Icelandic business acumen brings down the Hammers

Another shirt sponsor who can

Iceland is destined to be one of the strange footnotes of the global financial crisis. This little island with a population of less than 250,000 situated in the middle of the North Atlantic went from cod fishing to global banking in about a twenty five year period. During the 2000s Icelandic banks grew so fast that they were doubling in size every year.

By the time the lights went out last year, Icelandic banks were perhaps ten times the size of Icelandic GDP, which made any attempted government intervention futile at best.

Salvation arrived only in the form of an IMF-led bailout, but for all intents and purposes the entire island was broke. In the good times, Icelandic entrepreneurs and bankers took profits their financial endeavors and plowed them into various assets, in the UK primarily, ranging from supermarkets to property to football clubs. Bjorgolfur Gudmundsson, who has gone from billionaire to bankrupt over the past eighteen months, bought West Ham 2006 and promptly put the club on the road to financial ruin alongside his island’s banks.

Red ink at Upton Park, after the jump.

The Guardian managed to obtain a copy of the club’s 2008 accounts, which reveal a company that would be insolvent and headed into administration if not for the kindness of its creditors. West Ham lost 38 million pounds last year, a shocking figure but made worse by the fact that the club is perhaps 100 million pounds or more in debt. Included in the latter figure is the nearly 21 million pounds owed to Sheffield United from the Carlos Tevez saga. Its hard to pay off your creditors when you are bleeding cash. To quote the Guardian:

“Of paramount concern is the stark admission that the club had breached their debt covenants. This meant that the five banks that had then loaned them more than £20m could have demanded immediate repayment, a move that would have plunged the Upton Park club into administration. Only what the board has termed the “goodwill” of those banks prevented West Ham becoming the first Premier League club to suffer that fate.”

Thanks what can charitably be described as unlucky buying, the club blew 20 million pounds on Freddie Ljundberg, Craig Bellamy, and Kieron Dyer, who collectively played 36 matches for the club in 2007-2008 and earned 12 million pounds wages. “At that time the annual wage bill amounted to £63.3m on turnover of £81.5m, a ratio of almost 78% that the club recognises as being ‘unsustainable’,” the Guardian notes.

As a result of this cash bleed, the club, which is now being run by one of Gudmundsson’s creditor banks that is itself insolvent, has been busy selling off players to raise cash. In the January transfer window, West Ham sold Hayden Mullins, Craig Bellamy, Lee Bowyer, and Mathew Etherington. Six months before, at the start of the 2008 season, it sold Anton Ferdinand and Bobby Zamora. This week, West Ham flogged James Collins to Villa for an undisclosed fee. The only notable player inflow during this transfer window, supposedly funded by new shirt sponsor SBOBET, was Livorno striker Alessandro Diamanti.

The scary thing is not so much that West Ham are on the brink of insolvency, still, but that there are probably a half dozen other clubs in the Premiership, supposedly the richest league in the world, that are in a similar situation. Portsmouth are the obvious example, but just look at the lack of transfer spending by any of the English clubs this summer with the obvious exception of Manchester City. And the big clubs, especially Man U and Liverpool, have balance sheets that are just as laden with debt as the Hammers’. England has dominated Europe for the past half decade due to the financial firepower of the clubs, but like their City cousins, they are now struggling under mighty loads of debt accumulated from years of high rolling in the transfer market. The new and improved TV contract helps, but increasingly it seems as though the gini coefficient in the EPL is approaching Brazil-esque levels of inequality as even midtable clubs struggle to remain financially viable. But perhaps more worrying is that the cream of the league now appears to be cuckolded by the bankers, and must only watch as clubs on the Continent have all the fun.