Tuesday, 19 January 2010

Paying The Price

When things are bad, we take comfort in the thought that they could always be worse. And when they are, we find hope in the thought that things are so bad they have to get better

Did you ever say hello to a girl you almost married long ago? Did she smile the same captivating smile, and give your arm a hug in a gesture you'd almost forgotten? Did the wrinkles as she smiled make you wonder what marvellous times you'd missed? That's how I feel about West Ham every time I come back to this blog...

David Sullivan, in announcing his take­over of West Ham United, laid out his football credentials. "We're good at controlling things and we've left behind a pretty good team at Birmingham City," he said. "We have a seven-year plan to take the team into the Champions League and make it a big club. We care deeply about the club. David [Gold] was brought up opposite the ground and it is a club that we have always wanted to own. Over seven years we plan to spend a lot of money and we hope to persuade the government to let us move to the new Olympic Stadium, and I believe the people of east London would support that move. Our long-term aim will be to put the club on a stronger financial footing. I believe with our new board we have the expertise and experience to do just that and bring the good times back to this great football club. The club is now back in the hands of East Enders, people who understand the community and its passion for the Hammers. I believe that depth of feeling will also bring us through what has been a difficult period."

The last club Sullivan owned with his business partner, David Gold, was certainly transformed unrecognisably during their near 17-year reign. But, notes Matt Scott in today's Guardian, West Ham fans are streetwise enough to see the deception in dreaming of a push for European qualification any time soon. The task Gold and Sullivan are taking on at Upton Park is arguably as great as when they took control of a bankrupt Birmingham in the second tier in 1993. Laying bare the full scale of the financial meltdown, Sullivan listed his new club's £100m-plus debt burden: £50m owing to banks, £40m to other clubs and more than half of the next two years' season-ticket money already borrowed against. "In addition there’s the club’s settlement to (former manager) Alan Curbishley, so the real debt is about £110m," revealed Sullivan. "The Icelandic owners built up a business formula that did not work. So have Man City and Chelsea, but if you have an owner that is prepared to subsidise the club for £50m or £60m a year then it is not negligence. Clearly, Magnusson, or Mr Egghead, thought that the owner (Björgólfur Gudmundsson) would subsidise the club."

What Sullivan did not mention was that 18 months ago the club breached their banking covenants when their wage bill hit almost £65m on a turnover of only £81.5m. The pain of trying to work down those unsustainable salary demands will be felt for a number of years. Both Sullivan and Gold know that buying a club this badly in hock was not going to be a rational undertaking. "It makes no financial sense to buy this club. We bought this as fans," said Sullivan, resplendent in his claret velvet jacket and blue silk tie and looking like a stack-heeled Hugh Hefner (a striking look for sure, observes the Guardian's Fiver, although one that's less international playboy, more commissionaire of Soho cinema who's just had his epaulettes ripped off in a minor stramash instigated by a misunderstanding over the phrase "clip my ticket". One message it certainly does succeed in conveying, mind you, is the spank impresario's passion for West Ham United).

Indeed, so bad was the situation that Straumur, the club's 70% owner through their parent CB Holding, had a pressing deadline. Having repossessed West Ham in June when Gudmundsson was declared bankrupt, if the takeover could not be concluded on Monday, then a fire sale of players would have to begin in an effort to raise the minimum £8m required to cover the still bloated wage bill beyond April. At least that danger has been averted for now. "Fans were terrified they would lose their best players but we can assure them that is not going to happen. West Ham is in better shape today than it was yesterday," revealed Gold. "The first thing we needed to do was not to bring in new players, the first thing was to make sure no players left. Up until a month ago you constantly read and saw on TV that the current owners would have to sell their best players to stay in business. We can reassure fans who were terrified they were going to lose two or three of the best players that that is not now going to happen. We will do everything possible to ensure West Ham stay in the Premier League."

Details of the deal, which values West Ham, including its debts, at £105 million, have not yet been revealed but Sullivan will invest between £40 million and £50 million. Sources say that £22m of that goes to pay down some of the club's debt (Straumur and its partners are also in the unenviable position of being among the club's major creditors), and a similar sum goes in as working capital to be largely swallowed by the club's cash-flow obligations between now and August, which are approaching £20m in total. "There’s not a penny to come in, they (the previous owners) have borrowed against the next two years of season-ticket money," said Sullivan. "The sponsors have paid 70 per cent of their three-years up front. The accounts will come out shortly and I’m sure they will show another £40m or £50m loss. It was £38m the previous year." Given those restrictions, it is unlikely that good offers for any of those players can be turned down in future. But at least the proceeds can now broadly be released for reinvestment in the squad.

