What would relegation mean for West Ham? | The Football Boardroom

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0:40Henry:What dilemmas do they face this summer, whether they stay up or go down? What does a doomsday scenario look like? And please, remember to subscribe so you don't miss any episodes.

0:57Christian good to see you I was watching Arsenal and Sunday is a seismic day in the season for Arsenal as they go to West Ham but we're focusing today on West Ham United and I think for them this is their biggest game since the the Euro final in 2023 just a high point for the club but you look at events since then and if they lose and tottenham are obviously showing signs of life under deservey we've discussed it in in a recent episode i think all the headlines that us in the media like to throw around about west ham under pressure in a crisis the hammergeddon the hammer house of horrors all those have started the you know the bubbles being burst and i think this is a chronicle of a death foretold.

1:44You look at the problems over the last 10, 13 years, going into the stadium, the club said they wanted a world-class stadium for a world-class team. They've got neither at the moment as the fans, I've been talking to the fans and they will absolutely confirm that and there will be more than murmurs of dissent, of protest at the weekend if the team struggle. We need to look into the future direction of the club. The fans will always be the emotional owners of the club, but the contractual owners, the financial owners, are obviously people who you have mixed with and you can sort of explain to me in terms of David Sullivan and Daniel Kratinsky.

2:20If you can just sort of explain to me as someone looking from out with the boardroom into it at West Ham, who are these individuals?

2:29Henry:Well, they are the two key players now and I'll sort of explain how we got there. So let's start with David Sullivan. In many respects, he's been the most important figure in the boardroom for the last 15, 16 years. David is now, I think, 77 years old, and he is a man who made his wealth, his considerable wealth, largely estimated in the sort of billion-pound territory, in the 70s as a key figure in what is euphemistically known as the adult entertainment industry. And while in that business, actually, I think it's a very interesting part of the background story to the people behind West Ham. One of his big rivals was another David, David Gold, and they were, shall we say, engaged in the battle for the top shelf, and like a lot of rivals, they make their peace and become business partners.

3:28Henry:And David Sullivan and David Gold from the early 70s did become partners in that colourful business and were partners for over 50 years until David Gold sadly passed away in 2023. And as partners, they got into the football business initially, buying together Birmingham City in the 90s. And then within minutes of selling Birmingham in about 2010, they bought West Ham, where I think it's pretty important to point out both of them had much more of a personal connection. David Sullivan having grown up in the area, David Gold not only having grown up in the area, but as was pointed out really rather touchingly at the funeral which I attended, he actually played for the juniors as well.

4:18Henry:So the Sullivan Gold era began in 2010 and rolling that forward in 2021, they brought in a new investor into the club. And that person is Daniel Kratinsky. Could not be more different too. In what way? Well, for a start, he has absolutely no personal connection because he is a Czech national 50-year-old man. Sparta Prague's his club, isn't it? Sparta Prague's his club, exactly. He's about 50 and he is a phenomenally rich man estimated by good sources to be worth maybe 10 billion US dollars. And he's made his wealth, interestingly, initially in the energy business. What's interesting about him as we get to West Ham is he is widely referred to in financial circles.

5:11Henry:He has a funny name called the Czech Sphinx. Not quite sure what he's ever thinking, very low profile. And he is seen as a contrarian investor. He buys things that are a bit out of fashion that other investors think have had their day. Started out when the world was going green, mopping up coal and gas power stations in Eastern Europe, making a huge fortune in that world. Then when the world's going internet crazy, he buys a bunch of bricks and mortar retailers. He's a big shareholder in Sainsbury's in Britain. He had flip-flopper for a while, did he? He did. And then as another example of a pretty contrarian, he buys when the world's going essentially electronic in distribution of post and information, he buys the Royal Mail, which he now controls solely.

