Leyton Orient and Covid-19
The LOFT board welcomes the club's actions to address the suspension of football caused by the worldwide Covid-19 pandemic.
The commitment by the club to pay the non-playing staff members' remaining salaries for March and April above the furlough cap (in other words, topping up the salaries to 100%) is particularly to be welcomed – it is the right thing to do.
Likewise, it makes commercial sense to enable those who are able to renew their season tickets early, to do so in order to help the club's cashflow – while ensuring that the earlybird deadline is not so soon that those who cannot commit financially will miss out from the discount.
Over a week ago, the board of LOFT discussed the possible use of the regeneration fund to support the club at this time. The fund was created to "save Orient" from a crisis, and the board felt it right to consider whether the current unprecedented situation represents a "crisis" that the club needs "saving" from.
We agreed to seek further information from the club, and held a useful and constructive teleconference with club chairman Nigel Travis and CEO Danny Macklin last weekend. We discussed the likely effect of the suspension on the club, the support it has open to it in the short term, and we explained both the informational and practical elements needed to seek a change to the fund mandate – these are set out further below.
In short, we agreed to convene again in a few weeks' time and discuss the situation further, once matters hopefully become clearer. The club fully appreciates the current limited uses of the fund and the steps needed to change those uses, and that it would not be appropriate to try to seek such a change in the current circumstances.
LOFT's board believes that the club is in the best hands to navigate through these uncharted waters, and supports all of its actions to date. We will continue to work constructively with the club where appropriate, on our members' behalf.
Changing the uses of the Regeneration Fund
This detailed note sets out what is needed legally to seek a change to the Regeneration Fund uses. Many Orient supporters will be aware of this, but it bears repeating given calls on LOFT to spend the fund money on a 'good cause' or to simply give it to the club. Those who are very familiar with these issues, and who understand why LOFT’s board legally cannot decide on its own to use the fund monies for ANY purpose beyond the original fund mandate, may skip ahead to the section heading 'Dealing with the Covid-19 global pandemic'.
First of all, it is worth recalling why the fund was established. It was the LOFT’s board's view at the beginning of 2017 that the club was facing a crisis before the end of the season, as the then-owner was either unwilling or unable to fund the club.
Further, it was our view that there were three likely "disaster recovery" scenarios where fan money could assist – joining in with a prospective new owner to buy the club, or one of the two 'insolvency events'; administration or liquidation, both of which would need immediate funds to navigate through.
We deliberately stated in the fund mandate that these were the ONLY scenarios in which we would spend the funds – this was to assure non-members and non-Orient fans that funds raised would not simply be given to a failing club owner. We also did not set a time limit on using the fund, as even a change of ownership does not automatically lead a club out of a crisis (as evidenced by Bury FC in the past couple of seasons) – also considering that Leyton Orient had faced a number of crises in its history, despite past owners' best intentions (from 'pass the bucket' to Rwandan civil war and more).
The fund was established by a vote of LOFT members in favour of a resolution, at a pre-arranged meeting that took place a day after the issue of a winding-up order against the club. That resolution accepted the fund mandate we drew up, with some amendments around a limited refund mechanism.
After the club was sold to Eagle Investments 2017 Ltd, led by Nigel Travis and Kent Teague, it was clear that none of the intended uses had come into play, therefore LOFT obtained expert counsel's advice on its legal obligations around changing the use of the fund. Because LOFT is a registered society within the law, it has to follow its rules as lodged with the Financial Conduct Authority. Therefore counsel's advice was that LOFT was bound by the resolution that established the fund and its sole uses, but could seek a further resolution to change that purpose once it had carried out the limited refund process set out in the fund mandate.
Having concluded such a refund process in the autumn of 2018, LOFT's following AGM voted in favour of a resolution as follows:
- That the money held in the fund will continue to be held for the purposes set out in the original fund mandate approved by members on 2 March 2017
- That this Resolution remains in place until the next Annual General Meeting of the Society, unless an Ordinary Resolution passed at a Special General Meeting of the Society changes the purposes of the fund
The LOFT board pledged to bring that resolution back to every subsequent AGM, so that members have a chance every year to discuss whether the fund (final amount post-refunds: £117,567) should be retained or not. It was approved again at the most recent AGM in November 2019.