Although West Ham's survival chances have been significantly boosted by the takeover – since the sales of Robert Green, Matthew Upson, Scott Parker and Carlton Cole will not now be forced on them – the new owners are by no means endowed with wealth. Indeed Sullivan, who said they would consider selling the naming rights to Upton Park, does not attempt to hide it. "We haven't got £140m [in cash]. And even that, all that would do is pay the debt," he explained. "It wouldn't buy you a team. So you put in another £100m, or £250m, or £300m? Well, we just haven't got it. I'm not liquid to that extent."

As part of the deal Sullivan - who has been given ‘operating control’ of the club although he cannot make any significant financial investments without the approval of Straumur - has an option to buy the remainder 50 per cent at a fixed price at any point in the next four months. If he does not do so within that timeframe then the price, it’s understood, goes up. "We own 50 per cent of the club but I have an option on the other 50," confirmed Sullivan. "I would share that with David but I would like to have four or five West Ham supporters with lots of money to come in. The debts here are so large that most Englishmen can’t carry them so we would like to share them with others and help take West Ham to the next level. The bank Straumur own the other 50 per cent right now and my option to buy is for anytime in the next four years."

To that end, Sullivan said he had spoken with another prospective buyer, Tony Fernandes, the head of the Lotus Formula One team and a West Ham supporter, regarding him becoming a director and potentially buying into Straumur's shareholding. "Our preferred option is that we find other people who want five or 10 per cent and we will go to Tony, who was one of the others interested in buying the club. We will spell out the book we are taking over," said Sullivan. "The imbalance in the squad and the crazy wages the Icelandics were paying that brought the club to its knees. I say to anyone else out there, if they want to get involved they are most welcome. It's a long-term job and we want people to come and join us. We welcome other investors. If you imagine a government of national unity in national crisis this is the board equivalent and we want people to come in and help dig the club out of that. Every stone you turn is a negative to the cash flow of the club and viability of the club. They (the previous owners) have done a fantastic job of keeping the club alive but the cost is we are taking over an incredibly bad situation."

With an eye on the longer term the new owners wasted little time in reigniting the debate about the future of the Olympic Stadium in Stratford by signalling their intention to occupy it after the 2012 Games, in a move welcomed by Tory politicians and local councillors. Sullivan said they are "hoping to persuade the government" they should be allowed to move just over two miles to the £537m stadium. Citing the precedent of Manchester City's move following the Commonwealth Games, any deal to take up tenancy at the Olympic Stadium could radically overhaul West Ham's financial model and enable them to turbo-charge revenues by boosting capacity to 55,000 and ­giving them a ready-made new home with excellent transport links. It could immediately make their £50m investment look a wise one, particularly as the club could sell Upton Park for redevelopment.

Sullivan's statement of intent, thinks Owen Gibson, is likely to be the opening salvo in a long running negotiation between the club and the Olympic Park Legacy Company, effectively a joint-venture between the government and the London Mayor, that is responsible for devising an economically feasible masterplan for the area and the venues in it. It is already known that Boris Johnson is keen on a football club taking over the running costs of the stadium but the decision will have to be taken by the OPLC. "Any legacy solution for the Olympic Stadium has to be commercially viable and that probably means a Premier League football club alongside its athletics use," the shadow sports minister, Hugh ­Robertson, said today. The outcome will have ramifications not only for the government's delivery of a 2012 legacy, but also England's bid to host the 2018 World Cup. Karren Brady, formerly chief executive at Birmingham City and now newly appointed Hammers vice-chairman, also has an advisory role on the 2018 bid team.

But several contentious issues remain, including the question of who will pick up the estimated £100m tab for converting the stadium into a permanent Premier League football ground with all the hospitality, catering and retail requirements that entails. The stadium was designed to have all catering kiosks and merchandising stalls housed in temporary pods on its perimeter rather than built into the undercroft. A second stumbling block will be the fact that Olympic organisers are unlikely to countenance the removal of the running track and will require promises about community use. A school, a National Skills Academy and a branch of the English Institute for Sport are all in line to move in.

The Olympic Park Legacy Company said yesterday it was keeping all options open ahead of a report expected in the next two months, overseen by the chair Baroness Ford and chief executive Andrew Altman. But Ford has repeatedly expressed enthusiasm for at least seriously examining the feasibility of the project and sees no reason why it cannot combine football with a running track. The stadium is more intimate than the cavernous bowls of previous Games, with seats banked more steeply.

There is undoubtedly a shift in mood. The original idea of scaling the stadium back to 25,000 seats fitted with the bid ethos of leaving no white elephants in 2005. But as time has gone on, more of those involved have begun to question the wisdom of building a landmark stadium and immediately dismantling it. The Olympics minister, Tessa Jowell, last year appeared to close off the debate about the future of the stadium after negotiations with a range of potential partners, including West Ham, Leyton Orient and Wasps, broke down. But on her appointment Ford said she wanted to revisit the issue.

