NFR- the strange finances of Leicester city

[Snibbo]

Leicester City and the strange finances behind their rise to the Premier League pinnacle

http://gu.com/p/4t268?CMP=Share_AndroidApp_Copy_to_clipboard

Maybe not as 'fairy tale' as we thought:


David Conn

Leicester City's dash to an unlikely Premier League title is billed as football's most romantic story in a generation but the Football League is still investigating the club's 2013-14 promotion season amid strong concerns from other clubs they may have cheated financial fair play rules.

Jamie Vardy and Leicester City climb every hurdle when doubts are raised | Jonathan Wilson
The club's owner, the billionaire Thai businessman Vichai Srivaddhanaprabha, who owns his country's duty-free company King Power, bankrolled Leicester's rise from the Championship with more than £100m after he took over the club in 2010.

The investigation centres on a deal Leicester say they did in January 2014 with a company called Trestellar Ltd, to market the club in the UK and south-east Asia. That deal immediately produced an apparent £11m increase in Leicester's sponsorship and commercial income, reducing the club's loss from £34m the previous year. In the club's most recent accounts, for 2014-15, Leicester say Trestellar sold the club's main sponsorships – the name on the players' shirts and the stadium – to King Power, the club's owners.

AdvertisementHide
The Thai owners were already sponsoring the shirt and stadium before the Trestellar deal; in 2012-13 Leicester's sponsorship and other commercial income was £5.2m. After the Trestellar deal, with King Power still holding the same main sponsorships, the income immediately jumped to £16m.

That substantially reduced Leicester's loss, which was otherwise likely to have resulted in a large fine under the Football League's then new financial fair play rules by which all clubs agreed to cap losses at £8m to try to reduce excessive spending on players' wages. Losses under FFP rules are not reduced by a club owner paying money to the club, or by doing so via sponsorship, if the amount paid is clearly inflated beyond market value.

Leicester still say Trestellar paid the club for the rights to market their brand, then sold the sponsorships to the owners. The resulting smaller loss – £21m in 2013-14, including expenses clubs are allowed to offset – meant Leicester argue they complied with FFP rules and no sanction should be applied. Some other clubs are furious, arguing they reduced spending on players to comply with the rules while Leicester overspent on players' wages, achieved promotion and have since resisted any sanctions.

Leicester's 2013-14 accounts state they spent £36m on players' wages, £5m more than the club's entire income – the goalkeeper Kasper Schmeichel, the captain Wes Morgan, the prolific striker Jamie Vardy and other core players were already on the payroll then – although Leicester said £9.4m comprised bonuses paid on promotion. During the season, in January 2014, Leicester signed Riyad Mahrez from Le Havre for a reported £560,000, and the Algeria midfielder has since been instrumental in Leicester's promotion and remarkable Premier League turnaround.

Trestellar, the company which produced this immediate increase in sponsorship and commercial income – vast for a Championship club – was a newly formed company. It was set up on a Sheffield trading estate by the son and daughter of Sir Dave Richards, a former Premier League chairman. Richards had close links to Leicester's Thai owners (his Thai football contacts also include having become acquainted with the country's ousted prime minister, Thaksin Shinawatra, who became Manchester City's owner in 2007).

Riyad Mahrez celebrates after scoring at Nottingham Forest in February 2014
Riyad Mahrez, right, was among the players Leicester signed during the 2013-14 season. Here he celebrates after scoring at Nottingham Forest in February 2014. Photograph: Nick Potts/PA
In June 2013, Richards was reported to be advising Leicester about how to comply with FFP, although his son, David Jr, rejected as "paper talk" reports his father would become Leicester's chairman.

Trestellar, then and still, has no website nor telephone number. At the registered address – 6 Shepcote Office Village, on a main road in Sheffield – there is no Trestellar presence or sign. Asked by the Guardian why the company has no telephone number or website, Richards Jr, who runs a print, design and marketing company, Glue, from the same address, replied: "Why would we need one? We are very busy, we are relatively well known and in the networks in which we move, we are known to the people we wish to be known to."

Leicester said last year they agreed their "exciting international marketing and licensing partnership with Trestellar Limited ... following an extensive tender process to identify a party best-suited to extending its commercial reach worldwide". The club declined to answer any questions about the Trestellar deal or this tender process, and what considerations resulted in the new company in Sheffield set up by Sir Dave Richards' family members winning the rights to market the club in south-east Asia.

