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Revenue and Customs issues writ against the whole Premier League



By Tony Attwood

Well, there it is.  I pop over (or rather under, since I went by train) the English Channel for a few days, practice following the football news in French, watch France and Spain on TV being given the run around in warm ups, muck about a lot a Futuraworld (Poitiers) and then come back to find…

Revenue and Customs (what is commonly know as “the tax man”) is taking the whole Premier League to court over the illegality of its tax regime.

The story turned up in my absence in Accountancy Age, and would you believe it, the Sun, Star and Mirror didn’t actually catch up with it at all.

But they should have done because then would would have had “Sexy Suzie, our page three girl of the day says, ‘I think the tax man has got this one wrong and should dunk his head in a pile of horse droppings so there’,” because this one runs alongside such jolly changes to the world of football as

a) Uefa’s end of Financial Doping (which I was raving about before I was put on the train by worried colleagues)

b) The fact that a whole bunch of clubs are teetering on the brink – and Rhys I noted your comment and will look into the Cardiff situation further, but as far as I can see Revenue and Customs still have a winding up order out for them)

c) Liverpool do not, as I understand Redknapp the Younger is reputed to have said while I was not looking, “have £30m to spend and want to make sure they have the right manager in place to spend it”.   Rather they have a club over which the vultures have gathered.

Here’s the run down….

If a club enters administration they are bound by the football creditors rule, which means “football creditors” like other clubs to whom they owe transfer money, along with players and managers, get paid in full first of all.  Anything left over is divided between the unsecured creditors including HMRC.

The tax office has long called the rule “unlawful”, saying, “HMRC‘s view is that there is nothing in insolvency legislation that provides for unsecured debts due to “football creditors” to be paid in preference to other unsecured creditors such as HMRC.

“Our view is that the practical application of the so called ‘Football Creditors Rule’ may be unlawful. We have nothing further to add at this stage.”

HMRC have tried this battle in 2004 when they were attacking Wimbledon who paid them 30p in the pound on a £525,000 debt it had run up.
Quite what the point of law is, that went against them last time, but will be for them this time, I don’t know – I am certainly nothing remotely like a tax lawyer, but they’ve clearly got something in mind.
.
The EPL argues that they need the rule to stop clubs buying players on the never-never and then going bust.  If the Football Creditors Rule was not in place Liverpool could buy 20 players at £200m, then go bust, then only pay 10p in the £1 and so get the players for £20m.   But this is a fatuous argument, since clearly the EPL can say, unpaid-for players are returned to their previous clubs, all money paid is forfeit, and the club goes down 3 divisions.  That might slow down the financial vandals who run most clubs.
.
What the EPL are reported to admit (behind closed doors) is that if the Revenue get their way, then the containment field that the EPL has built around the failing clubs (that is at least 16 of the clubs in the league) will fail, and club after club will go down.   The domino effect will come to football.
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The Football League has taken one step to placating the Revenue in that club’s with one month or more tax arrears can’t engage in any transfer deals.  The EPL adopts this rule in August.

In the case of Portsmouth FC football creditors are expected to receive a full repayment of £22.4m funded by the EPLs deductions in the club’s allocated TV revenue.  Unsecured creditors (ranging from St Johns Ambulance to you and me (if you and me are citizens of the United Kingdom) in the shape of Revenue and Customs (who are owed an estimated £83m) may be £16.5m spread over five years.

Combine the Uefa Financial Doping rules, the “no transfer” rule noted above, the 25 player rule, and the abolition of the football creditor rule, and you have an absolute shift in the financial position of the EPL just at a moment when the majority of clubs are least able to cope.

Funny old game.

———–

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27 comments to Revenue and Customs issues writ against the whole Premier League

  • walter

    Another great article Tony.
    A very interesting subject and this could mean trouble for a lot of clubs.

    I know in Belgium our Fa has the rule that if you don’t pay the debts to the FA you are thrown out of the league for once and for all. And after that you can start all over in the lowest possible league of your county. This mostly happens to smaller clubs that go bankrupt and cannot pay anything. This even goes for clubs who “forget” to pay what is due to our FA.
    In the official magazine of our Fa you can find every now and then a list with clubs and the final date they have to pay a sum or otherwise they are finished. But this is only for the money they must pay to our FA.

    If you want to take over a club in my country you have to pay all the debts or get an agreement with all the people you owe money to pay it off spread over a few years.

