Last summer, just short of his 50th birthday, Maurice Kelly was set to fulfill
his dream. He had made enough money from turning around and selling leisure
businesses to retire from the corporate world and was on the verge of upping
sticks to the Alps to start a new life running a small delicatessen.
He had just bought a deli in the resort of Morzine and a farmhouse near by
when he got a phone call asking whether he would be interested in running
Rileys, Britain’s biggest snooker and pool club chain.
“It was all the things I’ve typically liked in a challenge,” he said. “It was
solid and engaged and had a loyal audience — but it had been mismanaged.”
He was sufficiently interested to put life in the Alps on hold and became
chief executive of Rileys, owned by Greenhill Capital Partners Europe and JO
Hambro Capital Management, in July last year. But that was the easy part. He
found that not only had it been mismanaged, it also had a financial
structure that was unsustainable in the face of the deteriorating economic
climate.
“The business had been acquired just prior to the smoking ban with a specific
view to what the impact of the ban would be. I think it was significantly
misjudged. The business had also been subjected to a sale and leaseback. A
lot of the property value had been removed and some pretty uncommercial
rents put in place. Its cost were high and inflexible and we suddenly found
ourselves up against the credit crunch.”
Mr Kelly set about tackling the size of the head office and high cost base —
things he had done many times before in previous jobs — when he found
himself facing a new problem: Kaupthing, the bank that had provided the debt
finance for the buyout of Rileys from Georgica, went bust.
Rileys had £18 million of debt, including a £2 million working capital
facility from Royal Bank of Scotland. For a business facing quarterly rental
payments on its 159 clubs and a cash outflow during the quieter summer
season, access to cash was crucial. But while RBS was happy for the company
to continue paying its bills, it was “not that keen to see its working
capital used to make payments to a defunct financial institution”.
The result was that in March, just nine months after Mr Kelly’s arrival,
Rileys was in default on its loans, Greenhill and Hambro had seen their £18
million equity investment wiped out and collapse seemed inevitable.
“The only way to rescue the business was for us to step in. We negotiated with
the bank, put the business through pre-pack administration and came out the
other side with no debt.” The deal cost £3.5 million, with Mr Kelly, his
Alpine dream now well and truly on the back burner, investing “a six-figure
sum” taking a 30 per cent stake, alongside Greenhill and Hambro. “You are
looking at a man who is fully concentrated on Rileys in a very deep and
meaningful way. This is no longer me turning around the company as an
employee.”
The most immediate impact of the pre-pack was that it enabled him to offload
30 loss-making clubs with onerous leases. Such practices have proved
controversial, but Mr Kelly makes no apology for taking that route. “This
business would have been dead had we carried the weight of the 25 per cent
of the estate that was loss-making. We’d now be talking about another 1,200
being unemployed rather than just 200. I completely stand by it. It was the
only option.”
Since then, Mr Kelly has renegotiated the leases on all but one of the 129
clubs, securing an average cut in rent of about 21 per cent. “Our landlords
have mostly been very supportive and realistic. A lot of them would accept
that the previous rents were not sensible. At the new levels of rent this is
a sustainable business.
“I liked it as a business for the same reason I liked golf when I was at Crown
Golf. Unlike health and fitness, where people come and go in terms of their
commitment, it’s a proper members’ club. Once you’ve negotiated time off
from the family to play golf or snooker, you tend to stick with it.”
Snooker clubs are probably one of the few businesses to benefit from rising
unemployment. While the recession has had some impact on food and drink
spending at weekends, the clubs have seen an increase in footfall during the
week, providing a cheap way for the out of work to pass a few hours.
But Mr Kelly is also seeking to broaden the appeal of the clubs by adding
darts areas and big screens to show sporting events. Darts has been added to
ten clubs so far, at a cost of about £13,000 per club, while the new Fan
Zones — big screens with their own seating areas — cost up to £30,000 a
throw.
Mr Kelly reckons there is scope to add Darts Zones to about 100 of the 128
Rileys clubs, while the success of the first three Fan Zones has persuaded
him to target 50 to 60 by next summer’s football World Cup. While the darts
fit-outs are being funded from cashflow, the group is looking to raise bank
finance of up to £3 million to fund the big screens.
The results so far are encouraging, with the new darts areas sparking big
uplifts in sales. At the Rileys in Wolverhampton, which also has a Fan Zone,
sales are up 60 per cent year on year in the 12 weeks since it was revamped.
Mr Kelly believes that the strong interest in the new Darts Zones is down to
two main factors: the soaring closure rate among traditional pubs with dart
boards and the huge popularity of professional darts on television, which he
believes is reminiscent of the snooker scene in the 1980s.
Phil Taylor, 14 times the world darts champion, has opened all the new Darts
Zones so far, while Rileys is also sponsoring Anastasia Dobromyslova, the
women’s world darts champion from Russia, who has just started competing in
men’s tournaments.
While all the clubs have bars, Mr Kelly claims the mix of members and the
style of operation means there is rarely any trouble. “Provincial towns on a
Friday and Saturday night can be a war zone. But we’re a model of social
cohesion. It’s a self-regulating environment. You don’t need a bouncer when
your dad might be playing on the next table. People don’t come to our clubs
to neck a dozen pints. It’s not very helpful to your snooker technique.”
C.V.
Age: 51
Brought up: Belfast
Educated: Jordanstown College
Career highlights: 1996-97: managing director, Granada Entertainments; 1997-2000:
managing director, Granada Road Services; 2001-02: chief executive,
easyEverything; 2002: chief executive, Esporta; 2003-05:
vice-president, continental Europe, Weight Watchers International; 2005-07:
executive chairman, Bennelong UK/Crown Golf; 2008-date: chief
executive, Rileys
Family: Married with two children
Other interests: playing guitar, skiing, golf, snooker (highest break
at snooker, 30 —“a long time ago”)
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