About the Offshore Game

The Offshore Game has been established, initially as a project of the Tax Justice Network,
to look at the role of offshore financial secrecy in sports. Our first research project tries to
quantify the amount of offshore finance in the professional football leagues of England and
Scotland, and explores the main risks that arise.

For more information please visit our website:

www.theoffshoregame.net

About the Tax Justice Network

The Tax Justice Network is an independent international network launched in 2003. We
are dedicated to high-level research, analysis and advocacy in the field of international tax
and the international aspects of financial regulation. We map, analyse and explain the role
of tax and the harmful impacts of tax evasion, tax avoidance, tax competition and tax
havens. The world of offshore tax havens is a particular focus of our work.

Our core goals are to create understanding and debate, and to promote reform, especially
in poorer countries. We are not aligned to any political party.

www.taxjustice.net

The Offshore Game Team

This report was written by George Turner with the support of Linda Arch, Alex Cobham,
and Nick Mathiason.

A special thank you goes to Richard Murphy, Play the Game, Paul Connolly, John
Christensen, Nick Shaxson, Dave Boyle, Korieh Duodu and @footballisfixed who
contributed to drafts of the report at various stages.

The Offshore Game Logo was designed by Claudia Tavella of yvat & klerb | calligraphy +
graphic design. http://www.y-k.it
Table of Contents
About the Offshore Game ................................................................................................................................................................. ii
About the Tax Justice Network...................................................................................................................................................... ii
The Offshore Game Team................................................................................................................................................................. ii
Executive Summary ................................................................................................................................................... 1
Introduction ................................................................................................................................................................. 3
The Offshore World ................................................................................................................................................... 4
Why use offshore?................................................................................................................................................................................ 4
Avoiding tax ........................................................................................................................................................................................... 4
Capital gains ........................................................................................................................................................................... 5
Secrecy ...................................................................................................................................................................................................... 5
Ownership ............................................................................................................................................................................................... 7
Offshore ownership of football clubs .......................................................................................................................................... 7
Financing Football .................................................................................................................................................... 10
Debt and equity ................................................................................................................................................................................. 10
Why do football clubs need finance? ....................................................................................................................................... 11
Measuring Financial Secrecy ................................................................................................................................ 17
Creating the offshore league................................................................................................................................. 19
The Offshore League ................................................................................................................................................ 20
The League .......................................................................................................................................................................................... 21
The Top Five ............................................................................................................................................................... 22
1. Manchester City .................................................................................................................................................... 22
Comment from Manchester City ................................................................................................................................................ 24
2. Bolton – Mystery loans ....................................................................................................................................... 25
3. Bournemouth – lost at sea? .............................................................................................................................. 27
4. Tottenham Hotspur - Subsidy .......................................................................................................................... 28
Comment from Tottenham Hotspur ........................................................................................................................................ 29
5. Manchester United – Private Equity and dynasties ................................................................................. 30
Trusts and inheritance tax ............................................................................................................................................ 30
Private Equity and capital gains ................................................................................................................................. 31
The next 29 ................................................................................................................................................................. 36
Conclusions and Recommendations .................................................................................................................. 48
Fixing the wider economy ............................................................................................................................................................ 49
Controlling debt ................................................................................................................................................................................ 49
Full financial transparency.......................................................................................................................................................... 50
Related parties................................................................................................................................................................................... 51
A fair playing field ............................................................................................................................................................................ 52
Executive Summary
Our research looked at the annual returns of all 134 teams in the professional football
leagues of Scotland and England. We sought to discover how many had a significant
ownership from offshore, which we defined as offshore companies owning more than 10%
of the shares in the club.

We then sought to find out, by looking of the annual reports of the clubs with offshore
ownership how much money was invested in the club from offshore sources in the from of
equity and loans. We ranked the teams using an index that took account of how much
finance they had coming from offshore and the location of the companies providing the
money.

In total our research uncovered £3bn in offshore finance in the UK’s professional leagues.
This finance was found in 34 of the teams investigated, or just about one in every four
teams. All levels of football were represented, although clubs more heavily reliant on
offshore finance tended to be in the English Championship and Premiership.

Manchester United had the most offshore finance, accounting for third of the value of the
league with just over £1bn. That was made up of £882,922,000 in shareholder funds at
Red Football Limited, the largest company in their UK structure to present consolidated
accounts. Red Football Limited is eventually owned by Manchester United PLC registered
in the Cayman Islands. A further £171,497,000 in debt was issued by their finance
subsidiary MU Finance PLC. The loans come in the form of loan notes listed on the
Luxembourg Stock Exchange.

However, not all offshore pounds are equal. To create the offshore league we also looked
at the secrecy of offshore financial centers from where their money came from. We did this
using the Tax Justice Network’s Financial Secrecy Index.

When we take the financial secrecy of the countries where the companies providing
finance were based into account it was Manchester United’s rivals Manchester City that
topped the offshore league.

Manchester City has £445,770,264 in finance coming from the United Arab Emirates. This
is in the form of £435,262,000 in equity owned by Abu Dhabi United Group Investment &
Development Limited. A further £10,900,000 has been loaned by Abu Dhabi United Group
to Brookshaw Developments, one of Manchester City Football Club Limited’s subsidiary
companies. The United Arab Emirates have a significantly higher secrecy score than both
the Cayman Islands and Luxembourg (themselves no beacons of transparency).

We contacted all of the clubs included in the league to see if they would provide an
explanation as to why their shares were held in offshore vehicles. The responses from
those that replied are included in our result section.

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Clubs that did respond were keen to stress that the operating companies for the clubs
were all based in the UK and subject to UK taxes. In some cases clubs responded to say
that the reason offshore holding companies were used was because the owners were
located in those countries.

The locations of companies holding shares in football clubs were found in a variety of
places, from the traditional offshore financial centres of the British Virgin Islands, the
Cayman Islands, Jersey and Guernsey to places like Malaysia, Malta, Thailand and India.

In some cases we were unable to find out where the holding company of a club was
located at all. In one case the location of a company owning shares in a football club was
simply listed as “the West Indies” a region with a number of tax havens. These clubs we
assessed to be the most secretive, as it was impossible to assess the transparency of their
financial structure without even being able to find out where their holding companies were
located.

The clubs used a mixture of types of finance. Debt, loans which carry a fixed obligation to
repay, and equity, shareholdings, where an investor agrees to put in money for a share in
the profits of the club.

The total finance figure breaks down into £1.1bn in debt and £1.8bn in equity. However,
the equity figure is vastly dependent on three teams, Arsenal, Manchester United and
Manchester City who between them have £1.5bn in equity held by offshore vehicles.

Without these three teams the debt to equity ratio is reversed to approximately £900m
debt to £400m equity, showing that there is a preference for the use of debt as a financing
instrument. The use of debt as a means of finance should be of particular concern to fans.
Clubs do not need to pay shareholders if they do not have the money to do so, but if a club
cannot meet its debt obligations it could be bankrupted.

Some of the clubs we looked at were highly dependent on loans from offshore companies.
We believe that the debt is part of a wider problem which Football Associations need to
deal with, perhaps though putting a cap on the amount of debt clubs can take out.

Tax havens are by their nature lightly regulated and untransparent. Given the long history
of financial difficulties football clubs in the UK have faced it should be of concern to
regulators that so much money in football comes from offshore financial centers.

Our report suggests that football regulators should take steps to make sure that clubs are
run on a more sustainable basis, and that the finances of clubs are open, transparent and
responsible. Clubs should submit financial reports to the Football Associations that include
details of the beneficial ownership of both the shares in clubs and the loans received by
clubs. It should also include details of any related party transactions between the club and
their owners. The regulators should then make these reports public so that the fans have
an easy to access source of information about the finances of the game.

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Introduction
Offshore finance, once a niche industry confined to the basements of some of the less
scrupulous banks, accountancy firms and criminal gangs has come to dominate every
aspect of economic life, including sports.

The last ten years have seen an increasing number of clubs being taken over by offshore
entities to the point where the largest of the British Virgin Islands (Tortola, population:
23,908) is home to more companies owning teams in the football leagues than there are
teams in Leeds, Liverpool, Bradford, Hull, Bristol or indeed most towns and cities in the
United Kingdom.

There is no single reason of why clubs are held offshore. A common reason can be the
lower taxes and fewer regulations available in tax havens. It can be from a general desire
for secrecy and confidentiality or simply a product of the fact that the owner may already
own a business empire offshore and wants to add a football club to it. It may be that the
owner lives offshore. It may be that it is just the way business is done in the country where
they operate. The structures and the purpose of offshore holding companies are often
more dependent on the needs of the owners than the club.

This is in our view where things can start to go wrong, when the structure and finance of
clubs risk being driven by the egos and financial needs of powerful men, the fans can be
forgotten. Without transparency, owners can become entirely unaccountable – even as
their financial decisions may condemn century-old institutions like Rangers FC to
liquidation.

The disasters of individual clubs aside, a broader issue of concern is the impact on
competition. Offshore structures can create opportunities for clubs to gain an unfair
advantage over others. It can also hold back a successful club if the owner seeks personal
profit over performance on the pitch. They allow for the possibility of hidden, common
ownership or control of a number of clubs by a single individual - which should worry
everyone from fans to FAs.

The issue was neatly summarised in the proceedings of the High Courts of Justice
concerning the Secretary of State’s decision to allow the compulsory purchase of land
needed for Tottenham Hotspur's stadium redevelopment. Tottenham was resisting
disclosure of some documents on the basis of commercial confidentiality. They said that it
would damage their competitive advantage if they were forced to publish some of the
plans around the stadium. The judge put it to the court that in football competition should
happen on the pitch. The barrister for Tottenham, Mr Christopher Katkowski QC replied:
“Forgive me my lord but that is a rather naïve view of the modern game”.

But if the real game is played in the boardrooms, banks, and courtrooms, rather than on
the pitch, what fun is that at all?

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The Offshore World
Why use offshore?
There are many reasons why people use offshore structures. Offshore means your
business being placed in a company somewhere else. The key thing about offshore is that
your company becomes subject to a different set of laws, which will often be weaker than
the country you are in. These can be different tax obligations but other non-tax rules can
be an advantage also - such as rules governing the need or otherwise for disclosure of
accounts, or the identity of owners. (While we consider offshore jurisdictions from a UK
perspective here, it is worth noting that the United Kingdom itself can and does act as an
offshore jurisdiction for businesses in other countries.)

The size of the offshore industry is vast and is not a trade limited to certain specialised
outfits; it has become mainstream. Offshore structures are created and marketed by the
world’s largest banks, law and accountancy firms. As one academic study put it, “Far from
a marginal or exotic backwater of the global economy, offshore in many ways is the global
economy.”

In total the Tax Justice Network estimates that between $21 trillion to $32 trillion of private
financial wealth is located, untaxed or lightly taxed, in jurisdictions offshore around the
world.

