Thursday, March 22, 2012

ALS’s Gavin Wheeldon: A Case Study in Cheap Translation

Bialystock: Step 1: We find the worst play ever written.
Step 2: We hire the worst director in town.
Step 3: We raise two million dollars. ... One for me, one for you.
There's a lot of little old ladies out there!
Step 4: We hire the worst actors in
New York and open on Broadway and before you can say
Step 5: We close on Broadway, take our two million, and go to Rio.
The Producers (2005)

The tribulations of Applied Language Solutions (ALS) are everywhere in the blogosphere these days. It remains to be seen whether the company will hold on to its monopoly of court interpreting services in England and Wales despite its dismal performance to date (the catastrophe is discussed here at length). 

However, allow me to take a step back, because ALS CEO Gavin Wheeldon’s overexposure to the British media provides a cornucopia of material to conduct a brief case study of cheap translation in flagrante delicto, as it were. Watching Wheeldon’s TV performances on Dragons' Den and The Secret Millionaire, you literally see the yucky pig lips being inserted into the paste processed by the sausage machines. Wheeldon as a businessman (and a moral specimen) is truly riveting, albeit in sort of the same way that Hannibal Lecter is fascinating as a gourmet.

1.- There is no Revenue from Free Translation (!)

The following exchange is from his appearance in the BBC’s Dragons' Den. The format is as follows: five independent and separate private equity investors hear pitches from entrepreneurs and decide in front of the camera whether they will invest in the businesses. The ten-minute clip is a fascinating snapshot of the cheap translation sector in the early twenty-first century. Among many other issues, it is indicative of how machine translation currently has a grip on investors’ minds, as well as the way in which savvy shysters exploit it to the hilt for hype value (bubble, bubble, toil and trouble), despite the absence of any real substance.

Watch how the Wizard of Oz instantly turns into the shabby man behind the curtain (in three, two, one...):

Dragon 1 (Richard Farleigh): You do two things. One on the Web and the other one is actually live translation…
Wheeldon (interrupting): It’s human. The one on the Web, it’s machine translation. It does it instantly. It does it on the fly. The one on the Web, it’s about 70% accurate. It’s just a gimmick. It’s a good tool. People use it. It attracts visitors. But, obviously, that’s just a driver…
Farleigh: Okay. How is your revenue split between these two activities?
Wheeldon: There is no revenue from free translation. It’s all professional translation.
Farleigh: So all your 3.2 [million]…
Wheeldon: It’s all human translation. Professional translation.

Did you catch that? It is so pristine and simple that you almost expect it to come from the mouth of a Zen master. “There is no revenue from free translation.” What!? Listen to that, world: NO REVENUE FROM FREE TRANSLATION!

So there it is: Free translation does not provide revenue. The simplicity of this tautology is so beautiful, so absolutely beautiful, it brings the slightest little tear to the eye, like a twelve-year-old watching the closing scenes of E.T.

Can you imagine that? It’s hard to make money from free stuff! We should frame this phrase and hang it above the desk of every Cheap Translation CEO across the world.

I can imagine Henry Ford going: “You know, we’ve noticed that giving away Model-Ts tends to hurt our bottom line.” Or Warren Buffett writing to Berkshire Hathaway shareholders to say: “Well, it turns out that Project Free Hamburger was not the money machine we hoped.”

2.- There is No Profit from Cheap Translation

Wheeldon cites £3.2 million in revenue. When prompted for a profit figure, he vaguely estimates £400,000 for the year. He adds that his request of £250,000 for 4% of the shares is based on a P/E (price/earnings) ratio of 15. However, the second Dragon, Theo Paphitis, finds some clash between this figure and his own due diligence. He calls Wheeldon on it. The budding l10n entrepreneur replies that the 15 P/E for a £6.25 million valuation is based on “net profit.” Now, I am not an accountant, but net profit could (and usually does) mean almost anything. And, in this case, it means even less than that. After some prompting, it turns out that the slippery Mr. Wheeldon means “profit including [i.e., before] tax,” which, if anything, should actually be called “gross profit.” Listen to the investor schooling the weasely presenter like a stern schoolmaster:

