the square ball week: change of attentionBack
Last week here I wrote about how the prospect of analysing Leeds United’s latest set of accounts sent me into a nostalgic reverie, first for the Champions League era, then for John Pemberton. Well, it made sense to me.
The actual accounts dropped on Thursday, and to my surprise were a madeleine sent from the Champions League era in which I’d sought blissful escape before. The club used to publish accounts then too; if I remember rightly, they were glossy affairs, A4 brochures packed with details about all the great things Leeds United were doing, that proved how clever I’d been to become a shareholder. Or at least they were like that for about a season, because that’s about how long the peak of the Peter Ridsdale myth lasted before the printing costs — the costs of everything, really — became too much for the club to bear.
The latest set of accounts don’t boast that way on a colour-photo-of-kids-with-the-Kop-Cat level, but Massimo Cellino’s introductory remarks do offer similar reassurances to Ridsdale’s, along with a remarkable rewriting of history. “Striker Billy Sharp was the household name which the fans craved,” apparently; I mean, he was a popular lad and he’s definitely famous in Sheffield, but…
“Further reinforcements were made in the January transfer window, with Sol Bamba and Granddi Ngoyi both arriving on loan from Palermo, while Edgar Cani joined from Catania.” Seriously, why even mention Edgar Cani?
Perhaps Massimo wanted to remind us just how good we had it during this accounting period, before getting down to the nitty gritty of the numbers. No matter how bad the accounts might look, it had to be worth it for Cani, right?
However bad the accounts might look, it’s also worth bearing in mind that Cellino has admitted to Adam Pope and Phil Hay that the next set of accounts will look worse; although they will, he assures them, still be manageable. It’s an odd admission to make given the headline spin around this set, which cover 2014/15 season, has concentrated on the drastically reduced losses, and the reorganisation of the debts to GFH; on the club being ‘fixed’.
Cellino was more candid with Emanuele Giulianelli on Thursday, telling him: “The next season has to be, finally, the one in which I will have to manage the club in my own way. In these first two seasons I have had to dedicate 90% of time, energies and money to consolidate and stabilise a nightmare financial situation.”
These numbers, then, are the halfway point of the nightmare. The problem is, they don’t show much evidence that Cellino knows how to wake Leeds United up.
That 90% of time, energies and money does appear, at first glance, to have been put to good use where GFH are concerned, because the situation with the bank that likes to say ‘Invoice payable’ is considerably better than it was in the last set of accounts, when they were still being ushered from majority to minority shareholders. They were paid £3m during this accounting period, leaving a debt payable to them of £17m; instalment payments towards a total of £3.5m will be paid annually, beginning this June, until June 2019; the remaining £13.5m owed will be paid in full if the club is promoted to the Premier League before June 2019, or on the tick from June 2019 until June 2032. Crucially, these loans are no longer accruing interest, and almost a million of interest has been paid back.
Sadly, there is a calendar correlation between the purchasing of our season tickets and the month in which the annual payments will be made, suggesting GFH have got themselves first in queue for when the Elland Road purse is at its fattest with the fans’ money; which makes this a good moment to add the necessary asterisk to Cellino’s ‘fixing’ of the situation with GFH, which is that he had plenty of opportunities to fix this situation during his takeover, by not allowing the situation to develop at all. Instead, every June, from now until 2032, GFH will gather round their banking terminals to watch the magical transaction and reminiscence about how they first felt when they realised Cellino wasn’t going to do due diligence. ‘Oh Hisham, I can still see the look on your face! I don’t know how you didn’t crack up! Hey, has anybody ever heard from that Darren guy again? What was he called, was it Darren Hay?’
It’s unfortunate that dealing with GFH has taken up so much of Cellino’s time, because while he might describe this process as ‘fixing the club’, it’d be more accurate to describe it as ‘fixing the problem he created with GFH, using our season ticket money’; and because when he diverts his attention to actually, really fixing the club — “manage the club in my own way” — he might find it even harder to fix than GFH.
The short version is that while Massimo has been digging himself out of the hole he created with Hisham and Salah, the football club itself has continued to slide into trouble. With GFH ‘fixed’, administrative expenses were reduced from £37.2m — but only to £33.3m. Operating losses were reduced from £17.8m — but only to £12.6m, around £1m a month. Losses might have reduced but lots of other things did too, things that you don’t want to reduce. Turnover was down by a million. Gate receipts were slightly up but average attendances were down. Merchandise revenue was down, commercial revenue was down.