The impact that offshore finance has on the world economy cannot be underestimated.
The vast amount of money flowing under cover of offshore opacity was a major
contributing factor to the global financial crisis. The taxes lost to offshore exacerbate
budget deficits and cuts in government spending. The low tax rates offered by offshore
and the ease with which multinationals and rich individuals can move their money offshore
drives a tax war, where each country cuts their effective tax rate in a race to the bottom
that further undermines revenues.

Avoiding tax
One of the most common reasons for holding assets offshore is to avoid tax. If you have a
job in the UK and are paid a wage or a salary you are taxed - typically at source - in the
UK. Although possible, it is difficult for ordinary people to avoid taxes on their labour.

However, capital is much more mobile. If someone owns an income-generating asset, a

business, or let’s say a (profitable) football club then you can avoid paying tax on the
profits of that company if you move those profits offshore.

Offshore jurisdictions generally have very low or no tax on capital. That means no taxes on
corporate profits, dividends, interest payments and crucially the gains you make from the
rise in value of your assets – capital gains.

If the club is owned by a British citizen than there are all sorts to rules to stop people

4
profiting from tax havens. But there are legal ways around the rules. You can leave the
country like Joe Lewis, the owner of Tottenham Hotspur, who is a tax exile in the
Bahamas.

If you have a foreign connection, it’s even easier to avoid tax. The UK government runs
one of the oldest and best tax avoidance schemes in the world. Anyone not born in the
UK, or even anyone who has spent time abroad, can apply to be non-domiciled for tax
purposes. This means that you claim to still have strong roots abroad and some day may
think about going back. In the mean time you are free to live, work and use all of our public
services in the UK just like any other UK citizen, but without paying any taxes on your
foreign earnings. If you move all your business offshore, then it can be a tax free bonanza.

Capital gains
Of course if you are not a UK citizen and have no intention of living in the UK after you
have moved the profits of your UK business offshore you have no need to worry about the
UK tax system.

There are a number of ways of making tax free profits offshore. One of the most important
for football clubs is capital gains tax avoidance. Many clubs don’t make a profit year on
year. They spend so much of their cash on wages and transfer fees they may have little or
nothing left to pay their shareholders in terms of a yearly return.

The companies that own and manage the club do however still have a value and when
sold a football club can go for a lot of money.

If you buy a business in the UK for £10 and sell it for £15 pounds, you pay a tax on your
capital gain of £5. However, if you own a UK business through a company in the Cayman
Islands, and instead of selling the UK business you can sell the Cayman Islands business,
then there is no change of ownership of the UK business. The capital gain, if there is any,
arises in the Cayman Islands. And as luck would have it, the Cayman Islands do not
charge capital gains tax.

Where the company being sold is located is a key factor. Some clubs responding to our
research told us that in the event of a sale, even though part of their ownership may be
though an offshore company, the unit being sold would be the UK company meaning
capital gains tax would arise in the UK.

A more full discussion of the possible tax benefits of converting profits into capital gains,
and moving capital gains offshore, follows later in our discussion on Manchester United.

Secrecy
Offshore jurisdictions can also provide secrecy. In many offshore jurisdictions companies
do not need to file their accounts like they do in the UK. This means that it is extremely
difficult and sometimes impossible to know about the financial health of a company. Often,

5
companies also have no obligation to publish who their owners are.

These kinds of structures can be very useful for hiding assets from the taxman back home.
It is why traditionally tax havens and secrecy go hand in hand. But it can also be very
useful for hiding all sorts of other transactions. For example, hiding the proceeds of crime
and money laundering, or obscuring conflicts of interest, are facilitated by such
arrangements.

Again, this is something which even the world’s largest banks are involved in. BNP
Paribas, one of the world’s largest banks, was fined $9bn by the United States in 2014. In
the statement of facts made before a US court BNP Paribas admitted that it had been
running a criminal operation for 8 years. Through its Swiss bank the company had been
knowingly, intentionally and wilfully breaking sanctions on Iran, Sudan and Cuba to the
tune of $8.8bn. Switzerland is possibly one of the oldest and most well known secrecy
jurisdictions.

That is not to say that the use of offshore necessarily implies criminality in any particular
case. But offshore secrecy can certainly act as a facilitator of illicit financial flows. Even if
there is no criminality financial secrecy can act against the public interest in other ways.

To see the kind of damage secrecy can do to the football world you only need to look to
the current mess at Leeds United. Leeds were taken over by Gulf Finance House (GFH) in
2012. The company bought the club through a Dubai company and transferred ownership
to LUFC Holdings Limited based in the Cayman Islands.

David Haigh, who fronted the deal, is currently in a Dubai prison because GFH accuse him
of taking money out of the company owning the club illegally. Haigh, who has not been
charged, maintains that he is innocent.

Leeds is now owned by Massimo Cellino, who has been convicted in Italy of tax fraud and
as a result been told to give up his ownership of Leeds. As David Conn has reported in the
Guardian, however, Cellino's lawyers are believed to have said that the ownership is in
fact through a blind trust and not with him personally - despite the earlier statement to the
football authorities that Cellino had acquired a controlling stake. The latest is that Cellino
has said he has divested himself from his minority stake in the club, that it had always
been his intention to do so and that he is innocent.

Throughout these various episodes, greater financial transparency may well have
benefited the supporters of Leeds and improved the club’s fortunes on the pitch.

Note: Leeds do not appear in the Offshore League, since the public declarations were that Cellino
had a controlling stake, and that this was through a UK company (Eleonora Sport Ltd). Eleonora
Sport Ltd has still not filed accounts, any complications to Cellino's ownership - including the
possible involvement of offshore jurisdictions - are not publicly visible.

6
Ownership
One part of the secrecy offered by offshore is the way in which it can be used to obscure
ownership. Businesses are owned by legal people, but legal people are not necessarily
warm-blooded people. A legal person is any entity that can enter into contracts. This can
be a living breathing human being, but it can also be a company, a trust or a charity. It is a
distinction often lost when people talk about football club ownership. But it is shouldn’t be.

We often say that a club is owned by an individual. For instance, Arsenal is owned by Stan
Kronke and Manchester United is owned by the Glazers.

But it is rare that these people will actually have direct, or exclusive, ownership of the club.
More often than not, the club is actually owned by another company, which is then owned
by a person; and there may also be other shareholders. It is not always at all clear how
that is arranged.

Sometimes there is no human ownership at all. The eventual owner may be a trust, which
legally owns the club on behalf of a person. That person will get the profits passed on by
the trust so is called the beneficial owner. But the legal owner is still the trust because the
trustees have control of the asset. Indeed in order for trusts to work they must have
independent control from the beneficiary. One example of a club owned by a trust is Bolton
Wanderers, which has as its eventual owner the Fildraw Private Trust Company of
Bermuda.

If there is a company that owns the club it is called the holding company. Understanding
holding companies is key to understanding the offshore system, as the combination of
holding companies and offshore financial centres provide very useful tools for obscuring
financial flows.

A company registered in the UK, for example, may be owned by a holding company in the
British Virgin Islands (BVI). As the BVI do not require any publication of ownership or
financial accounts, the public can have no way of knowing what happens to the money
after it leaves the United Kingdom company.

It may then be the case that the BVI company is in turn owned by another set of
companies in the Cayman Islands. Splitting the ownership of one offshore company
between two or more other offshore companies is quite common. Those companies might
in turn be owned by trusts in Jersey. There could be a whole massive structure behind the
first BVI company, but most people would never know since the trail will go cold when it is
impossible to see who or what owns the BVI company.

Offshore ownership of football clubs

In an attempt to improve transparency and weed out criminality, the Football Association
and league bodies introduced rules in 2004 to ensure the owners of football clubs are
declared and that they are good upstanding people: the owners and directors test.

7
Today every club must declare their real (beneficial) owner on the club website. If the club
is owned by a trust for example, the fans must know who is the beneficiary of that trust.

If the beneficiary has been convicted of a dishonest act they are prevented from having a
stake in or managing the club.

But knowing the beneficial owner of a football club doesn’t mean the flows of money are
necessarily clear. Offshore structures can effectively blur financial flows and control even if
we do know the identity of the beneficial owner. This is particularly the case when the
capital of a company has a high proportion of debt.

It is said, for example, that Tony Fernandez owns Queens Park Rangers. Technically,
Tony Fernandez does not own one share in Queens Park Rangers. Queens Park Rangers
Football and Athletic Club Limited, which operates and manages the club, is owned by
QPR Holdings Limited, a company based in the UK.

QPR Holdings is 66% owned by Tune QPR sdn Bdh, based in Malaysia, and 33% from
Sea Dream Limited, which we believe to be registered in Malta.

Tony Fernandez, Kamarudin Meranun, and Ruben Ganalingam are the stated beneficial
owners of Tune QPR sdn Bdh, according to the QPR website, but we do not know in what
proportion.

The Mittal Family own Sea Dream Limited. Assuming that Tony Fernandez, Kamarudin
Meranun, and Ruben Ganalingam own an equal part of Tune QPR, then Tony Fernandez
only has a 22% indirect stake in Queens Park Rangers. But there is no reason to assume
that the three businessmen have divided the company equally. Tony could have a far
lower proportion of the shares than the other two, or he could have more. The public
cannot know because Malaysia is a secrecy jurisdiction.

The situation is complicated even further when we consider that QPR shares are not
actually worth much at all because it is almost entirely financed by debt.

According to our research, QPR has around £115m in debt from Tune QPR sdn Bdh,
another £40m from Sea Dream Limited and £10m more from a company called Almunya
Properties Limited. Little is known about Almunya other than there is a company in India
registered with the same name.1

Because of all these loans the share capital of Queens Park Rangers Football and Athletic
Club Limited appears to be worthless. The sum total of that company’s assets are worth
less than the amount of debt it owes.

1Since our research was carried out QPR’s owners have written off £60 of their debt. However this does not
change basic position that the liabilities of the club outstrip the assets.

8
On paper, the known owners of QPR, Tony Fernandez, Kamarudin Meranun, and Ruben
Ganalingam and the Mittal family, may own the companies that control QPR, but they have
hardly invested any money at all in its share capital because almost all of QPR’s financing
comes from loans. QPR did not respond to requests for comment about their ownership
structure.

Beneficial ownership works though shareholdings and not debt, so there is no way of
knowing whether the loans from the companies that own QPR came from money from
their shareholders, or was loaned to those companies by unknown third parties. We are in
the dark.

9
Financing Football
Football clubs needs cash, and lots of it. Cash to buy players, cash to pay players and
cash to build and maintain stadiums.

Almost all business will need finance from time to time to cover payments before revenues
come in. But finance can be used in very different ways; from funding future growth of
companies, to extracting value for the benefit of their owners.

Debt and equity

There are two main ways in which private companies can raise cash on the financial
markets. They can sell a stake (shares) to investors. This is called equity financing.

