What does Sullivan’s resignation mean for West Ham? | The Football Boardroom

0:00Thank you.

0:30You are across all of these issues. What is your take on the recent events?

0:37Henry:Well, when we last spoke about this subject a few weeks ago, Henry, we talked about a deal that was widely briefed by the club that I called a power-sharing arrangement, an arrangement where the gold family stake that's been for sale for some time following his untimely death in 2023 would be basically carved up between David Sullivan and Daniel Kratinsky, giving them both an equal stake of about 40%. And for the first time in many, many, many years, having power being shared. Well, the news for our audience this morning is it's quite clear now that that deal has been cancelled. In other words, we're back to square one.

1:17Henry:David Sullivan is the largest shareholder in West Ham with 38 % of the club. The Gold family remain a 25 % shareholder with shares that they probably thought had been sold or were very close to being sold. And Kratinsky at 27. And I think that is a dramatic position for the club to find itself in at exactly the wrong moment. CP, take me into the boardroom. You say it's the wrong moment. Obviously, on Saturday morning, David Sullivan, the co-chair, released a statement categorically denying the allegations that were to be made by the BBC and by the Times newspaper about his alleged behaviour towards women, historic allegations.

2:05And again, the caveat that he denies all this. I think also we have to take a step back and listen to the testimony of the seven women who delivered evidence, testimony, made their allegations to the BBC and to the Times. Seven of them made them anonymously. One bravely spoke out and we have to absolutely keep them front and foremost in our minds in all this. This is a human story as well as, obviously from our focus, a boardroom story as well. When that news then broke, how does that affect David Sullivan? He says he's stepping away from the club and he emphasized in his statement that any of these alleged events it was you know it was all pre-West Ham but how does that actually affect his influence if that's the right word on the club given that he's been he's himself has stepped away

3:04Henry:well I think that's a really important question because I must say that there are many owners of football clubs who have never been a director of the club, let alone carrying a fancy title like chairman, having an executive role. In other words, you don't need to be a director or have a title to be extremely influential in the way a club is run. And I would suggest that in the current situation where the club faces really, I think, two major areas that owners, directors and execs focus on. One, spending money and saving money at a time when the club needs to be restructured. And two, executive appointments, the appointment of key personnel.

3:47Henry:Those two key areas right now, today as we sit here, would need to be agreed by three shareholder groups, none of whom have control. And I think that situation is really, really, really damaging for the club right now at the worst possible moment. And whilst it's quite clear that David Sullivan has stepped down and intends to be extremely busy fighting these allegations, precisely how on earth could he credibly expect to be able to spend any time at West Ham other than protecting his shareholding? So I think the focus now shifts very much to what Daniel Kratinsky wants to do. It's quite clear that he was not willing to go ahead with that transaction that could in some way, shape or form be seen as him getting into partnership with, getting further into business with David Sullivan, given these serious historic allegations.

4:46Henry:I don't think the same logic applies if he were to decide to take full control of the football club. I think that is a route open to him, Henry. You've spoken on previous podcasts about the Czech Sphinx, about how he's quite stealthy in terms of his movements and in terms of how he actually takes over businesses and takes over clubs. But surely now is the time for him to strike. I mean, talking to West Ham fans over the past one, two, three years in terms of their campaign, the No BS campaign. No Brady, Karen Brady, obviously left a couple of months ago. And now Sullivan has had to step back, as you've just clarified and explained.

5:33The club has been relegated. They're likely to sell Fernandes, apparently£85 million, Jarrod Bowen. We know all the huge financial implications of relegations. They're people within the building who are facing redundancies. It is a time for a strong leader. Surely now is the time for Kratinsky to make his move.

5:54Henry:I spent many years as a private equity investor before I got into football. And I suspect that I look at businesses in a very similar way to that which Daniel Kratinsky would apply. And he will see right now at a moment of intense pressure on the football club. We outlined in our last episode, Henry, that the club, even pre-relegation, required significant capital to be injected this summer. That's what the auditors told us was required. We know that moving into the EFL with new financial regulations in place, they're called the squad cost rule, where you have to have a certain percentage, 85 % of your revenue being your total spending on players.

