UPDATE: Since publishing this article this morning, we have received some new information and updated it accordingly. Please click to read the new information.
The most interesting part of Leeds United’s 2010/11 financial returns, which have become available today, fall after the end of the accounting period. The filings take the assorted companies that make up Leeds City Holdings to the end of June 2011, but at the bottom of the very last page, is this:
‘Post Balance Sheet Events’: Leeds United Football Club Limited entered into an agreement whereby it sold season tickets for both the 2012/13 and 2013/14 season for a sum of £5,000,000 after the year end.
This, it seems, is the £5m facility that was referred to in the official sites reporting of the account headlines: “After the year end we entered into an agreement for a £5,000,000 facility to part fund the East Stand Development.”
The full meaning of this note is not made clear, but Phil Hay of the Yorkshire Evening Post has sought clarification from the club and posted on Twitter:
I’ve spoken to #lufc who’ve confirmed that a portion of cash raised from 2012/13 + 2013/14 season ticket sales will pay off East Stand loan
The repayments will use “some” season-ticket cash for those 2 years, not all of it. #lufc say East Stand work is “prudent” for club’s future
The situation seems to be that part – we don’t know exactly how much – of season ticket revenue for next season and the season after, which would in total be worth approximately £10m, has been sold to an unknown party for £5m. The further point of interest here is that this was done to pay off an “East Stand loan.” Who this loan was with, or why it had to be paid back in this manner, isn’t clear.
This afternoon we received a new document – available to view here – which shows that the 32 preferential shares in this issue were purchased for £100,000 each, not the £1 each we originally reported. To be clear, the 32 shares have been purchased for £3.2m, and have a guaranteed value of £4m.
We have updated the post below to reflect this, and also pulled the related article from the new issue of our magazine, as there was no time to edit it before our print deadline.
We wholeheartedly apologise for any confusion, and assure you that we were acting in good faith based on the information we had.
Although the terms of this share issue are different from what we originally understood, our new understanding still raises a number of valid, if different, questions.
The new information makes the second option described below seem the far more likely explanation: that these shares have been issued as an alternative form of loan, with the difference that as a share issue, it does not show on the accounts as debt.
The £4m return on £3.2m investment represents a guaranteed 25% return for whoever owns these shares, and the question remains: why has the club taken out what is effectively a loan at 25% interest, and what is this £3.2m for?
Here follows the corrected version of our article:
This is not the only worrying event to have taken place since June 2011. A document we found at Companies House shows that the share capital of Leeds United, which has stood at £500,000 since administration in 2007, increased to £500,032 in December 2011. The document reveals that 32 ‘Preferential Shares’ were issued in Leeds United in December in return for an investment of £3.2m. These shares are held by persons unknown, and when redeemed, will be worth £4m.
That £4m is guaranteed – each of the 32 £100,000 shares is worth a locked-in £125,000 when sold. There are three ‘triggers’ which would allow their sale:
- a change of ownership of the club or holding company;
- liquidation of the club, in which case the ‘Preferential Shareholders’ would have to be paid £4m before the ‘ordinary shareholders’ saw a penny;
- if the major shareholder decides to buy back the shares. At Leeds United, via Leeds City Holdings, Forward Sports Fund and Outro, the major shareholder is Ken Bates.
‘Preferential shares’ are normally issued for one of two reasons:
- existing shareholders can use them to ‘lock in’ a guaranteed payment should a business be sold or liquidated
- as an alternative form of loan, with no repayments and so no impact on cashflow, and a predefined repayment value. Oddly for a lender, however, there is no fixed date given for repayment – they only stand to receive £4m if the club is sold, liquidated, or when Ken Bates decides.
Who is the beneficiary of this £4m return for £3.2m investment is not known, nor is it known why these shares have been issued. In the full article in the magazine, we wondered if this issue might relate to the East Stand “facility”, but this morning’s news suggests the two are completely separate.
The post-accounts situation, therefore, seems to be that part of the club’s season ticket revenue for next season and the season after has been sold for £5m to persons unknown, to pay off a loan from persons unknown for work on the East Stand. Meanwhile, £3.2m has been invested in Leeds United by persons unknown, in return for ‘Preferential Shares’ which guarantee these persons unknown £4m should the club be sold, liquidated, or should Ken Bates decide to buy the shares back. The financial fog remains as thick as ever at Elland Road.
As the accounts have only become available this morning, there has not been time to properly analyse the actual results for the year ending June 2011. But at first glance, the club spent a lot of cash during the 10/11 accounting period:
- £4.8m spent on the East Stand development
- £2.7m lent to the separate Pavilion company
- £255k lent to the separate Leeds United Media company
Amidst all this spending, Outro Ltd – the company through which Ken Bates owns FSF, LCH, and therefore LUFC, lent the club £975k to keep it cash positive. The accounts note that this amount was repaid after the year end.
– TSB.
Isn’t that something similar to what Fotherby, Silver and Gilman did in the late nineties giving them £5m each when the Club was sold to leeds Sporting?
It is indeed.
Interesting….maybe Bates is gearing up for selling the club….one lives in hope!
Very, very worrying stuff indeed. Look forward to hearing the view of a professional on this matter. Many thanks indeed for the timely post TSB.
