Part 1 - Part 3 - Part 4 - Fixtures

The financial crisis that engulfed Leeds United Football Club at the start of the 21st Century is one of the most amazing stories ever of money in football.

The April 2004 edition of Four Four Two magazine contained a detailed and in depth analysis of the story by Chris Britcher, which painted a tale of misjudgement, negligence and ineptitude beyond belief, and is reproduced here in full, sickening detail.

February 5 2003. In the upstairs of a crowded Leeds city centre pub, Leeds United fans have gathered to hear news of the club's emerging financial dilemma. Dr Bill Gerard, a professor at the Leeds University Business School, has been invited by the Leeds United Independent Fans Association to provide his expert analysis of the problem and address the audience.

The crowd of several hundred are concerned. The team's form has slumped and key players are being sold. What is more, the financial situation at the club is becoming increasingly serious.

Gerard is a season-ticket holder and small shareholder in the club he has followed since moving from Glasgow in the '70s. His expertise in economics, and football finance in particular, has made him well qualified to explain what is going on.

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Just before he is due to appear, he is handed a letter, signed by the club's operations director David Spencer. Having worked for the club on a number of issues over the years, he assumes it is reminding him to respect confidentiality agreements he has signed. Gerard, who had no intention of breaching such terms, duly opens the envelope.

To his surprise, it is not a gentle reminder, but a stark warning: should he decide to use this platform to suggest that the sale the week before of Jonathan Woodgate to Newcastle United was a result of financial problems at the club, he will be sued.

Gerard is stunned and insulted. His speech is centred on publicly released documents. His speech will pull no punches. His speech warns of impending apocalypse.

One year on, events have proved him absolutely right. So just how did Leeds United end up in the perilous position they find themselves today?

In 1996, thanks to the summer's Euro 96 tournament, the football bubble was still being inflated. With Sky money buoying the marketplace, and transfer fees promising high returns on top talent, owning a leading football club seemed like route one to untold riches - especially if it was led by successful businessmen who could exploit the numerous revenue streams available.

Yet for Leeds United the past three years had been a struggle. The Championship-winning team of 1991-92 had not only failed to build on victory but slipped away.

The fans were growing restless, and after Leeds lost 3-0 to Aston Villa in the 1996 Worthington Cup final, the man who had led them to Championship glory, Howard Wilkinson, found himself being booed by Leeds fans at Wembley.

Later that summer a small but ambitious media rights company called Caspian, whose portfolio included the rights to Paddington Bear and The Wombles, identified Leeds as a perfect example of where a bit of investment and a buoyant market could result in healthy returns.

After checking out a number of other clubs, Caspian chairman Chris Akers and his partners, Jeremy Fenn and former QPR chairman Richard Thomson, presented the club's owners Bill Fotherby, Leslie Silver and Peter Gilman with a £16m takeover proposal. The deal was done.

Caspian set about revolutionising the club, heralding their arrival as a 'new dawn' for the club. Said Fenn at the time: "The club wasn't in the best shape when we bought it. Like a lot of football clubs it was populated by people who were friends of friends; there was no discernible management structure."

Although many fans were anxious about the takeover, the Caspian plan was grounded in sound business sense. Build the club up slowly but surely, increase revenue streams off the pitch by investing in Elland Road, and then allow profits to be sensibly spent on building a strong team both on the pitch and in the boardroom.

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That August, Caspian took the club public, changing its name to Leeds Sporting to reflect a multi-faceted future. Floating on the stock exchange is a good way of raising funds in the short term, securing equity in the long term and becoming more transparent: a public limited company must publish its accounts and make key news and developments that may impact on its share price available to the marketplace. As a result of the greater transparency and assumed tighter business discipline, banks and lending institutions are more likely to do business. It also gave Leeds United fans the chance to own a piece of the club - albeit a sliver.

Said Caspian chairman Chris Akers at the time: "I took the view we had to build a broader base and only those clubs which had the development potential on site would be capable of that. They had to be big sites, big brands with the opportunity to build something beyond pure football." For Leeds that meant turning the Elland Road site into a major commercial hub, with a 250-bed hotel, entertainment and leisure facilities, a conference centre and even a hockey pitch to expand the sports platform.

