Donald Mouse? Is that an erroneous mixture of the duck and Mickey? Cheers Alec
On 14/09/2012, at 8:57 AM, "Richard Naef" <[email protected]> wrote: > fascinating reading, sees that the business is in good health, BUT cash flow > is a problem and the audit seems to be a bit dodgy, also a interesting > reason why the due diligence might be taking a bit longer, basically the > ridiculously large list of companies with a finger in our pie; > > > > Leeds United - Financial Analysis 2012 > > Further to comments from Ken Bates that the club “will continue to be run > along proper lines,” we have undertaken a review of the financial situation > at Leeds United. Following on from the latest cash analysis last week, the > report below is based upon the views of independent football expert Rob > Wilson and our own finance experts. The subjects covered are by no means > exhaustive, but help to highlight the overall state of the financial > situation at the club. > > 2011 Audited Accounts > > Further to our discovery of errors in the audited accounts Rob Wilson > commented that, “I found your findings concerning,” and, “Your claims expose > some, to be frank, poor attention to detail on behalf of the auditors and do > not fill me with confidence in the firm.” Both ourselves and Rob welcomed > the news that the accounts are to be revised by the auditors and > resubmitted, and look forward to seeing the restated accounts once the > errors have been investigated. > > Nevertheless Rob Wilson stood by his original comments upon first reading > these accounts, which was that they indicated “good news from a business > point of view.” > > While he believes the club was running well financially he made it clear > that investment in playing staff is vital if Leeds are to progress in the > coming years. He commented that, “There is a degree of balance that is > needed and while it is good that the financial position is good I do believe > that there is flexibility now to be more aggressive in the transfer market.” > He expressed disappointment at the lack of any significant activity in the > transfer market as he believes Leeds United have the resources to achieve > this. Echoing our own Vision Statement he stated that, “I would expect the > breakdown of expenditure to be more heavily focused on the football and > first team squad side of the business as opposed to other things,” adding > further that, “Leeds is one of the most well and actively supported clubs in > English football and while a degree of concentration on mainstream > opportunities, e.g. real estate etc, is helpful to diversify a portfolio > your core business activity must be that of football and achieving on the > field of play.” Both Rob and ourselves feel that the concentration should be > on football as our main business activity, the core of the club. > > Wages and Wage Ratios > > Getting into the detail, Rob Wilson commented that the club’s wages to > turnover ratio of 51% is outstanding and the club have an enviable position > throughout the league system with very few clubs in a better position than > this. The positivity of the ratio is not something that we disagree with, > but for it to truly be envied as a business performance measure, success on > the field must be coupled with it. > > Unfortunately this great financial achievement meant that we only finished > 14th last season, so it is unlikely that Reading and Southampton, while only > managing to attain ratios of 90% & 100%, looked down on us from their > promotion spots with much envy; nor would Norwich the season before with an > 80% ratio. We do not advocate spending beyond our means to achieve the goal > of promotion like these clubs have done; we are not in the fortunate > position of having owners such as they do that have kept them afloat with > cash injections. > > However, what we have that no other club in the Championship has, is a huge > and loyal supporter base, which means we are among the top (if not the top) > income generators in the division. Unlike the majority of clubs, we could > compete with the top six spenders on wages without having to jeopardise good > business practices and while maintaining wages ratios that would continue to > be the envy of all around us. Rob Wilson agreed with our analysis that a 60% > ratio is sustainable. > > On our current turnover, this would allow the club to spend up to £20m on > wages (we spent £16m in 2011), which would put us firmly in the top six for > this division. The importance of this statistic is that Deloitte’s analysis > of the Championship (as part of their widely regarded annual football > review) has demonstrated that to be in with the best chance of promotion > from the Championship to the Premier League, a team has to be among the top > wage six spenders in the league. Of course there are other factors involved, > as the spending has to be on the right players, but in Neil Warnock we have > a tried and trusted campaigner with years of experience, so if he were given > a top six budget we are sure our odds for promotion would be even better > than Deloitte’s suggest. > > Profits > > Rob Wilson suggested to us that the 3% profit before tax margin shown in the > last set of accounts fairs really well in the context of the league. He > stated that, “I am certain that Leeds supporters will be one of the few to > see their club make a positive return.” We agree with this view, however, we > also feel that it masks the reality of our