Portsmouth FC tax saga highlights Premiership debt

In a contribution to our sister site Finance Week, Rachel Fielding reviewed the structural problems that underpin the high-profile winding-up orders looming over several of the country's football clubs.

HMRC is pursuing £7.5m of unpaid tax from VAT and PAYE which has risen to £11.5m since it filed a winding-up petition against the club. The scheduled hearing on Wednesday was adjourned for a week, giving Portsmouth until Friday 19 February to provide the court with details of its finances.

Football's biggest debtors

  • Chelsea £711m
  • Manchester United £649m
  • Arsenal £318m
  • Liverpool £300m
  • Newcastle United £245m

Figures are net debt at end of 2007/08 season. Source: Deloitte football finance survey 2009

Despite owing millions, Portsmouth is likely to deploy the argument that football is a special case, enshrined in the Football League's rule that no team can gain an unfair advantage if all clubs pay their debts in full.
 
HM Revenue & Customs argues that the league's stipulation amounts to unfair preferential treatment. Since the Enterprise Act 2002 removed HMRC’s preferred creditor status, the department objects to any creditor enjoying priority that is not firmly established in legislation. So far, however, the controversial super creditor rule ensuring that football creditors - clubs and millionaire players - are paid in full while other creditors go unpaid has survived High Court challenge and appeal.
 
Super creditor priority was a feature in several other club rescues. But teams struggling to reach the promised land of the Premier League, or setting their sights on the riches of European football, are incurring such high wage costs and transfer fees that the super creditor rule could make rescue impossible unless football creditors are willing to compromise.

Carl Faulds of Portland Business Recovery argues that the football industry is overheated, rather like the housing market. “The business model for football clubs is unsustainable,” he says. But when the business objective is something as intangible as ‘chasing the dream’, club chairmen, managers and supporters are deaf to sensible business advice.
 
Carl Faulds believes that by insisting that football creditors be paid in full, the Football League is sending out the wrong message to clubs. “It gives them a false sense of security. If you stop clubs giving credit to each other, they will only buy players they can afford. It’s up to the Football League to impose rules to encourage better financial management.”

David Acland, regional managing partner at Begbies Traynor, speculates: “I think the Government will step in and ownership rules need to be tightened up. But the truth is, it’s a reckless business. If you behaved like that in any other industry, they’d shut you down.”

*RELATED NEWS: Former Portsmouth manager Harry Redknapp and Milan Mandaric, the club's previous chairman, appeared at Westminster Magistrates' Court on Thursday morning (11 February) for a preliminary hearing to answer two charges of cheating the public exchequer. The defendants confirmed their names during the 10-minute session, which was then adjourned until a plea and case management hearing on 14 April to be held at Southwark Crown Court.

Further reading
Tax and football: PAYE and NIC by Simon Sweetman
Leicester City FC chairman charged
Football clubs under threat from HMRC
Money Laundering and Crime discussion group

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Comments
cymraeg_draig's picture

Football clubs are not exempt

cymraeg_draig | | Permalink

People have critisized Wenger for not buying expensive players for Arsenal.  Instead he has concentrated in paying off the mortgage on the stadium.

By comparison, even Manchest United have money problems and have solf top players in an effort to balance the books.

They might win more cups - but Arsenal will still be there when some of these other clubs are bankrupt and gone.

Now, who got it right ????????????????????????????????

 

 

 

 

 

 

Liquidation? Bring it on.

Anonymous | | Permalink

Top football in England and Scotland is dominated by overpaid foreign stars and overpaid foreign managers, and controlled by multi-millionaire foreigners. Ordinary fans are no longer a part of the clubs they have supported through many years. The clubs' loyalty is to Sky TV, not to the community that nurtured them. IMHO it is a disgrace that several teams have taken the field without a single 'home' player. Meanwhile England haven't won the World Cup since 1966 and Scotland haven't even qualified since 1998 (?) (correct me if I'm wrong).

Against this background it is high time that the insolvency laws put a stop to this madness and bring back some reality. OK it's tough luck if it's your club that goes under, but they always come back. Hopefully this time with a dose of sanity.

correction

jimwatson | | Permalink

Dear Anonymous

You asked for correction if you were wrong and I am happy to oblige. England did not 'win' the world cup in 1966, they were gifted it by a dodgy Russian referee and two equally dodgy linesmen. Happy to clear that up for you all...

 

 

#Jim

Anonymous | | Permalink

Thanks, you made me chuckle. But if we are going to revisit every refereeing error since 1966 that has produced an apparently unjust result, this is going to be a very long thread indeed.

Seriously, as a Scot (I presume), how do feel about your leading clubs fielding so many foreigners? Remember that when Celtic won the European Cup in 1967 every member of their team was born within 30 miles from Parkhead. And would a few liquidations put things right?

Before anyone suggests it - this is not a racist thing. Emile Heskey and Ashley Cole are as much Englishmen as I am.

Fred Hoad's picture

Call this news?

Fred Hoad | | Permalink

Nah, I call it a pretty lazy attempt to popularise a subject by basing it on out of date information.

E.g. Chelsea debt £711m?  Get with the times. http://news.bbc.co.uk/1/hi/8434698.stm 

Anyway, ultimately, despite the attempts by some to attach sentiment to Portsmouth's position, it is a business first and a 'club' second.  Your time would be better spent investigating how such debts arose in the first place.  Who were the auditors for example and what form have the financial statements taken in the last couple of years.  Qualified audit reports?  Assurances from directors?  Secured debt?