The circumstances surrounding Leeds United’s period in administration continue to raise questions four years later. Attention on Ken Bates’ claim not to know the identities of the ultimate owners of Leeds United reached such an intensity in May 2011 that Bates bought the club himself in order to “deliver the transparency sought”; but the manner in which Bates retained control of Leeds after putting the club into administration in summer 2007 remains controversial. A BBC documentary to be shown in Yorkshire tonight, Who Owns Leeds United?, attempts once again to unravel this situation and establish just what went on as Leeds plunged into League One and almost out of business.
As part of their investigation, the BBC obtained copies of correspondence between the club and Leeds City Council through a Freedom of Information request that, while it does not form a central part of the programme, should be of interest to Leeds fans. The BBC have passed these letters and emails to The Square Ball so that we can present them to you.
The letters between Shaun Harvey and senior Council officers reveal that in March and April 2007 an ‘investment group’ was willing to invest £10m in Leeds United, a sum which would have secured LUFC as a going concern through the 2007/08 season, meaning administration and the subsequent twenty-five point penalty would have been avoided; but according to Harvey, this investment was dependent on the following:
- on the Council loaning LUFC £18m-£25m at a 4% rate of interest to exercise the buy-back of Elland Road from Teak Commercial;
- on the Council giving informal planning approval to the construction of “additional facilities that will secure further income streams” on Stadium land;
- and on the Council granting LUFC first option to purchase the Council’s land holdings around Elland Road, land which at that point was slated for construction of the city’s new arena.
Harvey on one hand was presenting Leeds United’s situation as dire, talking of “regret … when the club is no more,” and claiming the club was likely to go out of business without Council help. On the other hand the help requested would have put Leeds United’s owners in an extraordinarily strong position to benefit from the redevelopment of the greater Elland Road area, with the Stadium bought back for LUFC from Teak using a publicly funded loan at a very low interest rate, first option to buy an area of land which was a preferred option for a lucrative leisure development, and implied approval for a scheme to expand commercial facilities at the Stadium.
In response, Leeds City Council agreed informally to explore buying Elland Road itself and leasing it to LUFC, but raised concerns over the identities of the controlling interests in Forward Sports Fund, Teak Commercial, and the anonymous £10m investment group. Harvey’s response to this was lukewarm, and there appears to have been no more communication between LUFC and the Council until Ken Bates’ comments in the press on May 1st that: “…we will remember those people [at Leeds City Council] who didn’t support us. Revenge is a dish best eaten cold.” After seeing the article, Council Officer Paul Brook wrote to Shaun Harvey to say, “In the light of the reported comments we will all now be looking over our shoulders and avoiding dark alleys.”
For Leeds fans, the correspondence raises yet further questions about the necessity of the administration process, the identities of the respective owners of Leeds United and Elland Road, and the recurring theme of property development:
- Why was Shaun Harvey warning the Council on 27th March that the club could soon be “no more,” and may never “become a major football club again”; whereas Ken Bates publicly claimed on 1st May that he was aiming to “make sure that next season we’re profitable”?
- Who were the anonymous £10m investment group?
- With £10m investment available, why couldn’t LUFC raise the additional £4m to buy-back Elland Road itself, so adding “…the positive effect of a net introduction of [up to] £37.7m into our balance sheet,” making it “far easier to attract equity investment to the club,” to quote Shaun Harvey?
- Why was the £10m available to save Leeds United conditional on access to additional property and planning permission?
- If an investor was available with £10m when Leeds United were at their lowest point and about to go out of business, why has the comparatively ruder health of LUFC in recent seasons not attracted any further offers of investment?
- Given that the £10m investment was presumably withdrawn – as the subsequent administration suggests – how is it explained that the club went ahead in any case with two of the three aims of this ‘investment group’ – building “additional facilities” on Elland Road, and asking the Council again for a loan to buy-back Thorp Arch?
- With the club on the brink of going out of business, how did Harvey propose to pay to exercise a ‘first option’ to buy the adjacent Council land?
