Relegation: Who has the most to lose? | The Football Boardroom

11:36Henry:An explosive cocktail. Mixing, operating and financial risk. What did that mean and how does that relate to Warren Buffett? Liverpool fans will know this is my obsession. I have always believed it is fundamentally wrong and fundamentally extremely poor business practice to put large amounts of debt on a football club because a football club is the definition of an operatingly risky business. I just told you about a situation where I had no control over events at the London Stadium. So a business where you have no real control over events, it's sport. Mixing that with financial risk, by which I mean debt, borrowed money, money where you have to pay interest and have to pay it back, is an explosive cocktail.

12:30Christian:But there's debt all over the Premier League. There's lending, loans all over the Premier League. There are, but nobody has borrowed.

12:38Henry:You know, Tottenham Hotspur built this phenomenal stadium and borrowed somewhere between probably£850 and a billion pounds. Current debt's about£850 million. Nobody has focused on that in the last three or four years. The visible reality of this staggeringly beautiful stadium, by the way, one of the most sophisticated financial structures ever used in European football. A really smart, clever, sophisticated, very, very long-term debt, very low interest rates, two and a half to 3 % average interest rate. I think it's costing them maybe 30 million a year in interest. All looks fine. What's not to like?

13:21Henry:Beautiful stadium. Think of it for my audience's benefit here, a stadium with a very, very, very long-term mortgage, 30-year mortgage, with a very low interest rate. Our audience can understand what's not to like. Well, let me tell you, none of those bankers, when that deal was done, would have assumed that the borrower, Tottenham Hotspur, would ever be in the championship where revenues weren't£600-700 million, but where revenues were£3-350 million. So being 4th, 10th or 15th in the Premier League, we can live with that. You asked me about TV money. TV money at the top of the Premier League is maybe 160 million, at the bottom maybe 100 million.

14:07Henry:That's a 60 million swing. When those lenders looked at that deal and said, by the way, we're doing a Beyonce concert and we're doing NFL and we're doing F1, that is a very manageable range of revenue and profit outcomes for this borrower. Hence the fantastic financing structure they were able to get. But all I'm saying, Henry, nobody realistically contemplated a relegation scenario where we're not talking about the difference between fourth and 15th place, 20, 30 million. We're talking about maybe 200, 250 million effect on Tottenham's revenue. And all I'm saying is that will mean, very simply, that this summer, if relegated, the owners of Spurs, far from going from where we started this conversation, which is long-term being sellers wanting to get three billion quid for this football club, one of the greatest deals in history.

15:00Henry:They paid 60 million for Spurs. Okay. Yes, there's a big mortgage, but you're still looking at maybe, let's do the math, sell it for 3 billion, pay back the bank maybe a billion, 2 billion for the owners, or maybe 200 million in. For one trophy. They think they put 200 million in over the whole of the last 25 years. That's a 10 times your money exit. That's what they were looking at 18 months ago. Now what I'm looking at is this summer, in a scenario of relegation, without doubt, those banks will want to see some equity invested by the owners. So not just not selling, but having to write a big cheque.

15:36Henry:That's what these owners will be thinking about today. And how big that cheque is, I don't know. But I think we can both say that what's really unusual about a potential Spurs relegation is whereas I think yo-yo clubs have got used to a business model, Henry, where they basically have to quickly sell two or three of their best players to raise money, to cover those lost revenues, yes, to comply with FFP because you can generate profit because those FFP standards are much, much harder to comply with in the EFL, okay? So that's been the business model for yo-yo clubs. And we'll talk about Leeds in a second.

16:17Henry:But for Spurs, forget selling one or two players, you tell me. that is a squad full of people who've joined the club on big money to play in the champions league how many of those players want to be playing in the efl i mean well none of them want to be playing

16:35Christian:down there some of them have already played there they don't want to play there some of them have such big egos and are underperforming as players we have seen that was it six defeats now on the spin i mean they are their character has been questioned and everyone's looking at them thinking oh, no surprise, they're being linked with moves away.