Alternatively, companies can choose the debt financing route and borrow the money.
Football clubs usually do this through signing loan notes. This is an agreement with a
lender to pay back the money on fixed terms.

Importantly, there are different rights and obligations that come though equity and debt.
Although people often refer to owners of football clubs “investing” in a club, this may in
practice cover a range of quite different structures with serious consequences for the
financial health of the club.

Shareholders, as part owners of the company, have a role in corporate decision-making, in

particular through voting rights at the Annual General Meeting. In return for giving their
cash to a company shareholders receive a share of the profits of the company; a dividend.
However, they are also not guaranteed a return. If the company makes no profit it will have
no money to distribute to its shareholders, and is not under any legal obligation to do so. If
the value of the company falls, so does the value of their stake in it. If the company goes
bankrupt, they can lose their entire investment. Shareholders share risks with a club as
well as the profits: they are investors in the true sense of the word.

Debt is different. If a company gets into financial difficulty, creditors (that is, people who
lend the club money) are repaid before shareholders, and loan creditors are sometimes
repaid before some other creditors, depending on how deals are structured. Debt typically
requires interest payments, which are paid to creditors. The money they have lent to the
company is repaid at an agreed rate, regardless of how the company is performing. If a
company is not generating enough cash in order to pay back its debts, it could be declared
bankrupt.

Debt has a further advantage for those providing the money, which is with regard to tax. If
a company pays a dividend, it does so after it has paid its corporation tax. Corporation tax
is a tax on profit, and dividends are a distribution of profits. However, debt interest
payments are seen as a cost of doing business. They come out of a company before its
tax bill is calculated, and as a result reduce the paying company’s taxable profits.

10
The amount of debt a company has relative to its equity is called its gearing ratio. This is a
key indicator of the financial health of a club. If a company has lots of debt, it has a very
small margin of error when it comes to its finances; a poor performance in one year and a
hit on the company revenues can mean game over, because it can’t pay back its loans on
time. Alternatively, most of the team will be up for sale – which may simply defer the
inevitable.

A club with low levels of debt has much more flexibility. A bad year might mean that
investors take home less. More likely, the club may have to borrow money to cover the
loss, but at least it is likely to be able to do that. A club which already has high levels of
debt might find it more difficult to borrow more.

When we look at business as a whole, the ability of a company to take on debt is linked to
its ability to pay it back. A company that has low levels of debt and is generating a lot of
cash and profit will find it easy to borrow. A company which does not make a profit will find
it more difficult.

Why do football clubs need finance?

One of the main reasons football clubs use finance is to try to buy success. In football the
sources of revenue are, prize money, TV rights, tickets, advertising and sponsorship.

Almost all of these sources of income are tied to success on the pitch. If a club gets
promoted they get more prize money, bigger TV rights. It may also become more popular,
meaning bigger ticket sales and become more attractive to sponsors and advertisers.

The difference between the amount of money on offer between the top clubs and everyone
else in the English football league is particularly acute. Since the Premier League broke off
in 1992 the 20 teams in England's top division have monopolised the cash available from
TV rights. Today 93% of the money available from TV goes to the top 20 clubs. The next
72 clubs share 7% between them.2

The situation is made even more acute by the existence of parachute payments. These
payments are given for three years to clubs being demoted from the Premier League. The
purpose is to help clubs deal with the financial bombshell of relegation.

The effect, however, is that once a club wins promotion to the Premiership, it is
guaranteed a four year cash bonanza of £120m even if they just stay for one season in the
league.

On top of this, a few top clubs have access to European football which in addition to
further prize money and TV fees can help to build a global brand and fanbase, and with it
access to even more revenue.

All of this gives many clubs a huge incentive to spend more money than they can afford, in

2 Information from interviews

11
order to try to achieve success and access to greater revenue flows.

But there is a problem. On the whole football clubs make little or no profit. The pressure to
compete leads to clubs spending any excess cash on transfer fees or players’ wages.
When a club gets to the next level revenues may increase - but so too will transfer fees
and wages for the necessary calibre of players to compete.

In this context financing football clubs becomes an unattractive prospect. Shareholders are
unlikely to see dividends, so new share issues are unlikely to be popular. But at the same
time clubs would be unwise to take out much debt given the prospect of bankruptcy if
things don’t go to plan. Besides, it would be difficult to convince normal commercial
lenders to loan money to a club for the purposes of trying to climb up the league given the
huge risks in that strategy.

With the economics of football as they are, we might expect to see clubs financed
conservatively, with low levels of debt, mostly to cover short term payments and turning
over very small profits. Using as much cash as they can to invest in the squad, with a loyal
shareholder base who value more the pride in having a stake in their club than any
potential financial returns. Accrington Stanley is a club which works on this model.

Instead what we see is a huge amount of debt. Our analysis shows many clubs in the
offshore league rely heavily on using debt finance rather than equity. Some 12 clubs had
negative shareholder funds. This means that the value of the assets of the club is lower
than the amount owed to lenders. In financial terms these clubs are worth nothing, indeed
they are technically bankrupt. This is what led Egon Franck a Swiss academic to describe
European football as a “zombie race”.

When we look at the finance coming only from offshore, in total 16 teams saw most of their
finance come in the form of loans with an offshore loans to equity ownership ratio of more
than 50%. Overall the average amount of loan finance coming from offshore is 47% of the
total finance in the club.

So how do clubs survive? More often then not, the loans taken out by clubs are with the
owners of the club.

In the Offshore League report we counted loans that could be identified as coming from
offshore. The vast majority of these were found in the related party transaction notes of
companies, which state when a company has made a transaction with another company
that is related to it. In most cases the loan came from the offshore holding company.
These can be soft loans where there are sometimes no interest payments, and there is
often an agreement that the payments terms will be extended or the loans will be written
off if the club can’t pay.

But buying success is not the only reason why clubs use finance. Sometimes investors
can engineer greater profits for themselves by getting clubs to use financial instruments.
The best example of this is Manchester United. Manchester United is a club at the top of

12
the game. It does not need to pay way above the odds convincing Brazilian World Cup
stars to play for them. World Cup stars want to play for Man U (albeit the last couple of
years of limited on-field success won't have helped). With a global fan base, it also has the
prospect of a huge market and revenues big enough to cover the high wage demands of a
Premiership football team.

The cash available from this opens up new possibilities in debt finance, in particular the
prospect that the owners may use that cash to pay off their own loans rather than invest in
the club or hold down ticket prices for fans. In the section on Manchester United below, we
discuss how companies can pay for themselves with leveraged buyouts.

But if you aren’t a Man U fan, why should you care if the club’s owner wants to stick a load
of cash into your club if he has little chance of getting it back, and there are no interest
payments?

The problem is that these loans can be called in and if an owner chose to do so it would
mean the club would be in a huge amount of difficulty. In the offshore game many of the
clubs live or die, dependent on debt in the control of one person. If an owner was to
suddenly to call in the loans, it could be game over.

This is essentially what happened to Hearts, An Edinburgh club. In June 2013 the club
entered administration. A month earlier the club’s owner, Vladimir Romanov, had fled his
native Lithuania after being charged with embezzling millions from financial institutions he
had set up. These banks were taken into administration and forced to call in their debts.
They had loaned £25m to the club.

As a result of this the entire Hearts squad was put up for sale. The club could have lost its
stadium as the ground was put up as collateral for the loans. In the end a rescue package
was put together and the club was taken into fan ownership. However, the club was
dancing with death as creditors were slow to reach a deal.

Hearts went into administration and was docked 15 points for the 2013-14 season, a
deduction that proved decisive as they were relegated that year. The club is now making
its way back to the Scottish Premiership.

13
Measuring the offshore game
To gain a greater understanding of how football is financed by offshore, the Offshore
Game team undertook a study to find out how much finance in the UK professional football
leagues came from offshore companies. We focused on companies rather than people
because if a person directly owns a club that is the most transparent ownership structure
you can get.

To undertake this exercise we first of all looked through the annual return for every club in
the UK professional leagues to see if any offshore companies owned more than 10% of
the club. If the club was majority owned by a UK based holding company we also checked
the shareholders of that company too.

We relied on returns filed for 2013/14, so that we can judge all clubs on the same basis.
Unfortunately this means that where there has been more recent change in finances -
Rangers is a particularly glaring example - the results are out of date.
In total we found significant offshore ownership in the UK holding structure of 33 clubs.
These clubs were spread out across all levels of professional football, from giants like
Manchester City, to Southend United, an Essex seaside club owned in the British Virgin
Islands.
We then set out trying to quantify how much finance each club that we were then looking
at had from offshore. To do this we used the concept of enterprise value, and looked at the
enterprise value of the top holding company in the UK for which consolidated accounts
were available. This is because football clubs are not always one company but a number
of companies grouped into one ownership through a holding company. The consolidated
accounts of the top company incorporates all of the information about the subsidiary
companies so it gives the best overall picture of the worth of the operation as a whole.

Enterprise value is one way in which financiers value companies. It looks at the entire
value of the finance of the club, rather than the assets in isolation. Enterprise value broadly
is defined as being the sum of the value of total debt and share capital of a club. The idea
that this reflects is that when you buy a company you not only take control of the equity,
but you also take on the responsibility for paying back its debt.
Often the value of share capital is measured by looking at the market value of the
company’s shares multiplied by the number of shares that exist, but this is only feasible if
the company in question is quoted on a recognised stock exchange. This is not possible
for most football clubs as only a few clubs sell their shares on the stock market. Most
football clubs are private companies where the shares are not for sale on public markets
and so there is no readily available price that is published for each share in the company.
For the purposes of the Offshore League we therefore looked at the shareholder funds of
the company instead. Shareholder funds represent the amount of money the shareholders

14
have actually invested in a club plus the accumulated profits or losses of the company
over time that have not been paid out to the shareholders. In other words, they are the
assets of the club, minus what is owed in debt. These two figures must be the same
because that is what a ‘balance sheet’ of a company always implies. For our purposes this
figure is the best indication of the value of the club owned by the shareholders that we can
get. We accept that the value of the shareholder funds may be different from the market
value of the shares, as a potential owner may be willing to pay over the odds to gain
control of the club. But as all companies in the UK publish the value of their shareholder
funds it provides us with a good comparison between clubs which are listed on the stock
market and clubs held privately.

It is important to note that the value of shareholder funds can be negative: this means that
the club has more debts than assets. This implies that if a club went bankrupt and all its
assets were sold off the company would still not be able to pay off its loans. As debt
holders are paid before shareholders in a bankruptcy, negative shareholder funds
effectively makes the value of shares in the club worthless, at least in the event that the
company hit hard times and had to be wound up.

Out of the teams in the offshore league, there were 12 with negative shareholder funds. In
these cases we counted the equity value of the club to be £1.

