Football club ownership – be careful what you wish for
- Sport and Major Events Risk Management
Football club ownership – be careful what you wish for
As football clubs continue to feel the heat from sharp decreases in revenue linked to government restrictions amid the ongoing spread of a virus that refuses to dissipate, several owners are stumbling towards the fire exit. This is especially true in instances where owners are deprioritising financial support for their club as returns on investment from some of their other interests melt away.
As set out in our earlier article Football in Distress, the peculiar case of Wigan Athletic was the first such example in the UK post-COVID-19, with its Hong Kong-based owners withdrawing funding and abandoning ship a matter of weeks after purchasing the club, leading to administration, then relegation. Meanwhile, fans of Macclesfield are pointing the finger at club owner Amar Alkhadi after a string of broken promises ended in a terminal liquidation in September.
For fans of clubs hoping that a new owner comes to their rescue, what might they expect? Steve Parish, the owner of Premier League team Crystal Palace, has a view: “You want to meet some of the nutcases who want to buy a club. For every one person who might actually be in a position to help, you have 20 complete nutcases. At best, you are taking a desperate leap into the unknown”. He has a point. History is littered with crackpot owners ranging from the criminal to the incompetent, and everything in between. Supporters of stricken clubs hoping for or anticipating new owners should be careful what they wish for.
Newcastle United and the “fit and proper person test”
Newcastle United fans are on red alert. The club’s controversial billionaire owner, Mike Ashley, has been looking to sell the club on and off ever since he bought it for GBP 133m in 2007. The pandemic has hit retail hard, and Ashley has warned that some of the Sports Direct and House of Fraser stores in his empire might have to close.
Recently, a GBP 300m deal was drawn up for Ashley to sell the club to a consortium led by British businesswoman Amanda Staveley, involving low-profile billionaire property owners the Reuben brothers and the state-owned Public Investment Fund (PIF) of Saudi Arabia (chaired by ruling Crown Prince Mohammed bin Salman). The consortium withdrew its bid at the start of August following delays of more than four months in Premier League sign-off of the “Owners’ and Directors’ test” (also known as the “fit and proper person test”).
Ashley has threatened to sue the Premier League over the collapse of the deal, alleging they did not apply the rules of the test appropriately. According to a statement he released, the bid was rejected on the basis of the PIF’s links to the Saudi Arabian government. The Premier League released their own statement in response, denying the takeover had been rejected, whilst confirming they had taken legal advice about “which entities it believes would have control over the club” and suggesting they had not been provided with relevant information from all entities for the proposed takeover to progress to the next stage.
Meanwhile, an apparent rival bid for Newcastle from a Singapore-based entity appears unlikely to succeed after newspaper revelations that the company had superimposed an image of former US president Barack Obama on to promotional materials to make it look as though he had attended a meeting with its executives in Paris (he had not). Add to that the fact that the self-styled “world’s fastest growing conglomerate” has provided confusing information about its structure, geographic locations and stock market listings, and you’d be forgiven for thinking this is one that Newcastle’s fans might like to swerve.
Leeds United: High-value loans, losses, and a financial fall from grace
Many will remember Leeds United signing a 21-year-old Rio Ferdinand for a British record-breaking GBP 18m back in 2000. They will also remember Leeds’s subsequent financial implosion and eventual relegation from the Premier League just four years later.
It all started in 1997, when life-long fan Peter Ridsdale became chairman. The club enjoyed relative success in the Premier League. However, behind the scenes, lavish spending on transfers, salaries, agent fees and a fleet of no less than 70 company cars was being financed by high-risk borrowing, including a GBP 60m loan guaranteed against future season ticket sales. Leeds even reportedly borrowed to pay the GBP 900,000 arrangement fee for the loan.
Everything started to crumble when Leeds failed to qualify for the Champions League in 2001-02 and 2002-03, reducing income by GBP 30m. To make the high-interest repayments on its loans, the club orchestrated a fire sale of its best players. But even after the sale of Ferdinand to hated rivals Manchester United the club recorded massive losses. The following year saw Leeds sell off much of its remaining talent, but this wasn’t enough. Ridsdale resigned in March 2003 and Leeds tumbled down the league table. It was relegated in 2003-04, dropped another division in 2006-07 and then entered administration.
It has taken Leeds more than 15 years to claw itself back up into the Premier League and recover from the financial frivolities of a man dubbed “Father Christmas” by football agents, thanks to the money he was willing to splash to secure players. Ridsdale went on to own English Football League (EFL) clubs Barnsley, which nearly went into liquidation under his stewardship, and Cardiff City, which received multiple winding-up orders during his time at the helm. The Official Receiver in 2012 eventually banned Ridsdale from holding any company directorships for seven-and-a-half years.
Darlington: The club that had a stadium with marble toilets and gold taps
Before making the Times “Rich List” (a list of the wealthiest people or families in the UK) in 2000, George Reynolds had served multiple jail sentences in the 1960s and 70s for serious theft, safe-cracking and the handling of explosives. Having apparently reformed while in prison, he subsequently made millions after founding a kitchen worktop business.
