“A distant subsidiary” – Who is Peter Pannu trying to kid?

Background
Last week Bloomberg and the various other media ran reports that Birmingham International Holdings Limited (“BIH”), the direct parent company of Birmingham City PLC (“BC”) which is itself the sole parent of Birmingham City Football Club PLC (“BCFC”) had some financial problems.

Statements published to the Hong Kong Stock Exchange by BIH relating to its interim results to 31^st December showed that the Chairman, Carson Yeung, was having to take out a HK$150m (c. £12m) personal loan (secured on his own Hong Kong properties), and that BIH was raising HK$310m (c. £25m) through a placing of new shares to keep the business going.

Today the press is full of vehement denials by the BCFC board that anything is wrong. Peter Pannu (BCFC’s acting Chairman) said on the club’s official site (my emphasis):

"It is important to note that BCFC (the club) is a separate corporate entity from BIHL (a listed company in Hong Kong). Although a distant subsidiary, BCFC's accounts are separate and it operates on its own financial basis.

"BCFC is in credit with their bankers and there is no financial impediment to its operations. We will have no problem securing UEFA licence approval for which the club had already filed the papers.

"As for BIHL, the financial support by a major shareholder is a common occurrence and there is no cause for concern or any direct links to BCFC's wellbeing."

This is a completely ridiculous and totally misleading statement that insults the intelligence of Birmingham City's fans.

"Material uncertainty"
BIH’s interim accounts show a “material uncertainty” that the group (i.e. including subsidiary BCFC) can continue as a “going concern”, in other words there is a major risk of insolvency. That is the source of press stories last week.

BC and BCFC’s full year accounts (published in October 2010) both contain exactly the same “material uncertainty” as BIH’s accounts (see pages 7 and 13 respectively). In note 1 of the BCFC accounts (page 13) more details of the club’s cash needs are given:

“The forecasts show that the Group [i.e. Birmingham City Football Club] needs funding of around £7.5m from its parent company [BIH] in the short term in order for the Group to continue to operate within its agreed bank facilities..... The sensitised forecasts [that BCFC stays in the PL but at a lower than hoped level] shows a further requirement for funding of up to £3m in June 2011.”

The BCFC accounts then go on to talk about the placing of new shares in BIH (also page 13) and say that:

“The directors of the parent company [BIH] have confirmed that £7.5m of the funds to be received from the placing are expected to be transferred to the Group by the end of November 2010 and have also confirmed that additional funds of up to £3m will be made available to the Group from the placing proceeds noted above later in the year as and if required.”

So BCFC is entirely reliant on funding from BIH to stay within its banking facilities. This money is needed even if BCFC fight off relegation and no forecasts have been presented to the auditors on the basis that BCFC (currently in 18^th place but with games in hand) go down. 


Far from being a “distant subsidiary” of BIH, BCFC is entirely reliant on it for financing as is described in detail in UK Companies House filings from October. Peter Pannu is significantly misleading supporters by claiming the financial fortunes of BCFC are not tied to those of BIH. If BIH fails, so does BCFC.

Where things stand in March 2011

The comments by the auditors in the BC and BCFC accounts were from October, so perhaps Birmingham City fans should heed Pannu’s words that there are no “financial impediments” at the club? Well what the BIH statement to the Hong Kong Stock Exchange on 3^rd March 2011 tells us is that things have not got any better since October:

1. It is not clear whether Carson Yeung has actually taken out a personal loan secured on his Hong Kong property. The 3rd March statement by BIH say that he will “apply [for] a credit facility”. The BIH accounts in October 2010 said the same thing (page 56). Does the loan exist?

2. The placing referred to in the BCFC accounts as the source of funds to keep the club within its banking facilities has still not taken place. Although the BCFC accounts said the money would be transferred to the club “by the end of November 2010”, on 25th February 2011, BIH announced the placing would be extended until 25th March 2011. Only 29% (around £7.2m) of the placing is “underwritten” (i.e. guaranteed by the broker leading the placing), the majority may or may not be raised.

3. BCFC represents 94.5% of BIH’s turnover in the six months to 31st December 2010. BIH has no other material businesses.

