Dundee In Administration: The Fall-out Begins

By on Oct 16, 2010 in Finance, Latest, Scottish Football | 4 comments

So the administrator took over at Dens Park yesterday and set about cutting costs, with the sackings of manager Gordon Chisholm, assistant Billy Dodds, nine first team players and two backroom staff. Among the players to go are Mickael Antoine-Curier, for whom they rejected a £50K bid from Hamilton during the summer, and Colin McMenamin, who was at Livingston for their first spell in administration in 2004, and was released by Gretna in 2008 as they hurtled towards oblivion. On the face of it, these cuts are savage, but it’s still not sufficient by itself to guarantee the club’s survival.

Although it was first reported last Friday (the 8th) that they were being put into administration – the decision apparently having been made the previous evening – it didn’t actually become true until this Thursday, when the court papers were signed and Bryan Jackson of PKF was officially appointed as administrator. In the intervening six days there was some doubt as to whether this would happen – not because there was any hope of the club being saved while avoiding such a step, but because somebody had to put some money up to enable the administration process to happen at all.

The debts may be much much lower than the £23 million for which Dundee were in administration last time round, but the income is proportionately lower – while administration fees aren’t, and with the club having no assets and still losing money week-to-week Jackson needed some funds to go on if he was not to put the club straight into liquidation. Calum Melville had promised £200K the previous week in a last ditch bid to stop administration happening, and the club were relying on him coming through with this cash even in altered circumstances to allow the club to survive.

Melville’s deed hasn’t always matched his word of late, but fortunately the money – or at least the first tranche of it – showed up on Wednesday, which enabled Jackson to take the reins and start the process of trying to find the club a future. I’m still finding it difficult to understand how it came to this so suddenly. In the first of this current series of articles on Dundee, written during the close season, I noted:

Brannan was right about at least one thing – it’s important now for the Trust to be as active as ever. Not to provide money for him to waste, but to make sure the club is sensibly run from hereon and does not suffer once again at the hands of businessmen playing fantasy football.

This might look slightly prescient now, but honestly I had no idea there was so much shit ready to hit the fan and so soon. Recriminations will doubtless follow, and it’s tempting to trawl back through the quotes of Melville and Bob Brannan over the past eighteen months to pick out the many untruths and false predictions. But it would be shooting fish in a barrel. Instead, let’s look to the future, or at least the short-term future, and the immediate ramifications of recent events at various levels. Firstly and most importantly …

The club:

Jackson can’t be accused of understating the danger the club is in, and has stressed the need for potential new owners / investors to come forward quickly. Of course, any company in administration is at risk of going under if no one comes forward looking to take over, but in Dundee’s case it seems the club is still losing money and that needs to happen fairly quickly. Melville’s money is coming in four tranches between now and the end of December, so something needs to be sorted out by the time that runs out. Anyone taking on the club will have to put together a CVA to cover debts in the region of £2 million, as well as being able to reduce costs quickly or else subsidise losses to the end of this season. Oh, and there are no assets.

Put like that it doesn’t sound too promising, but football is not like other business. Also, much of the debt is soft loans which might be largely written off for the right bidder - though just having them there might be handy if it enables HMRC to be outvoted over a CVA. We can only guess at this stage how much interest there’ll be, and how serious, but then Jackson’s off-the-cuff estimate of 50 per cent is just as much of a guess. There have been some noises made already, and it seems likely somebody will come forward, in some form. So while the threat to the club’s future is real, and I’m certainly not dismissing it too lightly, my main concern at this stage would be that the new owner is likely to be someone that, shall we say, you wouldn’t necessarily choose to own your football club. However, we’ll just have to wait on developments.

The team:

This is much less important, of course, and will mean naught if the club isn’t saved. But there are some issues to be mentioned here and there have been more than a few eyebrows raised today at the selection of players to be dismissed and retained. The dismissals of Chisholm and Dodds were expected – youth team coach Barry Smith will take the helm instead. Since Smith had a distinguished playing career at Dens, while Chisholm had not exactly set the heather alight in his seven months in charge, there aren’t likely to be too many fans too upset about this, and Smith may well have more popular support from the stands.

As far as players go, to lose nine first-teamers sounds like a lot. And it is a lot, to be fair, but the end result is not nearly as bad as many had feared. Their squad was bigger than most others at this level, and it leaves them with around a dozen players, to be backed up with youth-teamers. A skeleton crew, but among that dozen they’ve retained a good number of the better players – and higher earners – and the first choice eleven will not be much different from what it would have been anyway. Of the eleven who started their last match at Cowdenbeath, the only two on today’s list were Brian Kerr, who was starting his first match of the season, and recent signing Njazi Kuqi, who was subbed at half-time and was universally adjudged to be crap anyway. Fitness permitting then, the first-choice team still available isn’t too bad, even if it’s been underperforming lately (especially away from home).