16:54Henry:We are in completely and utterly uncharted waters with a club of that magnitude, with geared up for to be regularly described, have the finest stadium in Europe, one of the best teams in Europe, in the Champions League final, in the Champions League final only eight years ago. And the implication, they will be rewriting the playbook for what happens when relegated. This isn't about selling one or two. This is about a total and complete restructuring required to keep the bank happy, to keep the owners happy. And by the way, there's one other thing I think we should say on Spurs at this point on strategy plan, okay?

17:35Henry:What was plan A for this boardroom? Only six months ago, plan A was the Frank revolution, the culture revolution, get the club back into Europe, club worth three, four billion quid. Frank didn't work. We're now in the Tudor issue. What the hell happens on managerial change in the summer if we're in the EFL? You can forget being in, you know, in the line for an A-lister. No A-listers going to the EFL. Because all the Tottenham fans want Pochettino. He's not touching Spurs in the EFL.

18:10Christian:They can't afford Poch in the EFL. But look, we need to look at the other clubs.

18:15Henry:We do.

18:15Christian:Obviously, Tottenham is the huge, huge story. But West Ham, financial implications for them?

18:23Henry:Yes, it is a very serious story as well, for not dissimilar reasons. And again, bring our audience back to these notions of what's happening in that boardroom, ownership, strategy, finance. What is happening in that boardroom? The big story at West Ham is at the ownership level. Four or five years ago, the Sullivan Gold partnership, they've been together at Birmingham at West Ham for donkey's years, very longstanding, extremely close business relationship in and out of football. They brought in a third investor into West Ham, a man called Daniel Kretinsky, known in the financial markets as the Czech Sphinx.

19:07Henry:Highly respected, sophisticated financial investor. He's the guy who bought our posts. He bought the Royal Mail. Well, spotted H, you're reading your business section. No, I'm just waiting for my post to turn up.

19:20Christian:Love it.

19:21Henry:Love it. Well, I...

19:23Christian:And has he delivered for them?

19:24Henry:Oh, my God, you're going to get into your mailman analogies now. I can just see you. Okay, okay. Well, let's just say... You're pushing the envelope. Let's just say that West Ham has not delivered for the Royal Mailman because what looked like a very, very clever piece of business by David Sullivan and David Gold and Karen Brady at the time, which was to sell about a quarter of the club to this sophisticated investor for about 180 million quid, valuing West Ham, if 100 % West Ham, at about 600 million quid. And by the way, there was part of that deal was that if Mr. Kretinsky wanted to go on and buy the rest of the club, i.e.

20:06Henry:to buy Mr. Sullivan gold out completely at the same value.

20:10Christian:You understand these things. Is 600 million for a club, which has effectively been given a stadium by us lot, taxpayers, it's a London club, it's an iconic name, it's got a good academy, okay, they need to invest in certain areas. Is 600 million actually quite a reasonable deal, a reasonable price, particularly if you're putting 3 billion on Spurs?

20:32Henry:Well, I think a couple of things. I think it was market at the time. It was the market value for a non-Big Six club that had a genuine claim at that moment, and my own club would now have that claim. But we have a phrase, the best of the rest. I think for all the reasons you say, London, history, branding, but most importantly, H, and this is really, this is my point actually, just goes to show how fragile and how, remember my explosive cocktail? operating risk let me show you what operating risk is West Ham when Kretinsky bought 27 % were at peak Dave Moyes Declan was still there Declan's still there exactly, they win a European trophy they're in the 6th, 7th place in the Premier League they are firing on all cylinders as you say, in a stadium that cost them not much, a year that looks like a great piece of business for Kratinsky, a great piece of business for the owners.

21:35Henry:We would call that, Henry, that they've put a floor on the value. They've sold a quarter of the club at a 600 value. And we all know that minority stakes are less valuable than majority stakes. So in effect, they're saying, if you're Mr. Sullivan and Gold, we've sold a quarter of our club at 600. The rest will be worth a lot more. Maybe he'll buy it. And then what happened next? What happened next? Four years later, today, Okay. They're third from bottom in the Premier League. And let me tell you right now. Fans are protesting. Fans are protesting. Mr. Kratinsky, I think to some people's surprise, hasn't shown the slightest willingness to buy any more of the football club.

