From: Leeds United Supporters Trust
Leeds United Supporters Trust Statement - LUFC Financial Analysis Update 7th
January
Back in September 2012, we undertook a detailed review of the finances at
Leeds United and made a number of comments and predictions. We can now
revisit these in light of the latest accounts (to June 2012) that have been
submitted, somewhat earlier than in previous years possibly due to greater
efficiencies or perhaps because it means that further financial details
regarding the takeover will not need to be disclosed until next year…
Headlines
- Group turnover decreased by 4% from £32.6m to £31.1m
- Gate receipts decreased by 10.6% from £12.7m to £11.3m
- Wages to turnover ratio increased from 51% to 57%
- Overall admin costs increased from £8.6m to £9.8m
- “Unknown” admin costs increased from £4.5m to £5.2m
- Shaun Harvey was paid £259k including pension payments and benefits
- Since administration, the club has spent £17.7m in cash on building works
- Yorkshire Radio, LU Pavilion, LU Media and Leeds City Holdings lost a
combined £781k in 2011/12
- The combined losses of these companies now total £4.94m
- Yorkshire Radio and the Pavilion owe LUFC £3.7m; LUFC owes LCH and LU
Media £600k
- Profits from player sales - £2.5m - were required to keep the club afloat
- Preference shares issued to Lutonville Holdings - apparently controlled by
Ken Bates - incurred admin costs of £107k
- £4m was payable to Lutonville upon “change of control,” which occurred a
year to the day after the £3.2m share issue
- Future income from two years of season tickets and five years of catering
profits has been mortgaged
- Net debt increased by 297% - £3.89m - in 2011/12
- The new owners look set to inherit £19.4m worth of debt.
These accounts show the situation at Leeds United as at the end of June
2012 - the end of 2011/12 season, and the early days of takeover
negotiations. The six months between this accounting period and GFH Capital’s
takeover showed no alteration in the way the club was run under Ken Bates
and Shaun Harvey, meaning that we can assume the trends shown in these
accounts have continued in that time. It is clear by just looking around
Elland Road on matchdays that gate receipts so far in 2012/13 must be even
worse than for the same period in 2011/12, itself a 10% drop from the
previous season.
Despite Ken Bates’s constant assurances that the club was being run “along
proper business lines,” the accounts show that as the club made almost no
effort to arrest the slide in attendances and consequent decreasing
turnover, the only way the club could stay afloat was through player sales,
loans, and eventually outside investment. The club now has potentially
£19.4m of debt. The much heralded building works and off field improvements
have so far cost the club nearly £18m, and yielded nothing by way of profit.
Despite this, Shaun Harvey still states in the directors’ report that “The
growth on [sic] non-matchday revenue remains critical to our plans so the
dependency of success on the field is reduced over a period of time.”
Given that the football side, by virtue of player transfers, has been
required to keep the club afloat while the losses of the non-matchday side
grow ever greater; and that non-matchday activities will need to earn around
£20m to pay for the building works and the interest on loans associated with
it before it can show a profit; that lack of investment on the pitch has
brought us to a position where less than 20,000 people can be found to watch
football at Elland Road; and that as a result gate receipts and turnover
have taken a serious downturn; we remain totally convinced that Ken Bates
and Shaun Harvey have had the wrong strategy for success at Leeds United.
A Summary of Numbers table is in the Trusts email communication)
In his independent assessment of the 2011 accounts, sports finance expert
Rob Wilson commented that he would: “Expect to see investment in playing
staff.” The 2012 accounts show that in reality LUFC made a net profit of
£2.5m from player trading during 2011/12 and in cash terms received £3m from
the transactions during the period.
Rob also advised that the club need to sell more tickets to attract better
sponsorship, which could be achieved by investment in the team and improved
relations with the fans. Perhaps the drop in gate receipts and commercial
income in 2011/12, leading to an overall 4% drop in turnover, reflect the
fact that none of this advice was taken by the management of the club during
this period.
Turnover
Back in September 2012 we predicted a decrease of £2.5m in turnover from the
2011 numbers: this decrease was a prediction for the current season (to June
2013) rather than the 2012 accounting period covered here. We actually felt
that the 2012 figure would be down by roughly £0.6m, so the larger £1.6m
shortfall revealed in the 2012 accounts means that if anything our
prediction for 2013 could be optimistic as crowds have fallen even further
this season. Therefore, unless there is a dramatic turn-around in
attendances during the remainder of this season, we still expect further bad
news on the turnover for 2013 - although we now hold out some hope that the
turn-around will happen under the new owners, with the offer of half season
tickets a good start.