The problem is that this is all too complicated for your average Bates supporting blindman. Just had a dispute on the YEP messageboard with yet another uneducated flatearther who buys into this nonsense Bates has been spinning for years; that its either run the club as we are doing now, or run a Risedale-esque gambling operation and sending the club into oblivion – all rounded off with the usual “Bates doesn’t have to answer to you, and if you don’t like it, just buy the club yourself”
The way business finances itself, especially a football club, is always interesting but for the most part unfathomable. I understand that Rangers did something similar with Ticketus (in connection see http://www.ticketus.co.uk/) and, no doubt it is flavour of the month amongst other clubs. The pre-sale of season tickets is probably linked to the preferntial shares, in that the company lending the money will have insisted on some financial protection in the event of administration or sale of the club. To whom the money received was given to be paid back will be interesting. It’s also interesting to note the cost of development, which was understood to be around £7.5m, which, if this is the full payment gives context to the word on the street that Caddick was chisselled. Maybe the preferential shares are their’s?
In appreciating the accounts relate to period ending before this season started, can any indication be gained over how much money might or could be made available to NW? Cant help but think he has laid the gauntlet down to Bates and in so doing has the perfect exit strategy in place.
I’ve thought for a while the East Stand development could have been set up for an investor or is that simply wishful thinking?
I ended up re-newing on the eve of the deadline and having read the above for every positive thought which arises therein lies a dream (e.g. he going to cash his Preferential Shares and go!!) but the fairy tale is then immediately extinguished by the now well established LUFC/Bates (who gives a toss about the fans) cynic in me
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I concur with Mitch Guppy ref Ticketus
The preference shares will be collateral in the event that we
do a Rangers
Ironically Rangers did a Leeds of course
I assume the preference shares would be
Cancelled if we opted out of future season
Ticket pre sales deals but would carry rights in the
event that the deal is extended
I assume Bates now owns the ground or why
spend 5M tarting it up
FWIFWW I think the Ticketus suggestion is a misnomer. If the STs were sold on to a 3rd party ticket agency for them to sell on, it wouldn’t just be season tickets, it’d be all matchday tickets. I think this is basically a desperate form of finance.
During one dark period in my otherwise sparkling professional career, about 3 and a bit years ago, I was working in the call centre for See Tickets, who flogged tickets for Derby, Spurs and West Ham, making an absolute pig’s arse of the lot.
In practice, those pref shares won’t ‘guarantee’ diddly squat on a liquidation because after HMRC, secured creditors and staff take what’s left (if anything), there will be nowt to pay the pref shareholders with anyway.
Simon at the current time HMRC are currently in the courts fighting to be considered a preferential creditor with football clubs, as at the current time i think it is one of the only lines of business that they don’t really have full control over. That is why so many football clubs have been able to build up debts with them over the years and if they do win the case there will be a lot in major trouble when they suddenly start calling the debts in.
The shares are more than likely collateral as it seem a minimal amount to be anything more, wouldn’t be surprised if they disappear within the next two years
this is interesting but for none of the reasons in the comments.
but for this Bates has said many times he will not bank on the future well if i am right 12/13 and 13/14 are in the future .so that means quite frankly he has spent money we do not yet have .and with season tickets down in sales and this news likely to make season tickets sell less as it aint gonna be spent on players he has banked on the future .
will it cost him , well if he does not make money available for the manager and plenty of it aswell ,he will loose him for a start and another mediocre team will cost him turnstile money .
he spent several millions of pound for the most part on several hundred fans going up in that stadium ,it is an matchdays mostly empty ,unless we get up into prem it will stay that way ,its a gamble on the future oooops
James kenny says:
I assume Bates now owns the ground or why
spend 5M tarting it up
Possible, but not the only possible explanation. The ER lease runs until, IIRC, 2022 or thereabouts. There is a purchase option at a fixed price, with an annual escalator. Any works done between now and then enure to the freehold, but the purchase price doesn’t go up because the ground is improved. The leaseholder (presumably Leeds United?!) can in 2021 buy it back, including the ground improvements, at the originally agreed terms.
It could be that Leeds United doesn’t have the cash or the means to borrow and repay the circa £20m to buy it back now, but is using what it can raise now to redevelop the stand and so generate revenue for the club.
Unfortunately the finances are not clear so we don’t know
Seems to me the £3.2m suggests a cashflow problem at the club through the summer. Then the sale of Gradel at a time we could not spend it. Then the early season tickets deadline while we didn’t spend a penny in January. Now the indication that we have already taken £5m from an unknown in order to cover the costs of the East Stand – maybe Bates not paying the bills was why there was such a delay in finishing the job – and we had to have an early deadline to pay the first instalment.
And some still say the guy has us on an even keel and we should all be so happy and grateful that he saved us, rather than worry about the fact he seems to be trying his best to kill us off.
Bates and Harvey – time to go. Your wheels have come off, you no longer have any control over what is going on. We will still be here, but as soon as the 2nd administration comes in, you will no longer be allowed to be involved in football ever again
shit or bust (literally then) we either get promoted next season or we have no income from ticket sales…. the glasgow rangers model!!!
Bates OUT please
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