It’s difficult for GFH to have found a more ideal
buyer than Massimo Cellino. the details which have emerged of the agreement
struck between Cellino and GFH indicate a quite one-sided deal with sources
close to the deal suggesting £11m of equity paid to GFH (part having been
paid already with the remainder to follow in December 2014), £10.5m of short
term debt believed to be due between 2015-17 in instalments, and a remaining
balance of £13.5m of long-term debt believed to be due at promotion. The
crucial element of this is that all is to be repaid to "connected parties
of GFH". GFH (or its connected parties) will therefore receive a total of
£35m for 75% of Leeds United, which values the club at £46.7m. A club with no
assets, aside from a captive fanbase and a mediocre squad.
Sources close to the club have indicated that the
financial situation post-closing rapidly deteriorated as the scale of some of
the costs relating to the club increased rapidly. Rumours of significant
increase in running costs would tally with the disclosure that Leeds was
operating with losses of £70,000 p/day (£25.6m pa) which would tally with
figures which had been indicated by sources close to the club who had been
given insights into the financial situation post-closing. This would represent
a massive increase compared to the £12m losses recorded as at year end June
2013. Whilst additions were made to the playing squad, there were also
departures, and nothing which would suggest a doubling of the wage bill. In
addition, revenue should have increased over this period as gate receipts
recovered significantly. It would therefore suggest that other non-football
related costs increased significantly over the year, costs which don't relate
to the rent on Thorp Arch, Elland Road, or the playing squad. Quite a clear
indication of the risk of purchasing a football club without any due
diligence... buyer beware indeed! The £20m working capital which Cellino set
aside for the club was a drop in the ocean given the requirement to stabilise
the club over the next couple of years if the continuing operating losses are
of the magnitude disclosed.
Flash forward to the restructure with GFH. From
what we understand of the agreement, GFH have agreed to halve the debt due with
the remainder to be repaid upon promotion. That would suggest that the
"long-term" debt remains in place but the short-term debt will be
written off.
It is important to be absolutely clear as to what
the nature of this debt is. Fundamentally this is money invested by GFH (or
connected parties (which in layman's terms is a subsidiary or closely related
party of GFH)) during their ownership into the running costs of the club
(essentially to cover losses). Whilst it is structured as a liability, anyone
with oversight of the true scale of the losses would have ensured that a
significant element was written off from day 1. Whilst it is good that Cellino
has managed to reduce this obligation, the "triumph" should be
balanced with the fact that it was by all indications, a ridiculous deal to
begin with, and one which the club (and therefore ultimately the fans) would
have been paying for going forward.
Much has been made by Cellino of the need to cut
costs, with rumours of wage caps for new players, attempts at reductions for
current players, redundancies amongst non-playing staff and also the removal of
Brian McDermott followed by the replacement with David Hockaday (a saving of
£800k if the rumours are to be believed). A key question has to be whether the
cuts are being applied to the right places. As this writer has stated numerous
times, the wage bill (which includes players AND the manager) has remained
towards the bottom end of the Championship on a wage to turnover basis over the
past few years. It therefore seems bizarre to target this element to reduce
costs in this context. Ultimately the one element which should not be targeted
for reduction is the investment in the squad and arguably the management team.
There is a need to redistribute that expenditure to arguably better players but
a target of reducing it, in line with appointing an inexperienced lower league
manager does not seem to be conducive to success.
It remains to be seen how the next few weeks pan out but it’s clear that
there is a long way to go for fans of Leeds United. As a bare minimum, serious re-investment
in the squad following the sale of McCormack is still required and the time has
surely come to question the wisdom of the Hockaday appointment. English
football is not the same as Italian football, as Cellino is coming to realise,
and a head coach on the budget he has assigned is highly unlikely going to be
good enough for the Championship. Sadly 2 weeks before the start of the
championship season, Leeds currently look woefully unprepared to meet the
challenge, at a time when most other clubs have already recruited substantially
and are putting final preparations together for next season. The chaotic
approach to the summer period would suggest we’re in for a long bumpy ride.
