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By Tony Attwood
Manchester IOU plod along their merry way, spending all their profit on interest and fees for the owners.
Liverpoodle (named after the annoying little dog favoured by rich Americans) have paid off RBS, but are perhaps just a little red-faced by the emergence of the fact that the new owners didn’t actually promise not to load the club with debt again. There’s also the annoying business about the new stadium, with the debt for the initial study and planning costs not yet sorted.
The oily dealers in Fulham have finally tumbled that without a stadium of the size and scope of the Ems they can’t really meet the financial fair play rules and so have put a compulsory purchase order on Earls Court (except the law isn’t quite like Russia in London guys, so it might not all just go through on the nod).
As for Sheikh Yerbooty and his gang, the latest signs are that winning the league at any price is the order of the day. Financial fair play can come later. (I seriously believe that the thinking now is that if Man C do win the EPL and are refused a licence they believe Uefa will be the ones looking silly, and so will have to back down and grant a special licence – rather like people used to get from the Archbishop of Canterbury if they wanted to get married in a rush.)
As for us, the stories are that Mr Usmanov is still buying shares. Mr Kronke as we know sits on 29.9999999999999999999999% ownership and is ready to… well, I am not quite sure what, but whatever it is, it will be good.
Oh, and the Tiny Totts are going to have two stadia – one just a couple of miles from the pornographers in the east end, and the other on top of the existing pile. West pornography don’t mind too much because you don’t need a very big ground in the conference.
So that’s it, except, well, not. Because our old pals HM Revenue & Customs are in the process of going back to court to challenge the “football creditors” rule. The case will be heard in February 2011.
Those who have lived by and benefited from the rule are already mounting a PR campaign concerning the end of football as we know it, chaos, undermining the system that has stood for a thousand years, “an epidemic of insolvencies” (I rather like that phrase – “an epidemic of insolvencies” – one of the EPL guys actually said that) a “domino effect of collapsing clubs” (get your head around that one), a cascade of creditors (actually that doesn’t mean anything and I made it up – but you get the idea). Etc.
Generally, it seems to me that when people start talking about a change in the rules being the end of the world as we know it, they are playing the special interest card. The fact that they are playing it now shows just how much of a panic the special interests are in.
To be clear about this, if a club goes into administration, the current rules say that everyone involved in football (eg the players) gets paid their salaries and other debts. Those not involved in football (the printing company that employs five people all of whom lose their jobs when the club doesn’t pay up which forces the printer to go bust and everyone to lose their jobs, and possibly their homes because they can’t pay the mortgage), they get nothing.
The argument from the EPL is this: when Portsmouth went bust if there had been no “football creditor” rule then Watford would have gone bust, because Portsmouth owed Watford. Then the club that Watford owed would go bust, and so on.
This is utterly ludicrous. If the f0otball creditor rule goes then clubs stop buying on credit all day long. If a transfer is wanted, the club must pay there and then. This reduces the value of players and the wages of all but the very top players. Sanity returns and clubs stop being gambling ventures playing with the very livelihoods of the small firms that trade with them. There will be no more Leeds.
Consider the Dundee administration. They got docked 25 points for going into admin twice in seven years. The fans are protesting that it is “unfair”. And where is the unfairness to all the small traders and other local companies who have traded with Dundee FC and now get nothing and are laying people off, while Dundee’s “football creditors” are protected?
According to the Guardian, the Revenue and Customs argument is based on the findings of Lords Cross, Diplock and Davies in the 1975 case which established in English law that, “A party cannot obtain the status of a secured creditor without having a properly registered charge.”
The finding in the case relied on what is generally called the “anti-deprivation principle” of law. In the event of insolvency this principle attempts to prevent cash or assets being transferred to a third party while other unsecured creditors miss out.
The EPL claims however it holds a golden share in each club, which is the entitlement of the club to compete in the competitions. So if the clubs don’t behave properly that share is removed and they are kicked out of the league. Therefore the 1975 case should not apply. But the Revenue and Customs say, “The PL/FL may not lawfully strip an insolvent club of its golden share because that offends against the ‘anti-deprivation principle’. I am not a lawyer but I believe this means you can’t deprive people of the right to trade just because they owe money. If a man who cleans windows can’t pay his newspaper bill, the newspaper shop can’t take away his window cleaning apparatus, because that deprives him of his living.
As was admitted in the Portsmouth case by some of those actually working for Portsmouth, the football creditor rule “goes against all normal principles of insolvency law”. The only reason Portsmouth got away with it was that the judge felt that such a change in the application of the law couldn’t be granted in one case but needed a full hearing.
