Hearts' £5m loss takes debt to £28m

HEARTS lost more than £5million in the last financial year, taking the club's overall debt to £28.4m, figures released today reveal. The results for the period to 31 July 2006 - Vladimir Romanov's first full year in control at Tynecastle - would have been still worse but for the writing off of £2m of debt by Ukio Banko Investicine Grupe (UBIG), the company controlled by the Lithuanian businessman.

The results, which were posted to shareholders last night, will be discussed at the club's annual general meeting on Tuesday, 27 February. They highlight the increased dependence of Hearts on the continued goodwill of Romanov and UBIG, and show the scale of the task faced by the current administration, whose long-term aim is to make the operation profitable.

It was under the stewardship of Chris Robinson, the chief executive before being bought out by Romanov in February 2005, that Hearts' debt soared towards the £20m mark. At the end of the year to July 2005 it had gone up to £21.5m following a loss of £2.728m.

The £5.282m loss for the year to July 2006 was incurred principally by a massive hike in salary costs for playing staff from £4.5m to £10m. The increase in the size of the squad was part of the reason for this increase, while improved deals for some players already on the staff were also a factor.

Besides the £2m 'forgiveness of debt' announced by Romanov as a gesture of seasonal largesse at Christmas 2005, the figures would also have been even worse but for a gain in player sales of £1.041m. The transfer of Rudi Skacel to Southampton for £1.2m was the main factor behind the profit on the transfer market, which compared to a loss of £42,000 the previous year. Skacel cost Hearts £346,000 when he joined from Marseille, initially on loan.

On the positive side, turnover broke through the £10m level for the first time, totalling £10.277m - an increase of over £1.8m from the 2005 figure of £8.428m. Attendances at Tynecastle were up by 34 per cent, while winning the Scottish Cup and finishing second in the SPL also helped increase commercial income.

Hearts did not take part in European competition in the 2005-06 season after failing to qualify under the management of John Robertson. Their participation in the qualifying rounds of the Champions League and then the UEFA Cup earlier this season will have a beneficial effect on the accounts for the current tax year, especially as attendances at Murrayfield were significantly greater than Tynecastle could have held. The full houses at virtually every home game this season will also improve the position.

It remains to be seen, however, what happens to season-ticket sales next season. Hearts were knocked out of the Scottish Cup on Saturday, and face a tough fight with Rangers and Aberdeen, as well as possibly Hibs, if they are again to claim the runners-up spot and the Champions League slot that goes with it. On-field performances are the major determinants of revenue, and this season those have only rarely come close to the highs of the autumn of 2005, when under George Burley Hearts won their first eight league matches to storm to the top of the SPL.

Discontent within the dressing-room eventually led to the departure of Steven Pressley and Paul Hartley, both to Celtic, while Craig Gordon is expected to move on in the summer. While Pressley's contract was ended and he joined Celtic as a free agent, Hearts received over £1m for Hartley and can expect a figure several times that for Gordon, provided they allow him back in the team at some stage between now and the summer. But, while such income may help improve the books in the short term, the departure of such key players will, unless they are adequately replaced, have a harmful effect in the longer term by leading to a downturn in the team's on-field fortunes.

Last night, though, a spokesman for Hearts insisted that Romanov had a long-term vision for what he wanted to achieve with the club, and claimed that the loss of more than £5m was in line with what the board of directors had expected. "The club has been, and continues to be, fully supported by Vladimir Romanov and UBIG," the spokesman said.

"We are confident that the debt situation is under control, and we expect higher revenue in future. The planned increased capacity of Tynecastle will also help."

Besides redeveloping their ground, Hearts also hope that more regular and sustained participation in European competition will help them move closer to profitability.

But achieving profitability within any given year looks difficult enough given the current position. Doing so year after year after year, until the debt of £28.4m is wiped out, seems close to impossible.

Only the sale of Tynecastle itself would come close to wiping out that debt at a stroke, but Romanov cancelled that sale when he took over and has since reiterated his commitment to keeping the club at their ground. So far, with Ukio Bankas having made £8.52m in profits last year, he can afford to. Part of that profit came from interest payments by Hearts to service the debt, which was transferred from Halifax Bank of Scotland (HBOS) following Romanov's takeover. Ukio are believed to be charging the club a lower rate of interest than HBOS.

Taken from the Scotsman