5:59Henry:So a man who has made a fortune buying businesses, often initially taking minority positions, and then as he figures out the business, many occasions moving from a minority position to a control position, i.e. taking over more than 50 % of the ownership of those enterprises, which for many of his businesses is the way he currently runs them. Now, coming to West Ham in 2021, he bought a 27 % stake in the club for about 170 million quid, valuing West Ham at about 600 million quid. So in effect, this contrarian investor saw an opportunity to take a stake in a privately run football club in London, West Ham, run by two extremely close partners, Sullivan and Gold.

6:56Henry:50 years together in business. David Sullivan famously said they never fell out once in those 50 years. That's quite a contrarian thing to do. But there was a catch. when Kratinsky bought this minority stake, it is widely acknowledged in the filings at the time that he secured what we call in the private equity world a route to control Henry. In other words, yes, he bought 27%, but he agreed with David Sullivan and David Gold the deal to buy the rest of the club later on a pre-agreed formula if he chose to do so. Why would they agree to that? Well, firstly, you know,£600 million valuation at that time was considered, you know, a very, very clever piece of business by Sullivan and Gold.

7:45Henry:You know, they hadn't spent anything like that to get into West Ham and to put a floor on the value of their club at£600 million looked like a very good piece of business. Now, it's not clear whether the formula under which he could buy the rest of the club would be at the same or more, but it certainly wouldn't be at less. So think of it that way. You've got a house, it's worth, you know, you've sold a quarter of your house, a very good valuation, and the rest of it's going to sell for at least that number. That was the logic of that deal. But, Henry, really importantly, I think most people, and I include myself in that, thought that it really was a stepping stone to Kratinsky buying out the whole club.

8:30Henry:And that didn't happen. And I think that, in some respects, is what is fascinating about where we find ourselves in 2026. Why hasn't it come to that stage? is it purely because you listen to the fans you know they weren't fans of brady they weren't particularly fans of gold they're certainly not fans of sullivan why they are targeting a lot of the fans are targeting sullivan why doesn't kratinsky make his move well we should probably talk about the numbers because i think it would be fair to say with the benefit of hindsight that that 2021 investment was very well-timed from a selling perspective, that it was, in many respects, a very good time.

9:23Henry:I think at the time, West Ham were flying high in the league, David Moyes was doing his stuff, and it looked like the only way was actually up, and it needed to be to justify a valuation at that time of over£600 million. and I think it's fair to say after a couple of very good years, things have gone south for the club in the last two or three years. They've spent hugely and haven't got a huge amount to show for it in terms of squad value and the results that they announced recently for last year were the worst loss in the club's history. They were losing over£100 million,£106 million with turnover down to just over£220 million.

10:13So why is turnover going down? I thought things were rising in the Premier League.

10:17Henry:Turnover went down for West Ham for one overarching reason, which is they finished 14th. And so their Premier League share of TV income was meaningfully down. The rest of their business, match day and commercial, was reasonable. But they have spent so heavily in the transfer market that the effect of that transfer spending on those financial statements, this famous amortization figure, when you spend£100 million, 20 of it goes through your profit and loss statement on a five-year contract, the amortization figure now is so large, the club is losing a huge amount of money. And so to answer your question on Kratinsky, I think business has been struggling in the last two or three years.

11:04Henry:and for whatever reason, he has not chosen to increase his stake in that context. And then, and this is the nub of our analysis today, a catalyst for change. I mentioned sadly the passing of David Gold in early 23. His 25 % shareholding, by definition now held by the estate of David Gold, has been for sale more or less ever since. So why hasn't Sullivan, given the connection, bought that? Well, I think it would be fair to say, you know, David hasn't been famous for writing big checks in respect of his West Ham investment. He's dealing with a big check. He is dealing with a big check. I knew there'd be a cunning pun in here somewhere.

11:52Henry:I was a bit worried we might be dealing with adult entertainment puns. Well, look, the two Davids in COVID did lend the club, I think, over 50 million pounds. So that was real money. But when Kratinsky put up his 170 million quid in 23, the first 54 of that paid back the two Davids. And there's been no shareholder funding since then. So the idea that David, having bought the club well, having obviously pulled off the deal of the century from a financial standpoint anyway in getting a 63 ,000-seat stadium for bugger all... Which we're paying for, by the way. We are, aren't we, as London taxpayers?