4. BIH has announced and then aborted two deals to buy businesses apparently owned by Carson Yeung since it bought BIH. BIH has also announced two property deals with Mr Yeung to acquire land he owns or is intending to buy in China. The largest of these two property deals includes the payment by BIH of £5.6m in cash to Mr Yeung (see page 4 of BIH circular published on 19th January). No information is given as to where BIH will obtain this cash.

5. At 31st December 2010, the BIH balance sheet showed a cash balance of only HK$ 18.5m (c. £1.5m). In addition to its HK$ 125m (c. £10m) of debts (all related to BCFC), the club also owes a further HK$ 128.3m (c. £10m) in stage payments on previous transfers.


Unknowns
Carson Yeung may or may not be a wealthy man, we have no way of knowing.

Mr Yeung (who has already lent the club £15m) may or may not have borrowed £12m to support Birmingham City. Whether the loan has been taken out is not clear.

Mr Yeung may have property assets in mainland China which he intends to sell to Birmingham City’s parent company, but the ownership of the land is not properly disclosed. The source of any cash consideration for these deals is not clear.

If one of these deals takes place (the purchase of development land in the Liaobin Economic Zone, Panjin City, Liaoning Province, PRC announced on 19th January 2011), unnamed "guarantors" may end up holding convertible preference shares allowing them to become majority owners of BIH and hence Birmingham City Football, but again disclosure is inadequate.

Birmingham City’s parent company may be about to raise around £25m in new shares through a placing to help the club, but the placing is four months late and only a third of the money is guaranteed.

The Premier League may be on top of all this. But maybe not....

If I was a Birmingham City supporter I'd want answers rather than patronising bullshit from Mr Pannu.

LUHG

The Government and football – strong words need to be followed up with action

Sports Minister Hugh Robertson had some harsh words to say about the governance of English football yesterday:

"If you look across sport, it is very clear to me that football is the worst-governed sport in this country, without a shadow of a doubt. The levels of corporate governance that apply to football, a point often addressed by [Labour], lag far behind other sports, and other sports are by no means beacons in this regard."

Not only did Robertson (correctly) identify the problem, he promised action.

"So, action is needed and the Government will take it, but it wants to see the results of [the Department of Culture Media and Sport] select committee first."

That's quite a bold statement, and also very clear. Football supporters need to hold that promise to account. Here is my list of what's wrong with football. Others may agree or disagree and no doubt views on the relative importance of each problem will differ:

Debt and financial mismanagement

How is it that no Bundesliga club has ever gone bust or into administration yet dozens of English clubs have?

Leveraged buyouts

Impossible in most European leagues, banned in the NFL(!). Adding debt to a club for the privilege of having new owners. Nothing added, nothing invested. 

Supporter ownership

Why is there no help (or even preference) for the most natural owners to take a stake in their clubs? Instead we end up with the crooks, carpetbaggers and dodgy dealers who have ruined so many.

Ticket prices

Record income flows into our game and yet prices rise inexorably upwards with supporters priced out. £100 for a non-executive ticket at Arsenal? Laughable.

The FA

Responsible for the debt ridden shambles of "Nu Wembley", the decline of the FA Cup and the shambolic England team and its manager. Not fit for purpose.

Financial inequality in the game – Champions League qualification makes you rich, PL mid-table makes you worry, relegation could send you broke. Lower than that clubs fight for scraps.

Standing

Why hasn't there been a proper debate on this? Visit a German stadium and see how they do it (no doubt they would sell us some of their highly engineered safe standing barriers).

You may have your own issues you would add to the list. Some, such as the level of player wages, seem to me to stem from the no. 1 problem, financial mismanagement.

I believe that if Hugh Robertson is serious about taking action on football "governance", these are the issues and benchmarks against which he and the government must be measured.

Over to you Hugh.

LUHG

The gilded stable doors of the Premier League – the new rules that won’t stop the next Portsmouth

The Administrator’s “Report to Creditors” of Portsmouth City Football Club Ltd which was published yesterday is at its heart an idiots’ guide on how to bust a football club in a very short space of time.

Lesson 1:

“Live the dream” and increase your wage bill by 163% in three seasons whilst your turnover only rises 66% (thanks Harry).

