Portsmouth Evade The Taxman’s Net

Portsmouth Evade The Taxman’s Net

By on Aug 6, 2010 in English League Football, Finance, Latest | 10 comments

So, Portsmouth won at the High Court yesterday, then. It’s worth taking a moment to consider what that means, exactly. It means that their unsecured debt has been reduced by 80%, and that the overwhelming majority of creditors will lose, cumulatively, a massive amount of money into a black hole. It means, effectively, that the only punishment that the club has suffered over the period time that they have been mismanaged is a total unsecured debt of just over £16m. They were relegated, yes, but it was a relegation that, considering the size of the club, may well have happened anyway and the nine point deduction that they incurred for entering into administration didn’t even end up being the deciding factor in their relegation.

The consequences of yesterday’s decision don’t just put the past into focus – they affect the future, as well. It has been reported that Balram Chainrai will be given ownership of the club free of charge in return for paying off the amount agreed by the CVA. We shall have to wait and see whether he chooses to take this up and, if he does, whether he will pay off the club’s CVA debt in one go or not, but it would mean that a newly-debt free Portsmouth would not even have their parachute payments from the Premier League affected by their misbehaviour. They would, in this scenario, have got away with it and such is the size of those parachute payments that the club may even consider starting to spend money again to get back into the Premier League at the first attempt.

There was a feeble attempt at contrition on behalf of the club after the hearing yesterday. One of Portsmouth’s co-administrators, Peter Kubik, stated that, “”I am sympathetic to all people who won’t get paid in full. Unfortunately, that’s not my battle to fight”. He is right in one respect. He is the administrator, and nothing more. However, it was Portsmouth’s battle to fight and it was a battle that has left an extremely sour taste in the mouth. The question of exactly how a football club could be allowed to take on this level of debt has never satisfactorily answered. A quick look into the archives shows their debt in around October 2008 as being in the region of £50m-£60m. How did this rise to £130m (including secured creditors and football debts) in a year and a half or so? No-one has ever been brought to account for what has happened at Portsmouth, and it is highly likely that no-one ever will be.

This, of course, is where Portsmouth’s supporters come in. They must ensure that the wretched cretins that ran their club to the point of extinction are never forgotten. That their incompetence and avarice doesn’t get swept to one side is now primarily the responsibility of Portsmouth supporters, however easy it might be to cast aside such concerns now that they are out of any serious danger. No-one with any sense would seek to blame the club’s supporters for anything that has happened at Fratton Park over the last couple of years, but they remain the vocal face of their club. They have a duty, for the sake of decency if nothing else, to not start campaigning for tens of millions of pounds to be poured into the team in the pursuit of some perceived notion of “glory” and to continue to agitate for responsible ownership of football clubs. They are very, very lucky to still have their club and they are fooling themselves if they believe otherwise.

Moving away from the issue of Portsmouth specifically, football has had a bad week. Recent events have largely undermined any sense of the logic behind football clubs’ continued status as “preferred creditors” in the case of insolvency events occurring. The stated reasoning behind this rule, that it protects football clubs from each other’s financial shenanigans, looks morally untenable when lined up against the wider issues that the collapse of a football club causes. Indeed, it starts to feel like something of a straw man, when we consider that many of the authorities that make these rules are the same people that benefit from action their status as “protected” creditors. Voting to abolish it would be the morally right thing to do, but it would also be like very plump turkeys voting for Christmas. They’re welcome to prove us wrong, but holding one’s breath in anticipation of it coming to pass feels as if it will be a fruitless exercise. Football, however, remains in its bubble of unreality. Consider Sam Allardyce’s comments in a recent interview:

Most of the time it boils down to net salaries that people are asking for and the 50% tax bracket in this country. If Cameron is listening, drop the tax bracket will you? Then we can get the best players in the world to play in the best league in the world.

It’s probably for the best not to dwell for too long upon how moronic this statement is, but it does demonstrate just how out of touch Allardyce is with the real world, and it is unlikely that there would be many people in football that would disagree with him. Similarly, no-one within the game seems to be questioning the moral aspect of whether it is right to use image rights payments as a means of tax avoidance. When faced with such a moral vacuum, we are left with little alternative but to shrug our shoulders when they get into trouble. As for the supporters of those clubs, well, it’s a shame for them but it has happened before and it will happen again. Ultimately, they are the club, and they will find a way to start again if the worst ever comes to the worst.

Not that serious trouble is likely to be an issue for that many clubs in the near future. If buy-now-pay-never Portsmouth can survive all of this, then just about anyone can. Without the will to change from within the game (and, for all of the fine talk about reform, the game hasn’t really reformed anywhere near as much as it should do), it will require a change in the law to grant HMRC preferred creditor status again. We can bet a pound to a penny that, should any such move be made, bodies within the game will start lobbying for it to not happen. Again, whether there would be any will on the part of the new government to change the law in this respect is very much open to question. The result of this inertia is that little will change and the narrow shaves will continue.

To an extent, Portsmouth are merely one of the most extreme representations of the craziness and moral vacuum of twenty-first century British football. However, their reputation is tarnished and how they will be perceived from now on will depend on how they – and that means everybody associated with the club, from the owners to the supporters – act from now on. Meanwhile, some sort of resolution to the issue of how to save British football from itself feels further away than ever. All we can do is keep stating the case and hope that somebody is listening.

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    10 Comments

  1. Great article, and I agree with you all the way. Thank you for being so balanced. And as for Allardyce… words fail me.

