Friday
Sep072012
Where Has the Money Gone?
Friday, September 7, 2012 at 1:18PM 
When looking at the cash cycle of a football club, like many businesses, the annual revenue does not come in uniformly over the course of an accounting year.
The majority of clubs like to get as much season ticket cash in as early as possible in a season so that they can better plan expenditure. Some clubs utilise part of this cash to fund transfer activities for the season ahead (though not all).
It is not a requirement for clubs to disclose their monthly cash flow breakdown, so we can only really estimate how it might flow over a given year. The annual flow is detailed in the accounts, therefore based upon a few basic assumptions we can come up with a relatively sensible view of how cash flow might look at Leeds United.
We know that in the year ending 30 June 2011 turnover was roughly £32.6m and was broken down into five main categories (note 2 of the accounts):
Given this income relates to a season in the Championship we can assume that £32m revenue is not an unreasonable figure to expect this season (obviously with a big assumption around gate receipts and merchandising holding up – but even if they don’t the overall % theory will still stand).
The 2011 accounts also disclose that the club received c£8m of season ticket and sponsorship money in advance (note 12 of the accounts), looking back at past years this seems to be the norm so we can assume that this will again be the case.
The central distribution from the Football League in cash terms is paid equally over the year,
Player trading is obviously also a factor at this time in the season and can have a dramatic
Our understanding from a number of sources is that the potential acquirers have advanced
If the above is all correct what we can deduce is that the club has spent nearly £15m by the
We will have more on the financial situation at LUFC in the near future.
The 2011 accounts also disclose that the club received c£8m of season ticket and sponsorship money in advance (note 12 of the accounts), looking back at past years this seems to be the norm so we can assume that this will again be the case.
Given we know the habit of a football fan is to buy merchandise such as the latest kit before
the season starts, I think it is also safe to assume that perhaps £2m of the merchandising
income comes in during the first two months of the accounting period (July and August).
The central distribution from the Football League in cash terms is paid equally over the year,
but on the understanding that it can be recalled if clubs fail to meet their requirements. So we
can assume that the club would receive c£800k of this during July and August (2/12ths).
So, from the above we can conservatively estimate that by end of August (month 2) Leeds
United will have received at least £10.8m of their annual £32m income (over 1/3rd - £8m +
£2m + £0.8m).
Player trading is obviously also a factor at this time in the season and can have a dramatic
impact on cash for a football club, but in the case of Leeds United, we have assumed there
was very little impact after looking at the deals this summer.
Our understanding from a number of sources is that the potential acquirers have advanced
£4m to the club during the summer in two tranches of £2m. We also understand that this
money has been swallowed up by working capital requirements. What we obviously don’t
know right now is what the bank balance was on day 1 of this season (we will have to wait
until March 2013 to find this out for sure), but if we work on the basis that no overdraft
facility is in place (or a significant one anyway) the worst case scenario would have been that
there was nothing in the bank which is what we will assume.
If the above is all correct what we can deduce is that the club has spent nearly £15m by the
end of the first two months of the accounting year on its trading activities and obligations
(which might include agreed partial repayments of loans), this equates to nearly half (47%) of
the annual income being spent by month two (none of which has gone on player acquisitions) - and there are ten more months to go.
We will have more on the financial situation at LUFC in the near future.
Reader Comments (27)
Pointless
why pointless? It means half of the annual income has been spent immediately. On what? Our poxy wage bill is just about high enough to suck out about 2 million in two months, if that. Why does the club have no cash?
I was led to believe that each portion of season ticket money may only be spent after the customer has received their goods, as in the game has actually occurred. Would this not suggest that we may have the £8m from season ticket sales but we cannot yet spend the majority of it yet? This may be entirely inaccurate or you may have already factored this in, i'm not sure.
This maybe headline grabbing but there are so many holes in this analysis that it suggests LUFC are just seeking to get fans angry.
Your player transactions do not include agent fees which we know are large
You have not considered the settlement of player contracts that were released to seek new clubs
There is no costs at all for facilities, staff and other items such as insurance, loan repayments etc.
and you think that equates to several million rosso? I doubt it. Agent fees aren't that big.
This report gives some financial info, assumes somes and then makes no point. When you have actual figures, such as starting and current capital we can then ask Ken where the money is and eagerly await his lies. I wouldn't even dare approach him with this info due to all the unknowns
I don't see anything untoward here. Operating revenue has to be applied to operating expense over the course of the year. Bates has permitted money from player sales to be used to fund player acquisitions. I wouldn't expect any further investment in capital or squad in the middle of a business sale.
Hang on, who said the club has no money at all left in the pot? There's no concept here that the club will most likely have budgeted for the lean months and have a few million set aside to cover those costs.
It all speculation and unbelievably alarmist. I does not address the reduction in ST holders or the £5m "facility" loan against the next 2 years ST income or that the ST income was largely received around February March and could therefore have paid for general running costs from the latter end of last season.
