TSS welcomes back Gledders.com for another contribution on the goings on at Elland Road. This time round it’s the clubs ownership that’s being discussed.

Bates and another points deduction?

Storm clouds are gathering around football club owners and as a Leeds fan, the whole issue bothers me because of this loose definition of ‘fit and proper’. Ken Bates has already been mentioned in the national press alongside Notts County and the rule makers are probably sniffing around already. It’s not because I worry about who put up the money for Leeds, I don’t see an issue with that, but because it could become an excuse for some FL bureaucrat to unsettle what’s currently happening on the pitch. Leeds is big business in League One. A lot of clubs would love to see us stay there. As fans, we’d love to know the whole ‘ins and outs’ of our club, but the more questions we ask, the more trouble we risk. That’s what I mean by Bates and another points deduction.

I don’t think Leeds’ current financial structure is that unusual. In any company, the directors, chairman, company secretary are managers who set policy or physically run the business. The shareholders are the ones who put their money in and therefore in a purely legal sense are the rightful owners of the club. Financial institutions invest other people’s money on their behalf. For all the FL knows the 10 000 shares in Forward Sports Fund could have 10 000 owners. Maybe it’s just one owner, but does it matter? Bates is the man in charge and despite his failings, I don’t imagine for a moment he’s a drug baron or bet fixer.

Also, if I was in Bates situation, having recently lost a court case for £1.5 million, I wouldn’t be ‘bigging up’ my personal assets. Is that why he made the recent statement to the court? As a Leeds fan, that’s the right view. Would you want the bailiffs selling your seat on ebay to settle the case? Of course not.

I wrote a piece at the beginning of the season, just as we sold Delph, sticking up for Ken Bates financial acumen. It’s fair to say that I’ve now got a bit of egg on my face. What’s annoyed me with our owners (whoever they are) is the Thorp Arch blunder. Bates and Co. are there to manage our club prudently. For them to run up against the deadline for its re-purchase without any options is a major gaffe. It sets the club apart and attracts good players. Why did we declare a £4 million profit last financial year (by memory) when that money would have more or less bought Thorp Arch? There was an assumption in my previous article that some of that cash was left so I stand corrected. Further, if they declared last year’s profit to attract investment, why is Thorp Arch going into the ownership of Leeds City Council? (aka: destined to become a political football. Pun intended) Those are the kind of details that demonstrate a business is run by astute managers with good intentions. The deal for Delph should have been precisely designed to finish the funding for Thorp Arch, including getting the cash in time, not just for profit or else why did we sell him? Big disappointment.

The reality of achieving Premiership football at Elland Road is that Uncle Ken’s thoughts must be with the future and selling the business on. Like any businessman, he will be thinking about the tax implications in advance. If we are ever going to get near to being a stable presence higher up the Premiership, we are going to need a backer or buyer. Fact. Leeds United can not afford the kind of fees to purchase big names on profits alone. No club can anymore. We need money from oil, steel, aluminium or something else to do it and Bates’ vision of an entertainment complex at ER is a good one to make the whole package attractive. The VIP lounge in a casino would be a great draw for a person to whom money is no object. A good night out would probably top off a great day at Premiership football for an oil Sheikh. They need something for their money! But that should not have been at the expense of purchasing Thorp Arch in my opinion. It could wait another season.

As for the fit and proper rule? Well it’s just another demonstration of FL incompetence. How can you trust a governing body whose principle administration policy is created contrary to English Law? All creditors are supposed to be treated equally when a company is wound up, but that’s not good enough for the FL. Pay football creditors first and you get your golden share back. It’s illegal!! The guy who prints the programmes or makes the scarves might not get paid and lose his house, but Fowler, Mills and O’Leary get their millions, so that’s okay. Well done FL. If the Church of England is the Conservative Party at prayer, then the FL is the Conservative Party on their day off.

Confusion is to be expected when you put a physicist in charge of a sport. This is where the problems start. If we want fair rules, appoint a lawyer not a politician, Football is a massive part of many people’s lives not a rich man’s hobby. Quite obviously, we don’t want drugs barons laundering cash in football but that would be a matter for the Police, not the FL, so what is this fit and proper rule if not an excuse to meddle in clubs?

As for Leeds, I think Bates’ complicated affairs are a way to reduce his tax burden when he inevitably gets his pay-off. I really think it’s that simple. Every investor puts money into an enterprise with the intention of eventually turning a profit. Hell, we’re from Yorkshire we should understand. We don’t give money away! But the point of this whole piece and everything about what Leeds United stands for, is that difficult and entertaining games of football like the one against Liverpool don’t usually happen at League One clubs. Whatever is happening off the pitch currently isn’t affecting what’s happening on it but there are people that don’t want to see us leave this league and playing politics could be an option to make it so. I’m happy to leave things as they are and not ask too many questions about Uncle Ken even though he’s disappointed me over Thorp Arch. It will just give the FL an excuse.

I also thank my lucky stars I wasn’t born in Oxford or Luton, past victims of football’s arbitrary rules. I just hope it’s not our turn again.