Lesson 2:

Spend money on planning for a new ground, fail to finance it and fail to build it (the so-called “scouse gambit”).

Lesson 3:

Let every other cost go through the roof, doubling in only two years.

Lesson 4:

Open and then close a pointless chain of shops, invest in a radio station and start a ticket financing business in order to “diversify your income”.

Lesson 4:

Borrow, borrow and borrow to fund lessons 1, 2, 3 and 4…..

I’m not going to dwell on the detail of Portsmouth’s situation, thankfully there has been a sea-change in the amount and quality of investigative journalism about the financial crisis in football in recent months, but instead I want to show how inadequate the Premier League’s (self) vaunted new rules which aim at avoiding repeats of the Pompey debacle really are.  The Premier League of course accept no responsibility for Portsmouth's problems (or anything else that goes wrong to be honest).  But just to be safe, the league introduced tough new financial rules last September.  Richard "under wraps during the election" Scudamore said at the time: “It's absolutely crucial that these clubs are run as ongoing viable concerns. These financial rules apply immediately.”

The new rules

Rather than reprint all of rules 71 to 82 of the Premier League rule book, here is a very good summary published by the BBC on 18^th February (with my emphasis and explanations):

-   Clubs must submit independently audited accounts to the Premier League by 1 March each year, with requirements to note any material qualifications or issues raised by auditors.

-   Requirement for clubs to submit future financial information [i.e. financial projections] to the Premier League by 31 March each year. This will act as an improved early warning system should any club take undue financial risks which may have consequences for future financial stability.

-   An annual requirement to demonstrate to the Premier League board that a club does not have outstanding [i.e. overdue amounts] debts to other clubs.

-   An annual requirement to demonstrate to the Premier League board that a club is not in debt with regard to income tax or National Insurance and payroll taxes [i.e. overdue amounts].

-   These rules are to ensure that Premier League football clubs can meet their obligations throughout a season including being able to fulfil all fixtures, fulfil contractual obligations to the Premier League and demonstrate that they can meet all payments due during a season.

-   Any qualification raised in accounts or risk seen by the Premier League board could result in action to help prevent a club from exposing itself to financial difficulties that may be deemed unsustainable or put at risk the future financial sustainability of a club.

-   Clubs that fall into such financial difficulty could be subject to financial controls relating to transfer activity and/or player salaries.

There are some sensible things in here, especially the requirement to demonstrate that clubs aren't using Her Majesty’s Customs and Revenue as a piggy bank by not paying PAYE and national insurance on time.  Nor of course should clubs be able to avoid paying transfer fees or debts due to other clubs.  And the introduction of these rules is the first time the hands off, laissez-faire Premier League has ever contemplated imposing financial controls on a member club, even if it has taken seventeen years to put the powers in place.

But beyond these small positive steps, the rules are totally inadequate and crucially would have not have stopped Portsmouth FC from collapsing in the way it did.

Don’t rely on qualified accounts and future financial information

The fundamental problem with the new Premier League rules is that the things that can trigger Premier League intervention (other than breaking the two new rules about taxes and overdue transfer fees) are so, so weak.  Intervention can take place if:

Rule 81.1 the club fails to deliver annual accounts to the league by 1^st March; or

Rule 81.2 the club fails to deliver interim accounts to the league by 1^st March (which set of accounts are required depends on the club’s year end); or

Rule 81.3 the club fails to deliver “Future Financial Information” by 31^st March; or

Rule 81.4 the club fails to deliver additional information requested by the Premier League relating to the auditor’s qualifications of its accounts; or

Rule 81.5 the club has failed prove its doesn’t owe HRMC or other clubs money it should have paid; or

Rule 81.6 the accounts supplied are qualified or part qualified by the auditors; or

Rule 81.7 the Premier League Board, having looked at the information supplied by the club doesn’t believe the club will be able in the next season:

Rule 81.7.1 to pay its “football creditors” or employees; or

Rule 81.7.2 be able to play its 38 league matches the following season; or

Rule 81.7.3 be able to fulfil its league obligations to broadcasters

Putting aside the rules about delivering information on time (something tells me even the most rotten club will manage to comply with those), the other main triggers are whether the club’s accounts are qualified or part qualified and whether the PL board thinks the club might not be able to play its matches or pay its football creditors the next season.  This is totally inadequate and no form of “early warning system”. To see why, just look at the Portsmouth situation.