- Why was Harvey’s proposal so unrealistic? The request for a £20m-£25m loan secured on a Stadium valued by the Council at under £6m, at an interest rate of 4%, was quickly dismissed by the Council as impossible. Was this a competent proposal, and were Bates’ threats of revenge in the press a competent way to negotiate, when the future of the football club was hanging in the balance?
- Why, when Leeds United were hurtling towards League One and the club was on the verge of closure, does Harvey mention football and the supporters just once in passing?
The Square Ball have uploaded the letters in full to the document sharing website Scribd: click here to read them for yourself. We have also summarised the contents to highlight the main points below.
The correspondence covers the period from 7th March 2007 until 1st May 2007; Leeds entered administration on the 4th May. The letters are between Leeds United Chief Executive Shaun Harvey and several senior Leeds City Council officers, who are responding to Harvey’s proposal that the Council fund a repurchase of Elland Road and Thorp Arch on the club’s behalf. Harvey is adamant that this step is necessary if LUFC are to attract investment, and even to continue as a football club:
As I stated at the meeting, our first desire would be for Leeds United AFC Ltd to own Elland Road (and Thorp Arch) with the benefit of a mortgage provided by the Council utilising your Prudential borrowing scheme. [LUFC Chief Executive Shaun Harvey to LCC Chief Asset Management Officer Paul Brook, 11th April]
In simple terms … depending on whether both or only one property was repurchased, would have a positive effect [on LUFC’s balance sheet] of up to £37.7m turning it from a negative position to a positive one. The knock on effect of a positive balance sheet is that I believe it would be far easier to attract equity investment to the club than it is at the moment. [Harvey to Brook, 11th April]
We have received an offer from Teak Commercial Ltd … they would grant us an extended lease on the stadium with a 12 month rent holiday if we surrender the buy-back option … if we were to accept their offer I do not believe the club would ever be in a position to become a major football club again. The rent saving would represent about 15% of the capital investment the club requires in the period to the 30th June 2008 and make the prospect of further investment into the club, in my opinion impossible. [Harvey to Brook, 27th March]
We need to … find solutions not problems otherwise we may all regret the half empty rather than half full approach when the club is no more. [Harvey to Brook, 27th March]
But while it outlines an impending ‘doomsday’ for LUFC, Harvey’s letter of 27th March 2007 also reveals that:
I have one particular investment group who have confirmed that they have £10.0m (the working capital required up to 30th June 2008) immediately available to commit… [Harvey to Brook, 27th March]
This £10m would make administration unnecessary and ensure the club’s survival through the 2007/08 season. However, the investment is subject to three conditions, not placed upon the club, but placed upon the Council:
[The group] have made the investment of that cash conditional upon the following:-
1. Confirmation from your planning department that you would be happy to see Elland Road developed to create additional facilities that will secure further income streams for the club…
2. Confirmation that Leeds United would be given first option to acquire the land adjacent to Elland Road owned by the Council at a negotiated price (market value) or the option to match any offer for the land made by a third party. It would be the clubs intention to work closely with the council to ensure that the development that takes place was one that suited all parties….
3. Confirmation that you will continue to work with the club to establish a way so that we can utilise your ability to borrow money so that we can repurchase Elland Road and Thorp Arch back from the current owners. [Harvey to Brook, 27th March]
What is most striking about the conditions of the £10m investment is that they are not dependent in any way upon Leeds United Football Club; they all hinge on securing the land at and around Elland Road for the benefit of the ‘investment group’ and the owners of LUFC.
It is useful to put these requests into context:
- Condition one predates any planning applications for the Pavilion or East Stand redevelopments. The investment group in question appears to be requesting tacit planning approval for similar schemes in advance of investing in the club.
- At the time of this letter, Elland Road was a favoured option for the Leeds Arena that is now in construction on Claypit Lane. One option in the March 2007 Council Masterplan for the Elland Road area shows an arena built on the Council’s Fullerton Car Park land, and this site was the fall-back option even after the Council opted for Claypit Lane in October 2008. Acceptance of this condition by the Council would have given LUFC first option to buy and redevelop this land themselves.
- LUFC did in fact go on to attempt to utilise Council funds to repurchase Thorp Arch in late 2009.
