Gordon Ramsay's 2009 financial nightmare

On a gray morning in October, Gordon Ramsay bursts into the kitchen of his south London house, pop music blaring from the radio. At the heart of the room stands a £67,000 ($148,000) French cooking range that weighs 2.5 tons and had to be lowered by crane into the celebrity chef's home.

Ramsay, who is 1.88m tall and weighs 98kg, is wearing jeans, a tight black T-shirt that accentuates his muscles and a Bell & Ross watch - a Swiss brand marketed to soldiers, bomb-disposal experts and other "men facing extreme situations".

The 43-year-old Scot sits at the kitchen table and looks back on his own extreme situation: a year in which his global restaurant empire almost went bankrupt.

In late 2008, his London-based Gordon Ramsay Holdings breached the covenants on a £10.5 million loan and overdraft facility from Royal Bank of Scotland Group. The bank hired KPMG to perform an independent review of the firm, 69 per cent of which is owned by Ramsay and 31 per cent by his father-in-law, Chris Hutcheson. In late December, Ramsay says, KPMG recommended that the company declare bankruptcy, fire hundreds of people and close all but its best-performing restaurants.

"Everything was on the line," Ramsay says. "December, January, February and March were the most highly pressurised, shittiest, most awful four months I've ever had in business."

Ramsay was in Hollywood for most of the first 12 weeks of 2009 shooting the US version of Hell's Kitchen, the reality show he fronts for the Fox network. After a day of filming, he'd often be on the phone for hours at night, talking with Hutcheson about how to save their business.

The stress was so intense, he says, that he'd go for runs in Malibu at 4.30am, wearing a vest loaded with 20kg of weights. "I just ran and ran and ran," he says.

For Ramsay, bankruptcy was unthinkable even if it made financial sense. "There was no f - ing way that was ever going to happen," he says.

Ramsay's fame would have made it the most public of failures.

"He's one of the great chefs," says Jean-Luc Naret, Paris-based director of the Michelin Guide series, which awards the stars. Restaurant Gordon Ramsay at Royal Hospital Road is London's only dining spot with three Michelin stars. Ramsay boasts 12 stars, surpassed only by Frenchmen Joel Robuchon (25) and Alain Ducasse (18).

By 2009, Ramsay had about 20 restaurants as far afield as Dubai, New York, Paris, Prague and Tokyo. He also starred in five TV shows that reinforced his image as a master chef who swears and shouts in pursuit of perfection. In the UK, he earns more than £2 million annually from Ramsay's Kitchen Nightmares and The F Word. In 2009, Hutcheson says Ramsay's talent fees from US shows alone hit US$9 million ($12.4 million).

Ramsay has also published two autobiographies and lent his name to 23 cookbooks. According to Nielsen BookScan, his books, which have been translated into 18 languages, have generated almost £25 million in UK sales alone. Ramsay also endorses pots, pans, glasses and china branded as Gordon Ramsay by Royal Doulton, and he is Diageo's UK pitchman for Gordon's Gin. Hutcheson says Ramsay makes about £3 million a year from endorsements.

All of this has placed him at the vanguard of a generation of celebrity chefs with such myriad business interests that they barely cook.

Ramsay has focused on TV in amassing a fortune that London's Sunday Times estimated in April 2008 at £50 million.

But Ramsay's empire expanded just as the global recession deepened. He opened eight restaurants in 2008 and was exposed as diners cut their spending. Brand-name chefs like Ducasse and Robuchon seldom own their restaurants outright; instead, they sign consulting deals under which they provide chefs, create a menu and run the operation. Ramsay's company owned most of of its restaurants and was on the hook for everything from rent to salaries.

"We weren't unlucky," says Hutcheson, 61, chief executive officer of Gordon Ramsay Holdings. "We were clumsy. We'd put too many risks in front of us with too much confidence that nothing would fail."

For Ramsay, this was especially embarrassing because Kitchen Nightmares showcases him as a saviour of other people's restaurants.

"It's not great if you're making a show called Kitchen Nightmares and advising people on how to fix their businesses for you to go bankrupt," says Pat Llewellyn, producer of the programme and Ramsay's partner in a production company called One Potato Two Potato.

Ramsay was, at least, no stranger to hardship. The son of a failed musician who worked as a day labourer, he grew up poor in Glasgow, Scotland and Stratford-upon-Avon, England. A knee injury wrecked Ramsay's dreams of a soccer career, so he stumbled into a hotel management course before taking a series of junior cooking jobs.

In 1989, his fascination with haute cuisine was awakened at Harvey's, a London restaurant run by Marco Pierre White, the first British chef with three Michelin stars. Ramsay then moved to London's top French restaurant, Le Gavroche, as an apprentice chef. In 1993, he became head chef at Aubergine in London.

"He was an animal, a monster; he was horrible," says Angela Hartnett, who worked with him there. Hartnett says Ramsay once threw oysters at her after she'd opened them imperfectly.

"He'd always say, 'Why are you diluting my standards'?"

Nonetheless, Hartnett has worked with Ramsay for 16 years and is currently head chef at Murano, one of his London restaurants. One reason she stayed was the quality of his cuisine, which features lighter sauces using less butter and cream. "He took classic French cooking and modernised it," Hartnett says.

Aubergine won two stars in 1997, and Ramsay decided he deserved more than the 25 per cent stake its owners had given him. He had just married Tana Hutcheson, with whom he now has three daughters and a son. Tana's father, Chris, who owned a printing company, risked £1 million in cash and loan guarantees to bankroll the Royal Hospital Road restaurant in 1998.

