On July 1st, Wigan Athletic, a historic English football club who were in the Premier League as recently as 2013 and who won the FA Cup the same year, announced that they had fallen into administration.
In doing so, the Championship side became England’s first professional football club to enter administration during the coronavirus crisis. Those involved were quick to blame it on the pandemic.
Paul Stanley, Gerald Krasner and Dean Watson of Begbies Traynor were appointed as joint administrators, with Krasner saying that: “Obviously the suspension of the Championship season due to COVID-19 has had a significant impact on the recent fortunes of the club.”
The administration came just four weeks after the club was taken over by Hong Kong-based consortium Next Leader Fund (NLF) for £17.5 million, with NLF General Partner Wai Kay Au Yeung saying at the time: “I am excited to join the Wigan Athletic family and I look forward to working with the Board of Directors to support the club in what is going to be an initially challenging period.”
“I hope to work with the staff within the club in the future and most importantly I hope to meet the club’s passionate fans. We encourage your feedback on club matters so please continue to help us grow and develop. I hope in the future to enjoy Latics games together.”
Upon completion of the takeover, Wigan Athletic Executive Director Darren Royle said that, while there were “no doubt” more challenging months ahead, “The support from the owners will enable us to negate some of the immediate challenges we face.”
The rapid turnaround from this position of cautious optimism to a situation where 75 staff have been made redundant, players received 20 per cent of their monthly wages and in which the very future of a historic club is in doubt immediately raised questions.
Very soon a far more complex picture began to emerge.
To attempt to gain an understanding of this situation, what went on before and after the acquisition and the wider implications of the administration, it is perhaps best to start two years ago.
New money replaces old
In February 2018, Wigan Athletic owner and former Chairman Dave Whelan, founder of JJB Sports, announced an outline agreement to sell the club to International Entertainment Corporation (IEC), a Hong-Kong based firm whose principal business was a Phillippine hotel and casino.
That transaction itself raised questions. A local, self-made entrepreneur owner, widely loved by the fans, who had led the club over 23 years from near-obscurity to FA Cup glory, selling to an international company with no relevant sporting experience, that derived much of its income from gambling revenue and who, in its most recent accounts, had registered losses of HK$6.4 million and issued a profit warning forecasting another similar loss.
However, the club’s chairman at the time, Whelan’s then-23-year-old grandson David Sharpe, said that the club had been seeking a buyer and issued his assurances that whoever was chosen would carry on the club’s traditions and values and secure Whelan’s legacy.
Another change of owner
All seemed well when, in 2019, Wigan won promotion from League One back to the Championship, seemingly putting the side in good stead for a return to the English top flight. However, behind the scenes, IEC was beginning to second guess its acquisition of the club.
The uncertainty caused by a protracted Brexit process, the harsh economic climate of the Championship and a wage bill that increased from £10 million in the 2017-18 season to £17.5 million contributed to the club registering a £9 million loss for the 13 months to June 30 2019.
The COVID-19 lockdown, then, seemed to come as the last nail in the coffin of IEC’s ownership, prompting its decision to sell and undermining David Sharpe’s comment when IEC bought the club that they were “a suitable owner with the funds and ambition to carry on the family legacy”.
According to the head of IEC, Stanley Choi, the company’s shareholders “hated” the idea of owning a lossmaking club and, with fans unable to attend matches due to the pandemic, on top of an already unfavourable financial situation, continued ownership was not sustainable going forward.
Choi said: “I love this club, and I am sorry that I could not continue to be its owner. But if we kept putting money into the club, we would be in a financial crisis.”
Furthermore, IEC reportedly chose to offset the club after applying to upgrade one of their Philippines hotels with the addition of a casino and being told that regulators in the country would not agree to this while Choi was part-owner of a football club.
At this point, at the end of May, IEC sold the club for around £40 million plus debt to NLF, a joint venture between Stanley Choi and Hong Kong businessman Au Yeung Wai Kay. At the time of the sale, Choi was more than a 50 per cent stakeholder in both companies. However, on June 24, Au Yeung was said to have been made a more than 75 per cent owner (with some reports suggesting 100 per cent ownership) as Choi exited NLF.