6:38Henry:their revenues are going to drop by£100 million. They've got to get their wage bill down to 85 % of maybe£130 million. That is a huge project in the next three months. That needs management and leadership. It doesn't need a vacuum. It doesn't need confusion. It doesn't need anyone in the building wondering who is in charge here. So if I was Kretinsky, I would be looking at this and saying, what's the quickest way for me to get control? I've read people speculating that David Sullivan will now sell up. I'm not sure that's a logical conclusion. There's nothing in his historic behaviour as a business person to suggest he's going to be pressured to sell quickly at a low price by a minority investor from Czechoslovakia, from the Czech Republic, excuse me.

7:31Henry:The easiest way for Kratinsky to get control of the club to move from 27 % to over 50 % would be if he were to buy out the gold estate shareholding in full. That would take him to about 52%. At that point, he would now be in control of the club. There would be no decisions that could be really blocked. And of course, most importantly, if he wants to then put money into the club, not to buy shares from another shareholder, but to actually improve the finances of the club, he could do so and that would dilute David Sullivan's shareholding over time. And I've seen that device used by many investors to gradually take full control of a club.

8:16Henry:That's what I think he could be looking at doing. Buy gold. I can see the headlines and the shouts now. Just on that, could Sullivan, if you are saying that he is of a mind not to walk away, could he buy gold's shares? He could. He could. Anyone could buy gold shares. I think it'd be very unlikely for a third party to step into a situation where, as I have laid out and laid out as well in our prior episode, the club is in a serious financial difficulty. It requires probably well over£100 million of liquidity this summer. And so it'd be very unlikely that someone would buy a non-controlling minority stake right in the middle of Kratinsky and Sullivan, with that being the first thing on the agenda.

9:08Henry:And I have to say, and I did read the statement that you referred to at the top of the show, you know, it's very, very clear that Sullivan's heading off and has much, much bigger issues to deal with right now for sure. So I do not think it's credible that he would be increasing his shareholding in West Ham. I'm simply saying that people who hope and believe he will be easy to deal with in selling his stake, I'm not sure that's logical. We've said before, this is a low point in the club's fortunes. It's been relegated. It requires an equity injection. It's going to be trying to comply with financial rules.

9:48Henry:in the EFL that are going to be very difficult. That's not the time to sell your shares unless you have to. And as I say, I don't think it's a time to have a complex, tricky adversarial negotiation between Kratinsky and Sullivan. The easy way forward is we have a willing seller. The Gold family thought they had sold most of their stake very recently. That deal's been cancelled. I understand why it would be cancelled. but the logical step for Kratinsky is to take control and that would be the way to do so. Then the next thing I'd be doing is getting my people in to run the football club. We've talked about this before, H.

10:27Henry:The club needs strong management, not just in managing maybe an eight, nine, 10 footballer out and footballer in football program for the summer, but as you've also alluded to, behind the scenes, significant requirement to reduce cost in the business and get the finances under control. If I was Kretinsky, I'd want my people doing those jobs and I'd want it as quick as possible. So that's another rationale for taking control. Well, there's so many positions that need to be filled. I mean, David Sullivan himself would often get involved in the recruitment or the landing of players and all that side.

11:04I mean, that's a separate debate in itself. Does he have the expertise? But absolutely, they need to work on their recruitment, scouting, player ID, talent ID. They need to work all that. They need investment in the training ground as well. Just you look at things very much from a sort of pragmatic, unemotional, cold-eyed, financial, forensic level. But there's another emotional issue in all this, in that Sullivan's plans, and he's talked about this in the past, that he wanted to leave the club and the running of the club to his two sons. Where does that leave them apart from the optics? Can he almost pass it on to them so they continue the Sullivan connection with the club, which obviously would be anathema to the fans?

11:55Henry:I think that's highly unlikely. Highly unlikely. Cannot see that under any scenario. Just in terms that he wouldn't or just the optics of it or the financial ramifications of it? I think the statement makes it quite clear that he is walking away from all executive involvement. And I think by implication, that will likely be true for his family members as well, certainly in senior decisive positions. What's been very interesting, and particularly from my perspective, as someone who works with a lot of trusts around the country, the supporters trusts. And I know, you know, you might not think it's a boardroom influence, but I think the fans have had a very important part to play here.

12:36And we must acknowledge that, you know, there's a debate about the constitution and the effectiveness of fan advisory boards. But I think in West Ham's case, I think they've had a definite influence.

12:46Henry:I couldn't agree more. And I happen to think that I'm glad you mentioned that, because if I was, you've asked me about this in the past, if I was Daniel Kratinsky, that would be right at the top of my agenda. because I think taking control and working with those fan groups in a completely different mindset, I think is an obvious opportunity to really drive the club forward. And I think there are areas, and these are not short-term priorities, as I've said to you, short-term priorities are club needs cash, club needs to fix its balance sheet, club needs to get players out, wages down and back in compliance.