But for many fans, Howard Wilkinson was not a name that sprang to mind when you considered the idea of a new dawn. Despite assurances, his time at the club was running out. When Caspian first took over it gave him a modest kitty to prepare for the 1996-97 season. Among those Wilkinson lured to Leeds were a young Lee Bowyer from Charlton for £2.6m and goalkeeper Nigel Martyn for £2.25m from Crystal Palace. Both were to play key roles for the club. One would be instrumental in one of the key moments in the club's long history and play a significant role in the biggest crisis it has ever suffered. The other just kept goal.

But the new season continued in much the same vein as the last, and after a thumping 4-0 home defeat by a Cantona-inspired Manchester United, the P45 was dug out of the filing cabinet and presented to Wilkinson. George Graham was drafted in to take the reins - his first managerial position since leaving Arsenal in disgrace following the bung scandal.

Though Graham transformed a leaky defence, his team closed up at the other end, too, scoring just 28 goals in 38 league games and ending in 11th place. The fans, sensing this cautious approach was worth their patience, remained positive.

Off the pitch, the new management team were taking things equally cautiously. Caspian knew a sensible approach to the books would provide a firm footing for investment and scope for redevelopment of the Elland Road site. They had also appointed a long-time Leeds United board member to the position of chairman. Peter Ridsdale, a man well known locally, grasped his new position with gusto. Finally he was in a position to really shape the future of his beloved Leeds. He was charismatic, enthusiastic and had an uncanny ability to make people see things his way. A former managing director at Burton's Top Man chain, he was vital to securing sponsorship from the retail brand. He sold himself to the supporters as a life-long fan, but crucially one with strong business sense in whose hands the club was safe. With the added promise of developing a team of which the fans could be proud, he had little difficulty winning them over.

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The 1997-98 season saw Graham's dour defensive tactics change and suddenly Leeds started looking like a team going places. Doubling the previous season's goal count, Graham steered them to fifth in the league and a UEFA Cup spot.

It was just what the new regime had hoped for. The club got a bigger slice of Premier League sponsorship and Sky revenues thanks to their final position, and had Europe to look forward to. It was all money in the bank. And the youth system was producing some seriously mouth-watering talent under the protective wing of former playing favourite Eddie Gray.

At board level, it was all painting a very positive picture for a management team spearheaded by Fenn as finance director and Adam Pearson as commercial director, both well-respected businessmen with a key grasp of the basic 'grow slow and steady' strategy. (Akers had already taken a back seat to move on to his next project - exploiting the dot.com boom with his Sports Internet Group.)

They set about trying to forge a real brand value in the Leeds United name - a common mantra on the administrative side of modern football clubs and not an easy task for a club like Leeds. With a rogue element of supporters who had dragged their name through the mud on numerous occasions, for many the Leeds team of the '70s with its 'bite-yer-legs' reputation still epitomised what the Yorkshire club stood for. But if the hardly squeaky-clean Manchester United and Liverpool could generate sizeable incomes from enhancing their image and global appeal, Leeds reasoned they could too, and started wooing businesses and investing in community projects in a bid to establish Brand Leeds. Playing the community card was not only a wise move to get more fans through the turnstiles and spending more money on club merchandise, but also ensured a positive reaction for ambitious stadium plans in the pipeline - a crucial part of its long-term strategy.

On the pitch, meanwhile, the 1998-99 season was disrupted early by the departure of George Graham back to north London with Spurs. As assistant to Graham, David O'Leary had shown promise after assuming the caretaker-manager position and he was offered a full-time contract with Eddie Gray as his assistant. Unlike Graham, O'Leary was not afraid to introduce young blood to the Leeds team. At his disposal were the likes of Lee Bowyer, Harry Kewell, Alan Smith, Ian Harte and Jonathan Woodgate as a balance to experienced squad members such as David Batty, Lucas Radebe and Gary Kelly. For the plc, the double-edged bonus was that the young talent would eventually either deliver riches on the pitch or profits off it courtesy of the still booming transfer market. Ideally both.

With a team performing well and playing attractive football, Leeds were emerging as a major force again. Ridsdale and co. seemed to be vindicated.

