The accounts from GFH’s time as owners of Leeds United don’t make for pretty reading. Phil Hay takes a closer look at the figures.
The picture painted by Leeds United’s latest financial figures and the impression it gives of Gulf Finance House is not at all unexpected: heavy losses, falling income and rising shareholder debt.
Leeds were sliding in that direction when they published their accounts for the 2012-13 year and preliminary results for the following 12 months show another downturn in the club’s financial position.
United lost £9.5m in 2012-13 and saw their turnover fall to £28.5m. According to documents seen by the YEP, Leeds expect to record losses of just under £23m for the 2013-14 year after their revenue dropped to £25.3m and their wage bill climbed to more than £22m.
The figures shown to the YEP are draft accounts and have yet to be signed off by either to auditors or United’s owner, Massimo Cellino, but a version was sent to the Football League last week in line with Financial Fair Play requirements. They confirm that Leeds are in breach of FFP rules limiting clubs in the Championship to a maximum annual loss of £8m. A breach carries the punishment of a transfer embargo in the January window and Cellino has been anticipating that penalty for several months.
The 58-year-old Italian, who bought Leeds in April and is currently fighting an attempt by the Football League to disqualify him as owner of the club, was majority shareholder at Elland Road for fewer than three of the 12 months covered by the 2013-14 accounts.
GFH Capital, the Dubai-based arm of GFH, ran United for most of that period, though according to the draft accounts, a restructuring of its stake in the club left Leeds without a majority shareholder during the second half of 2013.
In the year to June 30, 2014, United’s income dropped across the board. Their gate receipts fell by more than £1m to £8.5m and cash generated by broadcasting fees and the sale of merchandise also decreased. Their remaining commercial revenue amounted to £6.6m, down from more than £8m in the previous 12 months.
The club’s operating loss climbed to £17.89m, an increase of around £5m, and the wage bill equated to 89 per cent of turnover. Reducing the cost of wages was one of Cellino’s priorities when he inherited what he called “a big mess” from GFH. Last week Cellino claimed that he and the Bahraini bank had agreed to restructure United’s debt and inject capital of £23.5m into the club, a deal which was due to be ratified at a board meeting at Elland Road yesterday. That figure is fractionally higher than Leeds’ annual loss.
Other parts of the accounts show where portions of the money went. The results confirm that a loan of £1.5m given to the club by shirt sponsor Enterprise Insurance in 2012 was paid back in February of this year. Cellino was acting as de facto owner of United at that time, funding the club prior to the completion of his 75 per cent buy-out.
The lease of Leeds’ Elland Road stadium and Thorp Arch training ground cost £1.94m a year as of June 30 and increased again last month. The combined rent will clear £2m for the first time next year. Cellino failed to meet a promise to buy back Elland Road for £16m before the start of December but the expensive lease explains why Leeds are continuously anxious to free themselves of that burden.
More intriguing than those matters are the biggest liabilities laid out in the draft accounts and the money owed to the club’s shareholders, including both GFH and Cellino.
The accounts state that during 2013-14, Eleonora Sport Limited – the UK firm used by Cellino to purchase Leeds – loaned £8.42m to the club. Cellino himself made a personal loan of close to £1.3m and a company in Milan with connections to his family, Eleonora Immobiliaire, lent United a further £2.5m.
Leeds have not commented on the figures but sources close to Cellino say the money does not represent any of the £11m fee which he agreed to pay GFH for a stake in Leeds. They deny that his buy-out was in any way financed using debt incurred by the club. According to those close to him, the loans were used to pay debt and bills before and after his takeover on April 7. They claim the loans do not bear interest and could be converted into shares at a later date.
The accounts name United’s ultimate owner as Trust Sporting 2006, a Cellino family trust which is based in Italy and sits above Eleonora Sport in the ownership structure of Leeds. Under GFH United’s ultimate owner was LUFC Holding Limited, an off-shore company set up in the Cayman Islands. Shortly after buying Leeds, Cellino admitted that he planned to create a structure of companies based solely in the Italy and the UK.
United’s draft accounts say Trust Sporting 2006 holds an “88.3 per cent interest in Leeds United Football Club Limited” – significantly more than the 75 per cent which Eleonora Sport bought from GFH in April. Sources close to Cellino insist the split between Eleonora Sport and the bank is still 75-25, describing the accounts as a “snapshot” at a time of restructuring. United staged a rights issue on June 27, three days before the end of the last financial year.
GFH Capital, meanwhile, is owed a staggering sum of £20.91m by Leeds. Much of that debt was assigned to the company from other creditors, including Brendale Holdings and Berrydale Seventh Sport Holdings. Those firms – both of which belong to GFH Capital – were owed £11.27m and £2m respectively. In the 2013-14 financial year, the interest earned on those loans came to more than £1.5m.
GFH Capital was also assigned £1.7m owed to Envest Limited, a company controlled by former Leeds chairman Salah Nooruddin and a minority shareholder at Elland Road. GFH was asked by the YEP to explain how the debt owed to it had reached such a high level and what the money borrowed by Leeds had been spent on. It was also asked to clarify whether the figure of £20.91m was included in, or in addition to, the £24m of short and long-term debt which Cellino agreed to service when he bought United eight months ago. The bank did not respond.
Over the weekend, however, a GFH spokesperson told the Mail on Sunday: “As a result of the poor financial situation which they inherited at the club, GFH extended funding of around £20m of cash between July 2012 to November 2013 to keep the club solvent, acquire new players, give new contracts to existing players, pay down existing debt and meet other day-to-day liabilities as they fell due when the club’s revenues were insufficient to do this.”
A further sum of £3.4m claimed by GFH for “invoices” is in dispute, the accounts say.
UNITED’S FORTHCOMING 2013-14 ACCOUNTS - THE KEY FIGURES
Turnover: £25.29m (down from £28.56m in 2012-13)
Loss before tax: £20.35m (up from £9.44m)
Loss after tax: £22.93m (up from £9.55m)
Operating loss: £17.89m (up from £12.11m)
Gate receipts: £8.56m (down from £9.72m)
Commercial revenue: £6.68m (down from £8.08m)
Loans owed to Gulf Finance House: £20.91m
Loans owed to Massimo Cellino and connected companies: £12.24m
Invoices claimed by GFH but disputed by Leeds: £3.4m