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Taxpayers money is going to support clubs in debt

This is a story that has been around for a few weeks now.  It is not making the headlines, but it certainly could if currently developments in the EU keep moving in the direction that they are moving.

John Beech, who writes a wonderful series called Football Management has done a lot on this, and there has been an article in the Independent newspaper in the UK.  Slowly the word is spreading, and quite possibly all hell is going to break loose.

A European Commission report into the relationships between five Dutch councils and their local football clubs might not quite seem the thing to get everyone over excited, but if these enquiries show that there has been breaches of EU law then the breaches are serious.  They involve illegal state aid to the clubs.

The full report is not necessarily something you want to read after a couple of hours down the pub on a Friday night, but in essence these are cases about rents being lowered retrospectively, claims for debts being dropped, councils buying training facilities – and none of this for commercial reasons but in essence because the club was in financial danger, and the local council wanted to help it.

Any club in England that rents its stadium from a local authority, or builds a stadium with support from a local or even national authority, is likely to be guilty of offences unless everything is done at the market rate.

OK that much we know, but John Beech as always takes us further.  Travelling (as one does) on a flight from Madrid to Munich he read the English language version of the newspaper El Pais and therein was a report that an investigation into Spanish clubs was going on – with a suggestion arising that other clubs in other countries are also under investigation.

Now we move on to the article in the Independent.  Now the seriousness rises a little because here there is a discussion of “state funds” being used “to help finance the Premier League at a time when all banks are facing criticism for failing to do enough to lend to Britain’s legion of credit-starved small businesses.”

Now I must declare an interest.  I am chairman of a company, and we have banked for 35 years with Nat West, a subsidiary of RBS which is 81% owned by the British state.   Nat West have indeed been taking their own failings out on little businesses – as when they arbitrarily decided to reduce our overdraft facility last year.  (And I hasten to add, we were using the facility properly, just to see us through a couple of months a year when we dropped into the red.)

Now RBS is banker to Liverpool and Fulham.  According to Deloitte’s football finance report, Liverpool has total debt of £202m and net debt of £192m.  (My company’s overdraft facility before Nat West cut it, was £50,000.)

Fulham has a total debt of £46m in the last Deloitte report.

Lloyds (40% owned by mugs like me – British tax payers) has West Ham Utd as a customer via Bank of Scotland which it owns and Deloitte says WHU have bank loans to the tune of £41m.  Although it will probably be able to pay this off when it sells Upton Park to move into the Olympic Stadium which was paid for by… oh, the British taxpayer.

RBS had £45bn of state aid and “hundreds of billions of pounds in other support” according to the Independent.

Both banks told the Indy that they were not the only organisation financing any club debt.

Now today, the banks have been told that they must increase their reserves – but they must not do it by stopping lending to small companies (I guess like mine – I currently employ 20 people – its not a huge concern).

So how will they do this?   No one is quite sure, but if the European Commission is going to start saying that the state must not get involved in the financing of football clubs, then a state owned bank should not be lending money to any club.

My knowledge of Spanish football is not huge, but I certainly have noted a number of clubs in Spain where either a state bank, or the local council, or both is effectively pay rolling the club.

This is one of those things that could run for a year or two, until one day, it all goes, kerpow.

Recent posts…

The books…

The sites from the same team…

 

11 comments to Taxpayers money is going to support clubs in debt

  • John

    Isn’t it also the case that a number of clubs (Rangers recently and Leeds Utd previously, for example) have accumulated huge tax arrears, including failures to pay employee PAYE income tax? As I recall, HMRC has had to take its chances amidst other creditors and been forced to settle for negotiated repayments which fall well short of the actual arrears.

    Coventry City are reported to have defaulted on rent for the Ricoh stadium, in which the local Council has part share in the freehold.

    There are numerous examples of public money effectively subsidising badly-run clubs, in a variety of ways.

  • GoingGoingGooner

    This is an interesting article. How would the EU or the courts or whomever rule on a situation where there is a limited number of viable clients for a specific use facility (i.e football stadia). Or, what to do about a business that is way over its head in debt? One could push the business into administration and get very little of your lent money or try to cut a deal with them and get a better return. (when IOU 10 bob it is my problem, when IOU 10 billion it is your problem) Has a political entity the right to decide how it recoups its tax money? Of course, should it be lending to the dodgy firm in the first place?

  • Phil

    Certainly something to watch – you can definitely see local or central government having an interest in keeping certain groups happy with what are small amounts relative to the economy (my opposition to this isn’t in any way diminished by that fact, I would note).

    I would expect plenty in the way of favourable tax treatment, as the first comment on this article points out

  • Mike T

    @John

    Apologies if I am teaching Grandma to suck eggs but here we go.

