Hearts' debt could touch £25m as short-term gains come at a cost

STUART BATHGATE

WITHIN its 73 pages, the offer document received by Hearts shareholders over the weekend contains a wealth of information about the current state of the club. Some of that information, however, raises questions about the long-term health of the club which have yet to be answered - especially as the document shows that Hearts' debt has continued to rise since Vladimir Romanov's takeover.

Besides stating that Hearts' debt as of 31 July 2004, the date of the last audited balance sheet, was £19.621 million, the Letter of Recommendation which forms part one of the document goes on to give details of subsequent borrowings and those which could soon become necessary. Written by Stewart Fraser, the finance director, it makes it clear that Hearts are reliant on the continuing good offices of Romanov's UBIG group.

"The current working capital needs of the business are being met, but only through the provision by UBIG of additional short-term facilities currently amounting to £2.3m, which are repayable not later than 31 January 2006," Fraser writes. "Our projections for our financial year to 31 July 2006 indicate that before the end of the period Hearts is likely to have, at the peak, an additional short-term working capital requirement in excess of £4m. In the absence of continuing support from UBIG and its associates, or from any third-party source, the Hearts Board will need to take radical action which may include, amongst other things, the sale of player contracts."

If the £2.3m is repaid when it falls due, Hearts' debt may still be under £25m come the end of July. But, with the club having committed itself to holding on to its leading players, it is unclear where the money to repay the £2.3m debt will come from. Failure to repay will then incur extra interest. On the other hand, Romanov has successfully negotiated down the £4.5m owed to SMG to £1.8m.

It may well be that the increasing indebtedness is seen by Romanov and his associates as a necessary part of their step-by-step plan to transform the club. After all, Roman Romanov, Vladimir's son and the acting chief executive, has talked of the family's being at Tynecastle for five to ten years, and a lot of resources have already been committed to the club.

But good intentions are one thing, and the ability to make wishes come true is quite another. The vast majority of Hearts supporters are convinced that Romanov has the former, but a growing number are expressing disquiet about the depth of debt into which the club is sinking.

We have, after all, been here before. "Trust me," said Chris Robinson year after year, as the figures grew worse until he revealed his cunning plan to extricate the club from the financial mire - selling Tynecastle itself.

Vladimir Romanov is undoubtedly in a different financial bracket than Robinson, and at present he can comfortably help prop up one of his portfolio of companies - Hearts - with help from one or more of the rest. But speculating to accumulate, even from a wealthy starting point, is still a risky business in football.

The Baltic businessman has spoken of his desire to have Hearts qualifying for the Champions League on a regular basis - and even, somewhat less plausibly, winning it in the near future. The Champions League provides lucrative revenues through television and other routes for those clubs lucky enough to get there - so is Hearts' plan wholly dependent on getting into it?

As a public limited company, Hearts are limited in what they can announce to all and sundry. But that status should end very soon, if and when Romanov's takes his shareholding above 75 per cent.

How exactly does the club's board plan to get the debt down? Bold statements have been made to the effect Hearts are no longer a selling club, but if you have pledged to stay at your present home, what other way of raising revenue is there but by selling off the only assets you have left?

There is certainly no immediate need for panic. Romanov and his advisers have shown themselves to be competent day-to-day operators. In the longer term, though, their strategy remains unexplained. They have nothing to lose by sharing details of their vision. Indeed, by doing so they could ensure a far greater, and more active, loyalty from the club's support.

Taken from the Scotsman