GFH – Out Of The Frying Pan, Into The Fire? TSS October 10, 2012 Leeds United 44 Comments A report published on The Telegraph’s website this morning casts further doubt over the financial capabilities of the group bidding to take control of Leeds United Football Club. The report focuses on Gulf Finance House, the parent company of GFH Capital whose June 2012 accounts show only £3.6m in cash, down from £800m in June 2008. It quickly becomes apparent that the huge differences between these sums is a result of the global financial crisis affecting the valuation of assets. In 2008, the total valuation of Gulf Finance House’s assets was £2.17 billion. By June 2012, the value of those assets had dropped by almost 75%. As alarming as those figures look, they’re hardly unique or the least bit surprising. I’m no economist, but it stands to reason that property values increase during times of boom, and decrease when a financial crisis hits. As such, a company who’s largely invested in property is bound to take a hit – particularly in the Middle East where property prices seem to fluctuate by a lot more than they do in the West. Nevertheless, it’s impossible to argue that Gulf Finance House are as financially powerful today as they were in 2008, but they don’t appear to be struggling either. A quick Google search of GFH brings up stories about their commitment to a $3bn financial complex in Tunisia that the company are currently in the process of building. The stories appear to be in great conflict with one another. On one hand, you have reports of serious cash-flow problems and a dramatic plunge in the value of their assets, while elsewhere, Gulf Finance House are busy building $3bn skyscrapers. The whole situation becomes even more confusing when you read reports from a Frederik Richter via the highly-respected Reuters news agency. Two reports I’ve discovered (1 – 2), both dating from June last year question the companies business practices and their ability to deliver the developments promised to investors. What’s even more concerning than the content of the reports is that the writer (Frederik Richter) was expelled from Bahrain around the time of their publication. Whether that had anything to do with those reports is impossible to say, but Gulf Finance House openly admit close ties to the Bahraini government. GFH Capital’s Deputy CEO, David Haigh, the man who will become Leeds United chairman if his company is successful in their takeover of the club, seems keen to put distance between GFH Capital and Gulf Finance House, pointing out that the financials used in the Telegraph’s article are the parent company’s, not GFH Capital’s. But to what extend does one company feed the other? Doesn’t the success and failure of the parent company inherently effect it’s subsidiaries (and vice versa)? Personally, I can’t see how it wouldn’t, but David Haigh insists GFH Capital have the funds to purchase Leeds United Football Club, and the truth is, I don’t really doubt that. Ken Bates has repeatedly stated that he won’t deal with any potential buyers unless they can prove they have the necessary funds to purchase Leeds United, so the fact GFH Capital have made it this far should put people’s minds at ease. Moreover, this is a company who seem to spend most of their time dealing with multi-billion dollar property investments, to them, Leeds United – with a rumoured cost of £52m – appears to be a relatively small deal. Perhaps we shouldn’t be questioning whether or not GFH Capital have the necessary funds to takeover Leeds United, but should instead be asking why they want the club in the first place considering it’s relatively small value? Rather conveniently, I think it’s much easier to answer that question than attempt to unravel GFH’s finances. In all likelihood, the value of Leeds United will only increase. The club is profitable and self-sustaining, it doesn’t really need millions upon millions of pounds of additional funds thrown at it (though it wouldn’t hurt), we just need a shift in priorities; for money to be spent on the pitch, rather than off it. The fact is, Leeds United are the safest investment in football. It’d take nothing more than promotion to double the club’s current value of £52m and if GFH can return Leeds United to a position of stability and strength within the Premier League, increased turnover would only increase the valuation of the club further. In short, Leeds United are the closest thing you’ll find to a no-risk investment in football. But I don’t believe the cash alone would make this a worthwhile investment for GFH. As I said previously, the sums involved are relatively small by their standards. The real benefit to GFH is an increased profile in the West. What better way to get yourself noticed in the UK than by buying a football club? Your company will become a household name in hours, the media coverage received – as we’ve already seen – will increase exponentially. Invest £52m in a British company, a few thousand Financial Times readers might notice. Invest £52m in a football club, the whole country starts paying attention. That’s the power of the sport in this country. What makes me cautiously optimistic about the GFH takeover is that the only way an increased profile benefits them is if the football club is successful. Who wouldn’t want to invest in a company who can show they successfully purchased a football club for £52m, doubling, perhaps even trebling, it’s value within a couple of years? That’s exactly the kind of company I’d want my money invested in. Conversely of course, we could go the way of Portsmouth, forever ruining the reputation of all those involved. That’s why I’m sure GFH are aware of the potential pitfalls and the risks of owning a football club, they’re putting the reputation of their company on the line with this purchase. Our fates will be inextricably linked, success and failure for one will be mirrored by the other.