Wednesday, August 17, 2011

Romanov's Battle For Hearts And Minds

Oscar Wilde, the famous Irish playwright, was not known for his love of sport, but his warning “to expect the unexpected” could certainly apply to the world of football, not least at Heart of Midlothian, where the colourful owner Vladimir Romanov continues to resist the path of predictability. Just two games into the Scottish Premier League (SPL), the volatile Lithuanian decided to sack the club’s manager Jim Jefferies, replacing him with the former Sporting Lisbon manager Paulo Sérgio. The popular Jefferies was in his second spell as Hearts manager after a ten-year absence, retaining much goodwill for delivering the Scottish Cup in 1998, ending 36 years without a trophy.

The timing seemed quite strange, not just because the change in manager came so early in the campaign, but also because Hearts had secured third place behind the Old Firm last season. Moreover, Jefferies had been allowed to bring in four new recruits: the imposing forward John Sutton from Motherwell, Danny Grainger from St. Johnstone and two experienced midfielders from Kilmarnock, the Moroccan Mehdi Taouil and Jamie Hamill. In theory, the addition of these new players to a talented squad, including the exciting wingers Andrew Driver and David Templeton plus the commanding captain Marius Žaliūkas, should have been the catalyst for a successful season.

"The Romanov revolution"

However, if you scrape below the surface, there is some method in Romanov’s apparent madness, as Hearts’ last victory was way back in March last season. As the man himself said, “With only one competitive win in 15 games, only fools and idiots would not raise questions and suspicions.” The club’s third place in 2010/11 was also a little deceptive, as the run-in was disappointing in the extreme, so Jefferies’ dismissal was not completely unjustified.

Of course, Romanov has plenty of previous when it comes to hiring and firing with Sérgio becoming the ninth manager during his seven-year tenure. That’s not counting caretaker or interim managers, though no Hearts manager could confidently describe his position as permanent. As Scotland manager and former Jambos legend Craig Levein said, “I don’t understand what boxes need to be ticked at Hearts to keep you in a job. You would need to be insane to do this job. At times it defies logic.”

"See you, Jimmy"

The owner’s lengthy list of victims includes John Robertson, George Burley, Graham Rix, Valdas Ivanauskas, Anatoly Korobochka, Stephen Frail, Csaba László and, of course, Jefferies. Of those, Burley was perhaps the unluckiest, being given the boot with Hearts top of the SPL after nine unbeaten matches, though Ivanauskas went just a few months after winning the Scottish Cup and qualifying for the Champions League in 2006. However, the most telling image of the problems during Romanov’s reign came when three senior players (club captain Steven “Elvis” Pressley, Paul Hartley and Craig Gordon) held an impromptu press conference at the club’s training ground to inform the world of “significant unrest.”

To put it mildly, Romanov is an interesting character, who polarises opinions in the game, even among Hearts’ own supporters. Some view him as the “great dictator”, while others consider him to be the saviour of the club.

It is true that there is rarely a dull moment with “Mad Vlad”, who also owns the Lithuanian club FBK Kaunas and Belarusian club FC Partizan Minsk. Prone to numerous verbal outbursts, including accusations that Celtic and Rangers were “buying off” match officials, his club has received several fines from the Scottish football authorities. Some have attributed this to language difficulties, but his son Roman, now Hearts’ chairman, once joked, “He has all the words he needs: ‘Yes, ‘No’ and ‘You’re fired’.” Managers have complained of constant interference, including transfer choices and team selection, such as when he ordered Jefferies not to pick Žaliūkas during a contract dispute.

"One careful Driver"

On the other hand, there is little doubt that he has kept the club alive. Before his arrival, Hearts were in dire straits financially. Auditors PricewaterhouseCoopers (PwC) described the club as being technically insolvent, while the Hearts Supporters’ Trust said, “We were heading for the abyss.” Former chairman, George Foulkes, summed it up, “Most fans have mixed feelings about Romanov. If (former CEO) Chris Robinson was still there, we’d probably be in the First Division and playing in front of 5,000 people at Murrayfield.”

This was a reference to Robinson’s 2004 plans to sell Tynecastle, the club’s famous old ground, which he claimed was “not fit for purpose”, and instead rent Murrayfield from the Scottish Rugby Union. Although this deal would have reduced the club’s burgeoning debt, it was deeply unpopular with supporters, who launched a Save Our Hearts campaign to prevent the move. Despite this opposition, a deal was still signed with a housing developer for £20 million, but this was called off after Romanov purchased the club, so the initial response to the Lithuanian was very favourable.