March 2009 – all well in Pompey world?

Under the new rules, to play in the Premier League in the current season, Portsmouth would have had to file accounts with the league last March.  They actually had their 2008/09 accounts signed off on 27 February 2009 and crucially, there was no qualified auditor’s opinion in the accounts.  Grant Thornton did not issue a qualified opinion about the accounts because they were convinced by the club’s board that although the club had massive liabilities, loans would not fall due before the opening of the next transfer window when player sales could be made.  No doubt the club had a business plan at the time the accounts were signed off which it shared with its auditors and helped satisfy them that the business would continue as a going concern.  Under the Premier League’s new rules, this plan would have to be submitted to the league board of course.  But would the Premier League board have disagreed with the club’s own auditors about the viability of the business?  It would be an extraordinary, effectively inconceivable thing to do.  So the whole new system now relies on the auditors identifying a problem.  If they don’t, whether through their own fault or because they are misled by the management, the whole new system falls over.  No red lights flash.

You may be wondering if the collapse of Portsmouth was a sudden event, unpredictable by anyone in March 2009.  Since the Administrator published the details of the club’s financial position, journalists have expressed shock and dismay at the £122m of liabilities on the balance sheet.  If they looked a bit closer, they’d actually see that the last published accounts showed even greater liabilities.  You can see this in the following table (I have kept the classifications of assets and liabilities as they are described in the Administrator’s Report to Creditors and the Report and Accounts respectively, but the total numbers are completely comparable):

	Current	May 2008
Liabilities from administrator
Owed to Portpin	-14,201,000
Owed to finance co.s	-1,035,943
Owed to financial instituions	-14,157,518
Staff holiday pay arrears	-100,000
Unsecured creditors	-92,698,695
Liabilities from 2008 accounts
Short term creditors		-114,909,135
Long term creditors		-22,135,100
Total liabilities	-122,193,156	-137,044,235
Assets
Freehold property	7,729,516	8,733,958
Other fixed assets		5,717,295
Stocks		152,360
Debtors		17,033,110
Financed Assets	1,914,630
Player transfers	14,157,518
Players	19,514,418	48,354,597
Other	17,954,770	203
Cash at bank	1,463,701	9,537,363
Total assets	62,734,553	89,528,886
Net liabilities	-59,458,603	-47,515,349

Now the net position has indeed worsened (unsurprisingly the club lost money between May 2008 and today), but the key point is that when these accounts were signed off by the auditors in 2009 (when no doubt the Premier League also would have nodded them through if its new rules had been in place), the situation was already hopeless without huge injections of new capital.  None of the Portsmouth’s recent owners had or were willing to inject the money required of course, but none of this is even considered in the Premier League rules and most importantly there is absolutely nothing in the rules to prevent a club getting into such a state in the first place.  As long as the accounts aren't qualified, all is well....

The answer of course is to take a far more fundamental approach to regulating football.  Specifically, English football needs binding rules limiting wages and salaries as a percentage of turnover, and limiting debt as a multiple of profits (with due allowance for borrowing for proper football investment like Arsenal building the Emirates stadium).  Such rules would have gone a long way in stopping Portsmouth or Leeds or Cardiff or Chester (or dozens of the other 50 professional clubs that have gone into administration or CVA in the last twenty five years) ever getting into severe trouble in the first place.

Preventing clubs running up debts at the expense of the taxpayer or other football clubs is a very welcome step, but it doesn’t go nearly far enough.  So next time Richard “over £900k a year but I’m not bailing out the St John Ambulance” Scudamore or Premier League spokesman Dan Johnson wax lyrical about the new “early warning system” and “a set of regulations designed to protect the viability and sustainability of the clubs” remember that these rules wouldn’t have saved Portsmouth and will do little or nothing to save the next football club which falls victim to greed, stupidity and mismanagement.

LUHG

“We are ownership neutral” – Is this Liverpool’s 2005 moment?

Warning: this post gives sympathetic coverage of Liverpool Football Club’s problems with owners and debt, if you wouldn’t piss on a scouser if he was on fire, please navigate away from this page.

