Will Deep Debt At Deepdale Leave Preston In Deep…?

Will Deep Debt At Deepdale Leave Preston In Deep…?

By on Jun 4, 2010 in English League Football, Finance, Latest | 3 comments

Before the news broke of a “possible offer” for Preston North End, I couldn’t quite understand why “leisure tycoon” Trevor Hemmings hadn’t bought the club months, maybe years ago. He has, after all, paid for it, many times over. Preston North End, founder members of the Football League, have been spending more than they have been earning for a very long time. They are the sort of club Premier League supremo Richard Scudamore might label a “victim” of the “debt-is-bad” culture which he believes is wrong, for reasons which are not obvious on Planet Earth. But they have been increasingly financially reliant on Hemmings since he became Preston North End plc’s largest individual shareholder in 2004. And their financial decline can be charted by his ever-increasing number of loans to the club.

The loans started as “funding for on-going working capital requirements.” But in more recent months, as Preston’s financial position became more perilous, the announcements got more specific. They read: “The loan will be used by the Company…” to “meet the cost of the players’ wages” or “to make payments to HMRC in respect of PAYE tax deductions and National Insurance.” Each concluded with an increasingly weary “the total amount to date that has been advanced…now totals (insert figure)…including accrued interest.” And they served as a build-up to the almost inevitable winding-up petition from HM Revenue and Customs, which appeared at Deepdale on 14th May. This was a curious development, as the £400,000 for which HMRC were petitioning was 20 days overdue, which, given that some clubs owed back taxes in groats, seemed a bit quick off the mark.

It could have been, of course, that HMRC had been regular Preston-watchers, had seen Hemmings stump up £450,000 in March for tax and national insurance, hadn’t seen him do so in April and thought they’d better not take any chances. This certainly appeared to be HMRC policy, as the Lancashire Evening Post newspaper intriguingly reported that “it is understood several Football League clubs were hit with similar orders by HMRC at the same time…but Preston are the only PLC of that group of clubs and have therefore had to go public due to stock market rules.” Anyway, Hemmings, who isn’t a director despite his shareholding, has made an offer for the club, using a new company, Deepdale PNE Holdings Limited, to offer 5p per share for total control. The offer only values Preston at £165,000, which would be considered excessive only in Blackpool. But as the money he’s recently loaned now “totals £13.28m, including accrued interest”, he can hardly be accused of getting anything on the cheap.

Many Preston fans will have screamed “about time, too.” He’s been financing their operation, on and off and to varying degrees, since his eight years on the board between 1974 and 1982. And he’s rich. Seriously rich. The 74-year-old “former bricklayer” even owned Blackpool Tower, for a bit, as part of his “extensive property portfolio.” And for about half-an-hour in 2008, he was reportedly Lancashire’s “first billionaire”, thanks to a “string of big-money” property deals, although, as they were “property” deals, he wasn’t reportedly a billionaire for long. After Preston’s flotation on the Alternative Investment Market (AIM) in 1994, Hemmings was a single-figure shareholder of minimal obvious importance, with the club owned by the then-generally respected Baxi Partnership, a significant local employer with a significant employee ownership.

Hemmings increased his holding to 12% in June 2002, seven days before Baxi were bought out by two local businessmen, Derek Shaw of the sitcom-sounding Ribble Valley Shelving and Steve Jackson of Newreg.com, an on-line personalised number plates business. In September 2004, Hemmings became holder of the largest individual shareholding, at 28.02%. He was 1.98% short of having to make a full takeover bid. But he claimed he’d bought the shares “solely for investment purposes,” using his company Guild Ventures, which was “an investment company that has stakes in a variety of companies for investment purposes.” Or at least his “spokesman” claimed, as Hemmings himself rarely ventured any direct opinions, and he remained in the background as the self-styled “Friends of Preston North End” (FPNE) ran the show. Shaw and Jackson were the major “friends”, chairman and, eventually, chief executive alike. And between them they held over 40% of the shares.

Occasionally a stock market announcement would trigger a slew of “mystery bidder” newspaper headlines and, eventually, a new “friend” to join what was now a consortium. The inevitable “property boss” Paul Wilkinson increased his shareholding to 12% in 2007, and became labelled a friend. FPNE also included chairman of shirt sponsors Enterprise Ltd, Owen McLaughlin, when they agreed to buy Jackson out of the consortium that summer. The deal left Jackson with a 6.53% shareholding, compared to FPNE’s 20.86% and Shaw own 22.38%. But it was the fate of the 6.53% which attracted most attention. Amid all the shareholding realignments, there was one constant, North End were losing money – they would eventually announce £7m losses for the financial year to June 2007.

“Flamboyant businessman” Jackson, the personification of a personalised number plate, subscribed to the “promised land” theory of football economics, that promotion to the Premiership was the solution. He believed “£3-5m” would do it and in July he “found” a buyer for his 6.53% who was “willing to enter into a pro-rata agreement (to) invest £2m into the club.” The idea was that the “four” major shareholders would match this investment, relative to their larger shareholdings, which Jackson claimed equated to £24m “repayable with a small premium if the club reaches the Premiership.” Jackson said, correctly, that this was “not an unreasonable formula, when you consider the prize.” Yet the plan had obvious flaws. His investor was “one of the younger members” of a “local wealthy family” who was “keen on football.” But “younger” meant “teenage.”

