Financial non-sense in Russia

In 2010-11 I was part of a project team which carried out a number of business case studies for client (including eight to ten football clubs). It was a boring, mundane job, devoid of excitement and normally had a turnaround of eight days.

The team averaged three to five specialists (depending on the club size or needs) and it always seemed to fall on my head to deliver the final presentation, which in Russia was almost always negative, and almost always received badly. However once it wasn’t and that one, unique time stands out for me. In just one of those assignments I could give bad news, be asked serious, professional questions and be paid AND thanked by the client.

I’d returned from what was described as a living, breathing hell assignment in the Mediterranean and eager to get back to decent work and the first proper client I’d to deal with came in October 2010. My former colleague, Ivan, is a lawyer and he brought in a mobile bookkeeper and accountant, Marat, to help us win a contract that could turn into something long-term.

The client, a First Division club, had money behind them and a decent history, albeit with gaps for bankruptcy and reformation. Zhemchuzhina Sochi had gone from the fourth to second levels in three years but the suspicion was they were being built like the Winter Olympics in the same region, looking good but lacking a long-term vision.

 

It would not be outside the realm of possibility that a club was being funded for political or short-term economic motives, Russian football is littered with such stories.

After initial dancing, they committed to a contract and we got to work quickly. Sochi, as most other clubs, were worried by the new challenge of playing a season and a half with only a single season reward on offer.

The Russian FA had declared that to better prepare for the World Cup in 2018, the Russian season would align itself with the big European leagues, it made little sense then and even less now.

However, our job was to try sort our clients out. To give them a realistic budget projection, explore alternative revenue streams and maximise those they already had, basically bringing business sense to a business normally without sense.

I flew down to Sochi in January to have a look-see to prepare the final report, I gave myself two days as all the financial and statistical information I’d had since December. Marat did his number crunching and emailed me his part, Ivan flew in on the day as support.

We met with the Director who’d commissioned us and some of his associates in a hotel which was, like most of Sochi at that time, under construction. For Sochi I was able to present them three budgets, internally we called them: Oh sweet Jesus, skin of the teeth and if you’re lucky.

With everything maxed out, including increased ticket sales (+50%) and prices (+100%), player sales, TV and prize money, the “if you’re lucky” was $256,900. This was to last for 18 months. We had removed soft “sponsors”, local government grants and hand me downs from the Kremlin. The man we met was looking to put a chunk of his wealth into the side to get out of the graveyard and into the Premier League.

His vision was filling the Olympic Stadium for European nights, greeting great European sides and showing off the beauty that the region undoubtedly possesses. He stared at me, saying nothing, for an hour, or maybe less. Ivan went to break the silence but stopped, our client stood up, walked to where I stood and took the notes from the table in front of me.

A smile passed through my mind as I thought he’d put the documents where the sun doesn’t shine (except those couple of occasions on certain beaches in Croatia). “And this is a maximum?” I began to assure him our figures were correct and that…he raised a hand and sat on the table.

We began to chat about how we could downsize wages, get a coach to make more of what they had etc. I explained to him that there were outstanding wages from the 2010 season and this was an issue, plus foreign players who were right for the club were already under contract.

He asked about investment, but I didn’t see anything to invest into and told him so. I told him about another club I was dealing with who were just pulling through (as it turned out they didn’t thanks to a case of supreme political backstabbing and covering), and how at least they had a structure to invest into – with more immediate returns. Sochi were at least two years away from European football and the cost to get there would be unreal.

For promotion to be assured and quickly followed by consolidation and a European place (I put it to be in the Europa League 2013-14), the budget for 2011-14 needed to be $220 million dripped in over the three seasons. Part of me hoped he’d say, okay, let’s do it, but even a man who is worth more than $3 billion has his limits.

I do feel a little guilty at the memory as he withdrew as a backer before the season’s start. Although he left his sponsorship commitment in place, with his muscle gone the club fell apart in the Summer, being withdrawn in August. The club was not doing too badly on the field, with evergreen Denis Boyarintsev doing his usual good job.

But the sums didn’t add up and when the Kremlin refused to plug the gap, the club folded.

That same period we looked at three other First Division clubs, within two years all were bankrupt. FC Khimki, Alania Vladikavkaz (who won the First Division) and Kamaz Naberezhne Chelny. Each one went to the wall and left players, coaches, staff, suppliers and contractors unpaid. With Khimki I was told that they would not fail. They had a sure-fire way to go up to the Premier and into Europe.

Shortly after the 2011-12 season their political backer stepped back and the club fell apart, going down to the 2nd Division in 2012-13. From the 20 First Division clubs of 2011-12, or season of the long deaths, 10 went out of business completely, suffered financial catastrophe or were re-formed.

Sochi, Alania, FC Nizhny Novgorod, Dynamo Bryansk, FC Kamaz, Torpedo Vladimir, FC Khimki, Volgar Astrakhan, Gazovik Orenburg and Fakel Voronezh. All of these clubs relied on either a government backer and/or a single sponsor.

With even a modicum of good business sense and management, at least half of these unfortunates would not have suffered so. At the season’s end we were invited to a lunch with the former Sochi Director at a simple café in Moscow Oblast (Region). I took my son with me – child-minding duties – and the whole meal passed pleasantly until he asked Marat the estimated debts for the First Division clubs.

My colleague took out his trusty Nokia, battered away on it for a moment, looked up and said, “$12 million in wages alone”. I looked at my son eating pasta with his hands and thought, you are not following me into this business!