Authors: Charlie Burden
Sir Alan Sugar (8 page)
So you can imagine the surprise of the City analysts when they turned up at Amstrad’s headquarters in Brentwood in February 1999 to find Sugar neither defensive nor in denial about his company’s plight. Amstrad and the City had never enjoyed a close relationship, so, when the chips were down for the former,
many of the latter would have been overjoyed at the chance to rub it in. Their defiance will not have been dampened by the fact that rail delays meant their journey out to Essex had been less than straightforward.
Sugar showed them in and went about explaining why pretax profits for the six months to the end of 1988 were down 16 per cent to
£
75.3 million. He was not about to attempt to put any glossy spins on this. Quite simply, he said, he wanted to call the financial year ‘the year of disaster’. True, his advisers had suggested that this was not a sensible term to employ, but that did not stop Sugar from using it in front of the assembled City throng. His honest, open style was matched by Amstrad’s marketing director Malcolm Miller, who sat next to Sugar at the gathering. ‘We’ve been critical of ourselves,’ said Miller. ‘We’ve tried to understand what went wrong, so we can decide what to do.’
As mentioned, one of the major factors behind this dramatic drop in profits was that Amstrad was unable to supply the demand for its goods, which was largely due to a hike in the price of microchips. Amstrad tried to keep a flow of the microchips necessary to build its computers, printers and so on. However, at times during this dark period it was being forced to pay what Sugar called ‘blackmail prices’. Eventually, Sugar paid for a stake in a company that produced microchips in the hope of securing a regular flow of them. This decision was lauded by the
Wall Street Journal,
who called it a ‘wise
investment’. However, even here things were to turn sour for Sugar. Soon after his investment, the problems that were forcing up the prices of microchips began to evaporate, wiping much of the value off the investment, which Sugar later acknowledged ‘was not the greatest deal I’ve done’.
Meanwhile, over in Taiwan, labour shortages were slowing down the production of audio goods, and the production of video recorders was also failing to move quickly enough. Problems with the West German distribution of computers did little to help make the picture any brighter. ‘Nineteen eighty-eight was planned to be the first year that Amstrad Germany was to show a major contribution to the group result,’ said Sugar. ‘I am sorry to say that in the first half this did not go according to plan … we accept in hindsight that this situation was self-inflicted.’ Drawing to a conclusion, Sugar was honest yet upbeat. ‘We made some bad mistakes. I don’t really know why so many things went wrong at the one time. But, come the new financial year, we will be firing on all cylinders again.’ Sugar had performed brilliantly at the meeting, but even his greatest performance could not stop Amstrad from taking a kicking at the City. That day the share price fell 12 per cent, knocking
£
57 million off the value of his personal stake in the company.
This time, the
Wall Street Journal
was less positive, running a story headed: ‘Amstrad takes humbling turn for Alan Sugar’.
The Times
echoed this, reporting that:
‘Profits tumble to
£
75 million after Amstrad “mistakes”’. Martin Waller’s story read, ‘Amstrad, the consumer electronics group, saw
£
125 million wiped off its market capitalisation yesterday after reporting a year-on-year pre-tax profits drop for the first time in its history.’ Meanwhile, the
Independent
sneered, ‘Things turn sour for Sugar’.
At least the
Guardian
noted that Sugar was responding to these sour times with a sensible head: ‘Sugar owns up, and doesn’t try to sweeten the pill,’ wrote Roger Cowe. His fair report went on, ‘Seldom are chairmen’s statements of interest except to students of public relations. It is always interesting to see what depths can be represented as “a firm foundation for future growth” and what windfalls are credited to clear strategy and professional management. But company chairmen are not supposed to tell the truth – or certainly not the whole truth.
‘All credit, then, to Amstrad founder and chairman Alan Sugar for owning up to a series of mistakes which have led to his company making the worst kind of history by reporting a drop in profits for the first time. Of course Mr Sugar is in a slightly more comfortable position than most company chairmen, since he still owns nearly half the company. And he has always been one to speak his mind, usually at the expense of his City critics. But even so, his frankness is surprising as well as more than welcome, and worthy of extensive quotation: “The result
is below our expectations and our true potential due to a chain of events, some outside our control and others the results of our own mistakes.”’
However, none of this could hide the fact that Amstrad had gone through a bad period, and had done so in front of the eyes of the world. As the
Economist
magazine concluded, ‘Amstrad’s Alan Sugar has not exactly tripped, but he is limping.’ He would soon be back in his normal confident stride, but not before a major legal battle.