Paphitis (Dragon 2): P/Es are calculated after the deduction of tax.
Wheeldon: Okay, well, I’ve learned something…

You have to hand it to Wheeldon. Caught red-handed in a transparent bit of obfuscation, he doesn’t even flinch. At most, he only seems slightly deflated. Paphitis, smelling weakness, presses on: the real P/E for a 4% equity stake costing £250,000 based on profits of £300,000 is not 15, but a whopping 21 to 22 times earnings (which in technical financial terms is “super-duper high” for a company outside the tech sector). Wheeldon accepts the analysis meekly, but offers an explanation for his creative accounting (viz. ignorance):

Paphitis: Do you expect me to feel a little bit uncomfortable?
Wheeldon (smiling): Once again, I’m learning here, Theo. In terms of a…
Paphitis (irritated): This not for learning! This is not a lesson!
Wheeldon (sheepishly): It certainly seems that way…
Paphitis: You come and ask me to invest £250,000?! And you ask me to teach you at the same time?!

The investor’s rebuke is harsh enough that it wipes the smile from Wheeldon’s face. The narrator sums it up: The valuation cited by Wheeldon is based on projected earnings (i.e., not actually in the bag yet) and it included taxes (i.e., money investors will never see).

Now, none of this is outrageous, but note that Wheeldon has been caught in the space of three minutes in several worrisome fabrications. You might argue that the professional investors pictured on Dragons' Den do this for a living, but is it at all possible that Mr. Wheeldon’s creativity with the truth played a role in securing the contract from the Ministry of Justice? I have my own opinion. I leave it to you to draw your own.

To lay this out as simply as possible, imagine that you have £250,000 in the bank. You can either place it in UK government gilts at 5% interest or, alternatively, you can invest it in the budding business of McTranslations Inc. in exchange for a 4% equity stake.

If you invest the quarter-million pounds in the British government bonds (the risk-free rate), within one year, you will have earned 12,500 pounds as interest.

If however, you take that chunk of change and sink it into the H.M.S. McLocalization Titanic Applied Language Solutions, at the end of the year you have a claim on 4% of the profits, which the chief executive officer “estimates” at £300,000.

Do the math. That is £12,000. That is 500 pounds less than the laziest, safest, most unimaginative thing you can do with your money, aside from leaving it to rot in a savings account at a negative real interest rate. The British Government has never defaulted on a loan since it started asking for money centuries ago. How does that compare to a company founded nine years ago in some dude’s bedroom in Manchester? Is it more or less dependable as an investment? Once again, I leave it to you to arrive at the answer.

The thing is that private equity guys such as the Dragons only become interested in businesses that make sexier returns—on the order of at least 10% a year or more.

Translation, sadly, does not fit that bill (at least the way it is done by shady entrepreneurs). Sure, cheap translation is enough for sleazy characters to make some moolah and fund a lavish lifestyle, but at the expense of generating a lot more revenue than you would need to if you provided quality at heftier margins. Wheeldon raises the long-term idea of floating on the stock market within five years for £60 million. Another Dragon shoots this down out of hand and cites again the company’s dismal balance sheet. Cheap low-quality translation has not passed the smell test. “As a risk/reward ratio for me, it doesn’t stack up,” says one.

Nonetheless, Wheeldon does get a tentative offer from Dragon Duncan Bannatyne, of half the money (£125,000) for more than double the equity stake (9%) he sought. Which is one way of saying: “You, sir, are a fine purveyor of bollocks, but reality is far less rosy.”

In conclusion, the Dragons liked him as a salesman, but they were turned off both by the sector and the valuation, so they turned him down. Cheap translation strikes out.

3.- A New Hope: Capita Steps In

Okay, so that is that. The thing is that, only three months ago, the Financial Times reported that a private equity fund called Capita stepped in to buy the whole of ALS for £7.5 million. So the Cheap Translation Theorist might say: “Aha! Six and a quarter million pounds for ALS’s paltry revenue was not so crazy after all! Gavin Wheeldon secured one and a quarter million pounds more than he asked the Dragons for!”