The previous board’s willingness to go against the supporters’ wishes by selling the stadium highlighted the seriousness of the club’s financial challenges, and it was with some relief that the fans saw Romanov steadily increase his stake in the club throughout 2005 to become by far the largest shareholder. In return, Romanov got hold of a venerable football institution, part of the inaugural Scottish league in 1890, which has won the championship four times, though two of these victories came in the 19th century, while the last victory arrived back in 1960. However, history doesn’t pay the bills, so Foulkes was right to give Romanov credit for “the fact we remain a going concern.”

This can be seen by the increasing debt, which reached £36 million at the time of the last published accounts in July 2010. That is simply enormous when the turnover is only £8 million and follows a series of what the club itself described as “significant operating losses.” The debt mainly comprises £24.3 million owed to the parent company UAB Ukio Banko Investicine Grupe (UBIG) at 4.5% interest, repayable in December 2011; £8.9 million owed to another group company UAB Hearts Developments (HD) at 3.5%, where the repayment date has been extended to August 2012; and £2.5 million convertible loan stock at LIBOR.

There is a fairly confusing paper trail for this debt, as it was owed to AB Ukio Bankas at the beginning of the year, then transferred to UBIG and another company called ImpExNet. The latter balance was then again transferred to HD during the course of the year. I’m not sure why this has to be so complex, but the important point is that all of these companies are under the effective control of Romanov. As Hearts director Sergejus Fedotovas said, “The key fact, that sets Hearts apart from many other clubs, is our debt is in the form of funding from our own parent company.” That’s true, but can occasionally be a double-edged sword if the owner loses patience with his investment.

"Paulo Sérgio wonders what he's let himself in for"

That said, the debt position in 2010 would have been even worse without a £7.9 million forgiveness of debt from the parent company (effectively Romanov), which was not enough to prevent net debt from rising by £1.3 million. Actually, the debt would be horrifically high without several timely interventions from the owner, such as a £12 million debt-for-equity swap in 2007/08. Excluding these adjustments, the debt would stand at £56 million – seven times annual turnover.

After the latest accounts closed, there was yet another debt-for-equity swap to the tune of £10 million. While this “demonstrates that UBIG remain committed to providing ongoing support” and reduces the club’s interest burden, it does also further strengthen Romanov’s hold on the club. Depending on your perspective, there are two ways of looking at this situation: on the one hand, the club would almost certainly go bust without Romanov’s backing; on the other hand, he is largely responsible for the increase in debt from the £20 million or so at the time of his takeover, due to his hefty spending on players.

Either way, according to PwC’s annual review of Scottish Premier League football, Hearts have the highest net debt in the SPL, which has been the case for the last few years. In fairness, only St. Johnstone and Hamilton are operating debt-free, but the magnitude of Hearts’ debt is more worrying, accounting for a third of the SPL’s net debt of £109 million.

This, in turn, means that Hearts have the weakest balance sheet in the SPL with net liabilities of £24 million. With the exception of Dundee United and Hamilton, all other SPL clubs have net assets. Of course, like all football clubs, the value of the players on the balance sheet is under-stated, as this equals acquisition cost less cumulative amortisation. In Hearts’ case, the book value of the players is just £370,000 compared to an estimated value of £18.5 million on the respected Transfermarkt website.

The noises coming out of Tynecastle suggest that Romanov has given new manager Paulo Sérgio no less a target than winning the league this season. Although the Portuguese said that he did not feel under any additional pressure, he did emphasise that the squad needed strengthening, “Everyone knows what a team such as Hearts needs. If we get the money, we can compete with the biggest clubs in Scotland, Rangers and Celtic.”

Fedotovas claimed that the club was working on bringing two to three new players in before the transfer window closed on 31 August, potentially including former captain Michael Stewart, but Sérgio should be aware that criticism of the owner for not spending in the transfer market helped lead to the downfall of Csaba László, the longest serving manager under Romanov’s regime – at all of 19 months.

History suggests that Sérgio is unlikely to see Romanov put his hand in his pocket for new players, as there has been only one season at the club (2005/06) when Hearts have made net purchases – and that was just £2.3 million. Although there have been many arrivals, almost all of these have been on a free transfer with Hearts’ record buy being Bosnian international Mirsad Bešlija in 2006 at just £850,000. Indeed, since 2005 there have been net sales proceeds of £16 million, largely derived from the big money sales of Craig Gordon to Sunderland, Roman Bednar to West Brom, Christophe Berra to Wolves, Lee Wallace to Rangers and Paul Hartley to Celtic.

