The Chips Are Down In Pompey Roulette

By on Jun 24, 2012 in Finance, Latest | 6 comments

Pompey Supporters’ Trust have made their bid for the club. Pause to take in the enormity of that statement. This is possibly one of the biggest steps taken in the history of the Trust movement. Not because of the fact that a Trust is in a position to take over a club so recently in the top tier of the game but because they are taking on the most paradoxical owner in its history. A self avowed ‘reluctant owner’ who claims to not want the club, yet has been strangely persistent in his involvement since August 2009. An owner who embodies everything that the Trust movement opposes.

In August 2009 Balram Chainrai was one of two names put forward to the Premier League as a potential new owner of Portsmouth Football club. The other was his business partner Levi Kushnir. At that time Sacha Gaydamak was unwilling to sell the club to them as they were suing his father Arcadi in Israel over a failed business deal, it was said. Instead he sold  to Suliaman Al Fahim. Al Fahim managed to keep the club for just one month before a consortium alleged to have been owned by an unknown Arab, Ali Al Faraj, took the club over on 5 October. By 6 October Chainrai and Kushnir’s company Portpin held a charge over Fratton Park. From then dates the stranglehold that has accompanied the club’s downward spiral from Premier League to League 1.

Portpin added another charge in January 2010, just weeks before the club went into administration. On Portpin gaining ownership of the club from administration in October 2010 this charge was switched from the liquidated Oldco (Portsmouth City FC) to the Newco (Portsmouth Realisations – later to become Portsmouth (2010) Ltd). This manoeuvre has been questioned in court due to the fact there was no evidence of new money having been introduced to the business at this stage. There was certainly little spent on infrastructure at the club and the acquisition of players was always an issue fraught with promises but oddly botched and bungled in practice.

Portpin sold the club to CSI in June 2011 but retained their charge, secured as always on Fratton Park. The deal with CSI was one where the club was to be paid for by instalments and Chainrai could perhaps see that he would be getting his original 2009 charge finally paid off. CSI defaulted however under dramatic circumstances which sent both CSI and eventually Portsmouth (2010) into administration. CSI had fallen into the over-spending trap and had added £10.5m of debt to the club with very little to show for it, increasing the already excessive salary bill to an unsustainable level. Without the input of an owner’s cash the club was insolvent.

However Portpin, as charge holder over both companies by now, retains its influence over the future of Portsmouth Football Club. Whatever happens to the club in administration the charge it holds give Chainrai the legal right to demand payment from the owners of the club. This factor alone explains the lack of interest from other parties who have enquired about owning the club. No matter what Andrew Andronikou of CSI’s administrators UHY may say about lack of proof of funds, it is clear that any prospective buyers have been asked for funds way in advance of what the club is actually worth, just to satisfy Portpin’s charge. Whether illegal, unethical or ill-advised, there is no doubt that the involvement of Portpin in Portsmouth Football Club has led to two administrations and contributed to the club’s slide down the leagues. More seriously, their involvement has laid a blight on there being any chance of sustainable development in its future.

Yet Chainrai declares he does not want to own a football club and that he is the ‘owner of last resort.’ He has shown his reluctance by tabling a bare bones offer to purchase the club out of its current administration. This, he says, is to stave off liquidation of the club. Indeed liquidation would be bad news for Portpin as any value in PFC dies with the ability of the club to function in the Football League. Gone will be about £14m worth of Parachute Payments and dead would be the only asset with any value at all – Fratton Park. Portsmouth City Council have made it very clear that there will be no chance of permission being given for anything other than a sports venue at Fratton Park for the foreseeable future.

Chainrai’s offer is £500,000 which translates to 2p in the £ for creditors, or 0.4p if their debt is under the 2010 CVA which has never been paid. He has offered to pay the football creditors himself and businesses and charities owed less than £2,500. This makes business sense when parachute payments due will be in excess of what is owed in this respect. His offer is conditional on the administrator, Trevor Birch, reducing the current wage bill at the club. This bill still retains two players on premier league money plus a number whose salaries would easily break the League 1 Salary Control Management Protocol. He would, of course, also be able to transfer his charge to the Newco formed on coming out of administration. As a reluctant owner he would seek to be out of the club within three years, according to business partner Levi Kushnir. Just after the parachute payments cease of course, and dependant one might assume, on finding someone who would pay enough for the club to satisfy the charge Portpin holds.

Financially this stacks up – he acquires the club for a good price, having reduced the debts from his previous ownership without paying a penny, has access to the parachute payments and retains the asset on which he can place a charge. As a football club however, it looks less than enticing. If Chainrai is pursuing the £18m or so repayable on his charge he is doing it on an asset worth far less than that amount. Without investment the business of the club is worth very little. There will be no team able to challenge for honours, there will be no stadium development to improve turnover. As a football business it is valueless. Chainrai’s last periods of ownership show a reluctance to invest any further funds. The only asset of any value is the ground and valuations of that are subject to a high level of discrepancy. There is a ‘book value’ price of £13m, a ‘going concern’ price of £10m, a £5m valuation by a unnamed prospective buyer, a £2.1m value from and independent source and a less than £1m value in liquidation. All fall far short of the £18m charge that sits on it.