situation. > > Obviously the above return was made as a result of the very prudent staff > costs and we agree that very few clubs make a profit. Therefore, the > immediate thought is that increasing the staff costs will result in losses. > However, when we look into the detail once more what we see is a club that > manages its staff costs very tightly, but allows other areas of cost to > spiral out of control. Back in April this year Shaun Harvey admitted under > oath at Leeds County Court that, “we are spending a fortune on legal fees”; > our own analysis confirmed that R M Taylor alone received in the region of > £1.5m for legal fees over a three year period between 2007-2010, and we can > only imagine how much more has been paid to other legal firms. We believe > that these costs were unnecessary and would have allowed the club to > increase its staff cost budgets if they did not exist. > > When looking at profits the other major influence is revenue. Based on the > drop in average attendances and what we are being told by our 8,000 members, > we conservatively estimate that the club is losing around £2.5m in lost > ticket and merchandise sales due to supporters staying away or refusing to > spend money on club products until they know that this money will be spent > on the team. At a 60% turnover ratio, this would equate to a further £1.5m > available in the staff cost budget. > > Building / Investment in Non Core Activities > > As a recurring theme throughout both Rob Wilson’s and our own analysis we > can see that investment in building work has taken priority over the > football team. We both agree that, while investment in assets is important, > it should not happen to the detriment of the first team squad. Our analysis > showed that from the exit of Administration up to the date of the last > audited accounts (30 June 2011) the club has committed to spending £16.1m on > building and improvements to facilities, while spending £7m on acquiring > players, having received £13m on the sale of players. So, it would appear > that the profits from player sales are being reinvested in building work > with the argument being that we are building future revenue streams. We have > had no indication of when these streams will start to benefit the first > team, but we do know that the club has had to take out a loan of £5m to be > paid off over the next two seasons, and to sell preference shares for £3.2m > in order to pay for these future streams. From this we can conclude that it > is unlikely that any benefit will be seen for at least two more seasons. > While trying to regain our top flight status, this decision seems a little > premature at best. > > Cash > > Cash is king in any business, as businesses that do fail or get into trouble > often do so as a result of lack of cash; this is why we felt it was > important to produce the special cash report first. > > Having shared our report with Rob Wilson before publication he admitted > after reading the results that, “The cash analysis that you've done concerns > me.” Commenting that, “the assumptions seem sound,” he further agreed with > our own conclusions that Leeds United would either have to sell players, > obtain further loans or find outside investment if the club were to continue > as a going concern. Wilson added that, “based on business principles, to > survive a business needs to ensure that a) the selling price is higher than > the cost and b) it can pay its debts as they fall due.” He stated that, “The > club needs to sell more tickets and attract better sponsorship. To do this > you need some more team investment and, in my opinion, a better more > associated relationship with the fans.” Wilson heeded the warning of > Southampton as an example, where Rupert Lowe fell out of favour for similar > reasons to those that exist at Leeds United and the fans started to turn. > “The new board has done things differently, won the favour of the fans and > they are now in the EPL.” > > As a final comment Wilson warned, “I'm not a fan of borrowing against future > season ticket sales. The method has been proven to fail in the wrong hands - > look at Rangers. Let's hope that the arrangements at Leeds are more > supportive and do not destabilise the financial position.” > > We did not ask Wilson to comment on this, but the reported cash from the > Snodgrass transfer being paid to Close Leasing Limited would further support > the concern that we raised about where our money is going in the cash > analysis. According to our contacts, the club sold part of the Snodgrass fee > to Close Leasing in return for immediately available funds. This would > suggest that no funds were immediately available (as there is obviously a > cost associated with this transaction, it would not make business sense to > assign the debt if it was) and that this cash was required in order to > fulfil the transfer activities that have taken place over the summer. As we > mentioned the club is likely to have received nearly half their usual annual > budget by the end of August, therefore having to sell off future transfer > income on top of this is very concerning. > > To further support the cash concerns we have also learnt that Neil Warnock > has been refused permission to sign two top loan targets that he had lined > up; our understanding is that he was told there is insufficient cash > available for him to get the players he wanted. > > With all the loans and share sales we are hearing about, it is even