8 ★ FINANCIAL TIMES Thursday9 April 2020
CO M PA N I E S & M A R K E T S
M U R A D A H M E D A N D SA M U E L AG I N I
LO N D O N
In happier times, the Premier League’s
battles took place on the pitch and enor-
mous financial rewards were shared off
it. Revenues at teams in English foot-
ball’s top division reached a record
£4.8bn last season. The value of clubs
increased. Player wages rose.
But Premier League executives,
wealthy club owners and multimillion-
aire players have become engaged in a
blame game over how to absorb the
losses being incurred from the suspen-
sion of fixtures due to the coronavirus
pandemic.
The Premier League, the world’s most
valuable domestic football competition,
wants to cut costs. The largest is staff
salaries, worth a collective £2.9bn and
representing 59 per cent of all revenues,
according to consultancy Deloitte.
For some teams, the issue has become
critical. Mike Garlick, chairman of
Burnley, has said his club will “run out
of money” by August.
“It’s a completely unprecedented situ-
ation,” he said in a statement. “It’s now
not just about Burnley or any other indi-
vidual club any more, it’s about the
whole football ecosystem from the Pre-
mier League downwards and all the
other businesses and communities that
feed from that ecosystem.”
Negotiations over pay cuts between
the top tier Premier League, the English
Football League, which runs the profes-
sional divisions below, and the Profes-
sional Footballers’ Association, the
players’ union, are mired in mistrust
between the parties.
One person involved said the inter-
vention ofpoliticians —Matt Hancock,
the health secretary, is among the MPs
calling on footballers to “play their part”
and accept salary reductions — has led
talks to take a “weird” turn. Instead of
dealing with the financial crisis, players
have become focused on defending their
reputations.
The Premier League has called on
players to accept wage reductions worth
up to30 per cent f their annual remu-o
neration. The PFA, led by Gordon Tay-
lor, chief executive, responded by say-
ing that would result in£200m less ni
taxes to the UK’s National Health Serv-
ice. Jordan Henderson, captain of league
leaders Liverpool, is spearheading a pri-
vate plan for players across the league to
make charitable contributions, but
executives worry this does little to help
clubs facing a cash crunch.
The PFA has resisted cuts, instead
seeking deferrals so that player con-
tracts are realised in full after the shut-
down. The union is also demanding
more money for struggling lower league
clubs, while asking for detailed informa-
tion about the financial position of indi-
vidual clubs to assess what concessions,
if any, should be made on salaries.
“There are a lot of footballers on a lot
of money but equally there are thou-
sands of footballers at the lower levels
staring at the financial abyss,” said Tim
Crow, an independent sports marketing
expert.
With no across-the-board agreement
between the Premier League and the
PFA, individual clubs such as Manches-
ter United and Arsenal, have begun
negotiations to come to their own settle-
ments with players, according to people
familiar with the discussions.
The approach of some billionaire club
owners has also been called into ques-
tion. Mike Ashley, the retail magnate, at
Newcastle United and Joe Lewis, the
Bahamas-based businessman at Totten-ham Hotspur, are among those to say
they use the UK government’s furlough
scheme to fund the wages of non-play-
ing staff. On Monday, Richard Masters,
chief executive of the Premier League,
wrote to MPs to defend clubs using the
taxpayer-funded scheme, saying it was
“meant for the whole economy”.
However, a person close to the PFA
said: “If you have just achieved tens of
millions of pounds in profits, why do
you need to seek to furlough staff?”
Peter Moore, Liverpool chief execu-
tive, apologised on Monday, saying the
club had come to the “wrong conclu-
sion” when it opted to use the scheme.
After fierce criticism from supporters’
groups, Liverpool reversed its stance
and said it would find other ways to pay
staff. Manchester United and Manches-ter City have renounced the scheme
altogether.
Others are seeking alternative ways of
plugging the revenue gap. West Ham
United wants to raise £30m from a pri-
vate rights issue, offering additional
shares to existing investors, according
to a person with direct knowledge of the
deal. The club did not respond to a
request for comment.
The Premier League is not alone in
grappling with the financial conse-
quences of the abrupt suspension. La
Liga, Spain’s top football division, said it
would lose €150m in revenues from the
lockdown,rising to €1bn if the season’s
matchescould not be completed.
Javier Tebas, La Liga chief executive,
said attempts to agree a pay cut with
Spain’s players’ union have proved
“impossible”. Instead, eight top tier
Spanish clubs, including FC Barcelona,
have used emergency provisions within
local laws to cut player wages by 70 per
cent. “We have to survive for the
future,” said Mr Tebas.
Other European teams have secured
voluntary arrangements: players at
Germany’s Bayern Munich agreed to a
20 per cent cut, while those at Italy’s
Juventus waivedpay for four months.In the Premier League, the salary
negotiations began last month after the
heads of the 20 member clubs were pre-
sented with a dire calculus if the season
was cancelled with no further matches
played. League executives were told this
would result in a £762m reduction in
broadcasting payments, with losses ris-
ing to £1.1bn once lost ticketing income
from unplayed matches is taken into
account.
