The Portsmouth verdict…
Posted by John Beech on August 6, 2010
… or the Great Escape thanks to an own goal.
As a Pompey fan, not surprisingly my first reaction to the verdict of Mr Justice Mann was one of relief, a feeling no doubt shared by all Pompey fans, and especially by those members of the club’s non-playing staff for whom the threat of further redundancies will have been eased. Creditors, I would argue, should at least been not displeased with the result, as the real threat of liquidation would have left them with even less.
The judgment was based, of course, on narrow but precise points of law, the full details of which have yet to be published. Matt Slater, who was in court, provides an excellent account of the proceedings on the final day here. He writes of Mr Justice Mann’s pronouncement:
So HMRC’s arguments about the iniquity of football’s millionaires-first repayment rules, the general iffiness of clubs making “tax efficient” image rights payments to players with dubious “brand value” and the serial nature of Pompey’s antics were irrelevant. This case, in Mann’s opinion, boiled down to one key question.
Was the vote to decide how Pompey get out of this mess (with an agreement to pay creditors a reduced amount of the monies they are owed) organised correctly?
The judgement was an unequivocal ‘Yes’. Mr Justice Mann found that “none of the five heads of attack by HMRC amount to unfair prejudice nor have they been materially affected. In my view, HMRC will not be worse off by the situation left by the CVA bearing in mind what the alternatives could be for the club… There is no worthwhile way of money coming into the club other than by the CVA“ (1). The reasons for his ruling were “This case turned on commercial validity and not the football creditors rule. This is not the right place to decide whether creditors rules are fair or not. There is no way in which any worthwhile solvency can flow into the club other than the CVA” (2).
One way of viewing this is that HMRC’s fight to get the Football Creditors Rule overthrown scored an own goal yesterday. I had argued a few weeks ago (3) that HMRC were making a tactical mistake in pursuing this line, but it gives me little pleasure to see them beaten. The Football Creditors Rule is an absurdity. If I had a pound for every occasion over the last couple of weeks that I’ve been asked to explain it to non-football followers, well, I wouldn’t have been able to make any impact on Pompey’s tax bill, but I could dine out modestly. Invariably the reaction has been one of shock, disgust and almost disbelief. ‘Why should football clubs and players not have to pay their taxes like any other business and its employees?’ is the inevitable question that follows.
The argument the leagues put up, and it is of course their rule, not Portsmouth’s, is that without it the integrity of the transfer market could not be sustained. Without it, it is suggested that the financial collapse of Portsmouth might have brought down Watford. I have to say that I just do not think this argument stands up to scrutiny. It is tantamount to saying that as a club you should be guaranteed payment for a when selling a player whether your customer, the club buying your player, can afford it or not, that the simple expediency of checking credit ratings is not for you. What it allows is an unnaturally high level of transfer fee, and this at the expense of HMRC. Of course normal taxpayers can’t see the sense in this! As for the ‘Watford argument’, I would argue that, had they collapsed as a result of Portsmouth’s collapse, there would have been significant other factors contributing to that collapse.
There is too the issue of image rights, which now have added legitimisation as a means of tax avoidance, i.e. within the law, as opposed to illegal tax evasion. Hardly a good result for HMRC. (Incidentally, an interesting story on image rights here.)
In a nutshell, a good result for Portsmouth, and a bad result for HMRC. Hurray and boo respectively! It was, in the bigger football picture, also a bad result for football. There seems to a creeping myopia that the specificity of sport should somehow place its participants in a special category which avoids paying the taxes which everyone else pays. Sam Allardyce’s call yesterday, “If Cameron is listening, drop the tax bracket will you? Then we can get the best players in the world to play in the best league in the world.” (x) seems to me to be singularly ill-timed and out of step with public opinion.
The leagues are beginning to address the reform agenda, but I fear it is ‘too little, too late’. Given that a consultation process is taking place about the collection of taxes from companies (see Bubbling away in the background), and in the context of the ‘Great Deficit’, the leagues are moving towards their last chance to scrap the Football Creditors Rule before they too face HMRC in court. Let’s hope they have not been buoyed in their intransigence by yesterday’s ruling.