Leeds United are a good example of the broken business model inherent in most UK football.
A business which attracts on average 20,000 or so spectators paying £20-£30 per head every other week, enjoying a turnover of £22m> but having a crippling £14m of that turnover spent on staff wages of the other £8m? £2m on renting the ground, £6m on other costs… just where indeed is the beef in that? All it took Leeds recently (summer 2012) was a spot of ambition to raise their revenues off the pitch a mere £5m to redevelop Elland Road East Stand corporate boxes, the result? Outgoing Chairman found himself in bed with Ticketus and mortgaging £3m from this seasons season ticket revenue(s) at a stroke crippling the cashflow.
Leeds are a Championship club. There isn’t a £20m plus pot of TV gold for those clubs, but like envious neighbors they live in such proximity to their wealthy betters that the temptation to spend big to get there is an inherent risk, one which can financially destroy clubs if they get the balance wrong.
Leeds supporters were glad to see the back of Ken Bates (for the most part) when GFH Capital bought the club from him little over a year ago. Why? Well Leeds are a £22m per annum turnover business – why were we dredging the bargain bins of football for the Paynters? The Connollys? The O’Briens? Why were we selling our Delphs – our Howsons (often for vast sums) and then not spending the money to replace them?
Bates was dictionary definition unambitious at worst rumours abounded that he was somehow fleecing the club. He made poor commercial decisions based on his view of business sense (like the aforementioned East Stand) usually based around refurbishing the rented Elland Road.. rumours (yes them again) persisted throughout his reign that he may well have been the owner of the ground anyway.. Wouldn’t £5m of squad investment have got us where we needed to be?
Managers spoke out against him – Grayson, Warnock, before them Blackwell – down came the dreaded axe.
For all his prudence the club went bust in 2007.. But what’s really changed since then? Are we more commercially astute now GFH Capital own us? Are we more profitable? Do we have more cash to spend? Well no we don’t – and it’s a big fat no to the other questions too.
If Massimo Cellino buys Leeds United as we think he probably will he will have to plough literally nine figures near enough into the club if he wants out of the Championship. The same was true for Bates. How much? well here’s some (very approximate) numbers below:
- Buy Elland Road and Thorp Arch cost? £25m>
- Subsidize lost season ticket revenue next season £5m>
- Pay back Forward Sports £6m>
- Write off the £1.5m loan from Eleonora Sports Limited – or pay it back (either way) – £1.5m
- Oh – and buy 75% of the club – alleged to be £25m
- That’s already over £60m spent.
- Now lets think about the playing squad?
Cellino is buying at a good time. High earners like Green, Diouf, Varney, Brown, Pugh, and Drury are out of contract this summer lets put them on £10K a week on average (again an educated guess no more) that’s £60K, a staggering £3.12m per annum saved. In truth the number is probably higher.
It also gives you an idea of the cost of cancelling contracts of players he (sorry i mean the manager) might want to move on – but no one wants to buy – a very Leeds United problem for the past 5 years or so – lets call it the ’Paynter Effect’ players on big wages, that no one will buy, indeed very often they won’t take them unless you pay some of their wages.. again naming no names some of these players do exist on relatively high wages in our midfield especially. Lets call that conservatively a £2m-£3m problem too – and that’s before we start buying!
So it really isn’t a case of Don Cellino chucking £10m at the manager to spend. To be fair the same was true for Bates and GFH – the key difference though is they hadn’t just had a 90m Euro pay day like Cellino has, that of course and his already established personal wealth.
Peter Lorimer waxes lyrical about Cellino’s personal wealth (shock horror) and how he’ll work with him (keep waiting by that phone Pete! PR should I say Pietro) if he buys into Leeds United and it is this money which would indeed be a game changer for Leeds.
Owning the stadium wipes off the rent liability. It gives the business an asset against which to borrow money. Cash means debts get repaid – and the interest on those disappears too – it gives you your season ticket money back.. The initial outlay as described above is sizeable though, and it highlights just how poor the UK Football model is.
To even compete Leeds need a vast sum of cash – nearly 5 times their turnover – just to get their heads above water. Their turnover may well increase to £50m-£60m per annum in the EPL but that is initially still not a business paying back the cash used to get there – not for at least 2-3 years – and of course once up there – the wages and transfer fees go up too.. and so does the debt.
UEFA FFP has tried to stop such irresponsible spending patterns – but really there are no other options than to spend your way out. Swansea, Cardiff, Leicester, QPR they all spent their way out – accepted Swansea did do it by playing better football than the others. But this is the key point being made.
Leeds United have not been a well run concern since well before the days of Leslie Silvers Chairmanship. Commercially they never had the reserves of Liverpool or Man United, certainly not the cash (just read Bill Fotherby’s autobiography) and their small time approach to investing in their stadium and facilities 20 and 30 Years ago cost them at the time so it continues to do so today – with each financial crisis at Leeds the meter starts running again – from zero… and the money spent by fans – its gone – wasted.
Until UEFA pulls its head out of its posterior and creates a truly equitable system to redistribute the enormous TV revenues from the top of the game down to the 2nd 3rd and 4th tiers there will never be true competition until it challenges the likes of Man Citys ludicrous stadium sponsorship as vehicles to plough equity into clubs outside of FFP it will not stop wasteful and un-commercial levels of spending either.
For a club like Leeds to need to effectively find someone to lose £100m just to revive them from their torpor is obscene. Obscene in a country with a real poverty problem, where the government need to cut to pay the bills – is it money worthily spent? Of course not! What would £100m of spending on flood defenses in Somerset do for the people and economy there? Long term a hell of a lot more. To Man City its 4 OK International right backs.. SO perhaps rebuilding an entire team at Leeds is that bit more worthy.
But as long as Leeds sit waiting for financial messiahs to save them, the problems of the past 10 years will be a rinse and repeat.
We need to make ourselves truly sustainable – something GFH Capital promised but spectacularly did not deliver. We posted more losses – and went out looking for cash. That isn’t sustainability that’s called throwing money at the problem.
Reporter - Matthew Brown – Bolton