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The trouble with Leeds
The film The Damned United has thrust Leeds United back into the media
spotlight. David Conn looks into the controversial attempt by Ken Bates to
bring the club back from its latest stint in the footballing wilderness.
Reflecting on Brian Clough's 44 days as Leeds United's manager, portrayed in
the David Peace novel and film The Damned United, one newspaper reflected
that Leeds, all white and mighty in the 1970s, have never recovered from the
departure of Clough's long-term predecessor Don Revie. The theory was that
Revie, a brilliant manager but a practitioner of football's dark arts, left
a black hole that Clough was not alone in being unable to fill.
There is a stark seductive power to that theory when you look at where Leeds
are now: in League One, football's most notorious financial collapse behind
them - even before the controversial administration, chairman Ken Bates put
the club into in 2007. Yet that view of a 26-year decline is inaccurate.
Leeds recovered, after post-Revie agonies involving eight seasons in the old
Second Division, to win promotion in 1990 and the last First Division
championship in 1992. Then, in the Premier League era, they blew all that
good work.
Rough old Leeds United were on their way to becoming the model of a modern
European football club when they floated on the Stock Exchange in August
1996. Chris Akers, the new plc chairman, unveiled his sunny vision in the
club's prospectus: "We intend that Leeds should form the cornerstone of our
strategy to create one of Europe's leading sports, leisure and media groups,
underpinned by a multi-sport and leisure facility available for the
community."
Peter Ridsdale, Akers' successor, may now have spent years wrestling Cardiff
City to success and his own battered reputation to rehabilitation, but in
the good years he and manager David O'Leary appeared to represent the dawn
of Elland Road enlightenment.
Leeds fielded a young attacking team, unveiled plans to develop their
stadium and implemented ground-breaking community programmes.
The reborn club finished third in the Premier League in 2000, and the
following season were watched to the semi-final of the Champions League by a
nation shocked to find itself actually liking Leeds.
The collapse, in which almost £100m was written off, came less than two
years later. Leeds had borrowed hugely: £22m in sale and lease-back player
deals, £60m in bonds, not to invest long-term in the expansion of Elland
Road, but to buy short-term assets, players. Ridsdale always denied the
story about offering Seth Johnson twice the wages his agent had dreamed of
asking for as a starting point, but it has stuck as a tale of extravagance.
"Should we have spent so heavily in the past? Probably not," Ridsdale
lamented in February 2003. "But," he added, coining the phrase that has
stood for all the beautiful game's insolvent gamblers, "We lived the dream."
It would be fair to argue that Leeds have indeed never recovered from that
tottering collapse. Ken Bates ended up in charge after a short, unsuccessful
period of ownership by a consortium of local businessmen, led by the
insolvency practitioner Gerald Krasner. They agreed to put £5m into the club
in 2004, and borrowed another £15m, but that was spent paying off creditors,
and the club still owed significant debts and had an unpayable wage bill
that produced a loss in 2004 of £29.7m.
"They hadn't lived the dream," Krasner mourned. "They had lived the
nightmare."
Leeds were relegated in May 2004. All the star players were sold and then,
to bring in firefighting money, so was Elland Road, and the Thorp Arch
training ground. Still, the club was shipping money, so in January 2005
Krasner and his consortium were introduced to Bates.
He was 73 by then, had famously bought a heavily indebted Chelsea for £1 in
1982 and in 2003 sold a heavily indebted Chelsea to Roman Abramovich for
£59m, coming away with £17m himself. Yet Leeds fans who hoped Bates' fortune
and experience would send the club back to prominence were crestfallen when,
on May 4 2007, Bates put the club into administration, its debts calculated
by administrator KPMG in Leeds at £38m.
Many in football, and HMRC, who were owed £7.7m in unpaid tax and VAT, were
outraged KPMG agreed a "pre-pack" to sell the club back to its owner, the
offshore company Forward Sports Fund, of whom Bates was described as "the UK
representative," for 1p in the pound.
