York again drew Liverpool in the FA Cup fifth round in 1985–86, and took the lead through Gary Ford only to concede a stoppage time equaliser. Tony Canham scored at Anfield and York had a second goal disallowed before York succumbed to a 3–1 defeat in extra time. York lost only three home league matches all season, but missed out on promotion after finishing seventh. In the summer of 1986 he sold MacPhail to Bristol City for £15,000, whilst many of the veteran players he signed when he first came to the club were coming to the end of their careers. The 1986–87 season was disappointing for York as they were knocked out of the FA Cup by non-League team Caernarfon Town and ended the season in 20th-place. They did though manage to beat Chelsea 1–0 in the League Cup, but lost the return fixture at Stamford Bridge 3–0. Smith ended up falling out with the club's directors, who invested money in the club's facilities rather than on players, and released goalkeeper Andy Leaning against his wishes.