According to people close to salary
discussions, the Premier League has
asked for immediate wage cuts worth
10 per cent to cover lost match day
income, with a further 20 per cent
deferred until later this year and paid
only if matches are completed this sum-
mer in empty stadiums.
Playing matches “behind closed
doors” would sacrifice ticketing income,
but allow the League to protect broad-
cast deals. Sky and BT, the UK broad-
casters, are due to make their next pay-
ments to the Premier League in July.
Last week, beIN and Canal+ paused
payments to France’s Ligue 1 because of
the lack of games.
While some clubs are rich enough to
ride out a prolonged shutdown, many,
even at the highest levels of the game,
are not. “Anyone who hasn’t managed
the balance sheet properly is going to be
in trouble,” said one adviser to a leading
English team. “There are clubs out there
who will not come out the other side.
This is going to be the end of the game
for a lot, including in the Premier
League.”Premier League challenge moves off the pitch
Top-tier football clubs are having to contend with a sharp revenue decline and face a strugglesome might not survive
Sources: Deloitte; Companies House; FT researchPremier League’s big spenders
Man Utd
Man City
Liverpool
Chelsea
Arsenal
Tottenham
Average
Everton
Newcastle
West Ham
Leicester
Southampton
Crystal Palace
Burnley
Brighton
Bournemouth
Swansea
Watford
Stoke
Huddersfield
WBA
Wages/
revenue
ratio ( )Revenues (m)
Wage costs (m) - seasonPerformance gap between top clubs
and rest of Premier League has increased
Average points per game v wage billChelsea
ArsenalLiverpoolMan CityMan United
-*Points per game as a multiple of league median (log scale) * Latest data available. Wage data not available for all teams
in the - seasonWages as a multiple of league median (log scale) - - Match day: the
pandemic
has focused
attention on
players’ pay, and
the actions of
top executives
such as Peter
Moore, left, of
Liverpool —Jason
Cairnduff/Action Images via
Reuters‘It’s about the whole
football ecosystem.. and.
communities that feed
from that ecosystem’
‘There are clubs out there
who will not come out the
other side. This is going tobe the end of the game’
JA M I E S M Y T H— SY D N E Y
HSBC has told Australia’s financial
crime agency that it may have broken
anti-money laundering and counter-
terrorism financing laws by failing to
report transactions it facilitated with
foreign banks and other institutions.
The British lender is the latest financial
institution to flag potential money laun-
dering compliance failings in Australia.
This follows scandals at Commonwealth
Bank of Australia and Westpac, both of
which led to the resignations of the
banks’ chief executives.
HSBC raised the potential breach of
money laundering laws in a note in the
annual report of its Australian subsidi-
ary, which was first reported by Banking
Day, an online newsletter.
The bank did not specify the number
of potential legal breaches. A person
familiar with the situation said that it
was investigating thousands oftransac-
tions that it may not have reported to
regulators, as mandated under law.
Lenders face potential fines of up to
A$21m (US$13m) for each breach of the
legislation, a regime that can lead to
heavy penalties such as the A$700m
fine imposed on CBA by Austrac, the
financial crimes regulator in 2018.
HSBC Australia said in its annual
report: “In December 2019, the bank
raised with Austrac one such matter
relating to the under-reporting of a lim-
ited category of cross-border transac-
tions involving Non-Bank Financial
Institutions and other Financial Institu-
tions”. It added: “The Bank is continuing
to work with Austrac in relation to this
matter in line with our open and trans-
parent approach with regulators.
“These regulators and other bodies
may make findings that the bank has
engaged in misconduct, including
breaches of law or conduct that falls
below community standards and expec-
tations.”
HSBC declined to comment on the
nature or the volume of the transactions
linked to the potential breaches.
The bank has encountered difficulties
with global regulators in relation to
breaches of money laundering legisla-
tion in the past. In 2012it was fined
$1.9bn by US authorities for allowing its
network to be used by Mexican drug
cartels to launder $881m.
Austrac said it does not comment on
specific entities or any investigations it
may be conducting, or provide com-
mentary on anti-money laundering
compliance of individual entities.
In November, Austrac initiated a legal
case against Westpac, alleging the bank
failed to report international fund
transactions worth more than A$11bn
between 2013 and 2019 in a timely man-
ner, as required by law. When it
emerged that some of these payments
may have facilitated child exploitation
by paedophiles, chief executive Brian
Hartzer was forced to resign.Banks
HSBC reports potential
money laundering breaches
P R I M R O S E R I O R DA N —H O N G KO N GThe co-founder of Luckin Coffee,
China’s would-be Starbucks rival, is
trying to distance himself from his
other companies to shield them from a
scandal at the beverage group.Like Luckin Coffee, which attracted
investment from the likes of BlackRock,
Lu Zhengyao’s other businesses, which
include China Auto Rental, the online
car hire company, and Ucar, a chauffeur
car service, count groups such as War-
burg Pincus among their investors.
