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Portsmouth's financial meltdown has so far shown little sign of
forcing the Premier League to change its rules in an effort to stop
clubs getting into such deep trouble.
Supporters groups, analysts and even British Prime Minister
Gordon Brown have expressed dismay at the financial disarray at
both ends of football's richest league.
Manchester United and Liverpool are loaded with total debt of
about 1 billion pounds ($1.49 billion) following leveraged
takeovers, while league regulations did nothing to stop Portsmouth
overspending on transfer fees and wages in an attempt to live the
dream of life in the fast lane.
But Danny Davis, a restructuring expert at law firm Mishcon
de Reya, said Tuesday the only way the Premier League will tighten
what many see as lax regulation is if Portsmouth goes out of
business and its finances are subject to public scrutiny.
"They'll be disappointed that Portsmouth is in administration
but they'll breathe a sigh of relief if they avoid liquidation,"
Davis said. "The Premier League don't see it being in their best
wishes to amend their rules.
"They don't want people looking into their business."
Premier League chief executive Richard Scudamore has pointed
to the millions in television revenue that clubs get every year and
blamed the threat of closure hanging over Portsmouth solely on its
own bad management.
Davis said the league won't change anything so long as it
keeps securing big money from broadcasters and sponsors keen to be
associated with a competition followed by fans all over the world.
"Football needs a club to go into liquidation so that the
liquidators can properly look into their affairs," Davis said. "How
can a tiny club be between 60 and 80 million pounds in debt and
have no players worth selling?
"How did that happen? Football fans deserve transparency."
Manchester United fans were only able to see how much the
Glazer family's 2005 takeover cost their club with the publication
of January's legally required annual report.
United paid more than 68 million pounds ($110.7 million) in
annual interest on the money the Glazers borrowed to buy the club,
and more has gone on fees and loans to the family.
Many fans are so unhappy that they have stopped wearing the
club's famous red-and-white colors to matches, while a group of
United-supporting businessmen met in London on Monday as they try
to raise funds to take the club off the Glazers' hands.
United's history and status - not to mention annual turnover
of 279 million pounds ($462 million) - means it will almost
certainly always appeal as an investment opportunity.
Portsmouth has failed to find a new owner to provide the cash
it needs to keep going and could be even less attractive to
investors if it is forced to sell its Fratton Park stadium.
Revenue and customs told the High Court that administrator
Andrew Andronikou plans to sell the team's home of 112 years to
Chainrai for 10 million pounds ($15 million) to present owner
Balram Chainrai.
It said the Hong Kong-based businessman, who is reported to
have advanced a short-term loan of 17 million pounds ($25.4
million), would lease the stadium back to Portsmouth at 1.2 million
pounds ($1.8 million) for the first season and raise the rent by 3
percent per year.
In the same spirit in which small businessmen once nurtured
the clubs they owned, many fans took advantage of clubs'
floatations on the stock market to buy small stakes for the
prestige of owning them rather than any prospect of making a
profit.
But, as Arsenal is currently finding, that left clubs exposed
to potentially unwelcome takeovers.
Denver-based businessman Stan Kroenke is close to reaching
the share threshold required to launch a takeover bid, while
Russian billionaire Alisher Usmanov is also rumored to be
interested in what may be the Premier League's best-run club.
West Ham was close to disaster this season until former
Birmingham owners David Sullivan and David Gold paid 50 million
pounds in January for a controlling stake in the east London club.
The pair explained their decision as a labor of love for the
club they support but Richard Hunter, Head of UK Equities for
London-based Hargreaves Lansdown Stockbrokers, said there was
almost certainly more to it than that.
"It's not going to be a totally altruistic venture," Hunter
said. "They're in for the long haul but they're going to be
expecting some kind of return on their capital at some point."
Sullivan and Gold have the option to buy the remainder of the
club, but acknowledge that their "preferred option" was to raise
finance for other investors to take smaller stakes.
That would help limit their exposure to risk should the club
be relegated and its finances deteriorate accordingly.
The club's chances of wiping out its debt and repaying the
investment of Sullivan and Gold hinge upon increasing revenue,
through a move to a new stadium and increased success on the field.
"Any football club as a business is utterly reliant on what
they do on the field," Hunter said. "The increase in Manchester
United's value since the Glazers took over is based upon the
success they have had over the last few years."
Meanwhile, Portsmouth continues to be pursued in court by the
government's revenue and customs authority continued over 12
million pounds ($18 million) in unpaid taxes.
The Premier League has yet to impose its supposedly automatic
nine-point penalty on Portsmouth for entering the legal protection
from creditors known as administration.
The club appears destined for the second-tier League
Championship anyway, and relegation could further deepen its
problems.
The Football League runs the three divisions below the
Premier League and has regularly proved ready to take tough action
against insolvent clubs, deducting points from two this season for
breaching financial regulations.
"The real crunch time for Portsmouth will come in three
months' time," Davis said. "If the club has no new finance in place
when the Football League announces its fixtures, and it doesn't
look like Portsmouth can fulfill their fixtures, the league may
well just say 'that's it' and throw them out."