Newham Council is also keen, believing it would help the area through a tricky post-Games spell and make the Park immediately feel like a well used destination with an attachment to its community, not to mention the economic spin-offs for local businesses. Newham's mayor, Sir Robin Wales, a West Ham season ticket holder, said yesterday: "This is great news and augurs well. We have always argued the Olympic stadium deserves a top flight football team after London 2012. In my eyes there is only one obvious choice – and that's the Hammers. Allowing the club to move into this iconic ­setting would ensure a fitting legacy for the stadium."

Sullivan's suggestion that the athletics track could be removed and rehoused at Upton Park – unlikely not least because it would prevent West Ham from selling the valuable real estate – could anger Olympic officials, who have repeatedly insisted that retaining an athletics legacy for the stadium is of paramount importance. For the club, it could transform its finances. More accessible to its traditional fan base to the east and the north of its East End home, with unrivalled transport links and a likely 55,000 capacity, the additional match-day income could enable it to compete on a level playing field with Arsenal and Spurs, who by then hope to have also moved into a new stadium.

In the meantime, other realities bite. West Ham are currently 16th in the league, with only goal difference separating the club from Hull City in the relegation zone. If Bolton, who lie second-bottom, win their two games in hand then they would go five points clear. While the new co-owners assured manager Gianfranco Zola they have confidence in his abilities – and said they want to achieve Champions League football "within seven years" – today's Telegraph 'understands' that two separate approaches had secretly been made to the former Manchester City manager Mark Hughes to see if he would eventually consider taking over. Such was the level of speculation about Zola’s future earlier in the week that bookmakers stopped taking bets on him becoming the next Barclays Premier League manager to lose his job. However after consultations, Sullivan accepts that Zola is not only a good coach but a popular manager at the club and one who has not had sufficient backing in the transfer market. That said, they have refused to confirm the futures of Gianluca Nani, the technical director, plus the chief executive Scott Duxbury, and the finance ­director, Nick Igoe.

The new boardroom is a crowded place following the arrival of Brady as vice-chairman. Yet the cost of ending Scott Duxbury's turbulent stewardship of West Ham United could be as high as £2m, claims Scott, a price that means Duxbury could survive despite his loss of control. During Terry Brown's time as chairman-owner of the club all directors were given golden handcuffs in their employment contracts. The terms provided for a 24-month notice period entitling the board member to two years' salary in compensation for loss of office.

It is believed that, although Duxbury, who was already the in-house lawyer, was promoted to chief executive after Brown's departure, the then chairman, Eggert Magnusson, awarded him a contract containing the same expensive clause. According to the club's most recent accounts, Duxbury earned £474,000 in the 12 months to May 2008 but that is understood not to reflect his current entitlement. One insider said yesterday that the compensation he would be due if dismissed is closer to £2m. "It will be very costly to get rid of Duxbury," said a club source. West Ham's new board are now weighing up whether that is a price worth paying in order to give Brady the control she is used to.

If the compensation clause is triggered, it would be a remarkable windfall for Duxbury, whose reputation suffered over the Carlos Tevez affair. Both tribunals into that, which cost the Hammers in excess of £30m in fines and compensation payments, deduced that Duxbury had misled the Premier League. As for Magnusson, the new owners revealed they had dismissed out of hand an approach from the former chairman who has been blamed by many for the club’s excessive spending, to become involved in the club again. "Magnusson phoned us up six weeks ago and said that he would like to be involved again," revealed Sullivan. "I don’t know what the man is thinking. Why do we need him and what would the fans think? If we popped up and said that this is our new chief executive, they (the fans) would go mad." Sullivan and Gold are already giving further consideration regarding a claim against the solicitors who advised the club during Tevezgate, which ultimately resulted in a Premier League fine of £5.5m before a tribunal ruled they should pay Sheffield United an undisclosed sum, thought to be in the region of £20m. Sullivan said: "West Ham pleaded guilty but maybe they should have pleaded not guilty."

Sullivan and Gold were due to meet Gianfranco Zola for the first time last night and insisted that they were not in the habit of sacking managers. "West Ham United need stability after all the recent upheavals," said Gold. "We appointed four managers and parted company with two at Birmingham in 16 years. We believe in our managers and give them the time and support they need. [Zola] is staying. I will sit down with him tonight and work on some transfer targets." Sullivan added: "We need some additions to enhance our chances of staying in the league. Franco deserves our support and will get it." Although Zola will be permitted to sign new players during the current transfer window, the club's perilous league position does not necessarily make Upton Park an attractive destination. Sullivan, alongside Brady, intends to take personal responsibility for transfers and the likelihood is that any arrivals this month will be loaned in rather than purchased outright. According to the Times, West Ham plan to sign two strikers and have already made approaches for Benni McCarthy, of Blackburn Rovers, and Benjani Mwaruwari, of Manchester City, while Burt suggests Monaco striker Eidur Gudjohnsen is also in the frame. Writing in the Times, Jacob believes other targets being considered are Alan Hutton, of Tottenham Hotspur, and Luke Young, the Aston Villa defender, to play right back. "We will wheel and deal. We're good at it," said Sullivan.