13:25Henry:but probably the single most destructive issue in the relationship between fans and ownership at this football club, I don't think there's any debate actually, the most destructive issue has been the stadium, the move and the stadium they now play their football in and there have been many thoughtful people and I've read lots of this stuff that intriguingly points to a possible radical approach to that going forward. Radical approach I mean to the property issues at West Ham whether or not that site, that huge site, could be completely reconfigured, whether a proper football stadium would make more sense, relocated, put in a sensible piece of real estate within that overall site, and that value could be created if the rest of the site was used, for example, for residential.

14:13Henry:So a complete rethink about that site. For somebody with unlimited capital, focused on creating long-term value and creating a very successful football club. And as you know, Henry, my passion has always been you can't have a successful football club without happy fans. Only a certifiable idiot runs a football club contrary to its fans' needs, desires and requirements. So again, if I was Kretinsky, not only would I be looking at fixing the football, fixing the executive management team, fixing the balance sheet, but in the medium term, I think there's a genuine opportunity to rethink the property issues at that place.

14:54Henry:Get a proper football stadium, get it properly located, and then liberate a bunch of space that can probably be sold for property development and create value. That's the way I would be thinking if I were him right now. CP, it's like talking to one of the hardcore West Ham fans with you talking about the stadium. You're completely right. It needs to be reconfigured into a football stadium. As you say, maximize the commercial elements, which can then be invested into the team. One final thing that we haven't really discussed, and obviously there's a new player in town, a new sheriff in town, some are calling the independent football regulator, who do have these, whether you want to call them backstop powers, they do have, because of law now, they do have quite strong plans.

15:43And they possibly could have moved slightly quicker on Sheffield Wednesday to help Sheffield Wednesday fans out, but that was partly because it was coming into law in terms of their powers. But the independent football regulator do have powers, don't they? Can you explain them to me from the boardroom perspective what the IFR could do?

16:03Henry:Well, I was hoping you'd do the same thing because it's obviously completely new territory. But what you're referring to is that the hottest potato in English football from a governance standpoint over many years has been the so-called owners and directors test, this notion that football authorities get to decide before a football club is taken over whether an owner or director is suitable. And under the new independent football regulator buried in that bill, which is law, one of the four areas that the IFR are going to take over from a combination of the Premier League and the EFL, is the issue of approving owners.

16:45Henry:And it isn't just new owners. What you're referring to is the fact that almost every year they get to take a look at the lineup of people owning a club, directors of clubs and senior executives of clubs and decide whether they are suitable. and as you've also referred to your phrase backstop what you mean by that is that under whole series of checks and balances where in effect the regulator can say i'm a little bit unhappy about what i'm hearing about this person at this club please give us some information we'd like to know more and a to and fro process it's very unclear how long that could take but ultimately ultimately after lots of checks and balances where where the club or the executive or employee in question can provide counter arguments, can provide counter measures, ultimately, in principle, they can say, you shouldn't be a director, you shouldn't be an employee, or in the case of an owner, you shouldn't own the club.

17:44Henry:And I've read in the last couple of days, I'm not sure it's true, but I've read the suggestion that the IFR, in principle, could make David Sullivan sell his shares. And that would change the equation I've described earlier in this show. As I say, I've worked on the basis that will be an open market negotiation, ultimately with Daniel Kratinsky. But if a third party regulator could make him sell, that would change the game. I think we are in completely and utterly uncharted waters. It's never been done before. And making somebody sell shares in a private company is truly, truly tricky legal waters.

18:24Henry:I certainly wouldn't be hanging my hat on it as happening easily or quickly. And I'm not sure in law it will actually be feasible. But that's not my problem, thank goodness. Yeah, well, it's a test for the regulator, as you say, how strong their powers are and how you define suitability. I think many West Ham fans would certainly have a very strong say on that. So, CP, I think this is a subject that we are going to revisit again and again, because it's not simply about the boardroom. It's about fans. It's about, in a way, leadership generally in the game. It's also about one of our great football clubs that finds itself in a terrible mess.

19:09Henry:And let's hope that cool heads prevail here and we see a sensible way forward. Yeah. And just one final thing, obviously, Sullivan, denies the allegations which have been thrown against him, but also we must very much bear in mind the fact that there are eight victims in all this as well. Quite right.