However, two things have to be taken into account. First of all, the Dragons' Den clip was filmed several years ago, so you have to discount the erosive impact of inflation. Secondly, the private equity fund jumped in only after ALS secured the mega-juicy Ministry of Justice contract that has raised all the Sturm und Drang. This MoJ contract is reportedly worth £300 million over several (undisclosed) years, or £42 million a year, depending upon the source. So the details of how that breaks down revenue- and profit-wise totally skew the assessment of Wheeldon’s pie-in-the-sky valuation. The Capita buyout was a bet that ALS would execute successfully on a recurrent contract with a good government client, pure and simple. Moreover, the MoJ would represent more than 90% of the company’s revenue for many years to come. It would be like shooting fish in a barrel. Of course, that was if and when ALS executed efficiently on the contract, which is currently in doubt.

4.- Epilogue: What Is the Deal With the Cheap Translation/Sleazy Salesmanship Correlation?

The alpha and omega of the entire ALS debacle is the man himself, Gavin Wheeldon. His personality comes across forcefully in the Dragons' Den clip: smarmily charming, slightly sleazy, quick on his feet, evasive, and not overly analytical. It is easy to imagine him courting civil servants and cabinet ministers desperate to make budget cuts with ridiculous, pie-in-the-sky promises about 60% efficiencies. Sadly, these exchanges were not filmed. However, a simple Google check might have given the ministry's staff some pause.

Last week I visited Wheeldon’s Wikipedia page. After reading it, I assumed it had been vandalized, given the nationwide firestorm in the UK. But after checking the footnotes and hyperlinks, I realized that, OMG, those were actually things he said to journalists! Those are actual quotes from his mother!

The first pearl is from a Times profile entitled “How I Made It”. Wheeldon tells the newspaper how he secured his first fat contract:
I was ringing up and pretending I was this huge translation company when really it was just me in the back bedroom with a phone and PC. I won the contract and then thought: oh my God, how on earth do I deliver this?
Is there any chance that this is the modus operandi used to secure the mega-million-pound contract from the British government? Who knows? For me, in the mouth of the chief of a tiny company that is awarded responsibility for providing thousands of interpreters to the entire legal system of a large country, this sounds a lot like someone saying: “Mr. Excrement, may I introduce you to Mr. Fan?”

Sound harsh? Listen to his mother’s description of him as a child during an interview for his appearance in The Secret Millionaire: “My nickname for Gavin was our small Arthur Daley, my dad always said if he didn’t end up behind bars he’d end up making a fortune!”

Who was Arthur Daley, you ask? Check Wikipedia. He was a character in a 1970s British TV show who is described as follows:

Arthur Daley, a socially ambitious but highly unscrupulous importer-exporter, wholesaler, used-car salesman, and anything else from which there was money to be made whether inside the law or not.

The entry goes on to note that “the name Arthur Daley has become synonymous with a dishonest salesman or small time crook.”

Jesus Christ…

Miguel Llorens is a freelance financial translator based in Madrid who works from Spanish into English. He is specialized in equity research, economics, accounting, and investment strategy. To contact him, visit his website and write to the address listed there. You can also join his LinkedIn network by visiting the profile or follow him on Twitter.


Marcela said...


Anonymous said...

Just brilliant. Thank you, from a British interpreter caught up in this mess.

Anonymous said...

There is a magazine in the UK called Private Eye which is an amazing read. It essentially uncovers all manner of corporate racketeering. Their site is here if you're interested - www(dot)private-eye(dot)co(dot)uk.

They are particular "fans" of Capita (they call them "Crapita") the company that bought ALS.

Oh the webs we weave! :)

Rob said...

Thanks for this further insight. Although I'm a Brit, I don't watch Dragons' Den so had missed this wonderful insight into Wheeldon's modus operandi. What a smug, slimy, jumped-up weasel. And how poor does the Civil Service's due diligence have to be to award a major contract to this crook? The mind boggles...

Anonymous said...

Thank you, Mr Llorens!

If only the British Government had your clarity of thought, we wouldn't be in this mess. Your analysis is a pleasure to read.

Irish linguist said...

I think this guy is just a TV media whore. Did you know he appeared on another British reality show called 'The Secret Millionaire'? :)
... Check out the intro!
"Entrepreneur Gavin Wheeldon is worth £20 million. At 14 he was already a gifted salesman, at 20 he set up his own company, and he now owns a hugely successful translation business – despite not being able to speak a foreign language." (bolded text by me)

So there you go - he is all talk and always was.

