More Trouble At Leeds

[American]

Does anyone know how loaded this Arab Leeds fan is? Is £60 million a lot for him? If not Leeds could be out of the mess pretty soon.

As for not being a good investment, other(!) than the £60 million debt, Leeds is a good investment. Good ground, fan base, youth structure, some good players etc.

It all depends really how much this guy would be willing to shell out £60 million for nothing.

I've read that he doesn't have the cash himself, but that he has the friends to raise the cash. Not a Chelski situation.

[Blue blood]

Cheers. He'll have to be one hell of a persuasive talker to get anyone to go into that scheme then.

[philipl]

... and Leeds do not own their ground, their training facility or even, nowadays, a goldfish.

[American]

Cheers. He'll have to be one hell of a persuasive talker to get anyone to go into that scheme then.

Apparently he has the money all lined up, so I guess he is a good talker...

[1864roverite]

his cash injedtion is soley to ward of the hovering creditors. the 60 million will not settle their debts in full it will merely half them and at the same time the club will have time on their side to operate as a business in the hope that they can generate some income themselves.

I understand that if the cash injection is acceptable to the administrative side of the club and the stock exchange then the creditors owed some money after this will put a 12 month hold on wanting their money back. HOWEVER the lease companies will not be included in this and leeds are expected to fulfill their payment obligations aside.

rumours around leeds suggest that the lease debts have not really been published and stand alone at around 23 million.

It sems to me that mr Sheik has his work seriously cut out for 2 or 3 years to get the club solvent enough to trade

[92er]

Mihir Bose is usually pretty good with his analysis so I rely on him rather than Mackenzie.

[philipl]

We are now into a period of rumour, counter-rumour and perception managing. Trevor Birch has made a good start by suggesting four consortia are looking to bid whilst a story hit the papers yesterday suggesting that the American lenders would accept £25m to go away. The latter is moonshine and the former is highly suspect.

The "bidders"

The Leeds-mad sheikh rarely goes to Elland Road and has no money of his own so its unlikely his mates would strike anything than a very hard deal if they put their money in. You have to be sceptical.

Alan Leighton has left it late to resign and generally has divulged very little about his rescue package. It seems he has now raised £4.5m- a drop in the bucket given Leeds apparently had to negotiate £5.8m to cover their cash requirements from 4 December to 18 January on a current operating basis. You have to be sceptical.

The supporters consortium has appeared from nowhere, seems to consist of unknown names and has not raised a penny yet. You have to believe in voodoo magic to give this one any cxhance of success.

Apparently a guy who made £400m out of freeserve is expected to bid. Again he also has been too quiet to be credible.

Coming back to that £5.8m- that was apparently the money they had to raise simply to survive five weeks with the Christmas gates coming within this time frame as well! This suggests that Leeds cash absorption requirement is still £50m a year and with all gate money going to America, no wonder they are in the soup. The £5.8m was raised from four different places in what reads like a cowboy mix and match set of deals.

Trevor Birch either works a miracle by 18 January or the administrators will step in.

In the meantime, the people who provided the mortgage finance on the players must be readying to act if, as seems likely, the payments to them are not honoured. Perhaps one or more players will end up having his registration permit reviewed.

[Legion]

Good Post Philipl. Though I got it the first time you don't need to repeat yourself.

NB - philip double posted, second deleted by Paul

[RevidgeBlue]

We are now into a period of rumour, counter-rumour and perception managing. Trevor Birch has made a good start by suggesting four consortia are looking to bid whilst a story hit the papers yesterday suggesting that the American lenders would accept £25m to go away. The latter is moonshine and the former is highly suspect.

Surely the American lenders would be willing to accept any sort of decent lump sum in an attempt to cut their "losses"?

Can't see Leeds doing anything but lose a shedload more money whether in the Premiership or Div 1.

[thenodrog]

I should think Churchill could aptly provide Leeds future (if there is one) motto Simon.

[philipl]

Leeds made an announcement to the Stock Exchange that they are in talks with possible purchasers yesterday.

I would not read too much into this. The rules of all Stock Exchanges require member companies to disclose any possible merger or acquisition activity immediately. These rules are to prevent markets being distorted by different groups having access to different information and creating gains or losses accordingly.

In most situations the directors get involved in shadow dancing with virtually nothing on paper or electronically in order to keep preliminary discussions secret at the most sensitive and potentially advantageous time.

In Leeds' case with administration looming, the board will have rushed out the statement as quickly as they possibly could to try and engender an auction atmosphere. It is quite possible that they may have little more than an e-mail saying: "Dear Prof McKenzie, I am trying to put a consortium together to buy your beleaguered club, please can I have a copy of the sale memorandem and here is the signed confidentiality agreement."