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By the end of the 1998-99 season, O'Leary's first in charge, Leeds finished in fourth place, qualifying for the UEFA Cup. More crucially for the directors, turnover was rising and profits were on the up.

Although the stated strategy was to grow slowly over the long term, the team seemed now only one or two league places away from a potentially lucrative Champions League spot, which offered a huge temptation to force the pace. In short, Leeds were drifting towards the verge of a dash for growth.

According to Jeremy Fenn, Ridsdale - encouraged by an ambitious David O'Leary - started the push for more player investment: "In the summer of 1999, I was still running the club but Peter Ridsdale was getting more involved in the transfer deals, and it was quite clear there was a desire on the part of Ridsdale and the manager at the time to spend more money on players. Things came to a head when there were some stories in the paper about myself constraining progress at the club through a lack of desire to open up the chequebook, and I used that as an opportunity to say this is not for me."

It is believed that Fenn, shy of the limelight and more content with simply handling the behind-the-scenes business operation, was made to feel particularly uncomfortable when O'Leary stated publicly that some of his moves for certain players were being stifled by elements on the board. Fenn, who remains proud of his reputation as a tough negotiator and book balancer, was to become the first victim of what many saw as Ridsdale's move to have more control of the club. He quit to reunite with Akers on his Sports Internet Group.

It was to prove a major turning point in Leeds United's boardroom set-up, heralding the beginning of the Ridsdale revolution.

"There was a gradual shift in the board," says Bill Gerard. "It was not a coup in the sense of a sudden ousting of Caspian, but there was a move away from those directors associated with it. I presume Ridsdale was behind that."

"The club was in fantastic shape at the end of 1999," says Fenn. "We had a small debt, the club was profitable and we were performing well on the pitch. We were trying to build the club carefully and sensibly and part of that plan was to enhance the stadium in conjunction with the development of an arena and widen the business perspective of the club. I think we would have continued with a careful approach to building the club in much the same way as Charlton have achieved with the consolidation of their position within the Premier League."

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Adds Gerard, "If the Caspian board had remained at Leeds, then I think today we would not be in the financial situation that we are. I think we would be financially stable, but I doubt we would have yet achieved Champions League football. I think Fenn and Akers' objectives would have been much more long term with respect to getting the quality of the squad that we had in 2000.

"Peter Ridsdale realised that the future of football was going to be a few top clubs who had a massive fan base and were able to maximise their media income by playing in the Champions League. He felt that if Leeds did not get into the Champions League and establish themselves quickly, they would be left behind."

Adam Pearson followed Fenn out of the gates of Elland Road just 18 months later. Today chairman at Hull City, he is convinced this period was crucial in Leeds' financial downfall: "It was a change of culture. Obviously I had been appointed by Jeremy Fenn as commercial director at the football club and we had built the club up on basic business premises which were to build the business and keep the costs low. And obviously that culture changed considerably over the coming years. I think we had just about maximised the turnover. But then I could see the costs started to creep up and, after Jeremy's departure, the way the club was run changed."

That summer of 1999 Ridsdale became master of all he surveyed. As CEO, and chairman of both the plc and the club, he was in control.

Following the departure of Fenn in July he recruited to the board those loyal to him - in particular promoting Stephen Harrison to the post of finance director and David Spencer to operations director. Soon to join them as non-executive directors would be Allan Leighton and Richard North, both highly respected in the City. A former chairman of Royal Mail and non-executive director at BSkyB, Leighton's role at the club reinforced the image of a strong, ambitious management team, driving Leeds into a profitable future. "The fans thought the club was in safe hands," says Gerard. "They completely trusted Peter and the other board members."

Other reasons to be optimistic were a £13.8m partnership with BSkyB, whereby the media giant took a 9.9 percent stake in the team. Strongbow signed up as shirt sponsors for 2000 in a £5m three-year deal, and Nike agreed a new four-year kit and licensing deal.

By the time the team kicked off for 1999-2000 the strength of the side was obvious. They made it to the semi-finals of the UEFA Cup before losing to Galatasaray, and finished third in the league after spending many weeks on top, ensuring entry into the next season's Champions League. But then events began to overtake the plan.

