TRUST FINANCIAL ANALYSIS OF LUFC ACCOUNTS 2013

Leeds United Supporters Trust 9/4/14

FINANCE UPDATE - 2013

Now that the latest accounts (to June 2013) have finally landed we have undertaken a review and have the following summary for our members.

HEADLINES

- Turnover decreased by 8% from £31.1m to £28.6m (compared to 4% in 2011/12)

- Gate receipts decreased by 17% from £11.3m to £9.7m (compared to 12% in 2011/12) with average attendance down by 7.7% - perhaps reflecting lower ticket prices as a factor

- Staff costs to turnover ratio increased from 57% to 70% (51% in 2010/11)

- Overall admin costs increased from £9.8m to £13.3m (£8.6m in 2010/11)

- “Unknown” admin costs increased from £5.2m to £6.2m (£4.5m in 2010/11)

- Directors received £794k compared to £347k in 2011/12, with one director awarded a £440k bonus.

- Yorkshire Radio has had an impact of £1.5m on the loss in the year as LUFC have been forced to write off all the amounts they were owed by them.

- Profits from net player trading of £2.0m helped reduce the overall loss from £11.6m to £9.6m.

- The current debt stands at £24.7m compared to £14.6m on a like for like basis 1 year ago

- Money gained from the court case win against WYP (of £1m) was put towards clearing payments of the preference shares – controlled by Ken Bates

These accounts show the situation at Leeds United as at the end of June 2013 which was before the widely reported further funding that has been injected into the club by Cellino, so in all likelihood the debt has grown since.

Despite what has been claimed, GFH have actually invested nothing into Leeds United but have instead loaded further debt onto the club and managed to record the biggest annual loss since 2004 (the immediate post-Ridsdale era).

While Ken Bates and Shaun Harvey were in control for 50% of this period and undoubtedly laid the foundations for the performance in areas such as the decreased gate receipts, it is only during the second half of the year that we see the debt escalating at a pace, which would suggest that this is when the costs started to spiral. As we have stated in the past, it was always our view that performance was going to be worse in 2012/13 (had the old regime remained in place) than the season before it, but even we are shocked at just how dramatically it has deteriorated.

Summary of Leeds United Football Club Limited Numbers

Excluding Player Trading

	2013	2012	Variance	Variance
	£’000	£’000	£’000	%
Turnover	28,568	31,080	(2,512)	(8%)
Cost of Sales	(5,558)	(5,582)	(24)	0%
Admin Exps	(33,304)	(27,672)	(5,632)	20%
Operating Profit/(Loss)	(10,294)	(2,174)	(8,120)	(374%)
Staff Costs	20,004	17,828	2,176	12%
Other Admin*	13,300	9,844	3,456	35%
*Includes:
Rent	1,893	1,861	32	2%
Depreciation	1,477	1,193	284	24%
Accountancy Fees	140	112	28	20%
Other Known	3,570	1,444	2,126	148%
Unknown	6,220	5,234	986	19%

Post Administration Figures for Leeds City Holdings (Excluding Player Trading)

	2013	2012	2011	2010	2009	2008
	£’000	£’000	£’000	£’000	£’000	£’000
Turnover	29,322	33,097	34,475	27,533	23,535	23,249
Cost of Sales	(6,190)	(6,559)	(6,376)	(5,883)	(4.930)	(4.166)
Admin Exps	(33,760)	(29,557)	(26,486)	(22,789)	(21,384)	(18,217)
Operating Profit/(Loss)	(10,628)	(3,019)	1,613	(1,139)	(2,779)	866
						14 months

Turnover

Turnover has steadily declined since its peak under the Bates Regime back in 2011/12 season, as some fans decided to vote with their feet in order to protest against the running of the club. This meant that we were always expecting a fall this season as GFH were tasked with trying to repair the relationship with the fans. Gate receipts fell 17% and account for £1.6m of the £8.1m increase in losses during the season. Unsurprisingly merchandising fell by a similar percentage (and added a further £875k to the deficit); the remainder of the Turnover items (TV revenue, Central distribution and Commercial activities) more or less netted out meaning that total decrease in Turnover accounted for £2.5m of the overall increase in losses.

Wages to Turnover

While turnover decreased, the badly needed investment in the playing squad did happen. However, the figures suggest that it was more of an investment in total number of playing staff rather than an increase in quality. The overall squad grew from 46 playing staff (including apprentices) to 58 during the year (a 26% increase). Overall wages increased by 12% in comparison; there was some reduction in other staff, but given that the largest part of the wage bill relates to Playing staff and management (which also increased from 17 to 20 people), it seems safe to assume that the average amount paid to the playing staff actually decreased.

