Debt-ridden Hearts at the mercy of Romanov

THE full extent of Hearts' reliance on Vladimir Romanov was made plain yesterday when the club released its annual report for the year ended 31 July 2006.

As revealed in The Scotsman on Tuesday, the club's debt has risen to £28.4million, with salary costs of just over £10m being almost equivalent to turnover - way above the ideal maximum of 60 per cent recommended by industry experts. Hearts' accountants explain in the report that the club has no means of dealing with that level of debt other than by having recourse to funds provided by Ukio Bankas Investicine Grupe [UBIG], the parent company of the group of businesses controlled by Romanov.

"The company does not have formal funding facilities in place that allow it to meet its liabilities as they fall due in the foreseeable future," page 14 of the report states. "The company is dependent on the short-term financial support of [UBIG], the company's ultimate parent undertaking, which provides short-term loans and meets the company's day-to-day funding requirements.

"The directors have received written confirmation from the directors of [UBIG] that it will provide sufficient funding to enable the company to meet the liabilities as they fall due for the foreseeable future. The directors are satisfied that [UBIG] has sufficient financial resources to fulfil this undertaking. Further, the directors have plans in place, including the redevelopment of Tynecastle stadium, which they believe will return the company to profitability and positive cash flow in the longer term."

The word "believe" has frequently been used in association with Hearts over the past couple of years, with Romanov adherents adopting it as a motto for their faith in the Lithuanian businessman's ability to deliver. At some stage in the future, though, that belief will be shown to have been either well grounded or misplaced. Similarly, there will come a stage where the belief of the Hearts directors - Vladimir Romanov's son Roman, his niece Julija Goncaruk, and Sergejus Fedotovas - is likewise either vindicated or confounded. This report does no more than sketch out a vision of a club in which on-field and commercial success go hand in hand.

"The loss is in line with the Board's expectation and is part of an approved long-term business plan for the club where investment and increase of costs are required to improve the performance," the report says. "Going forward the company has financial support from the main shareholder UBIG, helping the company to meet financial demands and manage debt.

"The Hearts Board believes that current levels of debt are manageable and will be reduced as the club moves towards profitability," the report says. "Higher revenues will be generated through increased participation in European competition, larger attendance in a redeveloped Tynecastle Stadium and greater sponsorship and retail income."

Levels of debt do indeed usually fall when a business starts making a profit, and increased attendances and sponsorship involvement do bring about higher revenues. But when the business in question is a football club, everything is dependent on success on the field, and recent evidence in that regard does not back up the optimism of the Hearts board.

Currently fourth in the SPL, the Edinburgh club are struggling to qualify for European football next season. The team that won the Scottish Cup last year has been broken up, and playing performances have not been as impressive as they were last year. While attendances at Tynecastle have been close to capacity all season, they can be expected to drop next year unless the team rediscovers better form. No matter his undoubted ability to build commercial operations up from scratch, Romanov has shown little sign of understanding how to construct a football team that can enjoy medium- or long-term success.

"Expenditure on the playing squad is unlikely to rise any further," the report adds. The obvious way for that to happen will be a cut in the playing numbers, which will be no bad thing, as too many mediocre players are clogging up training sessions at the moment. But it remains to be seen if that cut in the playing budget can be achieved at the same time as a rise in the playing standards.

Romanov has already taken steps to cut down on the wage bill by introducing some players from Lithuania and elsewhere in eastern Europe on modest salaries. In most cases, though, their ability has also been modest. Many of the club's supporters are willing to accept that Romanov has nothing but good intentions for Hearts, and point to his planned stadium expansion as proof of his long-term commitment. But trust in his intentions is not the same as trust in his ability to deliver.

Romanov's spokesmen like to chastise his critics for their supposed short-termism. Results cannot be achieved overnight, they say; be patient, and everything will slowly come good.

But Romanov made a rod for his own back in that respect by achieving extremely good short-term results in the autumn of 2005 when George Burley was the manager. Since then, there has been little sign of coherent planning on the footballing side, one reason for that being Romanov's own insistence on having a major say in team selection. If Hearts are to succeed in the way envisaged by their benefactor, he will have to curb his impetuosity, and become as patient as the fans are asked to be.

Fans want squad cut

HEARTS fans last night urged owner Vladimir Romanov to cut the player pool after seeing the club fall a further £5 million in debt because of salaries, writes Darren Johnstone.

However, Derek Watson, secretary of Hearts Supporters' Trust, insists fans are not concerned about the club now owing £28.4m

Hearts released their annual financial report yesterday and admitted the £10m spent on wages (a rise of £5.5m from 2005) was behind their loss for the year. Valdas Ivanauskas has the biggest squad in the SPL but Watson does not believe it's necessary.

He said: "They will have to look at salaries - I am sure they will accept the current pool is too big and hopefully that can get sorted."

In terms of the overall debt, I don't think we have to be concerned, not at this stage. It is in line with what we expected because of the size of pool and that there was no European football that season.

"I think there will be an improvement next year. The stadium redevelopment is crucial to the overall plan."

Taken from the Scotsman