Phil Hay: Leeds United's accounts shortfall comes as no surprise

Elland Road.
Elland Road.
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The accounts of Championship football clubs are a litany of multi-million pound losses and Leeds United do not look like bucking the trend. The shortfall in their latest results underlines the fact that Premier League cash is the surest route to a strong bottom line and a profitable business.

Leicester City are a prime example of that, shifting from a £20.8million loss in the Championship in 2013-14 to a £26.4m profit 12 months after their promotion. Leeds have attempted to drive their commercial income forward this season, helped by a hike in attendances at Elland Road, but the numbers from their 2015-16 accounts show an on-going fight to balance the books.

Leeds United finances comparison.

Leeds United finances comparison.

The most notable aspects of the figures published on Friday was the juxtaposition of a £6m rise in turnover and a £6m increase in the club’s overall deficit of £8.9m. United’s income has risen to £30.1m, a sum which outperforms most clubs in the Championship before parachute payments are factored in, and they felt the benefit of repurchasing catering rights from private firm Compass, but administrative expenses of £32.4m wiped those earnings out, despite a wage bill of £18.1m equating to 60 per cent of turnover.

Catering was one area where Leeds made significant gains in 2015-16. That part of the business was sold to Compass in 2012 while the club were under the control of Ken Bates but Massimo Cellino, United’s current co-owner, severed the deal in the summer of 2015 and made almost £5m from catering income in the 12 months that followed, against no earnings at all in the 2014-15 financial year. That injection of money pushed turnover above £30million, helped in addition by a smaller rise in merchandise sales. Leeds’ operating loss fell from £12.6m to £7.1m.

That progress was offset, however, by a combination of reduced income from the transfer market and the cost of resolving a glut of legal and commercial disputes which have been on Cellino’s plate throughout his time at Elland Road. At the start of the 2015-16 year, Cellino brought an early end to Leeds’ contract with Italian kit manufacturer Macron, another agreement reached while Bates was chairman. Cellino replaced Macron with Kappa, negotiated a new five-season deal, and United’s accounts show a write-down of £1.15m on leftover Macron stock. In addition “exceptional costs of commercial disputes” ran to almost £2.4m.

In his accounts statement, Cellino revealed that “further legal disputes were settled during the year” including “those involving previous employees, the Football League and Sky TV”. Cellino fought a running battle with both the Football League and Sky last season, contesting an attempt by the governing body to disqualify him from running United and taking legal action to challenge Sky’s broadcast deal with the Football League. The 60-year-old said he was confident that the “exceptional costs” would “not be repeated in future seasons”.

Leeds were hampered too by reduced earnings from player sales, a factor which contributed to an smaller overall loss of £2m in 2014-15. Leeds raised a substantial fee from the transfer of Ross McCormack to Fulham in July 2014 and pulled in £9.8m from sales during that financial year. The figure dropped to £2.7m in 2015-16, a campaign in which Sam Byram’s move to West Ham United was the only significant departure of note.

Set against the club’s latest losses, it is not a surprise to note that their cash reserves fell by £8.9m to £2m in the 12 months before June 30, 2016.

The seven-figure deficit appears to have been soaked up by Cellino and his UK firm, Eleonora Sport Limited (ESL). The accounts state that Leeds had received “written confirmation from Eleonora Sport Limited and Eleonora Immobiliare SPA (ESL’s Italian parent company) that they will continue to financially support the group and meet debts as they fall due in the next 12 months”.

In September 2016, two months after the end of the 2015-16 accounting period, ESL converted a £5m loan into shares in United. Cellino’s deal to sell 50 per cent of Leeds to Andrea Radrizzani in January of this year, meanwhile, brought another investor and another source of income to the table.

In the background, United are continuing to grapple with the financial legacy of former owner Gulf Finance House. Cellino paid GFH £11m in structured amounts for a 75 per cent stake in Leeds in 2014 but agreed as part of his takeover that Leeds would repay separate loans owed to the bank which currently stand at £17m. The terms of those loans have been re-negotiated repeatedly and prior to 2016, United were committed to paying a small part of that figure in annual installments while facing a one-off fee of £13.5m if the club were promoted before 2019.

Leeds are currently fourth in the Championship with eight games of this season remaining and look assured of a place in the play-offs. Promotion this summer would have burdened the club with an immediate payment of £13.5m to GFH but the accounts show that in September of last year the deal between Cellino and the Bahraini investment bank was revised again to allow for annual payments between 2019 and 2032. The loans are now interest-bearing and will ultimately cost more to service as GFH draws money from the club for the next decade and beyond, but United’s finances will no longer be weakened overnight by a substantial fee owed to the bank in the event of promotion in May.

Of note elsewhere in the accounts is a £5,000 loan made by Leeds to Cellino’s son Edoardo, a former director who resigned from the Elland Road board after Radrizzani bought into United in January.

The loan is identical in size to the fine which the Football Association imposed on Edoardo Cellino in April 2016 after he was found guilty of abusing a Leeds fan on social media.

The club have not said whether the advance was provided to help him cover that penalty.

What Leeds have stressed is that the rise in crowds this season and a stronger commercial performance will significant help the 2016-17 accounts, a set of results which will not be published until March of next year. After investing in Leeds in January, Radrizzani promised to create “a modern structure, a modern club” at Elland Road and said he was “not here to make big losses for many years”.

Promotion to the Premier League would wipe out the shortfall overnight. In the Championship, there is work to do.