Two clubs that haven’t yet resolved their differences with the taxman are AFC Bournemouth and Cardiff City, and both of them are still fighting off winding up orders. Mark Murphy has been taking a look at both clubs, and finds a bit of a high risk strategy taking place at each.
Of all the parallels between HMRC’s ever-increasing roster of “see-you-in-court” clubs, the ones between Bournemouth and Cardiff are the most glaring. Both clubs have pantomime villains with “previous” in football financial woes. Both have “legacy” debts which heavily impinge upon their contemporary debts. Both know the route to London’s High Court better than most. Both have PR strategies begging more questions than they answer. Oh, and both have had “advanced season ticket” campaigns.
The difference is that Bournemouth just might be through the worst, whereas Cardiff, you fear, aren’t. If Bournemouth chairman and majority shareholder Eddie Mitchell thought February 27th was the day to bury bad news about winding-up petitions against South Coast clubs, he was only partially mistaken. The news that HMRC were into the “Cherries” for £314,000 by March 31st was an adjunct to that day’s Portsmouth story, and was “news in brief” by the time Pompey finally entered administration.
Bournemouth are top of the 09/10 winding-up petition league, edging Cardiff thanks to a non-HMRC petition which was a(nother) “legacy” of the club’s previous owners, the execrable Sport-6. And Bournemouth recently “celebrated” the first anniversary of their “strict” transfer embargo, which was upgraded from “rolling” after they signed five players last January and failed to adequately resource salary payments thereafter.
Strict it certainly is. Bournemouth’s squad has been in the “bare bones” column throughout the season. But the club can’t even borrow a cup of sugar without the Football League’s express permission, which has consistently been unforthcoming. And this could fatally undermine their continuing promotion challenge. It is genuinely remarkable that there is a promotion challenge to fatally undermine in such circumstances. The play-offs are still on the cards, and automatic promotion only recently downsized from probable to possible; testament to the managerial abilities of the unfeasibly young Eddie Howe.
Were it not for the Premier League-centricity of English football, Howe would be retaining his “manager of the year” crown, having steered Bournemouth comfortably to safety last season from a base of minus seventeen points and with Sport-6 wreaking havoc behind-the-scenes. But Howe’s task isn’t getting easier. Despite persistent boardroom promises that the embargo will be lifted, repeated appeals to the Football League to even loosen the embargo’s grip have failed.
Bournemouth fans are tirelessly cynical about this. The Football League simply refers to certain “criteria” which the club must meet. However, the club have been equally reluctant to say what they are. So fans have written their own stories, based on their tirelessly cynical view of certain boardroom personnel. There’s the living, breathing legacy debt Jeff Mostyn, a relic of the last-but-one cowboy regime to plunge Bournemouth into penury, yet current vice-chairman. Mitchell, meanwhile, is not one of Dorset football’s favourite sons. The complexities of his various, real or imagined, blots on Dorset football’s landscape are for better-informed writers. Suffice to say he won’t be an elected mayor of Dorchester for a bit. To paraphrase the old joke, if Bournemouth wanted to get to financial stability, they wouldn’t have started from here.
Mitchell has made it abundantly clear that neither he nor his fellow directors will be funding any recovery, “replacing one debt with another.” But he has openly stated that overall debt has fallen from £1.8m to £800,000, in the eight months he has been chairman, which, if true, is a job for a man with a megaphone and a nearby rooftop. But he hasn’t been half so clear with the details, or requirements for continued progress. Hence fans’ theories, conspiracy and otherwise. For example, the new regime was struggling with CVA debts,
One of the many conditions of allowing Bournemouth to exit administration in August 2008 was a £500,000 payment to unsecured creditors, to be made in regular instalments. The Bournemouth Echo’s Neil Perrett was dubbed “Panorama Perrett” for reporting that scheduled November ’08 and March ’09 payments had been made “under the club’s previous owners” (not “by” them, it was noted) and that August’s instalment, the first under Mitchell’s chairmanship “had also been taken care of.”
The choice of phrase was important. Perrett was accused by one reader of “not doing his homework.” Bournemouth’s creditors had been informed by administrator Gerald Krasner on November 27th 2009 that the August payment “was not received at that time due to cash-flow problems” and that the newly-agreed repayment schedule had been interrupted by a winding-up petition in November. Krasner noted, however, that further payments were made when the winding-up petition was dismissed and that the balance would be paid up on December 21st. In other words, the August payments had been “taken care of”, just like Perrett’s article had said – it escaping the reader’s attention that Perrett had got the information for his article from… Gerald Krasner.
After the November petition was dismissed, Mitchell claimed: “We have on-going taxes to pay as they fall due but the legacy debt is cleared.” So it was clear what wasn’t blocking the embargo’s lifting or relaxation, but still unclear as to what was. Mitchell eventually detailed the relevant debts – VAT, ground rent and on-going CVA instalments, largely – but their announcement at a fans’ forum last week came with a bonus clause: “Oh, we’re in court on March 31st because we owe £314,000 in taxes. By the way.”