It is therefore not possible for LOFT's board to arbitrarily use the fund monies for ANY purpose beyond the original fund mandate, without seeking members' approval at either an AGM or a Special General Meeting. It is for that reason that we haven't donated any or all of the fund to the Leyton Orient Trust, the Justin Edinburgh 3 Foundation, the club's Academy, the club itself to help offset trading losses, fundraising by other clubs' fans, charity fundraisers, or any one of a number of other causes suggested by fans in the past few years.
Dealing with the Covid-19 global pandemic
The current 'ask' of us all is clear – that we all stay at home. Emergency legislation prohibits public gatherings. It is clear therefore that LOFT cannot hold any form of members' meeting until such time as these restrictions are lifted.
In theory, our rules allow a postal ballot to decide "a significant issue… which should be determined by the members", but this too is precluded by the current restriction on unnecessary travel – both on LOFT board members to arrange for a mass postal ballot, and on individual members to have to post a response (particularly where a number of members may be under self-isolation). An electronic ballot would be allowed as well, but not all of our members are online so it cannot replace a postal ballot (and LOFT would be in breach of its objects in denying some members of a right to vote).
Let's assume that restrictions are lifted at some point in the next 2-3 months and that a members’ meeting is held soon thereafter. The question to then be posed is, should the fund monies be used to help support the club through the effects of the pandemic?
In order to make an informed decision, LOFT's members would need more than a blanket statement that the club needs money – that much is always true, since the club makes an annual loss (see further down). Members would rightly expect the LOFT board to set out:
- In what way is the current loss of income a "crisis"?
- What is the impact on the club's income per game due to the suspension of football? What is the further impact on season ticket refunds if the season is abandoned?
- Against that, how much income could be expected to be received if games resume after the suspension? Or from streaming if behind closed doors?
- How is the loss of income helped by the short-term relief provided by the EFL and Premier League? To date, EFL clubs have been advanced monies early (reportedly £164k for League Two clubs) and offered an interest-free loan (reportedly £120k for League Two clubs), plus further advance of monies from the Premier League in the past few days
- How has the announcement on stadium naming rights renewal, earlybird season ticket renewals and retail income helped immediate cashflow?
- How much support will the club receive from government to pay salaries of non-playing staff put on furlough?
- What good will donating all or some of the fund do to alleviate this “crisis”?
- The club lost £2.35m in 2017/18 and approx. £2.7m in 2018/19, and while a smaller loss will no doubt show for 2019/20 prior to the suspension (due to increased TV money etc. in the EFL), the total combined loss for the first 3 seasons of the club’s ownership is bound to be well over £6m, possibly £7m
- So in what way does £117k actually make a difference? Is it in fact just reducing the annual loss for 2019/20 by one decimal place and nothing else?
- And if the club is so close to the brink for the sake of that amount, doesn’t that raise much deeper questions about the financial health of the club, and about whether the fund should in fact be retained by fans for its original disaster scenarios?
Clearly such questions would require a very open and honest communication from the club about its financial outlook – is this really a "crisis", or a substantial blip on the (potentially very long) path to a self-sustaining club?
Our recent dialogue with the club on this issue has, as always, been frank, friendly and honest and we have no reason to think that the club will not be transparent with us and the fans generally about the position going forward. As a general position, the LOFT board is, if and when appropriate, inclined to put this issue to the members, should the result of the ongoing discussions require it, and in a timeframe and manner practicable in the current circumstances.
As it has always been, it is our wish that those funds are deployed at the behest of our members, taking a decision put to them with all the facts that the board are able to communicate to them at the time of any vote, together with a recommendation based upon the facts as we see them. Notwithstanding the fact that the funds were not really raised for a 'crisis' such as this one, the board of LOFT stand fully ready to act on the members' direction to do their bit to assist the club through these difficult times.