Open Letter and full Q&A from DAFC Chairman following today’s exciting news

Hear from DAFC Chairman Ross McArthur following today`s news.

To Fellow Pars Fans

The last couple of seasons have proved to be a challenging time for DAFC with last season, in particular, being so for many other Scottish football clubs. The last few months have brought challenges none of us have faced in our lifetimes. I believe, having got to know them personally, that our tie-up with the genuine and capable people behind DAFC Fussball GmbH is a real coup for the club, and we all share common ambitions, beliefs and values.

As Chairman, I obviously have a particularly heavy weight of responsibility on my shoulders to do what is right for our football club; the club that I have supported passionately all my life. Everyone involved with DAFC has aspirations and ambitions for a successful community-based football club but we must balance those with realism when we are dealing with something that is precious to so many people, when in pursuit of our sensible long-term goals. It is therefore essential that we work with the right investors, who are engaged with our Club for the right reasons.

Throughout our months of discussion with DAFC Fussball GmbH, the Board of Pars United CIC (PUCIC) has been kept appraised of the details of the proposal and I am delighted to say that both the DAFC and the PUCIC Boards (both of which include representatives of the Pars Supporters’ Trust) are unanimous in believing that this is the right course of action for Dunfermline Athletic Football Club and a very positive step. We are genuinely enthused about what the future holds for Dunfermline Athletic, working collaboratively with DAFC Fussball GmbH.

I hope this Q&A paper will help you understand the need for this development and allow you to share in our excitement and hopes for the future.

Ross McArthur
Chairman, Dunfermline Athletic Football Club

Why has the Board of Directors agreed to accept external investment?
In 2013, when we came out of administration, the Club adopted a strategy aimed at creating value through growth. Some seven years on, we have to acknowledge that that strategy has had only limited success. Generating revenue, controlling costs and building up reserves, while at the same time trying to compete successfully, continue to be challenging issues for the Board, taking up a great deal of our management time. Your Board believes that in order for the Club to progress we must adopt a new financial model and develop a radical, new financial strategy; but we have to ensure that doing that does not become disruptive.

What do you mean by a radical, new financial strategy becoming disruptive?
Dunfermline Athletic must never again be a club that is saddled with unsupportable levels of debt. It is only by very careful cash management, supported by the valuable voluntary work done by so many on behalf of the Club and the vital, financial support of Pars fans through the Centenary Club Lifeline, that we are able to cover our extensive financial liabilities and prepare annual budgets that at least allow the Club to look to progress every year.

The injection of this new equity capital will in no way reduce the Club’s need for those levels of support. There is clearly a risk that we cause disruption by allowing a false perception to develop that a new capital injection means that less fund raising and fewer contributions in kind are required in the future. It is important for all Pars supporters to recognise and understand that that is most definitely not the case.

So, what is the Club’s financial position?
Having managed the Club’s operations for almost seven years now, it is obvious that, while we are in the SPFL Championship, gate receipts and commercial income alone will never be able to support the costs we have as a football club with aspirations to progress. We depend on the financial backing of: the Centenary Club Lifeline; the 1885 Business Club; the DASC shop and the Pars Supporters’ Trust and on the time and effort committed by a large number of volunteers to help cover significant portions of our running costs.

In the years to 31 May 2016, 2017 and 2018 we made small profits, adding about £100,000 to our cash reserves each year. In the year to 31 May 2019, however, despite an increase in our playing budget, we fell from 4th to 7th in the league. Our income dropped due to a reduction in gate receipts and there was a slight reduction in the number of people contributing to the Lifeline. We had costs associated with the change to the management team and the Club was obliged to cover the costs of no fewer than 14 surgical procedures for injured players. In all, this led to a cash outflow of £600,000.

