Ramsay and business partner Chris Hutcheson: "There was no f***ing way [bankruptcy] was ever going to happen,' said the chef

On a grey morning in October, Gordon Ramsay bursts into the kitchen of his south London house, pop music blaring from the radio. He 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 pours himself a juice, 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 autumn 2008, his London-based Gordon Ramsay Holdings breached the covenants on a £10.5m loan and overdraft facility from Royal Bank of Scotland. The bank hired KPMG to perform an independent review of the firm, 69% of which is owned by Ramsay and 31% 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. After a day's filming, he'd be on the phone for hours, talking with Hutcheson about how to save their business. The stress was so intense, he says, that he'd go for runs at 4:30am wearing a black 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. "That was never even an option."


Ramsay's fame would have made it the most public of failures. In all, Ramsay has 12 Michelin stars, the third-highest in the world, and has about 20 restaurants including one at the Ritz Carlton in Powerscourt in Wicklow. He also starred in five TV shows that reinforced his image as a master chef who swears and shouts in pursuit of perfection.


In Britain, he earns more than £2m annually from Ramsay's Kitchen Nightmares and The F Word. This year, Hutcheson says Ramsay's talent fees from US shows alone hit $9m. His books, which have been translated into 18 languages, have generated almost £25m in UK sales alone. He also earns about £3m a year from endorsements.


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


Ramsay's empire expanded just as the global recession deepened. He opened eight restaurants in 2008 and was particularly exposed as diners cut their spending. Brand-name chefs 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 almost all of its restaurants and was on the hook for everything from rent to salaries.


"We weren't unlucky," says Hutcheson, 61, chief executive 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 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 production firm One Potato Two Potato.


In 1989, his fascination with haute cuisine was awakened at Harvey's, run by Marco Pierre White, the first British chef with three Michelin stars. 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 and is half-Irish. Hartnett says he once threw oysters at her after she'd opened them imperfectly. "He'd always say, 'Why are you diluting my standards?'" Still, Hartnett has worked with Ramsay for 16 years and is head chef at one of his London restaurants, Murano.


Aubergine won two stars in 1997, and Ramsay decided he deserved more than the 25% stake its owners had given him. Ramsay quit, triggering a law suit for breach of contract that the parties settled out of court. Ramsay and his wife's father have been partners ever since, and their bond goes beyond business. "He's my son-in-law but, actually, he's my son," Hutcheson says.


The Royal Hospital Road restaurant won its third star in 2001. By then Ramsay was famous for his temper. A British TV documentary called Boiling Point showed him spitting out food and firing a waiter for serving the wrong appetiser. "I've become more mature," Ramsay says. "I wouldn't say mellow. I still get incredibly frustrated."


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 and later sold to Irish group Quinlan Private.


"I thought it would be clever to have a bad boy there, and Gordon was the baddest," says John Ceriale, Blackstone's senior adviser for the lodging industry.


Ramsay's arrival attracted a thousand calls a day for reservations, Ceriale says, and the restaurant has since made Gordon Ramsay Holdings as much as £2m a year.


In 2002, Ceriale also put Ramsay in charge of all food at the Connaught and installed him at the Savoy Grill, once run by French culinary legend Auguste Escoffier. A year later, Ramsay opened two restaurants in the Berkeley hotel.


However, the TV work, along 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, saying consistency is more important to him than being avant-garde, 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. Ceriale then asked him to create restaurants in Blackstone's overseas hotels too. Ramsay opened in New York that year, Prague and 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 – a strategy he says made sense because it deployed income that would have been taxed at 40% in Britain. Every one of these ventures has lost money. In New York, where he opened two restaurants in Blackstone's London NYC hotel, Ramsay says losses reached $4m a year, with staff costing 80% 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. He also tripped up in France where he opened at the Trianon Palace Versailles. Hutcheson says they lost as much as €200,000 a month there in 2008.


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 data. The company was also £7.2m in arrears on UK taxes. At the time, Ramsay and Hutcheson had 1,250 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 £9m of their personal savings into Gordon Ramsay Holdings in 2009, 69% of it from Ramsay. They worked out an extension of tax payments and cut staff at their London HQ 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 that."


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


"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. His head chef at Boxwood Cafe in The Berkeley has saved £1,500 a month by no longer ordering flowers, and he now uses cheaper cuts of meat that he says require more skill to prepare.


Hutcheson says the worst is over and Gordon Ramsay Holdings should generate £7m-£8m in EBITDA in the fiscal year ending in August. The company is also moving ahead with two new projects in 2010: Petrus will relocate in London's Belgravia in January, and the Savoy Grill will reopen after a renovation.


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