To me there is no doubt that clubs go into administration normally because they constantly spend beyond their means. This is not the case with all business administration where companies can get caught out by changes in the market or sudden moves in government policy. Most football clubs that go bust gamble insanely on a debt-now future-success approach, (Leeds was the perfect example, but there have been many others,) and then make the ordinary people in the town who are just trying to make an honest buck, pay for their pathetic stupidity.
Here’s a list of some of them in the last 25 years. The data comes from this site – which I fully recommend if you want to know more. I think it is time for this insanity to stop. (And yes, if you want all the facts – Arsenal went into administration, but from what I found out when I researched the issue, they paid off everyone. Which is not bad considering the person who arranged that was the eternally maligned Henry Norris.)
Charlton 1984
Middlesbrough 1986
Tranmere 1987
Newport County 1989
Walsall 1990
Northampton 1992
Kettering 1992
Aldershot 1992
Maidstone 1992
Hartlepool 1994
Barnet 1994
Exeter 1994, 2003
Gillingham 1995
Doncaster 1997
Millwall 1997
Bournemouth 1997, 2008
Darlington 1997, 2009
Chester 1998, 2009
Hereford 1998
Portsmouth 1999, 2010
Crystal Palace 1999, 2010
Oxford Utd 1999
Barrow 1999
Swindon 2000, 2002
Scarborough 2000
Hull 2001
QPR 2001
Chesterfield 2001
Leicester 2002
Barnsley 2002
Carlisle 2002
Notts County 2002
Bury 2002
Bradford 2002
Port Vale 2002
Lincoln City 2002
Swansea City 2002
York 2002
Halifax Town 2002, 2008
Derby 2003
Ipswich 2003
Huddersfield 2003
Oldham 2003
MK Dons 2003
Wimbledon 2003
Wrexham 2004
Cambridge 2005
Crawley Town 2006
Rotherham 2006, 2008
Leeds United 2007
Boston United 2007
Southampton 2008
Luton 2008
Stockport 2009
Salisbury 2009
Arsenal’s administration is described in Making the Arsenal
Excellent post, the voice of reason. The only trouble is, football clubs have deep rooted aversions to any ‘voices of reason’, especially clubs that play in red shirts and white shorts and have debts in excess of £1 billion.
Tony- i really want to know how all is good if either of Kroenke or Usmanov takes over Arsenal. Bcoz in either case, they will borrow funds to buy the club and the interest on such borrowed funds will ultimately be deducted from Arsenal’s profit. So i really dont think taking over Arsenal by any of them wil be good for the club.
I must say the list is long so nothing would change.
Or yes something would change if the laws would change: it would mean the end of spending money you don’t have as the clubs will no longer behave like mad with money they dont have and maybe never will have.
Dark Prince – what indications do you have that either Kroenke or Usmanov would borrow to finance a takeover?
Once it is going to explode, and I dont think it can go long this way, but why FA close eyes after so many cases its mystery to me. But what frighten me that rotten teams will pull healthy ones with them and one way or another it can affect us as well. Not directly of course, but how it will affect whole league if there is more and more teams in debts which they cant maintain. What when they all fall in to Liverpool hole. What will happen with quality of league?
Paul C- what indications do u hav that Usmanov or Kroenke wil purchase the club worth £1 billion by cash??
No business man is stupid to put such a huge amount directly from his pockets.
Quick thought.
What are the implications should Kroenke own the majority stake in Arsenal? How does his ownership of Colorado Rapids affect things? Would he have to sell them or could they then become Colorado Arsenal and be our feeder club? We could send our youngsters out on loan and set up some coaching schools over ther. Just a thought.
Great article Tony. I agree with what you’ve said, removing this would hopefully make clubs spend what they have and not accept credit. It seems the banks have lost interest in loaning money to football clubs, so maybe we’ll see a system where clubs spend what they earn, not what they borrow
I still have a gripe with parachute payments and the TV deals causing an imbalance between the various leagues in the pyramid which I’d love to write an article on when I have time!
To be more specific, Usmanov’s net worth is around £5 billion and Kroenke’s net worth is around £2 billion. And most of their net worth is in the form of property investments and shares of their own companies. We can say a max of 20% of their net worth to be cash/bank balance (though this % will be more lower than 20%). So, by simple calculation, we can say Usmanov wil have a max of cash bank balance of £1 billion and Kroenke will have a max cash bank balance of £400 million. Now Usmanov is a businessman, so he wont put his entire cash/bank balance to buy Arsenal’s shares and neither can u expect him to sell his investments to fund for Arsenal’s takeover. And Kroenke too wont hav enough money to complete the takeover by his own money.
