With their glamour League Cup quarter-final tie against Liverpool taking place on Tuesday night (England time), let’s revisit the dramatic decline of Leeds United, who went from one of the leading lights in the Premier League to a club crippled by financial woes and mismanagement.
In the summer of 1999, everything was looking promising at Elland Road. Leeds had finished fourth, had a new manager in David O’Leary, and a host of exciting youth players had made the step up into the first team.
Television income continued to rise, merchandising profits were up by over ten per cent, and match day attendances swelled as a result of all this progress. The state of football, in general, had never looked healthier.
A resultant spending spree, unlike anything Leeds had ever done before, was carried out as a way to capitalise on these prosperous times. The pursuit of success was well and truly on, but it was chased with high-level loans which then-chairman and chief executive Peter Ridsdale decided to take out as a quick term solution.
“There was a belief that with the right acquisitions we stood a genuine chance of challenging for the Premiership,” Ridsdale said years later.
The likes of Michael Bridges, Danny Mills and Michael Duberry were all brought in for, at that time, reasonably high fees, while Olivier Dacourt arrived a year later for a huge sum. In that first transfer window alone, the club spent close to half of their yearly earnings in the space of just one month.
Despite the gamble, it all seemed, initially, to be paying off on the pitch as Leeds flourished. This newfound success brought with it the rewards of significant money as they competed in Europe too. The UEFA Cup returned decent profits, but it was its more illustrious brother, the UEFA Champions League, where the real money was.
Using a complex loan system, the club bought players while having to pay the money back across the length of an individual’s contract. Just like every other loan, though, if payments (with interest) were missed then the club wouldn’t fully own the player and would have to sell him in order to pay back what was owed to the financiers. It was a short-term plan used to rapidly enhance the side with little regard for the long term.
The risky acquisition policy seemed a success though as Leeds finished third in the table and reached the semi-finals of the UEFA Cup. As a result, in the following summer, the process was repeated again. Only this time more loan packages were negotiated against the club’s worth, and yet more money was spent which they simply did not have.
The club’s overdraft account, which was already high years before and had led them to using the lending system in the first place, continued to grow. This was because more attention was placed on paying off the high-interest loans they’d used for player transfers than the pre-existing debts. Yet despite their grim financial position, they continued to spend.
The club desperately needed to restructure their debts, and in another risky move during a time that was full of them, they negotiated the loans into half the cost they’d initially agreed to pay monthly. The only problem was that while this kept the heat off for the time being, at the end of each player’s contract Leeds would then have to pay a huge lump sum to complete the entire worth of the loan.
Rather than spending their borrowed money on long-term projects like stadium renovations, all of it was spent on players. Their net debt was spiralling out of control, loan payments were rolling in each and every month, and the wage bill continued to sky rocket. The fact that match day revenue suddenly started to decline and their previous operating profit had disappeared meant that the club was now in severe trouble after they failed to reach their targets on the pitch.
In O’Leary’s four years in charge, he had kept the team in the top positions in the league while going on impressive runs in Europe. But all of this had failed to result in silverware. More importantly, however, for the second season in succession they’d also failed to qualify for the Champions League which had been deemed essential to the club’s prospects. The Irishman was sacked and the promise of the club quickly began to unravel.
In 2002 their precarious situation finally came to light. A fire-sale of key team members showcased the panic that had quickly engulfed the club. Rio Ferdinand was sold for a then-record fee for a defender, while the likes of Robbie Keane and Jonathan Woodgate followed him out of the door. Massive amounts of money had been recouped through the sales, but by now it simply wasn’t enough.
The loans taken out years prior were starting to accumulate. When the time came to sell some of the players to pay these debts, though, the transfer market was down. The prospective prices the board thought that they’d get back for players simply didn’t exist anymore. It was a buyer’s market.
The mass shedding of players to alleviate the debt predictably resulted in deteriorating performances and results. The fact the club just managed to avoid relegation though during the following season was shocking. The worst thing that could possibly happen was being relegated in the position they were in. Unfortunately for them, the following year this became a reality.
Faced with yet more debt, the club had now lost a vital form of revenue in the TV money which they received for being in the Premier League. Without it, and already hundreds of millions of dollars in the red, Leeds were in trouble. Incredibly, just three years after they had reached the semi-finals of the Champions League, they were now on the brink of collapse.
In 2004 complete financial ruin was narrowly avoided when the training ground and even the stadium was sold. Since then, Leeds has languished in the lower leagues while going through a number of controversial and volatile ownerships. Ken Bates bought a majority stake and saved them from entering into administration, but by then their fall from grace had already gutted the entire club.
Today, the once revered Leeds United acts as a cautionary tale as to what can happen and how long it can take to recover from financial gambles and persistent mismanagement.
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