Irish linguist said...

My heart goes out to interpreters mixed up with this awful MoJ case. It often takes a colossal f***-up for things to improve and I think this is a pivotal moment for the interpreting sector.

Now, I carried out a couple of projects for ALS. (sorry!) But they were generally ok to work with until they started outsourcing PM work to third world countries, who wouldn't take no for an answer. Like when you say you're not available for a free test piece to win new business. Or that you're booked for the next week and you can't take this super urgent job at 5c per word. (Standard rate for Gaelic is 12c/w, by the way...) After a while, I became 'permanently unavailable' ;-)

Oh I was offered a fiver (?!?!) for translating tattoos. I mean, seriously, you can get the translation for free on various forums. How is that ever going to develop into a viable revenue stream? And even though some kid will happily drop a couple of hundred quid on a tattoo, good luck trying to get them to pay for an actual tattoo translation.

Fantastic article, btw.

Anonymous said...

Excellent piece of work undertaken. You deserve our appreciations for this. Let us hope some one in MOJ is intelligent enough to understand the clever tactics used by Gavin to secure this lucrative contract.

Svetlana (UK) said...

I take my hat off to you! Why ministers can't think like intelegent people???

Svetlana (UK) said...

sorry "intelligent" people!

Anonymous said...

Hang on. I am not all that hot on corporate finance, but you seem to have missed a trick (but do correct me if I am wrong). Not only did Capita enter the picture several years after Dragon's Den and after ALS won the contract: but on top of that, their investment was not in 9% of ALS but in 100% of it. That, too, makes a difference!

Miguel Llorens M. said...

Don't get confused by the numbers. The figures are as follows:
Wheeldon was selling 4% of the company for 250,000 quid. This implies a valuation for 100% (which wasn't on the table in 2007) of 6.25 million quid.
Capita bought not 4% but 100% for 7.5 million "squid," as Ali G calls it (1.25 melons more than Wheeldon valued his company at in 2007). 4% of that is 375,000 pounds. The remarkable thing for me is that the 300-million-pound contract from the MoJ actually didn't have that great an impact on the company's valuation.

Douglas Carnall said...

Most illuminating: a very fine blog post indeed.

One possibility that seems to missing from both your article and the ensuing comments is that the MoJ contract was deliberately priced to fail.

The MoJ civil servants aren't daft, though you have presented some evidence for M. Wheeldon being so.

In the situations where no interpreter is available, the human tendency is to muddle through, or postpone. Either way is a travesty of justice, but after all they're only foreigners who can't speak English, probably can't afford their own interpreter or lawyer, so any (legitimate) complaints they may have will be muted.
To say this out loud, however, would be sufficiently politically incorrect to arouse the interest of all kinds of bleeding heart liberals who believe in abstract notions of justice and equality before the law.
Far better to appoint an internal saboteur, and watch the service crumble from a safe distance.

Miguel Llorens M. said...

Hello, Douglas: I confess that here I'm wading into an area about which I am ignorant, but I think the hypothesis of willful negligence of pricing to fail suffers from one problem: I imagine several miscarriages of justice will be eventually taken to higher courts and others to European human rights tribunals. Quantify all that litigation as added costs. I think the easiest explanation is that the civil servants just closed their eyes, tapped their ruby slippers, clutched Toto real tight, and just hoped ALS was able to transport them all back to Kansas on a wing and a prayer.

Anonymous said...

As with everyone else, I'm equally appalled by the way in which this contract has been handled to ALS - who are clearly incapable of managing it and who are trying to pay peanuts to qualified staff.

I disagree however with the vindictive way in which Gavin has been portrayed. The issue is with the MOJ who have awarded this contract to a company incapable of managing. MOJ have clearly sanctioned a huge drop in payments to our interpreters who do a fantastic job - assuming they had done their research (which maybe they hadn't) then their cost analysis would clearly dictate the drop that the interpreters would need to take in order for the arrangement to be viable. Why is there such an attack on the small guy? He's running a business - there are thousands of agencies out there - (most of whom however work fantastically with the linguists and pay them well) and he's won a lucrative deal. The issue is not with him but with the MOJ for ever selling off such an important service.