Wages to Turnover
This ratio has increased from 51% (in 2011) to 57% (in 2012), which is
partially due to the £1.6m decrease in turnover, and partially due to the
£1.3m increase in wages. In spite of this it will still remain one of the
lowest ratios in the league.
The highest paid director – believed to be Shaun Harvey - was paid £226k,
increased from £212k in 2011, with pension payments and benefits taking his
remuneration up to £259k. As ever, “K W Bates did not receive any emoluments
or benefits during the year,” meaning the remaining £86k of the total
directors’ emoluments of £312k was split between Yvonne Allen and Peter
Lorimer. As additional directors’ emoluments over and above Harvey’s only
appeared on the accounts after Allen joined the board, we assume the
majority of this was paid to her.
Other Costs
We commented in September that a 60% wages to turnover ratio was
sustainable, which appears to contradict the current predicament as a 57%
ratio has resulted in an operating loss (excluding player trading) of £2.2m.
However, as we explained at the time, wages management was only part of the
equation here and we can see that it appears that other costs have been
allowed to get even more out of control by the previous management team.
Excluding wages, the other administrative costs of the business increased by
14% (£1.2m) from 2011 and now stand at £9.8m (£8.6m in 2011), on the reduced
Turnover of £31.1m. We were of the belief that £8.6m was too high for
administrative costs in 2011 and therefore still believe that, with better
financial controls to keep administrative costs down, we could have posted a
positive return for 2011/12 without resorting to player sales to cover these
costs.
We cannot comment in too much detail on where we would make these cost
savings as most of the exact costs are not disclosed to the public. An
amount of £5.2m is “unknown” in the administrative costs for 2012 (up by
£668k from £4.6m in 2011) – however, this figure will include any legal
charges incurred by the club which, we are sure Shaun Harvey would agree,
could be a significant area in which to find savings.
We can see that in profit terms the upgrading of facilities has impacted the
bottom line by a further £325k (depreciation now stands at £1.2m in total
for 2012) over the previous year, plus an additional £250k was paid for a 4
year option to purchase more land from Leeds City Council to further develop
the East Stand. These areas could have provided further savings.
On top of that the cost of selling Preference Shares to Lutonville Holdings
(a company that according to the accounts appears to be controlled by Ken
Bates) was £107k, and additional accounting charges over and above the £53k
last year of £59k were incurred in 2012 (taking the total paid to £112k in
2012 - £44k of this was directly related to Preference share monitoring).
Building Update
These latest accounts show that since administration the club has spent
£17.7m in cash on “building future income that will benefit the club for
years to come” (or buildings to you and I).
While we still await with great anticipation the cash delivery of this
building strategy championed so often by Ken Bates, we can see that the club
have received £8.4m in cash via net player trading (or selling the talent)
to partially fund these buildings, with the remainder coming from the well
publicised borrowing facilities (courtesy of Lutonville, Ticketus 2 LLP,
Enterprise and whatever was left of the future Season Ticket sales cash).
We note in the Directors report that Shaun Harvey believes in Ken Bates’s
investment strategy regarding the East Stand development, as he states that
it “will deliver financial benefit to the club on both matchdays and non
matchdays for years to come.” We would like Mr Harvey to expand on this
statement and explain when he believes the investment will pay back the
£17.7m already spent, plus the interest on the various loans, and the £800k
premium and £151k expenses on the Preference Shares, all of which have been
paid additionally in order to finance the building works. We are struggling
to understand how or when the corporate facilities will generate the c£20m
of additional income required to break-even.
Furthermore, we note that this strategy has seemingly been devised “so the
dependency of success on the field is reduced over time,” which leaves us
concerned that Ken Bates and Shaun Harvey did not share the fans’ desire to
see us win every game and get back into the Premier League and Europe. It
also leaves us wondering if football is in fact in the right business
altogether for their aspirations?
We note that capital commitments have reduced from £6.5m in 2011 to just
£132k, meaning that if no commitments have been made since this accounting
period, GFH Capital are in a position to stop further development on the
East Stand if they wish.
Cash
As we stated back in September, our belief was that the club needed to sell
players, obtain further loans or seek outside investment (or a combination
of all three) in order to continue as a going concern. The latest accounts
support this statement in full as we can see that sale of players netted the
club £3m in cash during the year, a further loan was taken out via
Enterprise insurance for £1.5m and new investment has been found via GFH
Capital!
