Interesting take on finances - especailly HRMC and other court cases
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BY Moscowhite Last week here I wrote about how the prospect of analysing Leeds
United’s latest set of accounts sent me into a nostalgic reverie, first for the
Champions League era, then for John Pemberton. Well, it made sense to me. The
actual accounts dropped on Thursday, and to my surprise were a madeleine sent
from the Champions League era in which I’d sought blissful escape before. The
club used to publish accounts then too; if I remember rightly, they were glossy
affairs, A4 brochures packed with details about all the great things Leeds
United were doing, that proved how clever I’d been to become a shareholder. Or
at least they were like that for about a season, because that’s about how long
the peak of the Peter Ridsdale myth lasted before the printing costs — the
costs of everything, really — became too much for the club to bear. The latest
set of accounts don’t boast that way on a colour-photo-of-kids-with-the-Kop-Cat
level, but Massimo Cellino’s introductory remarks do offer similar reassurances
to Ridsdale’s, along with a remarkable rewriting of history. “Striker Billy
Sharp was the household name which the fans craved,” apparently; I mean, he was
a popular lad and he’s definitely famous in Sheffield, but… “Further
reinforcements were made in the January transfer window, with Sol Bamba and
Granddi Ngoyi both arriving on loan from Palermo, while Edgar Cani joined from
Catania.” Seriously, why even mention Edgar Cani? Perhaps Massimo wanted to
remind us just how good we had it during this accounting period, before getting
down to the nitty gritty of the numbers. No matter how bad the accounts might
look, it had to be worth it for Cani, right? However bad the accounts might
look, it’s also worth bearing in mind that Cellino has admitted to Adam Pope
and Phil Hay that the next set of accounts will look worse; although they will,
he assures them, still be manageable. It’s an odd admission to make given the
headline spin around this set, which cover 2014/15 season, has concentrated on
the drastically reduced losses, and the reorganisation of the debts to GFH; on
the club being ‘fixed’. Cellino was more candid with Emanuele Giulianelli on
Thursday, telling him: “The next season has to be, finally, the one in which I
will have to manage the club in my own way. In these first two seasons I have
had to dedicate 90% of time, energies and money to consolidate and stabilise a
nightmare financial situation.” These numbers, then, are the halfway point of
the nightmare. The problem is, they don’t show much evidence that Cellino knows
how to wake Leeds United up. That 90% of time, energies and money does appear,
at first glance, to have been put to good use where GFH are concerned, because
the situation with the bank that likes to say ‘Invoice payable’ is considerably
better than it was in the last set of accounts, when they were still being
ushered from majority to minority shareholders. They were paid £3m during this
accounting period, leaving a debt payable to them of £17m; instalment payments
towards a total of £3.5m will be paid annually, beginning this June, until June
2019; the remaining £13.5m owed will be paid in full if the club is promoted to
the Premier League before June 2019, or on the tick from June 2019 until June
2032. Crucially, these loans are no longer accruing interest, and almost a
million of interest has been paid back. Sadly, there is a calendar correlation
between the purchasing of our season tickets and the month in which the annual
payments will be made, suggesting GFH have got themselves first in queue for
when the Elland Road purse is at its fattest with the fans’ money; which makes
this a good moment to add the necessary asterisk to Cellino’s ‘fixing’ of the
situation with GFH, which is that he had plenty of opportunities to fix this
situation during his takeover, by not allowing the situation to develop at all.
Instead, every June, from now until 2032, GFH will gather round their banking
terminals to watch the magical transaction and reminiscence about how they
first felt when they realised Cellino wasn’t going to do due diligence. ‘Oh
Hisham, I can still see the look on your face! I don’t know how you didn’t
crack up! Hey, has anybody ever heard from that Darren guy again? What was he
called, was it Darren Hay?’ It’s unfortunate that dealing with GFH has taken up
so much of Cellino’s time, because while he might describe this process as
‘fixing the club’, it’d be more accurate to describe it as ‘fixing the problem
he created with GFH, using our season ticket money’; and because when he
diverts his attention to actually, really fixing the club — “manage the club in
my own way” — he might find it even harder to fix than GFH. The short version
is that while Massimo has been digging himself out of the hole he created with
Hisham and Salah, the football club itself has continued to slide into trouble.
With GFH ‘fixed’, administrative expenses were reduced from £37.2m — but only
to £33.3m. Operating losses were reduced from £17.8m — but only to £12.6m,
around £1m a month. Losses might have reduced but lots of other things did too,
things that you don’t want to reduce. Turnover was down by a million. Gate
receipts were slightly up but average attendances were down. Merchandise
revenue was down, commercial revenue was down. And that was for 2014/15.
