Let me see if I can make you come in your pants

A hedge fund would only buy Piswich if they could do it dirt cheap. They are always on the look out for the chance to buy debt miles below par value. They do this on the basis that the current creditors are in despair about ever getting paid, and will take a low offer because it means getting some cash and exiting from a bad deal.

So they buy the debt at a heavy discount. That's why they're usually known as "vulture funds", because they circle the skys looking for the dead and dying.

They only do this because they reckon that they themselves can get the debtor to cough up a good bit of what it owes - ie more than the amount which they themselves paid to acquire the debt. So put simply, they buy from a despairing creditor the right to get £1,000 from the debtor, and they pay only £150 for that right. If they can then extract £300 from the debtor, they have made a good profit.

The question is how they make their profit.

Often they just reckon that they are tougher, more aggressive and smarter debt collectors than the gentlemanly creditors from whom they have bought. So they might sue the debtor, they might threaten to freeze his assets, they might foreclose on any security. In Piswich's case, they might say "Screw your cosy deal with Aviva who didn't want to upset locals and gave you an interest holiday. You're paying us next week, or we're going to sell all your best players and anything you own. We don't give a s**t about fan pressure cos we're based in the Cayman Islands and no Piswich fans could find even that on a map."

Sometimes (though more rarely) they take over the business and try to turn it round before extracting their money. This would be very risky with football and I would be surprised if anyone did that, since promotion is so uncertain. However, suppose for now that the binners are right and some fund is going to give them a blank cheque for new players to get them up.

They don't do this for love. They do it because they reckon that it will make them MONEY. Which means that if they DO get into the land of large TV contracts, they will NOT buy expensive new players to stay up, and they will NOT agree large wages. They will sell players, pocket the TV revenues (NOT reinvest them - they don't give a s**t how Piswich do long term, they just want their money back and an exit strategy), take their profit and f**k off again. Or they might sell their shares on promotion - on the basis that the incomer agreed to pay all the costs of assembling the promotion winning squad. and all the cost of the discounted debt, and a profit. Which would all be paid from ... the TV revenues. And player sales. And cutting the wage bill.

Any way you slice it, they are not healthy long term investors. They want to make a profit and get out.

Posted By: Old Git on May 10th 2007 at 17:07:07

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