In January 2000, Lee Bowyer and Jonathan Woodgate, along with friends, had attended the Majestyk nightclub in City Square, Leeds. Outside, trouble had broken out and the pair found themselves arrested after student Sarfraz Najeib was left in a bloody heap with a broken nose and cheekbone, fractured leg and a bite on the cheek. Both protested their innocence. The court case would not finally conclude until almost two years later, with devastating results for all concerned.

Meanwhile, the stabbing to death of Christopher Loftus and Kevin Speight after innocently getting caught up in running battles in Istanbul before the Galatasaray match in April 2000 generated more negative headlines. The football world united behind Leeds, with both Ridsdale and O'Leary winning praise for their handling of the situation. Thrust into the spotlight, Ridsdale became more synonymous than ever with the club.

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Off the pitch, Ridsdale's strategy appeared to be working to perfection. In October 2000 the club published figures which showed annual pre-tax profits up a whopping 75 percent courtesy of the good UEFA Cup run and sell-out crowds. Leeds Sporting reported pre-tax profits of £1.24m compared to £0.7m the year before. To the outside world, Ridsdale was on a roll, especially when the 2000-01 season maintained the momentum.

With a good run in the Champions League as the prize, the push for more players picked up pace. Before the end of the year, O'Leary had brought in Mark Viduka (from Celtic) for £6.5m, Olivier Dacourt (Lens) for £7.2m, Dominic Matteo (Liverpool) for £4.75m and, the piece de resistance, Rio Ferdinand (West Ham) for £18m - a deal six months in the making and at the time a world record price for a defender.

Crucially, the purchase of many of these players was conducted through a company operated by former Manchester City full-back Ray Ranson. Registered European Football Finance (REFF) allowed clubs to buy players on a hire-purchase style agreement, which effectively saw Leeds rent their services. Although Ferdinand was owned outright by Leeds, according to Ridsdale, Viduka and, it is assumed, others were not. Leeds were not alone in using REFF, but when the transfer market slumped they were suddenly left massively out of pocket. Today Leeds still owes REFF some £20m.

But with a strong team built on homegrown talent and reinforced with expensive young acquisitions, the view of the Leeds board was that should they stumble, they could at least recoup the money through reselling their players. Despite warning signs elsewhere in Europe, Leeds were not alone in assuming the transfer market would continue booming.

On the pitch, meanwhile, a strong Premier League season was enhanced by a Champions League campaign which will stay long in the memory of fans. After victories against AC Milan, Besiktas, Anderlecht and Deportivo, they blazed a trail for English clubs, going one step further than Arsenal and Manchester United to reach the semi-final. For the board it was proof the investment was all worthwhile. They had started out on a route to riches - their Champions League success generated close to £10m from prize money and UEFA's lucrative marketing pool alone. Brand awareness across Europe and increased sponsorship could multiply that by several factors.

But despite the great performances in Europe, Leeds failed to make an immediate return to the Champions League after coming fourth in the Premier League. A blip rather than a disaster, the club would simply ensure that by the end of the next season it was again preparing to kick-off a Champions League campaign.

When the 2000-01 financial figures were released in October 2001 they painted an interesting picture. Turnover was up 65 percent to £86.3m with operating profits prior to player trading up a colossal 273 percent to £10.1 m. But after taking into account the big buying, Leeds United plc - it had switched from its Leeds Sporting name during the summer - posted a £7.59m loss against a £1.24m pre-tax profit.

The results were good news for the directors. Richard North and Allan Leighton rewarded Ridsdale with a £270,000 bonus on top of his £320,000 salary. Ridsdale took the opportunity of the finance figures to make it clear what the club's future strategy would be: "The absence of Champions League football this season will inevitably have a short-term impact on operating profit. Rejoining the Champions League at the earliest opportunity is our top priority."

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It was a blinkered all-or-nothing approach, a gamble on immediate and continuing Champions League football, whose stake was a massive £60m loan secured on the back of future season ticket and corporate hospitality revenues predicated on a money-spinning new stadium. There was no Plan B.

So the scene was set. Ridsdale and O'Leary had spent heavily on players. There would be no Champions League in 2001-02, but everything would be done to achieve it by the end of the season.

The cracks were beginning to appear in the Ridsdale boardroom. Some suggest North and Leighton were kept out of the loop when it came to the reality of the situation. They would find out too late.

