“Whilst the Company has been working hard to increase revenues, given the current level of investment in both fixed assets and the playing squad the Company relies and continues to rely on funding from the ultimate controlling party. This party has pledged its continued financial support for the foreseeable future.”
Not for the first time the fate of Leicester City is in the hands of one man. The club’s accounts reveal substantial losses and significant debt. The scale of both will be a cause of concern for many fans.
During the 2010/11 season the club recorded losses of £15.2m, more than double the losses recorded a year earlier.
The club’s debt falling due in one year has grown from £23.4m to £41.9m. Its staff costs to turnover ratio stands at an eye-watering 95.5 per cent.
That the club continues as a going concern is down to Aiyawatt Raksriaksorn, the Chairman and ultimate owner. Already this season a further £25.6m has been received from his company (Asia Football Investments) which “was used to invest substantially in the playing squad”. This will no doubt be added to the £28m Leicester City has already confirmed it owes the company.
Of course, so long as Mr Raksriaksorn decides to continue funding the club there is no immediate danger. Should he decide to sell in the current climate it is unlikely any potential new owner would agree to take over without significant write-downs on the debt.
But this is just one narrow aspect of the problem.
If, as is now looking increasingly likely, Leicester fail to win promotion this year they could be bound by a new set of Financial Fair Play rules next season.
The framework for 2012/13 has yet to be announced, but it likely to include some form of Salary Cost Management Protocol like the one already in place in League 1 and League 2. Under the system, clubs are not allowed to spend more than 60 per cent of their turnover on salaries.
The club’s sponsorship deals with King Power will help increase turnover and could ease the pressure of Financial Fair Play requirements. The club has not revealed the size of the sponsorship deal which saw the Walkers Stadium renamed as the King Power Stadium, but describes the its new sponsorship deals as “significant”.
But with parent company loans already £10m higher than the whole of last season, next year’s accounts are likely to provide yet further grim reading.
Only a Premier League pot of gold will turn this situation around quickly, and everyone knows it.
Some reporting has focused heavily on the £28m owing to Asia Football Investments within the next 12 months. Here’s what the accounts say:
“The parent company has confirmed that they will not seek repayment of these loans within 12 months of the date of signing these accounts if such payment would prejudice the ability of the Company to settleits other obligations when they fall due.”
In English, Leicester City will not be repaying the £28m anytime soon, not least because they have already received £25.6m in further loans.