    If you owe money to the taxman the same thing. But I believe that in Belgium the taxman is always a proteced creditor by law. Well it is in any other company that goes bankrupt so I think it will be the same if a football club goes bankrupt.

    The new rule you talk about, the no transfer if you owe the taxman, is I think a good rule. Any rule that brings more financial stability on the long run is a good rule.

  • walter

    If I would have anything to say in FIFA I would also bring in a rule that you have to pay the complete transfermoney at once and before the player can play. You can agree what you want but the player remains a member of his old club untill the full payment is made.

    Let’s say, if we can believe the papers on this and I don’t know we can, but if it is true that Barcelona still must pay Arsenal a sum for Henry and Hleb it would mean that those players can only play for Arsenal until the full sum is payed.

    If you don’ thave the full sum, you don’t have the player.

  • Gooneraside

    Good article once more, Tony, welcome back (although I enjoy your articles too, Walter).

    I must admit that all these regs. are making it more and more difficult for me (and I suspect most clubs) to follow them.

    But it’s good you have a page 3 girl to help you keep abreast (or two) with what’s happening. 😉

  • The Swiss Rambler

    @walter,

    The draft UEFA Financial Fair Play regulations include a specific clause on no overdue payables, which states, “a club must prove that it has no payables overdue towards other football clubs arising from transfer activities, and towards employees and social/tax authorities, as at 31 December/31 March of the year preceding the season to be licensed”.

    This is indeed a huge issue with another UEFA report, the Club Licensing Benchmark Report, listing total transfer payables to other clubs of €1.65 billion – and this does not include all countries. Half of all reported transfer debts came from just 13 clubs, the majority of them in Spain and Italy.

  • Richard B

    The financial chaos in the general economy can be traced back to the deregulation begun in the eighties. The price to be paid for that is to be outlined by the PM today. Football is just a microcosm of that situation. For Woolworths read Portsmouth and maybe, just maybe, Liverpool. A great deal of pain is going to be felt within football over the next few years and footballs recent history will be looked back on as a golden age only for players and agents earnings.The pecking order that will pan out in three/four/five years time could look very diffent from how it is now.
    Arsenals share price has the potential to go through the roof if they ride out the storm – and they are by far and away in the best position to do so. But who will buy those shares – especially if the Club continues not to pay a dividend?

  • Ozziegooner

    Completely agree with Walter regarding transfer money for a player being paid in full. How on earth is it that Barcascum can still owe us for Henry and Hleb and have the audacity to tap up our best player. Arsenal should demand that barca scum pay off their outstanding debt and only then can the two clubs be allowed to conduct any future business.

  • walter

    Thanks Swiss Rambler for letting us now.

    So in fact one could say that all those clubs are playing with players that in fact should not belong to them? It is about time this is cleaned up as soon as possible.

    I must say this looks like the Belgium license regulations. The problem is that our FA is, for political reasons, not that strict in refusing licenses. They gave a license to Mouscroun a club that had a lot of debts and also debts in taxes. Halfway the season they went bankrupt and had to stop completely. A team in our highest division. They now have merged with a team in the 3rd division so they can restart in 3rd division.

    When our Fa gave the license before the season they received a lot of criticism for their decision and rightly so as was proven later on.

  • Richard B

    ps Given Tony’s penchant for coming up with financed-based nicknames for clubs I’m a bit surprised that we haven’t seen ‘Barceloaner’ yet.

  • walter

    I think Arsenal should put on their website the sums they still have to get from other football clubs from transfers.
    Maybe somewhere in the middle of the first screen? Let’s us expose those cr***s.
    Off course Arsenal can only do this is they pay off what is due in time. 😉

  • walter

    LOL Richard B, I like it a lot.

  • Flint McCullough

    Thanks again Tony for an illuminating article further enhanced by the comments.

    With transfer fees & wages now totally out of control,certainly not to the benefit of football as a whole, I think Walter’s suggestion, that full payment of transfer fees should be required before a change of registration, is a very good one. It would maybe concentrate the mind to lower fees. This would have to be phased in like the new Uefa financial regulations.

  • The Swiss Rambler

    @walter,

    I think that I may have been the person who first put into the public domain that Barcelona owed Arsenal €16m for the Henry and Hleb transfers in my analysis of Barcelona’s accounts, but I should emphasise two points: (a) those figures were from the accounts as at 30 June 2009, so for all I know, those debts have now been paid; (b) it is by no means certain that those debts are over-due, as the clubs may have agreed on a payment schedule.