Reynolds bought Third Division Darlington FC in May 1999. He then spent almost GBP 30m on it, including constructing a brand-new stadium, the Reynolds Arena, with marble toilets, gold-plated taps and lifts (elevators) to bring the 25,000 fans it could hold to their seats. Unfortunately, the average attendance at Darlington games was around 2,000 at the time and was later limited to 10,000 by the local council because of public transport access limitations. Despite this, Reynolds made unsuccessful efforts to sign international stars Paul Gascoigne and Faustino Asprilla.
In December 2003, six months after the completion of the Reynolds Arena, administrators were called in after the club reneged on high-interest loans secured against the stadium. A few weeks later, Reynolds resigned as chairman. In June 2004, he was arrested on suspicion of fraud and money laundering after police stopped him with GBP 500,000 in cash in the boot (trunk) of his car. Reynolds later admitted tax evasion and was sentenced to three more years in jail.
The crippling running and maintenance costs of the stadium were later cited as a factor for the club entering administration in 2012, leaving Darlington unable to pay its creditors and triggering automatic relegation to Northern League Division One, a drop of four divisions.
Birmingham City: The money launderer now behind bars in Hong Kong
The recent revelations at Wigan have drawn comparisons with the financial woes of Birmingham City, another club with a history of Hong Kong-based owners.
Birmingham was the subject of a takeover bid by the previously unknown Carson Yeung, a former hairdresser from Hong Kong. Having initially purchased 30% of the shares of the club from David Sullivan and David Gold (the current co-owners of West Ham) in 2007, he went all-in two years later, buying the entire issued share capital of the club for GBP 1 per share, a total price of GBP 81.5m.
At the time of the acquisition, Yeung already had two criminal convictions in Hong Kong dating back to 2004. Allegations swirled that he practised “share ramping” (the artificial inflation of the value of shares in which he held direct interests) and had links to the organised criminal group, the triads.
Under Yeung’s stewardship, Birmingham was relegated from the Premier League in May 2011. One month later, Yeung was arrested, charged, and later convicted on five counts of money laundering after prosecutors proved that GBP 55.4m in funds of unknown origin had flowed through his account between 2001 and 2007. Yeung resigned from all his roles at the club a month before he was found guilty on all counts and sentenced to six years in prison.
Birmingham City was transferred to Trillion Trophy Asia, another Hong Kong-listed company, in 2016, but there were no signs of improvement in the club’s financial management. In the 2018-19 season, Birmingham City was docked nine points for being in breach of profitability and sustainability rules after accruing losses of GBP 49m over three years.
Rangers: How Scotland’s most successful club went into liquidation
In May 2011, Craig Whyte bought Rangers for the princely sum of GBP 1 after it had been on sale for three years. The bargain basement price was driven by an ongoing dispute (and unpaid tax bill) with Her Majesty’s Revenue and Customs (HMRC) due to Rangers’ use of Employee Benefit Trusts to make huge payments to players.
Pre-takeover, Whyte announced that he would invest GBP 25m into the team. However, Rangers’ financial woes were far from over, with unpaid debts amounting to around GBP 9m owed on value-added tax (VAT – sales tax) and pay-as-you-earn tax (PAYE). On 14 February (Valentine’s Day) 2012, nine months after Whyte’s arrival, Rangers entered administration on the petition of HMRC. It also emerged that Whyte had historically been disqualified as a director; a fact not disclosed to the stock market when he had bought the club.
An independent investigation found that Whyte was not a “fit and proper” person to run the club, and the Scottish Football Association (FA) handed him a lifetime ban and fines totalling GBP 200,000 in relation to the affair. The club did not escape unscathed, with a 12-month embargo imposed on signing players and a variety of fines. Following the rejection of various proposals to creditors, the club was forced into liquidation and expelled from the Scottish Premier League. A four-year climb from the Scottish Football League’s Third Division followed.
Meanwhile, Whyte was arrested in Mexico in November 2014 and extradited to Scotland in connection with allegations of fraud related to the Rangers takeover. He was charged with using the club's own money, in the form of a GBP 24m loan against three years of future season ticket sales, for the deal, while claiming the funds were his. He was acquitted in June 2017 following a seven-week trial.
Portsmouth: “More owners than wins”
In a period of only two-and-a-half years, between August 2009 and February 2012, Portsmouth had five owners and two administrators, leading the media to joke in the 2009-10 season that the club had had “more owners than wins”. These owners were:
- Alexandre Gaydamak [January 2006 to August 2009]
Alexandre’s father, Arcady Gaydamak, who had previously held interests in Israeli sports clubs, claimed in 2008 that he (rather than his son) was the true owner of Portsmouth FC, though the club disputed this publicly. Arcady was sentenced in his absence to six years in prison by a French court for illegal arms dealing with Angola worth almost USD 800m. This was later overturned, but in 2015, after several years on the run, he presented himself to the Paris courts and was sentenced to three years in prison in relation to tax violation and money-laundering charges.