12:34Henry:I think it's fair to say I don't think David's in the market at 77-year-old to be buying out his former partner's estate. I think most people would have expected Kratinsky to do so. What was clear, and I think our audience will understand this, not an easy thing to sell a 25 % stake in a private company where the estate, I'm sure, has financial pressures and fiduciary pressures. Lo and behold, with no third party apparently playing ball, those shares, the gold family shares in the recent weeks, it has been announced, have been bought by a combination of Kratinsky and Sullivan. So, Sullivan has gone up from about 37 % to 40%.

13:26Henry:and Kratinsky has gone up from about 27 % to 40%. That is the big news at West Ham. From an era where, in effect, the Sullivan and Gold families have controlled the club for 15 years as tight, tight partners, more or less as one, we now have a situation where coming, facing up to a summer that we need to talk through in terms of some meaningful financial and strategic pressures, Kratinsky and Sullivan have cleared the decks, taken out 15 % of the gold family. They still have 10, by the way, and there's another investor with 10%. But yes, but in essence, West Ham is now jointly owned 40-40 by this Czech multi-billionaire and David Sullivan.

14:20Henry:And I think that raises huge and interesting questions about how the business will be run. What, in terms of one car, two steering wheels? How does that work? Where do you have to? You've been in this business. You've been in the boardrooms of three clubs. How can you have effectively two leaders? We did an episode on Arsenal, and you made the point throughout that. It was fascinating listening to you. Your point on Arsenal was that there was one person dominating, Stan Kroenke. Yeah, you're right. Got two here. You're right, and we also did an episode on Chelsea where I expressed my concerns and reservations about the falling out between Boley and Igbali and I shared my very personal raw experience of obviously in 2009 when I stepped into the middle of the war between two 50-50 owners, Hicks and Gillette at Liverpool.

15:09Henry:I'm scarred by the Hicks-Gillette experience and I do think the Bigdad-Igbali-Boley dispute is hurting that football club. And all I will say is they couldn't come at it from two more different backgrounds. David Sullivan and Daniel Kratinsky. So I would put it this way, okay? Where can they find common purpose? And what would Daniel Kratinsky, in moving from 27 % to 40%, writing a check to the gold family, what would have been his minimum requirements for doing so? In my experience as a professional investor, I think the answer to that would be in what is now a power-sharing arrangement with David Sullivan, I think it would have been sort of investment 101, minimum requirement for Kratinsky to see the management team day to day strengthened in the football club.

16:05Henry:Because there are enough vacancies there. So who appoints them? Would you trust Sullivan to appoint those individuals? Well, particularly given that David Sullivan's trusted lieutenant for over 40 years and a very highly regarded grown-up chief executive in Karen Brady has now left. So at a bare minimum, Daniel Kratinsky would want to see a top-class chief executive replacing Karen to be the bridge between these two owners. And I would suggest, equally, a top-class sporting director because, as you know, and as our audience know by now, in my opinion, the optimum structure for a well-run club is to have hands-on owners available for rapid decision-making and approval, but with a day-to-day management team comprising an excellent coach, an excellent sporting director, and an excellent chief executive.

16:58Henry:Yes, Arsenal today have that structure. That's quite a counterpoint on Sunday, isn't it? It is. Now, and what I'm saying to you is I think that's what I would expect Daniel Kratinsky to require. This is a man who owns some of the biggest enterprises in Europe. He's made$10 billion as a professional investor, more than I ever made. I think he read the same textbooks. You need accountability. You need to invest in your people. Management teams drive value creation. And there's a glaring hole with Karen's departure. And there's a glaring need given this very unusual power sharing ownership structure.