There should be no doubt about that. The package offered by the pair was preferred to a series of other offers, including interest from Intermarket, an investment company, who made the highest bid but was unable to prove that it had sufficient money for a takeover. An American group, favoured by the banks that are owed nearly £50 million by West Ham, had already withdrawn because its request for exclusive talks was rejected. Tony Fernandes, the Malaysian airline entrepreneur, also failed to reach an agreement, while Massimo Cellino, another last ditch prospective buyer, tonight insisted he was "astonished" to miss out on the deal. Cellino, the president of the Italian Serie A club Cagliari, said: "I was poised to buy 100% and instead this morning I discovered they'd decided to sell to people they've been talking to for eight months, who have taken only 50 would have paid all the debts. We shouldn’t be ashamed of our country, which is so maligned abroad, considering how they handle things here. I found things a lot less clean than (in Italy). I’m not just disappointed. I’m amazed. I’ve never seen anything like it in all my years in football. It was all ready and prepared to pay off the debts and I was ready to make major signings. I think England didn’t want me."

In reality Straumur, who had initiated talks to sell a part or a full stake after realising it could become exposed to liabilities should the club be relegated this season, was left with only two bids that contained verifiable proof of funding. Gold and Sullivan won the day with their injection of new money as the only other bid was submitted by an enterprising fan offering a grand total of £351. But at least he provided bank details to show the money was really there.

Although the two Davids had been desperate to get out of Birmingham, they still managed to raise £81.5m in Grandtop International's takeover last year – way over the odds for a club that has for several years bounced between the top two leagues. That unlikely sale meant they could share about £40m between them, a sum that meant dozens of clubs were courting their investment.

And the pair took a similarly uncompromising stance into negotiations to take over West Ham. They knew that, backed by hard cash and not easy promises, their bid was the most credible; and their tactics at times angered Straumur's selling agents at NM Rothschild. But West Ham fans should be encouraged that they succeeded on their own terms. Succour can also be drawn from the fact that they have looked into buying "about 20" clubs, ensuring they have very good intelligence on the state of those clubs' finances. This will be very useful when discussing potential deals for their players.

Sullivan will meet his own players within the next 24 hours, among them Matthew Upson. The defender, who joined from Birmingham, is among those who have wanted to leave. "I did Matthew an enormous favour letting him come to West Ham, so he owes me, Matthew, big time," Sullivan said. "You don’t want unhappy players. But the players have got us in the state we are in and they are entitled to dig us out. You might have to say to a player, ‘Look, we will let you go, but not until the summer and only if we stay in the Premier League. If we go down you will have a year in the Championship. You have caused it, you will pay the price.’"

Paying the price was a recurring theme throughout yesterday. Yet even if, as is still possible, West Ham slip out of the Premier League this season, the greatest relief for fans is knowing that it will not ring the death knell. "We're here to the end, till we die," said Sullivan. "We're not just going to bang it out to some Russian after five years. I've got a dodgy heart and David's 73. But his mum lived to 90-odd and my mum's still alive at 93. So maybe we'll beat the odds." If West Ham are to survive as a sustained force in the Premier League, they will have to.

Finally, on a personal note, apologies to the small handful of loyal readers of this blog for the unexplained enforced absence these last several months. Sometimes life just gets in the way. To misquote Yeats, the months like great black oxen tread the world. And God, the herdsman, goads them on behind.


Anonymous said...

kevin in manchester writes... good to have you back and thanks for putting the article together. In these fevered times it's nice to have somethng meaty, well researched and original to read in among all the cut adn paste jobs cluttering up newsnow

cheers..keep it up

Emlyn said...

bloody hell. well you know what they say about buses. welcome back Trilby (not quite sure how that works, as this is your blog!) missed your brilliant writings. feel all david sullivan now

Toby said...

Glad to have you back.

Fiona Melville said...

'Match Fixer' a new novel by West Ham fan Neil Humphreys is out this month. Born and bred in Essex, Neil is an international sports journalist and has fictionalised characters in order to dish the dirt on match fixing and corruption in Asia spreading its tentacles to the English Premier League. Let me know if you'd like a review copy. Sorry to post this but I can't find an email for you.

TBI said...

God she is a right sort!

Hammerite said...

Very glad to have you back, Trilby.

An excellent posting made a very good read.


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