It is a simple fact that, during those periods when the Club has low, or even zero, income from matches, the Club’s outgoings must be met from, and consequently reduce, our available reserves. The Club was only able to continue functioning fully after a group of directors injected almost £300,000 of additional funds by way of interest-free loans. The year to 31 May 2020 again demonstrated just how volatile the Club’s income can be. Even before the Covid-19 pandemic, we had matches postponed - resulting in a period of zero income – and this was compounded by the subsequent fixtures being rescheduled for midweek, further reducing our projected income. The subsequent, and unprecedented, challenges posed by the Coronavirus pandemic have created uncertainty across the globe, and given rise to business issues none of us has ever encountered.

It is essential that the Club has adequate reserves of cash in future to see us through the cash pinch points which are bound to arise. As a community-owned club, we are severely limited in our ability to raise further capital to take the Club on to the next stage of our return to the upper echelon of Scottish football. That requires the ability to invest and to do so confident in the knowledge that the Club can ride out a difficult financial period. The involvement of DAFC Fussball GmbH as a shareholder, however, should be transformative for the Club.

Do we really need to change the ownership structure to achieve our goals?
If we keep doing the same things we will keep getting the same results. We have to be totally honest with ourselves. Our existing structure has not allowed DAFC to climb the leagues as we had originally hoped. The Board realises that not only do we require further capital but that we also would benefit from fresh ideas, knowledge, relationships and innovation to help us achieve our goals. Even if the Club could raise new capital in the form of debt (and it cannot), it could not possibly afford to service that debt. The only option for making a meaningful improvement to our capital base is to issue new equity.

We believe that this change to our ownership structure will be an enormous step forward in the achievement of our goals, but crucially, our culture and community ethos will not be diluted. It is abundantly clear during our discussions, that DAFC Fussball GmbH share the same beliefs, morals and ethics as ourselves.

Was this the only option considered by the Club?
No. We looked at raising further equity capital from existing shareholders but, despite some generous offers, there was not sufficient interest that would capitalise the Club adequately for the future. At no time, did the Board ever approach any third party for funding but, over the last twelve months or so, the Board received a number of approaches from third parties who saw great potential in our Club and who wanted to provide funds on a variety of different terms. All of those were considered carefully. Several were rejected because the relevant parties were not a good fit for Dunfermline Athletic. Others were rejected after meaningful discussions took place but where the Board believed that certain aspects of those proposed investments were not right for the Club.

What made an investment by DAFC Fussball GmbH in DAFC so attractive?
The Board was committed to working only with investors: whose ideals were compatible with those of a club which is rooted in its community; who valued integrity; and who saw themselves as a catalyst for a range of positive engagements with the people of West Fife and beyond. The Board believes that the good people behind DAFC Fussball GmbH have all of these qualities.

How will the DAFC Fussball GmbH’s investment be structured?
First, and foremost, the substantial investment being made by DAFC Fussball GmbH will not be by means of a loan, which would saddle DAFC with unsustainable debt. Instead, it will be an “equity injection” which fully demonstrates their commitment to our Club.

In return for their initial investment, DAFC Fussball GmbH will hold 30% of the enlarged share capital of DAFC. They also have an option to acquire a further 45.1%, by no later than 31 May 2022. Due to the size of the cash investment that DAFC Fussball GmbH will ultimately make, if they exercise the option, it is right that they should have a controlling stake in DAFC at that time.

How were the discussions with DAFC Fußball GmbH affected by Covid-19?
Our original discussions with DAFC Fussball GmbH were based on their acquiring 75.1% of the Club. Originally, DAFC Fussball GmbH’s investment in the Club was due to complete in March and everything was in place for that to happen. The Covid-19 pandemic, however, meant that the deal had to be put on hold - something which was extremely frustrating for both parties. Apart from anything else, that left DAFC to try to make its way through those challenging times. The fact that the Club successfully did so demonstrated to our future investors the quality of the Club’s management and controls and also the amazing commitment and passion that surrounds our football club.

Because the people behind DAFC Fussball GmbH want to be closely and directly involved in the Club – attending Board meetings and matches, meeting supporters, sponsors etc. – the various Covid-19 restrictions on travel etc. meant that they wanted to delay their full investment until they could avoid being absentee owners. Nevertheless, they were very keen to show their commitment to completing the deal and they wanted to do something in the interim which would support the Club financially.