Given the limited budgets in Scottish football, this lack of spending is not too surprising with only the “Big Two”, Celtic and Rangers, having the resources to spend reasonably large sums. That said, over the last five years, nobody has spent less than Hearts.

Nine of the current 12 SPL clubs have net sales over that period, but Hearts lead this league table with net sales of £18 million. Of course, this could be considered as a sign of good financial management, but it does mean that Sérgio, like many managers before him, is likely to be disappointed if he expects to see any big money purchases.

This tight-fisted approach is not just down to the whims of the owner, but is also symptomatic of the financial pressures under which Hearts are operating. Only this week the club was threatened with a winding-up order by Her Majesty’s Revenue and Customs (HMRC) over an unpaid tax bill for the second time in two years. Although this was swiftly paid in full, as happened on the previous occasion that they faced administration proceedings, this is clearly not good news.

Fans have become all too accustomed to the club sailing close to the wind with many reports of wages and bonuses being paid late, but these frequent cash flow problems are not exactly an indicator of a thriving business. You only need to ask the fans of Dundee, Livingston and Gretna to appreciate that football clubs in Scotland can enter administration.

Indeed, the club itself states that it “does not have formal funding facilities in place that allow it to meet its liabilities as they fall due” and is “dependent on the continued support of UBIG.” That’s fine, so long as the money continues to be pumped in, though the auditors have regularly noted their concerns in the accounts, partly attributed to the lack of available information that might allow them to conclude that UBIG would be “able to meet its commitment.” In plain English, they don’t know whether UBIG can provide the club with enough money to pay its bills on time.

The fundamental problem is that Hearts make colossal losses, at least for a club of this size. The apparent recovery to break-even in 2010 is misleading, as this is almost entirely due to the debt forgiveness of £7.9 million. If this once-off factor were to be excluded, the club made an underlying loss of £8 million last season and completely unsustainable cumulative losses of £38 million in the last five years. The figures would be even worse without the substantial £10 million profit on player sales in 2008, largely Craig Gordon.

Although these losses might not seem that terrible compared to some made in other leagues, they need to be placed into context. A loss of £8 million on turnover of £8 million means that the club spends £2 for every £1 of revenue it generates. A similar business model would have produces losses of £62 million at Celtic and £56 million at Rangers in 2009/10.

Another problem that the club has is the large amount of interest charged. Again, this might only be £1.6 million in 2010, but this represents 20% of Hearts’ revenue of £7.9 million and is clearly too high for a business of this scale.

In fairness, there have been some slight signs of improvement with the operating losses (excluding player sales and interest payable) falling from £11.8 million to £6.9 million in the last three years, despite revenue declining in the same period. This is because the club have cut the wage bill and managed to introduce some operational efficiencies (seen in Other Expenses). They’re still a long way off their stated aim of “reaching operational break-even in the medium term”, but at least they’re heading in the right direction.

Even with the debt forgiveness, Hearts have the second highest losses in the SPL over the last two years with £8.6 million, only surpassed by Rangers. Excluding the debt forgiveness in 2010, Hearts would have comfortably held the unwanted title of least profitable club in the SPL. To be fair, only three clubs were profitable during this period, namely Hamilton, Hibernian and St. Mirren, though five other clubs restricted their losses to below £1 million.

This poor financial performance is all the more depressing when you consider that Hearts have the third highest revenue in Scotland with £7.9 million, just ahead of their local rival Hibernian and Aberdeen, who both have turnover of £7.1 million. This goes some way towards explaining Romanov’s expectations of the team, though they are still miles behind the Old Firm, who enjoy revenue around £60 million.

This revenue is obviously a lot lower than their counterparts in the Premier League, but more worryingly it is also worse than all but two teams in the English Championship. Indeed, clubs like Cardiff City, Leicester City and Ipswich Town generate twice as much revenue as Hearts, even without the benefit of parachute payments from the Premier League. Little wonder that players head south at the first opportunity.

Hearts’ plight has not been helped by the fact that their revenue has actually been declining from a peak of £10.3 million in 2006 and 2007 to last year’s £7.9 million – a fall of only £2.4 million, but that’s almost a quarter of the club’s revenue gone. Three years ago the Heart of Midlothian Shareholders’ Association warned, “The club needs to generate more revenue and that is difficult in the short-term”, and how right they were. In fact, revenue is now lower than 2005 levels.

