any other money he invested did a bit better.
    P.S Tom Krone is an investigative reporter in a Carl Hiaasen novel. His alter ego is an accountant and a lifelong supporter of BWFC with NO connection with Eddie Davies or Phil Gartside.

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