It looks like Leeds United are again on the brink of another
takeover, this time to a consortium led by Chief Executive David Haigh and rumoured
to include Andrew Flowers, CEO and founder of Enterprise Insurance.
The Haigh consortium are rumoured to be acquiring a 75% stake
in the club which would see GFH retain a “significant stake” and Noorruddin
remain involved in the club. A second takeover has been on the cards since GFH
acquired Leeds in December last year, however a proposed sale fell through
during the first half of the year, and since then (and Bates’ departure from
the club) much work has centred around stabilising the operations of the club and
also re-engaging with a disenfranchised fan base. This work has started to bear
fruit with average attendances up 18% from 21,572 last season to 25,511 this
season. Whilst it is unclear as to whether the merchandising and other
commercial revenue has seen a similar impact, it bodes well for the future
financial performance of the club. In
addition to this, the reduction in overheads undertaken over the summer should
help to reduce the financial burden on a club with one of the lowest wage to
turnover ratios in the division.
The Consortium
Details as to the make-up of the consortium at this stage
are quite sketchy. As has been reported, Andrew Flowers has been detailed as
one of the investors, which has coincided with a proposed sale of a stake in
Enterprise Insurance (his Gibraltar-based UK insurance company). Flowers is the
founder and significant shareholder in Enterprise, however his actual stake in
Enterprise and net worth outside of this is unknown. A 2009 bond issue
prospectus details a trust controlled by the Flowers family as having a 50%
interest in the controlling company, with a further entity (Rhone Holdings Ltd)
retaining the remainder. Its unclear as to whether Andrew Flowers was behind
both entities and the holding structure seems to have changed since then. Enterprise as a whole is valued at £100m, but
it appears that only a stake is mooted to be sold, therefore how much of any
value generated by this will be injected into the Leeds deal by Flowers is
unclear.
The Elland Road
Millstone
The sale of Elland Road in 2004 to Jacob Adler for £8m
during the midst of our financial meltdown was a particularly hard blow for
fans, and the subsequent rental payments (now totalling £1.4m p.a. with annual
increases of 3% p.a.) have continued to put a strain on the cashflow of the
club. One of the (many) perplexing aspects of the Bates era was the lack of initiative
to buy back Elland Road for the £15m option price, especially when countless
sums were spent on renovation and redevelopment of various aspects of the
ground. Much of this was grounded in the somewhat naive belief that the club
would be able to boost its revenue stream significantly by improving the
overall customer “experience”. As such, an estimated £11m has been spent on
rent since the ground was sold. Sources close to the Haigh consortium have
indicated that buying back the ground will be their “top priority” which is good
news for fans and for the future financial performance of the club, albeit
cynics will note that each of the previous takeovers (Bates and GFH) have
included similar promises. The difference this time is perhaps that the Haigh consortium
will be going into this from an unrivalled position in terms of in-depth
knowledge of the club’s true financial position (something which it is likely
that GFH struggled to ascertain even with an extended due diligence period) and
which would therefore suggest offers a strong possibility of occurring.
The benefits of owning Elland Road once again are
significant. The removal of rental payments should result in a direct
improvement in the profitability of the club. Under the terms of the lease, the
club will be responsible for all repairs and maintenance of the club anyway and
therefore these are costs which are paid for as part of the operations of the
club. This should therefore give the capacity to boost the wage budget going
forward (£1.4m equates to £26,000 per week which is not an insignificant sum in
the Championship).
Transfer Pot – Return
of the prodigal son?
In addition to the proposed buyback of Elland Road, it has been
suggested that Brian will be provided with substantial funds to improve the
squad in January (finally an alleged transfer “pot” worthy of the name). As
part of this, Max Gradel has emerged as a transfer target and initial
discussions are rumoured to have taken place with St Etienne. Again, cynics
will recall the same drama last January which came to nought and also featured
the sale of Luciano Becchio. Whether a player returning to an old club is a
good move is also an important consideration, however I would hope that the
club are relying on McDermott’s judgement as to whether it is suitable, and his
comments yesterday were quite encouraging.
As per previous transfer windows, I will believe the squad
investment when I see it, however any purchaser of Leeds United must realise that
the squad is one area which has consistently been underinvested in. Further to
this, the introduction of Financial Fair Play financial penalties next season
would offer the consortium the opportunity to invest equity into the club for
the improvement of the squad before this is restricted as per the beginning of
next season. Some focussed and specific investment in a few key positions could
provide the club with the impetus to build on a promising start this season and
mount a sustained challenge for promotion.
Conclusion – A Wishlist
As Christmas approaches, it seems appropriate to detail a Christmas
wishlist for the new consortium. Leeds fans are a long-suffering bunch but we
must hope that 2014 will finally bring wealth, prosperity (and maybe success?):
-
Clarity
of ownership: A decade of offshore vehichles, trusts, murky ownerships in
far-flung places have been disconcerting to the fan base. I would hope that the consortium will provide
greater clarity as to its composition and intentions going forward.
-
Buyback of
Elland Road: The buyback of Elland Road, both for financial but also for
more emotional reasons must be high on the list of all Leeds fans. Elland Road
is our home, and the improvement in cashflow from the removal of rental payments
will be of considerable benefit.
-
Squad
investment: A decade of our best players being sold, patched up with free
transfers (with the occasional gem emerging) has been a hard cross to bear.
Focussed investment is required to push us into the midst of the promotion race.
-
Back
Brian: McDermott has been a revelation since joining the club, and has
managed what must have been a turbulent few months quite gracefully. The
stability he exudes at the heart of the club has allowed us to keep performing
this season after what must have been a relatively disappointing summer. Keeping
him on board and at the heart of the club is crucial.
-
Keep up
GFH’s work: Much has been made of GFH’s PR machine, the motivation of an
overseas investment bank looking to generate a profit, and the mixed messages
from the club over the past few months with various talk of investment, players
(Gradel) re-signing etc. However the work done to re-engage the fanbase with the
club, the hard work done at improving the operational costs in the club must be
appreciated. Personally, I am convinced that Leeds would have entered
administration last year without their intervention and their contribution over
the past 12 months must be seen in a very positive light. It is important that
the work begun by them is continued.
Let’s see what the next few weeks bring, I for one am hoping
for a very prosperous 2014.
