Is GFH Capital Ken Bates’s Perfect Successor?

Scratching Shed 29/9/12
TimPM

Investment banks, slowly slurping the lifeblood from a club. To many fans, an investment group purchasing their club would be a nightmare, but this is perhaps too simple. To Leeds, the proposed marriage to GFH Capital might just be a happy one. Investment banks want something back, and that’s why many fans are rightly wary. A few millions draining annually from a club, especially in the Championship, can cripple an otherwise competitive side. Leeds’ poorly timed capital projects highlighted this. But there’s no evidence that GFH Capital will behave in this way – in fact their press release suggests an early stage of significant investment in the side, getting Leeds to the promised land of the Premier League.

It’s easily said, not so easily done. Leicester, Bristol City, Nottingham Forest – several clubs have found this. But Leeds is a club too big for the Championship, of that make no mistake. In terms of reputation, every pundit you’ll meet says Leeds are a Premier League side – even Sir Alex Ferguson himself has said on more than one occasion that he misses the club from the EPL – and financially too we’re big enough to avoid relegation scraps upon our return. Leeds’ average attendence in the last season before disillusionment really took hold would put us around 13th in the Premier League this season, despite high ticket prices and 2nd tier football. Our average attendence even now is larger than the capacity of some Premier League stadiums. Meanwhile our turnover seems regularly to outstrip or at least compete with that of demoted teams on Premier League parachute payments, and is easily one of the highest in the Championship.
There is scope for massive growth from Leeds United over the next few years, and that makes it an enticing prospect for investment groups. But financial clout doesn’t guarantee success. Eddie Gray has become a stuck record on the failure of Leicester’s promotion push. Leicester are the perfect example of the wrong way to spend money. First and foremost, they employed a clown in Sven Goran Erikson, a man tailed by a media circus, and with no experience whatsoever of getting out of this physical, 46-match-season league. Then they overpaid a number of up-and-coming players. I’m not alone in concluding that Sven didn’t take to the Championship very successfully, while players went to Leicester sometimes seemingly more interested in the paycheque than in performances on the pitch.
Leeds has already proved it possesses a manager capable of turning money into success. Building a promotion team over half a decade at Sheffield’s second club, walking into a circus with a revolving door at manager-level at QPR, and turning them into league champions. This is Neil Warnock – the man who would gain the record for the greatest number of English promotions if Leeds went up on his watch. Say whatever you like about the style of football his teams play – it’s successful. Just look at QPR’s unstoppable march in 2010-11, just look at our utter domination of Premier League high-fliers Everton. Warnock has spent a few hundred thousand here and there, grabbing the phenomenal Rodolph Austin, and talented youngsters like Jason Pearce and Lee Peltier. Not only that, he’s somehow turned a bad-boy with psychological issues playing with demoted Doncaster last season, into the experienced star he should be. He’s also seemed to completely transform talented but very rough diamonds like Tom Lees and Aidy White into mouth-watering prospects for the future, along with his experienced backroom team. Make no mistake, Neil Warnock and his staff are the men to guide Leeds to the Premier League.
But how do we come up with the cash? Ken Bates won’t spend his own money on the club – who can blame him, honestly? – and despite genuine interest from wealthy individuals over the past five years, actually forging a deal seems very different to generating interest. Step up GFH Capital, whose recent press release suggests that they understand they must speculate at Leeds before they can accumulate in the Premier League.
Arguments that GFH Capital are somehow incapable of running Leeds United are worrying. GFH was caught badly in the recession, making losses in excess of £200m for two years, and is still coming out of its own problems. The deal could also result in yet more hidden ownership, with the funds for a GFHC deal almost certainly coming from a private individual.
Yet the company also boasts of its role deals including the “establishment and development” of the First Energy Bank in Bahrain, a $2billion bank specialising in the energy sector. Leeds then, would hardly seem the biggest deal GFHC have been involved in. Despite auditors expressing concern over GFH Capital, it has made profit this year – £20m or so already, I believe – and although there are increasingly worrying doubts expressed everywhere, they don’t look like small-time cowboys to my unrtained eye. The auditors expressed concern that debt could only be paid on time if assets were shifted (there is, of course, no guarantee of this), but GFHC have since restructured some of their debt. While they made heavy losses during the global downturn, they have been in profit for 18 months and will almost certainly be using another individual’s wealth in this investment.
None have been more critical of GFH Capital’s ability to successfully lead Leeds back to the Premier League than Duncan Castles, writing for Abu Dhabi-based “The National”. Ken Bates referred to one of the claims made by Castles in his programme notes last weekend, calling them “total rubbish”. Despite the very welcome statement from GFH Capital on Friday, concrete evidence is inevitably difficult to establish on this takeover saga. Yet it seems likely that GFH Capital was the group that left Leeds United in June:
very comfortable that they have the financial resources to support the club and that they will have no issues in satisfying the requirements of the Football League’s Owners and Directors Test, unlike many of the previous approaches we have had to endure.
The club have not suggested any change to the party involved in advanced bidding, and if Chairman Bates thinks GFH Capital are sound, that should count for something. Many will know I’m not Mr Bates’ biggest fan, and GFH Capital talk is indeed a cheap way to garner favour with fans. But the noises surrounding Mr Bates over the past four to five months have consistently suggested that his legacy is a key factor in the sale of the club. Make no mistake, Leeds have hit real difficulties this spring, but a younger Bates might just have been contrary enough to have relished the added challenge of an increasingly alienated customer-base and what appeared from the outside short-medium term financial over-extension. As it is, Bates seems to be looking at selling on to an entity willing to continue his strategy for the club.
That strategy is an Arsenal-style sustainable strategy that some might argue simply isn’t possible, or makes things unnecessarily difficult, for a club like Leeds – a club that might justifiably expect Premier League football – but that nevertheless has merits once a club is in the Premier League.
This “Arsenal” approach has its detractors. We argued last spring that the new financial fair play rules could be exploited through lucrative sponsorship deals from businesses loosely connected to the owners of any given club, we also suggested that setting Leeds’ stall out as a renewable club years before the actual rules took hold might be jumping the gun to our detriment.
Nevertheless, the worst that can be levelled at Arsenal is that it has slightly more potential than is realised. Its league positions, going back in time, were: 3rd, 4th, 3rd, 4th, 3rd, 4th, 4th. Arsenal is the embodiment of a mildly successful, stable, football club playing attractive football at the highest level. There’s a lot worse to try to emulate. Indeed, Arsenal aren’t a one-off. Newcastle’s disastrous demotion in 2009 was a shock on a par with Leeds’ demotion in 2004. Protests against chairman Mike Ashley spread, but the club marched straight back to the Premier League. Since then, Newcastle have invested in a good manager, and based their plans on him. Alan Pardew rewarded them with a string of inspired signings, and you’d have to have lived in a cave the last year not to have noticed where this sensible spending ended.
GFH Capital could well be the perfect successors for Ken Bates, following his long-term strategy, and establishing Leeds as a sustainable Premier League club. Fans might be concerned about how much could be taken from the club year-by-year, but we can’t see that far to the future. Nevertheless, the prospect of the company failing, and plunging the club into uncertainty will weigh heavily with fans. The YEP have followed Duncan Castles in expressing caution over this deal.
It is too early to judge these prospective buyers, but I see their press release yesterday as positive, and personally I'd cautiously welcome them to the club if their bid was successful. But there are a lot of questions to answer; in my opinion it's vital for the good of the club that we're able to have healthy debate.