Portsmouth's £122.8m crisis

Posted Thursday, April 22, 2010 by theguardian.com

Portsmouth owe Spurs £1m for Asmir Begovic move that never happened

Portsmouth's £122.8m crisis
Asmir Begovic's move from Portsmouth to Stoke triggered a £1m payment for Tottenham.

Portsmouth will pay Tottenham Hotspur £1m over the aborted transfer of a player who has never been near the home dressing room at White Hart Lane, while hundreds of small creditors will have to settle for a fraction of what they are owed.

This is just one of the shocking findings revealed in a report prepared by the club's administrator for their creditors. The dossier lays bare the financial mismanagement and chaotic decision-making that left Portsmouth £108.6m in debt and will leave hundreds out of pocket. An additional £14.2m in transfer fees are due to the club but have already been taken up front, making overall debts of £122.8m.

Andrew Andronikou, the administrator, said tonight: "If you're saying the club owes £122m, yes it does. But it depends on the context. Around £90m of the £122m will be going into the CVA [the Company Voluntary Arrangement, which settles what percentage of the unsecured debts the club will have to pay]."

In what could well become a pub quiz question in years to come, Portsmouth agreed with Daniel Levy, the Tottenham Hotspur chairman, to pay the seven-figure fee for Asmir Begovic, the goalkeeper sold to Stoke City for £3.25m in January.

The transfer was concluded during a frenzied period when the club were teetering on the brink of insolvency, fending off a winding-up petition from Her Majesty's Revenue and Customs and trying to sell players during a brief window during which a Premier League transfer embargo had been lifted.

Described by insiders as a "Keystone Kops" period of wheeler-dealing, the negotiations were being led by Daniel Azougy, the convicted Israeli fraudster employed to run the club's finances by the Falcondrone consortium that took control in October, and Mark Jacob, the solicitor then employed as executive director.

Shortly afterwards Balram Chainrai was repaid £4m of the £18.5m he had lent the club and subsequently took full control.

It is understood the club initially agreed a combined fee with Spurs for Younes Kaboul and the promising Bosnian goalkeeper, but agreed to a clause promising that if Begovic went elsewhere they would pay Spurs a £1m fee in compensation. When the club subsequently agreed to sell Begovic to Stoke City following a protracted negotiation, the £1m fee kicked in and was due to be paid by the end of last month. It makes up part of the £17.3m owed in current and future instalments on players including Sulley Muntari, Mike Willliamson and Nadir Belhadj.

Portsmouth are obliged to pay the fee because of Premier League and Football League rules that protect football creditors, while unsecured creditors will be offered a settlement. Current and former players including David James, Peter Crouch and Glen Johnson are owed a total of £1.87m in unpaid wages and bonuses.

A list of more than 400 trade creditors, including St John Ambulance, schools, community sports clubs, kit suppliers and local businesses including florists and builders, are collectively owed £4.37m.

Agents and scouts are owed £9.76m, including £2.045m to the agent who negotiated the sale of Lassana Diarra to Real Madrid and £2.07m to Pini Zahavi.

Andronikou will ask the club's unsecured creditors, including HMRC, to vote on a Company Voluntary Arrangement that would see them receiving a fraction of what they are owed. HMRC, which issued a winding-up order against the club in October after becoming increasingly frustrated at serial non-payment, is now owed £17.1m. It will oppose the CVA only if it feels it has a realistic chance of blocking it.

In total, the unsecured creditors are owed £92.7m, including the sums owed to the former owners Sacha Gaydamak (£31.5m), Ali al-Faraj's Falcondrone (£1.8m) and Sulaiman al-Fahim (£5m).

Andronikou said that all creditors would have to provide evidence that they were owed the money that was booked in the club's accounts. "We are asking all creditors to complete proof of debt forms, confirm how much they are owed and provide evidence. The Gaydamak trust and family will be required to provide evidence of the amount owing. We are asking them to prove their claim," he said.

"At the moment, we have extracted that information from the books and records of the club. Until someone can't prove their debt, that's the situation."

Creditors are expected to be offered between 20p and 25p in the pound across three to five years, although Andronikou refused to be drawn on what the final offer – to be put to unsecured creditors on 6 May – will be. It requires the backing of 75% of unsecured creditors by value.

Balram Chainrai, the club's fourth owner of a tumultuous season, is owed £14.2m and will not be included in the CVA because his loan to the club was secured on the ground.

He is expected to be paid in full, either from forthcoming TV revenues and parachute payments or when the club is sold. All domestic football creditors (players and clubs) will also have to be paid in full under the football creditors rule, and are also likely to be done so out of future parachute payments from the Premier League.

The report's appendix also details how spending at the club spiralled out of control in the Gaydamak era as the club went from a pre-tax loss of £912,397 in 2006 to £23.4m in 2007, £16.9m in 2008 and £13.47m in 2009. According to 2009's draft accounts, the club's overall staff costs – mainly accounted for by players' wages – were an astonishing 109% of revenues.

Andronikou said the club's £3.3m a month wage bill would have to be slashed at the end of the season in order to cut its overheads to an acceptable level for the Championship. He said the CVA would be self financing and he hadn't yet had to dip into the £15m facility provided by Chainrai to fund the administration.