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! Football Finance

Archive for June, 2010

The trouble with new stadiums 1

Posted by John Beech on June 27, 2010

You may have noticed – I am not a fan of the new stadium.  At the Supporters Direct Conference I spoke briefly about ‘the myth of the new stadium’, and over a couple of postings I’ll  elaborate on why I don’t, in general, rate them.

Broadly, there are three lines of argument that are trotted out by the boards of clubs when the subject is raised:

  • We’re a club with ambition and we need more seats to reflect that ambition.
  • We’ve got the wrong sort of stadium.  We need one better suited to maximising our revenue streams.
  • There’s this amazing property deal we can do.  We’ll sell the old stadium for redevelopment and there’ll be loads of money to build the new one.

In this first posting, I’ll look at the first of these not entirely mutually exclusive issues.  It’s an important one not only with respect to the case for a new stadium, but also for the all important issue of the proposed size of the new stadium.  I have yet to come across a case where the proposed new stadium is actually the same size as the existing one, let alone smaller.

The recently published Deloitte report National Interest: Annual review of Football Finance [which is based on accounts, and hence on financial years, but is in effect covering the 2008/09 season] reveals some very interesting data on both stadium capacity and attendances, from which load factor (the percentage of seats occupied) can be calculated).  The reduction in capacity caused by compulsory seating and the seeming popularity increase in football may lead one to assume that stadiums are bursting at the seams every other Saturday.  This is certainly not the case.

Here is the summary of the data for the ‘average’ club in each of the top 4 tiers:

  • Premier League: Capacity 38,593; load factor 92%
  • Championship: Capacity 25,437; load factor 70%
  • League 1: Capacity 14,424; load factor 52%
  • League 2: Capacity 11,622; load factor 36%

If you assume 95% load factor is getting on for a full house and a point at which you might seriously consider the need for a bigger stadium, then it’s only really in the Premier League that this is the case.  Of course this is data for the average club, and we need to look at individual clubs.  The only clubs which achieved 95% load factor were:

  • Premier League: all clubs except Aston Villa (93%), Blackburn Rovers (75%), Bolton Wanderers (81%), Everton (89%), Manchester City (90%), Middlesbrough (81%), Newcastle United (91%), Sunderland (82%) and Wigan Athletic (73%).  Some of these lower load factors reflect the fact that the club has already built a newer, larger stadium.
  • Championship: none – the closest was Norwich City with 94%, followed by Cardiff City [then at the old ground] on 89% and Derby County on 88%.
  • League 1: none – highest was Northampton Town on 71%.
  • League 2: none – highest was Luton Town on 59%, followed by Shrewsbury Town on 57% and Exeter City on 56%.

On this basis then, the only clubs with a sound argument for building a new, larger stadium are a handful of Premier League clubs and Norwich City (although in their case the blip in League 1 might have given them cause for thought, but not for long; sensibly they are planning an increase to the capacity of Carrow Road rather than a new stadium [1]).  Least in need of a larger stadium was, unsurprisingly, Darlington on 12%, followed by Rotherham on 14% (but they were already in exile in the 25,000 seater Don Valley stadium) and Notts County on 22%.

The ambition or need argument simply does not wash for the vast majority of clubs.  ‘Ah’, you cry, ‘but what about the other two arguments?  Surely you’ve only confirmed the need to develop other revenue streams, which justifies a new stadium!’

Erm, actually no.   Watch this space for upcoming postings!

Posted in Stadium | Tagged: | 7 Comments »

Au revoir les Bleus

Posted by John Beech on June 26, 2010

If Schadenfreude is your thing – and you are not French – then you would have enjoyed the last few days in France.  The ignominious departure of the lacklustre national team from the World Cup caused a positive hurricane of media outpouring.

On Tuesday, the press was already clear in its displeasure with events in South Africa.  Today in France led with:

‘Thanks and see you again’ was certainly tongue in cheek – the article begins ‘After six weeks of psycho-drama, there hasn’t been a miracle.

This is how Tuesday’s definitive loss to hosts South Africa was reported the following morning.  France Football went with ‘Death on the Field of Dishonour‘, showing the sense of understatement that you would normally associate with a British tabloid.

