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The Demise of Portsmouth

So it has finally happened. On Friday, Portsmouth FC became the first Premier League club to be forced to enter administration. Whilst there have been 45 club insolvencies in the Football League since 2002, many of these following the collapse of ITV Digital, it seemed difficult to believe that a club in the world’s richest league could face the scale of financial problems that Portsmouth currently face. With debts of over £70m, despite player sales of over £50m in the past two years, and a tax bill of £12m and rising, it is difficult to see where Pompey head from here. Indeed, estimates suggest that they need £20m in order to see out the season.

Entering administration is not the get-out-of-jail card that it may appear to be. The process provides the club with a three month lifeline in order to try and get the club back in a condition to continue trading, whilst searching for a new purchaser to take the club forward in the future. However, the key objective of the administrator is to safeguard the interests of the clubs creditors, including HMRC and Sacha Gaydamak amongst many others. It is believed that Portsmouth will be able to provide the cash flow to see out the current season – they hope to convince the Premier League to allow them to sell players outside of the current transfer, as well as advancing them the final two television payments and parachute payments that they would receive from relegation, which is now virtually confirmed. Whilst it would require approval from 75% of the Premier League sides, given the fact that Pompey are now virtually guaranteed to be relegated, and the ability of the Premier League to implement ‘club in crisis’ measures, it is expected that they will give in to these demands in order to avoid the further embarrassment that would come about from one of their member clubs being forced to fold mid-season. However, further problems for the troubled club are likely to come in the summer, where they will be faced by a £3m a month wage bill, with no gate receipt to cover these costs.

Portsmouth has got itself into this situation by spending money that they simply didn’t have. A common issue in modern football clubs, where approximately 70% of clubs bridge the income gap through a wealthy benefactor. However, this does leave the clubs vulnerable to any financial or health problems the owner may face, as seen by the problems and eventual demise of Scottish Premier Division side Gretna in 2008. A major problem faced by Portsmouth was their infrastructure, which simply was not of a sufficient level to allow them to financially survive in the Premier League. A dilapidated stadium, which has now been seized by current owner Balram Chainrai in return for writing off part of the debt owed to him by the club, with virtually no corporate seating, and in recent times, a murky ownership structure, simply did not provide the revenue and cash flow to allow them to live at the level they were hoping for.

Much blame has been laid at the door of the directors and behind-the-scenes staff. Chief executive, Peter Storrie, is rumoured to be amongst the best paid in the division, whilst during their FA Cup winning season, directors salaries rocketed from just over £900k to well over £2.6m. Other shady figures lurk in the shadows – Arcadi Gaydamak, a convicted arms trafficker, has claimed them as an asset; they have been advised by Daniel Azougy, a convicted fraudster; Peter Storrie himself is facing charges of tax evasion. Even former manager, Harry Redknapp, has been the target of criticism, particularly given the past financial record of teams that he has been involved with – three have now gone into administration, whilst West Ham have faced their own financial problems in recent times. Rumours of corruption and money-laundering have been heard in recent weeks. However, it is general financial mismanagement all-round that has contributed to Portsmouth’s current plight, rather than errors by any one individual.

So what does the future hold? An indebted Championship side with no stadium and a battered credit rating is hardly attractive to new investors. Their future depends on the ability of the administrators to maintain a cash positive position, at least until the summer, whilst stepping up the hunt for possible new owners – ones that actually have the funding that they claim. They will also be attempting to secure a CVA, which would avoid any further deductions for next season, although this may be difficult to obtain, particularly given HMRC’s tendency to vote against them in football cases. Without this, they face at least a 15 point deduction for next season, which would leave them an uphill battle to avoid relegation to League 1.

Portsmouth will survive until the summer, but their future beyond that point looks bleak. A fire-sale of players will be inevitable and they face the real possibility of either further points deductions and following the path of their south coast neighbours down into League 1, or if they cannot survive the summer, a real possibility of going out of business. A new phoenix club would surely be born out of the ashes, but either way, it is likely to be many years until we see Portsmouth FC back in the promised land of the Premier League.

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