Whether our cash problems are now solved remains to be seen but, based upon
these accounts, we can see that GFHC have not inherited an easy situation
and will need to invest cash of their own or the existing downwards trends
will continue, in the short term at least.
The Group loans situation remains a cash drain on Leeds United, as the club
is still owed a net amount of £3.1m from its sister companies, broken down
as follows:
- Leeds United Centenary Pavilion Limited - £2.6m
- Yorkshire Radio Limited - £1.14m
- With Leeds United owing:
- Leeds City Holdings Limited - (£0.26m)
- Leeds United Media Limited – (£0.38m)
Debts
As GFH Capital look to complete their takeover we looked into the debt they
will inherit from Ken Bates; given his pride in leaving us debt free the
result was surprising. Assuming the new owners adopt a strategy that sees
use promoted to the Premier League before the 2017/18 season the following
debts will need to be settled:
- Preference Share payment to Lutonville £4.0m
- Ticketus 2 LLP Loan Repayment £2.3m
- Enterprise Loan repayment £1.7m
- Krato Loan Repayment £0.2m
- Payment to liquidators £4.8m
- Working Capital Shortfall £6.4mTOTAL DEBT £19.4m
In the five years since administration Ken Bates and Shaun Harvey have
managed to accumulate debts amounting to around the same amount as those
that put us into administration in the first place. We just hope that the
creditors are more patient this time (and don’t include HMRC).
The preference share at £3.2m incurred £151k of additional administrative
costs, with £4m payable to Lutonville Holdings upon “change of control” of
the company. The accounts state that: “Significant influence is exerted over
Lutonville Holdings Limited by virtue of its connection to Outro Limited
which is wholly owned by Mr K W Bates.” These shares were issued to
Lutonville exactly a year to the day before the “change of control” to GFH
Capital and £4m is now payable to Lutonville; these accounts show that an
injection of cash would be required to pay this.
The loan from Enterprise was taken at 7% interest in October 2012, with the
takeover nearing completion. It seems strange that a loan could not be
obtained from a bank at a better rate; or that GFH Capital were not willing
to put more money in themselves, if they were confident of completing the
takeover, in order to avoid this the large cost of this loan.
Overall net debt increased in 2011/12 by £3.89m, or 297%, from 2010/11.
Future income from two years of season tickets sales, and five years of
profits from catering, have been mortgaged to finance the running of the
business.
Group Companies
The finances of the football club’s sister companies continue to be poor
with losses for the year posted by all of them amounting to £781k - making
the overall total losses of these companies £4.94m. This breaks down as
follows:
- Yorkshire Radio Limited: £101k - taking their total losses to £1.66m
- Leeds United Centenary Pavilion Limited: £234k - taking their total losses
to £431k
- Leeds United Media Limited: £23k - taking their total losses to £25k
- Leeds City Holdings Limited: £423k - taking their total losses to £2.83m
This period covered the second year of operation of the Pavilion, and its
losses increased from £196k in 2011 to £234k in 2012. This does not include
staff costs, as the accounts state the Pavilion has no employees.
As with the East Stand development, we were promised by Ken Bates that these
businesses would add to our income streams and make the club more
sustainable, yet in five years since administration it appears that all they
are doing is racking up additional costs and taking investment away from the
field of play. We would be keen to understand when these businesses will
start to repay their past debts and start contributing to the football club.
Conclusion
Despite certain questionable management decisions by Ken Bates and Shaun
Harvey during the last five years we still feel that, beneath it all, GFH
Capital have inherited a club that can be turned around into a successful
and sustainably profitable one, with investment in the team and cost cutting
in the right areas. There are significant challenges facing the new
ownership in the immediate future and big decisions will need to be made
regarding the viability of some of these historic investment decisions. GFH
Capital will also need to be prepared to invest cash in the short term into
areas that have been badly neglected, not least the playing squad. The
legacy of spending £17.7m on building projects that have yet to bring any
benefit, and have been a drain on the club’s playing resources, will not be
easy to shake off.
The advice of Rob Wilson after the last accounts still rings true: the club
need to encourage the loyal fan base back to Elland Road by investing in the
team and engaging with the fans, which in turn will help them to sell more
tickets, attract better sponsorship, and hopefully get us back to a place in
the Premier League. From there we can all march on together to greater and
more profitable heights!
Keep checking for updates on www.lufctrust.org, and our Facebook and Twitter
pages.
Copyright © 2013 Leeds United Supporters Trust, All rights reserved.
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PETE CASS (1962 - 2011) Rest In Peace Mate