Richards Jr told the Guardian he could not discuss the deal, how and why King Power remain the club's sponsor, or what other income Trestellar has brought in, saying he was bound by client confidentiality.

However, he said Leicester's accounts and those of Trestellar – which showed £808,000 profit and £4m cash in the bank last year – demonstrated the "positive impact" Trestellar has had. Asked if his father had been influential in securing the deal from Leicester, Richards Jr said: "It is fair to say my dad is and continues to be on the world sporting stage."

Richards Jr confirmed the name Trestellar echoes his father's former engineering company, Three Star Engineering, which went into administrative receivership in 2001. Shortly before that, Richards resigned as the chairman of Sheffield Wednesday, who were facing relegation from the Premier League, and was appointed the Premier League chairman on an initial salary of £176,667. He stepped down in 2013 and now does consultancy for contacts, his son said.

The Football League has stated for more than a year that it has not cleared Leicester's 2013-14 finances and told the Guardian that Leicester remains an "ongoing matter".

Senior figures at Championship clubs say shirt sponsorships in the division earn between £250,000and £500,000, and it is difficult to sell stadium naming rights at all. Leicester's nearby rival Derby County, who have a bigger stadium capacity, recently sold their naming rights to iPro, a sports-drink company, for £700,000 a year.

Sir Dave Richards to be chairman of Leicester City
One owner of a club in the Championship in the 2013-14 season, who did not want to be named because he said the league investigation has to run its course, said: "What Leicester did looks like financial doping by the owners, while other clubs were complying with the rules we all agreed." A senior director of another 2013-14 Championship club, who also did not want to be named for the same reason, said he believes the Trestellar deal looks like a means of cheating the FFP rules.

Damian Collins, the Conservative MP on the House of Commons culture, media and sport committee, said: "Leicester should answer the questions publicly, to explain this arrangement, which looks unusual to say the least, to reassure people it was not an attempt to evade the FFP rules."

Leicester did not answer any of the Guardian's specific questions about the deal. A spokesman said: "The club submitted a compliant FFP return to the Football League in relation to the 2013-14 season. The Football League has subsequently requested certain clarifications, which have been provided. The club is confident that it has complied with the Football League FFP regulations during that season and no material liability will arise from this process."

Leicester's King Power Stadium
King Power sponsors Leicester City's stadium and shirts. Here the club owner Vichai Srivaddhanaprabha's helicopter arrives at the ground. Photograph: Darren Staples/Reuters
The Guardian's questions that Leicester City declined to answer about their 2013-14 accounts and deal with Trestellar Limited

• The arrangement looks as if King Power's sponsorship of the stadium and club shirt is being routed through Trestellar. Why would this be the case?

• What service is Trestellar providing to the club, if it has a licence to sell marketing properties, which it then sells to the club's own owners? How much worldwide marketing expertise has that involved?

• How much is King Power paying for the sponsorship and naming rights? Has this been a significant uplift from 2012-13?

• Has Trestellar brought in any other income from its marketing deal, besides these sponsorships by King Power? If so, what are the deals, and what are their values?

• What was the nature of the "extensive" tender process, which resulted in Trestellar becoming the licensee?

• Referring to the club's "due diligence" done on Trestellar: who carried out this due diligence, and what elements was the club "entirely satisfied" with?

• Is this the basis of the ongoing discussions with the Football League: whether the Trestellar deal and income from sponsorships is a genuine arms-length transaction, or in reality investment by the owner, King Power?

[Logicalman]

Very interesting read. Noted the Three Star Engineering link, but they appear to have missed a further company, T S E Realisations Limited, with whom David John Richards shared directorship with another person, Mr John Sidebottom, who, by sheer coincidence, is also a Director of Tresteller Ltd, and was with Three Star Engineering as well.

[copthornemike]

Interesting reading.

However it would appear that Leicester have been inventive in how they generate income which is not in the form of debt and/or loans and  is much the same as the likes of Arsenal, Man Utd and Man City do with their stadium naming rights etc.

FFP's intention to prevent football clubs taking on unsustainable debt and/or loans  is laudable and sensible  - but it does have the possibly unintended consequence (maybe it was intended if you are a conspiracy theorist) that smaller clubs are at an automatic disadvantage unless they are inventive at generating income.