The Royal Hospital Road restaurant, with signature dishes like lobster ravioli in a lemon grass and chervil sauce, won its third star in 2001. By then, Ramsay was as famous for his temper as his cooking. A British TV documentary called Boiling Point showed him spitting out food and firing a waiter for serving the wrong appetiser. Ramsay even ejected restaurant reviewer A.A.Gill - with his guest, actress Joan Collins - for criticising him in print.

"I've become more mature," Ramsay says now. "I wouldn't say mellow. I still get incredibly frustrated."

Many employees defend him, saying he's generous and loyal.

"He's definitely not malicious," says Josh Emett, head chef at Gordon Ramsay at The London in New York. "He's passionate."

Ramsay's breakthrough came in 2001, when private-equity firm Blackstone Group asked him to run the restaurant at Claridge's, one of four landmark hotels it then owned in London. A year later, Ramsay opened two restaurants in the Blackstone-owned Berkeley hotel.

In 2004, Ramsay's Kitchen Nightmares debuted in the UK, making him a household name. Mike Darnell, Fox's president of alternative entertainment, saw him in Hell's Kitchen and signed him to make US versions of both shows.

According to Hutcheson, Ramsay earns about US$250,000 per episode.

The TV work, with his international restaurant expansion, has triggered accusations that Ramsay is spread too thin. Richard Harden, co-founder of the guidebook Harden's London Restaurants, says he was the city's best chef for 10 years.

"Many of his restaurants have lost their way," Harden says. "If you've got so many interests that are so geographically diverse, you can't give them all proper attention."

While Ramsay bristles at such criticism he makes no apology for spending less time at the stove. "You tell me a chef anywhere in the world that's prepared to turn down quarter of a million dollars for an hour's work on TV, and they're the biggest lying bastard that ever put on a chef's jacket," he says.

By 2006, Ramsay had nine restaurants in London. John Ceriale, a senior advisor for Blackstone, then asked him to create restaurants in Blackstone's overseas hotels, too. Ramsay opened in New York that year; Prague and Boca Raton, Florida, in 2007; and Hollywood and Paris in 2008.

He rented the properties from Blackstone and used his non-restaurant earnings to equip the kitchens - because it deployed income that would have been taxed at 40 per cent in the UK.

Every one of these overseas ventures has lost money. In New York, where he opened two restaurants in Blackstone's London NYC hotel, Ramsay says losses reached US$4 million a year, with a unionised staff costing 80 per cent of revenue.

Hutcheson says he and Ramsay didn't think locally. For example, they neglected to take into account how little alcohol New Yorkers would order at lunch. Ramsay's foray into Prague failed in early 2009. In Paris, Hutcheson says they lost as much as €200,000 ($396,000) a month there in 2008, with wages 90 per cent of revenue.

Ramsay's ambitions in France were fuelled by ego, Ceriale says, as he dreamed of winning three stars in the home of haute cuisine.

"I totally agree," Ramsay says. "The French have been brilliant over the last 20 years at coming over to our country and telling us how crap our food is."

Hutcheson says this emotional approach became a liability once the credit crisis struck. In late 2008, when RBS wanted to assess whether its loan was at risk, he says his accounts department couldn't provide the relevant financial data. The company was also £7.2 million in arrears on UK taxes. At the time, Ramsay and Hutcheson had 1250 employees, up from 45 in 1998.

"The company just grew too quickly and no one kept on top of it," Murano's Hartnett says.

To avert bankruptcy, Ramsay and Hutcheson poured nearly £9 million of their personal savings into Gordon Ramsay Holdings last year, 69 per cent of it from Ramsay. They worked out an extension of tax payments with the Government and cut the staff at their London headquarters to 58 from 86.

Hutcheson says he told Ceriale the company would go bankrupt unless they could renegotiate their contracts with Blackstone.

"Shuttering the restaurants would not have been the best outcome for us or Gordon," Ceriale says. "They needed to restructure the business, and we were the key to restructuring it."

After negotiation, Blackstone agreed to assume ownership of the restaurants in Hollywood and Paris, paying Ramsay a consulting fee to run them. The restaurant in Prague was closed in February. In November, Blackstone also took control of Ramsay's restaurant in Boca Raton and his two restaurants in New York, paying him a percentage of revenues to oversee them as a consultant.

"Financially, we weren't going to come out with much," Hutcheson says. "But you just want to stop these apparently endless losses."

In Ramsay's remaining restaurants, everything is now about cost control. In London, his bistro Foxtrot Oscar has closed on Mondays and Tuesdays. Stuart Gillies, his head chef at Boxwood Cafe in The Berkeley, has saved £1500 a month by no longer ordering flowers, and using cheaper cuts of meat.

Hutcheson says the worst is over and Gordon Ramsay Holdings should generate £7 million to £8 million in earnings before interest, taxes, depreciation and amortisation in the fiscal year ending in August. The company is also moving ahead with two new projects in 2010: Petrus, which had two Michelin stars, will relocate in London's Belgravia neighbourhood in January, and the Savoy Grill will reopen after a renovation.

Ramsay will focus as much as ever on TV. "I want a life out of my kitchen," he says.

In the future, Hutcheson says restaurants may become even less of a priority for Ramsay.

"I can run the business in Gordon's name," he says. "TV is his forte. That's what he likes doing."

Ramsay says his restless ambition stems from his childhood.

He sometimes forces himself to recall those days as a reminder of how far he wants his life to be from that misery. "Trust me," he says. "That's enough to keep anyone f***ing moving a thousand miles an hour."

- BLOOMBERG