It’s been a long five and a half years.
As soon as Blackpool FC’s accounts for the 2010/11 season were released back in March 2012, to widespread media scrutiny, it should have been clear for everyone to see exactly what the Oyston family were doing on the back of Blackpool’s ascent to the top flight and the money that came with it. In a staggering 163 page document released along with the high court judgement on 6th November 2017, the cold, hard facts are laid bare of just how callous the club’s owners were in pursuing their own ends and why the judge felt it necessary to order a £31.27m buyout of Valeri Belokon’s shares.
In its heyday, this site always tried to help shine an inquisitive light on this club of ours, be it an alternative look at tactics or as is currently relevant, a forensic examination of the financial accounts. Sadly, that was taken away from us in recent years. With the threat of litigation hovering in the background, what we could and couldn’t say felt restrained, or if not restrained at least riskier than it was worth. After all, could this site defend itself even against a spurious claim of libel? It would have been a severe test.
To this end, you’ll have to forgive us the feeling of vindication and self-indulgent post that is to follow. We were told we were overreacting. We were told we should forget about finances and get behind the team. We were told that the Oystons could do what they want and that it’s none of our business. No, no and thrice no. This site believes in speaking truth to power. That truth is now out there in the black and white of judicial judgement. Those who seek to deny or hide from that truth are only deluding themselves.
On the back of the media frenzy when the 2010/11 accounts were published, this site published 10 questions that the Oystons should have to answer. In hindsight, there was a lot of overlap on these points and some less relevant issues were raised, while other pertinent points were perhaps overlooked. Nonetheless, some of the main problems we had have now been found by Justice Marcus Smith to have been concealed dividends, rather than what was claimed by Karl Oyston at the time.
£11m payment to Zabaxe
Starting with what appeared to be the most egregious payment, we’ll look at the £11m to Zabaxe in more detail. In that “10 questions” post, we asked:
“Why was £11m paid to Zabaxe Ltd?” and “How will the money from Zabaxe come back into the club?”
We disputed the Karl Oyston’s claim that this constituted “sound tax planning” and this has now been well and truly debunked. It may still have played a small part in the motivation, but as the judgement document explains, even the club struggled to make its mind up how to account for the payment. In the 2010/11 accounts, it was originally described as director remuneration, but judgement (para. 345) explains that this drew the attention of HMRC, who were “concerned that – if the payment was to Mr. Owen Oyston as a director – then he had not paid the tax chargeable on this amount”.
This led to a meeting where the club tried to explain the payment to HMRC. In the words of Justice Smith, “this involved the making of a series of what I consider to be misrepresentations to HMRC.” The £11m payment was re-classified as a payment to Zabaxe for services rendered by it to the club. As noted by Justice Smith, “Zabaxe was dormant for most of the early 2000s, during which time it could not have provided such services” and ultimately concluded that (para. 373) “these invoices fell far short of demonstrating any such past benefit to the club.”
Zabaxe ended up paying corporation tax on the £11m anyway, as we exclusively revealed in our post in February 2014. It’s worth noting that local media, who at least more recently have attempted to side with supporters, failed to pick up on this story at the time. Almost £2.6m was paid in corporation tax according to Zabaxe’s 2012 accounts. This was when we also revealed that Zabaxe had in turn loaned out £2.7m to Oyston-owned entities, many of which were loss-making at the time. We followed this up in October 2014 when we picked through Zabaxe’s 2013 accounts, which saw loans to Oyston companies rise again.
Immediately following the news of the £11m hitting the media, with regards to our question about the money coming back into the football club, Karl Oyston made the following statement in an interview with the Guardian’s David Conn:
“The money has been paid to my father’s company, and if the club needs it for the next stage of development, which is to build a new training ground, I am sure my father will lend it to the club interest-free, as he always has over 25 years of ownership.”