Two other points are evident from this graph. First, the club’s revenue is to a certain extent linked to success, as the year when the club finished second in the SPL and won the Scottish Cup produced revenue of over £12 million. Second, Hearts earn half of their revenue from match day income, which is different from many other leagues, where TV money rules. As the PwC review stated, “The majority of the income for Scottish clubs is actually coming from fans coming through the turnstiles.”

Hearts’ accounts proudly refer to match day revenue increasing to over £3.9 million, but the reality is that this is 27% lower than the £5.3 million generated in 2006. The fall is partly because of shorter cup runs, but is largely due to a significant reduction in attendances from just under 17,000 (almost full capacity) to 14,484. which further declined to 14,185 in 2010/11.

Nevertheless, crowds have increased since 10 years ago and Hearts are the third best-supported team in Scotland, only behind Rangers 49,000 and Celtic 45,300, for the sixth year in succession. They are also only one of three teams in the SPL to fill more than 80% of their stadium’s capacity, which is pretty good in the current tough economic climate. This might be due to the relatively low cost of watching football at Tynecastle. According to a recent BBC survey, only four teams in the SPL are cheaper. However, the good news end there, as every single team in the Premier League and 18 teams in the English Championship had higher attendances.

One reason why gate receipts are so crucial is the incredibly small amount of television money received for the Scottish Premier League rights, which worked out last year at £1.5 million for Hearts. In the SPL 48% of the TV revenue is divided equally, while 52% is distributed to teams dependent upon their final league position, so the higher up the table that a club finishes, the more money it will receive.

While TV revenue has powered revenue growth in other leagues, this is clearly not the case in Scotland. This disparity can be seen by looking at the TV revenue earned by clubs in the “Big Five” leagues, which absolutely dwarf Hearts’ revenue: Barcelona £146 million, Milan £116 million, Manchester United £105 million, Bayern Munich £68 million and Lyon £64 million. Scottish clubs can be boosted by European revenue, but even Ranger only earned £18 million, while Celtic’s adventures in the Europa League only added £1.5 million to their domestic revenue.

In fact, the entire annual payment to all SPL clubs is only £13 million, which puts them behind TV deals in Greece, Portugal, Poland and Romania. To place that into context, it is less than a third of the £40 million that the team finishing bottom of the English Premier League can expect to receive this season. A still more amazing statistic is that the total SPL payment is worth only 1% of the Premier League rights. Actually, even a club in the English Championship now earns more than a club in the SPL with £3.5 million a season (including the solidarity payment from the Premier League).

The situation was not helped by the collapse of Setanta last year. The upstart Irish channel was replaced by a combination of Sky and ESPN, but there was a harsh price to pay, as the new deal was worth only £65 million over five years, compared to the previous £125 million over four years. Sky had offered more than twice as much the year before, but the SPL clubs got greedy and gambled on the higher Setanta bid. There is some optimism, as there is a break-clause in the current TV deal after three years, and rival broadcasters might be encouraged by an increase in viewing figures, as outlined by SPL chief executive Neal Doncaster, “Early indications this season are that TV viewer numbers for SPL matches are well up on last year, which in turn showed a huge improvement on the year before.”

Commercial income had been on a rising trend, but has been shrinking in the last couple of years, falling 44% from £3.3 million in 2008 to £1.9 million in 2010, even though the 2009 accounts confidently stated, “Hearts expect to improve commercial revenues.” In fairness, PwC’s annual review of Scottish football noted that the global downturn had impacted discretionary spending on corporate sponsorship, hospitality and merchandise.

After six years of their shirts being sponsored by Romanov’s bank Ukio Bankas for a “six-figure deal”, Hearts have a new two-year agreement from this season with short-term loans company Wonga. Financial details have not been divulged, but the club say that it is the biggest deal in Scotland outside of the Old Firm. Their shirt manufacturer Umbro has extended the original three-year deal for a further two years until 2012. According to the club, this “could be worth almost £1 million per year, depending on shirt sales.” The latest accounts also “expect improvement” from the new retail franchise agreement with SRM Hearts Limited.