Average home attendances for 2013/14 were 25,088, and for 14/15 were 24,276; so
far this season we’re at 22,615, without much incentive for fans to rush
through the turnstiles between now and the end of the season. The headline
reduction in pre-tax losses to £2m has an awful lot to do with player trading,
also known as ‘selling McCormack’; Cellino has said that losses will be worse
in the accounts for 15/16, and while Sam Byram might have a big impact on the
Premier League next season, he won’t have made a McCormack-sized impact on our
bottom line. The wage bill, down from £20.1m in 13/14 to £17.8m in 14/15 has,
according to Cellino been reduced further to around £13m for 15/16 — yet even
with that extra £4m saved, losses are still going to increase. While league
position — ah yes, league position — The problem with devoting 90% effort to
fixing GFH is that it was pure finance; a bank arguing with the son of a rich
businessman over debt restructuring. While that has been going on, the football
club has been taken to Brighton, and it has been thoroughly embarrassed. The
result on Monday night shouldn’t be seen as an anomaly, but as a natural
destination, and possibly a new level. Cellino might claim he has been
distracted, but he’s well into his second full season here. Steve Evans has
been head coach since October, and has just come through a transfer window in
which he claimed to have had his president’s full backing. These days at Leeds
United, it doesn’t get much more stable than that, and the football club and
the football team should be showing the fruits of both their labours.
Unfortunately, it is. That football has been an afterthought to Cellino may
well prove to be his downfall. If the best he can do for the club financially
is to bring it to the point where it needs to sell one McCormack per season to
balance the books, well, United wouldn’t be alone in the Championship if that
was the case. But we don’t have another McCormack. We had a Byram, who has gone
for a pittance; we have a Cook, a Mowatt, a Taylor, perhaps a Kalvin Phillips,
a Lewie Coyle. But the pressures of operating losses of this size are such that
we might not have time for Phillips or Coyle to develop into players we could
cash in on, before we have to cash in. Thorp Arch, where we would turn for
these players, has been a major target for cost-cutting, and it says something
about the staffing situation at Leeds that Paul Hart — brought in to run the
Academy — has been making up the numbers on the first team bench with Evans and
Raynor. Do we have the coaches, the facilities, the scouting network to bring
through the next generation of players we need, either to fill first team
shirts, or to sell to keep the club afloat? Without players to sell, the
solution for the shortfall falls personally on Cellino. It’s interesting in the
accounts that his personal loan to the club of around £1m is the only loan to
have been repaid in full, almost as if he needed the cash back. Eleonora Sport,
and Eleonora Immobilaire, have loaned more, with parts of those loans turned
into shares, without which the losses would look even more severe. But given
that right now Cellino is effectively operating while banned by the Football
League, pending his various appeals, how confident can we be in Cellino and
Eleonora (the companies, not the daughter) being able to prop the club up even
in the medium term? Worth a paragraph, too, are the “number of legal claims and
various claims from H M Revenue and Customs outstanding against the company”
that merit just one paragraph in the accounts, a paragraph that says, “There is
significant uncertainty over their outcome. For this reason no provision has
been included in the balance sheet”; in other words, if the multi-million pound
legal cases we knew the club was fighting with former sponsors and former
employees, and the claims from HMRC that we didn’t know the club was facing, go
against the club, there is no cash reserve in the loss making company to pay
them. That situation is definitely worth a paragraph. The magic bullet solution
would be promotion to the Premier League; GFH would be paid off, broadcasting
revenue would go through the roof, attendances would increase on the way up and
sponsors would beat a path to Leeds’ door, reversing all the downturns of the
past season. But every player sold to make up an operating shortfall makes the
task of returning to the Premier League more difficult; in fact, it makes
everything more difficult: getting fans to come and watch, getting sponsors to
come and sponsor, getting kids to buy replica shirts. Massimo Cellino, himself,
has made it more difficult. For a few months this summer it didn’t matter that
90% of Cellino’s attention was on fixing GFH, because 100% of Adam Pearson’s
was on fixing the football club. Capable staff were being brought in, sensible
decisions were being made, United were benefiting from having an experienced
head giving thorough and diligent attention to the things football clubs do.
Elland Road was a brighter place after just a few months of Pearson’s
influence; where would a full season have got us? Higher than 18th? Normality
lasted four months; a spell with Matt Child as executive officer was similarly
brief. Paul Bell is in there now, doing something, but he’s a commercial
director, not a football man. Maybe the bewildering array of drinks offers for
the Bolton game are down to him (it’s two pints for £6 before the game and two
for £5 after and if Leeds win a pint is free but only in the South Stand with a
‘match day meal voucher’ that is a mandatory purpose unless you’re a season
ticket holder — clear?). The magic bullet is miles away. Success is miles away.
Stable finances are miles away, unless you count consistently losing north of
£10m stable. However you slice it, the situation at Leeds United is that more
money is going out than is coming in, players are being sold to cover the
losses, as players are sold the team is getting worse, and as the team gets
worse less money is coming in. We can argue whether Massimo Cellino should be
blamed for all this, at which point we have to acknowledge the job he’s done on
GFH, and begin an argument about whose fault that really was (yo, Ken, we were
just talking about you!). But arguments about blame obscure the real danger
the club is in if it carries on like this: losing money every season, and
lacking the money or the knowledge to rebuild the deteriorating infrastructure
that could raise the money to at least cover the losses. What these accounts
ought to do is bring the discussion around to Cellino to a new, sharper point.
Rather than asking, ‘is he the man to blame?’, we should be asking, ‘is he the
man to solve this?’ •• Sign uphere to get new articles by Moscowhite by email.
DAVID BARKER
Manager
North Zone 7
UK FSO
Ericsson
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