Birmingham City are the latest Premier League club to reveal
potentially worrying financial problems as a report admits
'significant doubt' over the viability of the club's holding
company just eight months after the much-vaunted takeover by Hong
Kong businessman Carson Yeung.
Yeung claimed that manager Alex McLeish would have £40million in
each transfer window to spend on new players when he took over the
club last October.
But the businessman has now been asked to give a written
assurance to the Premier League that he will keep the club afloat
this season with his own funds after an interim financial report
from the board for the period April 1, 2009 to March 31, 2010
revealed that the liabilities of the parent company, Birmingham
International Holdings, exceeded the assets by £31.9m.
Yeung has become a high-profile figure in the Premier League
with his bold promises of major investment in the team. But, so
far, the club have signed Ben Foster and Nikola Zigic for
undisclosed fees, brought in Matt Derbyshire on loan and Enric
Valles on a free transfer this summer and signed Michel for £3m
last January.
The Premier League are aware of the potential shortfall
highlighted by the interim report and, under new rules designed to
avoid another Portsmouth debacle, they asked Yeung for a written
guarantee that he will keep funding the club throughout the
season.
The interim report says that the 'situation indicates the
existence of a material uncertainty that may cast significant doubt
on the Group's ability to continue as a going concern and therefore
the Group may not be able to realise its assets and discharge its
liabilities in the normal course of business'. But the report adds
that discussions with banks over the company's loans and the
continued support of Yeung mean that the company is considered to
be sound.
A spokeswoman for Birmingham City said: 'We cannot comment as
the club is only a subsidiary of Birmingham International Holdings
but it would be wrong to suggest the club is in financial trouble.'
Birmingham International Holdings could not be contacted for
comment.
The warning in Birmingham's interim report comes in the wake of
Liverpool's accountants being forced to issue a similar statement
last year, the descent of Portsmouth into administration at the end
of last season and the financial meltdown of West Ham United under
their Icelandic owners, averted only by the purchase of a stake in
the club by David Gold and David Sullivan, ironically using money
earned by selling Birmingham to Yeung.
Yeung has promised the parent company's board that he will not
demand repayment of an interest-free £7.06m loan, a guarantee that
has satisfied his fellow directors that the company and club are
not in immediate danger.When Yeung took over at City in October, he
said: 'The £40m in the January transfer window is my commitment to
the fans.
'We have made that decision to spend the money to buy the
players. The money is in place and available. The priority for now
is staying in the Premier League. Next season we put [sic] more
than £40m into the team, making it much stronger.'
Birmingham have also revealed that the ongoing row between the
taxman and leading clubs over their players' image-rights deals,
which HM Revenue and Customs regard as an income tax dodge, could
cost City more than £5m.
The row is part of the taxman's war with football clubs, who,
they claim, have used image-rights deals, often paid to offshore
companies or in the UK at a lower rate of tax, to disguise what is,
in reality, part of the players' basic salaries. Manchester United
have admitted that HMRC are demanding £5.3m in tax owing to the
club's use of image rights, while Portsmouth are being pursued for
£13m. Rangers became the first Scottish club to confirm that they
were also subject to an investigation by HMRC regarding £5m of
image rights earlier this year.
All the clubs claim that image rights are legitimate and contest
HMRC's interpretation of the law. Final judgement on the matter
will be made later this year. But based on Birmingham, United and
Portsmouth's potential liabilities, Premier League clubs could face
a collective bill of £100m.
Birmingham also face a battle with the taxman over VAT they
claimed back from agents and have set aside an additional £1.07m to
cover themselves if the case goes against them.