We all love football, don’t we? It’s a simple game, and yet it inspires devotion in many millions of people. The desperate alchemists of Medieval Europe who toiled in their crude laboratories for years, attempting to turn base metals into fabulous and limitless gold, would marvel at just how much lucre has been generated in the modern era simply by trapping wind in a bladder and making twenty-two men kick it. We all, without thinking of the power these present-day alchemical geniuses hold over us, leave our money at the scientist’s turnstile so that the football club owners can transform it into Baby Bentleys and country mansions and Pouilly-Fumé, just so long as our half of the twenty-two do satisfactory things to a football on a reasonably regular basis.
Nowadays, as each year March turns to April and another season of football reveals itself as either joyous, disastrous, or futile, the brief moment when the secrets of footballing alchemy are partially revealed has begun to attract our attention: fans have become fascinated by the filing of the club’s accounts. It didn’t used to interest us; the finances were the exclusive affair of the chairman, his board, and their administrators. But just as the puffs of blue smoke emanating from the king’s chemist’s hovel drew the attention of god-fearing villagers, who demanded to know what devilish secrets he was trying to bring under his command, so modern football fans have been alerted to the strange bumps and noises that can be heard on Lowfields Road in the dead of night, and every Spring they form the 21st century equivalent of an angry mob to wave pitchforks at the suited bean-counters and their adding machines.
That is, from 31st March onwards we refresh the Companies House website twice a day to see if the accounts are available to download yet (Leeds United submitted them late, yet again).
Downloading documents – and there’s not just the Football Club, there’s the holding company and the radio station too – is only half the battle. Looking at the columns of figures and the unexplanatory footnotes in their strange hieroglyphics, the non-financially adept football fan feels beads of sweat form on his forehead, he feels like a whore in a church, an interloper in the house of a terrible majesty. He looks for a priest in his cassock to whom he can turn to for answers, or cower from in fear at what he may discover. He turns toward him, his hand shivering as he holds for examination the downloaded documents. He turns, at last, to a chartered accountant.
In other words we got the latest batch of Leeds United accounts from Companies House as soon as they were available, but didn’t understand a word, so we asked somebody who knows about these things to tell us what they mean. Our money-minded friend (who also happens to be a Leeds fan, as well as a professional accountant) made things as clear for us as possible, but all is still not quite crystal; the interconnections between Leeds United Football Club, Yorkshire Radio and Leeds City Holdings are difficult to unwind, especially as the information given in the publicly available accounts appears to be as minimal as is legally possible. Our man has had a good go at it though, and so here in bullet point form are the things you, as a supporter of Leeds United Football Club, probably ought to know about our finances:
- The latest accounts are for the year ending 30th June 2010, so take us to the middle of last summer, before the start of the Championship campaign; there are separate reports for Leeds City Holdings Ltd, Leeds United Football Club Ltd, and Yorkshire Radio Ltd.
- The accounts were signed off on 28th February 2011 (making their late arrival at Companies House – for which Leeds will have been fined – perplexing), and so make no mention of our impending takeover by Ken Bates. Two new companies have been added to the Group Portfolio: Leeds United Media and Leeds United Centenary Pavilion. Neither is currently trading.
- Overall, the club is in a better position than it was in June 2009.
- Turnover increased by 17% to £27.4m and the resulting gross profit increased by 18%.
- The club made an operating loss of £670k; this was turned into a profit before interest and tax of £2.158m thanks to player sales.
- Leeds City Holdings ‘head office’ made a loss of £636k; Yorkshire Radio show a profit of £81k, compared to a £700k loss in 2009. Group accounts suggest Yorkshire Radio had an income of £87k, meaning costs for the year would have amounted to just £6k. It is difficult to ascertain from the group accounts whether Yorkshire Radio has any paid employees.
- Forward Sports Fund have not invested anything further in the club beyond the initial £500k in 2007, of which £441k has currently been provided to another group company, so their investment currently stands at £59k.
- Wages were up by 12%, meaning Leeds must have one of the best Staff Cost to Turnover ratios in the league – wages were 50% of turnover, compared to 52% of turnover the year before. For comparison, UEFA recommend 70% of turnover as the threshold that most clubs should achieve (although most in the Premier League exceed this), and that spending 50%-60% of turnover on wages is the ideal target level. Leeds had £5.5m to spare before reaching the 70% figure.
- Undisclosed, unknown costs were up by 26%, an increase of £1m to just under £5m. As a percentage of turnover, this is very high compared to other clubs. We can only speculate about what makes up this amount: it does not include policing, as this is included in Cost of Sales, so we are left to consider items like legal fees (excluding those to R. M. Taylor), marketing, travel, stationery, IT, running costs, repairs, etc.
