Hearts director says clubs can’t do it all on their own

SERGEJUS FEDOTOVAS pulls no punches assessing the state of Scottish football. His criticism is constructive and sensible. As a Lithuania-based director of Hearts, he is often on the outside looking in whilst clubs across the country clamber to stay afloat. Yet he is fully aware of the problems.

In the second of a two-part interview, Fedotovas today reveals his thoughts on how to improve Scottish football. From governance, to sponsorship, tax issues and salaries, Fedotovas gives detailed opinions and offers suggestions on how to remedy the problems in our game.

Finance is undoubtedly the main concern for every club, including his own.

“Scottish clubs are reflective of the wider European football landscape,” said Fedotovas. “Football continues to be a growing industry in terms of revenues, however the costs attached have, in European terms, increased at a greater rate in the last three years. The good news for football clubs and their owners and investors is that the average rate of revenue growth for the last five years has, in 92 per cent of cases, outstripped the national economic growth of the countries in which they play their football.

“However, the reason for the reported difficulties is that the pursuit of success and development leads clubs to often invest more than they earn. Across Europe, which is ultimately the benchmark against which we view Hearts, average revenue growth of clubs has been nine per cent per year for the last five years. However, those same clubs are reporting a 14 per cent increase in employment and net transfer costs.

“The situation in football is in many ways reflective of society’s issues – rich clubs turn richer and the poor clubs become poorer. The biggest problem is a shrinking income base. Clubs sell fewer tickets, less hospitality and less merchandise due to the general economic situation where households are cutting their spending.

“Another big issue is income from corporate clients. There are a couple of aspects here. The first one – existing legislation limiting businesses to use corporate hospitality does not help. The sales to business segment are considerably lower since the legislation on anti-corruption measures came into force. I am not sure how you can commit fraud by using Tynecastle hospitality that is several times cheaper than the hospitality of big Premiership clubs, for example.

“Another aspect is more problematic in my view. In Scotland, businesses have turned away from football. The corporate sponsorship is close to non-existent, especially for the clubs outwith the ‘big two’. The feeling is that local corporations just do not want to have relationships with football that is at the same time a significant marquee of Scottish culture. This is not right. This is a very serious issue and in my view the clubs in Scotland, with the help of football bodies and the government, must act together to address it.

“The next reason is the internal set-up of the league for revenue share. I believe that SPL clubs from outside Glasgow deserve a bigger part of the revenue for participating in competition where top clubs get access to UEFA income for achievement in the championship in Scotland.

“Top clubs must be more efficient in the way they spend the money and we have for a number of years seen it does not happen – participation in European tournaments was lost due to losing games against the teams nobody knew before. The budgets of those clubs are a fraction of any of their illustrious counterparts.

“Further is government attention towards the biggest sport in this country. We are able to see the examples where governments offer corporations incentives to invest and sponsor the clubs. We can see good examples of direct investment by central and local governments, by means of creating modern sporting infrastructure and even direct investment into local clubs, as a recognition of the impact and importance the clubs have for local communities and representation at international level. Scotland cannot show a lot of such examples, therefore we lack this competitive advantage. And a final important area is the taxation of football wages. There is a perception that a football club is just another business. This is a common phrase used by HMRC but in many aspects it is not. Where else do you find a business that creates three-year to five-year no-cut contracts with most of their employees? And this is the reality of football. Clubs invest in players and keep them to maintain the form of the team.

“It is not a secret that most players negotiate the amounts they are willing to get after tax, so clubs need to offer a competitive financial package to attract talent and in most cases tax falls onto the shoulders of the clubs. Salaries usually represent 60-85 per cent of the turnover, so the tax part in that is very significant and is usually around 50 per cent.”

Clearly, Fedotovas’ concerns run deep. Financial suicide cannot continue and Hearts are making definite efforts to live within their means following years of excessive largesse. “At Hearts we have made a conscious decision to invest money in the squad to compete at the top end of the table,” continued Fedotovas. “I am confident that we can argue we have been successful having won silverware and qualified for European competition in four out of the last seven years. Now we believe that the current economic challenges require that we maintain our focus on reducing the cost base while balancing that with maintaining a quality squad.

“It would be not right to say that the clubs are spending money they do not have. At least I hope it’s not like this. Clubs are planning for income and when these plans do not come to life, that is where the problems begin. I have outlined before where the pitfalls of Scottish football are in my view – lack of corporate business, falling gate revenues and TV money. Quality of Scottish football is falling and it has lost the trust of corporate business and governments.

“If we want Scottish football to improve, the clubs need to invest. No investment means no good TV contracts, no improvement of the game. Hearts have been blamed for delayed payments this season when our forecasts did not materialise, despite being regarded as realistic. I am sure that more clubs in Scotland face financial problems.

“We have been successful in adapting our business model to meet the changing economic environment. One of our main strategies has been the development of the best young players in the country and this will continue. However, again we must look at the bigger picture and if Scottish football can truly address its key challenges then this will set the framework for increased competition which, in turn, will lead to increased interest and profile which, in turn, attracts increased revenue streams through broadcasting, attendances and sponsorship.

“Investment in youth is an important aspect of the game. But it will not be so attractive to supporters without bigger names featured on the park. We need to create a system where Scottish clubs are as competitive as their counterparts from England.”

Hearts and the Scottish Football Association have not always seen eye to eye but Fedotovas praised the changed being made within the corridors of power at Hampden Park.

“The SFA is changing as an organisation. Both the president and the chief executive should be applauded for the work they are doing and Hearts are willing to play its part in assisting with the broad strategic aims of the SFA. However, it will need foresight and courage to truly deliver real long-term benefits for the game in this country and we hope that other clubs will accept their responsibility.

“They definitely can do more. I do not want to point fingers. Whole establishments of the game must do more: football clubs, governing bodies, partners, customers, supporters. Governing bodies are the bodies that are watching the situation and can unite the clubs for the right reason. I believe it is not the time to be modest and blindly follow the trend. Governing bodies must be smart enough to see the problem before it turns into a disaster, stand up and act quickly even if it requires an unusual solution.

“Rangers’ situation has shown certain problems and many clubs see punishing Rangers as a most important objective. Justice is very important, but lessons learned are more valuable. Rangers’ situation has highlighted issues that are much wider and Scottish football should not be narrow-minded and should not put all focus on the punishment, but address the roots of the problem.”

League reconstruction is some thing many believe would allow Scottish Football to grow and thrive, but Fedotovas believes a change in the SPL’s voting structure is key to many problems.

“A league system that provides more competition for the supporters to enjoy is the preferred option,” he admitted. “The debate of ten, 12, 14, 16 or 18 teams is to some extent of less relevance than the voting structure of the SPL. At present there is next to no democracy and any system that allows one or two clubs to block progress for the good of the game can be viewed as a flawed system.

“Certain proposals discussed have positive and negative impacts, but the progress is the most important thing and the clubs must be conscious about wider implications on football.

“We can have various set-ups that will perhaps attract some interest from media partners and may lead to improved contracts, but it is important to work on further global improvements, such as governance, democracy, transparency and justice in Scottish football.”