More Trouble At Leeds

[den]

The club say they still have the support of the major creditors. What protection does that give them?

How can they withdraw the standstill agreement, yet still support them?

[philipl]

I think that is business speak for the major creditors not pulling the plug...yet.

[philipl]

This is a very good analysis of how things stand at Leeds tonight. Precarious.

[colin]

Just for the laymans' layman.

A business analysist on Radio 5 tonight said something along the lines of:

"Yesterday Leeds were hanging on by their fingers. Today they are hanging on by their fingernails."

[philipl]

Colin that's very accurate.

The Independent analyses the three possible scenarios for Leeds here.

The Guardian outline how bleak the future looks for Leeds here.

[philipl]

The BBC take on the situation is the gloomiest of the lot.

They are seriously talking about receivership and liquidation. I would imagine the player hp people are being the most difficult. They have little they can do other than the suicide pill of receivership and pulling their players out of the Leeds set-up.

I think the remarkable work by Trevor Birch is quite probably going to rebound against him in that all the repeated creditor standstills have done is show increasingly how impossible the cocktail of debt Risdale conjured up has become.

I come back to the point I made before. There was a moment of gooey soft headedness on the part of the creditors when they agreed to a standstill to the end of the season if the players had taken a 35% deferment of wages. The PFA instead of telling the Leeds players they were incredibly lucky only to lose 35% mishandled its position and quite possibly faces near bankruptcy as the Leeds players will turn to it to pay their contracts when Leeds collapse.

The reason why I now think Leeds could well be liquidated is this stupid rule which has come in giving players first call on administration proceeds.

If Leeds get liquidated, the HP company will step in and take the contracts of many of the highest earning players and sell the players off in the open market. It is quite probable that the other senior creditors have a lien over Elland Road so they will take that asset. This will mean the players not subject to the HP contracts will then have priority over next to nothing.

From the standpoint of the other creditors, destroying Leeds United will get rid of £30m+ of players' contracts' claims which would otherwise come in front of them.

Leeds United RIP 2004, killed by David Batty.

[Scotty]

Philip, I enjoy reading your posts on such matters - they are fantastically informative and manage to translate what would otherwise be accountancy mumbo-jumbo into English for me.  For that I thank you.  But your talking ######## if you think Batty has really killed Leeds.

First of all, the Leeds board who created the current mess in the first place, Risdale et al, are the one's who should be held accountable.

Secondly, the players have agreed to a deferment.  All they said was that they wanted Leeds to explore other options first, something they duely did.  None of these other options have especially worsened Leeds' position.

Thirdly, you have no idea what Batty's actual opinions on this matter are.  You're simply passing judgement on the basis of a few tabloid tittle-tattle rumours.  I expect better of you than that.

Finally, and this is my main point, why should the players bail Leeds out.  Of course players are overpaid, and you can argue that the Leeds players haven't deserved their wages this season considering their current league position, but the players have all signed legally-binding contracts that were agreed by the Leeds board.  

By making the Leeds players out to be the bad guys in all this you are giving the (old) Leeds board a scapegoat - something they patently don't deserve.

[philipl]

The first rule in business, you look at the situation as it is.

Sure Ridsdale is the prime culprit and public enemy number one but there was no shortage of financiers, players, agents, board members, management and supporters who cheered publicity Pete onto his madness. I know of two directors (including the Leeds finance director) who resigned in disagreement with what was going on but there were two many living the dream for the realists to be heard. (At least at Man City, the realists stepped in eventually).

And why did the money men put all the money in?

Because they knew that if the worst happened, there was probably enough value in Leeds for them to take what they needed to cover the debt. They got some of their sums and projections wrong but they now want "their" pieces of Leeds back to cut their losses.

The reason why Batty is the Leeds killer is that there was a one off opportunity which Birch had negotiated in which the money boys would have agreed a standstill to the end of the season had the players agreed to the 35% deferment immediately.

The fact that players wages are the biggest obstacle to the creditors getting repaid and Leeds continuation in business clearly didn't occur to the PFA of whom Batty is the spokesman.

Four weeks ago Leeds had a once only chance of surviving.

Batty caused the opportunity to be missed. I think the way he has been bannished shows just how the peole fighting to save Leeds from the consequences of others' folly feel about what he did.

At least one of the creditors will have run the numbers for Leeds starting out again in the Unibond and found that they don't look an awful lot worse from their perspective than some of the numbers for keeping Leeds as they are.

