Friday, February 26, 2010
ESPNsoccernet: March 1, 8:20 AM UK
Portsmouth woes just the tip of the iceberg
As Portsmouth become the first Premier League club to go into administration, Soccernet spoke to restructuring and insolvency expert Danny Davis from law firm Mishcon de Reya about whether the club has a future and the risk of extinction facing English clubs in the recession.
• Pompey to go into administration
• Forum: Should Pompey be kicked out?
Portsmouth had no other choice but to go into administration. They couldn't go to the winding-up petition hearing at the High Court on Monday without either sufficient investment or administration because the judge would have wound them up - and that would have literally meant closing the door and going out of business.
That was, of course, the worst-case scenario, but the second worst case, which they wanted to avoid, was administration, because it means they lose nine points and will now be relegated.
The best case scenario would have been that some - and I use this phrase reluctantly - lunatics come along and say, 'Yeah, we'll take the debt on', but it looked to me like that was never going to happen.
Going into administration will do nothing to boost hopes of a takeover. There's as much hope now as there was yesterday. This issue is this: administration is not a cure for the club. It is a little band aid over a massive wound.
The real issue for Portsmouth's going to come in the summer. They'll complete their fixtures and they'll be relegated and the Football League will tell them, I think, that they will not start the season in the Championship if they are in administration.
There are reports of plans to massively cut the staff, but the problem is that it's the players that need to be cut and you can't cut them because they're on fixed-term contracts. You can't cut those. They can't cut the biggest items of expenditure.
There aren't many players there who are going to command big fees and the fees will be less than they would have been because they've gone down. They've sold all the crown jewels.
Everybody knows that Portsmouth need the cash. They can't do the deals until June and, by June, Portsmouth are a Championship club.
If the Football League tells them they can't start the new season in administration, that means Portsmouth have got to find a new owner who will either take on the debt in full - which is just so enormous - or compromise with the creditors and say to them, 'Look, there is no way you're going to get paid unless you do a deal with us and we will pay you 40p in the pound' or whatever it is.
If they don't find that investor, they're going to go into liquidation. The problem for Portsmouth isn't now - all they've done is bought themselves three months.
I would say they have a real chance of going out of business, but it's not just a Portsmouth problem. Crystal Palace have a real chance of going out of business, because no one wants to buy them.
There are a number of Championship clubs and a number of Premier League clubs who will be looking at this scenario thinking, 'We've got a real problem because the number of investors is dwindling in the recession. The amount people are prepared to pay on a match day is dwindling'.
I think a lot of clubs now are just starting to understand that. It would not surprise me in the slightest if a team goes.
Chester have just been expelled from the Conference. They have been going for a long, long time. There's not a lot of money available in Chester, but the same principle applies to all these clubs. They've spent more than they have. That's the bottom line, whether you're in the Premier League, the Championship or the Conference.
Even the biggest clubs have problems. Arsenal have just posted a £35.2 million profit and they're an interesting business and seem to be switched on, but they're an exception.
Manchester United have vast debts, but I don't think they face the risk of administration. The brand around the globe is so massive and so valuable, there's going to be someone out there that's going to see the potential.
Yet, if you were Liverpool, for instance, you would be looking at this thinking, 'What happens if we don't get in the Champions League? We've got to find £40 million in revenue that we don't otherwise have and the only way to do that is to sell players'.
I don't think they would have to go into administration - it's almost a certainty it won't happen because the Royal Bank of Scotland wouldn't allow it - but you could see a real scaling-down of Liverpool. If they lose one year in the Champions League, they could end up selling some of their best players.
I think every single club is going to be looking at the Portsmouth situation thinking, 'We've got a problem here'. So many clubs are living life on the edge and, at the very best, they're cash-flow neutral. This is a bad economic climate to be sitting with 30 or 40 players on ridiculous money.