It was “The End of a World” according to top French sports newspaper l’Equipe.  Even le Figaro made the departure of Raymond Domenech its lead story, assuring its readers that his ‘retirement’ was approved by presumably the entire French nation.  He did himself no favours with the media – the French TV showed the clip of him refusing to shake hands with Carlos Alberto Parreira, South Africa’s manager, again and again and again.  His post-match interview might have seemed statesmanlike on the radio, but casually picking his ear took away sime of his gravitas on television.

Being of an academic disposition, I immediately conducted a survey to establish who exactly the French public saw as being responsible.  Admittedly a sample of just one – the owner of the bar in Granville where I was drinking – does not ensure statistical confidence, but he was unequivocal in his answer: “Everbody.  The President of the French Football Association, Raymond Domenech, all the players…

By Thursday morning the whole crisis had escalated:

An affair of state‘ it had indeed become.  President Sarkozy was supposedly spitting bullets, and Sports Minister Rosalyne Bachelot dishing out public bollockings.  She said that she believed it inevitable that French Football Association President will go.  FIFA has of course reacted angrily at to this perceived blatant interference by a government into football affairs (1).  Gerard Houlier is also featured in the story, although by this point Herself was becoming more reluctant to translate French press reports on football into English while on her holiday, so I’m not sure why.  As my bar-owner friend had said though, everyone is to blame.

While there are deeper long-running issues which have led les Bleus to the disastrous situation they find themselves in, the immdediate setting is the refusal of Ncolas Anelka to apologise for swearing at Raymond Domenech, Anelka being sent home as a result, the players then striking briefly, Evra grassing to the press, etc. etc.

Already there have been commercial repercussions.  The team has already lost its kit sponsor (2), and Crédit Agricole and fast-food company Quicktoday have cancelled their television adverts with the team (3).

How very different from England’s campaign.  Cheeky chappy John Terry had of course come close to becoming a ‘traitor’, as Evra was branded, but I like to think of him as a public-spirited whistle blower.  Well, it would be disloyal not to, wouldn’t it?  And England had apparently (I say ‘apparently’ because French television preferred to show the Algeria game) beaten Slovenia convincingly 1-0.  Of course I believe The Sun report which spoke of “renewed optimism after a performance which was a lot more convincing than the score suggests” (2).  I certainly hope so – a scoreline of 1-0 against a country of 2 million people which only became a country less than twenty years ago doesn’t strike me as particularly convincing.  Who knows, we may yet see Steven Gerrard, à la Theirry Henry, summoned to Downing Street to explain.

[Normal service is almost resumed.  I will be away in Austria next week for a funeral, but plan to get at least one more posting up before I depart.]

Posted in 2010, FIFA, Governance, Human Resource Management, Sponsorship | Tagged: , , , , | 2 Comments »

Blogged off!

Posted by John Beech on June 18, 2010

I’m about to head off for a week’s holiday, laptopless, so there will be a short break from posting and from moderating comments.  Apologies, but I don’t want to be a dull boy.  Normal service should return next weekend.

Out of curiosity I looked up what I had written when I went on holiday last year.  It probably serves almost as well this year: “What will I be returning to? What news of takeovers at Portsmouth and Newcastle, and HMRC’s winding-up orders?” 

Plus ça change…

Posted in Uncategorized | Leave a Comment »

La Liga broadcasts at risk

Posted by John Beech on June 18, 2010

With all the column inches being given over vuvuzelas, injuries and the choice of goalkeeper, the English media’s preoccupation with the World Cup is at the expense of other, perhaps more important, football stories.  This particular one I would probably have missed had it not been for Supporters Direct Europe‘s eagle-eyed polyglot, Antonia Hagemann, who kindly alerted me to this Spanish (language) URL.

The report she passed me, together with some US ones I’ve managed to find (1, 2, 3), says that Mediapro is seeking ‘bankruptcy protection’, which, in my ignorance of Spanish financial law, I take to be more or less the equivalent of Voluntary Administration.  The situation with football broadcasting is different from England, and more like that in the Netherlands – rights are not bargained collectively by the appropriate league, but are negotiated individually by clubs.  In the case of Mediapro they held the rights of all La Liga clubs except Teneriffe, and those of most of the second tier clubs.

