Leeds United: Ground deal makes real financial sense

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David Haigh plans to mark his takeover of Leeds by bringing Elland Road back under united’s ownership. Phil Hay reports.

Leeds United sold Elland Road and Thorp Arch in an act of desperation. The club’s biggest assets were their only saleable assets when the freehold of the properties raised around £12million nine years ago.

Elland Road alone changed hands for £8m, an immediate injection of cash which Leeds will pay for twice over and more. If the next owners of United succeed in exercising a buy-back clause, the cost of repurchasing the stadium will run to more than £15m. In the years in between, the club have spent a comparable amount in rent.

The folly of trading United’s bricks and mortar is shown by that basic calculation but in the autumn of 2004, Elland Road and Thorp Arch were all Leeds had to work with. The sale of Elland Road to Manchester businessman Jacob Adler bought the debt-ridden club some time as a major creditor knocked on the door.

It was auctioned by the board led by chairman Gerald Krasner, a local group who borrowed £15million from former Watford chairman Jack Petchey as they completed their takeover of Leeds in March 2004.

Repayment of that loan was due before the end of November that year and the money raised through Adler’s purchase of Elland Road allowed Krasner and United’s directors to meet the final instalment owed to Petchey.

Without the cash the club faced an additional penalty fee of £2m, and the collapse of a proposed takeover by Sebastian Sainsbury and Nova Financial Partners – the American group backing him – forced the issue at the last minute.

“We sold Elland Road to get the debts down,” said Krasner. “Mr Petchey has been paid in full.” The news came a month after Leeds revealed that Thorp Arch had been bought by a private owner – Adler again.

Leeds protected their interests in both properties by negotiating buy-back provisions with Adler. The clause relating to the club’s training ground near Wetherby expired in 2009 with Leeds – then controlled by former chairman Ken Bates – unable to raise the £6m needed to regain the deeds to the complex. The club asked Leeds City Council to lend them funds but the deadline for an agreement with Adler elapsed as United and council executives argued over the terms of a loan.

Leeds have permission to use Thorp Arch until 2029 but no longer retain any right to buy the land for less than the market value. The agreement over Elland Road was different. Leeds negotiated a deal to remain as tenants until 2029 but also to retain an option to repurchase the stadium at any time before that date.

Since 2004 the price of leasing Elland Road and Thorp Arch has risen by three per cent annually. The cost of exercising Elland Road’s buy-back clause also rises each October. The club now pay around £2m to rent both properties – £1.4m for Elland Road alone – and have factored that sum into their annual budget for almost a decade.

Krasner predicted in 2004 that the stadium would not be in private hands for long, saying he was “hopeful that in a few years we will have re-established the club, got some more backing and be able to buy the ground back”, but at no stage since the original sale to Adler have Leeds made a serious attempt to secure ownership of the land in Beeston.

In 2005, shortly before Bates led a takeover of Leeds, the freehold of Elland Road was transferred to Teak Commercial Limited, an offshore firm based in the British Virgin Islands. The beneficiaries of Teak Commercial Limited have never been declared but the stadium is believed to have remained in Adler’s possession.

Two-and-a-half years later, at the height of United’s insolvency and in the middle of a raging battle to buy them from administrators KPMG, Simon Morris – the former Leeds director who along with Krasner had sanctioned the sale of Elland Road to Adler – let it be known that he had struck a deal with the ground’s owner which would allow him to redevelop the arena and the land around it provided his offer for the club was accepted. KPMG turned down his bid in favour of another takeover fronted by Bates.

Talk of Leeds seeking the freehold of Elland Road has been floated for some time but earlier this year United’s current owner, GFH Capital, began seeking investment which would raise the funds needed to bring the ground under the club’s control.

Sources close to GFH Capital claimed in August that a deal was close but the firm is understood to have taken the view that that specific proposal came with too many conditions.

The consortium led by David Haigh who plan to acquire a 75 per cent stake in Leeds before the turn of the year are now signalling their intention to purchase Elland Road once their takeover goes ahead. It is an obvious way of proving their financial strength.

The YEP revealed yesterday that Andrew Flowers, the managing director of Enterprise Insurance, is one of the men backing Haigh’s bid for a controlling interest. Flowers is a lifelong Leeds supporter and was behind Enterprise Insurance’s decision to become United’s primary shirt sponsor in 2011.

The group have indicated from the outset that their purchase of shares from GFH Capital – a deal which is subject to Football League approval – will increase the funds available to first-team manager Brian McDermott in the January transfer window, and the club have already moved to open talks about re-signing Max Gradel from St Etienne.

Gradel – sold to the French side by Leeds in 2011 – is fit again after suffering a serious knee injury and his contract does not expire until the summer of 2015. The winger secured a substantial increase in wages following his move from Elland Road and his return to Yorkshire would not be cheap. Recent suggestions that he has been transfer-listed by St Etienne appear to be unfounded.