By Jason McKeown
The next time you walk past the Valley Parade office block – home of the club shop and ticket office until this summer – allow yourself a small grin. Since it was built in 2000, the two storey building has represented both the very bad (the vanity of Geoffrey Richmond setting up a club shop bigger than Manchester United’s) and the very good (the magnificent Bantams Past museum celebrating Bradford City’s history and of course, the wonderful One in a Million cafe) of the club. But when you look at the bottom line, black-and-white balance sheet of the football club, the building has come to represent something of a monkey. One which is now firmly off City’s back.
Come September, this building will be a free school, with the club shop, ticket office booths and (hopefully) museum relocated inside Valley Parade. The Board has sold the premises and made a sizeable profit, which according to recent reports is being reinvested into the team. The deal represents a rather smart piece of business by the two families who jointly own the football club; especially given the financial risks they subjected themselves to in the process.
It was just over a year ago now that the very future of City playing at Valley Parade was in severe doubt. Another disappointing campaign on the pitch, with the Bantams only avoiding relegation on the penultimate weekend of the season after starting out as promotion favourites, had seen further debts build up which were proving hard to sustain. The three-quarters of a million pounds rent which, every year, the club had to find to pay its two landlords – the Gibb Family Pension Fund, who owned Valley Parade, and Prupim, who owned the office block and car park – was a huge drain on resources. A threat to renege on these long-term lease commitments and set up camp at Odsal was carried out in the public spotlight and with apparent little regard to the potential consequences of such a unilateral move. Gordon Gibb, the supposed villain of the piece, did not blink. But at least Prupim agreed a deal that enabled City to remove part of the burden.
A burden which has proved huge over the years. History has shown that the decision in 2003 by Gibb and Julian Rhodes to sell Valley Parade to the Gibb Family Pension Fund and the offices to Development Securities (who later sold them to Prupim) was a desperate but short-sighted one. The mortgage lender, Lombard, was on the club’s back regarding the huge sum it was still owed for the mortgage on the main stand, and with cash flows running out and Administration 2 on the horizon, the-then City owners perhaps did not have much choice other than to sell these assets and rent them back. However, the long-term result was inflexible lease commitments for the next quarter of a century. In regards to Prupim, this amounted to City paying approximately £370,000 a year rent, which over seven seasons (2004-2011) will have cost the club somewhere around £2.5 million alone. A similar amount would also have been paid to the Gibb Family Pension Fund.
So last summer Julian Rhodes, his dad Professor David, and Mark Lawn bought the office block, car parks and existing leases (the ones with City) back from Prupim in a deal that Land Registry records show to have cost about £1.3 million. The capital was provided by the owners from their own pockets. In fact, in Mark Lawn’s case, he apparently took out a second mortgage on one of his properties to fund the deal. That is a huge personal financial commitment to make, with a great element of risk that taking on the property and leaseholds from Prupim would cost them deeply financially. In effect the three shareholders were not buying land, but rather a business from which they would have hoped to recoup their considerable outlay. But in this business, City were Prupim’s biggest contributing tenants and this was where they were making most of their money. The business was basically losing its best customer, with revenue streams needing to be found from somewhere else.
Rather than the ownership of this land and the building being transferred to the club, the Rhodeses and Lawn set up a new company called BC Bantams Limited, stating it would eventually become the holding company for the entire football club. Seasoned watchers of such financial matters have commented to Width of a Post that it didn’t make sense to transfer City’s ownership into this new company, and to date this has not happened anyway. BC Bantams and Bradford City Football Club Limited continue to operate as separate companies.
What this did create, however, is a scenario where the club, Bradford City Football Club Limited, were in effect the tenants of BC Bantams regarding the rental obligations. The club was given 12 months rent-free (as opposed to Lawn and Rhodes of Bradford City Football Club Limited paying rent to Lawn and Rhodes of BC Bantams Limited) which saved City a substantial amount of money. Perhaps it was because of this that we could afford to sign Andrew Davies, as well as spend a considerable figure on other loan signings, last season.