The Pompey Supporters Trust’s bid is entirely fan funded under a Community Interest Company umbrella. Whilst it also has the same condition as Portpin’s bid in regard to player salaries, it includes a bid for the ground. This makes the Creditor’s Meeting on Monday 25 June a very interesting proposition and ensures that Portpin will not be the only option for creditors to consider. Assuming the administrator is satisfied with the funding of the plan it offers the opportunity to challenge Portpin’s charge being transferred onto the Newco. The key lays in the disputed area of the value of Fratton Park. If the Trust’s offer represents ‘fair value’ for the ground plus offering creditors more than 2p in the £ then Birch can argue this is a better deal for creditors. It gives him the ability to test the value put on the ground in court and, if he wins, to ‘sell Fratton Park “as if it were not subject to the security”, as is provided for under the Insolvency Act.’ (Telegraph 22/6/12). This may require a long legal process.

Advised by Begbies Traynor, the Trust have played a very neat ball back into Portpin’s court. Not only do they offer the Club a more sustainable future with an ownership that has no intention taking money from the club but also it offers an opportunity to remove the debt millstone the club has carried with it for the last three seasons. If Chainrai indeed intends to only be an owner ‘of last resort’ he has been offered a very easy ‘get-out’. He can chose to accept the Trust valuation of the ground and walk away, cutting his losses under a liquidation scenario – into which recalcitrant players and agents could still force it. He could, on the other hand, face a long winded court process with a chance of having his whole involvement in the club brought into court to no real avail.

There are many conditions to be realised yet before the outcome is resolved. The clock is set ticking by the creditors’ meeting, after which there is a 28 day grace period where offers can be considered, even if the meeting does vote for Portpin’s proposal. Players can choose to push the issue to the wire by refusing to settle for compromise agreements on their contracts if they are not sold in that period. Portpin could up their offer – which would rather belie their claimed reluctance for ownership –  and a bidding war could ensue. It depends which wins out – the desire to cling to a financial asset or the desire to run a football club for the benefit of the community of the City of Portsmouth.

One thing is patently clear, if the Pompey Supporters’ Trust can gain control of the club in this fight then it will stand as an inspiration for Trusts opposing illegal, unethical and ill-advised owners across the Leagues.

Pompey Supporters Trust are still taking pledges for community shares in their bid. Details here: http://www.communitypompey.co.uk/

You can follow SJ Maskell on Twitter by clicking here.

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    6 Comments

  1. Another great article on a very complicated situation. I am so hoping that PFC can finally shake off that leech Chainrai tomorrow.
    Why doesn’t Birch challenge his artificial “security”? Let him prove that he even introduced £1,800 let alone £18,000,000.
    There has been talk that this would be a time consuming legal matter – well let’s consume some time – surely it is worth it for 18 million?
    PLAY UP POMPEY!!

    Joe - Vancouver Canada

    June 24, 2012

  2. What a fantastic well written article. Lets hope that Pompey become a pioneer for fans/trust ownership in the future of football in this country, its time for the fans to reclaim the game that is now just about money to all except them.

    Gaofpompey

    June 24, 2012

  3. While The News twiddles its thumbs, nervously skirting around anything controversial and insulting its readership with a daily diet of benign cow-fodder, SJ Maskell makes a marvellous job of clarifying a picture that some parties would like to see remain muddied and muddled. Thank you Sir, Madam, Miss or Ma’am.

    Dinksy

    June 25, 2012

  4. I just heard the result of the creditors’ meeting – Oh well – Birch found Roman Abramovich for Chelsea but he has found nobody new for Pompey.
    Is he any improvement on Andronikou? He seems to have achieved very little (and that is being kind!) so I think not.
    If Tal Ben Haim, Kanu and Mokoena won’t budge over their ridiculous pay demands let’s just go right ahead immediately and liquidate as soon as possible. We all need to be put out of misery quickly now.

    Joe - Vancouver Canada

    June 25, 2012

  5. Joe – I think you may have read the misleading headline that says Chainrai has retaken the club. This is not the case.

    The meeting agreed the CVA as in Chainrai’s proposal but also voted unanimously to consider the Trust proposal that was on the table as well.

    There is now a 28 day grace period where the Trust will negotiate directly with Portpin over the price of Fratton Park as detailed above. The door is open for Birch to take the offer before the courts, if Chainrai refuses to take what’s offered, on the grounds that the Trust offer represents better value for the creditors. This will directly challenge Chainrai’s valuation of his ‘asset’.

    The door is wide open for the Trust to fight to own the club and run it in a proper sustainable manner. This is the best solution we can hope for.

    There never was an Abramovich option for Pompey. The club has been too much abused for any other owner to take it on.(Although the 28 day period allows other bids to come in.) Apparently this seemed to come as a surprise to Portpin today, so I am told.

    If the players take it to the wire and stick by their claims (and it may not be in their best interests so to do), who do you think is best placed to pick the club up again out of liquidation?

    SJMaskell

    June 25, 2012

  6. I hope it is OK to use this medium to reply but thank you for the clarification of what happened at the meeting (difficult when you are 5,000 miles away!).
    I was not aware that the decision to remove Portpin’s “exclusivity” was so significant. I hope Trevor Birch pushes the possibility of the Trust paying a sensible figure for Fratton Park – does this mean that the inflated security held by Chainrai could be removed?
    In answer to your final point I would guess there would only be one choice – the Supporters’ Trust. I for one would wish them every success in starting again from the bottom but the best news would be that a lot of greedy people will not receive the money they are expecting (in most cases in return for little value or effort contributed).

    Joe - Vancouver Canada

    June 25, 2012

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