22:16Henry:Very sadly, and I went to his funeral, great bloke by the way, David Gold passed away, not that long after Kratinsky bought into the club. Declan Rice was sold by the way. and Mr. Gold's family's interest has been for sale and remains for sale. So one thing's for sure, if they are relegated, selling that Gold family estate becomes even more difficult. And here is the profound implication of that. When you have a quarter of a big business like that for sale, then it makes actually putting money into the club and raising money much more complicated. You know, I don't support, And I noticed when I saw West Ham's accounts last week that the auditors of the club pointed out that the club needs significant, they use the word liquidity, money put into the club this summer, whether it's in the Premier League or even more if in the Championship.

23:15Henry:We call that a going concern statement. It's when your auditors look at the next 12 months for a business and they assess a business's ability to meet its obligations.

23:26Christian:These are West Ham's accountants slash auditors. They are. Effectively warning the people who are paying. They are.

23:33Henry:And every private company, every company in the country, when it has its audit prepared, will include a going concern statement. It is the auditor's job to now take a view on the next 12 months, not just the past, the club, a business's ability to meet its obligations. and they are raising a flag that West Ham needs a liquidity event. Now, in football, Henry, what does a liquidity event mean? It generally means selling footballers to raise cash. And West Ham are quite clear. They have always been a club that will sell players if they need to raise money. And if they don't raise enough money from player sales, then the shareholders will have to come up with the money because they've already got pretty big bank facilities, as we discussed earlier with Spurs.

24:17Henry:I think we need to move to our other two relegation candidates. Forrest. I think Forrest is a fascinating situation because I followed it quite closely because in some respects they came on the journey that I came on when I was at Aston Villa. But it was, let's just say, a much longer and a much more uncertain journey for Forrest. Forrest were out of the Premier League, the top flight for over 23 years, a club that had won two European Cups. and it really felt for the traditional football fan like you and me, I think, a fantastic moment when they finally got themselves up into the Premier League.

24:54Henry:And they have pursued, rather like Sunderland this season and rather like I and we did at Villa in 2019, they have taken the view, or Mr. Maranakis specifically has taken the view, that while the rules are almost designed to make that first year in the Premier League extremely difficult, remember, you are allowed to lose less money than the 17 established Premier League clubs in that first year. So your permitted losses are lower, which means even if you had an infinitely wealthy owner coming out of the championships, their spending power is curtailed. Mr. Maranakis, rather like Sunderland and rather like my owners did in 2019, more or less rebuilt the team on promotion.

25:42Henry:Can't remember the precise number. Help me. Was it 20 players?

25:45Christian:It was one of the great trolley dashes.

25:46Henry:Was it 20 players? So it was 140 million quid, 20 players. And they've been in the league for three years now, including getting back into Europe. I think it's one of the great places to go and watch football, the city ground. Yeah, great. And I think they have really graced the Premier League. I just want to say that. And he is not everybody's cup of tea. Maranakis. Mr. Maranakis, obviously. He's done a lot of good there. But you cannot question the commitment. You cannot question the personal investment. You cannot question the desire. So relegation for Forrest would feel, I think, you know, it's a very, very private company.

26:23Henry:It's all on him. I don't know how rich Maranakis is. I think he's fabulously rich. So I don't think there's any financial crisis as such if they go down. I see it as a massive strategic backward step with one big project really at risk. Nottingham Forest, and I said this to you a couple of weeks ago when we were talking about Everton, Nottingham Forest as a club that really wants to be competitive in a world where rules are revenue-based, know they have to expand that stadium. It's a 30 ,000-seat stadium. It's fantastic atmosphere, but falling apart at the edges. they have consent in place to do the Peter Taylor stand.

27:05Henry:They probably want to do two of the other stands. They want to get up into the 50s. That's a very long-term project.