    Your example of the Belgian regulations is a bit worrying, given that UEFA’s Club Financial Control Panel will be run by a Belgian, Jean-Luc Dahaene, but you’ve written about him before 🙂

  • WalterBroeckx

    Swiss, that was the reason I live between hope and fear. Hope that Uefa will mean business with the new rules. The rules in Belgium are very good I think. But well, we live in a country where the best rules are stretched and stretched and at the end nothing is left.
    So by taking on Dehaene I fear he will bring the Belgian attitude towards rules in to Uefa and this would be bad. But if he shows himself as a realy keeper of the rules I will eat my words, and will be happy to eat them. I even would love to write an article and admit that I was wrong about him (in this case).

    And if you said it first that Barcelona owed us still 16M for Henry and Hleb I have every reason to believe it is the truth. In the Swiss Rambler I trust. 😉 Would be interesting to see if the accounts at 30 june 2010 still have the debt in it. But like you say if Arsenal had agreed it like that there is not much wrong. But still, I think it is wrong to accept such things.

  • Tony, Walter et al

    You may be interested with this

    http://www.telegraph.co.uk/sport/football/leagues/premierleague/manutd/7807761/Manchester-Uniteds-Glazer-family-owners-carrying-1.1-billion-of-debt.html

    There is also a Panorama documentary on BBC1 Tonight @830pm concenrning the debt carried by the Glazers.

  • I believe that when Abramovich started out with KGB Fulham he ordered the club to pay for transfers 100% up front, to overcome doubts as to his ability to pay.

    Others pay over time, because that is how they handle the assets of the players’ values on their accounts. It is a bit like my company buying a computer: we write it down over 3 years, so at the end of the 3 years, if the thing is still working that is a bonus. A player on a five year contract costing £20m has the value written down to zero over five years, and (I suppose) pays the money due to the other club over that time.

    I remember that Arsenal went to Uefa over Read Mad’s refusal to pay up properly for Anelka – an early sign of their financial mess.

    I’m with everyone else on this – change is long overdue. Swiss Rambler – goodness knows how you have time to pick up every bit of info as you do, but thank goodness also that you have decided to share it with us.

  • Rhys Jaggar

    Tony

    Agree with you about the uncertainties re Cardiff City, but the new money has come from some Singapore chap who is apparently worth £800m odd.

    If he can pay off a £40m stadium debt, I wouldn’t think that the HMRC bill would be beyond his means.

    There was also apparently some debt to a Swiss company, which was around £25m, of which I think £9m was paid off, so there might be another £15m there to factor in.

    Beyond that, who knows. But I would suspect that selling Joe Ledley would clear quite a bit of what is known about.

    I suspect this is the new UK administration’s opening shot with regard to them saying that ‘if football doesn’t sort itself out, we may need to regulate them’.

  • munaf

    Why are people unable to look at things rationally ? Comparing dirty Leeds to manure is like comparing Barnet to Arsenal Manure will never ever go bust with their worldwide fan base and market appeal and there will always be some rich Arab/individual/consortium willing to buy/invest in them Look at Liverpool’s situation….up to their eyeballs in debt but there are still more than 1 interested group willing to buy them if and when the asking price comes down to a more realistic level. If you believe that pointing an argument like this up it is an vindication of our current board then you are deluding yourself mate

  • walter

    Maybe MU will not go bust but they will have to change their way of operating munaf.
    And I think there have been far bigger company’s that went bust in the last years compared to MU like big banks and so.
    And with the new regulations coming up it will be more difficult for a rich owner to just throw in the money like in the last couples of years has happened with Chelsea and City. So if that rich guy comes over for MU he will have to work witing the new regulations.

  • The Swiss Rambler

    @Tony,

    Thanks.

    From an accounting perspective, you are absolutely correct that the cost of a player is written down over the length of his contract, so this would mean £4m amortisation per annum in your example of a £20m player with a 5 year contract.

    However, this is nothing to do with the how the payment is structured. The accounting treatment would be the same whether the £20m is paid immediately or in several stages.