The decision is part of an ongoing battle with rival broadcaster Sogecable, so may not be as simple as it at first appears.  Whatever the reasons though, Spanish viewers may not be able to see La Liga on their televisions next season.  In fact, they have just announced the extension of their contract with Barcelona (4).

We have seen problems with broadcasters folding in the shape of ITV Digital (2002) and more recently with Setanta.  It would seem likely that this Spanish situation will not be resolved by a quick resale of rights.

To come back to home with a jolt, Sky have announced that their Sports News service is to be pulled from the Freeview bundle, and will become a pay-TV channel.  I for one will no longer be joining Jeff Stelling; nor am I dancing in the streets at the news.

Posted in Broadcasting rights, Insolvency | Tagged: , | Leave a Comment »

Are Portsmouth turning the corner?

Posted by John Beech on June 17, 2010

Pompey fans are not very used to good news, and this morning’s announcement that the creditors have accepted Andrew Andronikou’s proposal for a CVA (1), with its offer of 20p minimum in the pound is the nearest we’ve had to good news for some time.  This figure has resulted in virtually all creditors accepting the offer, with the obvious exception of HMRC, who are looking for full payment.

The voting went to the wire, with 81.3% (based on money owed) voting in favour, the target for acceptance being 75%.  The 18.7% consisted mainly of HMRC, but also one football agent owed £40,000 (2).

This is, of course, but a first step, and there are still hurdles to overcome:

  • There is a 28-day ‘cooling off’ period when creditors can change their minds.
  • HMRC may make a legal challenge.  A core issue here is the percentage share of the overall vote they hold, which derives from the size of the debt.  This has been somewhat of a moveable feast.  HMRC have claimed £35m, Andrionikou £22m.  The figure at today’s meeting is reported as £24m.  If HMRC press their case and press the case regarding tax on image rights, there could be problems for the Administrator in keeping HMRC’s share at under 25% (or slightly less given there is at least the one football agent voting with them).
  • If, for either of these reasons, the CVA is not formalised by the court in 28 days time, there is the threat of starting next season in the Championship on -17 points.
  • Until the transfer embargo is lifted, the club can not sign new players, or even re-sign current but out-of-contract players.  As thing stand, in theory we could see them turning out at Coventry for the start of the new season without 11 players under contract.
  • In the longer term, Andronikou’s business plan to ensure that the necessary payments are made to move on from the CVA assumes no further relegation in the next five years.  How realistic an assumption is this?

Andronikou can now concentrate on the major task of finding new owners, although little other due diligence can be expected before the CVA proposal is formally accepted by the court in a month’s time.  Pompey with a CVA in place looks a bit more attractive than the Pompey we have been seeing of late.  So, yes, the corner is being turned, but there are still some significant obstacles to be overcome.

Posted in Debts, HMRC, Insolvency | Tagged: , , | Leave a Comment »

Protecting sponsors

Posted by John Beech on June 17, 2010

My third World Cup posting has resonances much nearer to home; just bear with me.

Ambush marketing – the piggy-backing of events by companies who are not official sponsors (there is an excellent overview of the phenomenon in sports events here) – hit the news at the last World Cup, with Bavaria, the Dutch lager producer, engineering the celebrated orange lederhosen stunt (1 if you are unfamiliar with this).

Bavaria (see, more free publicity – which I regret, but it’s too contrived to write ‘ a certain Dutch beer manufacturer) have capped that incident in spite of FIFA’s best endeavours to protect the official World Cup beer sponsor (am I alone in thinking that is in itself just a tad absurd?), Budweiser.  Forty women sitting together in orange minidresses became this World Cup’s version of lederhosen (2, and for the prurient who find the incident hard to picture 2)

Bavaria have certainly achieved some success.  A Google search on ‘FIFA world cup beer sponsor’ currently finds Bavaria (remember, they aren’t) squeezing out Budweiser (who are) from the number one slot.

The whole issue of ambush marketing like this needs to be seen from two perspectives.  First, there is the need to protect sponsors against it.  The case is a clear one from a business perspective.  An official sponsor expects exclusivity in their marketing campaign, and pays for it.  If the event organiser does not stamp out ambush marketing he is not providing what the sponsor has paid for.