One of the toughest issues for Hearts is their hefty wage bill. At £9.1 million, it is the third highest in Scotland, but to a certain extent is in “no man’s land”, as it is a lot lower than Celtic (£36.5 million) and Rangers (£28.1 million), but is twice as much as their main opposition: Hibernian £4.8 million, Aberdeen £4.6 million, Kilmarnock £4 million, Dundee United £4 million and Motherwell £3.4 million.

The dilemma is whether to try to hang on to the coat tails of the Big Two in an attempt to meet Romanov’s aspirations, when doing so leads to an unsustainable wages to turnover ratio. It looks like this was their strategy in the first part of Romanov’s reign, when the wage bill exploded from £4.5 million to £12.5 million, but since then the taps have been turned off, as the wage bill has been cut three years in a row, though it is still more than double the amount before his arrival, partly due to Hearts having one of the largest squads in the SPL.

The accounts do specifically mention the “exit of some of the club’s higher earners”, including the likes of José Gonçalves, Michael Stewart, Christian Nadé and Laryea Kingston. This trend is likely to continue in 2010/11 “as a number of players reach the natural end of their contracts”, demonstrated by the hard line taken by the board during contract negotiations with Žaliūkas.

The reduction in wages has lowered the wages to turnover ratio, but only from 126% to 115%, which is still hideously high. To place that into context, it is even more than big spending Manchester City (107%), while the next highest in Scotland is 76% from Motherwell and St. Mirren. Indeed, the average in the SPL is a respectable 61%. If Hearts wanted to lower their ratio to UEFA’s maximum recommended limit of 70%, they would either have to increase revenue by an unrealistic £5.1 million to £13 million or (more likely) cut their wage bill by a further £3.6 million to £5.5 million.

That, of course, would bring its own issues, as Hearts would then struggle to attract and retain good quality players. Recently, two prominent Scottish strikers have moved to England, rejecting offers from Rangers in the process, starkly highlighting the problem: David Goodwillie went to mid-table Premier League side Blackburn Rovers (wage bill £47 million), while veteran Kenny Miller joined Championship team Cardiff City (wage bill £17 million).

More encouragingly, Hearts have managed to cut their operating costs by over 40% from £7.7 million in 2007 to £4.5 million last year. Even though there was a slight increase in 2010, the club say that “these are expected to reduce significantly in the current financial year following a series of improvements.”

Nevertheless, the continued support of Romanov is still paramount, as can be seen from the cash flow statement. Sometimes, poor figures at a football club do not reflect reality, as the P&L is affected by non-cash items such as player amortisation and depreciation, but this is not the case here, as the cash flow from operating activities is negative every year. Even in a year when a relatively large amount of cash is received from player sales, e.g. £9.3 million in 2008, this is not enough to turn cash flow positive. The only way this has been achieved is by Romanov’s company putting in additional loans: around £38 million since the takeover.

Another note of concern regarding cash flow is the huge increase in the average creditors payment period from 36 days in 2004 to 94 days in 2010. This might just be astute commercial practice of obtaining improved payment terms, but it could also be a warning sign that the club is having difficulty in paying its bills on time.

Perhaps the most puzzling aspect of Romanov’s involvement is the fundamental question of why he would invest in Hearts at all, as Scottish football is not exactly booming. Attendance levels keep falling (most of the stadiums are half-empty), they have one of the worst TV deals in Europe and commercial opportunities are suffering from the economic downturn. Although SPL profits improved in 2009/10, the PwC survey noted that if they excluded exceptional factors such as debt forgiveness and Rangers reaching the Champions League group stages, there were still large underlying losses and warned of “more pain to come as the league strives to find a sustainable financial footing.”

"Stevenson's rocket"

This has resulted in countless proposals to reform the game in Scotland, usually revolving around the number of teams in the league. The current momentum seems to be behind a reduction to a 10-team league, though the majority of fans would prefer a return to a larger division with 14, 16 or even 18 teams. The problem is finding a formula that somehow manages to eliminate the tedium of teams playing each other four times a season without reducing the number of games (with its consequent impact on revenue) and/or imposing an artificial structure, such as the mid-season split. Other possibilities include a winter break, a move to summer football and an earlier start to the season.

Some insight into Romanov’s strategy was provided by the 2007 annual report, “Future revenues will be generated through increased participation in European competitions, larger attendance in a redeveloped Tynecastle stadium and an associated greater sponsorship and retail income.”