The quote in the title of this post is something repeated several times (with some perverse pride) by Dan Johnson, the Premier League Head of Communications at the BBC’s “Football in the Red” debate in Manchester two weeks ago.  His statement was met with derision by the audience because it summed up the football authorities’ blasé approach to one of the key problems in the national sport.  I may have lost my temper with him and accused him of ludicrous complacency.

I do have some sympathy for Dan (who I can only imagine was desperate for a challenge when he accepted the role), after all the man has to clean up after Richard “£866,000 and no clouds in the sky” Scudamore.  Dan tried to fob the BBC audience off with the Premier League’s souped up “Fit and Proper Person Test” and the laughable new “early warning system” (relying on auditors to spot problems, just like they did so brilliantly at Enron, Lehman Brothers or Portsmouth FC).  The Premier League can tinker with processes and procedures, but the overall philosophy hasn’t changed, if it’s legal the Premier League are in favour of it, if Pompey have four owners in 12 months, that’s fine.

This weekend, news has emerged that a private equity firm, Rhone Group has offered to invest £110-120m (reports differ) in Liverpool FC in exchange for a 40% stake.  The club’s current owners, Hicks and Gillett would have to accept this 40% dilution, but with the deadline for their Kop Football (Holdings) Ltd acquisition vehicle to reduce its debt rapidly approaching, not accepting such an offer could lead to the owners forfeiting their shares in the club.

The financial structure at Liverpool is not dissimilar to that at United, with over-stretched owners desperate to solve a debt crisis that was entirely of their own making.  Neither club has gained anything from the leveraged buyouts that were used to acquire them.  In United’s case, the main consequence has been the pricing out of traditional supporters, whilst at Liverpool Hicks and Gillett’s stewardship has further delayed the building of a new stadium that everyone agrees is needed.

Although (according to figures from http://www.transferleague.co.uk/) Benitez’s net transfer spending since he took over at Liverpool is actually £1m higher than Sir Alex Ferguson’s over the same period (and that is ignoring the proceeds from the sale of Ronaldo destined for the PIKs), the amount of revenue generated from matches at Anfield is far too small vs. other comparable clubs.  Hicks and Gillett haven’t produced accounts for last season yet, but looking at the 2007/08 numbers, Liverpool only generated revenue of £1.3m per home game vs. £2.3m at Chelsea (who have other sources of cash of course) and more than £3m per game at Old Trafford and the Emirates (these other clubs’ figures are for 2008/09).

Club		Arsenal	Liverpool	Chelsea		United
Last season reported		08/09	07/08	08/09		08/09
Competitive home games		32	30	28		30
Capacity		60,355	45,362	42,055		76,500
Average attendance		59,453	42,940	41,488		74,371
Average attendance/capacity		98.5%	94.7%	98.7%		97.2%
Revenue per game (£m)		3.1	1.3	2.3		3.6
Revenue per available seat/game (£)		52	29	55		47
Revenue per occupied seat/game (£)		53	30	56		49

The reporting in the weekend papers suggests that Rhone Group would pay down Kop Football (Holdings) Ltd’s debt with its equity injection.  This would greatly improve the chances of raising capital for a new ground.  So far, so altruistic (“Scouse Knights” perhaps?).  But of course the arrival of a business like Rhone Group on the scene marks a new, sad twist in the pawning of the English game.  The Glazers made a half-hearted and wholly unconvincing attempt to paint themselves (or at least Joel) as United fans.  Hicks and Gillett launched their takeover talking of their intention to be “custodians” of the club which they would hold as a “family asset”.  Whilst many Liverpool supporters had been hoping Dubai International Capital would acquire the club, the acquisition by Hicks and Gillett was initially generally viewed positively by fans and it took eleven months before organised supporter opposition began in earnest.

Rhone Group will not of course claim to be staffed entirely by Liverpool supporters, they are transparently in it for the money.  For many Liverpool supporters, the temptation may well be to welcome any new owners, especially one who could pay down almost half the club and parent company’s debts.  I think welcoming such attention would be a terrible mistake, private equity firms can’t spell altruism let alone practice it.  Look again at the table of matchday income above again.  Liverpool bring in around £30 per occupied seat per game.  The two London clubs bring in more than £50.  United is now far closer to Arsenal than its traditional north western rivals.  In 2004/05, the last year of the plc, the equivalent number for United was £33, revenue per seat has risen 45% since the takeover, a small amount of the change is “mix” (relatively more corporate facilities when the quadrants opened) but the vast majority of the change is from higher ticket prices.

