Hearts in administration: Tynecastle deal key

Many members of the Hearts squad, pictured with former manager John McGlynn, are set to leave. Picture: SNS
Many members of the Hearts squad, pictured with former manager John McGlynn, are set to leave. Picture: SNS
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REACHING an agreement on the future of Tynecastle Stadium has been labelled the biggest hurdle administrators face – once a dramatic courtroom battle to decide who wins the essential role is resolved.

While news of who will guide the club through administration is awaited, details of a new UK-based bid are revealed today as the supporter-driven bidder Foundation of Hearts also announced it had crashed through the 5000 mark for cash pledges.

Edinburgh South Labour MP Ian Murray, the foundation’s independent chairman, said the pot of money raised through pledges would be used to keep the club running – not just buy it – if a takeover bid proved successful.

Administration expert Julie Palmer, council member of the association of business recovery professionals R3, said a deal must be cut on the stadium – thought to be worth £5m – for an administrator to realistically be able to sell Hearts.

That vital step can only be taken following a tense court battle to decide who will land the task.

A decision as to whether Ukio Bankas, who are owed £15million by the club, or Hearts will be allowed to appoint their choice of administrator could come as early as today or by the end of the week at the latest.

But Ms Palmer said potential administrators will already be readying themselves for the task by analysing the copycat plight of similar-sized footballing strugglers Portsmouth. Pompey plummeted from the English Premier League to the fourth tier on the back of twice going into administration.

Like Hearts, the financial rescue of the two-time FA Cup winners involved satisfying several foreign creditors and overcoming the problem of the club not owning their home ground.

But in an encouraging outcome for Jambos fans, Portsmouth have since emerged from a two-year financial hell as the largest fan-owned football club in English football history.

She said: “One of the complexities of the Portsmouth administration was trying to agree a deal on the value of the ground with the parties who held it outside of the security of the club. “They were hoping the ground owner would accept a reduced value, but they were threatened with an application to go to court to establish what the true value of the ground was.

“That’s a real added complication for Hearts. They’ve got a secured creditor in there who is quite rightly going to look after their position as best as they can and who holds quite a few of the aces up their sleeve.”

Club parent company Ukio Bankas wants to appoint BDO while accountancy giants KPMG are the club directors’ preferred choice.

Gintaras Adomonis of Lithuanian administrators UAB Valnetas last night confirmed he has approached BDO to ask it to prepare to take control of the club, which has run out of money to pay a tax bill.

It is believed the Lithuanian request could be granted, given Ukio Bankas holds a floating charge over the club’s assets, including Tynecastle Stadium, and thus has the final say on the club’s immediate future.

Despite this, Ms Palmer said KPMG would have been advising the club’s directors “for some time” and working behind the scenes on a plan before their announcement on Monday as the preferred administrator.

She said that whoever wins the tussle any administrator would be unlikely to axe further players from Hearts “bare bones” 26-man squad because of the need to keep the team competitive and maintain goodwill among supporters.

“One of your key things is that you don’t do anything that’s going to harm the goodwill of the club and harm your ability to sell it off as a going concern,” she said.

Ms Palmer added: “One of the challenges in dealing with your interested parties is that whenever you’re trying to sell any type of business, you’ll get a lot of what we call tyre kickers.

“It’s people that are keen on buying the business that don’t really know how to go about it or don’t have the funding to do so.

“One of your early roles is to sort through everyone and decide who are the seriously interested parties that you might be dealing with.

“You get letters of confidentiality signed in terms of information about the financial running of the club.

“You’ll probably need to enter into early discussions with whoever looks like being one of the front-runners to enter into a period of exclusivity to buy the club.”

A preferred bidder would be expected to make a substantial contribution to cover Hearts’ running costs while the administrator was still in charge.

It’s estimated the club needs £500,000 to keep operating until the start of next season.

Football finance expert Rob Wilson, from Sheffield Hallam University, predicted a court would side with KPMG rather than BDO when ruling on administrators given the former was one of Britain’s big four insolvency agents.