You will get no where personnally attacking Gary Wheeldon - you need to aim your criticisms at those who count and make the decisions.

Miguel Llorens M. said...

Dear Anonymous Sock Puppet:
1.- First of all, please allow me to commend you for your courage in lobbing criticism online without identifying yourself. I would wish, however, that the same degree of courage were devoted by other McLocalization personalities in denouncing egregious incidents such as the ALS-MoJ mega-snafu.
2.- Second of all, you sound like a real dufus of a human being. Calling the CEO of a Death Star Agency that snapped up a 300-million-pound contract on dubious grounds the “small guy” is indicative of how divorced you are from reality. And they talk about Lloyd Blankfein…
3.- I categorically deny that the portrayal is “vindictive.” It is satirical and negative, but not defamatory (trust me, I checked). It is based on quotations taken from Wheeldon’s own media performances and from his own mother, for Pete’s sake. I harbor no personal animosity toward Mr. Wheeldon. I just feel revulsion toward everything he stands for.
4.- My negative view of Mr. Wheeldon, of whom I was unaware prior to the ALS debacle (which makes it hard to view my attack as “vindictive”), is due to the fact that he is an ideal specimen of several worrisome aspects of cheap translation companies. Chiefly, that they are hollow carcasses that often function just as fronts for a database of unqualified freelancers (in ALS’s case, not even that, which is why it has been forced to allegedly filch interpreters’ details from other online databases).

Miguel Llorens M. said...

5.- You out yourself as a McLocalization executive in this sentence:
He's running a business - there are thousands of agencies out there - (most of whom however work fantastically with the linguists and pay them well) and he's won a lucrative deal. The issue is not with him but with the MOJ for ever selling off such an important service.
In a nutshell, that is the problem with the Cheap Translation model. Nowadays, a large agency is often just a sales team (of monolingual English speakers) and a stable of project managers (usually located in Eastern Europe or Panama). The sales people hook the bait (at any price), reel in the unsuspecting customer, and then turn the whole project over to the PMs, who look up a random name on the database and then try to arm wrestle the lowest possible rate from the bumbling “vendor.” The ALS debacle is the same dubious model multiplied by a factor of 3,000. Your formulation seems to imply that, even though ALS didn’t actually have a parallel database of qualified interpreters, it was fully entitled to go out and snag the mega-contract from the Ministry of Justice. Here is where I differ from your complacent view of McLocalization.
An ethical businessperson would have told the MoJ that undertaking a responsibility as large as providing thousands of interpreters would take years. Moreover, to cut people’s wages in half overnight was not realistic. The system should have been phased in over a period of at least five years, if not more.
The decision to jump at the MoJ contract at any cost and under any circumstance clearly was a case of a tiny, ravenous amoeba trying to bite off more than it could possibly chew in a million years (in this case, a morsel of food approximately the size of a killer whale). It is both bad business and bad ethics. However, people like Mr. Wheeldon, born salesmen who first get the contract and then worry about how to meet the service (by his own admission to the Times), are totally devoid of ethics. E-T-H-I-C-S. Business is not just about closing the deal. It is also about being qualified to provide the best possible service for a reasonable rate. The prevalence of people such as Mr. Wheeldon (and their chummy tolerance by people such as you) is symptomatic of what is wrong with McLocalization: shady businesspeople who think translation is a commodity service that simply consists in matching a project from a faceless online customer to an online translator profile cribbed from I am guessing you are the head of such a pirate outfit, perhaps somewhere close to the Horn of Africa.
5.- True, the MoJ’s flying civil servants do not come in for a drubbing from me, but on the other hand they do not parade around on reality shows to flaunt their raging sociopathic tendencies. Yes, the civil servants should have done more due diligence. Simply auditing ALS’s database of interpreters and doing a dry run of the system in one or two regions would perhaps have alerted them to the feasibility of doing all of this. So, in that sense, they are equally responsible for this mess. Perhaps they did so due to the pressure from their political masters. When I hear the comments from the entity called “Crispin Blunt” about the whole mess, it becomes quite apparent that there was acute pressure from the Cabinet to make a transparently awful decision due to the urgency of making budget cuts. Yes, Mr. Wheeldon is not the only culprit in this mess, but the moral instincts he reveals in the media are a major factor in this entire tragic catastrophe. And the reigning professional standards among the many “thousands of agencies” you cite is also borne out by your pious little comment.

