There is something to be said about Portsmouth going into administration – with debts of around £70 million, it became the first Premier League club to achieve this dubious honor and gave a stark reminder that the entrapments from the richest league in the world will be insufficient to shelter a mismanaged club from financial woes.

For better or worse, the Premier League has been largely spared by the financial crisis and economic recession in the last two years, what with transfer fees and wages spiralling upwards while austerity measures were frowned upon, but in the fullness of time, one must expect the day of reckoning to arrive when the limit to how much debts a club can rollover or snowball is breached.

Portsmouth is facing its darkest moment currently. Entering administration means the club is virtually certain to be relegated when their 19 point tally is slapped with a 9 point deduction. With only 11 matches left to preserve their Premier League status, Pompey has to win at least 7 games, which is a tall order even in the best of circumstances.

Are they up to the task? Last Saturday, Pompey displayed enough gumption to edge out fellow relegation candidate Burnley in a morale boosting 2-1 victory. Portsmouth struck through Piquionne but a Martin Paterson goal returned the scoreline to parity and it was up to Algerian Hassan Yebda’s penalty to settle the game.

The fans can take heart from this victory; even if the cause is lost, the players are determined to fight for their pride. Manager Avram Grant, who shaked hands with the travelling fans after the game, said: “Despite everything, we were fighting today. You saw the spirit today, you see the real trait of people in difficult days. I still believe, I want to stay positive.”

Let’s hope the troops continue to respond positively to Avram Grant’s rally. However, it will take all of Grant’s abilities to steer the ship when the administration soap opera is underway. Firstly, the ship is now rudderless. Chief executive Peter Storrie has tendered his resignation instead of staying on for a nominal salary to sort out the financial mess which was created during his tenure.

Last year, he took home more than £1 million when the club is already insolvent. I can understand paying good money for top talents but what is the point of having a chief executive if the club is going to be run into the ground? Employing a minimum wage cleaner in that position will suffice. There should be a clawback in Storrie’s bonus or he returns the bonus willingly but that is just wishful thinking.

Instead of feeling remorseful, Peter Storrie looked on “favorably” on his eight years of service. Portsmouth fans will beg to differ. Questions abound over Storrie’s leadership and ethics but at the moment, transparency and accountability are in short order.

While wages at the club are high and the tattered ground is too small to generate sufficient revenue but where did the television money and transfer money from the sales of players like Diarra, Muntari, etc go to? Why wasn’t the money used to pay down mounting debts?

Andrew Andronikou, from Hacker Young, has been installed as chief administrator and he has promised to review all expenses and open up the books, even calling in the police if money laundering is uncovered. Andronikou has a reputation for doing the right thing so Portsmouth fans should not jump the gun on any alleged wrongdoings (on Storrie’s part or the owners).

There is little love lost for Peter Storrie but in the coming weeks, there could be more departures. Avram Grant is unsure if he will stay until the end of the season. England goalkeeper David James, the most experienced member in the squad, has volunteered to take a pay cut than be shown the door. The relegation battle could be made easier if other highly paid footballers in Portsmouth share the same sentiment.

The priority for the administrator is to find a buyer for Portsmouth but this is easier said than done. To make matters worse, the stadium and surrounding land is no longer owned by the club, thanks to financing deals made by “fit and proper” owners.

Balram Chainrai made a £17m loan loan to previous owner Ali Al Faraj in return for mortgages on Fratton Park and the club. Chainrai became Portsmouth’s fourth owner of the season after the club defaulted on repayments due to him.

The inability to find a suitable buyer sparked his controversial move into administration but as a secured creditor, it gave him priority after football creditors (like players, staff, etc) to be repaid. Ironically, Balram Chainrai is likely to emerge again as Portsmouth’s owner. In the absence of new investors/suckers, regaining control of Portsmouth with the debts largely wiped out will allow him to preserve his investment and possibly profit at a later date.