Rhone Group (and no doubt other similar organisations) see the opportunity to get into Liverpool at an enterprise value of just over £400m.  They no doubt see a famous club with a global brand, charging ticket prices 30% below those at United.  They see desperate current owners.  They smell a money making opportunity.

For the Premier League, a deal along the lines Rhone Group are proposing will no doubt be seen as a triumph.  At least £100m can be knocked off the Premier League’s debt total, a shiny new stadium may well appear, the appeal of the league to global capital will be confirmed.

Best. League. In. The. World. Fact.

As Dan from the Premier League said, they are “ownership neutral”, they care nothing for the motivation of people who buy into our top clubs, they care nothing about the consequences that flow from allowing financial buyers to acquire clubs, and if in five years time aggressive pricing policies have stopped thousands of Liverpool FC’s traditional, working class support from being able to see their club, well, that’s business......

Of course next weekend we play Liverpool at Old Trafford, just over 100 years after we first played them there. I understand how controversial the idea is of United and Liverpool supporters coming together in some way to protest at what has been done to our clubs, but I’d ask people to think who the real enemy are before dismissing all such ideas out of hand.

LUHG

A tale of two rulebooks

Yesterday was a bad day for United on the pitch at Everton, but United supporters, and indeed all football supporters should spare a thought for Portsmouth fans this weekend.  The defeat against Stoke at Fratton Park could, if things go wrong in court on 1^st March, prove to be Portsmouth Football Club’s last ever league game.

Portsmouth’s financial problems are so hugely complex that they make the Glazers’ murky affairs look like a GCSE maths problem (if you want a decent insight into what’s going on I’d recommend Matt Slater’s excellent blog on the BBC website).  The common thread running through both United and Portsmouth’s problems as well as those of West Ham, Hull, Crystal Palace, Notts County, Chester (and I could go on and on) is the total unwillingness of the Premier League, Football League, Football Conference or the Football Association to take any action to prevent these situations arising in the first place.

There are a huge number of ways that football’s regulatory bodies could change their rules to prevent the game’s financial crisis.  One of the most often mentioned areas is the “fit and proper person” test for owners (which I couldn’t help thinking of when I heard Peter Risdale, now Chairman of Cardiff City, on 5Live on Saturday).  Assessing individuals is however, inherently subjective and thus open to legal challenge.  By contrast, adding certain financial requirements to league or FA rules is very, very easy.  To see how easy, we just need to look at the US’ National Football League (“NFL”) and its limits on debt.

The NFL’s rulebook (or to give it its full name, “The Constitution and Bylaws of the National Football League”) came into force in 1970 and has been amended by 106 resolutions since.  The rulebook covers a myriad of topics, including “unsportsmanlike conduct”, Superbowl tickets and the coaches’ pension plan.  Club debt, is covered by various resolutions which set a “debt ceiling” (formerly called a “debt limitation”) for each member franchise.  The first ceiling was set in 1988, with all clubs being limited to $35m of debt (other than trade creditors).  The 1998 resolution put in place a provision for the limit to be re-examined every year.

Fast forward to the most recent resolution on the subject (in 2005, page 264 of the pdf version) and the limit today is $150m, with provision that within this sum, only $25m of the owners’ liabilities could be secured on club assets.  There is also the following, relating to borrowing incurred when buying a franchise (my emphasis):

“…in connection with any acquisitions of a member club or any controlling interest therein, the principal and/or controlling owner shall be required to invest equity (cash on hand or funds borrowed against other current or determinable futures assets of such owner) in a minimum amount to be determined by the Finance Committee, and no acquisition transaction that the Finance Committee finds to be excessively leveraged shall be recommended by the Finance Committee for membership approval.” 

So if you want to buy an NFL franchise, you need your financial structure approved by league’s Finance Committee, with the additional warning that anything “excessively leveraged” won’t be approved. It almost goes without saying, but if the Premier League had the same rules, the Glazers’ takeover of United and the Hicks / Gillett takeover of Liverpool would have been forbidden.

