Football's agony continues despite proposals for change
“This isn’t a bluff, this isn’t scaremongering, this is reality.” Even in the hyperbole-strewn parlance of football, the statement stood out. Posted on Heart of Midlothian FC’s website earlier this month, the club’s warning that last Saturday’s game against St Mirren might be its last was a “call to arms”.
Addressing supporters, it declared: “Discussions on whose name is above the door, talk about how the money has been spent and debate on whether the investment in silverware has been appropriate is all natural – but quite simply worthless at this moment in time. The only valid debate now is how you can help the club.”
Urging them to take up an offer to buy a stake in the club requiring a minimum investment of 1,000 shares at 11p each, it asked them: “Is the club worth less than £110? Without your help now, we could be entering the final days of the club’s existence.”
But last Tuesday evening, Hearts received a stay of execution; with some first-team players agreeing to defer their November wages – due by the end of the week – a deal was struck with Her Majesty’s Revenue and Customs (HMRC) to make staged payments of the £450,000 of PAYE, National Insurance and VAT.
Edinburgh South MP Ian Murray, Labour’s Shadow Minister for Business, Innovation and Skills, was said to have played a role in reopening negotiations between HMRC and the club. It now has until 2 December, a day after their Scottish Cup tie with city rivals Hibs, to settle the bill. At the same time, it was reported that a consortium of Edinburgh businessmen were considering making an offer to Hearts’ current majority shareholder, Vladimir Romanov.
The parlous state of Scotland’s football finances had been made clear earlier when the business rescue, recovery and restructuring specialist, Begbies Traynor, published its ‘Red Flag Alert Football Distress Survey’, which scrutinises the corporate health of football clubs. It revealed a widening chasm between the financial fortunes of English and Scottish football league clubs.
While English clubs in the Championship and Divisions One and Two of the Football League demonstrate an encouraging up-turn in financial health, clubs in Scotland’s top three divisions are displaying escalating signs of corporate distress, the survey said.
Of the 68 English clubs playing in the top three divisions below the Premier League, only two, including Portsmouth which is already in administration, were displaying signs of corporate distress indicative of poor financial health. This compared with 13 clubs that displayed signs of distress when the survey was last carried out, six months ago.
In marked contrast, the research shows that six clubs, in Scotland’s top three divisions are displaying financial distress: two more than first time round when the survey was conducted in April 2012. Scotland’s top three divisions include 32 clubs, one of which is Hearts.
The survey was carried out during the period when, financially, most clubs are at their strongest, having recently received the majority of their season ticket, sponsorship and television payments.
Gerald Krasner, a partner at Begbies Traynor, who has experience of working with troubled clubs and is a joint administrator of Port Vale, said: “There are still concerns over the financial health of English football clubs, however, the failure of clubs like Portsmouth have provided salutary lessons for other clubs who may have been spending too much, principally on players’ wages.”
Krasner continued: “The after shock from these big-name clubs being put into administration has also been bolstered by measures being taken to improve football’s finances.
“It is likely that we will see HMRC take a tough look at those clubs with tax arrears ahead of the January transfer window. We may well see more winding-up petitions issued as we have with Hearts this week before this window to prevent clubs spending what little cash they have on players rather than repaying their tax arrears,” he added.
This season the Football League has introduced the Financial Fair Play framework which aims to reduce the levels of losses being incurred at some clubs and eventually establish a league of financially self-sustaining professional clubs.
“All the clubs have signed up to Financial Fair Play and we are starting to see the beginnings of a sea change in clubs’ attitudes to finance. That can only be a good thing for the game, but we won’t know just how much of the recent improvement is due to seasonal factors until April 2013 when we can compare the figures taken at the point in the year when clubs are under most financial pressure,” said Krasner.
He added: “Foreign takeovers of increasing numbers of Championship clubs are also having an effect on those clubs’ finances. Cardiff, Derby, Nottingham Forest and Leicester are all now under foreign ownership, and their new owners are putting money into buying new players who they hope will help propel then into the riches and glory of the Premier League.”
Commenting on the more austere picture in Scotland, Ken Pattullo of Begbies Traynor in Scotland, said that such a grim state of clubs’ finances at this time of year was particularly worrying: “Distress has actually risen since the peak of last season’s problems, and the plain fact is that if a club is in trouble at this stage, it looks very bleak for the prospects of financial survival when cash flows are really put under pressure in the spring and early summer.
“The relegation of Rangers has had some impact but lower attendances and falling revenues, especially reducing TV money, has given rise to the distress that has spread across the SPL and Divisions One and Two.”
Last month, fans of Rangers, the Glasgow club banished from the Scottish Premier League to the country’s fourth tier after being bought out of administration in June, were offered the chance to invest in the club as part of a £20m flotation on Aim.
Charles Green, chief executive of Rangers, said the refinancing would allow institutional and retail investors to fund its attempts to quickly regain its status in Scotland’s top flight.
Green, whose company Sevco bought Rangers’ assets out of administration for £5.5m and then unsuccessfully applied to have the new club remain in Scotland’s Premier League, said on Thursday: “From the time we acquired the business and assets of Rangers FC, we indicated our intention to list the company and provide our fans with the opportunity to invest in their club. I am delighted that our plans are coming to fruition.”
Existing backers of the club, who originally raised funds at 50p a share to resurrect Rangers and have since committed £12m following further private placings at £1 a share, are hopeful that the new business might be valued at between £35m and £50m, depending on the level of interest in the flotation.
“Unfortunately,” observed Pattullo, “with the recent upheaval in Scottish football’s structure, following Rangers’ relegation to the third division, it appears that we have considerably more pain to go through before we see the improvements that have started to be seen south of the border.”
Last Wednesday, the Scottish Football League’s (SFL) 30 member clubs met to discuss proposals to revive the sport. So-called reconstruction has long been on the agenda of both the SFL and the Scottish Premier League, which is currently in charge of the top tier, but the new proposal reportedly favours one overall league body and three leagues of 16, 10 and 18 teams.
SFL chief executive David Longmuir said the aim was to “re-energise and refresh the game” to make it “compelling for fans” and to “create a better structure for the game going forward.” The 12 SPL clubs are scheduled to meet on 3 December where reconstruction, and possible expansion, will be on the agenda.
The Scottish Football Association’s (SFA) chief executive Stewart Regan said he was aware of the proposals and would seek to discuss them together with both league executives. “Reconstruction has been on the agenda for two years. Just after I came to the Scottish FA it was part of the Henry McLeish report.”
In 2009, the SFA commissioned Former First Minister Henry McLeish to undertake a review of Scottish football. It proposed a series of measures, including expanding participation for all ages and both sexes, improving the prospects of talented and elite young Scots, overhauling governance, creating a more integrated league structure and providing a “more attractive and commercially viable product on the pitch.”
“A number of proposals have been tabled by the SPL,” said Regan last week. “We have had debates going on for months and months and months. We remain committed to reconstruction. The leagues remain committed to reconstruction, but that will only happen if the clubs are comfortable with the proposals.”
But for many, time is running out.