Clubs still vulnerable under regulations

BY foxsports • March 2, 2010

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."

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