There are other legal disputes awaiting Portsmouth too. It has been sued by former defender Sol Campbell for £1.7m for unpaid image rights. The football club is also involved in a separate dispute with former owner Gaydamak over whether they have missed a deadline in paying a £9m chunk of the £28m they owe him.

Pompey must also enter a Company Voluntary Agreement for unsecured creditors by the end of the season or start next season with another deduction of at least 15 points which could result in another relegation into the Championship and put off any potential buyers.

On the bright side, Portsmouth will be a more stable and financially viable Championship side. Administration is definitely the lesser of two evils compared to a winding up order and there are already four interested parties circling in. The winding-up process, started by HM Revenue and Customs, due before the High Court this week, will be suspended automatically.

Andrew Andronikou has requested for a meeting of the Premier League board to ratify the nine-point deduction. He will also try to overturn rulings that prevent them from selling players outside the transfer window. This rule is too cumbersome for the administrator. If players have not contributed enough to justify their high wages and refuse to take pay cuts, the direct way to reduce the debt burden is to sell them, rather than waiting for several months to take action.

With Portsmouth going into administration, it is set to receive outstanding payments from the Premier League – including parachute payments paid to relegated clubs – totalling £36 million.

The Premier League has also given Portsmouth written permission to raise £20m against the promise of the future funds. However, the League will retain about £16m to pay off football debts. Besides the advance payments and raising of fresh capital, negotiations forcing creditors to take a haircut and offloading of redundant players will make the £70 million debt less daunting.

Tighter Regulations For A Sustainable Premier League

Two years ago, Portsmouth fans were on cloud nine after winning the FA Cup. This is hardly surprising, considering Portsmouth’s last taste of major success was a double-championship in 1949-1950. Unfortunately, the joy evaporated all too quickly in a humiliating administration.

How did a football club dig itself into such a ruthole? The assets have been milked dry, leaving little incentives for new investors to take over. The best chance is to find a sugar daddy like Roman Abramovich who can sustain a club without borrowing.

West Ham co-owner David Sullivan believes Portsmouth troubles are far from over, despite going into administration. In fact, the club could be six months away from going out of business completely.

Sullivan learnt about the difficulties the hard way when he decided to save West Ham – season ticket sales and TV revenues had already been securitized, sold for years in advance.

He said: “The big problem is finding a buyer. Can anyone tell me why anyone would want to buy a club with so many problems? Not just the debt, but both clubs no longer own their own ground or the car park, and without the land the clubs might very well be worthless if those debts exceeds its value.”

To be sure, many parties are at fault. The owners who turned out to be less wealthy or scrupulous than thought. The greedy but incompetent chief executive, manager and players are culpable too. And let’s not forget the responsibility of the Premier League too.

In their rush to rake in the millions that TV brings, they have turned a blind eye to what has been happening at the club. Portsmouth are not alone in following the accepted Premier League model for a club – overspending, beyond the club’s means, financed by loans from an owner and banks.

The Premier League’s “fit and proper persons test” is designed to assess whether prospective buyers have the finances to run a club, yet Portsmouth have had four owners in seven months – all of whom are far from capable of financing or running the show.

UEFA, displaying a rare foresight and leadership, have acted to implement “financial fair play,” which will require clubs to break even from 2012-13. The Premier League still allows budget overruns so long as owners pour in money to fund spending.

However, such an approach is dangerous and unsustainable. Chelsea have an owner, Roman Abramovich, who willingly dumps money and the club operates without caring about deficits or answering to creditors. The situation becomes dire when the owner grows tired of the club and does not commit fresh funds.

Manchester United and Liverpool are also up to their eyeballs with debt. If earnings becomes insufficient to make interest payments, the death knell will sound on the two most decorated clubs in England.