I’m not advocating for one moment that English football becomes like American “football”, but the NFL debt rules are almost breathtakingly simple and show how easy it is to impose financial discipline.  In the Premier League, a debt limit based on a single number for all clubs would be madness of course.  Wigan Athletic has a turnover of around £50m and United has a turnover of around £280m, so to set them both the same limit would make no sense.  Tough though it is to admit it, Dave Whelan of Wigan probably had it about right last week when he suggested a debt limit of 25% of turnover for Premier League clubs.  Any new rule would probably need additional limits relating to borrowing to build or enhance grounds, nobody would want a system that prevented Arsenal building the Emirates.  The principle remains however that it is extremely simple, if a sporting league chooses to do so, to impose rules restricting member organisations debts for the good of the sport.

All this is obviously an anathema to not only the Glazers, Hicks and Gillett but also to Richard “860k a year” Scudamore, the self styled football “traditionalist” and Premier League Chief Executive.  Scudamore, who must drive his in-house PR people insane with his constant forays into the media has several objections to limiting football debt, each more perverse than the last.  The weirdest I have read is his suggestion that debt is too hard to define, yet the NFL rules manage it in forty-five words.

A current favourite, pedalled in the News of the World recently under the optimistic (or fatalistic depending on where you place the emphasis) headline “We Haven’t Lost Any Clubs Yet” was the argument that clubs should run their own affairs.  To quote the great man:

“……I'm sure you don't want the Premier League running your club. Club directors have the opportunity to run their clubs how they see fit - all the ones I meet want what every fan wants; success on the pitch.”

Now of course nobody wants the Premier League to run anything important, given its lack of action at Portsmouth, you wouldn’t let it look after your cat whilst you went on holiday.  But Scudamore’s is of course a specious argument.  Some sort of NFL style “debt ceiling” does not mean the league “runs” clubs, it is a criteria for allowing a club into the league.  The Premier League’s rulebook (a lot glossier than the NFL’s) is full of requirements for clubs (such as the away dressing room having to exceed 30m² for example or more importantly the collective negotiation and sharing of media revenues).  It is in the nature of sports leagues that they have rules, and a debt ceiling would just be another rule (albeit an important one).

The problem with Scudamore of course is that he is one of the last true believers in capitalism in football.  In a Telegraph interview last week (imagine those Premier League PR people crying themselves to sleep again) he came out with this:

“There is some emotiveness about leveraged debt. I understand that. We go through this constant struggle between people saying 'clubs should be more professional and businesslike’ but actually a lot of people don’t like some of the business methods brought into the game — like leveraged debt.’’

I think this could have been the best Scudamorism yet.  Putting aside which “people” are saying that clubs should be more “businesslike”, why on earth should particular “business methods” be brought into football if they add nothing?  Certain very common “business methods”, such as clubs being able to takeover their competitors for example, are banned already and I don’t hear a clamour for this to change.  Supporters of Liverpool and United aren’t “emotive” about leveraged debt, they are rightly appalled by it.  Leveraged buyouts have some limited value in commercial life, I’ve invested in some over the years, but their principle positive, driving efficiency in companies, has operated in a perverse way at England’s two most successful clubs.  Neither United nor Liverpool were “inefficient” operationally, in United’s case it was the most efficient football club in the world.  The Glazers have “improved” United financially in only one way, they have tested the supply/demand balance for tickets by raising prices.  At Liverpool, the owners have blown a hole in the balance sheet that has hugely delayed (at best) the one “efficiency” the club needed, a new stadium.  So, zero out of ten for this particular “business method”.

Scudamore and his trappist equivalents at the Football Association (you’d almost think it was World Cup bidding year) are the King Canutes of the modern game, shouting at the tide of debt  as it begins to seep under their toes.  Football might be a business (a strange one where the vast majority of companies make no money), but it is first and foremost a sport and sports can have rules, sports DO have rules.  Big bad capitalist American sport has rules.  If the NFL can limit debt in its clubs with one page of A4, there is room in the Premier League’s 165 page rulebook too.

LUHG