So in both cases, money will be borrowed to fund for a takeover of Arsenal. And every borrowed money will carry interest on it. And this interest will be deducted from Arsenal’s revenue every year. We already have to pay £20 million each year in interest for next 20 yrs. Its not a good idea to increase this interest more.
SO ALL GOONERS, TAKEOVER OF ARSENAL WILL BE A BAD OMEN FOR ARSENAL!! PLS DONT LET ARSENAL BE TAKENOVER BY ANYONE!!!!
Can’t agree with Dark Prince enough.
I agree Dark once we keep a multi ownership like we have now we will always be in good hands if that were to change I think the values of the club would also.
We would become the next modern day bunch of muppets heading for unstable times.
I hope they find someone independant or lady nina holds on to her shares same with danny if he sells i hope they have someone new lined up and keep the club the way it is now.
Dark Prince: there is no chance a bank (or the government, for that matter) will accept a heavily leveraged takeover of a football club. Of that I can assure you 100%
Let’s try and unravel the Usmanov Kronke situation. Kronke is interested in the HD broadband operation and has bought into that. He sees that as the key to future earnings. Usmanov invests in a diverse way, and he is seeing his investment making a good return since Arsenal shares are rising in value.
But none of that means they are either of them going to try and buy the club. But let’s suppose Mr Usmanov does. He goes out and buys Lady Nina’s shares and then has over 30%. So he then has to bid for the rest.
But Mr Kronke doesn’t sell, and maybe others don’t sell, so he doesn’t get to the 75% I think he needs to be able to change the statutes of the club. He probably doesn’t get 50%.
So he has just spent a lot of money to get more shares. So what?
Final point – the days when a bank would lend money to allow the Glazer approach are over. Every bank saw how close RBS came to the edge, and how it is now owned by me – and the rest of the citizenship of the UK. They are not going down that route again. So in fact the financial collapse is one of the ways in which our independence is being maintained.
Besides which I am a member of fanshare, so I am doing my bit.
Phil- u r forgetting that banks and government aren’t the only source of borrowing money. Any of them can borrow money from any company including their own. And such sources of borrowing money will carry a larger interest rate. So it really doesn’t matter if banks lend them money or not.
I think u guys are forgetting that Arsenal is the most profitable football club in England. Even if banks dont lend money, any other company will be willing to lend a loan. Usmanov too can easily get a loan from any of company that he has good networks or contacts with in russia. Kroenke can do the same in america.
From a financial perspective, no level-headed businessman will want to invest in a EPL club. The risks are bountiful and returns relatively poor (and that’s if you are lucky and able to make a profit).
It takes a special breed of businessman to acquire the taste, and often then not, its about passion and/or playtoy. Anything beyond that, I believe, are those that invest to make a quick buck by flipping the club.
I don’t know if you do business with football clubs Tony, but if I did, I’d look at their accounts before deciding my terms of payment.
Currently, I’d allow Arsenal 30 days as they are good financially and I would be a small trader unable to wait 90 days for payment. If I were a bigger company I’d be prepared to negotiate with them a bit on that. I might do likewise with Chelsea and Man City simply because the billionaires would look seriously stupid if they didn’t pay up and I asked the Sun to run a Page 1: ‘Here’s Roman’s yacht: price £500m (or 20 shipments of cocaine, I don’t know what it cost). Here’s my bill for payment: £20k. Why the fuck hasn’t Roman paid it?’ I’m sure the highly principled journalists of News Corp would be suitably outraged and suitably lacking in deference to the Russian Bear that they’d jump for joy at calling a loadsamoney oligarch a tight fisted arsehole of the first order……..and I’m sure the FA, in their munificent principled guilded palace would deduct Chelsea 3 pts a week until they paid up. Wouldn’t they? You’ll note that Mr A. was scrupulous in paying clubs in cash, on time, up front when he came here, so I’m using him as an example, not implying for a moment that he doesn’t act creditably when paying his suppliers………
As for most of the rest of them, I’d say 100% of COGS plus 50% of net profit of job upfront 50% of net profit on completion, with a 2% compound interest for each week you delay. If they said no, I’d tell ’em to fuck off, I don’t need your business then.
I’d tell all the police forces in the country to do likewise. Because without them: no football. Same with St Johns. Programme printers are an annoyance, but they don’t stop the game happening.
Find those legally required to be present for a football match to take place and get them to play hardball with clubs.
That’ll start to sort out the sorry mess……….because if it was just me making a stand, all that would happen is that I’d be blackballed and the same sordid rubbish would continue…..
Tony – be careful what you wish for. According to the latest AFC accounts the Club is owed £65m (mostly payable in the next year) and, I would guess, that most of this is owed to them by other clubs. Let’s hope we get our money before any rules are changed. But I agree with you, be changed, they must.