For those reasons, their investment has been split into the two elements: an immediate cash investment, in return for a 30% stake in the Club; and the option to increase that stake to 75.1%.

It says much for the people involved in DAFC Fussball GmbH that they remain enthusiastic and committed to becoming our investors at this time. Very few football clubs, at any level, will be able to attract a substantial equity investment in the current economic climate, so it is a real feather in the cap for DAFC.

DAFC Fussball GmbH will currently not be able to implement all of their interesting ideas regarding the positioning of DAFC and added value assistance on the football side, until many of the Covid-19 restrictions are lifted. However, DAFC Fussball GmbH was keen to give DAFC financial maneuverability during these “complicated times.”

Why were DAFC Fussball GmbH interested in investing in DAFC?
Our Club is seen by many as one with real growth potential, hence the reason why we had so many potential suitors willing to invest. Our stadium and facilities, the Club’s history, our fan base, our geographic location and the wider community support we enjoy all combine to make the Club an exciting prospect.

The vision that DAFC Fussball GmbH has for a successful football club which is at the heart of its community matched what they saw existing at our Club. They liked the transparency and openness with which the Club operates and they were very impressed with what has been achieved by the Club and its supporters since coming out of administration.

Can you reassure fans that DAFC Fussball GmbH are a good fit for DAFC?
Yes, absolutely. The intention is to continue to run the Club in line with a sensible and sustainable financial model. Our chosen investors are not only a good cultural fit but also people who will not burden the Club with debt and who are prepared to make their financial commitment by way of equity investment. In addition, they bring a reinvigorating approach with fresh initiative.

There is complete understanding and agreement that any new ownership structure must still create the space for our existing supporters and volunteers to continue to be valued and to be enthusiastic in their efforts to support the Club to achieve its full potential. That continued level of involvement is key to the future of the Club. In addition, PUCIC has secured the right of pre-emption should DAFC Fussball GmbH ever wish to sell its shareholding in future. The fact that DAFC Fussball GmbH was willing to offer PUCIC that contractual right to buy its shares before they can be offered to any other person further demonstrates the spirit of our discussions.

So, this is not a takeover by investors willing to “splash the cash”?
Definitely not. This means continuing to manage the Club’s affairs prudently. No one should have any false expectation of “open cheque books”. We, the Club’s fans, will be as important as ever with our financial and voluntary support for Dunfermline Athletic. The intention is for the new equity investment to take the Club forward by allowing us to invest in, and undertake, important initiatives which are currently beyond our financial reach.

It is that lack of investment capital which has restricted the Club’s ability to grow and progress in the way we all want. Amongst other things, we need to secure a long-term training facility which is properly fit for purpose and we need to make a wholehearted commitment to developing our young talent. The new equity funding will go a long way towards helping the Club to achieve these aims. It is intended to supplement, not replace, the fantastic financial support we already receive from our supporters. The injection of this additional capital will in no way reduce the need for that level of support. If the potential of the Club is to be fulfilled then the commitment of all of us, both financial and in terms of our time, must remain unchanged.

What more can you say about DAFC Fussball GmbH?
They are a highly respected group of investors based in Hamburg, Germany. During our initial discussions, they were very open in telling us that for over two years they had held numerous meetings with many clubs in several different European countries. A key element for them was that the club´s culture, its values and the way it went about its business had to align with their own approach. They admired DAFC’s long tradition and heritage, and believed it to be run by a professional Board of Directors. They liked the fact that the Club is committed to its community and that the community stands firmly behind the Club. DAFC simply fitted their aims much better than any other club to whom they had spoken.

