HEARTS were heavily in debt when Vladimir Romanov took a controlling interest in the club in 2005, and they remain heavily in debt today. The key difference between now and then is that whereas under former principal shareholder Chris Robinson they were mainly indebted to Halifax Bank of Scotland (HBOS), their primary creditor now is Romanov's own company, Ukio Bankas Investment Group (UBIG).
For as long as UBIG is able and willing to underwrite Hearts, the club is safe. The ability may have been called into question by last week's non-payment of players' wages, but the willingness was restated in emphatic terms at the end of July, when a
n emergency general meeting of shareholders approved a £12million debt-for-equity conversion.
Put simply, this meant that more than 34 million new shares were created in Hearts, and that UBIG took control of the lot. The new shares diluted the holdings of existing shareholders, but with Romanov by far and away the biggest shareholder, the move had no effect on his control of the club.
As a result of the new shares being issued in exchange for debt, the club's debt went down from a last reported figure of £36m to £24m. Everything else being equal, the position will be further improved in the next set of results, which will include the transfer of goalkeeper Craig Gordon to Sunderland for £9m.
The long-term plan of Romanov and his UBIG colleagues is to move Hearts into profitability, but even when the money for Gordon is factored in, the club will still have a debt which it is impossible to see it trading its way out of anytime soon. Indeed, UBIG's project of building a new main stand at Tynecastle foresees that debt increasing massively before steps are taken to drive it down again.
Romanov believes that major success on the field will increase revenue from several different areas, including gate receipts, sponsorship deals, merchandising and the sale of broadcasting rights. But recent cost-cutting in the playing squad has left that success appearing as far away as ever.
Under new manager Csaba Laszlo the team has performed better this season than last and at present sit in third place in the SPL. But the current side does not compare favourably to the squad which hit the top of the league under George Burley in the early stages of the 2005-6 season.
Although some young players have shown promise, none has yet displayed the kind of form and talent which saw Gordon's value in the market rise dramatically. Christophe Berra, the club captain, and Andrew Driver, a winger, have attracted interest from English clubs this year, but the sums mentioned have been £1.5million and £750,000 respectively, not enough to make much impact on the current scale of Hearts' finances.
If UBIG withdrew its support or was unable to continue its support, and Hearts were forced to repay their debts, the sale of leading players would not be enough. They would then have to consider the "solution" offered by Robinson – the sale of Tynecastle itself.
Given the current contraction of the property market, however, there is no guarantee that selling the ground would be enough to balance the books. A sum upward of £20m was the going rate when the Hearts board under Robinson agreed to sell it to a property-developing group, but the rate of construction of new houses has gone down considerably since then due to the credit crunch.
The full article contains 595 words and appears in The Scotsman newspaper.