From their part of the correspondence, Leeds City Council appear to have been willing to work with Harvey on his proposals, but are mindful of their responsibilities as a local authority:
As promised, senior colleagues and I have looked carefully at the document, recognising fully the important role that LUFC plays in the City and recognising the implications for the redevelopment/regeneration of the area, of the Elland Road Stadium possibly ceasing to be used as a venue for the playing of top-flight soccer. Balanced against those considerations, however, have been our responsibilites with respect to the appropriate use of public funds. [Council Chief Executive Paul Rogerson to Shaun Harvey, 7th March]
…we do, of course, continue to think about how we might be able to assist the Club whilst minimising the risk to Council Taxpayers’ funds. In this context the comments below are in response to your specific questions and are made on a without prejudice basis. They should not be taken to mean that such a proposal is actually on the table. [Council Chief Asset Manager Paul Brook to Shaun Harvey, 9th March 2007]
From the Club’s perspective we fully appreciate your desire to maintain it as a going concern and to secure its long term interest and future prospects as a private entity. However, from the Council’s perspective, our interests are to ensure that ER is secured in the long term for the benefit of football in the city. I do not see that these objectives are mutually exclusive. [Paul Brook to Shaun Harvey, 5th April 2007]
Following discussions between senior officers and Councillors … Councillor Carter [the then lead member of the Council] was anxious that the Club should be made aware that there is no lack of goodwill on the Council’s part, and that we remain keen to explore ways in which we might assist the Club. [Paul Brook to Shaun Harvey, 13th April]
Set against this willingness to help, however, are the practical implications of Harvey’s proposals. Harvey’s loan request is for circa £18m – £25m, the majority of this secured against Elland Road stadium; however, the Council has to value the Stadium on the basis that it would only revert to them should the football club cease operations, and without Leeds United Elland Road is valued only in the region of £3m – £6m:
Valuation would therefore most likely be on an alternative use type basis. Net of demolition costs we would no doubt be looking at under £5m. Clearly there would never be sufficient security in the asset alone and personal guarantees from Club directors/officials and/or sympathetic business people would be required … Clearly with a mortgage of £18.8m (or £25m as you have requested) the lion’s share of any security would fall to be provided by the guarantors. [Brook to Harvey, 9th March]
The value of Elland Road as security is also reduced by the Council’s statutory powers to purchase it to secure the future of the area Masterplan:
…given the Council’s statutory powers to acquire the Stadium, if such action were considered to be necessary or desirable to ensure the proper development of the Elland Road area, we believe that the Council’s auditors would be likely to question very closely any decision on our part not to act in pursuance of these powers but to facilitate, instead, the acquisition of the Stadium by a third party at a price appearing to be considerably in excess of the open-market value of the site. [Rogerson to Harvey, 7th March]
Local Authority accounting regulations would also mean that a loan on the terms Harvey proposed would cost the Council £0.8m per year; and the rate of interest Harvey proposed also seemed unrealistic:
The law requires that we charge to our revenue account at least 4% of our debt outstanding at the start of each year … The amount quoted of £0.8m would be the amount we would be required to charge to our accounts by increasing our debt by around £20m…
Incidentally your proposal also quotes an interest figure of 4%. At present rates we would certainly not be able to borrow money for 20 years fixed at rates this low. [LCC Director of Corporate Services Alan Gay to Harvey, 12th March]
The anonymity of Leeds United’s owners Forward Sports Fund, and of Elland Road’s owners Teak Commercial, are also a barrier to the Council’s ability to help:
Also, you will be aware that Councillor Carter has publicly stated that the Council will not deal with people who are not identified, and he restated this strongly to me, Martin Farrington, and the Chief Executive yesterday. This means that the Club does need to give serious consideration to revealing the names of those people who control the activities of FSF Trust if we are to make any progress.