Amstrad had launched itself selling audio equipment, but, by the end of the 1980s, such goods had become a minority concern. Indeed, in 1989, audio sales contributed to less than 4 per cent of the company’s turnover. ‘There’s no margin left in the product and we’re just wasting our time chasing it,’ he commented. Taking a long, hard look at the structure of his company, he added, ‘We have had such phenomenal growth over the past few years that we are still operating with a management team you would expect to be running a company a fraction of our size,’ he admitted to the
Sunday Times.
He also said that there was ‘no financial policing within the organisation’. All of this was to change, not least because he appointed new directors to the board to address these and other matters. He also appointed a group inventory controller to keep a tighter rein on stock. As Sugar said, Amstrad was not carrying out ‘mundane and boring tasks’ that were required from a company such as his. Another change he ushered in during this testing era was
a new dawn in customer service. To this end, 111,000-square-foot premises in Harlow, Essex, were purchased and crammed full of customer-service operatives who sat at their phones, answering questions from customers and computer dealers. Director Jim Rice said he saw this development as ‘a very important aspect of our future strategy, and it’s going to be developed much more than it currently is’.
Another part of their strategy was taken up by a lengthy legal battle with a US company. On 16 September 1991, Amstrad announced that it was suing electronics firm Seagate, seeking ‘in excess of $150m compensation for financial loss caused to Amstrad and loss caused to Amstrad’s reputation as a result of delivery of ST277R Hard Disc Drives’ (for Amstrad’s PC2386 personal computers), which, Amstrad alleged, ‘were initially defective and had to be reworked by Seagate’. Seagate said it would vigorously defend the action, which it said was ‘without merit’. The resulting poor quality of the PC2386 and its sister computer, the PC2286, damaged Amstrad’s reputation in the early 1990s. It was a costly and lengthy battle, but, eventually, in May 1997, Amstrad won
£
57 million in damages. Judge Humphrey Lloyd, QC, the official referee for the case, ruled that the disk drives made by Seagate had been faulty and awarded damages to Amstrad under the Sale of Goods Act.
A relieved Sugar said, ‘Nobody will ever know where Amstrad would be today if this had not happened. The
great efforts of myself and my small team were demolished. The financial award we have received today only goes some way to compensate us.’
Seagate said they were stunned. ‘I was shocked and appalled,’ said their coincidentally named chief executive Alan Shugart. ‘I think we got home-courted.’
The media were quick to pick up on the significance of all this. ‘Amstrad hits the legal jackpot’, cheered the
Guardian.
The accompanying story on the City page outlined that this victory had far-reaching consequences for Amstrad. ‘The fortunes of Amstrad, Alan Sugar’s struggling electronics company, were transformed yesterday by a surprise court victory which will boost the company’s value by nearly half. Amstrad won a decision in a case dating back to the late 1980s which will bring the once high-flying computer company a windfall of more than
£
100 million in damages and interest.’
It had been a bitter battle for the man with a sweet surname. However, his involvement in the beautiful game was to lead to more than a few ugly moments, too.
T
ottenham Hotspur has always been a football club that considers itself to be a bit different, a bit special. Founded in 1882 as Hotspur FC, with the motto
Audere est Facere
(‘To dare is to do’), it has an illustrious history, and a reputation that actually exceeds its achievements. Not that it is entirely short of achievements. It became the first British club to win the domestic double in the 20th century. This came in the 1960/61 season, when Bill Nicholson guided the team to the League title and FA Cup. Then, in 1963, Tottenham became the first British club to win a major European trophy, the European Cup Winners Cup.
The 1980s was also a good decade for the side, who won the FA Cup twice, the FA Charity Shield and the UEFA Cup. However, even when Tottenham have not been winning trophies – and recent times have been
mostly lean in that regard – they have managed to maintain a reputation as a stylish club, with a team who play stylish football. Such football royalty as Danny Blanchflower, Jimmy Greaves, Glenn Hoddle, Chris Waddle, Gary Lineker and Ossie Ardiles have turned out in their colours. So too have Pat Jennings, Jürgen Klinsmann and Teddy Sheringham.
In the early 1990s, a slump in the property market had left the then owner Irving Scholar – and therefore the club – in financial turmoil. Scholar was a lifelong Tottenham fan. As a boy he had dreamed of playing for Spurs, and he went as close as he could to fulfilling that dream by buying the club in 1982. The club was
£
4 million in debt, and Scholar appointed Douglas Alexiou as chairman. However, his ambitions for the club to become a global power were not realised, and instead Tottenham was heading towards financial disaster.
Before long, Scholar began to try to raise funds to bail out the club. In July 1989, he approached newspaper publisher and Derby County chairman Robert Maxwell in a bid for financial backing. However, in due course Maxwell would attempt to go even further than this. This attempt would put him on a head-to-head course with Sugar, who, though not a football fanatic like Scholar, had had connections with the north London giants on more than one occasion in the past. As a youngster, he had been taken to watch Spurs play at White Hart Lane by his father. Later, in the 1980s, the Amstrad office was
in Garman Road, a mere goal kick away from Tottenham Hotspur’s stadium. Furthermore, he had once used the Tottenham team in an advertising campaign for Amstrad. So he was no stranger to the team.