The second perspective is how the organiser goes about the ‘policing’ of potential ambush marketing.  Obviously prevention is the best policy, but, when ambush marketing does take place, how can the organiser best retrieve the situation?  In a sense they are on a hiding to nothing – too little reaction, the ambusher will be encouraged to try again; too much reaction, and the ambusher will get additional free publicity.  FIFA are in danger of veering towards the second course.  They are pressing criminal charges (3), which is logical from their perspective, but this is giving the story legs (and bear in mind that we are talking shapely legs in minidresses), with two of the women on bail, with passports confiscated (4).  The fact that they do not return to court until June 22 ensures that the saga, with attendant publicity, drags on.

It seems unlikely that the women involved were entirely dewy-eyed innocents.  The stunt was highly organised, and has other ethical connotations as it seems to have involved the illegal sale of corporate tickets – ITV’s pundit Robbie Earle has already lost that job as a result, although it is suggested that he will not be charged (5).  The saga has now grown to the extent that the Dutch Foreign Minister has weighed in, “describ[ing] the arrests of the two women as “disproportionate” and said it was wrong that they could face prison for “wearing an orange dress” to the stadium.”  She rather misses the point – it isn’t quite as simple as ‘wearing an orange dress’ now is it?

FIFA are facing a lose/lose choice.  Go soft and the story will die, but sponsors will be reluctant to pay for sponsorship in the future; go hard and the sponsors will be happy, but the Dutch government will turn the two women into martyrs.  The real problem for FIFA, however, is that Bavaria face a win/win scenario.

What strikes me in all of this is the rather surreal nature of what is going on.  Understandable it may be from a business perspective, entertaining it may be, but should a major issue in football revolve around lager and minidresses?  Bovril and flat caps maybe, but not lager and minidresses surely.  😉  It is just another manifestation of the incongruities that commercialisation has brought to the beautiful game.

The example of commercialisation, protecting sponsors and English football that I mentioned at the beginning revolves around the awarding of a 2012 Olympic football venue to Coventry (6).  The surreal is summed up in the two opening sentences of the Coventry Evening Telegraph report:

COVENTRY’S Ricoh Arena has been chosen as the new Midlands venue to host Olympic football matches in 2012 after Aston Villa pulled out.

The home of Coventry City will be renamed the City of Coventry Stadium for the 2012 games and all branding will be removed from the stadium.

To Coventry people, and football fans throughout England, the newish home of Coventry City FC is ‘the Ricoh’.  Pulling down branding (and of course putting it up again a couple of weeks later) will make no difference to this, although it may well see Ricoh looking for a better price when sponsorship come up for renewal.  It has to be done to protect Olympic TOP sponsors such as Panasonic however.

Just a little bit hard to see how exactly the scurrying around on the roof of the Ricoh by workmen will be ‘helping to build a better world through sport’ though.  Commercialisation and sport make strange bedfellows at times.

Posted in 2010, Ethics, Marketing, Sponsorship | Tagged: , , , | 1 Comment »

Political correctness in South Africa

Posted by John Beech on June 16, 2010

You  wait over a week for a World Cup story to come up on this blog and then three come along almost at once!  This one, the second, has a very direct connection with English football finance.

Nadeem Khan, a member of the South African Liverpool Supporters Club, accompanied by his wife and child, put up a banner at the Germany v. Australia game on Sunday night in Durban among other supporters’ banners (full story here).  About half an hour into the game he was somewhat surprised to see three security officials taking it down – and subsequently it was destroyed by FIFA officials!  His ‘crime’, as in the Click Liverpool report, was identified by FIFA officials that “the flag contravened their rules against obscene or vulgar images being displayed at games, despite no such guidelines existing in FIFA’s ticketing terms and conditions.” The only even remotely relevant prohibitions I can find in the official Fan Guide (p.52) are on racist or xenophobic material and on promotional or commercial material.

Well, judge for yourself (photo link to Click Liverpool site embedded here).

Liverpool fan Ziyaad Hassam outside Soccer City Stadium in Johannesburg with the banner

Obscene?  An absurd suggestion.  Vulgar?  Au contraire!  I think it has rather tasteful connotations of nineteenth century trade union banners.