This raises questions – if the club is so hanging by a thread that it only has enough money for a few more weeks, why has he not made bigger cuts, when bigger cuts were clearly possible? It looks like a further, calculated, risk. Only in the case of Under 21 international Leigh Griffiths, and just maybe Gary Harkins, can they make much of a claim that they might be keeping him in the hope of getting a decent transfer fee in January. For the rest, it’s impossible to escape the conclusion that the selection has been made in good part for footballing as much as for financial reasons. This is understandable, and maybe even legitimate, particularly if they need to try and make the remaining club as attractive as possible for potential new owners. But the upshot is that the team that takes the field at Stirling Albion later today is still better, on paper, and much more to the point is still substantially better-paid, than that of their part-time opponents. Given that, even after these cuts, they’re still losing money, and that they’re in the process of defaulting on a £400K tax bill, this just doesn’t seem right, and it only strengthens the feeling that the club’s punishment, when the SFL get round to discussing it, should be severe. Which brings us to more murky territory:

The league:

I say this not out of any ill-feeling towards Dundee. Far from it, they’re the closest thing I have to a “second team” in Scotland. I’ve watched them many times over the years quite apart from their games against my own side, and retain considerable affection for them. But, with the best will in the world – and regardless of the need to help new owners - they have to be punished heavily for this. Not just because they’re repeat offenders, not just because the latest spending spree has been so reckless, not just because they’re continuing to gain competitive advantage by it, as noted above. For all these reasons and others besides, a stand has to be taken.

But will the SFL take it? Unlike the SPL and the English leagues, the SFL does not have a set penalty for clubs going into administration, instead giving themselves complete discretion to deal with each situation as they see fit. In this they are guided first and foremost by pragmatism, and it should be clear that the double-relegation of Livingston last summer (and Gretna the year before) does not represent a precedent. Both of these situations occurred during the close season (Gretna’s administration towards the end of the previous season had been under SPL auspices) and they were placed in the third division not as a punishment but because they had no CVA in place and thus no means of guaranteeing they would complete the season.

In Livingston’s case the prospective new owners were, rather controversially, given the option of remaining in the first division if they put up a bond to cover other teams’ losses should they go under during the season – only at the subsequent meeting when it became clear the new regime was unable or unwilling to put up such a bond were they demoted. Prior to that, it wasn’t even clear whether any actual punishment would have been issued for being in administration at all – perhaps the full meeting would have imposed a points deduction, but we just don’t know.

What their attitude to Dundee will be is thus unknown and untested. With administration occurring during the season, there’s no chance of them suffering such a demotion, no matter how unfair that might seem to Livingston fans (who have a point, to be fair). However, they may nonetheless find that attitudes have hardened somewhat, for the various reasons given above. Additionally, while Livingston’s treatment may not represent a precedent given the different circumstances, it may nonetheless be felt that natural justice requires Dundee be hit with something similarly harsh – as Dunfermline chairman John Yorkston observed yesterday, a club in trouble during the close season will do everything possible to hang on to the start of the season if it’s seen that you’ll be treated much more leniently that way.

Again, we’ll have to wait and see. Best guess at the moment is a points deduction significant enough to make relegation probable but not unavoidable – they’ll have escaped lightly if it’s anything under twenty points. (My own proposal would be to relegate them one division next summer, from wherever they end up. So although playing in the first division for the rest of this season, they would effectively be playing to retain a place in the second for next season rather than be dropped right down to the third.)

It’ll be interesting to see what way they go – it’s the first real test they’ve had in the recent era to see how willing they are to disincentivise such behaviour.

The future of Scottish football:

While this therefore represents an interesting test for the SFL, it’s far too early to make any judgements on what implications there are – if any – for the longer term governance of the Scottish game. Which hasn’t stopped people doing so anyway, so needless to say, it’s not going to stop me piling in either.

Some are using it to push the agenda of league reconstruction. This is really quite silly, there’s no one to blame but Dundee for their current predicament, and while there may be something to the argument that the financial disparity between the SPL and the first division is too big and only encourages such a scenario, that’s an argument for a more radical overhaul of the distribution of resources, not for another rearrangement of the deckchairs with respect to league sizes.

