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.