17:35Henry:So I would expect sitting here in April 2026, in the next few weeks leading into this huge summer, and I want to talk about that summer, that there would be news coming out of West Ham on a permanent management structure. Why is it so important? Okay, let's go back to the numbers for a second. Whether West Ham stay up or go down, okay, this summer the club has a significant cash hole, a significant funding need. And that arises from the fact that they've been losing money, They have maxed out on the credit card. I think that's the best way to think about it. They have a debt facility. Sorry, explain that to me, because we've both been through the accounts.

18:25There are some worrying signs in there.

18:27Henry:There are. Okay. Why do we know that this summer there's a need for significant investment? Because the auditors told us so in the notes to the 2025 accounts, that section of accounts called the going concern test, where the auditors, the external accountants look at a business's commitments, their contractual obligations to spend money against their likely income, and where they see losses and where they see bank facilities already at their maximum, they will say to owners, we think without you putting money in, this business is in trouble. And we're going to say that in our accounts. And we need you to tell us you will support the business if you need to.

19:18Henry:And that's what we read in the going concern statement of West Ham. So, Henry, what that means in practical terms is that some combination of David Sullivan, Daniel Kratinsky, and the Goal family had to write to their auditors to confirm that if the club is running out of money, they will put money in. And the if point is what is fascinating. because the alternative to putting money in, a shareholder writing a cheque, is, of course, to sell assets to raise money. And it is crystal clear, reading between the lines of those accounts, Henry, that plan A for West Ham this summer is the sale of players to drive cash in to meet their existing liabilities.

20:08Henry:Even if they stay up? Yes, thank you. that's the key point this is from the 2025 accounts okay referring to this summer where the working assumption is you stay in the Premier League this is so important that West Ham fans understand this that if they go down all that happens is the cash need gets bigger can I say one thing about West Ham fans is that having spoken to them they are very aware of this they have because the fans organisations there they're sort of 10, 12 of them, they are very up on that. They've got accountants working for them. They absolutely understand this. But you are saying that they've got huge issues, regardless of what happens on Sunday.

20:52Henry:I am, which are made much worse by relegation. Let's just do that. And I'm sorry to be, you know, a grim reaper. You're going to go through the team sheet, just crossing out names, saying they're not going to be here next season. First thing I'm going to do is just, this business, as we said, it did 225 million of turnover. It lost over 100 million pounds. Actually, it lost about 3 million at the cash flow line. But as I say, with this huge amortization bill, lost about 100 million pounds. By my maths, and I think this is widely accepted, if they are relegated, then their revenues, the three key revenue items, it's relatively easy to compute how much the revenue goes down.

21:30Henry:My estimates are along the following lines. Television money, relatively easy. If they do finish in the bottom three, then their TV income this year will be about 120 million. It was 132 last year, and two years ago it was 170. But it's probably going to be 120 this year if they're third from bottom, okay? In their first year in the championship, that number drops to the parachute revenue of 49 plus about five of the EFL shared money, okay? So 120 plays about 55, okay? 65 million drop. Commercial. Just to give you one headline, a front of shirt deal in the Premier League with betting, which is what they've had.

22:11Henry:That's probably a 12 to 15 million pound a year line for West Ham United in the championship. They'll be lucky to get one and a half million pounds for a front of shirt. And then, of course, the third element is match day. And this is a fascinating aspect of the West Ham story. And again, I'm sorry to be so negative about this, but sometimes in business, what is brilliantly successful with one context can hurt you when the context change. You're going to bring tourists into this, aren't you? I am. I'm going to... We're talking match tickets here. We're talking who's going to go to games. Yeah, I'm concerned because what I think West Ham have done brilliantly is a purely commercial matter.

22:55Henry:They have essentially capitalized on the fact they are in London, on the end of a very good tube line in a massive stadium where if you are traveling to England from Tokyo, Beijing, New York, Seattle and everywhere in between and you fancy watching Premier League football, whoever you support, then you go on any tourist website and you can get yourself a shot at West Ham. Do you and I sitting here, having been going to football matches for 50 years, do we imagine that swathes of tourists are going to be buying that excess capacity in the EFL and that the demand from extremely well-heeled Premier League clubs playing away will be as great from the championship.

