Why Nova might be Lachlan Murdoch’s most shrewd investment

Former Assistant Editor

NOVA Entertainment is widely considered one of Lachlan Murdoch’s more shrewd investments, but it appears that its profitability to the media mogul is greater than it would outwardly appear.

AFR reports that the amount of money that Murdoch has made from the company has been obscured by “exclusive use agreements” and the way the company was structured when Murdoch originally acquired shares.

Nova was originally set up by the UK’s Daily Mail and General Trust with a tax structure designed to pay the least tax possible, even though Murdoch has simplified the structures since fully buying out DMG in 2012.

When DMG sold him a half share for $67.5 million in 2009, the sale was structured as a stock buyback, with new shares were issued while half of DMG’s shares were cancelled.

That meant the capital return for DMG wasn’t taxable.

In addition, Nova issued $30 million of preference shares to DMG, which pay $5.1 million. That works out to be 17% interest each year until November 2019.

Finally, there were royalty payments or “exclusive use agreements” which Nova businesses pay to three companies; Nova Entertainment (UK Radio 1) Pty Ltd, Nova Entertainment (UK Radio 2) and Nova Entertainment (UK Radio 3).

These companies are in the UK and have a UK parent company called Nova Entertainment Investments Ltd (NEIL) and therefore paid tax in Britain.

So what does all this mean?

Effectively, NOVA Entertainment (Australia)’s reported profits and losses over the past few years haven’t been an accurate reflection of what Lachlan Murdoch has been making out of his investment.

A $7.5 million loss in 2010 was after paying $10.7 million to related parties, resulting in a $4.2 million profit for owners.

More recently in 2017, Nova Entertainment Radio Investments (NERI) reported a $38.5 million profit ahead of tax, but this profit was after paying Murdoch’s Antium Pty Lid $5.1 million for the prefs, then paying $19 million in exclusive use fees and another $1 million in interest.

Murdoch has restructured the Nova holdings twice since 2010, but that hasn’t stopped his related party payments rising and rising.

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