The investors had already carried out considerable investigatory work on DAFC before they first approached us. They have a deep and sound knowledge of football and of commercial marketing, which means they bring very much more than fresh investment capital. That additional innovation and know-how can also help the club become more successful, and sustainable. Each member of the group has had a distinguished, professional career and is well known in their home country as can be seen below:

Thomas Meggle, former Bundesliga professional, Head Coach and Sports Director at legendary German Club FC St. Pauli Hamburg;

Damir Keretic, former tennis professional, Davis Cup player for Germany. Former Head of IMG Germany and co-owner of his own marketing agency;

Nicholas Teller, non-executive Director of Germany´s second largest bank, current Chairman of a major Shipping Group, British Honorary Consul in Hamburg; and

Dr. Albrecht Gundermann, attorney, Co-owner of European Mar Lda, promoting the International Portuguese Shipping register.

Three of the key individuals, Nick, Damir and Thomas will join the club’s Board of Directors with immediate effect.

Is the new investors’ business model compatible with the “spirit” of our existing model?
As highlighted above, in their search for a club in which to invest, the investors always wanted a club which was firmly rooted in, and an important part of, its community. They immediately understood and empathised with the culture of our community club and they had a full appreciation of what we have achieved in saving our Club from extinction. More importantly, they immediately understood the potential of Dunfermline Athletic. In 2013, we studied various models for the newly rescued Club by looking at how football is structured elsewhere in the world. Whilst it is difficult to replicate precisely “the German model” here in the UK, we have always been very much attracted by the German clubs’ community ethos and local loyalty.

You say the investors have a “deep” knowledge of football, what does that mean for DAFC?
The investors will give us access to a scouting network in Germany and wider Europe, which will allow us to differentiate ourselves from other clubs in Scotland. As football people, they know that every football club has its ups and downs and that you need to take a patient, long-term approach to succeed. They understand the benefits of growing your own talent and selling on at the right time.

Their investment will enable us to start planning properly our own Youth Academy structure and securing appropriate training facilities, things we have long wanted to do but which have always been out of our reach. In short, our expectation is that this cash investment will give Dunfermline Athletic the competitive advantage we have long sought and allow us to take steps to achieve our long term ambitions for the Club, rather than managing the Club on a season-by-season basis.

Is the Board confident it can work collaboratively with the new investors?
The chemistry between the investors and our existing Board was good from the outset. The key to this investment being a success for all parties will be our working collaboratively and that’s our intention. The issue of new DAFC shares inevitably dilutes the percentage held by PUCIC. As already mentioned, three DAFC Fussball GmbH nominees will join the DAFC Board and I have been asked by all parties to remain as Chairman, to provide continuity and to help drive us forward. I am delighted to accept this challenge, and I am confident the new board will work together well. As your Chairman, and as a Pars fan, I am very excited about the future for our Club.

This is an investment in DAFC - so what about ownership of the stadium?
DAFC Fussball GmbH has been granted an option to purchase Pars United (EEP) Ltd (the company which owns East End Park) from the existing PUEEP shareholders, by May 2024, assuming it has exercised its right to increase its stake in DAFC to 75.1%. If that option is exercised, it would bring the Club and the stadium under common ownership. In the meantime, there will be no change to the ownership of our stadium.

What can supporters do at this time of change?
The Board want nothing other than for you to continue to be good and loyal supporters. Please continue to turn up in large numbers and get right behind the team during the good times and more particularly through the inevitable sticky times. You know that already - because you are “good supporters”. Please continue to support the Club by volunteering your time and expertise. Sign up, or continue subscribing, to the Centenary Club Lifeline. This money will assist in bringing good quality players to East End Park and will help us retain players so that they can remain with us as they develop to realise their full potential for the benefit of the Pars and will leave the new equity capital free to fund the important investments that need to be made. We will never take fans for granted. Together we can get DAFC back into the SPFL Premiership and, more importantly, stay there and be successful.

Does this move affect the current management team?
No. There will be no change to the coaching and management staff, as DAFC Fussball GmbH totally respect the need for continuity within the club at this time. Thomas Meggle will work closely with Stevie Crawford and the rest of the coaching staff when the time is right.

DAFC Fussball GmbH’s view of growing a football club, exactly mirrors our existing plan, which is to develop young players, and they agree with us that having the right coaching staff is critical. Stevie and the coaching staff have been fully briefed during the last few weeks. They are very supportive and view this as a very exciting move in the development of DAFC.

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