However, the European dream seems further away then ever after the drop in the UEFA coefficient, which means that Scotland now only has one place available for the Champions League (and that is only for the qualifying rounds, no direct entry). Furthermore, it will be a long time before Scotland gets back up to two places, as the calculation takes into consideration the last five years, so next year will drop the very successful 2007/08 season, which featured Celtic reaching the last 16 of the Champions League and Rangers being UEFA Cup finalists.

"John Sutton heads for the heights"

Paradoxically, this might actually work in Hearts favour, as the Old Firm’s revenue has been badly impacted by reduced involvement in the Champions League, which means that they can no longer attract the calibre of player that they could in the past, theoretically making the title race more competitive.

If Hearts were to reach the Champions League group stages, it would make a massive difference to their revenue. In the last two seasons, Rangers received an average of £15 million from UEFA, excluding additional gate receipts. The Europa League is nowhere near so lucrative with Celtic only receiving £1.5 million from their 2009/10 participation. That said, the speed with which Hearts sold out their glamour tie in the Europa League against Tottenham Hotspur demonstrates that the appetite in Scotland for watching top players remains undiminished, as did the astonishing 58,000 crowd that watched Hearts play Barcelona in a pre-season friendly at Murrayfield in 2007.

Romanov has wanted to redevelop Tynecastle for some time with a planning application submitted in 2008 for a £51 million development that would include a new 10,000-seat main stand and other facilities such as a hotel, restaurant, offices and corporate hospitality. At the time, the deputy chief executive said, “The project will enable the club to be self-sufficient in the future and naturally to reduce the debt to zero.”

"Home is where I want to be"

However, the club’s statements in this area have often appeared overly ambitious, as the plans have been scaled back pretty much every year. The 2006 accounts spoke of turning Tynecastle into “a truly top class European football venue” by increasing the capacity to 26,000, which had been lowered to 23,000 in the 2007 accounts and 20,000+ the following year – which also said that the new main stand would be fully operational for the 2011/12 season…

Although the 2010 accounts continued to focus on “revenue generating opportunities through a redeveloped Tynecastle”, they did also note that the planning application had been unable to progress because of restrictions placed on the stadium zone, so it was perhaps no surprise when the club announced in May that it was going to formally revisit the possibility of selling Tynecastle and moving to a new, purpose-built stadium in Edinburgh, though the reviled Murrayfield is apparently no longer an option.

Frankly, the financial projections around this project have never been entirely convincing. Even though the club would be able to reduce its debt by selling their stadium, it would have to raise much more to build a new stadium, which might prove difficult in the current credit crunch. The club would hope that a significant chunk of the funding would come from other companies who would want to avail themselves of some of the commercial opportunities, but the only realistic source of financing might prove to be a certain Lithuanian bank.

"David Templeton - example of Project Youth"

The club would also have to write-off £1.4 million of costs so far incurred in the plans to redevelop Tynecastle, which are currently sitting on the balance sheet, booked as “assets in the course of construction.”

It looks increasingly likely that Hearts will have to rely on profitable player trading to balance their books, so they have invested in their academy, as any money received for players developed in-house is a pure gain in the books. The success of this strategy can be seen through the emergence of Lee Wallace, Andrew Driver, Eggert Jonsson, Calum Elliot, David Templeton and Scott Robinson.

Some have put forward more scurrilous suggestions to explain Romanov’s investment, such as Hearts being used as a vehicle to launder money, especially after Ukio Bankas was involved in such an investigation in Belgium last year. If this is the case, then it is a particularly ingenious scheme, as little money appears to be going back to Romanov or his companies. Interest charged on his loans is not paid, rather it is accumulated as additional debt. In fact, much of it has been written-off, including £2 million in 2010 alone. Admittedly, there is a raft of related party transactions, but the money involved is small beer.

"A message to you, Rudi"

There has also been conjecture that Romanov’s involvement in Hearts is an elaborate way to curry favour with the natives, so that they would look favourably upon his application to open at branch of Ukio Bankas in the UK, but no licence has been granted to date with Romanov complaining, “This is another example where the contribution to the economy is not wanted.”

Maybe he considers Hearts as a good place to showcase the talents of Lithuanian footballers, as many have been transferred or loaned from FBK Kaunas to the Scottish capital. Or is it just a plaything, where he can give his family and friends good jobs in the world of football?

Whatever his motives, Romanov’s actions resemble more those of a traditional benefactor, rather than a hard-headed businessman. That’s fine, while he is around and his other companies provide enough funds to support the football club, but the concern is that the club would collapse (in the same way that Gretna did) if he left for any reason.

