So, just what was the atttraction of Hearts (or any other Scottish football club outside the Old Firm) to a bunch of Lithuanian financiers back in 2005 ? More than likely, the answer was money. It`s not that Hearts had any – far from it. We were broke, and about to slide into oblivion by selling Tynecastle just to pay off the HBoS and SMG loans. We were desperate – and UBIG saw the opportunity to capture a slave cash generator.
The loyalty of Hearts` 12,000+ customers – and the soaring price of land in a booming European capital city – meant that the club was a relatively safe buy from UBIG`s point of view, especially since the team already had 3 internationalists worth some money too. No need to actually win anything – just keep the club in the SPL, and the fans would stay loyal. Remember – Hearts were almost dead (financially), so keeping the club alive in a state of mediocrity would still be seen as a bonus in most people`s eyes !! Buying Hearts gave UBIG an entry into the UK financial sector too, and they fairly quickly announced plans to open a branch of Ukio Bankas in Edinburgh
There were other “win-win” aspects for them too. Their major shareholder Vladimir Romanov owned a Sports TV channel in Eastern Europe, as well as 2 other football clubs. In short, he could now indulge his passion for controlling people and feeding his ego on a bigger stage. He could play at being a Football Manager – and so long as the club stayed in the SPL limelight, a £10m income stream was guaranteed. We can only wonder if he ever regrets the turmoil that his meddling in team affairs caused, to the extent that the club fell woefully short of what it could have achieved – in football and income terms – from autumn 2006 onwards.
In the early years, Vladimir possibly did believe that he would unearth the next Beckham or Messi from deepest Eastern Europe. The X-factor talent spotting started with Mikoluinas and Cesnauskas – fairly cheap options, but the fans seemed impressed. Then the “stars” started to arrive for big money – well, big debt actually. In addition to guys identified by George Burley, Romanov organised for Messrs Fyssas, Tall, Camazzola, Beslija, Makela, Aguiar, Goncalves, Pinillla, Kingston and Nade to sign for Hearts at a cost of over £5m – and a HUGE wage bill. If they heralded a winning era for Hearts, Romanov would bask in the glory that it was all his handiwork. If they didn`t, then there was no real damage done – the manager would be blamed & then fired, and a new one brought in from Eastern Europe.
Maybe a new star would emerge from the string of Kaunas players being lined up to play for Hearts – how about Beniusis, Kancelskis, Barassa, Ivaskevicius or Ksanavicius ? OK, maybe not – but the loan fees still represented some nice extra income for the regime.
There were even suggestions that some shady characters lurked behind Romanov, ready to make money on sports betting and “fixing” his player transfer dealings. Just imagine – characters even shadier than Vladimir ?
From comments I`ve seen on media and fans` websites, there appears to be some Hearts supporters who still believe that the Romanov regime has injected millions into the club over these last 5 years in the pursuit of breaking the Old Firm dominance in Scotland. Sadly, the facts pour cold water on that statement. All spending has been added to Hearts debt – funded by loans from Ukio Bankas, which will have to be repaid at some point. Meanwhile Ukio make a healthy return in interest payments from Hearts. As for trying to break the Old Firm stranglehold in Scotland ? well, it`s possible that Romanov himself fancied that idea in the first year or two, but since 2007 it has been increasingly evident that such a notion (if indeed it ever existed) had been thrown out the window.
If it`s any consolation, we`re not alone in becoming a cash generator for greedy owners. Just look at Manchester United – despite having a massive annual income, they had to sell Ronaldo last year just to pay the interest on the £700m debt imposed when the Glazers took over. Sadly, any other analogies with the Red Devils are rather hard to find !!
In short, football clubs are seen as a “cash cow” by predatory investment groups, who can capture loyal revenue streams by buying one, and creaming some of it off.
The banks used a similar thought process about 8 years ago. Their “cash cow” was selling excessive mortgages, insurance and credit to individuals who couldn`t afford them. Not so long ago, banks wouldn`t have dreamt of doing such a thing, since it was just far too risky. Back then, it was people like Captain Mainwaring who ran banks. Then a new generation of “spivs” gained control and convinced boardrooms that forcing unreasonable credit on to individuals would yield huge profits for them. For a while it worked like a dream – profits and dividends soared, while short-sighted politicians basked in the glory of the “success” of the financial sector that they had created. But it couldn`t last – the whole complex chain was over-stretched to the point that what the banks were calling assets during the good times were in fact liabilities? and it was you and I who were called on to rescue them from their own incompetence and greed.
The recent Vital poll shows that over half our readers got a good laugh out of Sergejus Fedotovas`s recent Christmas interview, when he claimed that Hearts don`t carry a debt since “we owe it to ourselves” – adding that no “profit” was being taken from the club.
Nice try, Serge. But since UBIG are an investment group, their only motive must be to make money – and that`s exactly what they`re doing. Football “success” – as defined by the fans – just isn`t anywhere near the top of their agenda. It`s all about money.
Sergejus` claim that the owners are not taking money out the club may refer to the fact that none of the directors receives a salary from Hearts. Considering that upwards of £3m per year is being accumulated into debt owed to UBIG in one form or another, their directors are probably picking up a performance bonus for creating this “nice little earner” !! There is also a strong suspicion that players coming on loan from Kaunas to Hearts means registration/loan fees being paid to a company which Romanov has an interest in.
The £12m debt-for-equity move last year might look like a benevolent action by UBIG – but was basically a neutral transaction to improve the Hearts balance sheet so that our debts were once again covered by our assets. Prior to this, the club were technically insolvent in the eyes of the auditors. From memory, I think the initial loan to Hearts of around £16m falls due soon. How can a company which is losing money each year pay that back ? Exactly – they can`t. Cue a replacement loan, no doubt at less attractive terms. This cycle of providing more loans to keep the club functioning – which in turn means income for Ukio/UBIG – will probably keep on going, especially if they can see a healthy revenue stream ahead due to having a young player to sell each year for one or two million pounds. But what happens if they decide to stop the funding ?
In Part 3, we`ll look at some possible scenarios of what could happen to Hearts in the next few years.