27:12Christian:I'm glad they didn't move.

27:13Henry:But I am too. I am too. And so I think they're going probably down the Liverpool-Anfield road of refurbing. But Henry, I've got to tell you, I don't care how rich you are, if Forrest go down, he mothballs the stadium project. and if you mothball the stadium project, you're back to square one. Then it's all about how do I get out of the championship. Sorry, can't he put money in to rebuilding?

27:40Christian:It's not. Sorry, why does that get included in PSR? It's not a PSR point. Yeah. It's not a PSR point. It's a cash point. Yeah, but sorry, it's his cash.

27:49Henry:Yeah, but Henry, honestly, trust me, I told you, I do my specialist subject on billionaires, you know. We've just described at the start of this show that whoever you are going down, You've got a 60 million hole in your TV money and a 30 million hole in losses. And by the way, you've got to oversee significant player turnover, try and cut your cloth to minimise your losses in the championship. That's not a moment to be spending money on a stadium. No rational businessman.

28:17Christian:They do have playing assets.

28:19Henry:They do. Very good point. And I think we should make that point that we said at the start that we're talking about. The normal playbook for teams going up and down is to sell maybe two of your best players. Try and keep nine of your starters to give yourself the best chance of bouncing straight back up. I think Forrest are that club. So no issue on cash, no issue on P &S at all because those are profitable sales. Mr. Maranakis is a very emotional football fan. He will be thinking, he knows the analogy I always use when we came out of the championship and we went up to the Premier League. And I remember saying to my old pals from Chelsea and Liverpool, when I turned up at a Premier League meeting after that playoff final.

29:00Henry:I feel like I've been in a maximum security jail. I've just broken out of jail and I've checked into the Ritz. That's what the Premier League feels like when you come out of the NFL. The power's low redemption.

29:10Christian:I can see the Netflix film.

29:12Henry:Honestly, it's... And I think Mr. Maranakis will feel like he got out of jail. He's had three years in the Ritz. That's what the Premier League feels like. The financial, the way it's run, the TV audiences, the media profile, the kind of players you can pursue. It's just the best league in the world. And whilst I love watching the EFL when you're in it, you know, and you're getting a check for 10 million quid for TV when the bottom team in the Premier League is getting 110 million, go figure. That is unwelcome. It would be a massive setback for Forrest. He will do whatever it takes to stay in this league.

29:46Henry:And he has changed his managers four times in a season. So it's pretty clear what he's thought.

29:50Christian:But what you're saying is they can sell Elliot Anderson. as you say, they put part of the restructuring of the stadium on hold. But actually, it wouldn't have the ramifications of what it would do for a Tottenham Hotspur or West Ham in terms of relegation.

30:08Henry:No, I think they're better placed. I think they're better placed with that single owner who is most definitely not a seller of the football club.

30:16Christian:Leeds United, how would they be impacted by relegation?

30:19Henry:I think probably the least impacted. Why do I say least affected in my world strategically, financially, operationally? Don't get me wrong. I am not in any way, shape or form negating how awful relegation is. But compared to the clubs we've already looked at, I think a couple of things. Firstly, I have to say that I do think that the ownership group at Leeds approach to coming back up last season and since has been quite cautious. In other words, I think, Henry, that they have gotten into a situation where they are running the club with a base case assumption that they might be re-relegated to give it a terrible media name as if they are a yo-yo club.

31:02Henry:Why do I say that? They stuck largely with the championship squad. They stuck with Daniel Farker, who I think most people in the game didn't expect to last the full season. But I come back to it. finance strategy owners. It's an unusual ownership. It's much more of a private equity type model. It's the San Francisco 49ers ultimately, but there's a hell of a lot of people who are in the investment group. A hell of a lot of, you know, you've read about golf players, celebs. Does that make it more cautious? It makes it more complicated, Henry. Because if you want to put money in, you know, 100 people have to send a check, not one.