"Eggert Jonsson - value for money at Iceland"

There seems little chance of Romanov ever getting his money back, as it is difficult to imagine that he would find someone to take the club off his hands, unless he substantially reduced the price. Even then it would hardly be a fait accompli, as the club’s business model in its current form is unworkable. As a pertinent comparison, it took Rangers an eternity to find a buyer.

In fairness to the owner, he has been at the club for nearly seven years now, so he cannot be accused of being “here today, gone tomorrow.” Under new manager Paulo Sérgio, the club has had a couple of encouraging results, but the most important man at the club remains Vladimir Romanov, a man maybe best summed up by Winston Churchill’s famous quote, “a riddle wrapped in a mystery inside an enigma.”


  1. One possibility not mentioned much, but by far the most sensible (imho) is to completely dissolve the entire league and amalgamate it with the english one. It is clear that our tiny country cannot support high quality teams any longer. However, if clubs such as hearts, celtic and aberdeen were competing in England TV money would rocket upward. Given their size, massive support base and modern stadia, i don't think it is unreasonable to dream that they could become two of the best clubs in the world.

    If we take smaller market teams such as Hearts and Hibs and compare them to those south of the border, reasonable comparisons would include the Sheffield or Bristol clubs. Their revenue would greatly increase as would their ability to attract higher quality players and pay off their debts.

    I'm sure somehwere such as Abderdeen would be an extremely difficult away day for any team, and again, with minor improvements, I'm sure given Aberdeen's size etc it could become a viable championship club.

    There doesn't seem to be any strong arguments against this proposal. One is that it would be too far for southern English clubs to travel. But there are longer distances travelled by teams in the German, French, Spanish and Italian leagues every week already, leave alone those in Russia or the USA. THe real sticking point seems to be the obstinate SFA which is totally against the idea as they would likley be advocating that their whole raison d'etre be done away with. Added to that the SNP government in Scotland and the complex issues with the national team and UEFA rules and it appears Scottish football will forever be stuck being the embarrassment it is right now.

  2. I would tend to agree with Alan MacLeod. One thing that could be done is the much talked about Premier League 1 & 2 comprising of 16 teams each, and then a Division 1... and split the lower divisions into Div 2 North & South etc - alleviating the potential travel problems.

  3. An excellent article, particularly the analysis of what all that debt actually means, and the eye-watering interest on it.

    There's a more flippant analysis of the situation at Hearts here:

  4. Whilst I can well understand why certain Scottish clubs would welcome a merger into the English League system and, indeed, Celtic and Rangers would prove an attractive prospect to Sky's "Super Sunday" presentations providing a bit of Anglo/Scottish spice to the hype.

    I find it more difficult to see how their arrival would prove attractive to the Wigans/Blackburns of this world!

  5. Fantastic post, incredible work. Thank you.

  6. Brilliant stuff. Very in-depth.

  7. poor article. you try to compare the scottish and english leagues.. then say scotland has the worst tv deal in europe? i would be curious to know if there is any country in europe who has a population of 5mil and gets more than scotland does....?

  8. sorrry, it wasnt poor as i just said was a good piece of work on the whole just felt it was a little negative at times... interesting read :-)

  9. @Anonymous (4:42),

    I wish that it wasn't so negative, but it's difficult to be overly optimistic when clubs face so many revenue challenges with attendances falling, tight marketing budgets and, yes, a small TV deal.

    You're absolutely correct that this is not too surprising, given the relatively low population. As Celtic chief executive Peter Lawwell said, “The fact of the matter is that in a Scottish nation of five million people, the media values are very low.” However, the point is that this makes it almost impossible for SPL clubs to compete, even with clubs in the English Championship.

    That's not intended to be a slight on Scotland in any way, just an easily understandable comparison to highlight the challenges that are faced by teams in the SPL.

  10. Your debt figures in the second table have Rangers and Motherwell the wrong way round.

  11. @Anonymous (6:50),

    You're absolutely right. Now corrected. Thanks for pointing that out.

  12. i think that the gap between spurs and hearts last night was massive, and its only wehen you see a game like that you realise the gulf in quality between the two sides. spurs were absolutely fantastic imo.

    theres something depressing about the likes of hearts entering the competition just waiting until thye come against a team that will pump them. i wish all the small country teams (holland, portugal, scotland, belgium etc) just get together and went on strike until uefa does something about it. i realise that probably goes against economic theory / devalue the competition for the big country teams but would maybe work.