[philipl]

Trevor Cherry says Leeds should go into administration.

Perhaps unhappy that his side had to back out and convinced they might get a better deal from an administrator?

[den]

On the Carling cup highlights programme last night, Gabby Yorath said that Trevor Birch had been quoted as saying that an announcement would be made on Tuesday.

Does this not suggest that the last remaining consortium would have their bid accepted?

If they were going into administration, then Birch wouldn't be able to do that, would he?

[RevidgeBlue]

Would tend to agree with that prognosis Den.

As an uninformed outsider looking in it doesn't seem to me as though there is any real desire on behalf of the creditors to put Leeds into administration, but that the development on Friday was a ploy to get Leeds to strike a deal with the remaining interested consortium quickly.

[Scotty]

Looks like attempts are being made to hold the Leeds board accountable.

See Here.

Glad that they are trying to punish the real culprits rather than making scapegoats out of the players.

[philipl]

It is required standard practise for a report on the activities of the board and management to be filed with the DTI if a company goes into liquidation.

If the directors and managers have acted responsibly and in the best interests of the business, that will be recorded. If, however, the directors were in any way reckless or failed to exercise their responsibilities properly they can face being disbarred and criminal procedings if appropriate.

As regards the rumours about an announcement tomorrow, at this stage they are just that. No newswire has picked up the story and it would have been grossly irresponsible of Trevor Birch to have said such a thing given that so many jobs and over £100m are in the balance. I therefore doubt that the rumour has any foundation in fact.

Back to Batty, I am not saying the players got Leeds into the mess- they simply opened their wallets and let Ridsdale get on with it- but they did effectively kill the only deal which would have kept Leeds going to the end of the season without either a forced sale, administration or worse.

[Clive]

Ex-Bradford City chairman Geoffrey Richmond is involved in this consortium.

http://news.bbc.co.uk/sport1....821.stm

So that'll be administration then.

[philipl]

Leeds latest from the horse's mouth.   (or the Yorkshire Post)

[philipl]

Here is the rub.

At the foot of the article, Krasner (the insolvency expert behind the consortium) says it will take a decade for Leeds to recover.

My guess is the consortium is playing a probabilities game. As an insolvency expert himself, Krasner will know the way an administrator would handle Leeds and the risks involved to the creditors in terms of Leeds falling into administration.

He will therefore try to create a copy of the likely results from administration adjusted for the amount his consortium are willing to invest and reduced to reflect the cost of a risk premium (i.e. the amount the creditors are willing to "pay" for certainty of eventually being paid).

There are three major stumbling blocks:

1) What certainty premium can a consortium ask for when it includes Geoffrey Richmond with his Bradford track record? In other words can the creditors believe the consortum wll deliver.

2) The major creditors have differing agendas. The small credtors just want cash as soon and as much as possible- they are in the weakest position but probably stand to lose enough millions to be willing to fight any agreement which unduly hurts them in the Courts. The major money is owed to major institutions which is another name for penson funds. They will "quite" happily sit back and let their money come back over a long period because they pay out pensions over a long period. However, the institutions are divided between those whose debts are secured against a long term deal for payment from season ticket sales and gate receipts and those whose security is the contract on footballers whose purchase they helped to finance- a much shorter term and riskier asset.  

3) Add in the uncertainty of being bottom of the league with twelve games to go.

The negotiations will now be entirely between the consortium and the various groups of creditors. All Trevor Birch can do is mind the shop and try to be nice to people.

[den]

Thanks Philipl, your interpretations of the situation are very interesting and helpful.

[philipl]

The Daily Telegraph speculating that administration is imminent.

Prof John Mackenzie severed all remaining links with the club today which suggests something is about to happen.

[philipl]

An excellent account of how Leeds got into their mess

It answers all the questions I had been pondering.

[philipl]

The latest news percolating out of the talks is that "legal red tape" is slowing everything down and that a deal is unlikely for at least a week. Read that as meaning that even if (a big IF) a top level structure for the creditors has been mapped out and agreed, nobody likes or will agree to the detail and mechanics.

Meanwhilst, Publicity Pete's much lauded long term player contracts which expire in 2007 are under the spotlight. All players earning £30K+ a week are being talked to about relegation clauses and permanent salry reductions. No wonder Batty is training on his own in a remote corner of Thorp Arch!

