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The XL Leisure Group, the third largest package holiday company in Britain, collapses and goes into administration. The company attributes the failure to volatile jet fuel prices, which had increased by over US$80 million year-on-year, the economic downturn, and its inability to acquire new funding. The group had 21 aircraft and transported 2.3 million passengers in 2007. The failure leaves 1,700 staff looking for new jobs and around ninety thousand British tourists stranded abroad, only some of whom are insured for return flights. Two of the group’s subsidiaries, in France and Germany, are saved from collapse by a late sale to Straumur Investment Bank, which intends to keep them running. [BBC, 9/12/2008]
Lehman Brothers, the fourth largest investment bank in the US, files for liquidation after huge losses in the mortgage market, a crippling loss of investor confidence, and its inability to find a buyer. Lehman’s collapse began as the mortgage market crisis unfolded in summer 2007, when its stock began a steady fall from a peak of $82 a share. Fears were based on the fact that the firm was a major player in the market for subprime and prime mortgages, and that as the smallest of the major Wall Street firms, it faced a larger risk that large losses could be fatal. As its crisis deepened in 2007 and early 2008, the investment bank defied expectations more than once, as it had many times before, such as in 1998, when it teetered after a worldwide currency crisis, only to strongly rebound. Lehman managed to avoid the fate of fellow investment bank Bear Stearns, which was bought by JP Morgan Chase at a bargain basement price under the threat of bankruptcy in March 2008 (see March 15, 2008). By summer, however, Lehman’s roller-coaster ride began to have more downs than ups. A series of write-offs accompanied new offerings to seek capital to bolster its finances. [New York Times, 9/16/2008]
US taxpayers express their lack of support of the Troubled Asset Relief Program (TARP—see October 3, 2008) bailout bill to members of Congress, including Speaker of the House Nancy Pelosi (D-CA), Senate majority Leader Harry Reid (D-NV), and the Senate and House budget committee chairs—Chris Dodd (D-CT) and Barney Frank (D-NY), respectively—with phone calls, emails, and faxes, initially rallying the power and the numbers to defeat the bill that some call “a historic swindle.” [The Nation, 9/19/2008] According to the Congressional Quarterly, “[Senator Lindsey] Graham (R-FL) said that the deluge of public e-mails and telephone calls was comparable to several of the most contentious issues of the last decade.” Graham adds:
“It’s somewhere between impeachment and immigration.… This is intense, but I’ve seen worse.” [Congressional Quarterly, 9/28/2008]
AIG logo. [Source: American International Group (AIG)]In an historic move, the federal government bails out insurance corporation AIG with an $85 billion loan, giving control of the firm to the US government. After resisting AIG’s overtures for an emergency loan or other intervention to prevent the insurer from falling into bankruptcy, the government decided AIG, like the now-defunct investment bank, Bear Stearns, was “too big to fail” (see March 15, 2008). The US government will lend up to $85 billion to AIG. In return, the government gets a 79.9 percent equity stake in warrants, called equity participation notes. The two-year loan will carry a LIBOR interest rate plus 8.5 percentage points. LIBOR, the London InterBank Offered Rate, is a common short-term lending benchmark. The bailout comes less than a week after the government allowed a large investment bank, Lehman Brothers Holdings Inc., to fold (see September 14, 2008). As part of the loan agreement, Treasury Secretary Henry Paulson insists that AIG’s chief executive, Robert Willumstad, steps aside. Willumstad will be succeeded by Edward Liddy, the former head of insurer Allstate Corp (see September 18, 2008). [Wall Street Journal, 9/16/2008] Shares in AIG drop to $3.75 on the news. [Bloomberg, 3/5/2009]
The Premier League launches an investigation into the ownership of Portsmouth FC. The investigation is spurred by an Israeli newspaper article that lists the assets of fugitive Russian-Israeli arms dealer Arkadi Gaydamak, which the paper says include Portsmouth (see (September 8, 2008)). Portsmouth says it is owned by Arkadi’s son Alexandre. The difference is important because Arkadi is wanted in France on gunrunning charges, meaning he may not pass the league’s “fit and proper persons” test for football club owners. [Guardian, 9/23/2008] Portsmouth will soon repeat that Alexandre is the real owner, satisfying the league (see September 23, 2008).