However, in the 1990s these connections would be mere trailers to the main feature: Alan Sugar would buy Tottenham Hotspur Football Club. In June 1991, Sugar teamed up with Spurs legend Terry Venables to bid to buy the club from the departing Scholar.
As a player, Venables had enjoyed a successful career. He left school in 1957 and joined Chelsea FC as an apprentice. Three years later, he became a first-team regular and ultimately club captain. With him wearing the armband, Chelsea came agonisingly close to winning silverware a few times before they did finally hit the jackpot, winning the League Cup in 1965. Within a year, he had fallen out with manager Tommy Docherty and he was sold to Tottenham Hotspur, where he again tasted success, in the shape of an FA Cup final defeat of his old club Chelsea.
After retiring as a player, Venables turned to management, and he guided Crystal Palace to two successive promotions; he then moved across town to Queens Park Rangers whom he led to the Division Two title. By now, this hot young managerial ace was attracting widespread global attention in the game. Indeed, so high was his stock that he was approached by one of the game’s most prestigious clubs: FC Barcelona.
He quickly accepted their offer and found himself swapping the small, tight surroundings of Queens Park Rangers’ Loftus Road stadium for the sprawling majestic splendour of the Camp Nou, where he earned the nickname ‘El Tel’. The charismatic Venables would not disappoint. He steered the club to their first League title in 11 years, a League Cup win and a European Cup Final, which they lost on penalties to Steaua Bucharest.
However, such was his reputation and success that El Tel found it hard to live up to his early glories at the club, and, in fact, he became a victim of his own success. By the time his side lost to Dundee United in the UEFA Cup, his time was up and he was sacked.
Within eight weeks, he was back in work, this time at the helm of Tottenham Hotspur, the team of his playing days. It was here that he was destined to cross paths with Sugar. However, it is instructive to understand the full character of Venables in order to comprehend fully what subsequently unfolded.
A man who has had widespread business interests for many years, Venables has often been surrounded by controversy. He vigorously denies allegations of financial impropriety that have been made against him in the past. That said, he was banned from holding company directorships for seven years after choosing to not contest nineteen specific allegations made against him by the Department of Trade and Industry (DTI). The DTI case arose from alleged mismanagement of four companies –
the London drinking club Scribes West Ltd, Edenote plc, Tottenham Hotspur plc and Tottenham Hotspur Football and Athletic Company Ltd. Venables was not at the London courtroom where Elizabeth Gloster QC, for the DTI, told Mr Justice Evans-Lombe that his conduct in relation to the four companies ‘has been such as to make him unfit to be concerned in any way with the management of a company’. The Competition and Consumer Affairs Minister Nigel Griffiths reacted to the verdict thus: ‘Mr Venables has admitted the serious allegations made in the disqualification proceedings and recognises the serious nature of the allegations by consenting to a substantial seven-year period of disqualification. We recognise his great achievement in football coaching, but even our national heroes cannot be allowed to fall below accepted standards of probity when they enter the business world.’
Venables has also become famous away from the world of football, having co-authored four novels with author Gordon Williams and co-created a television series for ITV. He has also created a football board game and appeared on a pop song. All this, together with his perma-tanned appearance and hugely charismatic cockney persona, has long helped to cast Venables as one of the more colourful characters in the game. He was at the helm when England reached the semifinals of the 1996 European Championships, which remains to date the joint-second (with the 1990 World Cup run) most
successful tournament performance the national side have managed since winning the World Cup in the glorious year of 1966.
However, much of that was yet to come when Venables and Sugar – who had for a while been associates but not what one would call friends – approached Spurs with their bid. After much speculation, Sugar revealed that there had indeed been a bid. ‘I can’t deny that Terry and I have made an approach to the board of Tottenham Hotspur and we are awaiting the outcome of that offer,’ admitted Sugar. Referring to rumours that Robert Maxwell was also preparing a bid, Sugar made it clear how he saw proceedings panning out were there to be a bid to rival his and Venables’s. ‘If Mr Maxwell or any other party wish to come along for the benefit of the club and put forward proposals which are better than I am, I will gracefully step to one side, because one thing that is not going to happen is an auction,’ he said.