"The board all bought into the strategy and we put our trust in the executives, whose day-to-day job it was to do these things," explains Leighton. "We all thought the strategy was right at the time. Sometimes you get things right and sometimes you don't."

Falling into the latter category was a £20m punt on two players who would embody all that was wrong with the inflated transfer market. Seth Johnson was snapped up for £9m from Derby and Liverpool released Robbie Fowler for £11m, bringing O'Leary's spending close to £100m in just three years, much of it financed by funds raised for the proposed new stadium. Said Ridsdale at the time: "A lot has been made of whether this club is being run effectively as a company. This is a public company and is being run for its shareholders. The plc board are ensuring that the club is on a sound financial footing and we are only investing in players who can keep us near the top of the Premiership and in Europe."

But by the turn of the year, all the investment still appeared to be delivering the goods and the boardroom continued to buzz with anticipation of what was to come. They were, said Ridsdale famously, "living the dream". Inspired, the Leeds team took to the top of the table and all was well.

"Football is all about performance on the pitch, and performance had been good," recalls Allan Leighton. "We'd strengthened the squad and the view of the manager was that we would secure Champions League. But that's the frustrating thing about football - unlike any other business, you cannot control the bit that makes the difference. All you can do is invest in the strategy and hope it works."

What was not needed at this delicate stage in proceedings was the attention generated by the Bowyer/Woodgate trial. With one trial already called off after a Sunday newspaper was guilty of contempt of court, it was not until December that the jury got to make a decision - close to two years after the incident involved. Ridsdale had decided to stick by the players until a verdict. While Bowyer was cleared at Hull Crown Court of causing grievous bodily harm with intent and affray, Woodgate was given 100 hours of community service after being found guilty of affray. Their friend Paul Clifford received six years for GBH. Evidence during the case painted a less than pretty picture of both players.

For all the efforts of the Caspian management board and subsequent development, the brand name and image of Leeds United was once again tarnished. This would cost more than anyone could have anticipated.

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If that was not bad enough, David O'Leary then published a book just days after the verdict. Leeds United On Trial was a look back at the 2000-01 season - but its timing and comments on the team and the Bowyer and Woodgate case were devastating to both the club and dressing-room morale. It seemed Leeds were pressing the self-destruct button.

With a number of big name absences, and Bowyer being transfer listed after a contract row, form started to slide. From being top at the turn of 2002, Leeds eventually finished fifth - once again missing out on Champions League football. With the transfer market now in a slump, it was a catastrophe which left the club stranded with no way of recouping its outlay. For the first time the boardroom atmosphere dipped. "The original strategy, if the marketplace hadn't changed, was robust," says Leighton. "It was a combination of missing the Champions League, investing in a squad we thought would put us in the Champions League and then the change in the transfer market - the introduction of transfer windows and fees dropping."

Worse, the wage bill was sky-high. Determined to keep a strong squad together after the first Champions League success, Ridsdale had got many of the highest paid squad members to commit to long-term deals - again, all paid for with the money secured on the Elland Road redevelopment. To make matters worse, the fans were beginning to sense something was up, especially after transfer rumours about a string of their biggest stars - Mark Viduka, Danny Mills, Harry Kewell, Olivier Dacourt and Robbie Keane - started appearing in the press with increasing frequency.

Behind the scenes, O'Leary was being told to sell. The gamble he had bought into and initiated was not delivering. He had spent too much and another season without Champions League income was too much to bear. Rio Ferdinand and Manchester United started being mentioned more and more often in the same breath. Alex Ferguson had made no secret of his interest in the player. Ridsdale saw the chance of making some cash.

O'Leary, however, was anxious not to break up a team he still felt was capable of delivering the goods - in particular he wanted Ferdinand to stay.

Ridsdale was at the point of no return. In June, while everyone was watching the World Cup in Korea and Japan, Ridsdale sacked O'Leary. After four years and close to £100m spent in the transfer market, Leeds' trophy cabinet had not been opened once.