Meanwhile, the chairmen have managed to successfully arrange a deal to sell this land and office block, which will be turned into a school. The figure for this sale has so far – and may never be – made public, but Width of a Post understands that the profit which will be made on the initial £1.3 million outlay is substantial. Probably enough to cover a year’s rent and all the business rate costs the club still has to meet on the stadium (which demonstrates the scale of the problem that still remains); or to look at it another way, enough to pay for the annual cost of last season’s short-lived Development Squad initiative for well over a decade.
This profit is instead going to be used to sign better calibre players, and an all out assault on promotion next season. We’ll come back to this point in a moment, but first let’s stick with this deal. Width of a Post understands that, due to some very clever – and very legal – tax planning (which might go some way towards explaining why BC Bantams Limited was set up in the first place), a significant part of the profit generated from the sale of this land is to be free from capital gains tax by allowing Bradford City the rent free period on its leases. This means an even greater level of ‘real term’ profit (ie money left over after tax charges).
It is not clear if the three owners of BC Bantams Limited intend to pump the full profit they have made into the club or keep some of it for themselves. Frankly, you could say it is none of our business, and you can also make the very important point that – in return for the capital outlay (re-mortgaged house) and level of risk to their personal and family wealth, which the trio took on, they deserve to gain some personal reward. What’s more, the club will never have to worry about those rental payments ever again. Automatically, before any of the profits from the sale are invested into the club, City are around £370k better off a year, forever.
If the Rhodeses and Lawn do intend to put every penny of profit into the club, then they deserve a lot of credit from supporters. Whatever we might say about their failings in running City over the last three seasons, they clearly do care and have, generally, put the club before their own personal gain. That should not be underestimated or forgotten.
But – and there is always a but, it seems, with City – the future of the Bantams is not suddenly rosy and there are growing issues. The club’s accounts for 2010/11 shows that since coming out of the last Administration, losses have accumulated to almost £4 million over this period, and although the accounts for 2011/12 will not be available for public consumption until next April, we can hazard an educated guess that further losses were made over the most recent 12 months. Clearly this is not sustainable and – as great as it may be to sit back and welcome a bunch of exciting new signings this summer – there is very credible fear that the club is taking another gamble on promotion. And the consequences of failure could prove significant.
Ever since the club came out of administration for the second time in 2004, it has continued to run up losses. For the three seasons of League One football (2004-2007), City had accumulated losses of a little over £3 million (blame those high rent costs for much of this, as spend on players was very low over this period). Despite the windfall of the Fabian Delph monies, the accumulated losses currently stand at just under £4 million. When Lawn first bought shares in the club in 2007, it was vital for the future of the club. As was the £1 million loan he made in March 2009, which – according to the last accounts – is still yet to be repaid at all (with Lawn receiving 9.5% interest – £95,000 – a year). Without further investment, if Lawn were successfully to demand his £1 million loan back, the club would likely become insolvent and thus have to go into administration once again.
Yet those losses of the last few years cannot continue forever, and would suggest the club is running out of money. On paper, we are living beyond our means. As such, you and I might argue that the windfall from the school deal could be used better than signing (for example) 34-year-old Andy Gray, though the lengths that the chairmen went to in order to deliver this profit mean they are fully entitled to spend it how they see fit. They clearly have huge trust in Phil Parkinson and a belief that – if he is given the tools he needs – he will deliver the promotion needed. Get some momentum and this club can go places, and the huge costs which prompt headaches now would become less of a problem in the future. Speculate to accumulate is the mantra for next season, and we have to hope that this time the strategy works out.
But if doesn’t, there are genuine reasons to feel worried. We cannot afford to keep standing still as a football club, because over the last few years we have not been able to live within our means. This might prove to be a very exciting summer as we welcome some stellar names, but I just hope that we don’t experience a very opposite feeling a year from now.