Pompey’s soap turns into pantomime

The most recent events at Fratton Park would have been more at home in the King’s Theatre, where Jack in the Beanstalk opens in a few weeks time.

To give a flavour of the goings on, let me quote from the Portsmouth News Fratton latest update newsletter for today.  The four consecutive entries, in chronological order, are:

• Cotterill hails Hermann deal as recovery continues [Friday 10:45]

• Pompey could close and be liquidated [Friday 11:35]

• Andronikou hopeful of Gaydamak deal [Saturday 03:02]

• Ex-Hull City chairman wants to buy Pompey [Saturday 07:11]

A tad melodramatic by any standards – even Liverpool’s and Manchester United’s of the last week – I think you’ll agree.

So, mid-morning on Friday, everything looks by Pompey standards stable.  The long-running saga of re-signing Icelandic defender Hreidarsson has finally happened.  Not only that, he seems to be fully recovered from a bad Achilles injury which he suffered back in March.  But he presumably knew nothing of the club statement which was about to appear on the club website (1).  Notwithstanding the local newspaper’s scoop, the statement was not posted until 18:15.

To be fair, the statement does contain the sentence “it appears likely that the club will now be closed down and liquidated by the Administrators as they are unable to support the continued trading of the club“, albeit in the ninth paragraph.  The statement’s headline is “Sacha Gaydamak Puts Future Of Portsmouth In Jeopardy“, hinting at the possible purpose of the statement – to increase pressure on Gaydamak to sign the necessary papers.  The obstacle, at least according to the statement, is that “at the 11th hour the goalposts have been moved by Mr Gaydamak and this has now made the deal impossible to complete.”  Specifically “Mr Gaydamak has demanded a very significant upfront cash payment in order to allow the deal to proceed by releasing his security.“

In pantomime tradition the, the response to the question ‘Is Pompey heading for liquidation?’ the answer appears to be ‘Oh yes it is!’.  That at least is what the twitterati thought, and, with retweeting of the news, the story begins to read that Portsmouth are going into liquidation.  Even my daughter-in-law was prompted to message me ‘Our thoughts are with you at this difficult time Portsmouth ‘likely to close down”, together with the link to a BBC story.

By quarter to seven the local BBC radio station had contacted me for a comment, and by ten past seven I was in the Coventry studio emphasising that this was a breaking story, with no doubt some twists to come.

Sure enough, Administrator Andrew Andronikou, apparently rather taken by the response he had provoked, was prompted to change ‘Oh yes they are!’ to Oh no they probably aren’t.’  By mid-evening Andronikou was denying the club’s imminent demise to The Guardian’s Jamie Jackson (2), and in the early hours of Saturday morning he told BBC Sport (3) “Yesterday evening’s activities were really a wake-up call for everybody to say ‘look, we just can’t sit here whilst everybody else finesses their position. It is about coming to the table and cutting a deal’“

Among the journalists following the story, Nick Szczepanik and then the BBC’s Matt Slater were quick to rumble what was going on – an attempt to pressure Gaydamak through the media, one that went rather wrong because it was in a sense too successful.  The original ‘Oh yes they are!’ story was widely repeated internationally, generally without the later retraction.

What is strange about this PR fail is that Gaydamak, through his lawyers, has refuted the story, denying the allegations of his obstruction (4).  What the truth is we will probably never know.  All we can do is chalk it up to experience, and the Pompey fans among us hope that agreement and signatures really are close.  Hopefully one lesson has been learned – while lack of transparency is singularly unhelpful, selective transparency can have decidedly unexpected outcomes.

Meanwhile on Planet Pompey

Or is that two different planets?

Latest development is that the Football League has again declined to return the club share (1).  The statement from the club says:

Following a meeting of The Football League Board today, Portsmouth Football Club have been informed that the League are not yet able to approve the transfer of The Football League share to the club.

The League have indicated to the club that there are four further requirements that need to be satisfied.

The club will now take time to consider the feedback from the meeting ahead of further discussions with The Football League.

No indication then of what exactly the ‘four further requirements’ are – bureaucratic detail or major stumbling blocks?

The response from Administrator Andrew Andronikou has been a tad less considered than the club website might suggest if one goes with the report in local newspaper The News (x):

Pompey’s administrator fears the club could go out of business after the Football League refused to allow it out of administration.

Andrew Andronikou said it was now ‘virtually impossible to keep trading as a club’.

And he said it could see potential owner Balram Chainrai walking away from Pompey.