The company voluntary arrangement agreeing to this sale was passed, by just
0.2 per cent above the required 75 per cent of creditors. A large part of
the total debt - £18m, or 45 per cent - was owed to three offshore
companies: Forward, registered in the Cayman Islands; Astor Investment
Holdings, registered in the British Virgin Islands; and Krato Trust,
incorporated on Nevis Island in the West Indies.
For a CVA to go through where there are significant creditors connected by
ownership to the company, or its directors, a second vote has to be taken in
which the CVA has to be approved by more than 50 per cent of the
non-connected creditors. Astor and Krato favoured the CVA and KPMG stated
that both were not connected creditors, so no second vote had to be held.
HMRC mounted a legal challenge, and KPMG terminated the CVA and held an
auction to sell the club.
The competition faced a severe disadvantage: Astor and Krato, although they
had no connection with Bates or Forward, expressed a preference for the club
to be bought by Bates' bid.
The offshore vehicles were prepared to write their debts off in full if the
club was sold to Bates.
If it was sold to another bidder, Astor and Krato's debts would have to be
included in the total to be paid off.
That resulted in three bids, all offering more money on the assumption that
Leeds would rejoin the Football League, losing out to Bates' bid.
With the £18m owed to Astor, and Krato and Forward having to be accommodated
by the rival bids but not the one by Bates, his £1.8m offer had to pay only
£11.4m of creditors, while the other bidders had to deal with £29.4m of
creditors.
Asked why the offshore investors would do this, write off their millions so
a club that had collapsed into insolvency, to which they had no connection,
should remain owned by the outfit that owed them all the money, Taylor said
they believed Bates, and chief executive Shaun Harvey, had the experience to
get Leeds back to health.
Krasner, who protested throughout, pointed out in a creditors' meeting that
Leeds' 2006 accounts had stated that Astor did have an interest in the
Forward Sports Fund. Taylor said then that he had been to Guernsey, and the
connection had been severed.
That was all the public knew of the offshore ownership, until revelations in
a legal action Bates has brought in Jersey against a company, AdMatch, he
claimed owed the club £190,400. Robert Weston, AdMatch's owner, claimed this
should be "set off" against £1.43m another of his companies was owed, and
asked questions of the Leeds United companies.
It emerged that Forward Sports Fund had two "management shares" - one owned
by Bates, the other by Patrick Murrin, his associate and former director at
Chelsea. This, Taylor explained, meant Murrin and Bates jointly owned
Forward, and Leeds.
Of Forward's ownership, Leeds United's Jersey solicitors said: "One share
was initially held by Astor Investment Holdings Limited... Astor Investments
then instructed professional agents to incorporate Forward Sports Fund, and
Astor Investments proceeded to loan money to Forward Sports Fund to
undertake its investment in Leeds."
That prompted Phil Willis, the Liberal Democrat MP for Harrogate and
Knaresborough, to call for an investigation by the government and football
authorities into KPMG's conduct, and into the ownership of Leeds. He argued
that insufficient information had been disclosed and that KPMG should have
made more inquiries. Taylor rejected that, saying: "There is nothing to
investigate." KPMG declined to comment.
Leeds, their debts cleared, announced a profit of £4.5m on a turnover of
£23m in the year to June 2008, the first since administration wiped out
their debts. Bates and Harvey argue the rebuilding has started, but, like
other relegated clubs, they have not found League One the easiest to bounce
back from.
On March 20 Leeds made the news again. West Ham United had agreed to pay
Sheffield United £21.6m compensation to settle the legal dispute over West
Ham's fielding of the Argentinian striker Carlos Tevez in the 2006/07
season. Bates said Leeds would consider their own legal claim because the
club had been denied money on "sell-on" clauses when Sheffield United
transferred former Leeds players.
It was not clear what chance Leeds had of succeeding, but showed that for
all the club has fallen through since Revie's glorious, grim era, the man in
charge now is, at least, never knowingly short of chutzpah.
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