Anonymous said...

Then ALS were caught in a data-theft scandal whilst trying desperately to deliver into this contract (some quoted fulfillment rates are as low as 18%), then the shadow justice secretary calls for sanctions, and now - ALS are caught up in a collusion scandal over another tendering process...

Kevin Hendzel said...

That video was hysterically funny to watch. Here were my impressions, in no particular order:

1. Was that cash stacked up on the desktops? I suppose visual props are crucial to convey how all this money is so real when discussing arcane aspects of investment finance like P/E ratios, projected earnings and cash flow, which might causes the audience to suddenly flee. Ack! Numbers!

2. I thought all the stern looks and furrowed brows and the overall thoughtful gravitas on the part of the Dragons were quite impressive, until they got to the actual investment amounts discussed. 150K? Seriously? I've sponsored and hosted ATA conference events plus after-event dinners in five cities where I've spent that much on the wine for the CNN crew that was attending.

OK, I'm exaggerating, but not by much. And of course that's dollars, not pounds, but still. Are those real investment amounts at a level to be discussed on a national TV show? Or the check for a really awesome week in New York City?

3. By far the most shocking part was how in God's name this goofball punk of a moronic dweeb got off talking about the translation industry on a national television show under circumstances that clearly show 1) He's not a translator, an interpreter or even multilingual; 2) He's clueless about how the translation industry actually works; 3) The Dragons know more about the industry than he does and 4) He's a completely hopeless and brainless twit when it comes to reading a friggin' balance sheet. It's a BALANCE SHEET. And he's purportedly a CEO? CEO of what? Sesame Street? No, wait, they make a ton of money and are intelligently managed. He presents himself as an entrepreneur, and he doesn't even know how to calculate the P/E?

5. Holy crap!

6. I actually started to feel a little sorry for him as he was being lectured on subjects every 18-year-old accounting student at a community college learns. Sort of like I always felt about the poor dodo birds when those mean guys with clubs came ashore.

7. I changed my mind when I learned that they got fat, flightless and stupid because of tons of easy food and no predators.

8. Where was I? Oh, yeah, same thing.

9. I wouldn't wring my hands too much about how he made some money at the end of the story. I'm not up to speed on how the authorities in the UK handle failure to perform on contract efforts, but in the U.S. those folks who swept in and bought his company on the strength of future potential (e.g. not yet real) revenue and earnings would be aware that not only can the contract be terminated for non-performance, but the federal government can come after any activities that they deem to have been committed in bad faith or with the express intent of defrauding of misleading the government. In the U.S. at least, the contracts governing the sale of companies include long, fat, protective provisions protecting the buyer -- some with no expiration dates -- stipulating the forfeiture of proceeds from the sale in the event of any bad faith actions at all.

10. And under the law, you don't even have to be aware of them for you to violate the contract provision -- because it's a private commercial contract and not an activity covered by criminal law.

So the final chapter on this may have yet to be written if there were in fact any bad faith actions.

There's no law against being stupid (yet) so perhaps he can retire to Mauritius and sip on some cocktails with those little umbrellas in them until the authorities show up with their own clubs.

Miguel Llorens M. said...

Oh, I confess I hadn't noticed. Those ARE stacks of cash on the Dragons' desks! So literal! Is this a venture capital meeting or a drug deal. Anyway, I've never watched the Dragons, but BBC reality shows tend to be slightly less outrageous. In this case, though, it seems some producer decided that people needed a slight reminder that all of this is about MONEY.

Dave Dempsey said...

Miguel, as one to have first hand experience of the Wheeldon's methods I congratulate you on this article. I have seen his MO at first hand many years ago and have been bemused how he had managed to get away with such bullshit and self promotion. You would not believe how accurate you are , beggars belief what the MOJ and Capita due diligence teams did. GW is no victim in this, be careful though he has moved into the food industry:

I wonder what the next angle will be?? Do feel a bit worried for his business partner looking at the photo??