Meanwhile Manager Steve Cotterill preferred the emotive approach, telling BBC Radio Solent: “We need to blow some of these dark clouds away from this club. We’ve had them over us for more than 12 months now.  Let somebody else have the spotlight for a while. We’ve been under it perhaps for the wrong reasons, and lots of people want to throw mud at you.  When you haven’t got a lot to bat back with, some of that mud will stick.” (x)

All this, especially Andonikou’s dire warnings of the virtual impossibility of continuing to trade, made the next report to emerge from The News strange reading (x).  Far from planning the demise of the club, recruitment to strengthen the ‘threadbare squad’ is being planned.  On the club website latest news is of ticket sales.  Plans are pressing ahead to create a ‘noisy section’ to enhance the Fratton Roar (x).

Whether it’s ‘teetering on the brink’ or ‘business as usual’ is thus far from clear.  And before anyone adds a comment, it does of course have to be said that these two have seen little daylight between them for far too long at Fratton Park.

In terms of a necessity for change, time is still on the club’s side in the sense that they can go until the end of the season as they are without suffering further points deduction.  The possibility of Balram Chainrai giving up on the club is a far more worrying proposition.  On the one hand, he is unlikely to unless he is prepared to write off a large amount of money.  On the other, the Football League may be wanting to push him into further commitments he isunwilling to make.

If Andronikou is to be believed, there is no alternative to Chainrai, no John W Henry or Peter Lim about to enter the mêlée – hardly surprising, as Adronikou seems to be saying that the club is still not operating solvently.

One of my correspondents suggests that we may be heading for a repeat of the Leeds United scenario, with a further points deduction for not following Football League rules on clubs entering administration.  I certainly have my concerns, but Chainrai is looking to rid himself of the club, unlike Ken Bates, who proved a role model of tenacity-to-retain which must have proved an inspiration to Tom Hicks.

An interesting development has been reported by Accountancy Age: “HMRC has “invited” the administrators of Portsmouth City FC to give their opinion on what “stance” they take on the football creditors rule.” (x)  This relates to HMRC’s upcoming court challenge against the Leagues, although Accountancy Age suggests that UHY Hacker Young are unlikely to attend court.

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Coincidentally, the performance of Administrators in general was earlier this week raised by BBC Radio 4′s File on 4, although this was not specifically related to football and I stress that I am not in any way casting aspersions on the conduct of Portsmouth’s.

The programme raised worrying issues however to do with the lack of transparency and the potential for conflicts of interest for insolvency practitioners.  If they are, as the programme suggests, poorly regulated, put that together with the poor record of transparent regulation in football, and it makes a heady cocktail.  How much longer can the governing bodies just sit back as the likes of Portsmouth and Liverpool unravel so publicly?

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UPDATE TO MAIN STORY – 15 October 2010

New statement from the club website (A):

Portsmouth Football Club can confirm that agreement in principle has now been reached between the Administrators, prospective new owners and The Football League over the four further requirements that were notified yesterday, and that need to be satisfied before the transfer of The Football League share to the club can be approved.

The necessary additional documentation is now being worked on so that the transfer of The Football League share can take place once these conditions have been fulfilled.

This will then allow the sale of the club by the Administrators to the new owners, at which point Pompey will exit administration.

Portsmouth Football Club would like to thank supporters for their patience, steadfastness and loyalty as the club look to complete this complex process over the coming days.

Here’s hoping!

Liverpool and Manchester United

I’ve been abroad for work and then taken a couple of days leave – the net result is a week of only occasional internet contact.  A week is a long time in football it would seem.

All my standard searches to keep up with football management affairs have resulted in a total overkill on the Liverpool sale soap.  Certainly it’s a fast-moving and ever-changing saga – I was interviewed on BBC News 24 this morning, and already there has been a development, oh, and a non-development.

It strikes me that the focus on Liverpool, understandable though it is, has meant that some very interesting football management stories have been largely ignored.  For example, there are stadium stories at Bristol City and Worcester City, not to mention the 2012 stadium confrontation, and the Portsmouth CVA and Sheffield Wednesday’s plight should definitely not be ignored.  I hope to blog on at least some of these shortly.

The oddest of largely ignored stories is, to me, the reporting of Manchester United’s financial results (1).

The club has certainly done stunningly well in terms of growing revenues and turning a profit.  Turnover is more than twice that of cross-city rivals Manchester City.  Wages have risen, but the wages/revenues ratio remains just a vague aspiration for most clubs.

All very commendable, but there is the other side to the coin – an £83.6million loss and overall debts of £521.7million.  For all the success with growing revenues, debt management has been rather less successful. Given all the legitimate concerns of United fans regarding the Glazers, there is still room for a glance at Liverpool and the thought that things could be distinctly worse.  The difference between the club’s financial positions is nevertheless not so great, even if the relatively small difference leads to quite different outcomes.  Highly leveraged debt leaves a club worryingly exposed.