More significantly, Peter Wilkinson, the Leeds supporter worth a reported £400m who was seen as either a potential buyer on his own or a lynchpin in any supporters' led consortium has declared he has no interest in buying any stake in Leeds.

As I have already speculated (and many others have now done so in writing), Leeds have probably seen the last of Alan Leighton so the number of serious bidders is.... er???

A note to Revidge, the American bond holders have secured a string of legal claims over Leeds current business and their gate revenue for 25 years to come. If Leeds go into administration, the job of the administrator is purely to get the best possible deal for the greditors in their rank order of seniority. It isn't going to be pretty but probably all the debts will get shaved but for the Americans, the opportunity exists for them to receive a delayed but reasonably secure payment from running the club with the cost base of a club with gates of 15,000 whilst knowing that actual gates in the Nationwide are probably going to average 25,000 over the next 25 years. That would generate them £6m a year (assuming £30 per ticket) which will repay £60m principle with interest over some 18 to 20 years.  

Finally, O'Leary might have some sort of agreement arising deferring his claim for £2m from Leeds. Or, Leeds have shown him the books and he has concluded they are so bad that there is no way he will get his money this side of administration and has gone for the kudos of being magnanimous in public at no cost to himself.  If Leeds go into administration, he could be a ranking creditor as a former employee depending on how his contract was structured. Either way, it will be interesting to see which Leeds players end up at Villa Park in the January fire sale. Alan Smith to be playing alongside Vassell?

[Shaddy]

Sorry philip, I'm having a bit of a time comprehending all this. I just want to clarify, do the American investors have final say on whether the club should be wound down and all assets sold? You have mentioned scenarios where they administer the club for the remander of their guarantee period, 25 years?

This seems to preclude that they might take the option of winding down Leeds United. Is this because it is obvious, and thus, not mentioned, that Leeds do have some value, in that they are already established as the only League club from Leeds city, and it would be extremely unlikely that they went out of the League? And as we all would appreciate, once you are in the League, especially with the support of a city like Leeds, you always stand a chance of achieving football success, and the financial success that comes with it. Am I thinking right here?

If I am, then there is no chance that Leeds would fold. But just for the sake of speculation, if Leeds United did go out of business, as I understand it, there would be no team from Leeds in the football league. Can that be right? In terms of promotion of the game, surely the FA would seek to right this? Especially in a place like Leeds, where Rugby is quite strong as well, I gather. What are the real options here? Can the FA setup, or select another non-league club from Leeds and automatically promote them to the Football League? I haven't a clue how this all works.

[philipl]

The American bond holders, anyone else who has leant money to Leeds and anyone who is owed money by Leeds United as a result of a normal commercial contract (from selling them meat pies to supplying services as a centre forward) has a legal right to expect payment according to the letter of their contract.

Leeds' problem is that they cannot pay all their financial obligationsas and when they fall due. The directors believe they can sell the club in such a way that all the third parties I listed above will get paid in full, albeit a little late. So they have negotiated an agreed pause in payments with several creditors and presumably have the backing of their lawyers that they would not be held to be trading illegally or unfairly discriminating against any individual or group of creditors.

If Leeds has not been sold by 18 January and if the directors cannot convince the creditors to accept an further extended pause to payments, then any creditor would be within their right to apply for a winding up order which ordinarily would be granted by the Courts within a very few weeks of the application being made.

The Americans could do this but so could the man selling the pies if the club owes him money. The fact that any creditor can do this (even the ones you think you have an agreement with), means that the directors would be highly likely to seek protection from the creditors. In the UK, that would mean applying for a creditor's voluntary liquidation if the asset and business situation is unlikely to yield a contiunuing flow of cash or appointment of an administrator by the creditors where there is a business capable of generating cash to meet the creditors' claims.

In the case of football clubs, administration is usually the route (Accrington Stanley, Aldershot and Maidstone are the exceptions in England) because there is a continuing income stream from the turnstiles plus several thousands of season ticket holders would become singularly unpleasant unsecured creditors of the club folds mid-season. It is simply not in any of the creditors' interests to close the business down.

That said, the administrator'ds job is solely to get the best deal for the creditors- fans and football only matter in so far as they can be used to pay the debts. The amount of power and influence of the creditors depends on the legal strength of their claim.

The taxmen come first, then the employees, then the creditors with added security (the Americans have a legal claim over all assets and the next 25 years' gate receipts) and the man selling the pies and his like come last. Those creditors with claims over specific assets might apply to the Courts to seize those assets. It might be that the administrator will be faced by the mortgage companies which financed the acquisition of certain players applying to the Courts to take control over those players away from Leeds so they could sell their contracts seperately themselves if they believe they will get more value that way.