Clearing the legacy debts had left no money for what Mitchell referred to at the forum as “matchday PAYE.” By then, however, (and Cardiff fans, look away now) Mitchell had launched an “advance season-ticket” campaign to, he said carefully, “try and lift the embargo.” He hoped that “80-90%” of season-ticket holders would renew at this season’s prices before February 14th to “go some way, if not all the way, towards clearing the embargo.”
It wasn’t just taxes and CVAs owed, however. £30,000 – another Sport-6 legacy – was owed to former company secretary John Piper. And he emerged into the spotlight, backed by a county court judgement, with a headline-seeking (and finding) threat to send bailiffs to recover £20,000 (plus £4,000 legal fees and interest) still owing from that loan – made last spring to cover payroll costs. His confidence was an unintended consequence of Mitchell’s positive spin on events. Piper noted the club had: “through the Echo…reported a profit across two months.”
Mitchell wasn’t always that unequivocal. He’d told the paper: “We have six months of accounts…in four of those…we were making a profit and in the accumulation of those months we made a £52,000 profit,” which was a convoluted way of providing no actual information on the club’s profits (or otherwise) over those six months. Either way, Piper – quite properly – got an agreed repayment schedule, with £12,000 coming from the season-ticket scheme. Mitchell listed further payments, with recipients from Eddie Howe’s predecessor as manager, Jimmy Quinn (£20,000) to kit manufacturers and programme publishers. The scheme had raised £285,000. And according to Mitchell’s figures, £100,000 was left over from the above payments, with HMRC “set to receive” it.
This actually tied in with Mitchell’s mid-February claim that the club would soon “reduce the club’s tax burden by about a third.” It didn’t, of course, bargain for the winding-up petition and some fans, still struggling to distinguish between “legacy” tax debts and on-going PAYE commitments, remain as cynically disapproving of Mitchell as ever. Which will be the case until Bournemouth’s transfer embargo is entirely lifted. Preston didn’t help, despite Cardiff’s 3-0 defeat being a three-goal improvement on last year, which sent the Bluebirds flying out of the play-off places.
Cardiff are paying their taxes, but only just. Newspaper headlines last week made it clear that the recent sale of land adjacent to the club’s new stadium had “saved” them. Not that you’d think so from the extraordinary general meeting of Cardiff shareholders, held on Planet Ridsdale, at which the land sale was approved. Ridsdale had heavily trailed the line he was going to take at the meeting; that Cardiff were self-sufficient. “We haven’t borrowed a penny from the bank since I’ve been here,” he had told Five Live.
This was true, but hardly the truth, as the Guardian’s Matt Scott – on a roll after his comprehensive vindication over Notts County – took delight in exposing, listing the multiple mortgages and loans from other sources which have funded Cardiff. Among these other sources, of course, were fans who had participated in the “golden” season ticket scam…sorry…scheme. And shareholders used the EGM to question Ridsdale and his board on that.
EGMs are constitutionally bound to deal with one specific, pre-advertised item. But with fans calling for an EGM on general club finances, the club decided to make a financial presentation to shareholders at this meeting. This gave them an easier ride than a motion at a separately convened EGM. It’s cheaper, too – two meetings for the price of one. Finance director Alan Flitcroft unimpressively explained where the £2.6m season-ticket money had gone. And “largely, it’s gone, yes” he confirmed. The club had brought the money in by giving the strong impression that it would cover transfer window expenditure. When that was exposed as untrue (though not a “lie” because there was no intent, claimed Ridsdale, like it was a contentious handball decision) the strong impression was that the money would cover the tax arrears for which HMRC had petitioned the High Court.
But Cardiff only paid £1m prior to their hearing, which was adjourned for 28 days to let them find the rest. So where had the season-ticket money gone? “There have been significant costs since we launched the scheme,” Flitcroft noted, meaning ordinary wages and tax. This gave the strong impression that the club would not have been able to cover these without the season-ticket money.Lack of promised external investment was again blamed and Ridsdale reported that he was “talking to investors, talking to sponsors, talking to people with access to funding.” Since he’s been doing that for months with minimal success, though, his report was an admission of failure.
Flitcroft, pressurised out of grammatical logic by the situation, declared “with hindsight, I knew it was risky” to rely on investment promises. After all, Cardiff were hardly keeping promises themselves. Ridsdale was interested “that the most difficult questions came from people who are not shareholders (but were) there as proxies.” This was a clumsy attempt to portray the questioners as minority troublemakers, because “those that were there were complimentary about our presentation” (nice slides?).
But what was more than interesting was the absence of any strategy to deal with medium and long-term debt. The short-term problems have been “solved” with long-term money. What are the club going to do for money when that long-term becomes “now?” Ridsdale is banking, almost literally, on promotion to the Premier League and its attendant cash-not-so-much-flow-as-avalanche. With hindsight, that will be risky. And Preston didn’t help.