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Who would buy a football club in these trying times?

By Gary Morley, CNN
David Sullivan, left, and David Gold have bought a controlling stake in cash-strapped English club West Ham.
David Sullivan, left, and David Gold have bought a controlling stake in cash-strapped English club West Ham.
STORY HIGHLIGHTS
  • Football's finances may not be as healthy as previous figures have suggested
  • Portsmouth face a winding-up order after failing to win court ruling over tax debts
  • West Ham's new owners say their purchase makes no commercial sense
  • Manchester United reportedly seeking to refinance $960 million of debt with a bond issue
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(CNN) -- With Portsmouth failing to avert an upcoming court appearance over millions in unpaid taxes, and West Ham's new owners claiming their acquisition made "no commercial sense," the plight of the two English clubs highlights the dire economic times that world football faces.

Portsmouth must appear at a winding-up hearing on February 10 unless the struggling Premier League outfit win an appeal after failing to convince a judge that the British tax department's valuation of their bill is $12 million too high.

West Ham's new owners David Gold and David Sullivan, who sold Premier League rivals Birmingham to Hong Kong businessman Carson Yeung in October, revealed that the club have debts of more than $160 million.

West Ham's problems stem from the ill-fated takeover in late 2006 by an Icelandic group, whose main backers were hit hard by their country's economic meltdown in 2008.

"We would not buy this club at all if this wasn't West Ham. It makes no commercial sense for anyone to buy this club, and it's amazing that two other people wanted to buy it," Sullivan said.

"One is another West Ham supporter [Tony Fernandes] and the Italian [Massimo Cellino] -- I am not quite sure if he looked at the books properly, but if he looked at the books he might have walked away.

"We bought this as supporters, not from a business point of view. We will raise more money and, with other people, will dig the club out of the mess it is in."

Portsmouth have been in financial freefall since former owner Alexandre Gaydamak sold the club to Dubai businessman Sulaiman Al Fahim, who had fronted the Abu Dhabi consortium that bought out Manchester City a year previously.

Al Fahim's protracted takeover saw many of the south-coast club's top players leave in order to balance the books, and he in turn sold a controlling stake to Saudi investor Ali Al-Faraj in late August.

Clubs are getting deeper and deeper into the mire of enormous debt
--Jose Maria Gay de Liébena

That has failed to help, with the players' wages not being paid on time four times this season, and Portsmouth are trying to overturn a transfer embargo and the diversion of their television revenue to clubs that are owed fees for past player purchases.

Added to that, Gaydamak claims that he is still owed some $45 million in loans.

But such problems are also facing clubs at the other end of the scale.

Manchester United, regularly near the top of Deloitte's wealthy list, have confirmed plans to raise $813 million through a bond issue to help refinance their debts as the reality of the current economic climate continues to hit the game.

United have since announced pre-tax profits of $78.4 million for the year to 30 June 2009, compared with a loss of $34.8 million a year ago, but without the sale of Cristiano Ronaldo, the Red Devils would have reported a loss of $51.7 million despite a trophy-laden season.

The Glazer family saddled United with huge debts with their 2005 takeover, and the Americans also have outstanding personal sums owed on the deal which have since increased by $64 million, according to Britain's The Times newspaper.

Both United and Liverpool seem intent on following the prudent pattern set by many of Europe's big teams, who are refusing to splash cash on new players during what is normally a merry-go-round of money deals in the January transfer window. Some big, big clubs are trying to stave off some big, big problems.

A year ago, football's finances seemed to be healthier than ever, bucking the trend of global economic hardship.

The total European market had ballooned to a staggering $20.76 billion by the end of the 2007-8 season, and clubs -- especially in England -- splashed out big in the January 2009 transfer market, with the Premier League responsible for a record-breaking $252 million in player purchases.

Even given those rosy-looking figures of 2007-08, the most recent available, Europe's top clubs then still owed more than $6 billion according to a study by football finance expert Jose Maria Gay de Liébena, an accounting professor at the University of Barcelona.

We have got to get our message through to the players that a new contract does not necessarily mean a pay rise
--Bayern Munich's Christian Nerlinger

"Clubs are getting deeper and deeper into the mire of enormous debt, and along with overvalued assets and costs that far outstrip income levels, this is the biggest of football's ills," Gay de Liébena said in his report.

With European ruling body UEFA planning to bring in new rules governing debt and ownership from 2012 which mean clubs cannot spend more than they earn, the pressure is on to find a safe financial footing.

Chelsea's billionaire owner Roman Abramovich responded by converting the $540 million he has given the English club in interest-free loans into equity.

And it's not just in England where clubs, also including the American-owned Liverpool, are battling to stay afloat in a sea of debt -- said to be around $4.3 billion for the whole of the Premier League, according to the Wall Street Journal.

German giants Bayern Munich plan big wage cuts, according to Britain's Guardian newspaper, and may be forced to sell star asset Franck Ribery, long a target of Real, United and Chelsea.

"We are going to try to reduce the wages," the Bundesliga club's director of sport Christian Nerlinger said. "The wages have gone through the roof and, therefore, we have got to get our message through to the players that a new contract does not necessarily mean a pay rise."

Belgian club Mouscron has been put into liquidation after being expelled from the Jupiler League on December 28 for failing to meet financial obligations, with debts of $1.15 million, ending 87 years of existence.

And the problem is not restricted to the upper echelons of the English game, whose only big-spenders this month may be Chelsea and Manchester City, owned by Abu Dhabi oil billionaire Sheikh Mansour bin Zayed Al Nahyan.

But even City need to keep a wary eye on the bottom line after figures released on Wednesday revealed their losses had tripped to almost $150 million during his first season in charge.

Sheikh Mansour has invested a staggering $630 million since buying the heavily indebted club in August 2008, the figures released by the club revealed.

If one major sponsorship or television deal collapses, the clubs will sink
--Gay de Liébena

Second division Crystal Palace, bankrolled by millionaire Simon Jordan, have failed to make wage payments to players on time for the past two months, and four times in the last year.

Lower league club Notts County were saved from oblivion in July by the Munto Finance group, who promised to take the world's oldest side into the Premier League with a massive cash injection and the expensive acquisition of former England manager Sven-Goran Eriksson as director of football.

But that has fallen by the wayside with Munto selling to chairman Peter Trembling for a nominal fee, and the club again faces an uncertain future with a second winding-up order from the tax man, though Eriksson apparently remains committed to his post.

Scottish clubs were last year forced to accept a far less lucrative replacement deal from Sky and ESPN following the collapse of Irish broadcaster Setanta, highlighting how precarious the existence of some leagues is.

"The economy of football is not an exception to the rule of economics," Gay de Liébena said. "If one major sponsorship or television deal collapses, the clubs will sink."