'Football's future is very dire'

Leeds Student speaks to the administrator Gerald Krasner to reveal the truth about football's financial crisis.

By Dafydd Pritchard

When Portsmouth became the first ever Premier League team to enter administration, the state of football finance reached a new low. Administration is a term that has been used constantly this season, yet beyond its dire connotations, the precise nature of the administration of a football club remains somewhat of a mystery for the majority of fans.

Fortunately, Gerald Krasner is a man who knows all there is to know about administration, as he is an administrator himself. Krasner is a financier who specialises in cases of insolvency, and he is also the former chairman of Leeds United, the archetypal cash crisis club. The recession – and the subsequent insolvency of numerous businesses – means that Krasner is a busy man, and he is well versed in the process of administration.

“A football club is treated the same as any other business, in terms of entering administration,” Krasner says. “Firstly, the club must be insolvent, which applies to the vast majority at the present time. Secondly, there must be a purpose to the administration, and three purposes are set out in the appropriate resolutions.”

These three purposes, Krasner explains, are: “Rescuing the company as a going concern; achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up; realising property in order to make a distribution to one or more secured or preferential creditors.”

It is a reasonably straightforward, but ruthless, process. Administrators take control of clubs to ensure one thing: survival. Survival is an absolute necessity, and this means selling the club’s assets, such as its best players. The ultimate aim is then to sell the club on to a new owner, who represents new financial investment and a fresh start.

And while there may be light at the end of this dark tunnel, administration is a fate that clubs are desperate to avoid. It is, after all, the recognition of a club’s insolvency, a cry for help from owners who have chased unrealistic ambitions and mismanaged their clubs so badly that they are no longer viable businesses.

The most significant example of ‘living the dream’, and paying the harsh costs of not realising those ambitions, is the spectacular demise of Leeds United. Peter Ridsdale, the club’s chairman from 1997 to 2003, took out enormous loans to finance lofty aspirations, but the club’s on-field shortcomings had dire consequences.

Krasner took over as Leeds chairman in 2004. “I bought the football club in 2004, when it was £103 million in debt and sold it to Ken Bates in 2005, with only £23 million of debt.”

Leeds’ £103 million debt was primarily accrued through a gung-ho approach in the transfer market and a bloated wage bill. Ridsdale had his sights set on winning the Premier League, the Champions League, the FA Cup and the League Cup. Unfortunately for Leeds, their chairman had also calculated the club’s budget on the premise of winning all these compe

titions.

Over £50m was spent on buying Rio Ferdinand, Robbie Keane and other big name players, but the signing that represented the profligacy of Ridsdale’s tenure was Seth Johnson. The £7m fee raised eyebrows, but it paled into insignificance when compared to Johnson’s contract.

Johnson and his agent were said to have entered negotiations hoping to secure a deal with a weekly wage of £20,000, but were staggered to hear Ridsdale make an opening offer of £40,000 a week. Johnson was released from his contract in 2005, having made only 54 appearances in an injury-ravaged four-year stay, embodying the misery that was engulfing the club as a whole.

Ridsdale has since admitted that these brazen outlays may have been misguided. “Looking back, I would do things differently. I would challenge the manager more, run things tighter. I still don’t regret taking the amount of debt on we did, but I regret spending the amount of money on footballers.”

For Ridsdale, this may constitute humility, but his regret of spending “money on footballers” may rankle with Leeds fans when they consider the fact that Ridsdale spent £20 a month looking after goldfish in his office. His yearly salary of £450,000, meanwhile, would hardly have eased the agitation.

Krasner, a Leeds supporter, explains that this financial resuscitation was a labour of love, and one which he engineered as a chairman, not an administrator. “This was not done through an administration process, but rather through an informal re-structuring process.”

This ‘re-structuring process’ was difficult, and Krasner has had to undertake such procedures at numerous clubs and businesses. The administrator is often caricatured as a grim reaper figure, a harbinger of gloom for the football club in question, but Krasner is keen to make one thing clear about administration: “Administration is the lesser of two evils – liquidation being far worse.”

Leeds took on the huge debts in the hope that Champions League qualification in successive seasons would boost their gate receipts. When this plan failed, the ‘dream’ began to slip away, and Leeds embarked on a fall that would symbolise the spectacular boom and bust of football finance in the twenty-first century.

