What's going on with Zabaxe?

NB: This post will touch on fairly complex financial themes and does assume a degree of prior knowledge about the fiscal and operational running of Blackpool FC. There are links at the bottom of this post to background reading which should help you get up to speed.

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The name Zabaxe is a familiar one to most Blackpool fans, synonymous as it is with the £11m director remuneration paid to Owen Oyston back in 2010/11. As a quick refresher, it was Zabaxe Limited who were the recipient of this unprecedent director salary straight out of the Premier League TV money, with the claim being it was for tax planning purposes. Interviewed in the Guardian at the time, chairman Karl Oyston said:

“I understand, it was paid to Zabaxe as a salary and people will draw the conclusion it is a salary to my father. We could have explained it better. But the money is in an Oyston company; the football club is an Oyston company too, and that money is there should we require it.”

Given that the payment to Zabaxe was first shown in Blackpool FC Limited’s 2010/11 accounts, it was strange therefore that there was no trace of this money in Zabaxe’s accounts for year ending December 31st 2011. To clarify, Zabaxe operate on a January to December financial year, while BFC Limited and Segesta Limited’s fiscal years both run from June to May.

BFC Limited showed the £11m as falling due to Zabaxe during its own 2011/12 accounting period, and indeed their accounts published last March showed this money leaving the football club’s coffers. Strictly speaking, one might have expected Zabaxe’s accounts for 2011 to at least show the £11m as falling due to them, but it was not displayed as such. It was with eager interest then that the 2012 accounts for Zabaxe were awaited to confirm the £11m had hit Zabaxe’s bank account, and what had happened to it since then.

Typically, Zabaxe have to file their accounts with Companies House by 30th September – nine months beyond their year end date – but for whatever reason this time around, they appeared to be granted a one month extension with them instead falling due on 31st October 2013. That date came and went, with still no sign of the annual accounts. Months went by before they were finally lodged with Companies House on 20th February 2014.

This will mean that Zabaxe have incurred late filing penalties of £750; a meagre sum in the grand scheme of things, but one still had to wonder why they could not submit them on time, given the historically small level of transactions within Zabaxe Limited. Was there something that caused the delay, and if so, what might that have been? Jumping into the accounts, a revealing picture is unveiled…

But what about the tax planning…?

Back when the furore over the £11m payment to Zabaxe erupted, Karl Oyston was quick to defend it as a smart way for the club to avoid a hefty tax bill:

The £11m was paid out as part of sound tax planning”

So, if we examine Zabaxe’s accounts for 2012, what do we come across? £2.589,854 paid in corporation tax. As it happens, Blackpool FC Limited’s taxable income in 2010/11 was just £108,709, which means that if the £11m had not been paid to Zabaxe, the football club would have had a tax bill very similar to the one just paid by Zabaxe, the difference being that the remainder would still be in the accounts of Blackpool FC Limited.

The difference in tax paid by shifting £11m out to Zabaxe is negligible and once and for all destroys the myth that the motivation was ‘sound tax planning’, as suspected at the time. So then, what about the rest of the £11m following the tax bill? It was always maintained that this was at the football club’s disposal if required, so has it just been sat idle waiting for a rainy day?

Land acquisition and other transactions

During the financial period, Zabaxe Limited acquired one unknown plot of land for £311,411 which becomes the company’s only fixed asset. Quite what or where this piece of land is remains unclear, although one suspects the acquisition might have been advised on by Oystons Limited, the estate agency owned by Owen Oyston. The reason for this is that Oystons Limited charged Zabaxe Limited £100,000 for services rendered during 2012.

There was also a further charge against Zabaxe Limited from another Oyston-owned company Denwis Limited, whose principal business activity is described as the ‘letting and operating of own or leased real estate’. The charge by Denwis Limited was even larger at £188,158 – could this sum also be related to the land acquisition? Regardless, this constitutes another £288,158 paid out to Oyston-owned companies.

Outgoing loans

As well as the tax bill, land acquisition and payments made to Oystons Limited and Denwis Limited, further money left Zabaxe Limited in the form of loans, which now stand as follows, with the listed principal activity of these companies in italics:

  • £152,165 – House of Roma Limited (stood at £63,858 in 2011) – agents involved in the sale of textiles, clothing, fur, footwear and leather goods
  • £254,179 – Denwis Limited (stood at £222,179 in 2011) – other letting and operating of own or leased real estate
  • £102,174 – Tangerine Productions Limited  – video production activities
  • £564,156 – Claughton Hall Bisons Limited – hunting, trapping and related service activities
  • £84,114 – Oystons Limited – real estate agencies
  • £207,000 – The Lancashire Magazine Limited – publishing of consumer and business journals and periodicals
  • £1,189,957 – Natfarm Limited – mixed farming
  • £172,167 – Oyston Estates Limited – mixed farming (despite the name suggesting otherwise)