And that was for 2014/15. Average home attendances for 2013/14 were 25,088, and for 14/15 were 24,276; so far this season we’re at 22,615, without much incentive for fans to rush through the turnstiles between now and the end of the season. The headline reduction in pre-tax losses to £2m has an awful lot to do with player trading, also known as ‘selling McCormack’; Cellino has said that losses will be worse in the accounts for 15/16, and while Sam Byram might have a big impact on the Premier League next season, he won’t have made a McCormack-sized impact on our bottom line. The wage bill, down from £20.1m in 13/14 to £17.8m in 14/15 has, according to Cellino been reduced further to around £13m for 15/16 — yet even with that extra £4m saved, losses are still going to increase. While league position — ah yes, league position —
The problem with devoting 90% effort to fixing GFH is that it was pure finance; a bank arguing with the son of a rich businessman over debt restructuring. While that has been going on, the football club has been taken to Brighton, and it has been thoroughly embarrassed. The result on Monday night shouldn’t be seen as an anomaly, but as a natural destination, and possibly a new level. Cellino might claim he has been distracted, but he’s well into his second full season here. Steve Evans has been head coach since October, and has just come through a transfer window in which he claimed to have had his president’s full backing. These days at Leeds United, it doesn’t get much more stable than that, and the football club and the football team should be showing the fruits of both their labours. Unfortunately, it is.
That football has been an afterthought to Cellino may well prove to be his downfall. If the best he can do for the club financially is to bring it to the point where it needs to sell one McCormack per season to balance the books, well, United wouldn’t be alone in the Championship if that was the case. But we don’t have another McCormack. We had a Byram, who has gone for a pittance; we have a Cook, a Mowatt, a Taylor, perhaps a Kalvin Phillips, a Lewie Coyle. But the pressures of operating losses of this size are such that we might not have time for Phillips or Coyle to develop into players we could cash in on, before we have to cash in.
Thorp Arch, where we would turn for these players, has been a major target for cost-cutting, and it says something about the staffing situation at Leeds that Paul Hart — brought in to run the Academy — has been making up the numbers on the first team bench with Evans and Raynor. Do we have the coaches, the facilities, the scouting network to bring through the next generation of players we need, either to fill first team shirts, or to sell to keep the club afloat?
Without players to sell, the solution for the shortfall falls personally on Cellino. It’s interesting in the accounts that his personal loan to the club of around £1m is the only loan to have been repaid in full, almost as if he needed the cash back. Eleonora Sport, and Eleonora Immobilaire, have loaned more, with parts of those loans turned into shares, without which the losses would look even more severe. But given that right now Cellino is effectively operating while banned by the Football League, pending his various appeals, how confident can we be in Cellino and Eleonora (the companies, not the daughter) being able to prop the club up even in the medium term?
Worth a paragraph, too, are the “number of legal claims and various claims from H M Revenue and Customs outstanding against the company” that merit just one paragraph in the accounts, a paragraph that says, “There is significant uncertainty over their outcome. For this reason no provision has been included in the balance sheet”; in other words, if the multi-million pound legal cases we knew the club was fighting with former sponsors and former employees, and the claims from HMRC that we didn’t know the club was facing, go against the club, there is no cash reserve in the loss making company to pay them. That situation is definitely worth a paragraph.
The magic bullet solution would be promotion to the Premier League; GFH would be paid off, broadcasting revenue would go through the roof, attendances would increase on the way up and sponsors would beat a path to Leeds’ door, reversing all the downturns of the past season. But every player sold to make up an operating shortfall makes the task of returning to the Premier League more difficult; in fact, it makes everything more difficult: getting fans to come and watch, getting sponsors to come and sponsor, getting kids to buy replica shirts.
Massimo Cellino, himself, has made it more difficult. For a few months this summer it didn’t matter that 90% of Cellino’s attention was on fixing GFH, because 100% of Adam Pearson’s was on fixing the football club. Capable staff were being brought in, sensible decisions were being made, United were benefiting from having an experienced head giving thorough and diligent attention to the things football clubs do. Elland Road was a brighter place after just a few months of Pearson’s influence; where would a full season have got us? Higher than 18th?
Normality lasted four months; a spell with Matt Child as executive officer was similarly brief. Paul Bell is in there now, doing something, but he’s a commercial director, not a football man. Maybe the bewildering array of drinks offers for the Bolton game are down to him (it’s two pints for £6 before the game and two for £5 after and if Leeds win a pint is free but only in the South Stand with a ‘match day meal voucher’ that is a mandatory purpose unless you’re a season ticket holder — clear?).
The magic bullet is miles away. Success is miles away. Stable finances are miles away, unless you count consistently losing north of £10m stable. However you slice it, the situation at Leeds United is that more money is going out than is coming in, players are being sold to cover the losses, as players are sold the team is getting worse, and as the team gets worse less money is coming in.
We can argue whether Massimo Cellino should be blamed for all this, at which point we have to acknowledge the job he’s done on GFH, and begin an argument about whose fault that really was (yo, Ken, we were just talking about you!).
But arguments about blame obscure the real danger the club is in if it carries on like this: losing money every season, and lacking the money or the knowledge to rebuild the deteriorating infrastructure that could raise the money to at least cover the losses.
What these accounts ought to do is bring the discussion around Cellino to a new, sharper point. Rather than asking, ‘is he the man to blame?’, we should be asking, ‘is he the man to solve this?’