Barry Hearn On Administration
Michel Platini, with all of the elegance that one might expect from a man with such a playing career, describes it as “financial doping”. It is, in short, the accumulation of debt to purchase success on the pitch. Some clubs do it as a result of the egos of their chairmen, some do it from the fear of what might happen if they don’t, and some do it in the genuine but misguided belief that somehow everything will be okay if they manage to get the team winning on the pitch. The result, however, is usually the same. The players and the manager leave when things turn sour, there is a desperate rush for new investors and, when these can’t be found, it ends in either administration or a close shave with administration.
All of which brings us to the somewhat divisive subject of Barry Hearn. In a recent interview with Talksport, Hearn described clubs that enter into adminstration as “cheats” and stated his belief that all clubs that enter into adminstration should be relegated two divisions. There are plenty of reasons to be cynical of Hearn’s pronouncements on the subject of how to run a football club. Bit by bit, Hearn has sold off areas of the site of Leyton Orient’s Brisbane Road ground (which some people, presumably including Hearn, call “The Matchroom Stadium”), and Orient will be paying £180,000 a year rent there in around three and a half years time. He has also discussed the possibility of moving Orient from their home and out into Essex or alternatively to the Olympic Stadium.
This particular subject, however, is one that does need to be addressed. The issue here is the fact that the current penalties for financial mismanagement are not adequate to prevent such mismanagement from taking place. As Hearn rightly says, a ten point deduction for entering into administration seems unlikely to deter such behaviour from football clubs in the future. The relatively unscrupulous owner will look at the sums and automatically think, “I like those odds”. Crystal Palace, for example, will have to enter a CVA at some point, and this will most likely mean that their creditors will most likely lose around nine-tenths of the money that they have lent the club – and said creditors won’t even have any say in the matter if the only alternative is liquidation.
The Football League has become more aggressive in recent times, fixing higher penalties for clubs that have not exited adminstration with a CVA in place, but they have stood acccused of punishing the wrong people. At Luton Town, for example, the points deduction that effectively relegated the club from the Football League was levied against the new owners of the club, who had nothing to do with the antics that got them into that almighty mess in the first place. Ultimately, the point is that there is no one-size-fits-all reason why football clubs enter into adminstration, and this means that having a one-size-fits-all punishment is likely to be unsuccessful. On the one hand, there are clubs that drive themselves to the point of insolvency and only barely seem to get punished. On the other, there are those that seem to be driven into an even more intolerable situation by dint of the specifics of what has happened to them.
How, then, do the football authorities react to this? Well, the answer is – and you have to excuse the management-speak here – they have to pro-active rather than reactive. They have to take more effective steps to ensure that clubs don’t find themselves in this position in the first place. By the time that the insolvency event is due to take place, it is too late. The action has to start to make such a set of circumstances as close as can be managed to impossible before they can even take place. It is about having a more complex set of regulations concering how clubs manage themselves on a day to day basis.
First up is the issue of tax evasion. Football clubs have used public money in the form of unpaid tax as an optional overdraft for as long as they have been overspending, and it says much for the moral angle of doing this that the overwhelming majority of the public side with HMRC rather than football clubs when a winding up order is issued against a club for non-payment of tax. We have been into the details of why HMRC take such a hard line over the non-payment of tax by footbal clubs on this site before, and the fact of the matter is that this isn’t a situation isn’t going to change until, at the very least, HMRC is given preferred creditor status in the result of an insolvency event under law again, as they had until 2002. Since this is unlikely to happen at any point in the near future, the game’s authorities need to ensure that tax bills are unpaid.
The regular auditing of club’s accounts could be the answer here. Points deductions could be introduced by the people that run the game for clubs that are, say forty-five to sixty days late with their tax payments. Relegation could be a sanction for more serious breaches of the rule. The fact of the matter is that the FA is not going remove preferred creditor status from football debts in the near future and there are, as we have discussed on this site before, sound reasons for doing this. Giving HMRC preferred creditor status under the rules of the competitions in which clubs play, however, would send a sharp message out to those that have been transgressing. For those that believe that this is to be over-zealous, there could be a one year “honeymoon” period before such a rule passes into statute to give clubs an opportunity to sort their affairs out.
Wage caps could prove to be more divisive than this, but we – clubs themselves, authorities and supporters themselves – need to move away from the idea that it is remotely sustainable for a club to spend 80-90% of its annual turnover on wages. Critics argue that wage caps would embed the status quo in perpetuity but this doesn’t necessarily have to be the case, and this is disregarding the simple fact that the game in England is almost paralysed by a status quo that has existed for more than a decade and a half anyway. It may encourage clubs to start investing their money properly, in, for example, youth academies and the fact of the matter is that exclusions to such a rule could be added if the effects of it on competitive balance within the game becomes too much more distorted (in other words, even more distorted than it already is).
These are just two ideas to throw around. With some lateral thinking, English football could translate itself from being a debt-ridden monster (revelations that the Premier League clubs were, between them, £2bn in debt two years ago were greeted with shock, but confirmation that the current debt of the twenty clubs in the same division now is £3.5bn excluding Portsmouth and West Ham United – two clubs that could probably add a further £200m to that total at the very least – have this week been greeted with knowing shrugs) into being something that we can all be proud of. There doesn’t, however, seem to be any great momentum towards making this change from within the game, and the quasi-legal status of the likes of the Football Association means that any change will have to come from within – and the unfortunate fact of of the matter is that, in light of recent events, there doesn’t seem to be any will from inside the game to make this happen.