Football Management

Commentary on the management of over 160 English football clubs by Dr John Beech, winner of the FSF Writer of the Year Award 2009/10 Twitter: @JohnBeech Curator of Scoop.it! Football Finance

Portsmouth’s parlous progress

Posted by John Beech on May 7, 2010

I guess yesterday was a good day to bury news on, what with the no small matter of a General Election.  It was, by I’m sure complete coincidence, the day of the first meeting between Portsmouth’s Administrators (there mob-handed rather than the usual solo appearance of Andrew Andronikou) and the club’s creditors to discuss a CVA proposal.  Press reporters were banned from reporting the meeting verbatim (but, on a big plus side, were allowed to attend), and we should be grateful to Nick Szczepanik of The Times and Matt Slater of the BBC who considerably enlivened a dreary afternoon with their tweeting.

As a seasoned Pompey observer, it of course came as no surprise to learn that debts had grown again, now to £138m (1).  Equally predictably, there were surprises in the detail.

An extra debt of £17m to HMRC has emerged.  The figure consists of not only an unsurprising amount of interest charges, but also claims for tax liable on payments to players for image rights.  The latter opens a whole new war front by HMRC, attempting to move this practice which is widespread in the football sector from the realms of tax avoidance, which is perfectly legal, to those of tax evasion, which is not.  If this claim is successful, it will have profound implications for clubs from the Premier League down to League 2, where newly-promoted Notts County have not been able to hide the practice with respect to Sol Campbell, albeit rather briefly at the start of the current season (2).

Even by Pompey’s surreal standards, the most extraordinary new debt is a claim for £50m from the Football League Pension Fund.  Seemed frankly incredible, as Portsmouth last played in the Football League in season 2002/03 and their wages bill for that season was less than £14m.  This pension fund is in fact for non-playing employees, which would make the figure of £50m even more ludicrous even allowing for Peter Storrie’s salary.  Andrew Andronikou has suggested that the actual figure is in fact a rather more modest £34,000 (3).

The proposed minimum payment of 20p in the £ over five years looks likely to be accepted formally, but HMRC have managed to negotiate at least one key condition.  The current club is to be liquidated within nine months (doubtless triggering an investigation into how it was run) and the CVA transferred to a new company (4).  This scenario assumes that a new owner has emerged by then, and the formal acceptance of a CVA makes this more likely.

One crumb of comfort to emerge is that Balran Chainrai has agreed to personally pay off in full debts to charities  and to all creditors owed less than £2,500 (5) as a goodwill gesture.  These include British Gas, BT, Dairy Crest, Holiday Inn, Jobsite, Mercedes Benz,and Qatar Airways (who are owed 20p apparently) as well as a number of local small businesses.  It also excludes local businesses owed more than £25,000 of course.

Andrew Andronikou has set a harsh but realistic (for a Championship club) wages cap for next season of £10,000 in total per week (6).  His stark message to players is “Like it or lump it“.  Any notion of ‘bouncing back’ seems increasingly to be in cloud cuckoo land.  A bit like the country in post-election ‘hung parliament’ mode really.


PORTSMOUTH’S PROGRESS UPDATE – 9 May 2010

Not altogether surprisingly, The Independent on Sunday is reporting that Portsmouth are to challenge HMRC’s claim regarding image rights (A) in what will be a very important test case with potentially major ramifications for many, many clubs.  The same report suggests that a secvret deal is being negotiated between the Administrator and the so-far unsympathetic Premier League.  One to watch…


PORTSMOUTH’S PROGRESS UPDATE 2 – 17 May 2010

Offshore payments to players is the thrust of a new initiative by HMRC it would seem.  Glasgow Rangers are are reported (B) to have been hit with a tax bill which includes £24m for such payments made in the last decade.

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10 Responses to “Portsmouth’s parlous progress”

  1. Haywain said

    As it appears that HMRC are now claiming just about 25% of the total debt and appear to be willing to accept the proposed CVA, does this mark a change of tack by HMRC or is it special treatment for a “big” club after so many smaller clubs have been treated differently?

    • John Beech said

      Interesting point and related question!
      Frankly, it’s far from clear whether HMRC actually hold 25% of the debt or not. Their claim regarding tax on image rights has yet to be tested in a court, and, from the opposite perspective, a cynic might suggest that the claim of £50m by the pension fund is an attempt to tip the balance against HMRC.
      Portsmouth certainly might well warrant a change in tack by HMRC, to seize the opportunity of hitting a big club (big at least in the sense of being a Premier League club), but they have been trying to hit all clubs as hard as possible. If you look at the cases made against Cardiff and Southend, HMRC haven’t been pulling any punches. It can be argued that the courts have been more sympathetic to these ‘smaller’ clubs, much more willing to grant extensions in particular. Obviously each case is individual though, and it makes comprison problematic.
      One important point is that HMRC need to maximise the amount they recover, and, in the case of Portsmouth, liquidation would prove a poor alternative scenario – they have to be pragmatic even if they were instinctively to prefer to ‘go for the jugular’.

      • Haywain said

        The courts may have been sympathetic, but I think it would be reasonable to argue that the Football League have not. The penalties that have been applied to those clubs unfortunate enough to owe more than 25% to HMRC reflect this. I give you Luton Town, AFC Bournemouth and Rotherham United by way of example – all heavily penalised because of HMRC refusing to accept a CVA.

      • John Beech said

        Absolutely. The Football League have been neither sympathetic nor reasonable. They pushed Luton into a downward spiral by punishing the new owners for something committed by the previous regime! You might enjoy my Working Paper on how the deduction of points is dysfunctional (available here).

  2. [...] John Beech’s Football Management takes a look at Portsmouth’s proposed CVA, which is offering 20p in the pound and should [...]

  3. Martin said

    Good analysis on Pompey and an excellent working paper on the (failing IMO) points deduction policy.

    NB. Is there a good reason for the absence of AFC Wimbledon’s 18 points deduction (reduced to 3 on appeal) in 2006/07 BTW?

    • John Beech said

      None I’m afraid – I had missed it when preparing the Working Paper; it should have been there.

  4. Martin said

    “Crawley Town – a 6 points deduction cost them the runner up spot and promotion from the Spartan South Midlands League Division Two in 2006/07.”

    I think you mean the Conference National.

    “The Southern and Isthmian Leagues are much less likely to take action against clubs who field ineligible players (the most common offence incurring points deduction) than the Northern League.”

    As a Wimbledon fan, am I allowed a hollow laugh at that?

    The Isthmian League’s petty bureaucrats *loved* imposing a season-crippling 18 point penalty on us for a honest mistake that hurt no-one (daring to field an Englishman in an English league competition supervised by the English FA but who had played a few games for a Welsh side – Cardiff – the previous season).

    It was only reduced to 3 points on appeal to the FA after a mass national campaign by enraged Wimbledon fans. But the club was still also ejected from two cups (the FA Trophy and Surrey Senior Cup) and fined £10,000 for the same offence.

    • John Beech said

      Indeed I did mean the Conference, as I had correctly stated elsewhere in the Working Paper. Consider my wrist as slapped for poor proof reading.

      I take your point about the case of AFC Wimbledon, but would still note that this kind of points deduction is significantly more frequent in the Northern League for some reason.

  5. John Beech said

    PORTSMOUTH LATEST

    The proposed CVA for consideration by the club’s creditors is downloadable here. In particular worth reading is Section 6 – The Current Financial Position of the Club – with its proposal to sell six players, buy no new players, and a 5 Year projection that the club will remain in the Championship, attracting gates of 14,000.

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