- Sulaiman Al Fahim [August 2009 to October 2009]
After Gaydamak sold Portsmouth to Al Fahim, it transpired that the funds Al Fahim had used to purchase the club had been stolen from his wife. Al Fahim was later sentenced to five years in prison for stealing GBP 5m to fund the acquisition of Portsmouth FC, which he only owned for six weeks.
- Ali Al Faraj [October 2009 to February 2010]
Portsmouth fans dubbed Ali Al Faraj “Al mirage” because he never attended games or met anyone from the club. This prompted allegations that Al Faraj either did not exist or was a front for the actual owners, who wanted to remain anonymous.
- Balram Chainrani [February 2010, October 2010 to June 2011, December 2011 to February 2012]
Chainrani was a reluctant owner of Portsmouth, having loaned the club around GBP 17m, taking Fratton Park ground as security. The club was relegated from the Premier League in April 2010 after being docked nine points for appointing administrators, having overspent on player transfers and salaries. It was the first Premier League team in history to enter administration.
- Vladimir Antonov [June 2011 to November 2011]
Antonov was arrested in London in 2011 at the request of Lithuanian authorities, forcing him to place his firm (the legal owner of Portsmouth) into administration and causing him to step down from his role at the club. He was charged in 2015 with asset stripping to the tune of GBP 400m at a Lithuanian bank he used to work at. In 2016, he was found to owe a collapsed Latvian bank GBP 65m in relation to another fraud. In 2019, he was jailed.
A tailspin of further insolvency and relegation left the club in League Two for the 2013-14 season. But there was light at the end of the tunnel. An out-of-court settlement reached in April 2013 between administrators and a supporters’ trust effectively saved the club. Only 18 months later, Portsmouth was debt free. It has since climbed back up to League One (and changed hands again, with former Disney chief executive Michael Eisner currently in charge).
On the continent
The pattern is replicated across Europe. Here are three high-profile examples:
- Athletico Madrid, Spain: Jesus Gil [1987 to 2003].
A former TV host and mayor of Marbella, Gil was also a convicted fraudster with personal ties to Gen Francisco Franco. During his presidency, he restructured the club, illegally transferred shares to himself and closed the youth academy.
- FC Anzhi Makhachkala, Russia: Suleyman Kerimov [2011 to 2016].
The Russian billionaire made a sudden U-turn in his spending during 2013, having lost hundreds of millions of dollars overnight in his fertiliser shareholdings. Kerimov slashed his budget plan for Anzhi and in just one week the team lost 12 of its top players, including Samuel Eto’o, who with a salary of around GBP 20m was the highest-paid footballer in the world at that time.
- AC Milan, Italy: Silvio Berlusconi [1986 to 2017].
The club was presided over by Berlusconi, a former Italian prime minister, for 31 years. Despite leading AC Milan to victory in 29 competitions during that time, Berlusconi was forced to sell the club in 2017 due to a “lack of capital”. Berlusconi was involved in more than 20 court cases during his political career (which included allegations of corruption, tax evasion, mafia involvement and those infamous “bunga-bunga parties”). He sold the club to Chinese businessman Li Yonghong, who just over a year later defaulted on a EUR 32m loan, resulting in the club being taken over by one of his creditors.
So it seems not every potential purchaser would be an upgrade for clubs and supporters currently hoping for a change. The challenge for football clubs in the current climate is to undertake effective due diligence on prospective purchasers.
In the UK at least, efforts have been made to filter out owners that could harm the longer-term interests of the clubs they are targeting for takeover. The “Owners’ and Directors’ Test” was introduced in 2004 with a mandate to protect UK football clubs (and the reputation of football in the UK leagues) from unscrupulous characters. The test assesses a number of objective measurements, such as: whether prospective owners or directors have previous unspent criminal convictions in relation to a range of offences; have filed for bankruptcy or been banned by a sporting body or as a company director more widely; may have any potential conflicts of interest; or have breached certain key football regulations, such as match-fixing.
Although the test was designed to prevent the disasters set out above, in practice it hasn’t always worked that way, and its effectiveness has always been hotly contested. Since 2004, a number of prospective owners (the Saudi PIF among them) have seen their interest in a club thwarted because of their failure to pass the test. One example is Louis Tomlinson of pop band One Direction, who in June 2014 was deemed unfit to take over Doncaster Rovers because of a lack of funding. Meanwhile, various others (including the five aforementioned Portsmouth owners and Carson Yeung) passed the test despite having dubious reputations, and sometimes obscure or opaque backgrounds.
More than 110,000 Newcastle fans have signed a petition (unsuccessfully) requesting the UK government launch a probe into the Premier League's takeover process. However, given some of the colourful characters that have ended up owning UK football clubs, despite those in more recent history passing the Owners’ and Directors’ test, could it be that, at least for now, a case of “better the devil you know” for Newcastle United?
The next and final article in this series will consider the due diligence steps that buyers and sellers of football clubs can undertake to limit the risk of unpleasant surprises in the transaction process.