Grounds for Divorce

It came in a letter. A photocopied letter, not even an original. It came not from Bramall Lane, but from Bastion Place, Level 20, 5 Place du Champ de Mars, Brussels, the Head Office of Sheffield United PLC. It came in the name of "The Seldom Seen Kid" - Kevin McCabe, majority shareholder in Sheffield United plc, itself the 100% owner of Sheffield United F.C. In four brief paragraphs it cast a dark shadow over the start of Sheffield United's season at a point when the club's financial situation is provoking as much discussion as on-pitch affairs. With limited detail provided in the communication, fans are already trying to fill in the gaps.

The letter, reproduced below, informs shareholders oft he intention to transfer the Fixed Assets of Sheffield United F.C. to Sheffield United plc. Without further detail we are to assume that this will be the Ground and the Academy, as properties such as the hotel and business centre have been transferred in recent years.

How have we arrived at this position? Some disastrous boardroom decisions have seen United fail to hold a position in the Premier League, make disastrous managerial appointments, fail to bounce-back within the parachute payment period, throw money at the problem in the hope that high transfer fees and above average wages will attract players capable of lifting the club. The aforementioned over-paid players under-perform and, alongside a managerial merry-go-round, United are relegated to League One. With the club committed to a cost base of a decent sized Championship club and diminishing turnover, the club is subsidised by businessman and fan Kevin McCabe, who for several years has been looking for a back-seat or a way out. We don't bounce back at the first attempt and now face difficulty making the SCMP ruling for League One clubs.

With a combination of debt and equity (recent debt to equity conversions have reduced the debt owed to McCabe and his companies) tied up in United to the tune of around £50m, McCabe isn't going to recover that in any sale of the club. He will be lucky to get a third of that amount. Despite claims to the contrary in the letter, my first assumption was that, with this transfer, Kevin McCabe is securing his investment.

The lease costs charged to the football club will provide an income stream into the plc and a means of establishing a return on investment over a period of time. The question remains how much will the rental charges be? How will they be calculated? For what period are they in place?

We know of clubs where this situation has proved costly.Leeds have a rental millstone of approximately £1.85m a year round their neck. For other clubs, such as Crystal Palace, Wrexham, Rotherham United, the separation of ownership of club and ground has brought them to their knees financially. The difference here is that isn't a separate party owning the ground - well not until the football club is sold - as was the case at Wrexham and Rotherham. Neither is it in the hands of a British Virgin Islands company, like Elland Road is. That should, perhaps, give us some comfort.

The claim that it is aimed at making the football club more attractive for investors is a strange one. Why would you invest in a football club with no ground rather than a football club with a ground? What are you investing in? A loss making business with no real estate and an ever-decreasing amount of goodwill? People have suggested that things will be more comfortable financially as we have to limit spending on players' wages to 65% of turnover, ignoring the vast amount of other costs expended by the club and the clear difficulty the club is having in achieving the cap. The SCMP does not guarantee a break even business, never mind a profitable one. It is there to limit the extent a club overstretches itself, chasing success.

Even if someone sees it as a cheap investment with potential of making something back when Premier League status is achieved, there is plenty of proof that throwing money at it doesn't work; Leicester City, Cardiff City, Nottingham Forest. We have also proved this, given the size of our wage bill when relegated was north of £13m. And now, the Financial Fair Play rules further up the line in the Championship mean that benefactors pushing cash into wages and transfer fees is not going to be the answer.

Certainly investing in the property market is not what people want to do in a recession. So allowing potential investors to invest in the football business without the downturn in property prices affecting their investment negatively is a positive. It has the added bonus for shareholders in Sheffield United plc that they retain the position they had before. However, given the lack of assets and lack of ability to pump money with no guarantee of return, is it really that attractive a prospect?

Another view and one expressed by a fan of a club who have been down this route themselves, is that this has all the hallmarks of asset stripping prior to an administration. Thus protecting the valuable assets before wiping the slate clean, leading to a ten point deduction and a more stable financial starting point. Previously administration has never really been considered as a possibility - why would Kevin McCabe receive even less back on his "investment" than he would by an eventual sale? Yet now, what does he have to lose?

One train of thought could be that he has a view to another site, maybe Don Valley Stadium? Maybe the failure to achieve Premier league status and develop the stadium, alongside the knockback of failing to make the shortlist for the England World Cup bid stadia was a final straw?

As much as the idea abhors me, this possibly has more legs than you might imagine. The DVS to me is a bit of a white elephant in the city. Since it lost Grand Prix B class events to Gateshead/Birmingham and doesn't even attract National Championships at anything above school or University level, we have a top class, 25,000 capacity sports stadium that holds the odd pop concert, some Sheffield Eagles matches, was a temporary home to Rotherham United and is a base for local athletes to train. For a vast majority of the year it has 20,000 unused seats, under-utilised potential and a running track.

Yet to someone interested in an easy development, it is has decent transport links with the tram network and being close to the motorway,it requires limited development to take it to a similar or higher capacity than Bramall Lane. Why would they worry about the running track, the distance from the pitch? Meanwhile the Bramall Lane site already has an office dand hotel evelopment on it and sits less than a mile from Sheffield city centre. By no means prime development land, but still an attractive prospect.

Having considered all these scenarios and more I think I would be more worried if the club was in the hands of a person who doesn't profess to be a Blade, Mike McDonald anyone? But in the absence of any detailed statement suspicions are going to be aroused. Not least on the back of mooted cost -cutting and redundancies at the club.

Fans are not asking for a multiple page report on why this is being done and the implications for the football club, but surely a couple of paragraphs or a page at the most would suffice? All this letter has done is create a lot of worry across the fan-base, with varying opinions and perceptions of what it all means and many questions unanswered. I have shared a few of those possibilities here. Is it not asking too much to have these questions answered in Layman's terms?

Will there be clauses/agreements in place to ensure that the ground is to remain in use for football in perpetuity?

Is the rent a peppercorn rent or commercial rent?

Will the club remain responsible for the upkeep and maintenance of the stadium and academy?

Will the rent be charged until his debts are paid off?

Will the rent be seen as income for his family after debts are paid off?

Is there an intention to sell off the land for developmentat any point in time or their interest in the plc?

 

Will a potential buyer of the football club have the opportunity to move the club elsewhere or will it be a condition of any sale that United remain at Bramall Lane?

In the ultimate irony, the letter from Brussels has a statement across the top.

"Bramall Lane -The World's Oldest Professional Football Stadium"

Let's hope it is a claim to fame we can still make in 10 or 15 years' time. For now, none of us can be too sure and all we have are basic facts and supposition.