Understanding the Derby Stadium impasse: Council ownership, MSD loans and playing in another city
After months of suggesting he wouldn’t be a problem selling Pride Park, Mel Morris has emerged with the decisive word on whether Derby County can enter a new era under Chris Kirchner.
On Thursday, the EFL released a statement saying “an agreement to remove Derby County from the administration and ownership of Mr Chris Kirchner is nearing completion”, with source and sufficiency of its funding approved.
But with the stadium still under Morris’ ownership, the former chairman continues to influence the club’s future. In the statement, the EFL described Pride Park’s status as “the biggest hurdle to overcome”.
So, Athleticism clarified the state of play regarding Derby’s stadium and why Morris could derail Kirchner’s bid.
The problem began in 2018 when Morris, fearing he would be penalized by the EFL for breaching profit and sustainability rules, sold Pride Park to another of his companies for £81m. The sale saw Derby record a pre-tax profit of £14.6million for 2017-18, which facilitated an aggressive search for talent that summer. Manager Frank Lampard has agreed loan deals with former club Chelsea for Mason Mount and Fikayo Tomori, and Derby have completed the £5million permanent signing of Martyn Waghorn from Ipswich Town.
When the club failed to win promotion that season, Morris began to seek investment in the club. In January 2021, he said “four or five” serious investors had emerged from a pool of around 25, including MSD Holdings UK, the UK arm of US tech billionaire Michael Dell’s investment firm. Although MSD reportedly wanted to buy a stake in the club, it gave the club a loan in August 2020 following the COVID-19 pandemic, secured against Pride Park.
Burnley, Southampton and Sunderland have also taken out multi-million pound loans from MSD or their senior partners, also mortgaging their stadiums in the process. As other lenders moved away from football in response to the pandemic, MSD’s high-interest loans have become one of the few alternatives to banks – as banks traditionally offer interest-free loans. much lower interest, they are now increasingly reluctant to provide funding to football clubs. Of the four clubs, only Southampton have made public the extent of their borrowing from MSD, paying 9.14% interest on a £78.8m loan to £7.2m interest per year.
In January 2020, Quantuma, the club’s administrators, told supporter group Black & White Together that Morris was not currently charging rent on the stadium. Yet MSD had continued to lend money to help defray the costs, secured against the stadium, with Morris’ help and consent. Club accounts later confirmed the additional loan was £3.5million, bringing the total owed to £24million. Before Morris suspended payments for Pride Park, the original lease agreement was an annual fee of around £1.1million.
With the large debt owed to MSD, Morris wants to part with the stadium to whoever will take the club out of administration.
This is where the impasse lies.
Kirchner’s bid, reportedly in the region of £25m-30m, would rise to an unviable price for a club relegated from the Championship to Ligue 1 if they bought the stadium. By comparison, League One Sunderland, with the 50,000-seat Stadium of Light, a full squad of players and a Tier 1 academy, was recently valued at a maximum of £30m by the funding expert soccer player Kieran Maguire. Never mind in the Championship, where Assem Allam sold Hull City for a similar price to Turkish businessman Acun Ilicali. With Morris valuing Pride Park at around £20m, the set would cost Kirchner almost £50m.
Wigan Athletic were in a similar situation in 2020, after former Hong Kong-based consortium Next Leader Fund placed the club into administration. Like Derby, Wigan could not overcome a points deduction, suffering relegation from second to third tier. Unlike Morris, however, Next Leader Fund allowed its administrators, Begbies Traynor, to sell DW Stadium as part of the package for the club, a privilege Quantuma did not have. Morris allegedly provided written confirmation authorizing a potential preferred bidder to have the first option to purchase Pride Park. Still, with Kirchner wanting to rent, not buy, there’s no obvious answer to the stadium problem.
With the EFL requiring a lease or ownership of a stadium to allow Kirchner’s bid to buy the club to proceed, discussions considering potential alternatives began.
A possible short-term solution is that Derby could walk away from Pride Park until an agreement is reached between Morris and Kirchner. With the heart of the club in the East Midlands, the King Power Stadium in Leicester City or Meadow Lane, home of National League club Notts County, have been discussed. Another potential option is the bet365 Stadium, home of Stoke City, although this is not an ideal option given the distance between the clubs.
Moving from Pride Park is seen as a last resort – and conversations at this stage are preliminary – but with a need for resolution, finding a new home in the short term isn’t out of the question.
While this may satisfy Kirchner’s immediate desires to secure a home for next season, moving towns would be devastating to local Derby businesses. Unlike when Coventry City spent time in Birmingham and Northampton, the city is dependent on the club for matchday income and employment. The Coventry Building Society Arena, then known as the Ricoh Arena, made a steady income from events and Premier League rugby club Wasps RFC. If the football club abdicated Pride Park, it would leave one of the city’s main attractions without a goal.
To prevent Pride Park from gathering dust next season, representatives from Derby City Council are currently in talks with Morris over an offer to buy the stadium to secure a lease with Kirchner. To finance this option, the council would borrow from the Public Loans Works Board, a statutory body which makes loans to public bodies, including local councils, from the National Loans Fund. This is separate from council tax financing and could be a financially viable option provided the rental agreement covers interest on the loan.
These processes usually take months, and with Kirchner becoming financially responsible for the club from Sunday, both sides are keen to speed up the process immediately. Alvaston Councilor Alan Graves, the ward where Pride Park resides, said Athleticism he “would support any decision to buy the land to secure Derby County’s future”. Yet there are apprehensions from some council members who believe it is a tough sell to Derby residents, given the current cost of living crisis.
With differing opinions within the board house, they could struggle to agree by the end of the month, delaying Kirchner’s bid to buy the club. As the American businessman says he wants a deal within the week, time is running out to secure his takeover, with former Newcastle United owner Mike Ashley waiting in the wings.
(Photo: Nathan Stirk/Getty Images)