This was plain and simple censorship.  For the extremely heavy-handed handling of Hassam, click through to the full report here.  The same report also mentions two other incidents – “Two Irish fans were threatened with imprisonment for displaying an inoffensive flag during France’s game with Uruguay last Friday whilst Americans were also threatened with jail terms for holding up a banner claiming, ‘Wayne Bridge for USA’ during their clash with England.

I’m afraid I find this approach to fans all too typical of the FIFA way – the naked commercialisation of their activities has led them to lose touch with the fans.  The episode has prompted me to add a Censorship tag to the blog, and retrospectively add it to two previous postings.

Posted in 2010, Censorship, Fans, FIFA | Tagged: , , , | Leave a Comment »

World Cup 2010

Posted by John Beech on June 16, 2010

As regular readers may have spotted, I have so far restrained myself from blogging on this event.  This is not because it hasn’t caught my attention – well, the Maicon goal will certainly be up with the all-time great goals, but otherwise it hasn’t lived up to expectations; plenty of time yet though.

Those expectations have of course been mainly media-driven.  Even the normally sound BBC football news website has given itself over to the World Cup, with news on English club football (where I’m usually coming from) being rather thin on the ground.

A posting by Wyn Grant on Football Economy called  The price clubs pay for the World Cup did catch my attention however.  He points out just how vulnerable English clubs are to injuries sustained on World Cup duty, with Chelsea the most exposed with 16 players in South Africa. Definitely worth clicking through.

Another site worth exploring for its particular angle on the World Cup is that of Play the Games South Africa 2010.  Some interesting articles there, especially on the legacy for South Africa of such an event – well worth exploring.

If you are a vuvuzelaphile, probably feeling withdrawal symptoms from the stream of news reports on various injuries and how dire some of the matches have been, you can get a fix of that particular swarming beastie here.  If, like me, you are beginning to feel just a tiny bit vuvuzela-ed out, then be afraid, very afraid, especially if you are a fan of Bury, Coventry City or Sheffield Wednesday – they are going to be on sale in your club shop next season (1).

Posted in 2010 | Tagged: | 1 Comment »

Supporters Direct Conference

Posted by John Beech on June 11, 2010

I’ll be at the Supporters Direct Conference on A Better Vision for Football tomorrow, Saturday, and Sunday, and would be very pleased to meet any readers who are attending.

Remember, you can still register there on the day – details are here.

Posted in Uncategorized | Leave a Comment »

The very strange case of Swindon Town

Posted by John Beech on June 5, 2010

Swindon and Salisbury lie rough forty miles apart, so it is quite possible that a Salisbury City fan may have picked up the latest copy of The Swindon Advertiser and read this intriguing report, entitled ‘Town’s CVA finally signed off‘. Quite what their reaction was I hesitate to guess.  They must surely have looked to compare Swindon’s situation with that of Salisbury City (if you are unfamiliar with Salisbury’s current battle, see previous posting Appendix E: Tough Love for Salisbury City?).

It followed a rather terse posting on the Swindon club website (1) on Thursday

At the time that the Andrew Fitton led consortium acquired a controlling interest in Swindon Town Football Company Limited, it immediately met the conditions attached to the CVA (Creditor Voluntary Arrangement) that the club was in at the time.

The club is pleased to announce that after a protracted period of time, the administrator (Hacker Young) has officially confirmed that the CVA has been discharged and that the records at Companies House have now been amended accordingly.

As Chairman Andrew Fitton told the The Swindon Advertiser:

[People] probably though we were out a long time ago, but that wasn’t actually the case.

“It has taken two years and a huge amount of effort to get something to happen which was meant to happen in June 2008. But if you look at the Companies House website we are absolutely clean now.

“It was red tape and just legal issues whereby you cannot close out the CVA until everybody has cashed their cheques.

Now why might people think Swindon were out of a CVA a long time ago?  Well compare that statement yesterday to this one of Andrew Fitton to The Swindon Advertiser on 31 May 2008 (2): “ …if you do a search for Swindon Town you will see we are no longer a club the subject of a CVA.”  So there you are Andrew, mystery solved.  Recycling at its best.

Fitton continued in yesterday’s interview:

There was a letter dated July 2008 saying we had fulfilled all our objectives, but that still wasn’t good enough.

