Saving Leicester City
Will fans pay too high a price for rescuing their club from administration?
Another football league club has gone into administration.
Following hard on the heels of Barnsley, Leicester City on 21 October 2002 threw in the towel and sought legal protection from its creditors. Leicester’s debts are now estimated to be in the region of £50million, making it the largest financial collapse in English football history.
The usual reasons have been given for Leicester’s financial plight: the collapse of the ITV Digital deal and players on expensive Premier league contracts, with the added cost burden of a new stadium. The supporters have mobilised to save their club, forming a Supporters Trust, and former striker and all-time Leicester hero Gary Lineker is leading a consortium that aims to buy the club off the administrator.
However, there are reasons to believe that there is more to the Leicester story than meets the eye.
Two of the other members of the consortium are former directors of the club, Greg Clarke and Martin George. Clarke was chairman of the club prior to administration, having joined the board in April 2002, following the resignation of Sir Rodney Walker. George was chairman of the club between 1991 and 1996, but stepped down prior to the club’s floatation on the stock-market in October 1997, a move he vehemently opposed.
In fact, it is fair to say that the current struggle for control of the club has its roots in the dispute over the 1997 floatation and the subsequent power struggle that culminated in the ‘gang of four’ episode of 1999.
The ‘gang of four’ saga saw the ousting of four directors, three of whom were shareholders – Phil Smith, Gilbert Kinch and Roy Parker. The other member was chief executive Barrie Peirpoint. Although the dispute was presented in the media as being about a personality clash between Peirpoint and then manager Martin O’Neill, it was actually about matters much more fundamental.
Like many football clubs quoted on the stock-market, Leicester was a plc company with a football club subsidiary. In 1999, the chairman of the football club was John Elsom, then an ally of George’s. Elsom arranged the transfer of Emile Heskey to Liverpool for £11million, without reference to the plc board. After a boardroom showdown an emergency general meeting was called. The shareholders supported Elsom and George; Smith, Kinch and Parker stood down as directors, and Peirpoint was sacked.
Heskey made the headlines last week when he pledged to support the Lineker-fronted consortium with a ‘substantial donation’. As well as both being Leicester legends, Heskey and Lineker have something else in common – they have the same agent, Jon Holmes. Holmes is also a member of the Lineker-led consortium and has also represented a number of other players who have been bought and sold out of Leicester. It seems that the Liverpool/Heskey deal was his biggest piece of business.
Holmes surfaced at the time of the gang of four saga, backing George and saying that he would join the board – until an alert journalist pointed out that it was against FIFA rules for a registered agent to be a director of a football club. Holmes has since sold his company to the events company SFX, who not only represent sportspeople, but also have an interest in stadium management.
Leicester’s new stadium will no doubt be cited as one of the reasons for the club’s financial predicament, but is understood that the US pension fund Teachers Insurance Annuity Association that lent £28million for the development had agreed terms for the deferment of some payments. The man who arranged that deal, Stephen Schechter, told the Sunday Times: ‘What everyone is missing is that the club had other, totally unrelated debts, like outstanding bank loans for player acquisitions. It was those creditors who pulled the plug, not the people who lent them the money for the Walkers Stadium.’
When Bradford City went into administration with debts of £36.5million, it emerged that £7.2million was owed to the German insurance company Gerling, which had provided finance for player acquisitions (1). Gerling eventually agreed to accept just £1.7million and I understand that the company was owed around £3million by Leicester. It is possible that Gerling refused to write off a similar proportion of the debt in Leicester’s case unless the club went into administration, although it is not known what terms were offered by the club’s board.
The campaign led by Linker to raise money for the consortium is pushing a number of emotive buttons, with phrases like ‘saving the club’ and ‘securing the future of football in Leicester’. But the question has to be asked as to why supporters should cough up to enable George and Clarke to take the club into private ownership. The two must bear some responsibility for the mess the club is in, but now want the supporters to dig deep.
There have already been casualties from Leicester going into administration – around 25 employees have lost their jobs with no redundancy payments. Local traders who supplied the club are anticipating writing off as much as 10 pence in the pound, which could result in further local job losses.
The biggest losers, however, could be the club’s fans if they allow themselves to be persuaded by the Gary Lineker charm offensive into helping two previously unsuccessful directors to buy the club.