It doesn’t need me to point out that the much promised new training ground still hasn’t materialised, despite planning permission for a modest facility on the existing footprint being granted in March 2016. Even if this had proceeded, it was not the big improvement any Blackpool fan was promised or demanded, merely replacing tired and dilapidated buildings which have actually been demolished with nothing being constructed in their absence, the players being forced to change and shower at the stadium, a 2.2 mile drive from the training pitches at Squires Gate. It has been reported that on occasion the club are even using the facilities at Myerscough College.
As for the legitimacy of the payment, Justice Smith was quite clear in his summing up, stating “I find the payment of £11 million to have been essentially gratuitous and in essence a disguised dividend”. This is what the Belokon team contested and has now been confirmed in a court of law. Two weeks before the 2010/11 accounts were published, Belokon’s director Normunds Malnacs wrote an email to Karl Oyston objecting to the £11m payment, among other issues, and demanded a re-think. From paragraph 287 of the judgement:
“How could you decide on making 11 million worth emolument to one shareholder, without board’s other major shareholder’s approval or at least a meaningful discussion?! This is out of any acceptable corporate governance norms, even without mentioning the moral aspect of the transaction! We don’t question [Mr. Owen Oyston’s] contribution to the club, but any transfers of that size must be agreed with the board or the other shareholder.”
Belokon’s and Malnacs’ arguments fell on deaf ears however, and the rest is now history.
Another controversial topic at the time, we asked the following questions in our “10 questions” piece about the Travelodge acquisition:
“Why was the old Tangerine Nite Spot land sold to an Oyston-owned company in 2007/2008 for £650,000 and bought back during 2010/11 for £6.5m?”
“Will revenue from rental of the Travelodge benefit the club?”
“Why was this investment in the Travelodge land deemed to be a more urgent priority than other capital investments?”
There is significant detail in the written judgement that provides an excruciating level of detail in response to the above questions, and certainly more than we voluntarily got out of the Oyston family at the time.
The court documents reveal that the Oystons had taken out a five year mortgage on the property when developing it, and in February 2011 there was still £4.7m over a 3 year period remaining. An email from Owen Oyston to Karl Oyston at this time shows that they planned to pay this off early and that “the money would have to come from Segesta/[Blackpool FC]”. An initial loan came from Blackpool FC to Segesta (now BFC Properties) of almost £4.9m, which covered clearing the mortgage payment and the early repayment charge of £131,000.
Once again, upon discovering a payment out of the club without Belokon’s approval, Malnacs raised this with the Oystons (para. 219):
“On February 24, 2011 [Blackpool FC] made a transfer of 4.9 million to Segesta. I understand the monies used to refinance Segesta loan from a commercial bank and now Segesta owes money to [Blackpool FC]. I still have not been informed about the terms of the [Blackpool FC] loan to Segesta. It is disappointing and not in line with good corporate governance that the Club has provided a long-term credit without board’s approval and prior information.”
Following Malnacs’ comments, it appears there was significant communication between the Oystons and their advisors (para. 222) in which they sought to ensure they had enough votes for any board vote, given there was still confusion surrounding Karl Oyston’s supposed resignation as a director in September 2010. Nonetheless, the Oystons managed to get the payments through.
In fact, the total amount would go higher still, with Blackpool FC set to loan £8.09m. The sale price had been determined by Owen Oyston to be £6.5m, supplemented by £1.3m VAT and £260,000 stamp duty, that comprised the figure just over £8m. Once more, Malnacs was less than impressed stating “I thought you needed 4,9m to refinance bank loan? Now you want 8.06m?”
The final stamp duty actually amounted to £325,000 and so the final loan agreement totalled £8.125m, with the £1.3m stamp duty and a loan reduction of £1.6m to be repaid by Segesta to Blackpool FC within 14 and 28 days respectively. The terms of the loan did allow for regular repayments to be made to Blackpool FC, yet in summing up Justice Smith remarked (para. 364) on some of the terms, especially the repayments being at “Segesta’s absolute discretion”, rendered the loan uncommercial. Justice Smith further found that:
“Perhaps unsurprisingly, not all of the interest due to Blackpool FC was paid by Segesta. When this was put to Mr. Karl Oyston and Mr. Owen Oyston in cross-examination, they suggested that this failure was an oversight, and they undertook to ensure Segesta made good the missed payments. Oversight or not, I consider that this underlines the uncommerciality of the transaction.”
