As Bad As It Got: Leicester City and the Collapse of 2002

A Perfect Storm

On the 18th of October 2002, the High Court papers were issued. Midfielder Dennis Wise, sacked after a pre-season tour altercation that left Callum Davidson with a fractured cheekbone, was suing Leicester City for £2.36 million for wrongful termination. This legal action was the final push that sent an already teetering club into administration. The prospect of such a large payout scared off potential investors who might have staved off the creditors, leaving the club with no other option.

It was a dramatic fall from the optimism that had surrounded the club at the turn of the millennium. Under Martin O’Neill, Leicester had enjoyed four successive top-half Premier League finishes and won two of the three League Cup finals they reached. Filbert Street, with its capacity reduced to 21,500, felt antiquated and too small. The club’s ambitions were growing, and in November 2000, plans were unveiled for a new 32,000-capacity stadium. At the time, with Peter Taylor’s side briefly top of the Premier League, the £37m cost seemed manageable against top-flight revenues.

The decline, however, was as swift as it was brutal. A collapse in form at the end of the 2000-01 season, losing nine of their last ten matches, saw them finish 13th. The rot continued into the next campaign. After heavy defeats to Bolton and Arsenal, Taylor was fired, but his successor Dave Bassett could not halt the slide. Leicester were relegated in the spring of 2002, finishing twelve points from safety with just five league wins all season. They entered their new home, the Walkers Stadium, as a First Division club.

The ITV Digital Effect

Leicester’s on-pitch collapse could not have been timed more calamitously. Relegation stripped them of £22 million in revenue, just as they were saddled with £28 million in debt to an American pensions company for the new stadium. The club’s wage bill was a bloated £346,000 per week, a legacy of trying to maintain their status as a top Premier League side. The crisis was compounded by the spectacular implosion of ITV Digital in the spring of 2002.

The broadcaster’s collapse had a devastating effect on the finances of every Football League club. The subsequent television deal signed with Sky saw annual revenues for First Division clubs plummet by two-thirds, from £2 million to just £700,000. For a club like Leicester, already haemorrhaging money, it was a catastrophe. The entire internal economy of professional football stagnated. An attempt to balance the books by selling players like Robbie Savage, Gary Rowett and Matt Piper brought in less money than anticipated.

By October, the club’s value had fallen from £42 million to £2.8 million as its share price dropped to just 7p. An attempt to get players to accept a 20% pay cut failed, though they did agree to a wage deferral on the condition that the remaining senior players would not be sold to aid an immediate promotion push. The players were reportedly unhappy at being portrayed as greedy in the press, a lazy trope pushed by some in the media. Radio host Adrian Durham went as far as calling for supporters to boycott the club.

But it was too little, too late. The Dennis Wise lawsuit proved the final straw.

From the Ashes

With the club in administration, the true scale of the disaster became clear. Debts totalled £74 million, including £28 million for the stadium, millions owed to the Inland Revenue and in VAT, and transfer fees still due to Chelsea and Tottenham Hotspur. Two bids emerged to save the club, one fronted by Gary Lineker and another by former director Gilbert Kinch. Staff were made redundant and players accepted a 33% wage deferral.

Supporters organised quickly, with over 700 attending a meeting to form a Supporters Trust. The new ownership consortium, New Fox PLC, scraped together the £5m needed to get a deal done, aided by donations and investment from the Trust’s 3,200 members. There was even a brief, surreal debate about reverting to the club’s old name, Leicester Fosse, which was roundly rejected by fans holding up cards at half-time during a match against Wimbledon.

While supporters saw their club fighting against the odds, their rivals saw something else. Under Micky Adams, Leicester went on a fifteen-match unbeaten run from the end of January, securing promotion back to the Premier League as runners-up. Other clubs, most vocally Neil Warnock’s Sheffield United, complained that Leicester were gaming the system, clearing their debts through administration while retaining a squad strong enough for promotion. Leicester had broken no rules as they stood, but the affair had far-reaching consequences.

The following season, the Football League confirmed that any club entering administration would be deducted ten points. The Premier League soon followed with a nine-point penalty. Today, Leicester City sit third in the Premier League, their financial health secured. It is a world away from the crisis of 2002, a crisis that forced football to change its rules.