David Conn: Leeds employees count cost of financial crisis

While the players resist proposals to defer their wages, up to 75 staff at Elland Road have been made redundant
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The Independent Football

After two years of Football League clubs sliding into administration leaving a stream of bad debts, Leeds' millionaire players' refusal to defer some of their wages to help the club limp to the end of the season has meant that, finally, the morality of football's barmy economy has hit the Premier League.

Incensed fans immediately made the connection between the 30 per cent the players were being asked to delay receiving of their salaries of between £20,000 and, in the case of Mark Viduka, a reported £50,000 a week, and salaries of the mortals of West Yorkshire, where most people will never make near that in a year.

At Leeds, a club spokesman confirmed this week, up to 75 staff have been made redundant since the club's financial black hole opened up last year - ordinary workers across all departments, commercial, secretarial, marketing, travel, laid off when Leeds' European "dream" died - and a whole publishing department which was closed down.

Yet this axing of around a third of Leeds' employees did very little to touch the monstrous debts threatening the club with administration. A source at the club confirmed that the salaries of all 75 "ordinary" staff will not have saved Leeds anything like the wages of a single senior player. To have equated to the earnings of one player on £30,000 per week, £1.5m a year, reportedly paid to Nick Barmby and Alan Smith, the average annual wage of each of the 75 staff would have to have been £20,000, high for those jobs in Leeds.

Ordinary creditors, as at the 35 Football League clubs which have become insolvent since the Premier League breakaway in 1992, are likely to get nothing, perhaps 10p in the pound, if Leeds drop into administration, while the players' wages are protected and will have to be paid in full if the club is to continue to exist.

The massive contracts which the club cannot pay were, as is now well known, made after Leeds bought several players on hire purchase via the Guernsey-based Registered European Football Finance, and financed via a £60m bond, secured on future gate receipts. The fans have not been slow to figure out what that complex-sounding securitisation amounts to: an exploitation of their loyalty.

"The supporters have not deserted the club," said John Boocock of the Leeds United Supporters Trust, which is hoping that if the club survives it will leave the failed Stock Market experiment and become community-owned as far as possible. "Indeed, our sustained guarantee of season and match-day tickets has been abused to put the club in hock to £60m."

Leeds, now run by Trevor Birch, an insolvency practitioner, and Neil Robson, a finance director specialising in "distressed companies", owe, at a conservative estimate, £105m, £82m to REFF and the 25-year bond-holders, including the Prudential-owned M & G, MetLife, and Teachers. Interest runs at a fixed 7.695 per cent, or £4,617,000 a year.

However, the "standstill agreement" which Birch has negotiated with the bond-holders is not, as has been reported, a freezing of the interest payments until £5m can be found to get Leeds to the end of their miserable season. In fact, a club source explained, the interest is paid annually, on 1 September, and so is not due for some months.

Leeds' problem is that they cannot pay the wages and other commitments with the money they have coming in. The "standstill agreement" is that the bondholders have allowed the club to raid a "locked off" amount of £4m, which was put away, secured, when the £60m was first loaned. Leeds are dipping into that to meet their requirements while Birch desperately seeks a solution.

He was hoping that a deferral of players' wages would be it. Instead, advised by the Professional Footballers' Association, the players asked for all other options to be considered first, which obviously includes selling a player.

"They are just waiting to see if it is totally necessary to defer," said Gordon Taylor, the PFA's chief executive. "They believe the picture will be clearer by the end of the month." End of the month, end of the transfer window.

Leeds' neighbours, Bradford City, still very much distressed, are having to renegotiate the Company Voluntary Arrangement agreed after they went into administration in May 2002 with debts including £7.36m owed to REFF. The administrators, Kroll, challenged the sanctity of contracts under the League's insolvency policy by announcing the sacking of 19 players, but that was reversed after the League told Bradford they would be expelled if they did not pay in full. However, the 39 "ordinary" staff, sacked when the club's shops in Dewsbury and Wakefield were closed, had no such rights. The players at Valley Parade did, however, win some respect from their fans because they were not paid at all for four months, then, in November 2002, the club ran out of money again and the players agreed to defer 20 per cent of their wages to the end of the season.

At Leeds, the players fear they could lose their money if the club goes bust at the end of the season, and that was a real possibility at Bradford too. Finally Bradford managed to pay one of the club's major creditors, Lombard, and squeeze out some new cash, by selling Valley Parade to the chairman Gordon Gibb's family pension fund and renting it back. Bradford had agreed to pay the players the deferred 20 per cent on July 31; Gibb, and the chief executive, Julian Rhodes, only completed the ground deal at 7pm the evening before.

"People didn't realise how close we came," Rhodes said. "But the players were good and it brought them together as a team. They survived in the First Division, which was a great achievement."

Reff's insurers, Gerling, know from their Bradford experience how little they will get, as an unsecured creditor, if Leeds go into administration, hence the agreement to give more time for Birch to find a solution. The bondholders too, although their debt is secured on ticket money, will not expect to be paid in full if the club goes into administration. Birch is certainly working on that assumption, which has given him some room for negotiation. Although this coming Monday has been given as the latest final deadline by the two major creditors, it would be surprising if they insist on it and put the club into administration without waiting until the end of the month, by which time a player might have been sold or the team asked again about a deferral.

In all this, little has been heard about the ordinary people, suppliers and public bodies who stand to lose if Leeds fall. The club's position is not understood to be very different from the most recent accounts, which showed they owed £1.2m to trade creditors - surprisingly low but still a lot of pain in there - and £7.7m to the Inland Revenue and VAT. These creditors will lose out almost completely in an administration, but the players will not lose a penny. This system has been maintained to ensure competition, to stop all clubs "living the dream", then shedding expensive players with impunity. Understandable, but the stark preference of football debts over the others makes football look self-interested and greedy.

This was not lost on Leeds supporters this week. Mark Monk wrote a vitriolic piece for the Leeds fanzine, www.toellandback.com, headlined "£16,637" - his salary in a year as a guard on the railways. It would take him 115 years to make what Seth Johnson reportedly earns in a year; 150 years to make Viduka's annual salary. Aged 32, he and his partner have three young children, including a new son, Ben, born last Tuesday. Watching Leeds may not be as expensive as supporting Chelsea or Arsenal, but he still needs £387 for his season ticket, paying £60 per month on the interest-free credit system offered by the club. "It's a very hefty chunk of our income and a struggle," he told me. "We've grown up with the football club being such an important part of our lives, but at the moment it's difficult to think about our money going to these players. We're beginning to think it's not worth bothering."

Leeds may be the first club to give the Premier League so piercing a headache; previously the Premiership has been happy to see its clubs collapse when relegated and dismiss it as the Football League's problem. Leeds are, however, unlikely to be the last.