The terms of O'Leary's settlement would run into seven figures and rumble on for months to come. For now, Ridsdale had to focus on hiring a new manager. A phone call to his Spanish holiday resort pulled Terry Venables out of TV punditry and back into management as Leeds confirmed him as O'Leary's successor just 11 days later. He would become Leeds boss in an initial two-year deal. His first mission was to talk to Bowyer who had put himself on the transfer list following his trial and turned down a five-year deal. Venables also had to persuade Ferdinand to stay. Said Venables at the time: "This is a team destined for greatness and maybe this season we will witness the O'Leary Babes coming of age."

Ridsdale was finding the balancing act of increasingly desperate chairman and friend-of-the-fan more and more difficult to maintain. Despite peace talks with Venables, Bowyer was committed to leaving - and was given permission to discuss a £7m (rising to £9m on appearances) deal with Liverpool. As for Ferdinand, Ridsdale publicly announced he was not for sale, a position that was repeated in his first press conference as Leeds boss by Terry Venables - while admitting that he would still have to raise £15m, a sum he expected to bring in by off-loading the likes of Bowyer, Dacourt and Keane. He added that he hoped "sooner rather than later" he would be able to start spending again.

Just two weeks later Ferdinand was sold for another record fee - this time an astonishing £30m to Manchester United. It was a rare piece of fantastic business for Leeds. "I remain amazed that United paid that much for Ferdinand," says Bill Gerard. "They must have known the situation Leeds were in; they must have known they could have got him for less. It was a great deal for Ridsdale."

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Gerard is convinced Leeds United would not have survived as long as they have without that sale. Rivals they may be, but Manchester United's money may have saved Leeds.

The required £15m was generated and Venables prepared for the new season. The breakdown of talks for both Dacourt and Bowyer was suddenly not so crucial, Venables believed. An August sale of Keane generated £7m - some £5m less than Leeds paid.

Ridsdale, meanwhile, was preparing to man the emergency pumps while maintaining that the club was waterproof. "We set ourselves targets via a cash injection and we have exceeded those targets, post these numbers, by selling Rio Ferdinand and Robbie Keane," he said in September 2002. "There is therefore no further requirement to reduce those players Terry Venables sees as part of his ongoing first-team plans."

But Leeds were about to have their cover blown.

That month Bill Gerard saw the figures for the financial year ending June 30 2002 and started doing the sums. What he discovered frightened the life out of him.

"I just could not believe what I saw," he says. "I looked at the balance sheet and I looked at the cash flow, and I was astounded to work out that just to make it to the end of the 2003 season would require £14m."

The key headline figures Gerard focused on made sober reading: "The figure that was most frequently quoted in the media was net debt of £77.9m. This represents the total borrowings net of the cash reserves. So what was the problem? The bottom line was that the club's debt was not sustainable given its operating losses. The year before, the club had a net operating deficit of £5.7m before transfer expenditures and interest payment. Any business that cannot generate operating surpluses to at least cover its interest payments is in a very precarious position."

Gerard took his findings to the City and showed them to the investors. They immediately demanded a change in the board, telling him in November 2002 to consult with Allan Leighton to ensure the board acted quickly.

Though Gerard believed that Ridsdale was probably more responsible than anyone for the mess, the majority of fans still trusted him, and just weeks after the City was alerted to what was happening, Ridsdale was re-elected to the board at the club's AGM with 96.7 percent of the shareholders' votes.

On the pitch the 2002-03 season had not started well and by October pressure was beginning to build on Venables. When in November Leeds were hit by two injury-time goals to have a 1-0 lead overturned by Sheffield United, thus ending their Worthington Cup campaign, the fans began to turn.

Just over a week before the AGM, Ridsdale told Venables that a January buying spree must be paid for by the sale of at least six players; the club, he said, could not support a squad of 36 and the playing staff had to be slashed to 30.

Days later, after losing at Spurs made it six defeats out of nine, Ridsdale warned Venables results must improve or he must face the consequences. And he had to do that with a squad including 11 players out injured and whose big names were unsettled by transfer talk.

But Ridsdale's own power base was now threatened by shareholders insisting a new chief executive was hired in the New Year.

With Bowyer leaving for just £100,000 to West Ham, and Robbie Fowler to Manchester City for £3m in January 2003, Ridsdale was at pains to reassure Venables that at least Woodgate, at the heart of the defence, was going nowhere. Until, that is, Newcastle made a £9m bid, accepted at the end of the month. Woodgate's departure was a hugely significant one. It publicly undermined Venables, and publicly exposed not only the perilous state of Leeds' finances but the quality of Ridsdale's stewardship.

