Portsmouth, the first Premier League club to face being wound up, are unlikely to be the last unless top clubs start managing their finances more prudently, financial analysts said.
On Wednesday, Portsmouth were granted extra time to fight a winding-up petition after an unpaid tax bill which the Government’s Revenue and Customs department (HMRC) said at the High Court in London had reached £11.5 million (US$17.99 million).
Portsmouth were given a week to draw up a statement of its financial affairs and will be back in court this month.
PHOTO: REUTERS
With Pompey’s future hanging in the balance, Alan Sugar, the British Government’s enterprise advisor, criticized clubs for the “irresponsible” way they ran their finances.
Sugar, a former Tottenham Hotspur chairman, told BBC Five Live that Portsmouth’s woes were symptomatic of a wider problem with clubs spending way beyond their means to achieve success.
“The problem is the irresponsible manner in which all clubs are run — not just Portsmouth. They are spending far too much money, 90 percent of their income is spent on players and players’ salaries, and it’s something that should have been nipped in the bud years ago,” Sugar said.
He said soccer’s business model was a flawed and vulnerable one and expressed anger about the amount fans had to pay for tickets largely to help subsidize players wages.
“It is outrageous what a man, his two kids and his wife have to pay to go and watch a football game,” Sugar said.
“Families used to sit down and have a serious discussion about whether they could afford to buy a toaster or a new washing machine which might be a couple of hundred quid,” he said. “Now ... it costs £200 to go and watch a match.”
Portsmouth were not the only club in the High Court on Wednesday with both Championship (second division) side Cardiff City and League One (third division) Southend United also appearing. Both were given a 28-day adjournment.
Meanwhile Chester City, a Football League club for 74 years and now playing one level below the League, face being wound-up for failing to fulfil a league fixture because its unpaid players refused to play the game.
This week, David Sullivan, the new co-owner of Premier League West Ham United, said that he wanted both players and non-playing staff at the club to consider taking a 25 per cent pay cut to help cut the clubs debts of around £110 million, while Championship Crystal Palace are in administration and seeking new buyers.
Simon Wilson a partner at Zolfo Cooper the restructuring experts, said: “Today’s court hearing regarding the future of Portsmouth is the first instance of HMRC carrying out its threat to take action against a large premier league club.”
“HMRC have made a commitment to recovering the debt associated with the club, and action will be taken to return the funds to the public purse,” he said. “If a solution isn’t reached after seven days, and Portsmouth goes into administration, this would be an unprecedented case that would set the tone for other football clubs in a similar position.”
“It will act as a real warning to clubs that they need to demonstrate a solid solution to paying off their debts, rather than relying on unsubstantiated promises,” he said.
He said the tax man clearly wanted to deliver the message that patience had run out and reckless levels of debt would no longer be tolerated.
“It is clear that football clubs need to change their practices and take a more responsible attitude towards their financial position,” Wilson said.
Restructuring expert Danny Davis from law firm Mishcon de Reya said the days when soccer clubs could rely on prestige, a rich fan or oligarchs with a cheque book had gone.
“I’m surprised it has taken so long for football clubs to see the writing on the wall,” he said. “Now is the time for them to take their financing seriously and do some serious restructuring to avoid going out of business.”
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