With debt piling up at Elland Road, Italian Massimo Cellino appears to have more cash behind him than other suitors. Phil Hay reports.
Gulf Finance House wanted Leeds United to be sustainable and self-financed – “funded by its own means” as director Salem Patel put it on Monday – but they are a contrary club living on money provided by other people.
The £1.5m loaned to Leeds by Massimo Cellino last week, a payment made with his takeover pending, is the latest addition to a list of liabilities which show United in debt to no fewer than three of the people who have tried to buy control at Elland Road in the past three months.
Around £3.5m is owed to managing director David Haigh who, in the run-up to Christmas and in the thick of Sport Capital’s aborted takeover bid, put up repeated loans for operating costs, wages and transfers. Andrew Flowers, who supported Sport Capital’s offer alongside Haigh, also contributed to the £6m invested by that consortium on the assumption that they would eventually claim a 75 per cent stake from GFH. The bid collapsed last week, prompting United to borrow a seven-figure sum from Cellino.
Flowers is also trying to claw back a further £1.5m lent to Leeds by Enterprise Insurance, the company he established in 2004 and United’s shirt sponsor since 2011. He served the club with a winding-up petition last Wednesday, the day Sport Capital’s takeover fell apart, and the High Court is due to hear the case on March 17.
Financial analysts see Flowers’ petition as a way of delaying any sale after the club agreed last week to hand a majority stake to Cellino. Cellino, however, could sweep the petition aside by closing his purchase and settling the debt owed to Enterprise Insurance in full. “That would get rid of it,” one expert told the YEP.
Flowers and other businessmen opposed to Cellino’s takeover spent Monday and Tuesday pressurising GFH to sell the club to them, arguing that the Italian’s criminal convictions and illegitimate sacking of manager Brian McDermott last Friday called into question his suitability as owner. By yesterday afternoon, their plan was running aground as the group conceded that matching Cellino’s £25m bid might be beyond them. Leeds no longer have the luxury of time and nor do they have the money to wait indefinitely for a change of ownership.
Staff at Elland Road were paid in full and on time last week but Cellino’s loan of £1.5m is understood to have been used to meet the wage bill for January. At least one of Haigh’s loans – a sum of £1m paid via the Sport Capital group in November – was provided for the same purpose. United’s existence is hand-to-mouth with the club losing money and GFH under pressure to sell most of its shares. The money that Enterprise Insurance is attempting to reclaim through the High Court was received by Leeds in October 2012, two months before GFH ended protracted negotiations with Ken Bates and bought Leeds. At the time, Leeds refused to comment on the reason for borrowing money from their own shirt sponsor but it came with a seven per cent interest rate and had all the hallmarks of a payment needed to ease cash-flow issues. United made a pointed response to Flowers’ winding-up petition, publishing a statement on their official website on Tuesday which promised to fight it.
“The winding up petition issued by Enterprise Insurance, a sponsor whose managing director, Andrew Flowers, claims to support the club, is misconceived and an abuse of legal process,” the statement read. “It is being vigorously contested by the club’s lawyers and there are no valid grounds to issue the petition.
“As there were no valid grounds to issue the petition, we can only assume that Mr Flowers is seeking to influence the deliberations of the club’s owners and management in relation to the takeover negotiations.
“Under the ownership of GFH Capital Leeds United has always met its financial obligations, and it will continue to do so.”
Bizarrely, the second of those three paragraphs was removed from the statement shortly after it was released at 10.18pm. The original appeared at the end of a long day in which Flowers, along with former Manchester United International managing director Mike Farnan, held extensive talks with GFH about an alternative offer to Cellino’s.
The newly-formed group – an amalgamation of two rival parties who bid for United before Christmas – had promised to offer to match Cellino’s price and planned to tell GFH that they wanted an immediate answer on Tuesday.
But talks dragged on yesterday morning and Flowers declared himself out around lunchtime. Cellino continues to dominate the race with a seven-figure sum invested in Leeds and a 75 per cent buy-out agreed. He, or whoever tackles the shambles at Elland Road, stands to inherit a club who have broken the promises made when they exited administration in 2007.
At the end of that horrendous summer, chairman Ken Bates and his chief executive Shaun Harvey – now chief executive of the Football League and the man overseeing a request to approve Cellino’s takeover – vowed that the club would be run on a “sound footing”. In 2011 they stretched themselves by paying £7m to redevelop the East Stand, mortgaging the project against future season-ticket income. Season ticket money for this campaign was effectively wiped out last spring when United settled a debt with Ticketus with a final payment of £3.3m. Since then United have survived on borrowed money. The shirt sponsorship cash from Enterprise Insurance last year was paid up front and spent on a new contract for Ross McCormack. Enterprise’s deal runs until 2016-17 but is now in dispute after the Gibraltar-based firm withdrew its support last week. GFH have no choice but to tout Leeds as a club with much potential but big holes to fill.
Cellino claimed from the outset that he had enough money to fill them and many in Italy believe that whatever else the Italian might lack, cash should not be a problem. With debt piling up at Elland Road, it remains to be seen if any other bidder can say the same.