Once the shareholder funds of a club had been established, the value was split by the
jurisdiction or jurisdictions owning the shares. For example, if a club had shareholder funds
of £10m, and 70% of the shares were held by a company in Bermuda and 30% by a
Cayman company we attributed £7m of equity to Bermuda and £3m to the Caymans.

We then looked at the loans made to a club. In order to get a value for the amount of loans
coming from offshore jurisdictions we looked though the accounts for identifiable loans
from offshore companies.
UK companies are required by UK law to record transactions with related parties, which
are companies connected to their owners or directors. This includes loans made to the
club from companies related to the owners of its shares. So it is possible to see when
loans are made by offshore companies are from entities connected to the club.
The reason why clubs are often funded by loans from the owners has a lot to do with the
financial structure of the game. As we noted earlier, a company which does not have large
profits will find it difficult to attract loans.

Football clubs do not often make profits because spare cash is reinvested into wages and
transfers. So loaning money to a football club is usually a much higher risk investment
than loaning money to let’s say, a water company, which has very stable revenues and
good profit levels.
It is a fact of financial life that when companies make loans to riskier third parties, they will
either seek a greater interest rate, or more security. Security can come in the form of a

15
right to claim one of the company’s assets to repay the debt owing in the event that the
company fails to do so. This is, of course, equivalent to a mortgage on a person’s home
from a bank or building society.
Football clubs have few fixed assets that are suitable for use as security for loans. By far
the most important is the stadium, and there are a number of clubs that have mortgaged
their grounds. Other assets of the club are mostly player’s contracts. These assets
depreciate quickly and are difficult to finance. Although some countries do have third party
player ownership as a way that outside companies can finance players, this practice is
officially not allowed in the UK.
In addition in football there is also the “football creditors rule”. This means that in the event
that a football club goes bankrupt, players wages, transfer fees to other clubs and any
payments outstanding to the league need to be paid off before anyone else – including the
tax man and people who have loaned the club money.
All this makes financing clubs from third parties a difficult exercise, and that is why very
often loans to football clubs come from the owners of their shares, who have control over
the club. Control is the ultimate security.

Where we were able to identify a loan to a club from an offshore company we added the
amount of that loan to the amount of equity owned by that jurisdiction from which that loan
appeared to have come. So for example, if a club was worth £10m, and 70% of the shares
were owned by a company in Bermuda, and the club also had a £30m loan from that
Bermudan company then the total amount of finance attributed to Bermuda was £37m.
Occasionally we also found loans from non-shareholding companies listed in the accounts
which we were able to identify as being from offshore companies. Where these were found
they were also added to the total.

It should be noted this means that the total amount of offshore loans that we have
recorded is probably an underestimate. What we found was limited to what we could
identify in the accounts of the clubs, and it is quite possible that there will have been more
loans made from unrelated offshore parties than we will have identified.

For example, there is a company called Vibrax Corporation based in the British Virgin
Islands which has loaned money to clubs like Everton, Southampton and West Ham. We
do not know who owns that company. These kinds of loans were beyond the scope of our
study.

However for the reasons stated above, the vast majority of loans are likely to be from the
owners of clubs and so the amount of finance that we can identify is a good starting point
for this study.

16
Measuring Financial Secrecy
Not all offshore financial centres are equal in terms of the amount of secrecy they offer.
For example, Switzerland has for a long time had strict laws on banking secrecy. This
allows individuals to hide their private bank accounts. The offshore speciality of The British
Virgin Islands, in contrast, is company secrecy. It is extremely easy to form a BVI company
and extremely difficult to find out who is behind it.

The Tax Justice Network created the Financial Secrecy Index as a tool for looking at the
various levels of secrecy of offshore financial centres. The FSI was launched in 2009 and
is published every two years.

It is underpinned by a vast database which looks at 202 different criteria for each secrecy
jurisdiction. The criteria cover legal structures, administrative powers, tax and regulations.
The database is collected and updated by a team of dedicated researchers and covers 82
different financial centres.

The TJN’s Financial Secrecy Index contains two components; a Secrecy Score and a
Global Scale Weight. The Secrecy Score is a score based on how secretive and lightly
regulated a financial centre is. The Global Scale Weight looks at the amount of finance
which passes though a particular offshore centre. These values are then combined to
create the Financial Secrecy Index.

The volume score is included to give a fuller picture of the importance of an offshore
financial centre to the world economy. Clearly some secrecy jurisdictions have a much
greater impact on global financial flows than others.

So for example although the tiny Pacific Island nation of Nauru has a relatively high
secrecy score of 79 out of 100, the amount of finance passing through Nauru is so small it
doesn’t register on the Global Scale Weight. This means Nauru features at the bottom of
Financial Secrecy Index.

The Index also demonstrates the importance of some major financial centres, such as the
United States to the offshore economy. The United States is a secrecy jurisdiction as
some states offer highly effective secrecy services.

Delaware is the most important state in this regard. In Delaware, a small state on the
highway between New York and Washington, it is incredibly easy to set up a business.
There is no requirement that you have any physical presence in the state and no
requirement to disclose who owns the company.

Delaware companies as a result have become incredibly popular. Delaware has more
companies than people. At just one address, 1209 North Orange, there are 285,000
registered businesses.

17
These businesses include American Airlines, Bank of America, Coca-Cola, Ford, Google
and other top companies. It has also been used as the address of convicted fraudsters
and gun runners.

You can get more information about the Financial Secrecy Index and a full breakdown of
the methodology from the FSI website. http://www.financialsecrecyindex.com

18
Creating the offshore league
In order to create the Offshore League, like the FSI, we looked at both the amount of
finance coming into clubs from offshore, and the level of secrecy granted by the offshore
jurisdictions providing that finance.

In order to do this we created a league based on a score which has multiplied the amount
of finance from offshore jurisdictions by the secrecy scores from the Tax Justice Network’s
FSI in order to create an offshore game score that the teams were ranked by.

The FSI secrecy score plots the secrecy of a financial centre on a range from 1 to 100.
Because the amount of finance can run into hundreds of millions, an index that simply
multiplied the two would lead to the final scores being overwhelmingly weighted towards
the size of the club in financial terms. Instead we take logs (base 10) of the amounts of
finance from each jurisdiction, and use these to weight the secrecy score for that
jurisdiction.

When we could not find where a holding company of a club was based we gave it the
maximum secrecy score. In the case of Sheffield United, where one of the holding
companies is simply listed as being in “the West Indies” we used the top secrecy score for
a secrecy jurisdiction in that region of the world.

So if we take for example a club with a total finance of £10m of which £6m comes from the
Luxembourg and £4m from St Kitts in the Caribbean then the Offshore Game score of the
club would be 6.778 (log10 of 6,000,000) multiplied by 0.6 (the proportion of finance
coming from Luxembourg) multiplied by 67 (by the Financial Secrecy Index secrecy score
of Luxembourg) plus 6.602 (log10 of 4,000,000 from St Kitts) multiplied by 0.4 (proportion
of finance from St Kitts) multiplied by 80 (Financial Secrecy Index secrecy score of St
Kitts). In total this club would have an offshore game score of 484.

19
The Offshore League
Below are the results of the offshore league which is our ranking of teams based on a
combination of the amount of finance they have coming from offshore, and the secrecy
score of the jurisdiction from where their finance comes.

There follows a full description of our analysis of the top 5 clubs, followed by brief details
from every other team in our league.

We gave every club the opportunity to provide a comment for our report on why they are
owned in whole or in part though an offshore holding company. At the same time David
Conn of the Guardian contacted all of the clubs in the Offshore League as part of a feature
on the offshore ownership of football clubs based on our work. Where responses were
received by either the Tax Justice Network or the Guardian those responses have been
included and it is indicated whom those responses were made to.

20
The League
Team Total Finance Equity from Debt from OG
Offshore Offshore Offshore score

1 Man City £445,770,264 £434,870,264 £10,900,000 683

2 Bolton £151,305,001 £1 £151,305,000 646
3 Bournemouth £20,815,394 £12,066,226 £8,749,168 644
4 Spurs £116,661,250 £66,661,250 £50,000,000 622
5 Man Utd £1,054,419,000 £882,922,000 £171,497,000 614
6 Sunderland £47,030,000 £34,953,000 £12,077,000 575
7 Fulham £13,439,000 £13,439,000 £0 570
8 Celtic £16,426,389 £15,048,155 £1,378,234 570
9 Rangers £5,732,446 £3,474,902 £2,257,544 569
10 QPR £165,684,001 £1 £165,684,000 551
11 Coventry City £43,976,553 £1 £43,976,552 535
12 Arsenal £242,919,266 £242,919,266 £0 512
13 Preston North End £30,406,000 £13,097,000 £17,309,000 501
14 Dundee Football Club £277,253 £277,253 £0 479
15 Liverpool £127,924,000 £60,296,000 £67,628,000 470
16 Albion Rovers £214,097 £213,342 £756 469
17 Dumbarton £643,604 £643,604 £0 465
18 Aston Villa £94,627,283 £5,970,000 £88,657,283 463
19 Wolves £7,486,500 £7,486,500 £0 461
20 Birmingham £3,847,001 £1 £3,847,000 460
21 Southend United £4,584,410 £1 £4,584,409 440
22 Shrewsbury Town £3,370,495 £3,370,495 £0 431
23 Derby £26,706,665 £1 £26,706,664 431
24 Millwall £18,213,001 £1 £18,213,000 421
25 Sheffield Wednesday £13,224,000 £2,086,000 £11,138,000 413
26 Cheltenham Town £180,153 £180,153 £0 367
27 Blackpool £12,142,570.40 £4,874,402 £7,268,168 361
28 Blackburn Rovers £38,997,444 £38,997,444 £0 349
29 Charlton £20,559,000 £5,172,000 £15,387,000 329
30 Watford £24,077 £1 £24,076 294
31 Leicester £117,761,001 £1 £117,761,000 258
32 Ipswich £75,437,001 £1 £75,437,000 167
33 Sheffield United Ltd £1 £1 £0 84
34 Hartlepool United £1 £1 £0 66
£2,956,752,552 £1,844,143,867 £1,112,608,695 455

21
The Top Five
1. Manchester City
A total of £445,770,264 of Manchester City’s finance comes from offshore, which is 69% of
the total value of the finance in the club. This is a relatively high amount, on a simple
measure of the amount of finance from offshore Man City is the second highest.

The offshore holding company, Abu Dhabi United Group for Development and Investment
which ultimately own Man City is based in the United Arab Emirates.

The UAE has a secrecy score on the Financial Secrecy Index of 79 out of 100. The
country has a financial centre based in Dubai which, is one of the world’s smaller financial
centres. The Financial Secrecy Index report says:

“The UAE’s low-tax environment and numerous free zones; the provision of various
secrecy facilities and a strong tradition of an ask-no-questions approach to commercial or
financial regulation or to foreign financial crimes, has attracted large financial flows – and
some of the world’s most high profile criminals.”

