What the summer transfer window tells us about the financial situation at Leeds - The Athletic 6/9/22

By Phil Hay

The transfer window just gone will go down as one of Leeds United’s longest.

From Brenden Aaronson’s move from Red Bull Salzburg shifting into gear within hours of last season finishing to the announcement of Wilfried Gnonto’s signing coming more than an hour after the deadline, the summer behind Leeds rarely slept.

It came to a temporary standstill in terms of signings, though, after the capture of Luis Sinisterra from Feyenoord in early July, and failed attempts to land Cody Gakpo from PSV Eindhoven and Bamba Dieng from Marseille on deadline day saw Gnonto’s arrival wrapped up hastily at the death. Business for the club ran to five full-blown first-team signings: Aaronson, Sinisterra, Rasmus Kristensen, Marc Roca and Tyler Adams. Gnonto, Darko Gyabi and Sonny Perkins fell into the category of future prospects, while Joel Robles provided insurance on the goalkeeping front.

But could Leeds have done more, or should they have done more? And what does the summer tell us about the financial situation at Elland Road? The second question has been asked repeatedly, particularly since Leeds tried and failed with a £34million ($39.1m) offer for Charles De Ketelaere and again in the aftermath of Jesse Marsch’s comments about Dan James on Saturday. Here, The Athletic has compiled an explainer, looking at the way the club manage their books:

What do we know about Leeds United’s finances?

The best or clearest guidance about how the wheels have been turning at Elland Road come from the club’s most recent accounts for the 2020-21 year and their first season back in the Premier League.

The landscape has changed since then, not least because of the return of crowds and proper matchday revenue after the COVID-19 pandemic, but those accounts are as good a way as any of gauging the margins Leeds are working within.

The club turned a £25m profit in 2020-21 — enough money in theory to buy someone like Aaronson, but in reality, that figure did not represent hard cash. It included £21.3m in waived shareholder loans, most likely owed to Andrea Radrizzani, all of which were repayable in May 2021. Adding that amount to the balance sheet significantly improved the bottom line. Strictly speaking, Leeds made £4.6m overall on a total turnover of £171m. It was a massive step forward from the losses they were used to posting in the Championship but still a small gain in the grand scheme of Premier League expenditure.

While they were active in the 2020 summer transfer window and committed substantial amounts of money to signings, the core of their costs was the wage bill — some £108m, or 63 per cent of turnover, just £2m less than the £110m they received in central Premier League distributions. Total administrative expenses were £151m, or 88 per cent of turnover. So while it is true that Leeds had a lot of revenue coming in and vastly more than they ever received in the EFL, plenty of it was flowing out again, too. They could not be described as a cash-rich entity.

The 2020-21 accounts estimated that the cost to the club of closing their stadium and conference facilities during the COVID-19 outbreak was almost £23m, a burden they no longer have to bear. They were, however, effective at maximising certain areas of the business, like a £20m haul from the sale of merchandise. Between that and sponsorship deals enhanced in value by promotion, Leeds could not have squeezed much more from their commercial operation. Without selling players and without a full and redeveloped Elland Road, which holds crowds well in excess of 36,000, avenues to a much higher turnover are not easy to see.

How is the picture likely to have changed?

Elland Road was full throughout last season, and while the size of the ground puts a firm cap on Leeds’ matchday income, they earn as well as they can from attendances and corporate sales — primarily because the ground is always full. Gate receipts in 2019-20 were £11.4m, even though the final stages of that season were played behind closed doors, but in 2020-21 Leeds hosted just one crowd on the final day.

They saw gate receipts drop to £1.9m, down by almost £10m. When they arrive early next year, the accounts for 2021-22 will show a far healthier injection of money from the core business of staging football fixtures.

Recruitment last summer was at a lower level than in 2020, but between Junior Firpo, Dan James and a permanent deal for Jack Harrison, the combined fees involved went close to £50m, again without any of the cash offset by significant income through player sales. The summer window, which closed on Thursday, is the first since promotion in which Leeds have actively tried to cover the cost of transfers through departures from their senior squad, namely by selling Kalvin Phillips and Raphinha. The club’s 2021-22 accounts are expected to show a further increase in the salary bill — following what Angus Kinnear, their CEO, described in last Tuesday’s programme as “a huge additional commitment in wages” following their return to the Premier League.

The struggle in the division last season, and the narrow avoidance of relegation, incurred other financial consequences. Finishing 17th as opposed to ninth in 2020-21 had a material impact on Premier League prize money — a difference of around £3m per place.

Sacking Marcelo Bielsa in February meant pay-offs for him and the sizeable backroom team around him. So even with matchday income returning, Leeds’ financial position is unlikely to have changed too much — a club with the money they need to live on but not a club who are left with large amounts of surplus cash once the bills are met.

What has been the process of transfer expenditure this summer?