    The payment terms are agreed between the clubs and depend on a number of factors. It’s not even the case that the larger the transfer fee, he longer it will take a club to pay. For example, the £80m that Real Madrid paid Man Utd for Cristiano Ronaldo was paid upfront, as Utd insisted on this.

  • Richard B

    The ‘realistic price’ for Manure is not what they are worth now – it’s what they will be worth in a few years time when broadband media rights (and who owns them) become the most valuable card in the pack. Real Mad and Barceloaner negotiate their TV rights independently and have therefore got a greater ability to borrow against them.
    Chelsea recently stated that they were no longer planning to move to a new, much larger, stadium because they were no longer able to predict what the demand would be to go to live games because people would be able to view games ‘on their wrist watches’. It’s the rights to broadcast those games that will dictate the value that a club has in 5 years time. The price of a ticket to a live game may well plummet but it will still be better to have 60,000 paying an average of £25 each rather than 40,000 paying the same. It’s now too late to justify building the stadium that would give that to you.
    The Arsenal board, I would like to think, saw this coming and, given the battle for ownership of shares at what seems now to be very inflated prices, I’m sure I’m right.

  • Marc

    Very interesting piece in the Guardian today about the Glazer’s other financial interests. You can see why they are unwilling to sell ManU. It’s a piggy bank!

  • Marc

    Richard B – Anyone whose ever been to a live game knows that the match day experience is a unique thing and watching on TV or broadband is a very poor second. As for Chelsea, that just sounds like an excuse to hide the fact that they couldn’t fill a 60,000 capacity stadium.

  • walter

    I’ll take the live match experience in the stadium any day over the TV broadcast. And as I am only able to travel over a few times in a season I really know what I am talking about.
    But on the other hand I would love to pay direct to Arsenal if I could see any game live on my tv as now I sometimes have to find internet streams and those are not always the best qaulity.

  • Richard B

    The live matchday experience is unbeatable (I know, I’ve been to watch Arsenal well over 1000 times) but the next generation of supporters does not have that history behind them. They have been fed by the TV experience and the absence of queuing in the rain for a tube train home after a disappointing defeat!
    I sit near season ticket holders who chat about work during the game and make phone calls half the time.
    Chelsea may struggle to fill whatever they can persuade someone to call their stadium in the future but, at certain price levels, so do Arsenal. And in this economic climate that will get worse until something major happens to change it.
    Arsenals marketing to young fans, especially via the Carling Cup, is very good and successful – but not at £45 a ticket.
    The big business players in football in the future will look to broadcasting rights to get their money back. Don’t forget Stan Kroenke owns nearly 30% of AFC but 50% of Arsenal Broadband.

  • Walter,

    I’m not sure the upfront payment rule would be a good idea. It’s like saying Arsenal can only play in the Emirates after all the debt has been cleared! Doesn’t make any sense at all.

    Just like the Stadium, players are treated as assets and they contribute to the income of the club. Part of that income can be used in paying off the price of the asset. I don’t see how that is illogical or unfair.

    The payment schedule is something that is negotiated between clubs and there is absolutely no need for regulating that. If anything the rules need to ensure that the players cannot force the hand of the club that has the contract i.e. no club should be forced to sell because that can lead to lopsided payment schedules, and there has to be better enforcement of the tapping up laws.

    Once this is done and the financial regulations stabilize everything else will automatically fall in place.

    The problem is, just like we’ve seen with the tapping up laws, no administrative agency can really go after the big clubs because it would create a big mess. It has to be a “you scratch my back, I scratch yours” kind of a situation because both can cause significant damage to each other if they get into a fight, and they know this.

  • WalterBroeckx

    Desi,
    Yes if the clubs agree such a delayed payment on free will it could be done.
    But what if a club doesn’t come up with the money when it was agreed? Does the player returns in that case to his original club? Mmmm, come to think of it, maybe that would be an even better rule.
    Sell a player for a lot of money and when a payement is missed by the buying club you have him back and you could sell him again… 😉

  • Yes missing payments is a problem but if the financial regulations are implemented in the right way then it could be reduced. Other sanctions like a ban on transfers are also valid.

    I’m not sure if we have any details on how many clubs actually have overdue payments for player transfers and what is the total amount that is overdue. When taken in perspective along with the total debt, it could provide a good insight.

    Your solution is quite interesting and it should be explored. It will certainly be a deterrent for clubs who spend beyond their means and it also offers a way out for the club that otherwise stands to lose legitimate income.