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"I didn't go public with my findings initially because Ridsdale still had huge backing," explains Gerard. "By January nothing had changed and the situation was getting worse so I finally made my concerns known after the Jonathan Woodgate sale."

It was at this time that Gerard received his letter from the plc warning him not to suggest the Woodgate sale was a sign of a bigger problem. A devoted fan, Gerard takes no pleasure in being proved right and still bristles at the nerve of the club to pen him such a letter. "It was absolutely stupid. Because everything I was talking about was based on the publicly released figures."

Gerard carried on regardless and made it clear to the gathered audience where he believed the blame lay: "Ultimately there has been a governance failure by which I mean a failure of accountability and transparency with respect to key decisions. Control of the club and the company has been vested in the senior executive management. We as fans are now having to deal with the consequences of their actions. It is not a question of the chairman's sincerity as a fan. We know he loves the club. But ultimately he must accept responsibility for the business failures that have resulted in the enforced sale of Woody. The business has been run honestly but ultimately wrong decisions have been made."

Behind the scenes the board was responding to the shareholders' demands. A detailed review of the organisation and structure of Leeds was completed: a managing director was to be appointed, David Spencer was to leave the company with immediate effect, and Professor John McKenzie, a non-executive director with responsibility for pushing the Leeds brand into the Far East, was to play a more hands-on role. Non-football costs were to be cut by £3 m a year.

But by March, frustrated at being fed a line by Ridsdale and the board and with a team failing to perform on the pitch, Venables quit just eight months after taking over. Leeds were just eight points off the relegation zone. Peter Reid was drafted in with the express purpose of avoiding relegation, his success in this being rewarded by a permanent contract by the close season. But the message was now clear. All the excited talk of new dawns and Champions League in the end amounted to this: avoiding relegation.

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Ten days after Venables left, Peter Ridsdale bowed to the inevitable and quit as chairman. With the fans now aware he was at least in part responsible for gambling with their future, he had few allies. "Ridsdale had gambled the house, but it wasn't his to gamble," says Gerard. "The Leeds fans trusted him. When they realised what he had done, it fuelled their hatred towards him."

Ridsdale blamed others for forcing him out and turning him into a non-executive director. And he turned on the fans: "In a high-profile role, when results are not up to expectation levels, you rightly expect criticism. This comes with the territory. But when this becomes so intense that it affects your family and health it requires clear reflection on the right way forward. The intensity of personal criticism has led me to conclude that the best decision for myself, my family and the company is that I step down as chairman of the plc and football club and relinquish all executive responsibilities. This I am doing.

"The ongoing challenge will continue to be to get the cost base into line with anticipated revenue streams. Further action will be needed in the coming months to achieve this."

Weeks later Stephen Harrison quit too. The Ridsdale power base, it seemed, was finally at an end.

One of the new chairman John McKenzie's first major moves was to reveal publicly the extravagant spending which had led to their mounting losses. The interim finance figures for the second half of 2002 showed the club lost £17.2m before tax, while the total net debt to the end of the year was £78.9m. Among the headline-grabbing details were:

• 5.7m in compensation pay-outs to former managers O'Leary and Venables
• £70,000 for private jets for directors and senior management - in one year alone
• £500,000 a year on the wages of former striker Robbie Fowler - despite his sale to Manchester City
• £20 a month on goldfish for Peter Ridsdale's office

Yes, even Ridsdale's pets enjoyed the high life at Leeds.

McKenzie described the scale of the operation as "like an oil tanker heading straight for the rocks and now the shareholders have put someone else on board to turn it around". To help cut costs, McKenzie made a mass of redundancies. A new chief financial officer, Neil Robson, from accountancy giants Ernst & Young was brought in. The mission now was simple: survival.

Back on the pitch, Peter Reid was not having the best of times either. As the set-up of the club collapsed around him, he had a huge falling out with striker Mark Viduka, who had played such a crucial role in keeping the club from relegation the season before. By November, and following a 6-1 thrashing by newly promoted Portsmouth, Reid had his name added to the 'managers requiring compensation' list. Loyal servant Eddie Gray was drafted back in as manager. The previous month, Leeds United made what many believe to be their best signing throughout the whole sorry affair.