As with the £11m payment to Zabaxe, Justice Smith ruled that the Travelodge loan constituted a disguised dividend and his reasoning was somewhat damning. To once again quote the judge (para. 364 again):
“A more commercial transaction would, I consider, have involved Blackpool FC more fully participating in the profits accruing from the lease of the Travelodge. Obviously, the history of the negotiation of the Travelodge loan involves the Oyston Side determining what is in its own best interests, and then simply imposing these on Blackpool FC.”
Loans to other Oyston companies
Another issue we have tried to cover in depth on this site is how some of the club’s money has seemed to find its way into other Oyston businesses in the form of unsecured, interest-free loans. Loans, I might add, that even A I Cherry has cast doubt upon the recoverability in his audit notes. The reason I say even A I Cherry is that as Justice Smith noted in his written judgement, the long-time auditor was not as independent as an auditor should be. Justice Smith’s remarks on Cherry as a witness are damning:
“As I have noted, Mr. Cherry was the auditor of Blackpool FC (and other Oyston Group companies, including Segesta). As such, it was incumbent upon him to maintain a degree of independence from the companies he was auditing. At least so far as Blackpool FC was concerned, I consider that such independence was lacking. Mr. Cherry acted as an advisor to the Oyston side in respect of transactions materially affecting Blackpool FC. No auditor, properly having regard to his responsibilities, should have placed himself in this position. In cross-examination, Mr. Cherry accepted that he had provided general tax advice relating to Blackpool FC to the Oyston Side and without the participation of the Belokon Side.”
Getting back to the issue at hand, and the loans to other Oyston companies which formed part of Belokon’s claim for unfair prejudice, an amount of £2.5m of loans being not for the benefit of Blackpool FC was acknowledged by the Oystons in their response to the petition (para. 334). The judge remarked that ledger entries for these payments were brief and imprecise and that “it was Mr. Dyer’s evidence that Mr. Karl Oyston would only occasionally tell him the purpose of a particular loan when instructing him to record it”.
Coming to the decision that this £2.5m also acted as a disguised dividend, Justice Smith once again held little back in his summary (para. 338):
“Clearly, these payments were made without conscious thought as to whether they were proper or not. That is evident both from the foregoing paragraphs, and from the fact that the pattern of payments out of Blackpool FC and the modus operandi of the Oyston Group remained exactly the same before and after both the solicitors’ letter of 29 September 2014 was sent and the Petition issued. The Oyston Side did not seek to reform or change its practices even after it was likely that litigation, alleging misuse of monies (amongst other things), would be started by the Belokon Side.”
It is quite astonishing that this practice of money being loaned to non-football related Oyston businesses continued after Belokon’s claim had been launched and Justice Smith is quick to point out how this affected the football club (para. 340):
“It is obvious that the Oyston Side saw nothing objectionable in their modus operandi, even though it entirely ignored the specific duties owed to Blackpool FC and the fact that Blackpool FC’s ownership was, actually, very different to that of the rest of the Oyston Group. It is clear that there were fundamental breaches of the duties owed to Blackpool FC”
The gentleman’s agreement
At the heart of the size of the award to Belokon was the judge’s decision to deem that there had been an unwritten gentleman’s agreement between Valeri Belokon and Owen Oyston that would have seen the Latvian become an equal partner in the club. This would not have been quite 50/50 due to the presence of the minority shareholders, but a 50% split of the remaining shares once the minority shareholders (representing around 3%) are taken into account. If there is to be any form of appeal, then it is this point that is most likely to be contested by the Oystons.