“And at the same time you have people who are not fit and proper going under the radar and getting into other clubs – it just doesn’t add up.”

In the wake of Town’s League One play-off final defeat to Millwall, Fitton hinted that he may have been ready to walk away from football after becoming “disillusioned” with the sport.

And he explained: “This situation is what a lot of my recent frustrations have been based on.

“We spent thousands of pounds on lawyers which has no influence on Swindon Town Football Club.

“It doesn’t help the players or help us win games. It is just crap that has to be swept up.

“Technically we could have been subjected to a transfer embargo, but thankfully the Football League were very good and decided that we had done everything we could and lifted it soon after we arrived at the club.

“I wish I could say the same about the FA though. They suspended our membership, meaning we weren’t even allowed a vote with them because they think we are a club who are financially delinquent.

“Should the FA have spent their time suspending our membership, or should they be sorting out the problems in our game?

“This is something celebrate. But you can now put into perspective my frustrations outside the game.

Three cheers, it would seem, for the Football League, for not being too retentive in the application of its Rules and Regulations.

But surely this can’t be the same Football League that is threatening to expel Stockport County for entering a second season in Administration, not grant Grimsby Town reprieve if that should happen, and then play 2010/11 with a club short, thus depriving very club in League 2 of one week’s match day revenues?  Well, yes it is – rules is rules, you see.

Given that Andrew Fitton is not an entirely reliable source of information, I’ve been trying to make sense of my Swindon Town file to see just how long the club has been suffering an insolvency event.   Clearly it goes back as far as May 2008.  The problems at Swindon predate Fitton, and are complex, with various attempts to bring them out of a CVA.

In January 2008, the BBC website reported that the total transfer embargo had been lifted, being replaced with a ‘flexible’ one, meaning “they can only sign and loan players with approval from the Football League” (3).  The report concluded “The flexible embargo will be removed on 31 May once all agreements have been met between Fitton’s consortium and the Football League“.

Previous contenders to run the club included BEST holdings (a Portuguese consortium), the mysterious Mike Diamandis, Willie Carson and Sir Seton Wills.

In July 2007 when the final payment of the CVA was due, then Administrator Andrew Androikou proposed amending the CVA and delaying a payment of £900,000 until the end of May 2008 (4).

In March 2007 the following exchange appeared on the club’s website (5) in a Q&A session:

Q. Why have no Accounts been produced for over 3 years?
Bob Moore

The only accounts that are overdue are those that relate to the year ended 31 May 2005. They are completed in draft and await the final audit report. Accounts for the year ended 31 May 2006 do not have to be filed until 31 March 2007.

An interesting answer to a different question.

In November 2006, a BBC report cited a Swindon Town board statement referring to “when the CVA was structured five years ago” (6).

In October 2005, the club narrowly escaped a winding-up order from HMRC, the second that year (7).

At the AGM in December 2004 as reported by the Supporters Trust (8), it was reported that:

No accounts were presented as the club is currently trading insolvently and the auditors will not sign off the accounts until an £800,000 cash injection is handed over.

2004 was characterised by continual disputes over planning permission for a new stadium that the club clearly could not afford.

The Trust’s report (9) of the club AGM in December 2003 also mentioned the problematic preparation of club accounts:

AGM brings more questions and answers for shareholders.

Swindon Town’s 2003 AGM was a largely harmonious meeting at the County Ground this morning, with both shareholders and board members keen to look to the future.

The meeting featured a number of questions from the floor regarding the three years of accounts recently delivered to shareholders, and the continued backlog of the remaining years accounts.

2002, on the other hand, was characterised by a spell in Administration, from March to August (10 and 11).  Debts at the time were £1.6m, including nearly £1m to the Inland revenue (now part of HMRC).

In August 2001 the club was reported as being in breach of its CVA (now you hadn’t forgotten had you!) (12), by failing to meet the conditions that “the debt to the Inland Revenue would be settled and sufficient working capital would be channelled into the club to keep it running efficiently“.

It was in fact back in August 2000 (13) that the CVA had been agreed, following the takeover of the club by Terry Brady (14).  This brought the club out of Administration which it had entered in February 2000 (15), when the club was reported as being between £2m and £3m in debt, projected to make a £1.5m trading loss this season, and needing to repay between £250,000 and £500,000 immediately.  The debts include £214,000 due to the Inland Revenue.