Of course, much of the economic activity in the UAE will be entirely legitimate and there is
no suggestion Manchester City Football Club, Manchester City Limited or Abu Dhabi
United Group for Development and have have broken any laws. This is simply the financial
environment which they operate in.

The combination of the high secrecy score from the UAE and the relatively high amount of
finance coming from offshore means that Manchester City comes top of this year’s
Offshore League.

Manchester City Football Club Limited is owned by Manchester City Limited, which is in
turned owned by Abu Dhabi United Group for Development and Investment.

Little is known about that company and originally it was thought to be part of the Abu
Dhabi sovereign wealth fund, but this was denied by the government of Abu Dhabi. It is
described as a private equity fund. The beneficial owner as declared in the accounts is His
Highness Sheikh Mansour Bin Zayed Al Nahyan (half-brother of UAE president and Emir
of Abu Dhabi, Sheikh Khalifa bin Zayed Al Nahyan).

However, what we can be fairly sure of is that Abu Dhabi United Group for Development
and Investment is not the company which manages the club or indeed the estimated
$20bn in assets held by Sheikh Mansour on a day to day basis. That is because it has just

22
one employee.3

Unlike many other clubs, Man City has received a lot of its funds in the form of equity
rather than debt. In total the shareholder funds owned by Abu Dhabi United Group is
£434,870,264. Just 2% of the finance provided by Abu Dhabi has come in the form of
loans, which is a £10,000,000 loan to Brookshaw Developments Limited, a company
owned by Manchester City Limited. As we will see later this is in stark contrast to the way
in which city rivals Manchester United were purchased. It is a reflection of the vast wealth
of Sheikh Mansour that he can buy a Premiership football team of the size of Man City
without any need to borrow money.

It also means that Manchester City’s huge spending spree over the last few years,
although financed from offshore, has not needed to rely on debt. This puts the club on a
far more sustainable financial footing than others.

The massive wealth of the beneficial owner of Man City, and its willingness to pour it into
the transfer market has led Man City to be referred to as the richest club in the world. But
the distortion in competition created by the increasing number of clubs owned by the
super-wealthy has led to footballing authorities to seek to rebalance the playing field with
the financial fair play (FFP) rules.

Man City has already fallen foul of these rules, receiving a fine and a cap on wages and
transfers from UEFA.

Although in this case Manchester City has agreed to accept the fine levied on it by UEFA,
offshore does provide some scope for blurring the financial fair play rules.

The FFP rules means that clubs cannot operate at a loss for a sustained period. This
means that if a club wants to spend more, it needs to earn more, and those earnings must
be real earnings, not large cash donations from wealthy owners.

The most straightforward way to get around these rules is for a company owned by the
same owners of the club to buy something from it for more than it would normally be able
to get.

Football clubs get their income from ticket sales, TV rights, sponsorship and commercial
operations (selling shirts for example). The owner cannot easily influence ticket sales, TV
rights and the club shop, but it can influence sponsorship if it owns other companies that
might want to advertise with the club.

This was an issue that was raised with Manchester City. UEFA considered the £40m a
year sponsorship deal with Etihad Airways to be suspicious. And it was right for them to
question the deal. Etihad as an airline business makes a profit of $62m (£41m) at its last

3 Abu Dhabi company register

23
annual report, only slightly more than it pays the club in sponsorship.4

The sponsorship deal was not counted as a related party transaction by City’s
accountants, although the head of Etihad Airways, is a member of the same family as
Sheikh Mansour. Of course what would be extremely difficult to know is whether there
were any business ties between offshore companies controlled by the family members.

In the end UEFA accepted that the main Etihad deal was not a related party transaction
but didn’t accept some secondary sponsorship agreements. What the sponsorship deal
does show is the complicated and difficult judgements which have to be made when
looking at trade between companies which may be linked, and how offshore makes those
judgements more difficult.5

Comment from Manchester City

The club told the Guardian: “ADUG is a holding company and to date it hasn't done more
than that. Given the size of our brought-forward losses we are unlikely to pay corporation
tax in the near future. With the higher rate of tax being in PAYE (45% +13.8%), this is
where a substantial amount of our cost (and loss) is. There is no construct of corporate
entities designed to avoid straight tax compliance in the UK or other territory.”

4Etihad annual report 2013

5Rumours in the press now suggest that Man City is renegotiating the sponsorship deal for an even greater
amount with Etihad of up to 80m a year. Which will surely raise the issue again

24
2. Bolton – Mystery loans
Bolton Wanderers comes in second place in our offshore league. Bolton is mid-table when
compared against some of the Premier League giants in the amount of finance coming
from offshore in pure volume terms. It has a total of £151,305,000 in finance coming from
offshore, putting it in 6th place in terms of volume.

However, that finance is hard to trace. The owner of Bolton Wanderers Football and
Athletic Company Limited as stated in the accounts is Burnden Leisure PLC. The Fildraw
Private Trust, owns 95% of Burnden which is based in Bermuda. The Bolton website
states that the majority shareholder of Bolton Wanderers Football and Athletic Club
Limited is Eddie Davies OBE & CBE.

Technically speaking, this is incorrect, Mr Davies may be the beneficiary of the trust that
owns Bolton’s parent. But the majority shareholder is Burnden Leisure Limited.

To complicate things further most of the finance doesn’t come from Fildraw, but from
Moonshift Investments Limited. Online forums state that Moonshift is registered in the
British Virgin Islands, but the Offshore game team could not find any official record
confirming this.

It is also frequently stated in online forums that Moonshift is “owned” by Eddie Davies. In
reality, the annual accounts of Burnden Leisure simply state that Eddie Davies has “a
beneficial interest” in Moonshift. In other words, he does have some rights to profit from
the company, but nowhere does it state that he is the owner of the company. 6 From what
is written in the accounts, it is perfectly possible that another person altogether controls
Moonshift.

In total Bolton has £151,305,000 in loans from Moonshift Investments Limited. This is the
entire amount of finance that comes from offshore as the shareholder funds of Burnden
Leisure Limited are negative. The liabilities of the club in terms of loans and other
payments they need to make are greater than the assets of the club.

Bermuda and the British Virgin Islands are two of the most notorious of the Caribbean
Secrecy Jurisdictions. Bermuda has one of the highest secrecy scores in the FSI at 80,
and the BVI 66.

Bolton provides the perfect example about how ownership can be, complicated and
obscured by offshore. The shares of Burnden Leisure PLC are majority owned not by a
person but by a trust. That trust is controlled by a company, the Fildraw Private Trust
company, again not by a person. Bermuda does not have a public register of directors or
shareholders. Instead these records are held by the company themselves. So we do not
know who directors of the Fildraw Private Trust Company are. In reality it is incredibly
difficult if not impossible to know who are the real human beings controlling the company
and the club.

6 See Burnden Leisure Annual Accounts 2013, note 31

25
Eddie Davies is the beneficial owner of the Fildraw trust, but that does not mean he has
any say in how the trust is managed or run. Trusts are a mechanism by which day to day
control of assets is separated from the people that benefit from a company.

The money, in the form of loans, comes from another unknown party Moonshift. Bolton
find themselves in a position where they are entirely dependent on loans from an offshore
company about which next to nothing is known about, and controlled by a company about
which we also know very little.

26
3. Bournemouth – lost at sea?
Bournemouth comes in third place in the Offshore League. They have a relatively low
amount of finance from offshore sources at £20,815,394. This puts them in 17th place in
terms of the volume of finance. However their high Offshore Game score is because there
are no records showing where the holding company of the club is based.

AFC Bournemouth Limited is wholly owned by AFCB Enterprises Limited. After searching
on a variety of sources, it could not be determined where AFCB Enterprises was located.

The beneficial owner of the club is Maxim Demin. Nothing much is known about Maxim.
He is a Russian and describes himself as a petrochemicals trader. He doesn’t come to
games because he thinks he is jinxed, and doesn’t give press interviews.

That’s pretty much all we can say about Bournemouth and its ownership structure – and
pretty much all that fans may be able to glean from public sources with certainty. This is
how the Cherries manage to reach such a high position in the offshore league.

Bournemouth declined to comment for the publication.

27
4. Tottenham Hotspur - Subsidy
Tottenham Hotspur is in fourth place in the league. Tottenham Hotspur Limited is owned
by ENIC International in the Bahamas. Spurs have a mixture of debt and equity financing.
It also received finance from Macon Inc. The owner of both companies is Joe Lewis, a tax
exile in the Bahamas. Lewis is estimated to be worth between £1.5 and £2.8 billion.

Tottenham Hotspur is a football club located in one of the poorest parts of London,
Northumberland Park. The area has high rates of crime, poor health indicators, high
unemployment and teenage pregnancy.7 It is partly due to the decades of neglect the area
had suffered that it was the epicentre of the violence that exploded across London a few
years ago.

The club is looking to expand their stadium, but needs land to do so. The Northumberland
Development Project as it is called, is more than just a stadium. The plans involve building
a new hotel and luxury homes.

The project involves a substantial amount of support from taxpayers. Tottenham originally
told the local council that the development of the new stadium would not be financially
viable without support from them. The club said if they didn’t let it off some of their
planning obligations they would go and play elsewhere.

The local council then agreed to pay for local infrastructure to support the scheme, to
waive the requirement to provide affordable housing as part of the scheme and to support
a compulsory purchase order to remove some of the landowners around the stadium.

The drop in the affordable housing was justified to allow Tottenham more money from
luxury homes to build the new stadium. Haringey even agreed to demolish an existing
council estate to create a nicer walkway to the stadium.8

In total the local council and the mayor are paying £41m to improve infrastructure in the
local area. The local authority are waiving £16m of planning obligations that would
normally have come from the club.

A public inquiry was held to determine whether or not to grant a compulsory purchase
order to allow Tottenham to proceed with the plans. A government inspector
recommended that the order be refused, saying:

“The principle benefit would be for a private business while the public benefits of
regeneration would be at considerable cost to the taxpayer, and there would be no
affordable housing. The s106 concessions were made by the council in the context of the
claim that the stadium would not be viable and the club might move away.”

The Secretary of State approved the order anyway. He thought that the benefits of having
a new stadium and the potential for economic development from the stadium plans
outweighed these concerns.

7Inspectors report, CPO inquiry, Northumberland Development Project, the case stated by the council.
8David Conn’s excellent article on the Northumberland Development Project can be found here:
http://www.theguardian.com/football/2013/oct/30/tottenham-new-stadium-fury-regeneration

28
If the stadium project is ever completed, the revenue generating potential of the club will
increase, and this is bound to have a positive impact on the value of the club.

If Joe Lewis was to sell the club, it is unlikely that he will pay any taxes on the capital
gains. After all the holding company ENIC International Limited, is based in Bahamas.