We're down around 3k ST holders, which at an average of £500 a ticket (accounting for concessions) is 1.5m and if we're paying the 5m back in equal payments, that's another 2.5m so already 8m becomes 4m. Incidentally, working on 13k ST holders last season at £500 average, that'd leave around 1.5m for sponsorship income.
What I take from the above the club has theoretically taken a third of it's income in the last couple of months....and yet the club has spent 4m of a potential investors money to shore up the cash flow? So where has the other money gone? Why did the club need the 4m???????
I noticed in the breakdown there was no mention of the max Gradle's money which by my reckoning should be due now? It also neglected to touch on the legal fees Ken bates has incurred due to his petty libelous case?
OK, it's not an exhaustive analysis but then when it comes to LUFC under Ken Bates there are too many 'undisclosed' facts and figures.
You do, however, raise some very valid points and there ARE questions to be answered. Let's not kid ourselves though that any are going to be forthcoming from the current regime at Elland Road.
No, I think the best we can hope for is that any incoming the majority of details from their Due Diligence reports publicly available and allow some kind of financial, forensic post-mortem analysis of the Bates regime.
As things stand now I feel the longer Bates hangs on the more likely he makes it that the club is heading towards another administration. For me, delays by Bates only play into the hands of the prospective buyers.
Good work, as ever, by LUST. MOT.
What of this is actual fact? It looks like it is all guess work?
"we can deduce is that the club has spent nearly £15m by the end of the first two months "
You say you have no idea of the bank balance at the start but seem to claim that the bank balance now is zero, how can you know this?
How do we know that there isn't £15million sat in the accounts?
Some of you people are so blind to what is happening at our club, and has been happening for seven years. We generate more income than any other championship club, including those with parachute payments, and yet every year we sell our best players and don't replace them. This year alone we have sold TWO club captains and yet you sit back and shrug your shoulders and say "If they wanted to go then f*ck them". But you don't ask "why did they want to leave" and you don't ask "what happened to the money". You pick holes in what LUST are trying do yet completely ignore what is staring you in the face...we are going nowhere, we are just a bog standard championship club, never able to compete for the best players and never having anything other than the hope that one year we somehow fluke our way into the Premiership via the playoffs (which is basically what bates is hoping for). We are one of the biggest clubs in England...selling our best players to NORWICH for crying out loud and replacing them with freebies, journeymen, and outcasts. The only time we actually bought any players this Summer was when the potential buyers put money in up front - and even then only part of it when on players (with no hint of where the rest of it has disappearted to).And yet you still sit back and allow that man to strip everything he can from this club without a murmur of discontent. But when someone, LUST typically, tries to stand up and say "THIS IS WRONG" you all jump up out of your armchairs and start waving your hands and squealing like a bunch of pussies. Before sinking back into your comfy seats to watch Leeds United from the safety of your own home.
You people are the ones that are allowing bates to get away with this...you are letting him waltz off with our hard earned cash...you are almost as guilty as he is IMO. But don't worry, bates can't last forever, and when he is gone and this club is being run the way it should be, we will make it back into the premiership one day...then all you armchair bates supporters will be able to buy a ticket for a premiership game - buy yourselves a nice new shiney premiership shirt - and sit yourselves down in the East Stand and tell everyone how you stuck buy your team through thick and thin...but how many of you were there the day we got beat by Histon - YES HISTON - beacuse that's where bates took us, and if he is left charge he is more likely to take us back to Histon than he is to the premiership.
"But seem to claim that the bank balance now is zero, how can you know this?"
Neil Warnock told us there is no money available. So we can deduce:
1. There are no excess funds available.
2. There are excess funds but they are not being released for player investment.
3. Warnock is lying.
1. Is worrying. 2. Is frustrating 3. Is unlikely
I don't really think I can put it better than that, Mike. The club has been systematically bled dry for the past 7 years. You also forgot to add administration and the threat of liquidation if he didn't get the club back via the administration process.
Johnboy, £15 million sat in the accounts....I wish. Anyone who has studied the balance sheets in detail over the last few years will have seen worrying indicators., the most recent being post June 11 balance sheet events indicating cash problems late last year. KB himself had to loan them some money (which was immediately repaid when the early season ticket renewal monies started coming in). You only have to look at the bank balance as stated on the balance sheet compared with the prepaid income (season tickets and sponsorship) to realise that there was no war chest of any significance. Do you think it was a coincidence that SG & co were sacked at the end of the January transfer window?
What I do find puzzling however is why any potential invester would make funds available (the reported £4m) without a deal having been signed?
Just to refresh people memories about the post balance sheet events, this is what thesquareball posted back in April:
This is not the only worrying event to have taken place since June 2011. A document we found at Companies House shows that the share capital of Leeds United, which has stood at £500,000 since administration in 2007, increased to £500,032 in December 2011. The document reveals that 32 ‘Preferential Shares’ were issued in Leeds United in December in return for an investment of £3.2m. These shares are held by persons unknown, and when redeemed, will be worth £4m.