Maxwell was indeed close to putting forward a proposal. Accordingly, his staff were alerted to the imminent sale of Derby County FC to Peter Gadsby, a property developer from the Peak District. Maxwell planned to take the
£
4 million he would earn from the sales of the recently relegated Midlands club, add to it the
£
40 million he had also garnered from the recent
Daily Mirror
flotation, and buy a significant shareholding in Spurs. As these rumours gathered pace, Sugar came out fighting again. Drawing on his expert salesman abilities, he
made sure that the advantages of a Sugar–Venables bid were spelled out via the media. ‘I’ve got a cheque in the fridge and Terry Venables and I are ready to go as soon as the board sorts itself out,’ asserted salesman Sugar. ‘We put serious proposals to the board on Monday and I believe that, with Terry’s undisputed talent and history of success, when combined with my financial backing, the future prospects for Spurs are excellent.’ It did indeed seem at the time an attractive prospect when compared with that of Robert Maxwell. A dream ticket, one could say.
Although the tale was going to end bitterly, with the benefit of hindsight it must still be a relief to Spurs fans that Maxwell did not win the day.
As time went on, Sugar upped the stakes and piled a bit more pressure on the club. He had clearly been swotting up on the laws and rules of the Football League. Once more presenting himself to the media, Sugar gave chapter and verse on what he saw as the flaws in Maxwell’s north London ambitions. ‘We have heard a lot of noise about another possible bid for Spurs,’ said Sugar. ‘Our reading of the concisely written League rules means that, even if Derby are sold, Robert Maxwell still cannot bid for Spurs. His family holding in Oxford and Reading would have to be disposed of first, unless the League gives written dispensation.’
But would the League be of a mind to give such dispensation? Sugar’s answer was unequivocal. ‘I cannot believe that the League could find sufficient reason to do
so in the light of our solid bid and the known feelings of the fans, players and many small shareholders, all of whom desperately want Terry Venables to stay on.’ Once more, the salesman was showing his skills. Here he had charmingly but pointedly pressurised the League to come round to his way of thinking. This was as good a combination of soft and hard sell as one could imagine in the circumstances, and it was soon backed up by the very people Sugar had alluded to in his statement.
The Tottenham Independent Supporters’ Club told the media that a bid from Robert Maxwell would be ‘unacceptable’ to them, and they backed up Sugar’s belief that such a bid would breach Football League rules because of his interests in Oxford, Reading and Manchester United. Coordinator Bernie Kingsley said, ‘We would be prepared to take legal advice to seek an injunction if it seemed the League was going to break its own rules.’
Sugar must have smiled broadly when he read these quotes. With so much united pressure, things could only tip his way. The media seemed to favour the Sugar–Venables camp too. The headline in the
Guardian
newspaper was typical: ‘Alan Sugar’s bid may save Spurs’. In the accompanying story, it became clear that Sugar’s claim that he and El Tel had the support of shareholders was spot on. Frank Sinclair, one of Tottenham’s executive directors, told the newspaper, ‘We are pleased about any bid that’s likely to be successful.
The club has received numerous approaches over the last nine months, but the important thing is to have one that is likely to have a successful outcome. Mr Sugar has considerable financial muscle.’ He did indeed. Sugar was at this point worth
£
157 million, and had recently been placed at 46th in the
Sunday Times Rich List.
An unnamed boardroom source was equally positive about Sugar, telling the
Independent’
s veteran football reporter Joe Lovejoy, ‘For the first time in many months of negotiation, Venables has finally come up with someone who has got the money involved. Alan Sugar is a very bright fellow. We can do business with him.’
Back then, football was not considered the valuable financial cash cow that it is now. So, although there was backing for Sugar, there was some uncertainty as to what was attracting him to make such a bid. ‘Who knows?’ the same source said, shrugging, when asked. ‘Maybe he’s got tired of computer games and wants a new toy. He can afford it.’
As for Sugar, he was clear about the attraction of the deal. ‘Look, this is the fourth time I’ve told you,’ he told one persistent inquisitor. ‘It’s a business proposition, and a very good business proposition.’
Sugar carried on heaping on the pressure via the media. ‘We have made a proposal and obviously on the basis of that proposal we hope that the club will be back on a reasonable financial ground in the future,’ Sugar told a journalist. Once more, he played his trump card:
the involvement of the popular Terry Venables. ‘I think the supporters will really be very, very pleased that Terry Venables is still involved with the club. I think that is the key issue.’
The pressure eventually told, and the deal was finally done. On Saturday, 22 June, Sugar and Venables called a triumphant press conference to announce that they had reached agreement with the board of Tottenham Hotspur and the Stock Exchange to purchase the shares of Irving Scholar and Paul Bobroff, and were assuming control of the north London giants. Under the new regime, Sugar would become nonexecutive chairman of the plc with the task of ‘getting the balance sheet into shape’, while Venables would take over the role of managing director. The first thing that Sugar and Venables did was pay off the club’s
£
20 million debt. It seemed a match made in heaven, but – to borrow a football parlance – it would well and truly kick off.