While we have always called for an increase in the wages to turnover ratio, the method under which this has been achieved during the year in question is not really what we had in mind. With turnover down (by £2.5m) and the number of playing and management staff increasing dramatically (at an additional cost of £2.2m), the ratio went from 57% to 70%. It is highly unlikely that Leeds United will have the lowest ratio in the division anymore but, while the quantity side of this equation has been fulfilled, the quality of the additional spending does not seem to have noticeably improved. We would not call for this ratio to be exceeded next season (or beyond), in fact if anything it needs to decrease, but we would definitely suggest to the new management that a reduction in quantity and increase in quality needs to be the focus.

Costs of the Directors has increased dramatically which can largely be explained by the increase in number of Directors, as well as the significant bonus payment made to one of them (£440k). 

Other Costs

It is this area where we have seen the most shocking situation. We have always maintained that the ‘other’ costs at Leeds United were excessive, therefore to see a £3.4m increase in these was deeply concerning. In terms of the increase, we can see that £1.5m of this relates to a one-off cost associated with the closure of Yorkshire Radio (where the debt owed to Leeds United by the radio station had to be written off), a further £0.6m relates to increased admin costs associated with player transfers and £0.3m relates to the legacy of Bates building works. The remaining £1m of additional costs is unknown, taking what was already a bewildering £5.2m figure up to £6.2m. Undoubtedly much of these are likely to be legal costs associated with the takeover but it seems any hope of light being shed on these unknown expenses under the regime of GFH has been disappointingly shattered.

We still believe this is an area Massimo Cellino can find savings in and hope that it will go some way to reducing future losses.

Cash

As we expected cash has been in short supply at Elland Road, and this became even more apparent with the recent reports of a wages crisis at the club. Given the huge increase in costs and the reduction in revenues this is no surprise, but it is obviously a situation that cannot be sustained. Just how close we came to another Administration event may never come to light but the accounts reflect a situation where the club was living a hand to mouth existence for some time and this situation would have had to come to a head but for the introduction of a new cash injection.

Group Companies

The Group situation is perhaps the one area where it appears that GFH took the painful decisions and acted correctly. Yorkshire Radio was closed down having made further losses (which impacted the football operations) and some consolidation appears to have occurred making the family a bit more manageable in size. However, the eternal promise made by Ken Bates regarding non matchday incomes has still yet to materialise as the combined efforts of the non footballing side of things resulted in a turnover of £754k and costs of £1.09m (an overall loss of £334k). 

Debts 

In six months GFH appear to have added a further £10m (net) to the debt left behind by Ken Bates, much of which is in the form of short term loans. The list below details the current situation regarding debts at the club.

Preference Share payment to Lutonville	£0.1m
Ticketus 2 LLP Loan Repayment	£2.3m
Compass	£1.3m
Brendale	£11.3m
Berrydale	£2.0m
Director Bonus	£0.2m
Sport Capital	£1.8m
Working Capital Shortfall	£5.7m
TOTAL DEBT	£24.7m

If the contingent payment of £4.8m to the Administrators is included this figure increases to £29.5m (assuming we get promoted by 2018).

Conclusion

If we thought when we parted company with Ken Bates that things could not get any worse, that has quickly been dispelled by these numbers. This does not mean that Ken was in anyway better for the club, nor is he absolved from blame in our opinion. Many of the issues relate directly to the state of the club that he handed over (falling revenues, disgruntled fans) and the long term decisions he took (Yorkshire Radio and the building obsession), but what is clear is that GFH did not seem equipped to manage these situations and had no obvious plan to do it. They took over the club with no funding and have had to react to each cash crisis as it arose by finding loans as and where they could. It seems obvious why they needed so desperately to sell. However, perhaps the profitable running of the club was never a real concern, as the GFH financial statements appear to show that in spite of all this they have managed to make a profit out of this sorry state of affairs. GFH reported that they made a US$6m profit out of their holding in Leeds United by selling shares in the club (Leeds United Holdings) to strategic investors. Like Leeds United, those investors seem not to have been quite as fortunate as GFH in terms of profit as reports suggest the club has been sold to Massimo Cellino at a value nearer to what they originally paid.

As is always the case finances never tell the full story but, while GFH do not appear to be able to run a profitable club, they do seem to be able to make a profit out of a loss making enterprise.