The FA chairman, Lord Triesman, has identified reliance on owners as a key vulnerability in his speech at the Leaders in Football conference of October 2008. He said: “Debt is at high risk levels. The clubs are owned by either financial institutions, some of which are in terrible health, or very rich owners who are not bound to stay, or not very rich owners who are also not bound to stay.”

In fairness, the Premier League has not been turning a blind eye to financial indiscipline entirely. Last summer, it introduced new rules, including a “going concern” test by which accountants will examine future financial projections for a club. The problem is that future projections are notoriously fuzzy concepts.

If Portsmouth are winning domestic trophies and qualifying for European competitions, Gaydamak’s finances appear impeccable, and banks are making loans with abandon, you could make ridiculously rosy assumptions without considering any downside.

Sports Minister Gerry Sutcliffe stepped into the fray by reminding that Portsmouth’s plunge into administration serve as “a massive wake up call” to ensure football get its financial house in order. Sutcliffe has been a strong advocate of tightening the rules on prospective buyers of football clubs and Pompey’s misfortune should prompt football authorities into action.

Sutcliffe is also concerned about the number of top-flight sides currently saddled with debt though he treaded carefully on government intervention in football expenditure. He has also proposed having more supporters’ voices on the board of directors.

I concur with Gerry Sutcliffe. The Premier League must examine itself and weed out bad practices to protect its own reputation. Even as broadcasters fall over themselves to pay obscene amount of money for TV rights and football fans thrill over the action served up by the world’s richest league, this season’s Premier League will be remembered “fondly” for having a football club which fell into financial ruin.

But I doubt Richard Scudamore considers Portsmouth’s administration a major embarrassment to the Premier League. It is solely down to bad management rather than oversight and so long as he continues to sign lucrative contracts, everything is fine. In that respect, he is successful for securing yet another bumper round of international TV deals for the Premier League from 2010-13.

No doubt, the Premier League is a very marketable product for all its entertainment and glam, but there is a point when fans no longer enjoy the farce as football clubs enter administration in unison. If that happens, the Premier League becomes a mockery for losing control of errant football clubs, dealing with administrators, following up on unpaid salaries to footballers and staff, and checking on buyers when they pick up clubs’ carcasses.

Indeed money, while indispensable, should not be the deciding factor of a successful league. A football club cannot be about achieving glory at the expense of its survival. Even in its mediocre ways, a club provides entertainment and unites the passions of fans, some of which grew up watching the games and treat it as family. Some fans are now screaming their hearts out “Portsmouth till I die!”

It is not worth the trouble to buy great players, pay them lots of money, win some silverware and then go into administration. Portsmouth’s owners have gambled away the club’s future and its proud 112 year heritage, all in the hope of hitting the jackpot. They walk away none the worse for wear when the pipe dreams were dashed.

Pompey will be ‘cut to the bone’ after entering administration and there is no guarantee of its survival. For a club starting all over, they may have to recruit players from Football League or academy cast-offs, and probably only a local manager. Top class football may have to wait for years. Haven’t we seen such debacles in Leeds United, Southampton FC or Crystal Palace before?

Will football fans still show the same interest in the Premier League if Manchester United and Liverpool go into administration and slipped into oblivion? Portsmouth is only the tip of the iceberg and there are more club failures over the horizon.

It is time football fans make a clear statement they do not want to be exploited by greedy owners who act more like corporate raiders. There is little purpose served in leveraged buyouts except to benefit the owners and enslaving the football club with debts.

Arsene Wenger has shown that he can provide quality and entertaining football at Arsenal through talent spotting and development at the youth level instead of buying accomplished stars at exorbitant prices. We need more football clubs to adopt his philosophy if the Premier League is to sustain itself for the next decade.

One Comment on “Portsmouth's Administration Must Prompt Premier Leauge To Examine Bad Practices”

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  1. football gifts says:

    Although Sepp Blatter does have a lot of critics, I believe he is right in campaigning for football clubs only to spend within their income, level playing field or not, it makes pure financial sense and will give clubs financial stability.

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