Accessibility Page Navigation
Style sheets must be enabled to view this page as it was intended.

Beware of putting money where Hearts are

Zelda Zinger writes...

So, Mr or Ms Business owner: imagine money is tight - surely not too much of a stretch there. What do you do? Do you stop paying PAYE, National Insurance and VAT?

Not unless you are a suicidal maniac.

Yet this is exactly what the less than prudent owners of the Hearts of Midlothian Football Club have been doing.

As well as taking a fast and loose approach to paying wages on and off through the years, Hearts, owned by the Russian-born Lithuanian business man Vladimir Romanov, brought the club to the brink of collapse earlier this month having provoked HMRC to issuing a winding up order.

As a business strategy, these are clear failings. Romanov and his fellow directors seem to be accustomed to doing business in a different way than more typical UK-based small to medium sized companies do.

And yet, fans and supporters did not condemn this tactic and instead have rallied to the cause to raise hundreds of thousands in a “share issue” to stave off the tax man and keep the club going.

A director of the club, 36-year-old Lithuanian Sergejus Fedotovas, has praised the “support from political and supporter groups” in helping to save the club  - which despite best efforts is not a foregone conclusion, what with more tax bills mounting up to about £2m coming due.

So who is responsible for this sorry state of affairs? It is Fedotovas who is the go-to man for Hearts, rather than the club’s managing director, David Southern? The latter was promoted to the role in 2010 from having been the club’s director of communications, replacing Campbell Ogilvie. Despite the title, Southern is not actually a director of the club, indicating that it is well under the control of the Lithuanians who work for Romanov. The club is also chaired by Romanov’s 36-year-old son, Roman.

Scottish football has long been a rickety business subject to ownership of people with dodgy plans - as the Rangers saga has well shown. So in 2005, after years of commercial crises, Jambos supporters welcomed the arrival of Romanov with open arms, a veritable Slavic knight in shining armour who pledged to abandon plans to sell the club’s historic Tynecastle stadium under his ownership.

But what has emerged in recent weeks is that the armour on this particular knight is showing itself to be increasingly tarnished.  In the club’s most recent accounts - the year to the end of June 2011 - the club somehow managed to scrape a profit of £511,000. Except this profit was rather questionable, having been boosted by an £8.8m “debt forgiveness” deal on behalf of another Romanov entity, Natborg Projects Corp. The books also heralded a £10m debt for equity swap with Romanov’s Ukio Banko Investicine Grupe.

But even the group’s auditors - usually a very staid lot - used its statement on the accounts to sound a note of caution. David Homes of Johnston Carmichael complained that “information that may have enabled us to conclude as to whether UAB Ukio Banko Investicine Grupe is able to meet its liabilities as they fall due for the forseeable future was not made available to us.”

Clearly not all is well in the state of Lithuania. Just a few weeks ago, Ūkio bankas Group (prop V. Romanov with a 65 per cent stake) based in the Lithuania’s second city of Kaunas, revealed it had sustained losses of LTL 47.8 million (£11.1m).

At the same time a new chief executive and chairman, Arnas Žalys, took over from Gintaras Ugianskis, pledging to “enhance the bank’s profitability and performance efficiency and to improve the quality of assets”. It is questionable whether or not Mr Žalys will continue to consider Hearts and its £13.75m stadium to be “quality assets”.

Yet is clear that Romanov’s brinkmanship with HMRC has brought in the results. Fans managed to raise £250,000 in a week to hand over to the club directors. One 19-year-old fan, Connor Preston, told the Edinburgh Evening News that his first reaction to the crisis was feeling a need to “fill out my share application and buy some shares”. He added: “There’s been loads of divisions in the support under the Romanov regime but I think this has really helped bring everyone together. We’re a club united now and I love it.”  Shareholders in other UK SMEs, concerned with good financial governance and leadership, would probably run a mile from such share issues.


Fans of Scottish football would probably admit that the experience has always been the triumph of hope over experience. Now the same hopefuls are putting their money where their Hearts are.