Written by Gledders.com for The Scratching Shed

  • rob

    So if Bates holds no shares what is in it for him if the club get bought out at some point in the future, what will be his pay-off? has he negotiated something of an agents 10% cut type of thing?

    Is he currently on a salary at the club? and if so how much?

  • Grumpy Older Man

    To say I disagree with the core of the attitude in the above article is to put it mildly, I will just content myself with the following point, its not asking questions when Bates first arrived that means 4 years on “stability” is as far away as ever and it will be asking the right questions now and in the future that will remove the cancer that is our present ownership structure.

    • Yorkshrman

      Whilst I agree with your sentiment, GOM, it’s a double-edged sword … surgery to remove the cancer always runs the risk of the death of the patient (to protract the analogy). Is that a risk that we’re prepared to take ….??

  • Yorkshrman

    Some good points here, Gledders, but some misconceptions as well.

    Not least, that profit does NOT equal cash. Most profitable companies operate with some degree of debt, and would struggle to raise the sort of cash that Leeds need to buy Thrope Arch (at least, proportional to their operations).

    A quick look at the LU accounts for the period to June 08 (anyone can get them from Companies House for £1) shows that on its day-to-day operations the Company made a loss of £26,000; but a profit of £3.6m on player trading. Typically, player sales include some aspect of payment over time, so the “profit” might be recognised on the day of sale, but the cash might not come in for 2-3 years.

    The accounts also show that at 30 June 2008 the company had just over £1m in cash or bank deposits. With little or no facility to borrow, it would probably need much of this to keep operating, particularly over the Summer close season when little income is being generated.

    Leeds may now be financially stable (to give Uncle Ken the benefit of any doubt), but that does not make it a cash cow – in spite of the large gates, and high prices. We also have a large squad (thanks to a high turnover of managers), and I would guess that most of them are paid well above the average for League 1 players – realistically, how could we attract players like Kisnorbo and Bromby otherwise? And how many other L1 sides have five centre-halves of the quality of those two, plus Naylor, Marques and Michalik – all of whom would who would walk into most most of our competitors. And not least, don’t forget that we’re still paying the likes of Kandol who’ve hardly been near the first team for over a year.

    But I’m getting off-topic ….. and I’d agree with ALL of your sentiments about not turning too much of a spotlight on what’s really happening behind the scenes …..

  • “Why did we declare a £4 million profit last financial year (by memory) when that money would have more or less bought Thorp Arch?”

    As I understand it, this was near £4.5 million and paid to Astor as part of the Administration deal – Open to correction on that point…

  • Think it was wrapped up in the Goodwill section at the bottom of the accounts…

    http://www.scribd.com/doc/9196709/Leeds-United-Accounts-Period-Ended-June-2008

    • TSS

      Gate receipts of £10,000,000 is quite impressive for a team in this division, but with a wage bill of £11,500,000, we’re only making a profit thanks to other activites.

      The amount of money broadcasting brings in for a League One team is pathetic compared to the millions Prem teams get from Sky.

      I can’t say I totally understand the accounts, but from what I can make out we’re turning only a slight profit and cash flow isn’t that high.

      The club makes most it’s money through gate receipts and merchandiding, which is hardly suprising given the size of the fanbase. I hope Bates realised how important the fans really are and doesn’t distance them any further.

  • Gledders.com

    Just so nobody misses the point, I’m disappointed at Bates over Thorp Arch but the main point is that the Football League could be creating an opportunity to kick Leeds in the nuts again with this 30% shareholder’s influence thing. It’s an issue out of nothing. It’s Mawhinney’s mob that gets up my nose.

    I also confess that I haven’t actually seen the accounts at first hand, only the bits I’ve got off the net. So thanks to KeepFighting for that link. 18 months old but still interesting.

  • Chris Abbott

    It would have been mad to pay up front for Thorp Arch using cash raised from the sale of Delph. Thorp Arch is a long term investment which should be bought from borrowing. Leeds problem was they have a poor credit rating. Asking the Council to help was clearly the last straw and they have been handed a good deal that will be affordable and will enable them to obtain ownership when their credit rating improves.

    The only question that remains is did the question mark over the ownership of the club contribute to the refusal of the Council to give them a mortgage?

  • Musta

    A very well-written piece.
    But the major premise is flawed imo.
    You say that the reason for all this is an attempt by Bates to reduce his tax burden when the club is eventually sold.
    That would be all well and good if Bates were the owner and nobody would have a quibble with it.
    But he has corrected his statement made to the court in the Advision case(under oath) that he is the owner of the club. He now says it was a “mistake”. Hell of a mistake, he doesn’t know if he owns a business with 25m pa turnover or not.
    If he doesn’t own it he doesn’t stand to gain anything if the club is sold, and so is not liable for tax.
    Furthermore he is not a UK taxpayer and claims not to draw a salary.
    So this is his current position: he is Chairman of a business he has no financial interest in, doesn’t know who the owners are, and is not drawing a salary.
    He is working for free for persons unknown!
    Do me favour.

  • rob

    So if Bates holds no shares what is in it for him if the club get bought out at some point in the future, what will be his pay-off? has he negotiated something of an agents 10% cut type of thing?

    Is he currently on a salary at the club? and if so how much?