Midlands Week: Derby County – Rams to the Slaughter

by | Mar 19, 2021

On the pitch, it had at least briefly looked as though things were starting to get a bit better. A run of six wins from eight matches from the middle of February on seemed to have settled things a little, a blessed relief for Derby County after they spent all bar a couple of weeks of the first half of this protracted season in the Championship relegation places. At the time of writing they’re in 19th place in the table, but with three draws and three losses from their last six matches, they’re only eight points from safety and could yet get pulled back into the mire if they don’t start winning matches again soon.

In 2021, though, the fading takeover of the club itself has been occupying minds just as much as the performance of rookie manager Wayne Rooney, and the news this week that the bid has collapsed only raises further questions. In the middle of January, it was reported that the players hadn’t been paid in full. It was later confirmed that all had received a flat payment that month, meaning that some players had been paid in full, while others still had money outstanding to them. The company accounts are also now nine months late to be filed at Companies House, which is never a sign of a healthy state of affairs within a company.

The takeover, of course, was supposed to fix all of that. Bin Zayed International (BZI), a company apparently both fronted and backed by Sheikh Khaled, had been on the brink of buying the club for almost five months. Terms had been agreed and the EFL had ratified the deal. It was expected to be a quick takeover, in relative terms. Somewhere, however, it stalled. Completion of the deal was so repeatedly referred to as “imminent” that the word became something of a standing joke. But with no movement on completing the sale and no information being given on what was going wrong and why, rumours started swirling that the deal was in trouble.

In August, it all looked so much simpler. In 2018, owner Mel Morris exploited a loophole in the EFL’s financial rules – which allow clubs to only make an operating loss of £39m over any rolling three year period – allowing them to balance a profit from the sale of a fixed asset against their annual operating losses. A new company owned by Morris paid £81 million for Pride Park, which created a one-off profit of £40 million, turning the club’s £25 million pre-tax loss into a £15 million profit. The EFL contended that Pride Park had been deliberately overvalued, and in addition to this they also charged the club with using a non-standard process for reporting the value of players as assets on their balance sheet. They got off on both charges in August after appealing. Sheffield Wednesday weren’t as lucky. They were eventually deducted eight points, and now sit second from bottom in the table.

The EFL have indicated that they wish to appeal the decisions in the Derby case, but this is a highly complex case and the appeal was never likely to be heard quickly. But even this isn’t the end of Derby’s financial complications. Three weeks before they won their appeal, the company that now owns the stadium took out a £30m loan through MSD, the investment capital arm of Michael Dell, founder of the Dell Computers company.

This was secured against Pride Park, and was followed in October by a further loan being taken out, this time secured against their Moor Farm training ground. The amount borrowed is not known and neither is the interest rate, but we do know that Southampton were paying 9.14% interest on a £78.8m loan taken out last June. It seems unlikely that Derby County wouldn’t be considered a greater financial risk than a Premier League club, so it seems unlikely that their interest rate would be lower. But that’s mere speculation.

The more we unpeel what we know of Derby County’s financials, though, the less attractive an investment they seem to become. They no longer own their ground (which has already has a debt secured against it), they’re losing money hand over fist (so far as we know – they steadfastly seem to be refusing to publish their annual accounts), and the team is fighting relegation into the third tier. The first team has scored just three goals in their last six games, with two of them coming on Wednesday night. But for the last few months there’d been one get out clause. The takeover. Sheikh Khaled would make everything okay. But now it’s off, and Derby County are back to square one. So what the hell went wrong?

Mel Morris ended negotiations with Sheikh Khaled after Khaled failed to meet a final deadline to complete the deal. After nearly 12 months of talks, Morris is understood to have told BZI they had until Monday to deliver the necessary funds, and when this didn’t happen, it left the club with little option but to pull the plug on the deal altogether. After all, it had been originally scheduled to happen in November and was then rescheduled for Christmas Eve. With wages due at the end of the month and cash reserves reportedly running low, that Christmas Eve deadline was all-important, and when it was missed, it was suggested that wages went unpaid in full to try and hurry the deal along.

But this was the third time that Sheikh Khaled has failed with a bid to buy a football club, following previous attempts with Liverpool and Newcastle. It’s easy to see why this season would be a bad time to buy an EFL club. With no crowds allowed money is in short supply, and Championship clubs have wage bills that run to hundreds of thousands of pounds per week (17 out of the 24 have a wages to ration turnover in excess of 100%), but without the huge comfort blanket of Premier League television money. It’s not difficult to see why a prospective new owner might get cold feet about buying an underperforming Championship side with an over-inflated wage budget, who have just sold their ground in order to balance the books from previous seasons’ misadventures.

This, however, wouldn’t have been an issue in the case of Liverpool or Newcastle United, so why does Khaled keep getting into these positions and then pulling out? In December, Matt Slater reported in The Athletic (£) that law firm Pinsent Masons obtained a High Court judgment against BZI in September over half a million pounds in legal costs relating to the failed bid to buy Newcastle United. There may be a perfectly legitimate reason why this remains unpaid, but with Pinsent Masons having already publicly stated that they will be seeking to enforce the debt if it’s not paid, the question of why this hasn’t been paid, especially when we consider everything that has been going on at Derby County, is a particularly tantalising one.

The answers to these questions remain unknown because nobody seems to prepared to talk about them. Shiekh Khaled hasn’t spoken about it. Neither have Derby County. Furthermore, there doesn’t seem to be any back-up plan following the collapse of this takeover and there’s still a quarter of this Championship season left to play. In an interview with the Mail last month, Morris was candid about serious health issues that he has faced, both related to Covid-19 and otherwise, and about the fact that the sale of Derby County is costing him personally £200m. With the current owner in poor health, the ground having been sold to another company who have already slapped a debt against it, it doesn’t seem unreasonable to be asking what happens next.

In the immediate future, the team still needs results if they are to stay up. It’s true to say that if they can match the performance of the teams below them until the end of the season, they’ll be safe, but the recent downturn in form is a concern. At least they showed a little fire in their last match, at home to Brentford on Tuesday night. Brentford were two goals up by the midway point in the first half, but two second half goals from substitutes Lee Gregory and Louie Sibley rescued a point. That both the goals were scored by substitutes reflects well on the manager’s ability to read the game.

And how about the club’s finances? Mel Morris won’t let Derby die, but still… what happens next? Why haven’t the accounts been sent to Companies House? They’re nine months late. And then there’s the matter of these loans from MSD. Who’s ultimately going to be paying for them? Mel Morris or Derby County? Because they’re certainly not one and the same thing. In a state of flux again at the wrong time, the only thing they can do for now is focus on staying in the Championship. Sheikh Khaled has gone, and considering the way that this has all played out, Derby supporters could be forgiven for thinking that, despite the apparent lack of a back-up plan, they’ve dodged a bullet. But that’s the past, and nobody can say for certain what the club’s future holds.