All this may be galling for taxpayers, but perhaps even more so to Tottenham’s rivals, who
are watching public money being used to support the club in which will boost their financial
strength, and allow them to become more competitive.

Comment from Tottenham Hotspur

A representative of Tottenham Hotspur told us that the club itself is a UK entity and as
such pays all the respective UK taxes. The ownership of the Club has no relevance to the
operations and tax position of the Club itself.

The spokesperson also stressed that many of the infrastructure upgrades being made by
the local council and the Mayor around the new stadium redevelopment would have been
necessary regardless of whether a new stadium was planned or not. Tottenham were keen
to stress that their planning application and compulsory purchase order was approved by
the Secretary of State after he determined that the scheme was in the public interest.

29
5. Manchester United – Private
Equity and dynasties
In fifth place in the Offshore League is Manchester United. Manchester United is run by
Manchester United Football Club Limited. It has a complicated series of holding
companies in the UK, which are all owned by Red Football Holdings Limited. That
company is owned by Manchester United PLC which is based in the Cayman Islands. 90%
of Manchester United PLC is owned by
Red Football LLC, based in Delaware,
which is in turn owned by trusts
controlled by Malcom Glazer's sons.

For our analysis we looked at Red

Football Limited (UK) as it was the top
company in the UK to present
consolidated accounts, which includes
the subsidiaries.

Manchester United has by far the most

finance coming from offshore. Being one
of the few clubs with the potential to turn
a substantial profit, it has a high amount
of equity. In addition it has a large
amount of debt issued out of
Luxembourg.

But Manchester United still comes in

‘only’ fifth in the league because the
Cayman Islands and Luxembourg have Figure 1 Manchester United's corporate structure as
a lower secrecy score than some of the set out in the US Stock Market Filings from 2012
http://www.sec.gov/Archives/edgar/data/1549107/0001
secrecy jurisdictions used by the other 04746912007537/a2210287zf-1a.htm
clubs.

Manchester United’s corporate structure is by far the most complex in the league, and may
facilitate several types of tax avoidance. There is no suggestion that these structures
break any laws or that the club does not pay all the taxes it is legally obliged to pay.

Trusts and inheritance tax

Malcolm Glazer died in 2014 after a long illness dating back to 2006. Trusts to hold the
assets of the family were set up for the benefit of his sons years before his death.

Trusts hold assets on behalf of someone else, separating legal ownership from the

30
beneficiary. In some circumstances they can last forever, which creates a way of passing
assets between generations without changing ownership. The Tampa Bay Times, after the
death of Malcolm Glazer, reported that the trusts were possibly set up to avoid inheritance
tax on the assets of the family, including Manchester United.

It wouldn’t have been an insignificant dodge. Inheritance taxes in the United States can be
up to 40% on high value estates. The value of the shares in Manchester United held by the
Glazer trust was $2.2bn at the time of Malcolm's death.

Inheritance tax is one of the few taxes which are paid on the value of assets. In very
simple terms if you own something worth £1m on death the managers of the estate have
to make a cash payment equivalent to the value of the tax. So if an inheritance tax charge
is 40%, the executors of the estate have to pay £400,000. If the managers of your estate
do not have cash available to pay the tax charge they will have to sell the asset to pay the
tax. In reality it is a bit more complicated than that because most countries have an
amount which you can pass on tax free. In the UK it is £325,000, and there are other
exemptions too. But we can safely say that the Glazers assets far outstrip the tax-free
amount.

So there are two issues with inheritance tax avoidance. The first is a loss of revenue for
the government. The second, and more significant is that through avoiding inheritance tax
families become dynasties, keeping control of assets like medieval nobility. Manchester
United, bought by Malcolm Glazer, is now part of the family’s assets, and may remain
there forever more.

But it must be said that inheritance tax planning, as it is called in the business, is a very
common form of tax avoidance and there is no reason to believe the Glazer family have
done anything illegal in the way they have structured the ownership of Manchester United
or any of its wider interests.

The pervasiveness of inheritance tax avoidance is one of the key reasons why there has
been an increasing concentration of wealth in the world, according to bankers Credit
Suisse.

Private Equity and capital gains

Manchester United's offshore structure is also interesting for another reason. With a global
fan base Man U is one of the few clubs with the potential to make huge profits. As a profit
making company it is also has the potential to generate taxes.

Taking profits offshore is a widely used way of avoiding taxes, although the situation with
Man U is very complex.

Manchester United's Cayman Island's company was set up for its stock market listing in
2012. The Cayman Islands imposes no taxes on Manchester United, and as part of the
deal, the Governor of the Cayman Islands, the representative of the Queen and a British

31
Government Official, on the orders of the Cayman Government, signed an agreement with
Man U that it would be exempt from any future changes in tax legislation to impose new
taxes for the next 20 years.9 Proving surely beyond doubt that the Queen is a Man U fan.

But strangely by moving to the Cayman Islands Manchester United actually increased their
tax rate on corporation tax. Before the move to Cayman Manchester United was a UK
company owned by a United States partnership. Profits on the UK part were subject to UK
tax, the US partnership profits subject to US tax.

The United States has rules to prevent companies moving offshore to avoid taxes. This
meant that when Manchester United was moved to the Cayman Islands it brought the
whole group under US corporation tax, which at 35% is significantly higher than the UK's
22%.10

However the change in rate matters little because the profits (which is what the higher rate
applies to) are not the principle means of extracting value from the club. What is important
in a private equity transaction is capital gains. If the club had listed its shares in London
this would have meant that the US holding company would see a 15% capital gains tax
charge on their asset. Given the nature of the Glazers’ investment in Manchester United
avoiding capital gains tax is a more important issue.

The Glazers’ investment in Manchester United is a typical private equity style investment.
In short the Glazers used borrowed money to buy the club and then use the cash
generated by the club to pay the loan back. This is a very common private equity
technique and is how most UK water companies have been bought as well as the AA,
Boots, Comet and other household names.

There are a number of big advantages of using debt to finance the purchase of a
company. Most are driven by the tax system.

The first is that by using debt, or leverage as it is called in the financial sector, you can
super-charge your capital gains.

The best analogy for this is buying a house. If you buy a house worth £250,000 with a 90%
mortgage you put in £25,000 of your own money and the bank lends you £225,000.

If the value of your house increases by 10% the house is worth £275,000. Sell it and you
pay back £225,000 that you borrowed from the bank and pocket £50,000. A 10% increase
in the value of your home has led to a 100% increase in the value of your investment.

Hence the term leverage. By using debt, you lever your returns.

9See Manchester United PLC share prospectus

10 A discussion of the tax consequences for Manchester United of their listing on the New York Stock
Exchange and the move to the Cayman Islands can be found here:
http://uk.reuters.com/article/2012/07/12/uk-manchesterunited-ipo-caymans-idUKBRE86B1HP20120712

32
This is exactly what the Glazers have done too. The big difference of course is instead of
buying a house, they have bought a football club. The amounts of money involved are
much bigger and crucially, if you live in your home the house doesn’t generate income,
whereas a business can.

The potential for Manchester United to generate revenue for the Glazers leads us to the
second big advantage of private equity style deals, which is the tax treatment on debt.

By exploiting the difference between taxes on dividends and interest payments, private
equity companies get a tax break for buying companies.

The trick works like this. A company is set up to buy an asset and borrows money which it
uses it to buy the asset.

The acquiring company usually does nothing other than take out loans and buy another
company. It normally has no independent means of raising revenue. With the Glazers,
their company Red Football Limited was set up solely for the purpose of holding
Manchester United Limited.

If the companies stayed separate the acquiring company would have to wait for a dividend
to be paid from the company it has bought before it could pay off its debts. If it didn’t get a
dividend it would quickly go bust as it would not have the income to pay off its loans.

In other words it would have to make sure that the company it had bought was making
good profits and paying taxes so that it could get its hands on some of those post tax
profits though a dividend.

The trick is to get your hands on the revenue of the company you have bought before it
makes a profit and pays tax. To do this the acquiring company shifts the debt it used to
pay for the company onto the company it bought.

If this happens, the company that has been bought, instead of paying a dividend, pays off
the loans used to buy the club. It does so before tax is paid, which makes paying back the
money used to take over the club a lot easier. The new owners get the club to pay for their
purchase, and get a tax break for doing so.

Again in Manchester United's case, this whole process was set out in the offer to
shareholders from Rothschild’s when the Glazers were bidding for total control of the club.

Red intends to procure that Manchester United makes applications to the United Kingdom
Listing Authority for the cancellation of the listing of Manchester United Shares on the Official
List and to the London Stock Exchange for the cancellation of trading in Manchester United
Shares. It is expected that such cancellations will take effect no earlier than 20 business days
after the date of this document, but in any event no later than 30 June 2005.

It is also the intention of Red to propose a special resolution(s) to re-register Manchester

33
 United as a private company and to procure (among other things) that all obligations incurred
under the term loan facilities described in paragraph 8(c) above are guaranteed by, and
secured over the assets of, Manchester United and the Club.

It is unlikely that Manchester United Shareholders who do not accept the Offer will receive
the same level of future dividend payments (if any) in respect of their Manchester United
Shares as have been previously declared and paid.

Once this operation has been completed the tax advantage for private equity owners is
that profits manifest themselves as capital gains.

Because shares are a right to company profits, shares in companies that make profits, pay
dividends and are debt free are obviously worth more than shares in companies that don’t
pay dividends and have tonnes of debt.

A private equity deal destroys the value of shares by loading debt onto the company and
reducing its profits. This is why private equity relies on total control of the asset, and why
shares are taken off the stock market. Minority shareholders would not accept their value
being destroyed to loan money to someone else to buy part of the club.

In economic terms when private equity buys a business with borrowed money they get
what they pay for. They put in a small amount of their own money to take control of all the
shares, but because of the increased debt and interest payments those shares aren’t
worth much.

However, as the debt is paid off the value of the shares you own increases. This can be
very attractive for private equity owners.

Again, if you own a company directly and it pays a dividend, apart from the tax paid by the
company before the divided comes to you, you will also pay income tax on the money you
receive.

If you buy a company and the value of the company increases, when you come to sell that
company the money you make is not income, but a capital gain, which is taxed differently.

In the UK the top rate of income tax is 45%, but capital gains tax is 28%. Until recently the
difference was even bigger. The top rate of income tax was 50% and capital gains tax
18%. In the Cayman Islands capital gains tax is 0%.

In the States the top rate of income tax is around 40%, but capital gains tax is 15%. The
Glazers, through the deal they did on Manchester United shift the return on their
investment from income to capital and therefore pay a lower amount of tax on their wealth.
That is, if they pay any tax at all given the trust structure through which the Glazers own
everything.

The Manchester United deal demonstrates how leveraged buyouts effectively manage to

34
avoid taxation twice. Once at the corporate level by shifting the profit distributed out of the
company from dividends to debt interest, and again on the receiver side by shifting returns
from income to capital gains.