In the way that we are running out of ‘benefactors’ with deep enough pockets, we are also running out of ‘investors’ with sufficient finds of their own to invest.  Clubs seem to be convinced that the scenario at Portsmouth could never possibly happen to them.  First Portsmouth, now Liverpool.  Just how many Premier League clubs to teeter on the brink will it take before Chairmen get a grip on club finances, before they take Mr McCawber’s advice.  Unless spending is reined in to the extent that the business model becomes sustainable, we live in danger ultimately of only having a weekly exhibition match between Mansouri City and Abramovich Globetrotters to tune in and watch.

Meanwhile back at Liverpool, or rather at court rooms around the world…

Denouement at Liverpool?

The long-running saga of Messrs Hicks and Gillett’s failure, first, to bring Liverpool’s level debt down, and, next, to find a purchaser of the club willing to pay the unrealistic price they were asking, has until the last few days been, to me at least, a soap in which there is constant speculation on how the plot might develop but with very little meaty activity – a soap on an obscure satellite channel that I really couldn’t excited about enough to pay a subscription to view it.  Suddenly, on Monday night, all that changed.  Not only did  Twitter erupt into seemingly more unlikely and dramatic messages, even the club website sprung into unusual communicativeness, although it rapidly emerged that it was telling only one side of what was rapidly becoming, to use the now standard cliché, a civil war.  To see how little had actually happened up to this week, see the timeline provided by Sky Sports.

After the first round in the contest for ownership, we now have a break in activity until the matter of who does or doesn’t have the right to change the membership of the Liverpool board is heard by an English court, with most observers predicting that Hicks and Gillett will fail.  I’m certainly inclined to that view but a) I’m not a legal expert versed in the intricacies of this rather obscure area of the law, b) I’m not privy to what if anything was written down when the newer board members moved in and c) decisions by English courts still manage to be entirely unpredicted.  We shall see, although it seems likely that even if Hicks and Gillett win, short of them suddenly coming up the money to repay the Royal Bank, they are still likely to lose control as the bank will force Liverpool’s parent company into Administration, and the club will then be sold to John Henry as currently planned.  One big surprise in this scenario would be the fact that the Premier League have indicated that the 9 points would not be deducted for the parent company going into Administration – entirely the opposite view to the Football League in such circumstances, and not a view that will be well received in Southampton.  I have frequently railed against points deduction as a sanction (see my Working paper on the subject), but, if we must have it, we surely should see the rules being consistently applied across the leagues.

With this post-Dunkirk phase of the confrontation, most commentary seems to be around whether Liverpool would be moving out of the frying pan of one American ownership into the fire of another.  I really can’t get my head round this as an issue – is the nationality of the owner really the over-riding variable that determines whether it will be good for Liverpool?  Might it not just be to do rather more with the effectiveness of the new management team (and not just the owner), the ability of whoever emerges as (football) manager, and the skills of the playing squad to bring success on the pitch, and hence revenues?  To assume that all these factors are a function of the owner’s nationality is a nonsense.

Equally nonsensical is to extrapolate from Henry’s track record.  Turning the Boston Red Sox round is one thing, turning Liverpool round is an entirely different kettle of fish – different game, which he has virtually no experience of, different set of business rules, different governing bodies, different organisational culture, etc. etc.  You might as well argue that Virgin Trains would follow the success of Virgin Atlantic.

If Henry gains control, we will have to wait and see how he chooses to have the club run.  Certainly there are no contra-indications in his business record, but there is still plenty of scope for notching up his first big failure, not least because he is moving into a different ball game (pun intended).  He may emulate the failure of Hicks and Gillett to get to grips with running an English ‘soccerball franchise’, perhaps picking up some tips on the way from the Glazers, or he may follow in the rather more successful footsteps of Aston Villa or Derby County.  Only time will tell.

Speculation on the subject of new American investor-owners simply draws discussion away from the real issue here.  Do we want investor-owners at Liverpool, or any other club for that matter?  Or do we want a fan-owned co-operative in charge of Liverpool?  By now, if you are a regular reader, you will no doubt have guessed my preference.

Manchester City following in Pompey’s footsteps

Manchester City’s financial results, published earlier this week (1), were generally reported uncritically earlier this week, notwithstanding the key loss of £121m, with the exception at least of The Sun (2), where there was some attempt to look beyond the positive headlining provided by the club.