With regard to Teak Commercial, I appreciate the difficulties which exist here for all of us, but as I pointed out yesterday, the Council will take a view on the level of secrecy surrounding any proposed transactions and this will ultimately dictate whether the Council is willing to be a party to such transactions. The local authority would have to meet its full obligations under any money laundering regulations and this may be a time factor outside of the Council’s control. [Brook to Harvey, 5th April]
Despite these difficulties, the Council do make an informal proposal to Harvey of a potential way forward. The request for a first option to buy Council land is apparently dismissed, but Brook asked Harvey whether the following might be acceptable:
[Harvey agreed to] Seek advice as to whether a 125 year lease of the Stadium (or similar) from the Council would carry sufficient balance sheet value to give the Club the increase in net worth which it desires … annual rent of circa £1.25m, with no upward reviews in the first 25 years … Rent payable by 12 monthly instalments to keep individual payments manageable and also to highlight early any repayment problems … Landlord consent for the redevelopment of the Stadium not to be unreasonably withheld so long as the proposals are within the context of the adopted master plan (and subject to its primary use being for the staging of football matches). Any proposals would, of course, notwithstanding the status of the master plan, be subject to planning. [Brook to Harvey, 5th April]
Harvey seemed doubtful about this proposal, however. He stated that he was reluctant to reveal the owners of FSF, “in view of the way previous information has ended up in media,” but offers:
To alleviate the concern over Forward Sports Fund why don’t we create a mechanism whereby the stadium is purchased by a subsidiary of Leeds United AFC Ltd (linked to our share in the Football League Ltd) over which the council could have ‘a golden share’ so it could prohibit the company from taking any action that prejudices the stadium being used for the long term benefit of football in the city. [Harvey to Brook, 11th April]
With regards to the Stadium ownership, the best Harvey can offer is a letter from LUFC Director Mark Taylor stating that no LUFC Directors have an interest in Teak:
Having spoken with Jacob Adler, with whom the previous Board arranged to sell the stadium and Thorp Arch, he said he would do what he could to confirm that none of the current Board of Leeds United AFC or specifically my Chairman, Ken Bates, had any beneficial interest in that Company. Teak Commercial Ltd have now appointed Hammonds (Birmingham Office) to act on their behalf but upon enquiry failed to confirm or deny who anybody was connected with Teak Commercial Ltd. I do, however, enclose for your attention a letter from the club’s solicitor, Mark Taylor who is also a Director of Leeds United AFC giving you the clarification that nobody connected with the club has an interest in Teak Commercial Ltd. I would be obliged if you can confirm that you are now satisfied with this position. [Harvey to Brook, 27th March]
And Harvey responds specifically to the Council’s offer to buy Elland Road and lease it to LUFC:
I have asked the relevant questions of our advisors to see if this approach would benefit our balance sheet and will revert to you once I have had their response but as you have gathered this would be my least favoured option as I don’t think it will achieve ultimately what I need it to. [Harvey to Brook, 11th April]
This informal offer, and a statement of willingness to meet with the club’s guarantors and the potential £10m investor, was reiterated on 13th April 2007. The lines of communication appear to have gone quiet until 1st May 2007, when Paul Brook was moved to contact Shaun Harvey:
Just a quick word to say how disappointed I am about your Chairman’s latest reported comments about the Council to the media. [Brook to Harvey, 1st May]
The report in question was headlined ‘Chairman Ken attacks ‘media vultures’’, and concluded:
Bates was also highly critical of regional development agency Yorkshire Forward and Leeds City Council, to whom he recently turned for help in a bid to buy back the Elland Road Stadium and Thorp Arch training ground.
Bates added: “We’re disappointed with the lack of support from Yorkshire Forward and from Leeds City Council frankly.
”But we’ll get there and when we’re back where we belong we will remember those people who didn’t support us.
”Revenge is a dish best eaten cold.”
Brook wrote to Harvey:
When recently asked by the Club for a letter of comfort the Council acted quickly to get something to you within 24 hours, and on the issue of repurchase of the stadium we made some proposals to which the Club have not yet fully responded. I therefore feel that the reported comments do not reflect the concern shown by the Council about the Club’s plight. As you know, we will continue to explore ways in which we can help, but any assistance offered will be about preserving top class football in the City rather than being for the benefit of the shareholders.
In the light of the reported comments we will all now be looking over our shoulders and avoiding dark alleys. [Brook to Harvey, 1st May]
We have no record of a response from Shaun Harvey, suggesting that discussions between LUFC and LCC ended with this letter on 1st May. Leeds United entered administration on 4th May 2007.