Creditors can sue the administrator. So you can be sure that whilst negotiating hard with the Americans to try to get them to take a reduced deal for the good of all creditors, the administrator will in reality do nothing without the agreement of the Americans. They hold more than 50% of the debt, a fixed and floating lien and the first rights to the next 25 years' of ticket sales.

Hope this helps.

[RevidgeBlue]

Thanks phil, I understand the theory of it all but am struggling with the automatic assumption that Leeds would turn in a profit in Div 1 as a result of being able to reduce overheads so low they they would be in profit as soon as fan 15,001 came therough the turnstiles.

Can't see it happening in practice myself, but hey, what do I know, I haven't done the projections!

[Neil Weaver]

Philipl, another magnificent post bringing the incomprehensible world of admininstration etc to a level where us mere mortals can understand it!  Thanks.  Might change career to become a liquidation specialist now, it must be easy.

[Cheshireblue]

A good explaination by Philipl.

I would only add that although the americans will have secured their debts over the income stream from gate receipts (a more or less guaranteed source of income) you can bet your bottom dollar that the Co-op bank (who are their bankers) will have a fixed and floating charge over the entire undertaking of the club. What this means is that they have first call on all the assets of the club, and it is they that will appoint the receiver should the club go under. The americans will only get the gate receipts to fund their shortfall if the bank don't need them to clear the clubs indebtedness. Banks are not known for their patience so it is unlikley that future income streams will be of interest to them. Most likely the club would have to factor that income so that the bank gets paid out now.

Ironically, if the club cannot afford to pay the players wages, as employees of the club, the DTI will have to pick up their wages if no buyer is found and no other funds are available.

That's yours and my tax money being paid to Alan Smith et al. It's a great system isn't it?!

[philipl]

Prof McKenzie is stepping down as Chairman at the Leeds AGM on 23 December. Ostensibly it is to enable for him to try to bid for the club with a group of Chinese businessmen but the Guardian openly dismisses that theory.

Neither Alan Leighton nor Prof McKenzie exited early enough not to get embroiled in the aftermath if Leeds go into administration on 18 January. If they are assembling consortiums of hard headed businessmen, they would both probably prefer to deal with an Administrator rather than whatever is left of the plc board.

On a parallel track,  Man City appear to be heading towards trouble. It will be interesting to see if they sell Anelka in January.

[philipl]

If there wasn't any doubt about Prof McKenzie's true motives, he has paid himself £380,000 for work since March last year.

I guess that's one way of getting compensation for holding 4m worthless shares (he is Leeds' largest individual personal shareholder). Another professor at Leeds University has described him as "damaged goods".

[dave birch]

Just going back to Chesh's comments about Leeds, I was under the impression that their "season ticket" income had been mortgaged for some years to come.

Anyone enlighten me further?

[Paul]

Dave I don't know the exact detail but it is certainly true Leeds have borrowed against season ticket income projected on their being a Champions League club in future years. I rthink they borrowed against the next 25 years income - talk about counting chickens before they hatched!

Manchester City have done the same. On the question of City I read this weekend that while they have borrowed against the stadium and stadium revenues (the stadium is only leased from Manchester City council) their lease runs for 250 years. While City don't own the ground for the time being they might as well do so on that basis. City keep all gate receipts up to 38,000 per game, beyond that figure the council receives a percentage of the additional gate.

[Paul]

A Liverpool fan has just paid £600 for a Leeds shirt signed by The Stereophonics in the Five Live auction........shouldn't he get the club for that?  :'>

[SAS]

Was it an auction to help save leeds.  

[Clive]

Or an auction to buy Leeds.

[philipl]

Leeds had their AGM and Trevor Birch has taken the role of Chairman and CEO- always a sign of trouble when nobody wants the top job!

Birch says there are delicate negotiations to sell the club but-

Prof McKenzie's Chinese friends are seen as a non-starter, and

Alan Leighton was castigated for his role as Deputy Chairman during the Ridsdale era and so it seems nobody thought his bid to buy the club as a serious one.

The BBC business correspondent makes a Premiership club going into administration one of his top tips for 2004. I wonder which one he has in mind?

Meanwhilst Darlington have gone into administration. Their Chairman was upset that the local Council would not allow car boot sales in the car park.

[sausagemandog]

I have an Italian friend from Udine who is a rovers fan,he tells me most italian clubs arent in a position to pay their players wages!!!!!!!!!!