31:39Henry:That's more complicated than Mr. Maranakis literally deciding on his own in 10 seconds, I'm writing a check. You understand. So it's a more complicated ownership structure. It probably makes you run things on a more cautious basis. And I do think, let's face it, this season, we had had two prior years where all three teams coming up and gone back down. So only any prudent manager, responsible chief exec at Leeds would say, we have to allow for that possibility. And I think therefore, the only positive is that in terms of their investment in the wage bill, their investment in the playing squad has been such that it won't be as damaging.

32:19Henry:Rather like Forrest, Henry, I would like to land this point on the biggest implication for the long-term health of Leeds of going down again, just like Forrest. They too understand. And by the way, the owners, I do like the owners, they are well known in San Francisco for what they've done off field, the Levi's Stadium being the best example, they definitely see Ellen Road as a development opportunity. They know they've got to get that capacity up.

32:48Christian:Because it's what, 30 odd and they want to get it up to 50 odd. They want to be well in the 50s. Does that get put on hold? They've got

32:55Henry:beautiful plans. I was looking at them yesterday. Again, for most of that stadium in the end to be rebuilt.

33:01Christian:Sorry, that goes on hold if they go down.

33:03Henry:They've broken ground on the West Stand. It's a massive project, I'm afraid.

33:07Christian:150 million. It wouldn't

33:09Henry:surprise me if it got mothballed for another year if they go down for exactly the same reasons when you know when the tide goes out remember my warren buffett and you've got no kex on yeah thanks lovely you know you got the knowledge um yeah you're probably putting long-term strategic projects just on hold while you firefight to get costs down preserve whatever revenue you can and focus on the absolute imperative henry of getting back out of that league as quick as possible i don't feel that means spending tens of millions on the stadium project would be the priority next season so to summarize across the four clubs in the boardroom major strategic implications of relegation for the long-term plans of all of those clubs whether it's ownership changes of ownership whether it's relationship between shareholders and their banks or whether it's stadium projects profound issues that have absolutely nothing to do with what we read about every week which is you know we're going to lose our left back we lose our right back whatever so

34:11Christian:whoever goes down there will be reviews at all the four clubs and they will look back on moments when they could have pulled one of your beloved leavers yes you're a believer you love your leavers i do and obviously the two potential leavers that they can pull managerial change and recruitment in January. Just spin me through those. Who's obviously Leeds United stuck with Daniel Farker when they, which was sensible.

34:41Henry:Forrest seemed to... It's sensible unless they go down and then people will say he had a track record, he'd been relegated before, his points per game in the Premier League's been all low. Yeah, they will.

34:51Christian:Do you think they'll get criticism? I think if they go down,

34:54Henry:that decision will be analysed forensically. Yes, I do.

34:58Christian:Really? I thought Daniel Farker's probably... I think he's done great. in terms of coming up and it's good they're giving him a chance. The players obviously like him. But yeah, I take your point. But in terms of the sort of more fluid club, shall we put it that way, in terms of managerial change... For?

35:13Henry:For?

35:15Christian:I mean, that is...

35:16Henry:I mean, that is telling you that that is the lever that Mr. Maranakis thinks has most effect. And we will see. There is no question. We will see, I think. If they go down, it will be noted that they changed manager four times and they still went down. And then on managerial change, West Ham made their bet on Nuno quite early. And... Looks vindicated. You've thought all along that there's been constant signs of improvement.

35:45Christian:I mean, I've known him since Wolverhampton Wanderers. And I think there's an individual of great substance there as well as a good coach, slightly cautious coach. And the players like him because he's got this... He has an empathy to him.

35:58Henry:Well, I just think that it has been widely accepted. It's an on-field issue that there's been general improvement consistently under him. And that's what will be his track record is as an established Premier League manager, a high points per game record across all his clubs. You know, if West Ham stay up and Forrest go down, then that's the story.

36:18Christian:Or Tottenham go down. He was there as well briefly. He was. Can we just go on to the other lever, which is January? Because you were all over the January window and who was going to move and who acted well on that?