This has the feel of a deal which will not happen in which case the time it has taken will have undermined Trevor Birch so much that the administrators or perhaps even a receiver and liquidator will be the only viable option if (when?) the talks collapse.

[Clive]

Indeed, the takeoevr should be done ASAP if Leeds are to have any hope of survival. It does look like the consortium is the last hope for Leeds to avoid administration/liquidation.

If the takeover was completed, what would happen to the debts ?. Would an agreement with the creditors to pay a certain % of the £100m+ debts have to be in place before it can take place ?. And where would the money used to buy Leeds go ?.

[philipl]

Everything is predictably quiet at Leeds as the backroom negotiations drag on.

Geoffrey Richmond who is advising or funding the Krasner consortium depending on which version you read has an interesting history.

According to this Sunday's Observer:

Geoffrey Richmond, January: 'I've had my 15 years in the game and I've got my bruises. I've got absolutely no interest in Leeds whatsoever, though I wish good luck to whoever has.' And now? 'I have been advising the consortium, who requested my input from a football perspective, having more than 15 years' experience in the game. I was delighted to offer my advice, free of charge.' It's too generous: Richmond's eight years at Bradford defined prudence: raising the wage bill from £6.8m to £14.4m in six months; handing Benito Carbone - who loved that club - £40,000-a-week; borrowing against future earnings, the stadium and the £750,000 house where Carbone lived to pay Ashley Ward £880,000-a-year; withdrawing £10m in dividends for himself and his directors between April 1999 and August 2000; and paying himself a £250,000 consultancy fee in 2001. The result: £36m debt and administration. 'I'm insane according to Fleet Street,' said Richmond in October 2000 as he handed Stan Collymore £13,000-a-week. 'But we need a catalyst. Stan can be that.'

Peter Lorimer whom the consortium have induced to opine on the impressive naturre of its bid has a history of business failure and does not seem to have had the desired effect of calming the Leeds' fans' worries about the nature of the Krasner consortium.

Just makes us all realise how incredibly fortunate we were and still are with Jack Walker and his bequest.

[philipl]

Ken Bates to the rescue, or not?

Whether the egos of Ken Bates and Geaffrey Richmond would fit together in one desperately under-funded board room is probably a totally academic question.

The real give-aways in this article are:

- an admission that the Richmond consortium has not got the funds to buy Leeds. Ken Bates might be rich (at least £12m left after tax from the Chelsea sale) but he's not stupid and his money is a drop in the ocean compared with Leeds' debts. Expect the Krasner/Richmond consortium to disappear quite soon if this story is not denied by them.

- Alan Leighton back on the scene. I bet he is! He uniquely stands to suffer irreparable reputation damage if the DTI inspectorate get involved. The DTI have to report on every administration or liquidation.

Meanwhilst the Express and Mail have both reported that Leeds will be bought by the Krasner/Richmond consortium next week for £20m but they seem to disagree as to whether Richmond is part of the Krasner consortium or bidding against the Krasner consortium! Probably both are true with Richmond having a bet on the side as they say! Given those are the papers that are running that story and nobody else, I am sceptical.

[American]

What happened with the Middle Eastern group that was rejected because of the makeup of the board? Any chance of them getting back in, either now, or kinda force their way in after administration? Supposedly they did make a more reasonable offer then any other made, I'd think an administrator wouldn't care about the makeup of the board, just try to get the best deal he/she could.

[philipl]

Geoffrey Richmond speaks out.

The structure of the deal as I understand it is that Leeds will go into administration. Elland Road's long term lease will be sold to one of the creditors or a third party for £20m and the Krasner consortium will immediately offer £25m+ for the rest.

In the absence of other interested parties, the administrator is expected to accept those offers very quickly.

The reason for going through administration is for the new owners to pick up the business without the hassle of dealing with creditors directly and to avoid thge risk of falling back into insolvency themselves burdened directly by all the debt.

If this is true, the issues now:

=Leeds will have gone through administration. Creditors will receive less than they theoretically would have done if the club had continued as the existing plc. Therefore Leeds will have gained an unfair financial advantage over more prudent clubs which is why points deduction penalties are supposed to be introduced.

=if they do go through a brief administration, it is quite likely there will be a DTI investigation into what went wrong at Leeds.

=without doubt the sale of Elland Road is to entrench the ability of the major creditors to cream off the season ticket and gate revenues for many years to come.

What should be a major force in English football, the club in Leeds, is going to be permanently dimminished.