Acquisition and administration
On the same day, the same day that the English Football League (EFL) is thought to have approved Au Yeung’s ownership, Au Yeung’s lawyers approached Begbies Traynor to act as administrators to the club, with the owners unwilling to put forward the £6 million that Wigan’s directors said was needed to fund the club. Administrators were appointed on June 30.
Au Yeung, then, is understood to have invested £17.5 million in buying the club, and £24.6 million in repaying IEC for money it had put towards wages and losses, before opting to not fund the club and place it into administration, all on the same day.
As mentioned at the outset, Au Yeung blamed the coronavirus crisis, saying that fans’ inability to attend games had “fundamentally undermined our ability to fund” Wigan Athletic and that putting the club into administration would help “ensure its survival”.
This turn of events and Au Yeung’s subsequent explanation rankled many and the EFL rejected outright his blaming of the coronavirus pandemic: “Whilst it is clear that COVID-19 has undoubtedly presented significant financial challenges to the professional game, evidence of the required source and sufficiency of funding to be invested in or otherwise made available to the club was provided as part of the recent change of control process.”
The exact reasoning remains unclear at this point, but rumours include the notion that the sale was orchestrated by IEC to remove Wigan from its books and even an (unsubstantiated) allegation that the sale was linked to a bet regarding Wigan being relegated (the club could face a 12-point deduction if they avoid relegation in their remaining games).
What next? – Scrutiny of ownership and the impact of COVID-19
While both the EFL and Begbies Traynor plan to investigate the circumstances behind the club’s administration, what the bizarre turn of events has done for the time being is raise questions around the ownership rules that enabled NLF’s (and IEC’s) takeover, as well as broader concerns about the future of other English clubs.
Currently, the EFL’s ownership rules require that a potential buyer demonstrate that they have the money to fund a club, without requiring them to actually provide that funding should they take over. The rules essentially enabled Au Yeung to provide proof of funds, before taking over the club, declining to use those funds and putting it into administration.
This has prompted calls for ownership rules to be tightened, with administrator Gerald Krasner of Begbies Traynor saying that the EFL “need to start looking at foreign ownership a bit more” and suggesting that it should introduce a five-year bond for new owners, to be paid out if they reneged on commitments.
Meanwhile, Shadow Foreign Secretary Lisa Nandy, MP for Wigan, called the events “a global scandal”, adding: How could the ownership change have been approved? This should never happen again. The rules need to change.”
The EFL has subsequently said it is reviewing its regulations. Any changes to the rules could potentially deter some from investing in football clubs. While this may mean there isn’t a repeat of events like those at Wigan, it could spell bad news for clubs who might otherwise have relied on investment from a wealthy party in times of distress.
This brings us to the issue of COVID-19’s impact on football clubs and football club ownership. While the commercial clout of the major clubs in the world’s top divisions means that most will be well placed to survive the loss of revenue from empty stadiums, many clubs in lower leagues could be in serious jeopardy without ticket sales to sustain them.
Wigan Athletic’s administrator Gerald Krasner has forecast that at least six clubs further down the English football pyramid could declare bankruptcy due to a loss of revenue from fans being unable to attend games.
In normal times, such distress could see clubs acquired by wealthy investors looking for a potentially lucrative business opportunity. However, these aren’t normal times, and a lack of ticket sale revenue seems likely for the foreseeable (with social distancing likely to be in place until a COVID-19 vaccine is available).
This, combined with the already challenging economic conditions of the English lower leagues and potentially greater scrutiny of takeovers and tighter ownership rules, could mean that buying a club is no longer such an attractive proposition to wealthy parties.
Whether this leads to a resurgence of more traditional ownership by local entrepreneurs with an emotional connection to the club, or an increase in alternative forms of ownership, such as fan organisations, is unclear at this time.
What seems likely is that Wigan Athletic’s administration, and the strange circumstances surrounding it, could come to be seen as a major turning point in how England’s football clubs are bought and sold, and by whom.
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