    Many many clubs have entered what is called “Insolvency Events” over the last few years” since 2002 these events are in accordance with the Enterprise Act 2002

    Prior to 2002 The Inland Revenue (IR), for PAYE , the Contributions Agency(CA) for nic and Customs & Excise (C&E) for VAT were able to claim debts owed as either preferential or non preferential debt .How a debt was classified was determined by the age of the debt. For instance PAYE debt over a year old was non pref but newer debt was deemed to be preferential .
    What that meant that when a club went under the taxman received payment of the preferential debt before the non preferential creditors were paid anything.
    The Enterprise Act 2002 introduced something said to be a culture of business rescue and with it all debts to be treated the same.
    What that meant was that as opposed to a business ceasing to trade these failing business had all their debts packaged up and were allowed , rather than to pay in full, to enter into an insolvency event (in football that normally means administration) these insolvent clubs are now able to carry on trading and make an offer to pay creditors x pence for every £ they owe.
    Creditors vote to accept or refuse the offer. 75% of creditors have to vote to accept for the agreement to be put in place if agreed this enables the club to enter into a CVA and is so doing exit administration.
    HMRC, ( the now merged CA, IR & C&E) are often owed vast amounts, have a problem with football in that their (HMRC) element of the debt is given no preference yet football debts are given priority something that they, HMRC, are anti and is why in all possibility legislation will be introduced to outlaw the football creditor rule.
    Ah I hear you say why do HMRC allow their debt to build up.
    Good question but unlike say the butcher who will just stop supplying meat HMRCs debt continues to accumulate every pay day PAYE &NIC) and every time anything a club is paid to the club VAT)

    Sorry to go into so much detail and I hope it makes sense.

  • nicky

    It must be very difficult for UK local authorities not to assist the local football club financially, bearing in mind the benefit in trade on matchdays received from (a) the home support and (b) the visiting fans.
    Most clubs have a junior section and can be regarded as providing an important amenity in the life of the local community.

  • WalterBroeckx

    As I have said before a club in my country (Belgium) cannot stay in the top division when they owe money to the taxman. Or they can have a debt to the taxman but in that case the taxman has to agree on how the debt will be paid in a reasonable time schedule.

    I think this should be a rule in all countries in Europe, or come to think of it worldwide.

    I think it is unacceptable that a private company (and football clubs are private companies) can have huge debts with the taxman and then keeps on spending insane amounts of money on buying players and pay them insane amounts of money.

  • Mike T

    @Walter

    I dont know if you saw this article

    http://online.wsj.com/article/SB10001424127887324077704578357992271428024.html

    The reality is that UEFA & FIFA shouldnt be worried about FFP as set out it should be purely about the build up of debt be it to governments or other clubs

  • It's Grim Oop North

    Football is special, and is more akin to the Arts, as Nicky says, for huge portions of the community it is vital to their identity.

    I think there was a study which showed when Newcastle United won on a Saturday, the local economy picked up noticeably, and when they lost, it depressed in similar fashion.

    I guess this is why so many authorities are prepared to bend and break rules to keep their local football clubs in a viable financial position?

    I personally see football as a power for good in the world, it helps build understandings amongst cultures who otherwise would be at each other’s throats and worse, it is a platform for confronting and eradicating racism, sex and other inequalities, what price do you put on that?

    Of course, with this hotch-potch of funding, private, state, debt laden, risky, under different rules in different states, with sport deciding it’s different to every other kind of enterprise, how the hell do you get a level playing field for all?

    When so many people, from the very rich to the very poor, and all those inbetween put so much importance in their football club, trying to stop them with regulation is like King Canute trying to halt the tide – you’re going to get very wet feet!

  • Malaysian gunner

    According to the gunners ceo,Arsenal will be a leading financial power thanks to the 150 million sponsorshop deal.Nothing is permanent in this world. If the gunners miss out on 4th,there could be repercussions.
    Liverpool have spent the last 5 seasons in the cl wilderness.If the gunners aint careful
    and Wenger wants to win the epl on the cheap with cheaper players they will struggle to hold on to even 6th.
    This is the stark reality facing Wenger.

  • Mark

    And it looks like Brimingham are in trouble with payments to the fellow running the club! Corruption in football needs more exposure in the press. Why are the FIFA payments to small nations not getting more press?

  • ARSENAL 13

    sorry off topic.

    This reminds me of the Private Finance collapse that happened in India (a decade ago). Indian govts policies encouraged setting up of private finance groups. All was well. These private financing firms competed with the govt banks. People with a greed for more (1.5% pa), withdrew their deposits from nationalized banks and dumped it on the door steps of these private firms.
    All was well, people were (on paper) earning more money on their deposits and people like me were confused whats happening.
    One fine morning (5-8 years on) govt decided that, these firms should also have a cash reserve (on a certain basis depending on their lending). The next day one reputed firm shut doors, followed by the other in a few months and then another in a year or so.
    Its been 10 or so years now, people are yet to get their hard earned money (forget the interest). The case will go on for 10 more years and then the court will order the firms to return the depositors their money sans interest.

    For this bubble to form, us, the govt and their policies and the benefiting and rule bending companies are equally important. BUT the ones that suffer the most when it bursts is ‘us’.