Mr Lu would consider stepping down
as chairman of China Auto Rental as one
of a number of measures to convince
investors of its independence from
Luckin, company executives said.
“We believe that is something that he
is considering but what the final deci-
sion is, we are unable to comment on
that,” said Emily Paau, investor rela-
tions director at China Auto.
Song Yifan, chief executive of China
Auto, said there was no equity or busi-
ness relationship between the car rental
company and Luckin.
Shares in Hong-Kong listed China
Auto Rental fell more than 50 per cent
last week after Luckin revealed that an
internal investigation had found mil-
lions of dollars of sales werealleg-
edly fabricated ast year. Trading in thel
shares was suspended on Friday.
China Autoand Luckin are chaired by
Mr Lu, who is also known as Charles.In a statement signed by Mr Lu, China
Auto said on Tuesday that he “has not
been involved in the group’s day-to-day
management” since April 2016.
Nigel Stevenson of GMT Research, an
accounting investigator, said China
Auto could be tainted by its link to
Luckin even if Mr Lu’s involvement was
limited. “Even in his role as non-execu-
tive chairman, he would still be involved
on a fairly active basis,” he said.
The efforts to reassure investors came
after S&P Global cut China Auto’s credit
rating from B plus to B minus. “Although
[China Auto] is a separately listed com-pany with no direct ties to Luckin, its
association with the company has
caused investor concerns over its corpo-
rate governance” and hurt its access to
capital markets, the agency said.
Ms Paau saidWarburg Pincus had an
11 per cent stake in China Auto, adding:
“They want to protect the company.”
Warburg Pincus declined to comment.
Shares in China Auto fell 10 per cent
yesterday afternoon,having resumed
trading on Tuesday. Trading in Beijing-
listed Ucar, in which Mr Lu is a share-
holder, was halted on Tuesday.Food & beverage
Luckin chief tries to distance
himself from other interests
B E N JA M I N PA R K I N— N E W D E L H I
A L I C E H A N C O C K— LO N D O NBudget hotel chain Oyo will start fur-
loughing staff in the US, UK and other
international markets in an effort to
manage costs after the coronavirus
outbreak led to plunging revenues.The SoftBank-backed company declined
to give a figure but a person familiar with
the matter said the global total of affected
employees was expected to run into the
thousands, depending on government
lockdowns. Oyo, which had already fur-
loughed most of its UK staff, said no
employees in its home market of India
would be affected.
The seven-year-old company, which
grewto become one of the world’s larg-
est hotel chains with roughly 1m rooms
across 80 countries, only weeks ago fin-
ished laying offsignificant numbers fo
employees around the world.
As part of that restructuring
announced his year, Oyo had alreadyt
cut about half ts employees in China,i a
third n the US and thousands in India. Iti
reduced its total headcount to 5,000. 2
“I cannot imagine any other industry
that is worst affected than our indus-
tries of travel, tourism and hospitality,”
Ritesh Agarwal, Oyo’s founder, said in a
video message announcing the furlough
plans. But Mr Agarwal said the company
intended “no or negligible lay-offs” as a
result of the Covid-19 disruption.
The cost-cutting measures are in linewith otherhotel brands asoccupancy
rates have plummeted torecord lows
due to the virus crisis. Hilton said it was
cutting all share buybacks and divi-
dends, and had drawn down the full
amount of its $1.75bn revolving credit
facility. Marriott, the world’s largest
hotel group, has put “tens of thousands”
of staff on unpaid leave.
Shares in publicly traded hotel com-
panies had their worst month on record
last month, according to the industry
research company STR Global, with
occupancy levels dropping to lows of
about 20 per cent in the US and 11 per
cent in India.
Oyo’s revenues and occupancy rates
have fallen up to 60 per cent in some
markets, the company said, compared
with a drop of 10 to 15 per cent a few
weeks ago. Coronavirus has also
prompted it to reduce its marketing
spend and halt discussions about acqui-
sitions.
The company, which is almost half
owned by SoftBank, was valued at
$10bn in its most recent fundraising. Its
business is based on a flexible model
that allows it to sign up independent
hotels, rebrand them and promote them
on its platform.
SoftBank, which is trying to cut its
debt pile through a $41bn asset sale
under pressure from the activist hedge
fundElliott Management, has not
offered to put more money into the
hotel chain.Travel & leisure
Oyo to furlough international
staff but India not affected
‘Even in his role as
non-executive chairman,
he would still be involvedon a fairly active basis’
APRIL 9 2020 Section:Companies Time: 4/20208/ - 18:21 User:cathy.pryor Page Name:CONEWS2, Part,Page,Edition:EUR, 8, 1