All of the above companies are majority owned by Owen Oyston and all of these loans combined make a total of £2,725,912. So, while it is claimed that Zabaxe’s funds are at the disposal of Blackpool FC Limited, should they ever need it, significant sums are being used to support the business activities of the Oyston family’s other enterprises. What are the chances of these loans being repaid? The accounts state:

“The directors confirm that they will not enforce repayment of the inter-company debt until such time as the companies are able to repay them. In particular amounts owed by House of Roma Limited, Claughton Hall Bisons Limited, Oystons Limited and The Lancashire Magazine Limited. The directors are confident that all amounts will be repaid in the fullness of time.”

However, and this is a very big however, the auditor is not quite so sure. Anthony Ian Cherry’s firm A I Cherry audits the accounts for Zabaxe as well as Blackpool FC and Segesta, but on these 2012 accounts for Zabaxe saw fit to only sign off on them on the basis of including a qualified opinion – this could be the reason for the delayed filing of these accounts. Essentially this means the auditor has significant doubts over some of the financial statements, in this case:

“The debtors on the balance sheet of Zabaxe Limited as at 31 December 2012 include amounts owed by related parties which are set out in note 12 to the financial statements. We were unable to obtain sufficient evidence about the recoverability, and hence the carrying amount, of the amounts owed by certain related parties.”

Given the historical losses racked up by these firms, it is not perhaps a surprising conclusion reached by the auditor, but should be cause for concern given that it’s possible these companies could end up defaulting on their loans, despite assurances from the directors of Zabaxe Limited – Owen, Vicki and Karl Oyston. It’s worth remembering that some of these companies are the very same ones that Segesta Limited (Blackpool FC Properties Limited) are also loaning money to – the recoverability of those loans is also thrown into doubt.

Furthermore, Zabaxe itself has sought a loan from Segesta Limited to the tune of £1,117,596. All of these inter-company loans are listed as being unsecured, interest-free and repayable on demand. On top of this, Karl Oyston received a personal loan from Zabaxe during 2012 of £217,288, but it is stated that this was repaid in August 2013.

The House of Roma mystery

All but one of the companies to which Zabaxe is loaning money are longstanding Oyston entities, be they in real estate, publishing or farming. However, one that stands out from the pack is House of Roma Limited. This is a company whose principal business activity is listed as being ‘involved in the sale of textiles, clothing, fur, footwear and leather goods’ and was founded by a Ms. Lamara Roma. Ms. Roma, still only 20 years old, was employed by Lancashire Life magazine between September 2011 and December 2011, working on fashion & beauty articles.

House of Roma was incorporated in November 2011, and shortly thereafter received a loan to the value of £63,858 from Zabaxe Limited. Zabaxe’s 2011 accounts stated that Owen Oyston was a director of House of Roma Limited, but the 2012 accounts omit this detail and other searches now portray a conflicting situation whereby Owen Oyston is not a director. During 2012, Zabaxe has loaned a further £88,307 to House of Roma Limited, taking the outstanding loan to £152,165. However, Ms. Roma’s directorship was terminated on 12th November 2013.

Quite how Zabaxe has got involved with this fashion company is unclear, but it is yet another example of money that was categorically stated as being stored for a rainy day being used for other means, which should be unsettling for any Blackpool fans who had hopes of that money being safeguarded by the Oyston family.

The claims and the reality

The Zabaxe Limited 2012 accounts paint a confusing picture, and certainly fail to tally with much of what has been said by Karl Oyston as the reason for £11m being paid to this company.

  • The claim was that the motivation was one of tax planning; the reality is that these accounts demonstrate that any tax saving was negligible.
  • The claim was that the money paid to Zabaxe could be loaned back to the club if required; the reality is that it is other Oyston-owned companies, and loss-making ones at that, which are receiving loans from Zabaxe.
  • The claim was that Zabaxe would be there to support the club in the future; the reality is that Segesta has loaned additional money to Zabaxe.

Coming soon…

Of course, while this latest set of accounts for Zabaxe provide us with some more insight into the inner workings of Bloomfield Road and the myriad Oyston-owned companies, it should only be another week or so until the accounts are filed for Blackpool FC Limited and Segesta Limited (assuming this is done on time). As ever, Measured Progress will be casting our eye over these once available.

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Background reading

When delving into financial matters, it can be particularly tricky to portray the facts in a way which is understandable to most. This post assumes considerable prior knowledge about Blackpool FC’s financial situation and therefore it may be useful to read earlier posts which discuss many of the same themes. These are linked below:

March 2012 – 10 questions that should be answered…

March 2012 – A response to the response

March 2013 – Blackpool FC’s 11/12 Accounts Reviewed

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