A little more pertinently, there are renewed calls for greater regulation of clubs to prevent such situations arising, as there were after the shambles that was Livingston two seasons ago. This is well-motivated but it’s much easier to wave your arms and demand such things than it is to come up with concrete proposals as to how they’d actually work. So far as we know, no one involved with Dundee, Livingston on Gretna would have failed a fit and proper persons test, even if the SFL had one, and as far as financial regulation goes, what would the criteria be and who would enforce it? The SFL is a small organisation and does not have the resources to scrutinise accounts, nor would it be fair on smaller clubs who are well run to demand they pay for such steps.

This is not, however, an excuse for inaction. One of the first and most obvious signs of a club in difficulty is falling into arrears with HMRC. It wouldn’t be difficult to demand greater transparency from clubs and to insist that all tax debts are settled on time on pain of immediate sanctions – a transfer embargo in the first instance (we’ll hold back the points deductions because the idea is to help clubs, not to be punitive for the sake of it). I’ve been calling for this for a while, and lo and behold the Dundee scenario provides an almost perfect case in point. With no bank borrowing or overdraft facilities available to them following their last administration in 2003, falling behind with tax arrears is just about the only way the club could have run up any significant debt outside of directors’ loans. We might not have been able to stop them overcommitting their wage budget, but we could have picked up the cashflow issues at a much earlier stage when it was more easily soluble – and we could have stopped them signing more players while they were busily ignoring the problem. Remember, they were still making signings in September.

If I have one constructive suggestion to make in what we can learn from the current mess, this is it. Our first priority is to save Dundee. Once that’s done, let’s try and turn it into something positive.

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    4 Comments

  1. Gavin, is it not the case that the whole Scottish game is teetering on the brink just like Dundee? They gambled to try to get out of the poverty that is the 1st Division and really, when you look at the overall situation, who can blame them? If it had worked we wouldnt be looking at them in administration.You really have to look at the huge financial gap between the two leauges.Clubs in the 1st Division have to be given some league sponsorship money early every season. There is no tv whatsoever. Half the clubs in the 1st Division have to cut costs every season they fail to get promotion as crowds go down. It is a complete downward spiral. As for the SPL there are around 6 teams there that if they were relegated it would almost certainly mean administration. There is also the farce that people in Scotland can watch highlights of every single English game and also the Sunday games, but cant see highlights of SPL games till near midnight on a Monday night just for a few extra quid from the satelite companies. All this combined with the poor fayre on the pitch means crowds are falling and kids know more about the English game than the Scottish these days. There really does need to be an enlargement of the top league simply to help ease the pressure on the bottom 6 of the SPL desperate to avoid relegation and the top 6 of the 1st Division desperate for promotion. For some, as we see with Dundee, desperate people do desperate things…….

    bill

    October 17, 2010

  2. Great article.

    In response to ‘Bill’s’ reply, the point he makes about 1st division teams getting sponsorship money early is moot.

    Sponsors are hard to attract, and even with the welcome injection of funds from Irn-Bru (well done to davie Longmuir here), it’s simply not enough to sustain the delusional aspirations of many a club.

    How about we all just go back to being part-time community based clubs, living within tries an tested means?

    How revolutionary.

    Alan

    October 18, 2010

  3. Irn Bru is a great deal done by the SFL, no question. However the fact is that for the last 2 seasons the SFL have handed out sponsorship money before Christmas because clubs are struggling with costs, even the ‘part time community clubs’ mentioned by ‘Alan’. No doubt it will happen again this year. Part time football may well come to Dundee if that is the only way to avoid closure. A part time 1st division which is where we may be heading will destroy Scottish football completely. The SPL know this hence the talks at the moment to change the structure of the league including relegation. If things dont change we are heading for a league similar to Wales. Things are bad at the moment but do we want them to get that bad?

    bill

    October 20, 2010

  4. Hmmm, 1st division clubs speculating to reach the Promised Land of the SPL, where half the clubs are still on the breadline? Sounds like quite a few need a reality check. Would a part time 1st division really be such a bad thing?

    Great article, but I do have 1 issue with it. Administration is not liquidation, it’s a temporary protection from liquidation. If a club is liquidated, Livingston does look a precedent to follow. The punishment for administration should not be nearly as harsh, as they still might be able to recover and pay debts in full or agree a CVA with the creditors. In England, for a 2nd administration event, they’d probably be looking at 15 points…

    oftenscore6

    October 28, 2010

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  1. Raith Supporters Trust » Blog Archive » Dundee In Administration: The Fall-out Begins - [...] an excellent article on www.twohundredpercent.net about what the recent events at Dens Park mean for the club, the team, …

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