Of an appointed administrator’s first steps, Mr Wilson said: “They have to look at everything in the financial statements, anything that’s coming in in terms of income and any expenditure going out, whether that’s staff-related, maintenance of facilities, training grounds, the stadium.

“They’ll also look at the balance sheet to see what the organisation owns in terms of fixed assets.”

Gorgie businesses watch and wait for outcome of crisis

THE club’s dance with survival has been met with pragmaticism by some Gorgie businesses – but the impact on back-room staff and contractors could prove disastrous.

Groundsmen, PR executives and kit men face the threat of redundancy alongside around 30 full-time employees – all non-playing personnel including coaching staff and manager. In addition the club’s successful charity arm, the Big Hearts Community Trust, which oversees a swathe of outreach programmes including musical tutelage, training sessions and even adult learning workshops also faces an uncertain future.

But away from this maelstrom of uncertainty the bosses of a host of companies contracted to provide services such catering, printing, picture framing and even newspapers to the club, were keeping an open mind.

Award-winning match day programme designer and marketing firm 442 Sports Ltd has worked with Hearts FC for several years and are owed around £1500 by the club.

Brian Stock, creative director for 442 Sports Ltd, said his firm wouldn’t “catch a cold” over the outstanding debt and while having an outstanding balance might “hurt”, he spoke highly of the “good relationship” they enjoy with Hearts.

Mr Stock said: “Anything like this in business is concerning but the reality is we have always had a good relationship with the club and the people who run the club, not so much the board of directors and the owners who we don’t know so well. They have been very supportive of us as we have been of them.

“We want it resolved as any fan would. What has happened could be a good thing in some ways as it would flush everything out, they can look at new owners and get back on track.”

Picture framer Mike McCrae, based in Gorgie, mounts team jerseys for the club once a fortnight, which are given to match-day sponsors. He said: “I frame marginally more Hearts stuff than anyone else but they are certainly not even half my football-framing business. The takeaways do well on match day as do the local stores but now the club shop is off the Gorgie Road it doesn’t generate much footfall for us.”

A stone’s throw away on Angle Park Terrace, Kevin McGhee, who runs the popular Hearts pub the Athletic Arms, said: “The big catch is what would happen to the stadium if Hearts went bust. I’m hopeful it will be business as usual but we just don’t know.”

It has also emerged the club owes £17,416 to the Scottish Police Authority. This sum is thought to cover the last four home games of the season and the police now expect to work with the administrator for any future policing requirements.

What’s next for Hearts?

• Slashing non-playing staff is the first option for cutting costs. Hearts have 30 full-time and 65 part-time staff that fall into this bracket. Employees will be asked first if they want to take a wage cut or deferral. Redundancies may then be offered. Administration staff will be chosen for mandatory job losses, not coaches.

• One of the administrator’s main roles is managing the interests of all creditors. UBIG owns 50 per cent of shares and Ukio Bankas 29.9 per cent, Switzerland-based Quantum Holdings holds another 15 per cent stake. The administrator would make a reduced offer like £8 million to Ukio Bankas to write off the £15m owed by Hearts.

• Agreeing a value for Tynecastle Stadium with Ukio Bankas, which holds Tynecastle Stadium as security for £15m of debt, is a priority. A real estate agent will be called in to value what the stadium is worth. If that figure is much higher than the worth of the entire club, the stadium’s sale on its own will be considered.

• A decision will be made on whether it is worth losing fans’ trust by not honouring purchased season tickets. About 7000 tickets have been bought for the new season. Caution is likely if financial institutions have chosen to freeze the transfer of funds to Hearts from ticket sales to cover potential credit card claims.

• The administrator will be keen to keep supporters on-side and convince interested buyers the club can survive. That means chopping the 26-man playing squad becomes a last resort. An independent football agent will be called in to give player valuations. Players will only be sold if sale of the overall club is not possible.