It is often argued that it is not possible to make money out of a football club in the sense that most clubs run at a loss as they seek glory, often a considerable one. One way in which could make money is through a capital appreciation of the asset.
It is often argued that it is not possible to make money out of a football club in the sense that most clubs run at a loss as they seek glory, often a considerable one. One way in which could make money is through a capital appreciation of the asset.
Ideally these gains would be achieved by investing in the club in a way that grew it sustainably. Another model would be to borrow lots of money to buy the club and then charge the interest payments to its revenues. Think Manchester United. Or one could obtain the club at a knockdown price and sell it on, or at least part of it, quickly. This is what appears to have happened at Leeds United.
Gulf Finance House (GFH), the Bahrain-based owners of Leeds United, have given formal notice that they have begun negotiations to sell the club. They bought it from the previous owner, Ken Bates, only on 21 December. In their financial statements for the year to 31 December 2012, GFH state that they bought Leeds for ‘a bargain purchase’ and are now holding the club for sale, which they envisage completing within six months to a year. Whether there is a buyer in prospect is unclear.
GFH also revealed for the first time the price they paid for Leeds, ‘net cash’ of $33m (£22m), and they assess the club to be worth immediately $10m (£7m) more than that. Mr Bates owned 73 per cent of the club via his offshore company, Outro, so of that £22m purchase price disclosed by GFH, he would have been paid £16m. He has never revealed how much he paid to buy Leeds, so it is not known whether Bates, a tax exile living in Monaco, made a personal tax-free profit on the sale.
In their financial statements, GFH say without further explanation that Bates was under some duress to sell the club.’The bargain purchase was due to pressure on the sellers [principally Bates] to exit their holdings due to change [sic] in their business plans,’ they say.
The situation has been complicated by an announcement on the club website that the owners do not intend to sell the whole club but only a stake in it. This has just added to the air of confusion, but a part share of the club is likely to be less attractive to potential investors as, depending on what was on offer, they would not have control.
One does not have to be a Leeds supporter to acknowledge that the club has considerable potential. Many clubs aspire to Premiership membership, but many do not have the basis to sustain it (and, indeed, in many cases are quite happy to get one year’s money, be relegated and take the increasingly generous parachute payments).
Leeds is a prosperous city at the heart of a metropolitan area with a history of involvement in the top flight of football. It would therefore be a good investment for someone. But that does not mean that a sale will be achieved quickly. There are fewer quality buyers, dedicated to long-term progress for a club, in the market than was once the case. Indeed, events at Leeds underline that point.
The club has already been through considerable instability, but it could be well into next season before a new owner or contributing investor is in place. Promotion this season is not impossible, but it doesn’t seem very likely. Working towards it next season may have become more difficult.