"Football is facing a financial conundrum that's on the verge of becoming a financial crisis." Such is the reluctant verdict of Keith Harris, chairman of the investment bank Seymour Pierce and the man renowned as football's favourite financier.
With Crystal Palace in administration, Portsmouth teetering on the brink, and Mr Harris's beloved Manchester United facing all-out war with its fans over a £504m bond, all is clearly not well in the business of the beautiful game. "It feels like an industry that is a bit broken," Mr Harris says. "You can't rule out more failures."
Engaging, loquacious and disarmingly frank, Mr Harris has been credited with helping to take football into capitalism's premier league. But he rejects the suggestion that he helped to create the commercial monster that fans say is sucking the life out of the sport. "It was not my fault, it was Rupert Murdoch," he says. "The massive changes in football club finances came from the media."
But with the tide of cheap money rolled back by the credit crunch, football has been left on the beach with its pants well and truly down. "Clubs are too reliant on mortgaging tomorrow's income to cover today's costs," Mr Harris says. Football has always lived beyond its means. But with the Inland Revenue taking a more assiduous interest in what it is owed, and the banks no longer interested in lending, the cracks are widening. "The financial reality is coming home to roost," Mr Harris says.
Not only is the list of clubs having trouble with their debts growing almost daily; sales have also dried up. Two of Mr Harris's recent high-profile clients – Everton and Newcastle – have given up trying. "I talked to 50 would-be buyers for Newcastle," he says with a shrug. But none of them came to anything.
When talk turns to Manchester United, things get altogether more personal. Mr Harris has followed the Red Devils since his Stockport childhood. He points with glee to the pictures of George Best on his office walls. He becomes misty-eyed at the mention of Old Trafford. "I've supported United since the late Fifties," he says. "The club is a real love for me, and a great way out of a poor upbringing."
But when the talk turns to the Glazers – the US owners behind the highly leveraged buyout in 2005 – the mist swiftly evaporates. "The Glazers have geared it up to the eyebrows for their own benefit, and they are relying on the club's cash flow to take money out," Mr Harris says. "Deep down I am a horrible toe-rag who hates the people who have leveraged his football club." He is laughing, but not entirely.
It is not only emotion talking. This is also the voice of financial experience. "Football clubs should not be highly geared," he says with finality. "It is not like a utility that will generate very predictable cash." Worse still is that the Glazers have issued a junk bond to pay for it. "When I worked for Drexel Burnham, the firm credited with creating high-yield bonds, there was a huge process to ensure companies could afford to service the debts," Mr Harris says. "There is no way on earth we would ever do it for a football club in a competitive environment like the Premier League, because you just can't predict that the cash is definitely going to come in."
For a deal-driven banker with a passion for football, Mr Harris has carved out quite a niche. But he plays it down as "serendipity" as much as strategy. At college, the young Keith played football sufficiently well to flirt briefly with a professional career for Bradford Park Avenue. But his brain was better than his left foot. After a PhD in financial markets, he went into finance, and by 1994 he was running HSBC's investment bank.
It was a financing deal for BSkyB that started Mr Harris thinking about the business of football. As a lifelong devotee of the live game, the thesis that people would pay to watch it struck a chord. And although the company was still losing money at that stage, it opened up all kinds of opportunities. "I thought that if someone as smart as Murdoch was investing that kind of money, then we, as an investment bank advising on and financing the content, should also do well," Mr Harris says. "So I went after football clubs as clients – somewhat against advice of some colleagues." He is trying hard to be self-deprecating. "It would be nice to say I predicted the future, but I don't want to be boastful," he says, almost managing it.
Mr Harris has also worked inside the bear-pit, spending two years as the chairman of the Football League, which runs the three divisions below the Premier League. It sounds like a dream job? "It was a dream job until I took it," he says with chagrin. Football is always a hard business to work in, because of all the emotion. But the fiasco over ITVDigital television rights was almost too much to bear. "I have done big deals and taken huge risks in my career, but that last six months at the Football League is the only time that work has affected my health," Mr Harris says. "Stress is part of what drives you and if you can't handle it then you are not top drawer, but this was as near to the edge as I could go. I couldn't eat because I was nauseous all the time."
