Why Leeds United is still so far from operating at a surplus

Graphic: Graeme Bandeira

Graphic: Graeme Bandeira

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The pressing financial issue for Leeds United, to judge by the 2014-15 accounts, is not so much debt management as general cash flow. Both factors put pressure on the club in that accounting period but Leeds and Massimo Cellino like many Championship teams were a long way from running at a surplus.

Companies House published the club’s full results today and the figures show infinitely more financial order at Elland Road than Gulf Finance House – the Bahraini bank which ran Leeds until April 2014 – ever established. Losses were down and the club’s debts have been re-structured, albeit over a potentially longer period of time. From a shortfall of almost £23m in 2013-14, Leeds posted a loss of just £2m the following year.

The worry for Cellino, unless the landscape at Leeds has changed since then, is that an operating loss of more than £12m was reduced by the sale of players; specifically the multi-million transfer of Ross McCormack to Fulham in July 2014. United’s accounts prove that the Italian and his firm, Eleonora Sport Limited, have invested substantial sums in Leeds – very little of it by way of straight loans – but United were reliant in 2014-15 on both his money and income raised in the transfer market. In short, the club’s turnover of £24m fell short of administrative expenses and cost of sales totalling £37m. Far more money left the club than United pulled in.

That situation is sustainable for as long as Cellino is either willing to pick up the shortfall or rely on transfers to help cover the deficit. General expenditure came down in the 2014-15 year, with administrative expenses falling from £37m and the operating loss decreasing by more than £5m, but the Italian’s 75 per cent buy-out of GFH left him to wrestle with overwhelming numbers.

The legacy of GFH – an unpopular owner which failed to pay staff wages on time in its final month in charge – is clearly exposed by the 2014-15 accounts. Leeds paid the bank, which retains a minority shareholding in the club, £3m in that financial year, reducing the total amount owed to it to £17m.

A further £3.5m will be paid to GFH in instalments between June of this year and June 2019, clearing the first portion of debt Cellino took on when he first purchased Leeds. An additional £13.5m is due to GFH once United win promotion to the Premier League, but the accounts reveal that Leeds will begin annual repayments of that sum from 2019 to 2032 if they remain in the Championship. It creates the bizarre possibility that GFH will still be drawing cash from Leeds in 16 years’ time.

Cellino and companies related to him are owed far less, in loans at any rate. A statement published by Leeds last week said Eleonora Immobiliare SpA, an Italian company with shares in Cellino’s UK firm Eleonora Sport Ltd, had injected close to £43m in United since his buy-out two years ago. The 2014-15 accounts show that Cellino himself is owed nothing after United repaid a personal loan of around £1.3m. The debt owed to Eleonora Sport Ltd was cut from £8.4m to £1.6m after the company converted a large percentage of that money into shares. Eleonora Immobiliare SpA is due £2.5m, leaving total loans owed to Cellino and connected parties at around £4m.

As was the case when Cellino first invested, Leeds are a club with substantial overheads. The accounts reveal that the cost of buying back catering rights from Compass – rights sold by United in the last six months of Ken Bates’ spell as chairman – ran to more than £1m; an exit fee of £125,000 and £900,000 of money originally advanced to the club by Compass. Wages for players and coaching staff came in at £17m, but the total wage bill for all staff at Leeds amounted to almost £20m, close to 85 per cent of turnover.

Cellino has not pushed through his promised repurchase of Elland Road and the rent for the stadium alone, excluding the training ground at Thorp Arch, is currently £1.6m. One notable saving was a cut in payments to club directors – £521,000 in GFH’s last year in charge, but only £16,000 in Cellino’s first.

Leeds’ turnover dropped marginally, though the club said that was due “almost entirely to the decline in merchandising revenue.” Leeds changed kit suppliers last summer, abandoning a long-standing deal with Macron and agreeing a contract with Kappa, the firm who made strips for Cagliari while Cellino was in charge of the Serie A club. Macron have taken legal action over the termination of their deal, seeking £5m in damages, and Leeds have also been in dispute with Enterprise Insurance, leaving them without a shirt sponsor this season.

The accounts make no reference to Macron or Enterprise but a section on page 16 reads: “At the year end there were a number of legal claims and various claims from HM Revenue and Customs outstanding against the company. These claims are challenged by the directors and there is significant uncertainty over their outcome.” Among the employment tribunals facing United is one involving former assistant manager Nigel Gibbs. That is due to be heard a week on Monday.

In a statement released with the accounts, Cellino said: “In financial terms the 2014-15 season saw the company make enormous strides towards stability. Of course, player trading made a major contribution to the year on year savings with Ross McCormack departing in early July 2014 but this was necessary for the long-term benefit of the club. The board has worked tirelessly to strengthen the balance sheet.”

Leeds are eight months on from the end of that financial year and Cellino told the YEP in January that he expected losses for the 2015-16 to be higher than the £2m posted in 2014-15. Leeds sold Sam Byram to West Ham United on January 20 but have retained most of their more valuable players since the start of last summer’s transfer window. Cellino, who continues to await the outcome of different appeals against a 223-day ownership ban imposed on him by the Football League in October, conceded after Monday’s 4-0 defeat to Brighton that investment in the first-team squad was needed with Leeds 18th in the Championship.

Cellino’s accounts statement read: “The club will continue to make sensible and cost-effective changes to the playing squad to ensure the burden of salary costs remains manageable.”

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