It is impossible to work out exactly how much tax the Glazers have avoided though using
this technique, since it will depend on a whole range of variables, most of which are not
publicly visible due to the location of the trusts and holding companies. What we can say is
that the Glazers have made huge amounts of money for doing very little other than to
channel the proceeds of gate receipts and TV deals towards the banks and hedge funds
that gave them the money to buy the club.

When the Glazers bought the club they put in £272m into the deal but only a small amount
of that was in cash. Around £222m came in the form of shares in the club they had already
bought at a lower price.11 The rest of the £790m price tag was paid for with borrowed
money.

At the time of writing, Manchester United PLC, the Cayman Islands holding company listed
on the New York Stock Exchange had a market capitalisation of around $2.6bn which is
the total value of all the shares. The Glazers retain control over 90% of the shares with a
value in pounds of £1.58bn. If they sold the club today, from an initial investment of
£272m, they stand to make £1.3bn. All of this is capital gain which is taxed at a lower rate
than the lowest rate of income tax. In other words the Glazers will probably pay a lower
rate of tax on their £1bn capital gain than many Manchester United fans pays on their
income.

It is questionable whether the Glazers’ buyout of Manchester United, or indeed any other
of the large private equity takeovers we have seen in the UK would have been possible or
even desirable without the tax breaks for debt and the potential for companies to exploit
the mismatch in taxes between debt and equity, capital and income.

Manchester United did not respond to our offer to comment.

11 Details of the takeover bid can be found in the offer documents

https://dl.dropboxusercontent.com/u/6622840/Football%20docs%20on%20blog/RedOffer.pdf These
documents are available on the andersred blog http://andersred.blogspot.co.uk

35
The next 29
CLUB SUNDERLAND

POSITION 6

OFFSHORE HOLDING DRUMAVILLE LTD

COUNTRY JERSEY

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE

CLUB FULHAM

POSITION 7

OFFSHORE HOLDING BIG CAT HOLDINGS

COUNTRY JERSEY

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 570

Fullham responded to the Offshore Game to say that Big Cat Holdings was now being
liquidated and was a product of the previous ownership. The Club said that their funding
now came from a company called Flex and Gate, which is based in the USA and owned by
the Club’s Chairman.

The Offshore Game looked at the 2013 accounts of all the club as at the time of writing
those were the latest set of accounts available for all clubs. The change in ownership and
Offshore league score will be reflected in next year’s Offshore League.

36
CLUB CELTIC

POSITION 8

OFFSHORE HOLDING LINE NOMINEES

COUNTRY GIBRALTAR

% OWNED BY OFFSHORE C OMPANY 35%

OFFSHORE GAME SCORE 570

CLUB RANGERS

POSITION 9

OFFSHORE HOLDING 1 BLUE PITCH HOLDINGS

COUNTRY UNKNOWN

% OWNED BY OFFSHORE C OMPANY 6%

OFFSHORE HOLDING 2 MARGARITA FUNDS HOLDING

COUNTRY UNKNOWN

% OWNED BY OFFSHORE C OMPANY 4%

OFFSHORE GAME SCORE 569

CLUB QPR

POSITION 10

OFFSHORE HOLDING TUNE QPR SND BHD

COUNTRY MALAYSIA

% OWNED BY OFFSHORE C OMPANY 67%

OFFSHORE HOLDING 2 SEA DREAM LTD

COUNTRY MALTA

% OWNED BY OFFSHORE C OMPANY 2 33%

OFFSHORE GAME SCORE 551

37
CLUB COVENTRY

POSITION 11

OFFSHORE HOLDING SCONSET LP

COUNTRY CAYMAN I SLANDS

% OWNED BY OFFSHORE C OMPANY 96%

OFFSHORE GAME SCORE 535

Coventry City have not responded to requests for a comment. However, the Chief
Executive of Sisu Capital which manages the investment fund that owns Coventry
previously told the Guardian that most funds were registered in tax havens like the
Cayman Islands to avoid capital gains tax.

CLUB ARSENAL

POSITION 12

OFFSHORE HOLDING KSE UK INC

COUNTRY USA

% OWNED BY OFFSHORE C OMPANY 67

OFFSHORE HOLDING 2 RED AND WHITE SECURITIES LTD

COUNTRY JERSEY

% OWNED BY OFFSHORE C OMPANY 2 30%

OFFSHORE GAME SCORE 512

Arsenal told the Guardian: “This is not the kind of private business we would discuss
publicly.”

38
CLUB PRESTON NORTH END

POSITION 13

OFFSHORE HOLDING WORDON LIMITED

COUNTRY ISLE OF MAN

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 501

The club told the Guardian that the owner of the Club has lived in the Isle of Man for over
30 years and holds all of his assets there.

CLUB DUNDEE FOOTBALL CLUB

POSITION 14

OFFSHORE HOLDING FOOTBALL PARTNERSHIP SCOTLAND

COUNTRY UNKNOWN

% OWNED BY OFFSHORE C OMPANY 52%

OFFSHORE GAME SCORE 479

CLUB LIVERPOOL

POSITION 15

OFFSHORE HOLDING UKSV I AND UKSV II LLC

COUNTRY USA

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 470

39
CLUB ALBION ROVERS

POSITION 16

OFFSHORE HOLDING CLIFTON ORDINARY SUSPENSE

COUNTRY UNKNOWN

% OWNED BY OFFSHORE C OMPANY 23%

OFFSHORE GAME SCORE 469

CLUB DUMBARTON

POSITION 17

OFFSHORE HOLDING GRANADA ENTERPRISES LIMITED

COUNTRY BELIZE

% OWNED BY OFFSHORE C OMPANY 75%

OFFSHORE GAME SCORE 465

CLUB ASTON VILLA

POSITION 18

OFFSHORE HOLDING REFORM ACQUISITIONS LLC

COUNTRY USA

% OWNED BY OFFSHORE C OMPANY 58%

OFFSHORE GAME SCORE 463

40
CLUB WOLVES

POSITION 19

OFFSHORE HOLDING BRIDGEMERE INVESTMENTS

COUNTRY GUERNSEY

% OWNED BY OFFSHORE C OMPANY 75%

OFFSHORE GAME SCORE 461

CLUB BIRMINGHAM CITY

POSITION 20

OFFSHORE HOLDING BIRMINGHAM INTERNATIONAL HOLDINGS

COUNTRY CAYMAN I SLANDS

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 460

CLUB SOUTHEND UNITED

POSITION 21

OFFSHORE HOLDING MEZCAL INVESTMENTS

COUNTRY BRITISH VIRGIN ISLANDS

% OWNED BY OFFSHORE C OMPANY 66%

OFFSHORE GAME SCORE 440

41
CLUB SHREWSBURY TOWN

POSITION 22

OFFSHORE HOLDING JEFREEN HOLDINGS

COUNTRY BRITISH VIRGIN ISLANDS

% OWNED BY OFFSHORE C OMPANY 27%

OFFSHORE GAME SCORE 431

Shrewsbury told the Guardian: Jefreen is owned by the chairman, Roland Wycherley's,
family trust. He has been involved since 1992, has never taken any salary or dividend, and
was instrumental in the club's move to its new stadium.

CLUB DERBY COUNTY

POSITION 23

OFFSHORE HOLDING GENERAL SPORTS DERBY PARTNERS LLC

COUNTRY USA

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 431

CLUB MILLWALL

POSITION 24

OFFSHORE HOLDING CHESTNUT HILL VENTURES LLC

COUNTRY USA

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 421

In a Joint Response to the Offshore Game and the Guardian Millwall gave a detailed
answer to why their owners use a Delaware LLC to hold the club. They said:

Chestnut Hill Ventures LLC (CHV) is an established USA Limited Liability Company (LLC)
acting as a private equity investment company which owns significant holdings in a range
of companies both in the USA and internationally. Since 2010 CHV has provided Loan

42
Facilities of £25m and invested £6m in Nonvoting B shares. LLCs are a very common form
of structure for professional services businesses in the USA and the attributes and tax
implications of these can be easily researched.

CHV, in common with a substantial number of corporations, is registered in Delaware, to

take advantage of the great flexibility available to a Delaware LLC in regard to minimal
start-up requirements, simple maintenance, and the ability for members to establish their
own company structures and rules. For example see:
https://www.delawareinc.com/llc/advantages-of-llc

From a tax perspective a LLC is tax transparent in that it is considered a “pass through”
entity so all tax characteristics and liabilities get passed through to the CHV’s individual
members, most of whom are taxpayers in the state of Massachusetts and pay Federal
taxes to the US Government.

There is no tax advantage gained by CHV from being registered in Delaware.

CHV itself files tax returns in 8 states in the US.

John Berylson is a USA tax resident. As is The Philip Smith Deceased Will Trust, a family
trust, established over 50 years ago with the aim to pass family wealth to younger
generations. Both bear tax in Massachusetts as well as federally.

Should CHV realise its investment in MH at a gain for tax purposes this would be allocated
to the individual members of CHV in the USA. Should MH dispose of MFAC, or MFAC
dispose of the Club, any gain for tax purposes would be assessed in the UK.

CLUB SHEFFIELD WEDNESDAY

POSITION 26

OFFSHORE HOLDING UK FOOTBALL INVESTMENTS LLC

COUNTRY USA

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 413

43
CLUB CHELTENHAM TOWN

POSITION 25

OFFSHORE HOLDING CTFC INVESTMENTS

COUNTRY CAYMAN I SLANDS

% OWNED BY OFFSHORE C OMPANY 22%

OFFSHORE GAME SCORE 368

A representative of Cheltenham Town told the Offshore Game that CTFC investments was
owned by an investor from the area who now lived in the Cayman Islands. They are keen
supporters of the club but wanted to remain anonymous.

CLUB BLACKPOOL FOOTBALL CLUB

POSITION 27

OFFSHORE HOLDING VB FOOTBALL ASSETS

COUNTRY LATVIA

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 361

CLUB BLACKBURN ROVERS

POSITION 28

OFFSHORE HOLDING VENKATESHWARA HATCHERIES PVT

COUNTRY INDIA

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 349

44
CLUB CHARLTON

POSITION 29

OFFSHORE HOLDING STAPRIX NV

COUNTRY BELGIUM

% OWNED BY OFFSHORE C OMPANY 99%

OFFSHORE GAME SCORE 329

CLUB WATFORD

POSITION 30

OFFSHORE HOLDING HORNETS MANAGEMENT SARL

COUNTRY LUXEMBOURG

% OWNED BY OFFSHORE C OMPANY 99%

OFFSHORE GAME SCORE 294

The Club told us that Hornets Investment Limited owns virtually all the shares of Watford
Association Football Club. Hornets Investments Limited is registered in England and Gino
Pozzo is its sole owner.