He was certainly no stranger to stress. He advised on the £13.5bn hostile bid for British American Tobacco by Kerry Packer, Sir James Goldsmith and Lord Rothschild in 1989, for example. Then there was the National Grid deal where Mr Harris's then-employer, HSBC, underwrote £1.1bn off its own balance sheet and stood to make £30m in profit. "They were stressful, but they were analysed down to the finest details," he says. "There was nothing to match the feeling of nausea and foreboding and thinking you have taken a chance. My guts have always told me what to do, and mostly they have worked, but those instincts left me and I thought: I don't know what to do for best."
Leaving was "a huge, huge, huge wave of relief". But, probably unsurprisingly, Mr Harris refuses to be beaten. "I probably would accept that kind of high-profile role again," he says without a pause. "Because I have now had a break from it, and because I would know better how to handle it this time."
The experience also did nothing to dent his capacity for hard work. In the following 12 months, Mr Harris led the £7.4m management buy-out of Seymour Pierce and advised on the sale of Chelsea to Roman Abramovich. The Chelsea connection originally came through Matthew Harding – the club's vice-chairman, who was killed in a helicopter crash in 1996. "He and I were very close," Mr Harris says. "I'm an only child and he was the brother I never had." After the Chelsea deal, Seymour Pierce's reputation in the football industry was sealed. "From there we were thought of as the people who know how to bridge the gap between the sport and the business."
There has been no shortage of big deals since. In 2008 alone, Mr Harris was involved in five Premier League sales. But the biggest disappointment of his whole 30-year deal-making career was the last-minute collapse of the bid for Liverpool FC by a Qatari family. "That was the one that got away," he says. "We structured a deal that was really well done, but they walked away two hours before the contract was due to be signed and we never had any explanation."
Although football hogs the limelight, it accounts for less than 15 per cent of Seymour Pierce revenues, and the firm's reputation in the City is as much for its role as leading broker to the Alternative Investment Market (Aim). The credit crunch has been a tricky time for small-caps. But the black clouds are lifting, primary placings are picking up again and the pipeline is good. "Aim got clobbered, but it has also made the fastest and most sustained bounce back," Mr Harris says.
But there are no such green shoots for the football industry. The flood of cash from Premier League television rights, and their equally capricious withdrawal, render the usual corporate financial planning impossible. "The conundrum is how to make it work," Mr Harris says. He suggests lower wages and trimmed transfer fees, but with little conviction. "It is a very competitive environment, with a real dog-eat-dog attitude."
There is still work in football for Seymour Pierce. "The banks don't want to finance football so we are looking at more creative techniques to raise money," Mr Harris says, carefully avoiding any details. "Clubs have only two assets: the stadium and the players. Securitisation against the stadium doesn't make sense because fans are fickle and can watch the game on the telly. So the only real asset is the players."
Whatever the answer to the riddle turns out to be, one thing is certain: Keith Harris will be there to do the fixing.
Best football tale... or at least a printable one
The world of football is full of fantastic tales and crazy characters. Sadly, most of the financier Keith Harris's anecdotes are either too rude or too libellous to print. "There are so many stories," he says. "And they are often so far-fetched they have to be true."
One of the most memorable took place in 2002, during Mr Harris's last year as the chairman of the Football League. It was Saturday morning and he was breakfasting in a large London hotel, preparing a speech. Sharing the breakfast was the chairman of a football club teetering on the brink of administration. For the purposes of the story, he must be Chairman A.
In came the secretary of the Football League to say that there were some fans from Chairman A's club outside wanting a word. Chairman A expressed some concern at what they might have to say, and persuaded Mr Harris to come with him on the pretext that he had a gift with recalcitrant crowds.
On their way out through the lobby of the hotel, the pair met the chairman of another club – let's call him Chairman B – coming out a lift.
"You're not looking at all well this morning," Chairman B remarked, spotting Chairman A's pallor.
Chairman A explained that they were on their way to confront potentially boisterous supporters. Chairman B – without the flicker of a smile – opened his coat to reveal a weapon holstered within. "You should shoot the bastards, that's what they deserve," he said, and sauntered off.
As it turned out, the "bastards" were a gang of five or six teenagers with nothing more aggressive to say than – "You've got our support, but don't spoil our club."
"It was eight years ago, but there are some things that happen to you that just stick in your mind, probably forever," Mr Harris says. "That is one of them."
Keith Harris: No easy game
2003 to present Chairman of Seymour Pierce
2000-2002 Chairman of the Football League
1994-99 Chief executive of HSBC Investment Bank
1977-94 Various banking jobs at Morgan Grenfell, Drexel Burnham Lambert and Apax Partners
1977 Completes PhD in economics
Mr Harris is married with three children and two stepchildrenReuse content