When Belokon first invested in the club, it comprised three separate agreements totalling £4.5m. Only one of these actually represents the 20% shareholding, which was paid for at a cost of £1.8m. The other two agreements relate to two loans, of £1m and £1.7m respectively, the so-called Vlada Loans, named as they are after Valeri Belokon’s daughter in whose names the loans are. It is believed these are in her name only, given she played no active role in working with the club.
The claim from the Belokon side is that there was an agreement between them and the Oyston side that, at some point in the future, the combined £2.7m of Vlada Loans would essentially equate to another 30% of equity in the club – the aforementioned “gentleman’s agreement”. There is a lot of back and forth in the written judgement which explains why this was never put into writing, as it would (for rather complicated reasons) have caused the club to lose their accumulated tax losses of almost £10.3m. These would indeed be utilised once the club hit the jackpot of the Premier League riches.
The counter-argument from the Oyston side appeared to be that as no solution to avoid missing out on the tax losses could be avoided, that the gentleman’s agreement was never actually agreed to and that Belokon had no legitimate right to expect that was still the case. Justice Smith found the arguments and evidence from the Belokon side more convincing and judged that there was indeed a gentleman’s agreement and reject Owen Oyston’s denial of its existence (para. 95):
“Mr. Owen Oyston, of course, denied the existence of the gentleman’s agreement. Self-evidently, I do not accept that denial. But I do not consider that it follows that Mr. Owen Oyston was lying when, in his evidence, he denied the existence of the agreement. I consider that the more likely case to be that, as Blackpool FC became rich through Premier League payments, Mr. Owen Oyston persuaded himself that the written contracts represented all that he owed Mr. Belokon. There are indications in the later events that Mr. Owen Oyston avoided discussing the question of parity of shareholding and equal control until Mr. Belokon forced the issue; when Mr. Belokon did so, he got an answer that he did not like, and which resulted in the breach between the Belokon and Oyston Sides.”
Having ruled that there was a gentleman’s agreement, Justice Smith decided that this entitled Belokon to the same £26.77m dividends that the Oyston family had themselves enjoyed as “disguised dividends”. Had Justice Smith not reached this conclusion, then the only difference in the award would have been the amount. On each count of unfair prejudice for disguised dividends, the judge comments that:
“I should make clear that even if the gentleman’s agreement had not been made, I would regard this conduct as unfairly prejudicial within section 994 of the Companies Act 2006.”
Without the recognition of the gentleman’s agreement, Belokon could therefore have received around 26% of £26.77m – the percentage of Belokon’s 20% in relation to Segesta’s 77%. Therefore it could have been a buyout of just short of £11.5m, including Belokon’s original £4.5m investment. While this figure would have still been substantial when factoring in the additional cost of interest, legal fees and the Manchester case, it perhaps wouldn’t have been quite as terminal as the £31.27m amount. Nonetheless, the judge deemed the gentleman’s agreement to be real, much to the Oystons’ chagrin.
Karl Oyston and Owen Oyston themselves
Having had to endure Karl Oyston’s media appearances for close to 20 years, it was somewhat reassuring that Justice Smith managed to pin down Karl’s attitude issues, despite only having had the ‘pleasure’ of his company for two days of the trial. The judge, in evaluating the witnesses, found Karl Oyston hard work from the sounds of it (para. 35):
“He was an argumentative witness, who gave speeches rather than answering questions. I found him generally incapable of answering a question straightforwardly. He had a marked tendency, not to give evidence, but to advocate. This was not aided by the fact that his actual recollection of events was extremely poor. Although, therefore, I consider that he sought to tell the truth as he saw it, he was an unimpressive witness, and I cannot place very much weight on his evidence. As a person, Mr. Karl Oyston seemed to me to be a forceful character, capable of firm and probably harsh leadership. When crossed, he could react badly and be quite rude, as his documentary exchanges with Mr. Malnacs show. Fundamentally, however, it was not he, but his father, who set the strategic direction for Blackpool FC (and, indeed, for the Oyston Group as a whole), with Mr. Karl Oyston implementing the strategy determined upon by Mr. Owen Oyston. To this extent, Mr. Karl Oyston was subordinate.”