    The money outstanding to local businesses and charities will leave a bad taste for years to come. The majority of Pompey’s hundreds of creditors are owed relatively small sums of money. A few hundred or a few thousand pounds each, but sums of money that mean a lot to those individuals. I can’t remember the exact statistics, but basically if you add up what all of those small creditors are owed, the total is a tiny fraction of Pompey’s overll debt. Someone – Gaydamak, Storrie, Fahimm, Chainrai – could and should just pay that money back. It’s pennies compared to the overall debt.

    I am pretty confident that Pompey fans wont be calling for ‘star players’ anytime soon. Indeed, I think if such a transfer was on the cards you’d get an outcry of ‘how can we aford this; how much are they getting paid?’ etc. I hope that the club will be transparent about contracts when we do bring new players in so that the trust between club and fans can be rebuilt.

    There is a grass roots movement underway within the city, and real attempts by fans to form some kind of united front. I’m not involved in this (yet) but it seems unfortunate to me that other fans are sceptical of the motives of the people involved in things like the Pompey Trust. You’d think in these bad times, we’d ll be in it together…

    But then I do wonder what/who our real fan base is. It will be interesting to see what attendences are like this season. I know people are disillusioned with the club and money is tight at the moment. But remember even in the ‘good times’ we didn’t sell out Fratton Park, and some of our cup gates have been embarassing in recent years. As for Linvoy Primus’ recent testimonial… I think that the 6,000 that turned up gives you an indication of how many ‘die hard’ fans we actually have.

    I mention this because, y’know, we kind of need people turning up week-in week-out. We need the money!

    Leon Tricker

    August 7, 2010

  2. Allardyce’s comments should be sent to BBC Sport’s Quotes of the Week. What a weapon that man is.

    Martin

    August 7, 2010

  3. What or who is Portsmouth Football Club, or any other club for that matter? Some will say it’s the owner who owns the club and decides how much money to invest. Others will argue that the fan base is the real club. When it comes to insolvency, incompetence, and gross mis-management, who do you blame and who do you punish.

    In the case of Portsmouth Football club, you can point the finger of blame at just about anyone, but it appears much more difficult to find someone to punish.

    The FA must shoulder there share of blame for allowing a succession of odd-ball (and in some cases, penniless)characters to pass their fit and proper persons test. You can blame that succession of odd ball characters for thinking they can own and run a Premier league football club when they can hardly raise a brass farthing to fund it. You could argue Harry Rednap has to shoulder his share of the blame, for letting his ego get in the way of asking crucial questions like, where is all this transfer money coming from on gates of 20,000. You can also blame the fans for climbing aboard the merry go round, living the dream, and turning a blind eye to the inevitable consequences. You could even say the taxman was at fault for allowing Pompey to build up such massive tax debts when it was obviously going through difficult financial times.

    At the end of the day, the taxman was hamstrung by a judge who effectively passed the buck on certain tax procedures that look decidely shady. The FA are hardly likely to blame themselves. The odd-ball characters have melted away. Harry’s ego still insists none of this was his fault, and tha fans are left to pick up the pieces.

    Next year it might be someone else, and the whole blame/punishment question will come round again. This year it was little old Portsmouth. Next year it might be one of the big clubs with HUGE (but serviceable, at the moment) debts, that make Pompey’s debts look like chicken feed. One insolvent premier club was unfortunate, but two would most certainly look like someone has to carry the can.

    John

    August 7, 2010

  4. Whilst the actions of those in charge of the club have been rightly condemned, you might want to add the many good things that Portsmouth supporters have done – repaying in full charities affected by the CVA, for example, and the recent changes to Premier League ownership rules are in part thanks to the efforts of the Pompey fans’ group who met with Richard Scudamore in February of this year. If the club’s reputation rests in part on the actions of supporters, after all, it would be nice if such actions were acknowledged.

    Jack

    August 7, 2010

  5. Portsmouth fans will do NOTHING to see those who defrauded us all of millions brought to justice.

    They will just sit back in relief and enjoy the football again, just as many have in similar circumstances at Leeds, Bournemouth, Rotherham and Palace too.

    Football has learned nothing and with Chanrai in charge neither has Portsmouth.

    Martin

    August 10, 2010

  6. @John: “The FA must shoulder there share of blame for allowing a succession of odd-ball (and in some cases, penniless)characters to pass their fit and proper persons test. ”

    Surely with the amount of money clubs in the Premier League generate, they should be self sufficient, and therefore not need more investment from their owner?

    @Martin:”Football has learned nothing and with Chanrai in charge neither has Portsmouth.”

    On the contrary, Martin, “football” has learned a lot, just like it did from the Leeds, Bournemouth and Rotherham cases. It just won’t have learned what we would have wanted it to have learned.

    Rob

    August 10, 2010

  7. Nice pedantry Rob :)

    Martin

    August 10, 2010

  8. Not really pedantry – we, as fans want the clubs, the administrators, the leagues to learn from those administrations, so as clubs don’t end up in those positions again. Whereas certain club owners will be looking at those administrations for ways to screw the system in their favour even more.

    Rob

    August 10, 2010

  9. Martin – Portsmouth fans have, on the contrary, led a campaign for the administrators or a new owner to investigate past misdeeds (and reacted with outrage when it was suggested this mightn’t go ahead), were amongst the first to dig deeply into the Al Faraj saga and there are an awful lot of fans who would rather not go to Fratton Park than support Chanrai’s ownership of the club. Whilst I do love a bit of healthy cynicism, you might nevertheless want to base it on facts rather than blasé assumptions. No-one at Pompey is keen to let anyone get away with anything.

    Jack

    August 11, 2010

  10. Well Jack, we’ll see how much actually happens as opposed to your empty rhetoric now that it is in everyone’s interest to brush everything under the carpet.

    Redknapp, Storrie and Mandaric being convicted of tax fraud in the Autumn would be a good start.

    Martin

    August 11, 2010

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