  13. IIRC Oscar Wilde was a keen horseman in his youth in Ireland, but he did indeed say "football is all very well as a game for rough girls, but is hardly suitable for delicate boys".

  14. Hi. I read your blog for some time now and am curious what sort of university qualification you hold and how did it impact your career. I would appreciate if you could share this information as I would like to enter the world of finance but don't really know where to begin. Thanks

  15. Excellent piece although, as a Jambo, rather scary.
    The doomsday scenario we constantly have thrown at us by fans of other clubs is that Romanov will sell the ground and simply walk away.
    I personally dismiss that as nonsense but what do you believe would be the most financially sound option for him; continuing to service our debt in the hope we can grow as a concern or simply selling all assets and attempting to wind up the business?

  16. @Anonymous (1:16),

    I have an economics degree from the LSE plus I am a qualified accountant. As I was not overly keen on auditing, I joined a multinational as a graduate trainee in their finance department, studying for CIMA (Chartered Institute of Management Accountants).

    To be honest, most of my knowledge comes from finance roles in multinationals, including CFO, Finance Manager, Head of Strategy & Planning, Risk Management and (ironically) Audit.

  17. This is a fantastic read and should be compulsory reading for all Hearts fans. As a note if 14000 fans put a tenner each away a month and invested said sum and set the investment up in trust, is it reasonable to think that in the not too distant future the Trust would have enough money to buy the club from Romanov? How much would it cost to buy Hearts in the first place anyway?

  18. Hi. Thanks for the answer Rambler. I just want to let you know that your blog made me realize the career choice I should have made years ago. I've been studying at the uni to become an engineer and as it didn't excite me I left after a year and came to England. I'm enrolling for aat in September and I was thinking of doing a degree next year in either mathematics with finance or mathematics with business at university of manchester (I know, an awkward place for an Arsenal supporter, but that's where I've landed). But as there are other choices (e.g. economics) it's hard for me to decide what's best for me. Thanks for the inspiration though.

  19. Rambler, A request. I know this is not best place to put this. Can you comment on 5 new commercial deals that Arsenal have signed. Esp Bettson deal vs ManU's Betfair (considering Betsson's revenues are less than 1/13th of Betfair's). Are these deals are at market value?

    The United have about 23 sponsors, though admittedly most are with telecommunication companies across the world for regional partnerships. Is there a delay in signing deals with the team hoping for on-field success next year or is it lack of takers for Arsenal brand?

  20. Another excellent insightful read, well done. I would love to see a piece on Athletic Bilboa. Their ownership structure, Basque only player policy and their proud record of never having been relegated from La Liga make them a unique club, and they seem to be in good financial health while most spanish clubs are struggling.

  21. Given the huge reliance on fans through the turnstiles for revenue in Scotland, for a club the size of Hearts, it would seem that qualification for the Europa League would make a massive difference financially. Two home games in qualification and then another three home games in the Group, with an average of 15,000 at each match would bring an additional 75,000 fans paying between 15-20 pounds - more than a million pounds of additional gate money, plus the 1.5 million in TV money - all up an increase of 2.5 million - which on a present turnover of 8 million is big apples indeed.

  22. Matchday revenues for Hearts in 04/05 were higher than 09/10 even though average league attendances were 2000 lower. This was entirely due to qualification to the UEFA Cup group stages - with combined crowds of nearly 80,000 watching matches versus Schalke, Ferencvaros and Braga.

    In 06/07 the three home matches in CL qualifying and UEFA Cup qualifying brought in an extra 80,000 fans.

    Regular Euopean football is a MUST for Romanov - along with selling his best players.

  23. Hi Swiss Rambler, this is a really excellent and thorough analysis. As a Hearts supporter living in Switzerland, I'm intrigued as to why you chose to write about Hearts. By the way my French (Arsenal supporter) colleague is a big fan of yours and sent me the link, so this is my first visit.

  24. @Anonymous (12:25),

    4 reasons for writing about Hearts:

    1. An interesting story with Romanov.
    2. Quite a few people asked me to look at them.
    3. It was a while since I had written about Scottish football.
    4. It was reasonably topical, as they were playing Spurs in Europe.

  25. a wish people would just see tht romanov is killing hearts

    miss u jimmy :(

  26. nother excellent insightful read, well done. I would love to see a piece on Athletic Bilboa. Thanks sharing...


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