Eighteen-year-old Hussain Patel was Jackson’s man or, rather, boy. He was a member of the undeniably local and undeniably wealthy Patel family, whose property portfolio, according to the Evening Post, included “large chunks of Preston, Lancaster and Central London” and whose patriarch, Arif Patel, had made millions from clothes manufacturing. Hussain was keen on football, and a Preston fan. But he was… eighteen, and Jackson’s agreement must have been written in invisible ink, as Hussain soon downgraded the family’s interest in investing to “definitely up for consideration” and something “we are going to discuss as a family.” Shaw had long claimed that the major shareholders would stand aside if someone “was willing to invest” in the club. But he quickly dismissed Jackson’s scheme as “sounding great… if you live on fantasy island.”

His scepticism was well-founded. Young master Patel did his A-levels before suggesting a “power meeting” of the major shareholders to “decide on something which shows the way we want to see the club going.” This spectacularly vague agenda gained favour with fans becoming increasingly disgruntled with consistent promotion play-off failure. But, like everything else the youngster suggested, it would “have to be discussed with the family” (mealtimes round the Patels must have been fun). Nothing significant came from this, or any, direction, even after Shaw resigned as chairman because of the targeted abuse he was receiving from fans. Most observers saw the move as an attempt to galvanise potential investors into action. It was. But it didn’t.

Shaw told the December 2007 AGM that the Patels “might be able to put some money into the club in early 2008” but otherwise the message was that Preston would “have to compete with the resources available to it,” which soon meant gate receipts, transfer profits…and loans from Hemmings. In the following 12 months, North End borrowed £7.1m from major shareholders, £6.2m from Guild Ventures and £900,000 from FPNE. This was not only to buy new players, but also, as finance director Kevin Abbott confirmed, “to pay the wages of our staff.” Thus Preston’s financing took on a familiar pattern, with loans from Guild Ventures, “to fund on-going working requirements.” Shaw warned the 2008 AGM that “we cannot be expected to rely on people to bail this club out.” But with player wages continuing to be in inverse proportion to gate receipts, and Preston’s points totals failing to keep up with those wages, the club continued to be reliant and repayment deadlines continued to be put back, without the slightest expectation that even they would be met.

The accounts to June 2009 contained the dreaded reference to “a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern.” “In common with many clubs in the Football League championship,” Shaw admitted in his Chairman’s statement, “the club is likely to continue making operating losses,” which was depressing enough without exactly the same warning appearing in chairman’s statements throughout the Championship (e.g. Watford). “Detailed cash flow forecasts to June 2011” offered more of the same, noting that “even with the additional facilities above,” Preston’s cash shortfall would be £3m by November 2010. And HMRC’s winding-up petition was the catalyst for Hemmings’ takeover bid.

As a benefactor in all but shareholding, Hemmings has personified a business model that would be welcome in Richard Scudamore’s Premier League. But Hemmings’ sporting history reveals its pitfalls. In 2004, Hemmings withdrew his benefaction towards Chorley Lynx RLFC, which was losing £1,000-per-week. Under various guises, the former Blackpool Borough had lived a nomadic existence which had taken it to Deepdale itself in 2006 when Preston bought the operation and rebranded it “Lancashire Lynx.” Preston withdrew their backing in 2000, and the club only re-emerged, as Chorley Lynx, because Hemmings stepped in. Two weeks after Hemmings’ withdrew funding, the club…folded, with the remnants now existing as Blackpool Panthers.

It is perhaps labouring a point to suggest Preston are on the same road, although Hemmings’ offer document noted, darkly, that “the pre-tax loss in 2009 was £9.1m, against a turnover of £8.5m.” And Hemmings has already said, via his ubiquitous spokesman, that he is only a “rescue package and a short-term solution to provide financial stability” while “longer-term investors” can be found. Such is Hemmings wealth and local reputation for philanthropy that you would give him more chance of finding these thus far elusive investors. So the 49% of current shareholders yet to sell him their shares should do so, not least because Hemmings will withdraw funding if not enough of them do so (“enough” being at Hemmings’ discretion).

But supporters see Hemmings as the saviour, and the clubs path to both the Premier League and long-term salvation. And however hard Hemmings’ spokespeople may try, it is going to be difficult to shake off that expectation. As one supporter put it, “clubs at all levels of the football league need a benefactor and Preston are in that position.” Richard Scudamore, if no-one else, will be pleased.

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    3 Comments

  1. I get so weary hearing of these tales……….

    Fan ownership , the only way forward

    Jertzee

    June 7, 2010

  2. Hang on, yet another club being run along the lines of Alice in Wonderland economics? Is there no end to this madness?

    NottyImp

    June 8, 2010

  3. How about extending the UEFA financial rules to the Premier & Football League?

    oftenscore6

    June 15, 2010

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