As far as FFC are concerned we are fortunate in having an owner who would appear to be able to offer plenty of resource compared to other owners, however even if he wanted to offer more debt / loan free cash to improve the first team next season he is 'throttled' on how he can do so due to FFP. In the short term that is to FFCs apparent disadvantage compared to the likes of Aston Villa, Newcastle (probably) etc, but as we have seen many other teams who splashed the cash (Leeds, Portsmouth, Bolton) and have suffered long term consequences when short termism failed.     

[H4usuallysitting]

This sounds like something MAF would've done, to blur the waters relating to FFP - then he probably would've gone for a long drawn out court case where no one wins.....any news on QPR's FFP scandal? 

[Forever Fulham]

this is what drives me mad about FFP.   If the owner is so wealthy that he (or she) can easily afford to take some short term losses to fund upward mobility in league play, why not let him do that?  His overall financial wherewithal  is more than enough to handle a few seasons of being in the red on one of his ventures.  Why put restraints on club owners that you don't put on any other business enterprise?  There should be a means test in FFP that looks at the entire financial health of the owner, rather than isolate on the club's finances alone.   Other clubs have gotten creative on sponsorship deals with related entities for obscene money.  If they don't reform FFP, it will only serve to keep the unestablished upstart down, and preserve the status quo of the landed gentry teams in the league.  That's not right.

[rogerpbackinMidEastUS]

I didn't think there was any 'FFP' related to promotion, only if a club was immediately relegated.
The rules only apply to the Football League and as LCFC aren't currently under their jurisdiction
what has it got to do with the "Gnomes of the Football league"  ?

[Forever Fulham]

I didn't think there was any 'FFP' related to promotion, only if a club was immediately relegated.
The rules only apply to the Football League and as LCFC aren't currently under their jurisdiction
what has it got to do with the "Gnomes of the Football league"  ?

You're right. 

[MJG]

The fine to promoted clubs is the only option. That fine should be payable once issued or on return to the FL. Now we all know the only case so far brought where this has had to happen is QPR which is still stuck with the lawyers.
The FL could refuse entry to its competition(FL) on lack of payment, but really until the QPR case is resolved that's not going to happen.
All the clubs are waiting on this case and I think you can all imagine which way they want it to go.

There is a place for rules with regards finance and safety of a club. Lets remember Bolton were just hours away of going bust and being unable to fulfill their fixtures. It can happen to any club and its safeguards like FFP that aim to stop a Bolton situation from arising. Is it perfect? absolutely not. But the real question you may want to ask is..

Do you want your club to play within the competition rules or don't you? And that's irrespective of what other clubs are doing.

We basically failed FFP last year because we failed to move Ruiz on for a £1m plus. Had that gone through we would have probably passed.

[Logicalman]

.. and the simple answer to that question is: Nope, not if it means placing constraints on us buying and maintaining a squad that would likely get us promoted again, especially with an owner that can afford it.

[Apprentice to the Maestro]

.. and the simple answer to that question is: Nope, not if it means placing constraints on us buying and maintaining a squad that would likely get us promoted again, especially with an owner that can afford it.

If our owner could not afford to subsidise us or the club was owned by the supporters then posters would be on here vociferously demanding stronger FFP rules and rigid enforcement.

Let's be consistent despite our current owner.

[Logicalman]

.. and the simple answer to that question is: Nope, not if it means placing constraints on us buying and maintaining a squad that would likely get us promoted again, especially with an owner that can afford it.

If our owner could not afford to subsidise us or the club was owned by the supporters then posters would be on here vociferously demanding stronger FFP rules and rigid enforcement.

Let's be consistent despite our current owner.

I quite agree, I was answering the question truthfully, given the possible spending power we would have at our disposal.

I'm all for fairness and rules governing that, but as the QPR story has shown us, the FL is toothless when they are challenged by a club, and owner, who can afford to fight them in the courts, it's the little fish they govern, the ones that don't have the financial backing to fight, and that is not a level playing field, or fairness in any disguise.

[MJG]

the objective of FFP in the football league was never to create a level playing field

I disagree with that assumption. It may have been a by product of the way its been implemented that larger clubs are seen as being in a better position. But the main idea of stopping clubs from overspending and going into administration or going bust has worked. The number of clubs across the 3 leagues with issues has dropped dramatically.  And that was one of the main goals of the system. I will say that all the main supporter groups in the UK support the principle of FFP, if not the actual rules of it at this time. The safeguard of the teams is the highest priority for all involved first.