23:37Henry:I somewhat doubt it. So my real fear is that attendance volume in that stadium, if they're relegated, will be meaningfully down. And of course, so will pricing be down. And the combination of reduced volume at lower prices is a real hit to your matchday income. I think they do about 40 million of matchday income. that could be down 10 to 15 million quid. So add it all up. And I am saying to you, Henry, sitting here today, if they go down, turnover probably drops by 90 to 100 million quid from 220 to maybe 130. And the question is, can you cut your costs by the same amount to protect your bottom line?

24:17Henry:And the answer is, I can't see any scenario where you can cut your costs by that much. If every player has a 50 % relegation clause, the maths I've looked at would suggest you might save 50 million on your wage bill. Half of your loss of revenue, simple business math, 100 million drop in revenue, 50 million drop in costs, you lose 50 million more than you currently lose. And you lose good players though. And then how do you replace them? Well, this comes back to really, I think, the essence of the Kratinsky-Sullivan strategic plan going forward. They've cleared the decks. They're now in this power-sharing role.

25:04Henry:We've talked about the obvious priority to get the people right. Come on, give me some names. Who are they going to sell? Well, my point is simply that if you were a financial investor, and Kratinsky is, and if you were David Sullivan, who we've observed already, you know, hasn't been writing huge checks as an owner of West Ham, I am convinced that they would rather generate cash from selling players than injecting cash themselves. So Fernandes? Look, I think you can go through... Somerville? Yeah, I did some rough math and I'm not a sporting director and these are just my numbers. But you love maths.

25:40Henry:Okay, so when I went through it last night, I looked at the current first team squad and they've spent about£310 million assembling that squad. £310 million. By the way, it's well over that, as you said, in the last three or four years, but they've sold some players for big money. Kudis has already gone. Declan. And Declan, obviously. They didn't pay for Declan, but they've spent more. But the current first team squad, the squad available this weekend, cost over£300 million. Now, the£64 million, Well, the 250 million pound question is, what do I think that squad is worth today in a scenario where they're somewhere between needing to sell, being forced to sell, which is never great for top dollar.

26:29Henry:The number I got to was maybe 250 million on those players. And there's a long tail. So, listen, please don't shoot me down. These are just estimates. But Fernandes, 21-year-old, out of Southampton, paid, I think, just under$40 million. You might get$60 million. He's had a good season, perfect age and profile for the Premier League. That's a big number. So I'm trying to be optimistic here, not pessimistic. Gerard Bowen, in the books at very little, you tell me. Danny Dyer might have a word on that one. He would. Look, my point is, let's say they sold their four most valuable players. Yeah. Okay?

27:07Henry:Their four most valuable players in the transfer market, which probably are Fernandes, Bowen, Somerville, maybe Kilman. I know he's not had a good season, but paid quite a lot of money for him. Some people talk about Juve. If you talk to fans, they think he might be up for it. Tati Castellanos, a bit older, paid 25 for him. If they sold their five best players, I have them raising sort of 160, 170 million pounds, okay? Real money. But don't forget, don't forget. Remember, they've got a cash hole this summer. When you sell players, you don't get paid$170 ,000 on the nail. You get paid it over three years.

27:46Henry:So let's make it simple. Let's say they generate$180 million of player sales this summer. That's a big number. That's clearing out a lot of their current first team. But that is what,$60 ,000 up front? Yeah. It makes a big dent in the cash needed this summer. A big dent. Okay? Sell the whole lot, over£200 million, you probably clear out the need for the shareholders to put any money in. This is what I want our audience to focus on. It's like the classic business football trade-off. And I'd love your view on the pure football aspect of what we call churn could mean. But here's the dilemma. I'll set it up for you.