Having been instrumental in bringing Roman Abramovich to Chelsea, former Liverpool player Trevor Birch was brought in as chief executive officer. He would run the day-to-day business while McKenzie would concentrate on the strategic development of the club, working part-time as a non-executive chairman with new financial chief Neil Robson on refinancing and restructuring. With his good relationship with the City, Trevor Birch was immediately able to open negotiations to try to give Leeds more breathing space.

"Thank God we got Trevor Birch," says Gerard. "He knows what he is doing and is working for the good of the club. If anyone can get us out of this situation then Birch can."

But it's a very big if. For the year ending June 30 2003, Leeds made pre-tax losses of £49.5m, while debts remained at £78m. The club was at least buoyed by a £4.4m cash injection split between Allan Leighton and the ARM Holdings Group.

By December the newspapers were full of stories about possible takeovers of the club. In particular speculation was rife that a member of the Bahrain royal family was considering a bid.

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By the end of December, McKenzie announced he would not seek re-election to the board, heightening belief he could be about to mount his own bid.

Without at least £5m the club would not survive until the end of the season. Creditors began closing in and a number of deadlines were put in place to avoid the club being forced into administration.

As we go to press, the story is not over, nor may it have a happy ending. So who is the villain of the piece?

"As chairman you have to take responsibility," says Peter Ridsdale, now chairman of Leeds' neighbours Barnsley. "I was the representative of the board and have to take the rap for it. But what upsets me is that it is assumed every decision, every spending decision, was taken by me on some personal crusade or emotional whim, which is simply not the case. Every decision to buy or sell a player was taken after consultation with every board member. Only with approval did we proceed."

The £60m gamble

When Caspian took over Leeds United they were partially attracted by the redevelopment potential of the Elland Road site. Their vision included a hotel, indoor hockey arena, exhibition centre and a range of other leisure facilities. All the revenues would drive monies back into the club and provide long-term security for the group.

As the original Caspian management team left, Peter Ridsdale took over the reins of the project. By 2001 he had changed the plan from refurbishing Elland Road to moving to a new site altogether and building a state-of-the-art 50,000-capacity stadium on the outskirts of the city.

Ridsdale's plan was simple. To finance the new stadium Leeds United would sell Elland Road for £20m. It would then find a naming rights sponsor for the new venue who would secure a long-term deal for £40m.

The club would then secure a loan for £60m - with funds coming from a bond secured against future season ticket and corporate hospitality sales - with which to invest in the squad. The securitisation deal would see banks lending Leeds the money over 25 years, with repayments accruing from ticket and hospitality package sales.

The benefit of this type of financing for the borrower is that the rates are low, and the risks for the lender are reduced as existing or forecast revenue streams are utilised and channelled to repay the loan.

It was fundamentally a good business move. It meant an injection of funds to help them push towards constant Champions League qualification, while allowing the club to develop value bricks and mortar assets in terms of the new development. After putting the £60m proposal to shareholders, Ridsdale won support to push ahead with his plans. The group issuing the bond include M&G, MetLife, Teachers and Gerling.

Crucially, however, Ridsdale and the board believed they could sell the all-important naming rights to the stadium themselves, rather than recruiting a specialist agency. They failed, blaming the economy post-9/11, but a more likely cause is the bad publicity surrounding the Woodgate/Bowyer case.

But at some point during 2002, the board quietly dropped plans for the new venue. With no new stadium, there are no new revenue streams. Nor did Elland Road ever become the entertainment centre of Leeds. So with no revenues to repay the debt, the future of the club now rests with its major creditors, the fund managers of the bond.

"The bond issue, you must remember, was agreed by our shareholders," says Allan Leighton. "But the point is that in hindsight we can see it did not work. The issue now is to deal with the future."

That's assuming, of course, that Leeds United has a future.

The Four Four Two feature emerged at a key point in the story of United's financial crisis, as the very future of the club hung in the balance. Eventually, administration was avoided, but only after one of the most fraught periods in Leeds United's entire history.

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Part 1 - Part 3 - Part 4 - Fixtures