That £4m is guaranteed – each of the 32 £100,000 shares is worth a locked-in £125,000 when sold. There are three ‘triggers’ which would allow their sale:
•a change of ownership of the club or holding company;
•liquidation of the club, in which case the ‘Preferential Shareholders’ would have to be paid £4m before the ‘ordinary shareholders’ saw a penny;
•if the major shareholder decides to buy back the shares. At Leeds United, via Leeds City Holdings, Forward Sports Fund and Outro, the major shareholder is Ken Bates.
‘Preferential shares’ are normally issued for one of two reasons:
•existing shareholders can use them to ‘lock in’ a guaranteed payment should a business be sold or liquidated
•as an alternative form of loan, with no repayments and so no impact on cashflow, and a predefined repayment value. Oddly for a lender, however, there is no fixed date given for repayment – they only stand to receive £4m if the club is sold, liquidated, or when Ken Bates decides.
Who is the beneficiary of this £4m return for £3.2m investment is not known, nor is it known why these shares have been issued. In the full article in the magazine, we wondered if this issue might relate to the East Stand “facility”, but this morning’s news suggests the two are completely separate.
The post-accounts situation, therefore, seems to be that part of the club’s season ticket revenue for next season and the season after has been sold for £5m to persons unknown, to pay off a loan from persons unknown for work on the East Stand. Meanwhile, £3.2m has been invested in Leeds United by persons unknown, in return for ‘Preferential Shares’ which guarantee these persons unknown £4m should the club be sold, liquidated, or should Ken Bates decide to buy the shares back. The financial fog remains as thick as ever at Elland Road.
Keep up the good work LUST!
There is also some cash from the court battle won , when will this show up,Its strange that on one side everyone goes on about Leeds Uniteds support and attendances yet we have no money ?
Mike your spot on when we get back to the top 42,000 every home game
Where we're you when we were shit!!!?
Ooh Please , too many martyr's. Mike!
its all gone to the `investors' hasnt it, i wrote an article on RITGK about just this - namely - how much cash can an investor take out of a business before they harm it, so much has gone out of the business now that it cant function - this is a total outrage, and I have an idea about how we deal with it, all above board and legal.
What worries me if they 4m hadn't gone in from new investors would we be ready to enter administration. Also wtf are the club doing charging £36 max cost should be £25 and £5 every game for kids. The place would be full and the extra people in club shop and buying pies, beers etc basic maths yet he's sending us same place Chelsea were going before Abrahmovic stepped. Bates Out
Mike. I understand your passionate about wanting Bates' out of the club. I am too. However that does not make LUST's analysis beyond criticism. The chances are anyone reading this have come to it as they follow LUST on twitter, and so are generally fans of LUST. I certainly posted a criticism and I think many of the other problems that have been pointed out show that this analysis is fairly shallow, and misses out far too much to draw any solid conclusions from. I believe LUST's work so far has been brilliant. They must still be open to criticism; after all we will be as bad as Bates' few supporters if we blindly believe everything that is said by LUST. The fans must stay united against Bates and criticising anyone who makes valid points against this analysis does not help, it only weakens our stand against Bates. Keep up the generally good work LUST. On this occasion i suspect you're clutching slightly at straws, even if I agree Bates' running of the club has probably led us to financial trouble for a second time. Thank you.
A few observations:
1. The 'income' from player sales (and maybe purchases) misleadingly assumes all money is paid up front. It was widely reported that only half of the Snodgrass fee was paid upfront, for instance.
2. As others have pointed out, the additional costs associated with player movement (such as agents' fees and accelerated player payments including bonuses and contract buy-outs) are not included in the analysis.
3. There seems to be a wilful blindness to the need to preserve cash receipts to meet budgeted expenditure over the season. This includes not only operating costs but player salaries. Given the fact that the overall quality of the squad has been improved, might it not be prudent to assume that the wage bill has also increased? If Warnock 'spends' money on player salaries as well as on transfer fees, he is still spending it and in no sense is it disappearing into the pocket of Ken Bates.
Everyone wants greater investment in the Club and in the squad than has occurred under Bates, and there have always been question marks about the extent to which receipts from player sales have been reinvested in the squad but, to date, there simply is no evidence that money is being syphoned off by Bates.
Mike thats the best post I've read on here for a while. The silent majority is costing us big time here. We need widespread coverage, thats how bad he's fucking us up the arse right now. He will be absolutely loving it.
Neil Warnock must surely hate the guy, With his shocking 'warchest' aka totally accounted for by the snodgrass money when its all paid.
The man is a 1st class cunt and someone needs to stop it. If you don't support the intentions of LUST , then you obviously just dont care that much and are not a proper Leeds fan