One thing to say here is that Leeds rarely, if ever, pay for a player in full up front. Most deals involve an initial fee and future payments over the length of a player’s contract. This is not unusual in football and many clubs operate in the same way, avoiding a big outlay in one hit. What it means, though, is that every summer throws up payments for footballers who were signed in previous windows.

That was what made the deals for Phillips and Raphinha fairly unusual. In both instances, Leeds were able to negotiate terms that committed Manchester City to paying £42m up front for Phillips, and Barcelona around £50m up front for Raphinha.

Much of Leeds’ transfer business during the window was made easier by the fact they were certain of receiving large lump sums — a switch in policy from two previous summers when income from player sales was either nil or negligible.

But even if Leeds have avoided stumping up in full for new signings — for example, the first instalment for Tyler Adams is understood to be due to RB Leipzig next year — they have still allocated the earnings from Phillips and Raphinha to the incoming deals they have done. Adams’ fee was around £20m, as was Luis Sinisterra’s. Brenden Aaronson was closer to £25m and both Marc Roca and Rasmus Kristensen came in at £10m. Add Darko Gyabi from Manchester City for £5m and Wilfried Gnonto from FC Zurich for a similar fee and the trade-off is pretty close: circa £90m raised through Phillips and Raphinha, circa £90m-worth of players in.

What this did was free the club’s shareholders from any pressure or obligation to fund Leeds’ business themselves. The price of their various transfers were already covered and, heading into the last week of August, it seemed unlikely any more deals were coming. But it was noted that in July, Radrizzani revealed Leeds had bid £34m for Charles De Ketelaere. As the deadline approached, there were enquiries for Hwang Hee-chan at Wolves and Cody Gakpo at PSV. A fee was agreed for Bamba Dieng at Marseille before that deal collapsed and, in the end, Gnonto was signed very late on.

If, as Marsch said a couple of weeks ago, they were short of “a surplus of big amounts of money to go out and bring in a huge transfer”, how were they able to look at players like De Ketelaere or Gakpo? How do the messages join up?

Did Leeds have more money to spend – and how would they have signed De Ketelaere?

Leeds, as Marsch pointed out, do not have lots of spare cash sloshing about in the accounts at Elland Road — certainly not the £34m they agreed to pay to Club Bruges for De Ketelaere, who chose instead to go to AC Milan. But Radrizzani told The Athletic recently that the bid for De Ketelaere was concrete and would have been financed had the forward wanted to come. “He was our icing on the cake, our special player,” Radrizzani said.

The question, naturally, was how the funding had been available for that transfer — and if the funding was available, what happened to it in the weeks after De Ketelaere turned Leeds down?

In order to secure a signing like that, or any major deal after Sinisterra came in from Feyenoord, Leeds would have had to find the money, either through the sale of another player or through shareholder investment or loans. The implication from Radrizzani seemed to be that Leeds rated De Ketelaere so highly that they would have done what was necessary to make it happen. But for other targets, or targets the club were less certain about, the motivation to spend was much lower.

Something similar happened towards the end of last summer, when Dan James was put up for sale by Manchester United at very short notice. James’ asking price was £25m and, similarly, Leeds were not awash with spare money to pay for him, but the cash was found and it is believed to have come from Radrizzani directly, securing a player who Bielsa was dead-set on signing.

The scenario in the closing weeks of this window was not so different. Leeds could have sold Jack Harrison to Newcastle United, a possibility they ruled out long ago. They were willing to sacrifice Dan James and let him move to Fulham on loan. Marsch painted that as a one-in, one-out scenario when he spoke about it on Saturday — giving the impression that for anyone to arrive, a player had to leave to balance the books — and that would have been the case had Leeds managed to bring in Gakpo or Dieng last week.

Gnonto, however, was a very low-cost purchase by Premier League standards and the likelihood is that James was allowed to go to Fulham in the end because Marsch did not think it was fair or reasonable to tell the winger he was expendable and then scupper a loan which was all but complete.

What is the state of play in the boardroom at Elland Road – and is 49ers Enterprises about to up its stake again?

Radrizzani says not. According to this interview, Leeds’ chairman says “nothing is under discussion” about imminent change in the split of shares at Elland Road. “At this moment we are super happy,” he said.

Radrizzani owns 56 per cent of Leeds and 49ers Enterprises owns 44 per cent. 49ers Enterprises has invested in a substantial way twice since the latter part of 2020, hiking its stake up to the brink of majority control. Representatives of the American group were at Elland Road for last Tuesday’s game against Everton and will doubtless have been involved in discussions about what to do in the final days of the window.

As The Athletic reported last December, and as Radrizzani confirmed himself, 49ers Enterprises holds an option to buy the Italian out and become the majority owner of Leeds before a set date in 2024. And while there has been no shift in the shareholding at Leeds since November 2021, it is understood 49ers Enterprises is still positioning itself to activate the option it negotiated and is discussing financing plans.

What is still unclear is the exact timescale it envisages — or how much a 49ers Enterprises model of ownership would differ from the existing framework at Leeds. Those are questions which remain unanswered.