This fatal cycle seemed to have been repeated this season when Portsmouth went into administration. With debts of around £60m, the club, like Leeds, had budgeted well beyond their means as they tried to build on their success of winning the FA Cup in 2008.

A solitary, unsuccessful season in Europe coupled with mediocre league table positions, however, meant that Portsmouth were taking grave risks, as they spent vast sums on players such as Lassana Diarra and Sol Campbell (pictured). Despite raising close to £100m by selling such players, Portsmouth are still in deep trouble as they lie at the bottom of the Premier League, braced for further punishment.

When I ask Krasner about Portsmouth’s future, hope is at a premium. “The first thing that will happen is that they will now be relegated to the Championship.  If they are unable to agree a Company Voluntary Arrangement with their creditors, the Football League are likely, from precedent, to impose a 15 to 20 point penalty next season, which may put intense pressure on them to stay in the Championship.”

“You will recall that Leeds United had a 15 point penalty after administration for this very same reason, and although they managed not to be relegated again, they missed out on promotion.  If Portsmouth do take a second points penalty, their immediate task would be to avoid relegation to League One.”

Krasner stresses the importance of patient rebuilding, but unfortunately for Leeds, prudence was not a feature of Ridsdale’s tenure. As a result, administration was inevitable. Leeds entered administration in 2007, which led to relegation to League One, where Leeds remain. Southampton, another former Premier League side, are also languishing in the third tier of English football after entering administration in 2009.

Krasner, however, is of the opinion that a brighter future may yet await those consigned to administration. “If a club is prepared to consolidate its position and not expect to bounce back to its previous position immediately, they have a good chance of recovering over a three to five year period.  What will have been learnt is the need to have proper finance.”

As Champions League ties with Valencia have made way for Johnstone’s Paint Trophy fixtures against Carlisle, the reality of financial ruin has hit Leeds hard.

Ridsdale, however, does not seem to have learnt his lesson. He is currently the chairman of Cardiff City, and he is as unpopular in South Wales as he was when he left Leeds. Cardiff faced a winding-up order this month, regarding £1.75m owed in taxes, and the club’s supporters are unanimous in their attribution of blame.

Thousands of Cardiff fans marched before their 1-0 win against Middlesbrough on March 6 to voice their dismay at Ridsdale’s running of the club, and to express their feeling of betrayal. Over 10,000 fans renewed their season tickets last December, expecting the estimated £3m raised by these sales to be spent on players in the January transfer window.

Ridsdale, however, reneged on his promise and instead used the money to pay back some of the debts owed. The Cardiff City Supporters Trust rejected the chairman’s apology, and the club now finds itself on the brink of administration.

Cardiff are not the only club to have faced a winding-up order this season. Southend United and Notts County also both faced hearings at the High Court, and remain unsure about their futures.

No Football League club has been forced out of business yet this season, but the worst case scenario did become reality for Chester City of the Conference, who were wound up at another High Court hearing this week. A year after their relegation from League Two, Chester’s liquidation is proof of how serious and rapid the fall is for a financially ruined club.

As well those struggling in the lower reaches of English football, even the supposed giants of the sport are currently facing uncertain futures. Manchester United, who have acquired debts of £716m under the ownership of Malcolm Glazer, have faced intense financial scrutiny of late.

Amid speculation of a takeover of the club, some have even dared to utter the words ‘administration’ and ‘Manchester United’ in the same breath. Krasner, however, is doubtful of such a conclusion.

“In theory, Manchester United could enter administration, but that would only be if they failed to get into Europe and they had a massive wage bill, with a massive loss of income.  Notwithstanding this, I think there would be somebody, somewhere, who would bail them out, although the Glazers would not see much of their money returned. So, the principle is ‘yes’, but the reality is ‘no’.”

Asked how likely it is that a winding-up order will actually force a Football League club, such as Southend or Cardiff, out of business, Krasner seems glad to be the bearer of some good news.

“I do not think we will see any liquidation of football clubs this season, as they can always opt for the administration route, which gives them a lifeline.”

Optimism is tempered, however, by the unavoidable gloom. “The problem is that if nobody wants to buy the club from the administrator, he may have to put it into liquidation.”

While the immediate future of clubs such as Manchester United may be secure, the plight of Portsmouth and Chester serves as a stark warning, and Krasner does not offer much hope.

“In my opinion, the future of football is very dire, especially whilst success is always trying to be bought.  What is needed is for everybody to sit down and try and sort out the problem but unfortunately, there are too many vested interests.”