Rather a long time for a CVA to run – almost ten years.  The obvious club to be lenient with in the application of rules?  Perhaps not.  Stockport fans (and Grimsby fans) as well as Salisbury City fans might use a stronger term.

No doubt Andrew Fitton will speaking up at the Football League on Stockport County’s behalf.

Posted in Debts, Football Association, Football League, Governance, HMRC, Insolvency | Tagged: , , , , , | 3 Comments »

HMRC v. The Football Creditors Rule

Posted by John Beech on June 2, 2010

It has emerged that HMRC are to mount a legal challenge against the Premier League and the Football League in an attempt to overthrow the Football Creditors Rule (1).

Until September 2003, the Crown, and hence the Internal Revenue (IR) and Customs & Excise (C&E) who subsequently merged to form Her Majesty’s Revenue and Customs (HMRC), enjoyed the legal status of ‘preferred creditor’ – they got paid in full before any remaining money was divided between the remaining creditors.  Because of football’s Football Creditors rule, there was a clear priority on who had claims against an insolvent company:

  1. The Crown
  2. Football creditors (e.g. other clubs, players)
  3. The rest

With the loss of its legally-enshrined preferred status, the Crown then fell behind football creditors in the pecking order.

Accountancy Age summarises the current situation well:

Currently if a club enters administration they are bound by the football creditors rule, meaning some creditors such as players and managers will be paid in full from the administration and the remaining payments divided between the unsecured creditors including HMRC.

The rationale for having the rule is that football clubs need the certainty that they will receive funds for the sale of a player to another club – without the rule, the transfer market would collapse, with selling clubs losing out to defaulting buying clubs.

You can see their point, but there are plenty of other situations in which failing to pay debts in full is problematic.  An obvious example is St John’s Ambulance, who recently got worse treatment than football creditors from Portsmouth and Crystal Palace (in both cases, fans, to their credit, rallied round and paid the debts).  Small businesses who end up being offered 20p in the pound(at Portsmouth) or even 1p in the pound (at Crystal Palace) by Adminstrators find it hard to stomach that clubs such as Chelsea or Manchester City are guaranteed priority in receiving a full pound in the pound.

According to legal expert David Roberts as reported on the Sporting Intelligence website, HMRC have a good chance of having the Football Creditors rule declared unlawful, citing two principles of insolvency law:

  1. The pari passu principle
    This is the principle is that creditors should be treated on an equal basis, being paid pro rata what they are owed.
  2. The anti-deprivation principle
    This is the principle that a legal entity should not be deprived of its assets by reason of insolvency.
    This seems to my unqualified legal eye to be particularly pertinent in the case of VAT, which already belongs to Crown, having been collected on the Crown’s behalf by the club.

If the case is strong, why has HMRC not tried before?  Back in 2004 they did try, but took action against a club, Wimbledon, rather than the League.  The situation was a complex one, with Wimbledon in Administration and in the process of morphing mysteriously into ‘the Franchise’ (aka MK Dons).  Indeed in his judgement Lord Justice Neuberger in the Court of Appeal refers to “the very unusual facts of this case” (2).

To me this suggests why HMRC should now take action against the Leagues rather than against, say, Portsmouth.  Each club’s CVA might be seen as a unique set of circumstances, requiring HMRC to fight each case individually.  If they can succeed in getting the Leagues’ Football Creditors rule declared unlawful – end of story.

If they do turn out to be successful, it will have a major impact on the way transfers are conducted.  Clubs will actually have to consider whether other clubs they are selling players to are credit-worthy.  Clubs seen as credit risks will find it hard to buy new players.  A bit like every other business sector really.  Now there’s radical.

Posted in Debts, Football League, Governance, HMRC, Insolvency, Law, Premier League | Tagged: , , , , , , | 17 Comments »

Crystal Palace’s Park is its castle

Posted by John Beech on June 2, 2010

Yesterday provided a good example of the potential power of social media in reporting breaking news.  Sadly the Twitterati were more concerned with reporting from Theo Walcott’s golf club than from the meeting where Crystal Palace would ‘do or die’.  As we now know, they have, thankfully, lived to fight another day.