It’s worth providing that quote in full, for it exposes what many of us have experienced in hearing from the club chairman in recent years. “Argumentative”, “incapable of answering a question straightforwardly” and someone who “could react badly and be quite rude” tally with the media persona Karl Oyston has cultivated in the turmoil of his tenure, the latter years in particular.
Commenting on the somewhat unique public relations approach adopted by Karl Oyston has been something of a niche for this particular site down years, be that in picking holes in his interview with Tony Livesey after the £11m scandal, getting frustrated with his short-lived weekly Gazette column, or even being bewildered by his barely-an-apology apology over textgate. The sooner the club is sold and we don’t have to deal with his nonsense any longer, the better.
However, for all of the negative views many may associate with Karl Oyston, it is ultimately Owen who has been pulling the strings all along, as acknowledged by the judge above. Justice Smith was rather more generous regarding Oyston Snr.’s personal skills, yet his views on Owen Oyston as a witness were still hardly glowing (para. 35):
“Mr. Owen Oyston is capable of great charm, which he is perfectly capable of deploying to secure his own ends. He was an extremely courteous witness. Like Mr. Karl Oyston, his evidence to me contained substantial elements of advocacy, and many of his answers to Mr. Green Q.C.’s questions were long and basically unresponsive to the question being posed. Mr. Oyston also showed a capacity for embellishing his evidence with detail which appeared nowhere in his witness statement. I am quite sceptical as to the evidential worth of such embellishment.”
Anyone who was at the Hilton hotel for Blackpool Supporters Trust’s Q&A with Owen Oyston, or listened to the audio, will be familiar with the above description. For a long time now, Owen’s public statements have appeared to be out of touch with reality, but perhaps the costly judgement will have been a wake-up call. One suspects however, that the majority shareholder will never truly appreciate the pain his family have inflicted and the opportunity they have squandered.
The crux of the matter
It is to be hoped that on the back of all this mess, the club can finally begin a new chapter in its history. The last few chapters of this particular book, however, are likely to be the stuff of nightmares. We’ve had owners who couldn’t have done a worse job if they’d have tried, antagonising their customers along the way while we were expected to just sit back and thank them for “illegitimately stripping” the club as if they were doing us a favour. “Envy of the Football League” indeed.
What a chance our Blackpool FC had to make its mark. Sure, that Premier League season was special, but it could and should have led to much, much more. More in the sense of top level football. More in the sense of raising the awareness of the club to a global audience. More in the sense of investment in our local community with a training facility for the betterment of the team and the town. But it just wasn’t to be. Once again, we can turn to Justice Marcus Smith, who sums it up rather neatly (para. 379):
“The fact is that Blackpool FC, through its single season in the Premier League, received considerable sums of money and considerable sums of money were paid away not to the benefit of the club, but for the personal benefit of the Oyston Side. What the club would have done with these monies, had it retained their benefit, I cannot say. But being cash rich is obviously better than being cash poor. The club might have spent the monies unwisely – who can say? The fact is, it never had the opportunity.”
Where we go from now remains unclear, although developments could move quickly bearing in mind the timelines of the judgement and the payment schedule the Oystons must meet. What is clear is that the club has finally been put on the open market and a long overdue change is now a realistic possibility. It’s by no means a certainty of course, but after everything Blackpool fans have had to endure, we deserve a break.
When we get that break, Measured Progress will be here. Ready to question why the new owners made a mess of allocating away tickets for a Checkatrade Trophy quarter-final at Grimsby Town. Ready to write about a dire match in horrible weather conditions. Ready to whinge about the manager’s team selections. Ready to slag off that player who we’ve always maintained is a complete donkey. Until then, we wait.
Tick. Tock. Tick. Tock.
For those who haven’t seen the full 163 page document and would be interested in reading it for themselves, that document can be found here. I would highly recommend you make the time to do so.