- Shaun Harvey got a 16% pay rise, taking his gross earnings to £174k, with an estimated base salary of £166k. “K. W. Bates did not receive any emoluments or benefits during the year.”
- In the Tangible Assets Under Construction is an additional cost of £919k on top of last year’s £517k – presumably the cost of the Pavilion. £93k was spent on ‘alterations’ – perhaps the smoking areas in the Kop. The club continue to use the 2009 valuation of Elland Road stadium at £49m, and development land to the east of £5.72m, for a total of £54.72m; the freehold can be purchased from landlord Teak Commercial Ltd for £14.49m.
- The club have committed to paying £1.76m in cash in the near future for undisclosed assets.
- “The average opinions of seven members of senior football management” valued the players registered with the club at 1st September 2010 at £6.67m.
- The club is only owed £25k in transfer fees that are due, with a further £13k coming due after one year – suggesting that all the fees for Fabian Delph have been paid.
- The club currently owes £202k in transfer fees, with future fees owed amounting to £91k. Overall, the club made £3.8m profit on player trading.
- The club has received £12.2m over the last three seasons (since materialising from Administration) for players sold, but has spent only £5.5m on replacing those players.
- Whilst it has improved, the working capital of the club (its liquidity, or immediately available funds) is still negative, meaning that they do not have enough funds to cover their short-term obligations – the shortfall is £3.2m, compared to £5.7m the year before. A new note has been added to this section possibly as a result of a query put to Shaun Harvey last year. This attempts to explain away the shortfall as an anomaly of pre-paid sponsorship and season tickets, arguing that season ticket money would only have to be repaid if Leeds failed to fulfil their fixtures; however, this is also going to appear in either cash or debtors as an asset, so the two just cancel each other out. What this essentially means is that the club has spent most of the season ticket and sponsorship money that it has received relating to next season already.
- The effect of administration in 2007 continues to dog the club. After coming out of administration, the Owners invested £500k to purchase shares of Leeds United, and lent the club £2m cash to cover the short term funding deficit. Also as part of the administration, the club paid off around £7m of debt and costs incurred before and during the admin process. In profit terms they were able to write this debt off to Profit and Loss over 50 years – it can be seen in the ‘Intangible Assets – Goodwill’ section of the balance sheet. But in cash terms it had to be settled. The £2.5m invested and loaned was not enough to settle this, so the club had to rely on its own trading. Essentially the club has used all the cash they received upfront from things like season ticket sales and sponsors to pay off these debts, leaving us short in terms of cash to pay for running costs and transfers. Today that £7m, while paid off to whoever was owed, still weighs the club down.
- Leeds City Holdings and Leeds United Football Club both incurred costs for legal services with Mark Taylor & Company, controlled by R. M. Taylor, who was a director of both Leeds City Holdings and Leeds United Football Club during this period. Leeds City Holding’s costs were £481k (2009: £332k), of which Leeds United Football Club’s costs were £279k (2009: 130k). The total costs incurred with Mark Taylor & Company over the two seasons were £813k; the total over the last three seasons is £1.5m.
- During the year a debenture for £1.5m (a form of long term loan that is essentially mortgaged) was granted and settled by Yorkshire Radio. The information about this debenture filed at Companies House shows that it was granted by Krato Investments and authorised on their behalf by Peter Boatman. Krato were granted rights over the assets of Yorkshire Radio as security for the loan. The debenture was granted on 4th August 2009, but Yorkshire Radio was released from the security provision three days later on 7th August, and Yorkshire Radio settled the loan the next day on the 8th August – the long term loan lasted four days. There is evidence that Leeds City Holdings provided funds for this settlement, as the balance sheet shows an unsettled intercompany transaction for the same amount between two group companies.
- Leeds City Holdings show a debenture for £1.5m, with security in this case being entitlement to the assets and investments of Leeds City Holdings (i.e. Leeds United Football Club and Yorkshire Radio) should they fail to pay it back, making the loanee a preferred creditor. No information about this debenture is available at Companies House.
In the manner of a priest who has delivered a sermon and expected us to understand god, our accountant friend closed his spreadsheets and regarded us over his half-moon spectacles. “Is that clear enough for you, my lads?” he asked. We shook our heads slightly no, feeling that while we had more information than we had when we started, that we didn’t really understand what it all meant, and that probably that was the point.
“Don’t worry about it too much, young fellows,” continued our guide. “Let me ask you another question. Do you understand how Bradley Johnson managed to score that goal against Arsenal in the FA Cup replay?”
We shook our heads again: hell, no.
“Well, but isn’t it the same thing?” he said, smacking his lips. “It’s football. It can be explained, but it can rarely be understood. I’ll see you in twelve months.”