At the heart of yesterday’s crisis meeting was the terms of any future sale of Selhurst Park.  The CPFC 2010 consortium, prospective new owners, were at crunch point in the negotiations to buy the club, from one Administrator, and the stadium, from a second Administrator.  Their desire to reunite club and stadium makes sense from every point of view and is a sign of a healthier future.

Club and stadium had first become separated in 1998 when then owner Ron Noades sold the club to Mark Goldberg, but retained ownership of Selhurst Park.  The club was then struggling financially, but a ten-year lease was agreed.  Goldberg appears to have been under-funded as a benefactor, and in 2000 Simon Jordan acquired the club.

In 2006 Jordan claimed that he had acquired the freehold on Selhurst Park (1), but it transpired that Nodes had in fact sold the ground to a company owned by 60% by Paul Kemsley and 40% by HBOS (the ‘BOS’ being Bank of Scotland [now 40% itself owned by the UK government], not the Royal Bank of Scotland [an entirely different bank, now owned 84% by the UK government]).  Jordan however persisted in claiming that he was de facto owner of the ground (2), although also claiming that he had a 25-year lease.  The actual ownership has been a complex saga, a detailed account being published by David Conn in The Guardian in October 2008 (3).

To cut a long story short, the recent history of both the club and the stadium has been deeply troubled financially, and Simon Jordan has become increasingly demotivated.  In June 2009, Rock Investments, the Kemsley company which then owned Selhurst Park, went into Administration (4).  By August 2009, the club was hit with a transfer embargo following a dispute over unpaid bonuses and signing-on fees from last season (5).  Jordan pumped a further £5m into the club (6), but in January this year, under a second transfer embargo, the club was forced into Administration by property company Agilo, who had been supporting the club with loans (7).

A credible rescue attempt, taking over both club and stadium, would thus necessitate complex negotiations with not one but two different negotiators.  Again for the sake of brevity, we reached the situation where the CPFC 2010 consortium had reached agreement in principle to buy the club, but negotiations for the purchase of the stadium were in stalemate.  The problem was over the rather oddly termed ‘anti-embarrassment’ clause that Lloyds, owners of HBOS, and the major creditor of the stadium, were seeking to impose.

This ‘anti-embarrassment’ clause covered the situation if the new owner subsequently sold the stadium for a profit.  This might seem an academic point given Croydon Councils stated policy regarding the use of Selhurst Park for football, but Lloyds appear to have agreed a price that was less than might have achieved had they chosen to press for a change in policy and then sell Selhurst for property redevelopment.  Not surprisingly then, they were not prepared to see the CPFC 2010 consortium possibly make a profit at their expense at some time in the future.  The CPFC 2010 consortium felt that, in the unlikely event, they would not be prepared to see Lloyds profit from any investment they (the consortium) had subsequently made in developing the infrastructure at Selhurst Park, which would presumably bolster any resale price.  Academic, yes, but, given the figures involved, a matter which needed to be resolved before pens were put to paper.

A complication in the negotiation of the sale of the club to the CPFC 2010 consortium had been Simon Jordan’s agreement to the proposed CVA.  As a ‘benefactor’ who had pumped his personal money into the club, it is perhaps not surprising that he was reluctant to lose both ownership of the club and a considerable amount of money.  The proposed figure of 1p in the pound to be paid to creditors was hardly an enticing offer.

Fortunately common sense seems to have prevailed all round (I’m tempted to say ‘for once’) and agreement has been reached for both sales to the consortium.  For once, the future for Crystal Palace looks brighter, if not yet rosy.

The generic lessons of this sorry sage are clear:

  • The separation of ownership of club and stadium is a dangerous road to go down, even if a lengthy sell-and-lease-back arrangement is agreed.  In fact, the longer the period, the greater the exposure to risk of being unable to pay the lease, let alone invoke a buy-back clause.  Think Leeds United.
  • The generosity of a ‘benefactor’ is really stretched when he faces losing both ownership and his money.  The latter presupposes the former after all.

Clear lessons to be learned for far too many club.  will they have been universally learned?  Frankly, it seems unlikely.

Posted in Assets, Benefactors, Debts, Insolvency, Ownership, Stadium, Transfer embargo | Tagged: , , , , , , | 1 Comment »

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