The latest accounts of Watford state: The immediate parent company is Hornets
Investment Limited, a company registered in England and Wales. The ultimate parent
company and controlling party is Hornets Management S.a.r.l. a company registered in
Luxembourg. The majority shareholder and therefore the ultimate controlling party is Mr
Gino Pozzo.

CLUB LEICESTER

POSITION 31

OFFSHORE HOLDING KING POWER INTERNATIONAL

COUNTRY THAILAND

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 258

45
CLUB IPSWICH

POSITION 32

OFFSHORE HOLDING MARCUS EVANS INVESTMENTS

COUNTRY BERMUDA

% OWNED BY OFFSHORE C OMPANY 88%

OFFSHORE GAME SCORE 167

Ipswich Town told the Offshore Game and the Guardian: “Ipswich Town is subject to tax in
the UK. The long-established ownership of the wider [Marcus Evans] group pre-dates the
acquisition of Ipswich Town so is irrelevant to it. Given the club is loss-making it is very
unlikely there will be any gain in value of the club.”

CLUB SHEFFIELD UNITED LTD

POSITION 33

OFFSHORE HOLDING UTB LLC

COUNTRY WEST INDIES

% OWNED BY OFFSHORE C OMPANY 50%

OFFSHORE GAME SCORE 84

The club told the Guardian: “Prince Abdullah is a Saudi national and it is normal for non-
UK residents to hold their assets in non-UK companies. There is no intention on behalf of
the owners to make a gain selling the football club but if very exceptional circumstances
occurred, the owner would be a UK company, Blades Leisure, that is fully exposed to
capital gains tax.”

46
CLUB HARTLEPOOL UNITED

POSITION 34

OFFSHORE HOLDING DOVE ENERGY

COUNTRY BRITISH VIRGIN ISLANDS

% OWNED BY OFFSHORE C OMPANY 100%

OFFSHORE GAME SCORE 66

The club told the Guardian: “The ultimate owning company is in Jersey, but the club is
owned by UK company IOR Ltd. IOR bought the club for football and business reasons; it
was never the intention to sell the club at a gain and that has never been possible with a
League One or Two club. Even if it had been, IOR Ltd are not in the business of avoiding
any tax due to HMRC.”

47
Conclusions and
Recommendations
The Offshore Game has uncovered the widespread use of offshore companies in
professional football. Teams were keen to stress that the operating companies of their
clubs were all based in the UK and paid UK taxes. However, as we have found those
operating companies are often owned in whole or in part by offshore companies.

The reasons are varied. In some cases it is clear that the owners themselves are tax
exiles, rich men who have moved to a tax haven to protect their wealth. Their ownership of
a football club is simply a part of that structure.

In the case of a club like Millwall the Delaware holding company is a vehicle by which a
number of investors buy the club. Profits are all passed straight though to the investors
who pay tax in their home state in the US. The owners say this is done simply for
convenience, as Delaware is an easy place to set up a company to create such a
structure.

In some cases the offshore holding company is part of an already existing business
structure which has nothing to do with football, such as with Hartlepool. The football club is
simply added to it.

Sometimes, we simply cannot know why the offshore holding company exists. This is one
of the key problems with tax havens.

The secrecy surrounding tax havens makes it very difficult to find out what is happening
with the financial affairs of offshore companies. Although it cannot be said that having an
offshore owner will lead to ruin, there can be little doubt that offshore financial centers
create an environment of lower transparency, low regulation and low or no taxes.

Given the financial difficulties that have afflicted so many clubs in England, Scotland and
Wales over the last couple of decades the widespread use of offshore finance by teams in
the professional football leagues should cause concern to fans, the FA and the
government.

The question that really needs to be asked is whether this is an acceptable way to manage
the finances of football. Money which after all comes from the fans through pay-tv
subscriptions, ticket sales and other purchases.

48
Fixing the wider economy
The reasons why football clubs might be owned though offshore holding companies are no
different from why any other company might be owned in that way. The use of offshore is
widespread in the economy.

The offshore issue is also much more important than the activities of an individual offshore
company. It may be that a company based offshore is doing nothing wrong. But that does
not make it acceptable for tax havens to operate low regulation environments where other
companeis can easily do wrong. Regulators and government should be as concerned
about the potential opportunities for tax avoidance and financial impropriety created by tax
havens as they are about real instances of these activities.

The Tax Justice Network has for over a decade supported measures which improve
financial transparency and remove incentives for companies to use secrecy jurisdictions.
In particular we support public registries of beneficial owners of companies, so individuals
cannot hide behind offshore anonymous companies and trusts. The automatic exchange
of information between tax authorities would mean that when an individual starts a
company or opens a bank account abroad the local authorities automatically inform the tax
authorities in that person’s home country. Country by country reporting would make sure
companies based in the UK report how much profit they make in each country where they
operate.

Many of these issues are by their nature international, but Britain can play a leading role.
The British Empire did not die after the Second World War, it just got smaller, and the
Empire today is a collection of tax havens and secrecy jurisdictions like the British Virgin
Islands and The Cayman Islands. Is this really an appropriate contribution for the UK to be
making to the world economy?

One of the most positive things the UK government could do in the next parliament would
be to end their support for tax havens.

Controlling debt
The Offshore Game also uncovered a number of issues that could be addressed
specifically by Football regulators. Football is a key part of the social infrastructure of the
United Kingdom. Millions of people identify themselves with their football club and yet
there is nothing stopping a few private owners piling tens of millions of pounds of debt onto
the club. The club becomes dependent for its survival on the lender, which can be an
offshore company about which little if anything is known.

The United States National Football League has for a long time recognised the importance
of investors in clubs having real skin in the game.

The NFL has imposed a total debt ceiling of $150m or around £100m for each club. This
may sound a lot, but it is less debt than held by clubs such as Bolton and QPR, and the

49
teams in the NFL are generally much richer than the average UK football team. The
poorest NFL team last year was the Oakland Raiders, which had a revenue of $244m
(£163m) which is more than all but the top 5 clubs in the Premier League. If such a debt
ceiling had been in place in the UK it would have stopped the Glazer family takeover of
Manchester United though a debt financed purchase.

The combination of controls on debt, salaries and the way in which the transfer market
works means that NFL teams are also profitable, affording them every prospect of paying
off their debts.

The NFL can also mandate the form of investment by owners in clubs and insist that the
club is bought with equity rather than debt. If debt is used to buy the club, the NFL can
insist that the debt is secured over the assets of the owner.

The effect of this is that owners have a real stake in success of the club, and if the club
goes down, they go down with it. It would be impossible to have a situation (which has
happened in the UK in the past) where the club is bankrupt but the owners walk away with
millions still in their pocket. A bankrupt club would likely bankrupt the owners, and that
might force them to make some very different decisions with the finances of clubs.

A hard cap like the one imposed in the United States is unlikely to be effective in the UK
because teams in the US have a much more equal distribution of wealth. A large variation
in wealth of UK teams means that a hard cap would be too big for some. Instead the
league should consider a cap based on revenues or ability to pay.

The Football Associations should consider imposing limits on the amount of debt clubs can
take out and should have the power to block debt financed takeovers of clubs. 12

Full financial transparency

These kinds of reforms would be impossible without full transparency of ownership and
finance.

Currently the Football League and Premier League rules insist that any ownership over
10% be disclosed. However this does not always work in practice. We found that
Cheltenham Town FC are 22% owned by CTFC Investments Limited.

A spokesperson for CTFC said the company is backed by keen supporters of the club who
have no desire to appear in the public domain. The club also said that the company was
based offshore because that is where the investors live.

Regardless of where the company is based there is no record of who owns CTFC
investments, and no way of finding out. If the company was based in the UK, the
company’s annual return would reveal the identity of the owner.

12 Centre Forum, a think tank, has suggested a debt ceiling of 100% of revenue for each club.
http://www.centreforum.org/assets/pubs/football-and-the-big-society.pdf

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It would be much better if rather than relying on the clubs to publish their ownership, and
journalists to scout around in the world’s company registries, the Football Association
required clubs to submit this information to them directly, which they then published. This
is the kind of transparency stock market listed companies need to abide by, companies
submit information to the stock market which is then made available to the public by the
stock market.

Related parties
The experience of some clubs tell us there is more to controlling a football club than
shareholdings. Some football clubs are entirely dependent on debt, which can be another
method of exercising control, but details of the beneficial owners of debt are not published
as a matter of routine.

Again, Rangers provide a good case study. Mike Ashley, who owns less than 10% of the
club also owns a substantial amount of the debt. Without these loans the club would find
itself in severe financial difficulty and could face liquation for the second time. This gives
him a substantial amount of control over the club, which he has publically exercised.
Since Ashley also owns Newcastle United, this control has attracted the attention of the
Scottish FA who have rules against the same person controlling two UK clubs. The SFA
found Ashley in breach of the rules and fined Ashley £7,500 (yes, just seven thousand five
hundred pounds). Ashley is reported to have a net worth of over £3bn, or enough to pay
the fine 400,000 times.

In the case of Bolton, the entire debt is owned by a mysterious company, Moonshift
Investments about whom we know very little.

Contracts and related party transactions can be an issue too. Directors and owners of
football clubs can have substantial financial interests in the club that go beyond the
ownership of shares. This can be loans made to the club, but it also can be commercial
agreements between the club and companies related to the directors.

This kind of information is now increasingly required by Football Leagues and UEFA in
order for them to assess financial fair play rules. Given that related party transactions are
by their nature not open market transactions, it is difficult to see an argument against the
full publication of the terms of contracts entered into between clubs and their owners. This
could be done by the regulators who collect this information.

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A fair playing field
There is no sport without competition. There is little point to watching a game if you know
the result in advance. But it is important to be clear on what competition is acceptable and
unacceptable.

Competition should not be about which team has the most favorable tax treatment, the
best accountants, the best lawyers, or the owner with the fattest wallet. It should be about
who has the team with the best players, best coaches and best fans to support their team.

New rules on Financial Fair Play change the nature of game to some extent by limiting the
ways in which clubs can use finance to gain an advantage. However they also introduce
new problems. They will do nothing to deal with the vast disparity of wealth between the
top and bottom of British Football and if they prevent clubs from spending to reach the top,
they will entrench inequality. It is a likely outcome of the FFP rules that we will simply see
the rich clubs getting ever richer with the poorer clubs staying in the lower leagues but with
better financial management.

The time has now come for a public debate about how we can improve competition within
our national sport. Regulators, fans and government need to address the key issues of the
distribution of wealth between clubs, whether particular forms of ownership should be
excluded from football, and what forms of outside assistance to clubs from local councils,
governments or private interests are acceptable.

There has been a lot of great work done on this by think tanks, campaigners like
Supporters Direct and the Parliamentary Select Committee, but there is no clear process
for change from the regulators. It is now time for the government and the FA to set out how
they will include fans in a discussion about the redesign of the rules of the game.

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