more > concerning to discover that our sister companies have all received financial > assistance from the club that we believe are still outstanding at this time. > As at the end of the accounting period 30 June 2011, these amounts were > reported as follows: > > * £1.6m loaned to Yorkshire Radio Limited > * £2.7m Loaned to Leeds United Centenary Pavilion Limited > * £255k Loaned to Leeds United Media Limited > > This totals nearly £4.6m, which makes us wonder whether, if it had been > repaid, we would still have needed to borrow £5m from future season ticket > sales. We are unsure if further assistance has been provided to any of these > companies since this date. > > The Takeover? > > As we all know this process has appeared to drag on forever, however when > you look at a few facts it is not too difficult to understand why it might > take longer than other clubs to complete. > > Due Diligence > > Due Diligence is a complex process and delays often occur as a result of the > findings. The situation at Leeds United makes it more complex than at most > other football clubs due to the sheer volume of entities that need to be > researched. Below is the list of organisations that would need to be > investigated and are registered at Companies House as having some form of > connection to the club. Listed alphabetically: > > * Adulant Force Limited > * Charmed Garden Limited > * Donald Masse > * Elland Road Limited > * Fan Radio Limited > * FSF Limited > * Halton Sports Limited > * Homer Trust > * Leeds City Holdings Limited > * Leeds City Limited > * Leeds First Limited > * Leeds United 2007 Limited > * Leeds United Association Football Club Limited > * Leeds United Centenary Pavilion Limited > * Leeds United Financial Services Limited > * Leeds United Investment Limited > * Leeds United Media Limited > * Leeds United Retail Limited > * Leeds United Stadium Limited > * Lutonville Holdings Limited > * Outro Limited > * Roman Heavies Limited > * Sporting Consulting Group Limited > * The Leeds United Foundation > * Treliss Designs Limited > * Yorkshire First Limited > * Yorkshire Radio Limited > > There are 27 firms on this list and it is likely that, given we know a > number are based offshore, there could be even more. By comparison, the new > owners of Nottingham Forest would only have had to look into the details of > 4 entities. The above list might also help to explain why an indemnity is so > important to any buyer of the club. While assurances on the selling side > should make the buyer comfortable that no major unknown issues exist and the > due diligence process should further support this, looking at the volume of > entities involved above, it would not be difficult to imagine how either > party could have missed something and would want indemnities to protect > them. > > Conclusion > > As per our Vision Statement we have always shared Ken Bates’ stated aim that > the club should be run based upon good business management principles, but > when looking at whether the club is being run along proper business lines, > there are many factors that we have to take into account. If Mr Bates > believes proper lines involves managing staff costs tightly in order to make > a profit then he will be satisfied with our findings, however our views of > good business management are more extensive. > > We believe that a properly managed Leeds United would concentrate the > majority of its investment on the core business - the team; maximise all its > revenue streams by positively engaging with its greatest revenue source – > the fans; manage other costs just as tightly as staff related expenses, and > ensure that any investments did not leave the club short of cash and in need > of expensive loans. Running a business is not complex when these good > business management principles are followed. > > From our analysis the current situation at Leeds appears to have faltered in > terms of these guiding principles and is therefore in need of corrective > measures. Further loans or player sales might prevent the club from falling > victim to another catastrophic administration process in the short (or even > medium) term, but the only long term business solution in our opinion is > fresh investment and a new focus. > > It’s time for change. > > > Supporters can also join more than 7,900 other Leeds fans and have their > voice heard as members of the Leeds United Supporters’ Trust by filling in > the form at > <http://lufctrust.us2.list-manage.com/track/click?u=961b4c64f7799c1c11c962c4 > 7&id=40b45f03d3&e=ab5abcd707> www.lufctrust.org. Membership is free. Keep > checking for updates on > <http://lufctrust.us2.list-manage1.com/track/click?u=961b4c64f7799c1c11c962c > 47&id=6c7f3113cc&e=ab5abcd707> www.lufctrust.org, and our > <http://lufctrust.us2.list-manage.com/track/click?u=961b4c64f7799c1c11c962c4 > 7&id=30d76a66e7&e=ab5abcd707> Facebook and > <http://lufctrust.us2.list-manage.com/track/click?u=961b4c64f7799c1c11c962c4 > 7&id=aa78d222d8&e=ab5abcd707> Twitter pages. > > > > _______________________________________________ > Leedslist mailing list > Info and options: http://mailman.greennet.org.uk/mailman/listinfo/leedslist > To unsubscribe, email [email protected] > > PETE CASS (1962 - 2011) Rest In Peace Mate _______________________________________________ Leedslist mailing list Info and options: http://mailman.greennet.org.uk/mailman/listinfo/leedslist To unsubscribe, email [email protected] PETE CASS (1962 - 2011) Rest In Peace Mate