According to the club, the financial highlights could be summarised in large font size thus:

We have reported revenues in excess of £100m with a 44% rise in turnover to £125.1m…
Corporate partnership revenue increasing by £25.9m to £32.4m…
Ticket revenues increasing by £2.8m (18.6%) to £18.2m…
Season ticket revenues up by £0.9m to £9.6m…
Television rights fee income increasing by £5.7m (11.8%) to £54m…
Matchday hospitality revenue growing by 0.7m (13%) to £6.1m…
Retail sales and merchandising revenue increasing by £2.9m (60%) to £7.9m

Excellent news indeed, but then we find in much smaller font size that the club is report ing a net loss (and there was me beginning to think they had forgotten about costs) of £121.3m. Apparently “there have been significant increases in both player and non-player wage costs which have only been partially offset by substantial growth in the club’s commercial and other revenues“

Or to put it another way, the club itself can’t afford the players but its benefactor can.  Search the report for the word ‘debts’ and you will be out of luck however.  Sheikh Mansour is following the Abramovich route and converting debts to equity, and on a scale that invites comparison with Chelsea:

The financial foundations upon which the Club operates have been strengthened with the conversion into equity of £304.9m in shareholder loans.  A further £135.8m of new equity was issued during the financial year and post year-end a further £53.2m of new equity was issued. As we continue to invest in all areas of the Club, we do so virtually debt free – with only £36m of long term commercial bank debt following the conversion of shareholder loans into equity during the year.

So, there you have it – well over £400m injected with a loss of £100m.  Not quite so encouraging then.

In the smaller print financial data towards the back of the report we find that the aggregate payroll costs have risen from £82.6m to a rather worrying £133.3m – or, as the club like to present data, a rise of 61%.  Turnover had risen from £87m to £125m, meaning that the wages/revenues ratio had risen from 94.9% to 106.6%.

Which is where the reference to Portsmouth comes in.  Deloitte point out that for the Premier League clubs en masse the wages /revenues ratio has risen to a worrying 67% (3), but this rather hides the variance individual clubs have.  Here are the ratios over five seasons:

		04/05	05/06	06/07	07/08	08/09	5 seasons’ Average	Ratio for whole 5 seasons
Manchester Utd.		48.3	50.9	43.5	47.1	44.2	46.8	46.4
Tottenham		47.0	54.8	42.5	46.7	55.4	49.3	49.2
Arsenal		57.4	62.4	50.5	48.4	46.4	53.0	51.7
Liverpool		52.5	56.6	57.9	55.1	58.0	56.0	56.2
Bolton		47.9	52.1	60.2	66.1	68.9	59.0	59.4
Everton		51.4	63.6	74.7	58.8	61.6	62.0	61.5
Middlesbrough		55.7	n/a	79.6	72.5	58.7	66.6	66.0
Sunderland		64.0	44.1	90.1	58.3	76.7	66.6	65.6
West Bromwich		57.4	57.3	73.4	79.9	65.4	66.7	65.4
Manchester City		61.9	55.6	63.9	65.9	94.9	68.4	70.3
Newcastle Utd.		57.7	62.8	65.1	78.6	85.2	69.9	70.2
West Ham Utd.		63.7	51.9	75.8	79.7	91.1	72.4	74.7
Aston Villa		64.2	78.1	81.9	66.7	83.7	74.9	75.2
Chelsea		73.1	74.6	69.7	80.6	80.1	75.6	76.0
Hull City		57.3	61.7	76.7	129.0	65.8	78.1	74.0
Fulham		85.8	80.4	88.6	73.3	69.0	79.4	77.9
Blackburn		75.8	76.9	84.8	70.3	90.6	79.7	79.5
Stoke City		65.2	88.6	88.1	105.9	55.6	80.7	68.6
Portsmouth		69.5	66.0	89.6	76.4	108.8	82.1	83.9
Wigan Athletic		208.3	58.3	100.3	88.3	89.9	109.0	87.5

[Developed from data in Appendix 7 of Deloitte (2010); annual values of over 100% highlighted]

Only five clubs have been operating within the 60% limit generally advocated as good practice.  These include three of the so-called ‘big four’ of English football (Arsenal, Liverpool and Manchester United, but not Chelsea), who have the highest wages and revenues, thus skewing the average for the whole league.  Just over half the clubs have wages. revenues ratios of over 70%, with worst practice at Wigan Athletic, with a five-seasons ratio of 87.5%.  Among the data are some particularly worrying examples of ratios above 100% – Wigan with 100.3% in season 2006/07, Stoke with 105.9% in 2007/08, Portsmouth with 108.8% in 2008/09, Hull with 129.0% in 2007/08, and Wigan again with an amazing 208.3% in 2004/05.

Such figures are clearly unsustainable without the ‘bankrolling’ of a benefactor, and by any interpretation constitute financial doping.

[Normal service should now have been resumed.  I've moved office and buildings, and largely unpacked.  My laptop has been sorted with a new hard drive - all data recovered, but still some non-standard software to install.  Fingers crossed, and on a new back-up schedule!]