36:33Henry:Look, I think very clearly there's only one club that you can say did good business in both senses. You would say that West Ham signings have had a real impact on the field.

36:44Christian:Three of their signings started that cup tie. One of them came on.

36:48Henry:Yeah.

36:48Christian:I mean, Disassi, I mean, Disassi, I thought, you know, a lot of people would call him Disaster, but he's done well there.

36:55Henry:Well, I would note, given my warnings about their financial position, wearing my business hat, that not only did they act early in January with players who appear to have been having an impact, but they did so with a very balanced book because they moved out Paqueta. For what, 36? And the other lad, Guillemé.

37:15Christian:Yeah.

37:15Henry:So that was basically net money in and improving the team. For a much maligned owner, who's obviously got his hands all over recruitment now, long after the sporting director, Steiton, left. If David Sullivan's doing it at 77 on his Todd, that was a pretty good January, I think. Very good January. So that leaves...

37:36Christian:Sorry, you would imagine that Nuno would have had some influence on that.

37:39Henry:Yes. No, no, absolutely. Absolutely. That's the old model. Manager to owner. Boom. This is what I need. Go get them. Yes. And the other three? Very little. You know, I think Leeds, I read that Leeds wanted Stran Larsson, missed out, have been very cautious all year. Tottenham. Yeah, Tottenham.

37:57Christian:I mean, Tottenham, I mean, they wanted...

38:01Henry:They wanted Andy Robertson. Yeah. That looked pretty close. Liverpool hit a bump.

38:05Christian:Did you buy the Semenyo thing? Was he genuinely... They wanted him, but Semenyo, yes.

38:10Henry:They absolutely wanted him.

38:12Christian:Could they afford the wages? It wasn't a wages issue.

38:14Henry:It wasn't a wage issue. No, my sources are telling me that Semenya was absolutely crystal clear, 26-year-old footballer, wanted to go and get on in the trophy hunt. City are in the hunt for trophies. Boom. By the way, what a start, as we've said in previous shows. That's when you're buying quality. Him and Gehi manifestly have improved Man City straight in the 11. That's the acid test of good January business. Let me defend Spurs, okay, on this charge. It is, as we have said, it is the obvious lever.

38:47Christian:Which West Ham pulled successfully.

38:49Henry:They did. So go on, explain it. Well, I said at the start of this show, I described that feeling of lack of control as the guy in the hot seat. Nothing you can do. It's sport. In season, once you're up and running, it's basically January, or your manager. We've talked about manager. On January, it's all very well saying it's a lever you can pull. but it is not an easy lever to pull successfully because nobody wants to sell their best players. So you're never buying quality other than in unusual circumstances. Gehi was unusual with a contract rundown. Semenyu was unusual with a clause. And one club bought both of them.

39:30Henry:A-list talent, top dollar, straight into the first team. Not a lot else. West Ham bought B-list talent and it could well keep them up. You can do it. Spurs would say, wanted Semenya couldn't compete with City wanted Andy Robertson had him half in the building Liverpool kept him they got Conor Gallagher in

39:46Christian:I mean I like Conor Gallagher because he is a leader we saw him as a captain

39:49Henry:and they sold Brannan by the way yeah

39:52Christian:it looks now

39:53Henry:it looks now

39:54Christian:who was their leading scorer last season

39:56Henry:yeah but it looks now like they didn't do enough in January Christian everything you've said

40:02Christian:everything we've discussed with Leeds if Tottenham do go down the financial implications the ramifications, emotional, financial, ownership, all those issues, this would be one of the biggest stories in Premier League history, in fact, predating the Premier League.

40:22Henry:I think that's about the long and short of it, H. I really do. I'm going to go and have a lie down because I'm still getting over you reminding me of the London Stadium all those years ago and that's all we've got time for. So by now, folks, I know you've got used to the fact You can find us wherever you get your podcasts. If you want to get in touch, please do so at getintouchatthefootballboardroom.co.uk.

40:47Christian:Or just leave us messages on all the socials.

40:50Henry:And in the meantime, we'll see you next week. Thank you very much.

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