The Premier League announces it is satisfied that Portsmouth FC is not owned by fugitive gun runner Arkadi Gaydamak, but by his son Alexandre. The league had launched an inquiry into the ownership of Portsmouth after a list of Arkadi’s assets—including Portsmouth—appeared in the Israeli press (see (September 8, 2008) and September 22, 2008). As Arkadi is a fugitive from French authorities over gun running charges, he may not pass the Premier League’s “fit and proper persons” test for football club owners. Following the list’s publication, the league contacted Portsmouth to ask who really owned it, and Portsmouth said it was owned by Alexandre, satisfying the league. [Daily Mail, 9/23/2008]
China’s economic growth slumps to 6.8 percent in the fourth quarter of 2008, down from 9 percent in the third quarter. The decline is due to the global financial crisis, but is close to market expectations of 7 percent. The National Bureau of Statistics comments, “The international financial crisis is deepening and spreading with continuing negative impacts on the domestic economy.” This means that China’s annual economic growth is only 9 percent, the lowest level for seven years. In the previous five years annual growth had been over 10 percent, making China the third-largest economy in the world. Following the release of the figures in early 2009, many economists, especially those at Western banks, believe China will expand by no more than 5-6 percent in 2009, which would be the weakest performance since 1990. “We expect growth of 6.0 percent for 2009 as a whole, with risks still skewed to the downside,” Royal Bank of Canada says in a commentary. Others agree the economy will remain weak in the first half but think Beijing will hit its target of 8 percent growth for all of 2009 as November’s 4 trillion yuan ($585 billion) stimulus package and much easier monetary policy kick in. “The government has realized the fact that the economy is declining and regards the 8 percent target as a political task. Therefore, I think we can achieve the goal,” says Jin Yanshi, chief economist at Sinolink Securities in Shanghai. [Reuters, 1/22/2009]
House of Representatives bill 1424, known as the Troubled Asset Relief Program (TARP), passes by a slim margin in both Congressional houses, and is immediately signed into law by President Bush. [White House, 10/3/2008]
After President Bush and US Treasury Secretary Henry Paulson push through a long-sought change in how bank mergers are taxed, Bloomberg News sues the Federal Reserve for failing to reveal loan recipients. The change will deprive US taxpayers of as much as $140 billion in tax revenue. As the economy continues its downward spiral into what is called the worse economic crisis since the Great Depression, sources say that a late September $700 billion bailout is “a quiet windfall for US banks.” [Washington Post, 11/10/2008] The legality of Treasury-negotiated equity deals for many US banks is questioned by tax attorneys, as well as nearly $2 trillion that Ben Bernanke of the Federal Reserve handed out in emergency loans before the $700 billion Troubled Asset Relief Program, or TARP, was enacted (see October 3, 2008). The Fed refuses to reveal which corporations received loans, or what collateral has been presented. Sources say that this secrecy is a legal violation. The Federal Reserve’s lending is significant because the central bank has stepped into a rescue role that was also the purpose of the TARP bailout plan, although without safeguards put into the TARP legislation by Congress. Total Fed lending topped $2 trillion for the first time and has risen by 140 percent, or $1.172 trillion, in the weeks since Fed governors relaxed the collateral standards on September 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank’s purchase of Fannie Mae and Freddie Mac bonds. [Bloomberg News, 11/10/2008; AlterNet, 11/14/2008]
Detroit’s Big Three CEOs testify for more than two hours in a hearing before the Senate Banking Committee, using dire language to describe the financial straits that are threatening to bankrupt their companies. Chrysler LLC CEO Robert Nardelli says that without immediate help, his company could be forced into bankruptcy. “We cannot be confident that we will be able to successfully emerge,” he says. General Motors (GM) Corporation’s CEO, Rick Wagoner, adds that the failure of the industry would be “catastrophic,” causing the loss of 3 million jobs. Ford Motor Company CEO Alan Mulally tells the committee that if one of the automakers failed, the whole industry could be disrupted. “You’re here to get life support,” says ranking minority member Richard Shelby (R-AL). “Why aren’t you making money? How would you pay this money back?”
Financial Losses Worse than Originally Believed - The automakers say that their financial losses were worse than they at first thought, with Nardelli testifying that his company ran through $5 billion this year, including $3.3 billion in the third quarter, with only $6.1 billion on hand to last through the end of the year. Wagoner says that his firm would spend $15 billion by the end of 2008, and another $10 billion in 2009. Wagoner wants $10-$12 billion for GM, while Mulally and Nardelli want $7 billion for their respective corporations. Both Wagoner and Nardelli say that their companies will run out of money in a matter of months. One senator asks if the automakers would be willing to make monthly status reports on cash flow if the Senate agrees to the loan. Nardelli offers to take $1 a year as salary compensation; neither Mulally nor Wagoner did not make the same commitment. Nardelli also committed to Chrysler’s agreeing to consider new fuel efficiency standards. “We’d be open to any requirements,” he says.
Already Cut Costs, Moved to Restructure - The automakers testify how aggressively they have moved to cut costs, restructure, and revamp their product lines to be more competitive with foreign rivals, and say their companies were making progress until they were derailed by the credit crisis that has stalled the global economy and dried up consumer confidence. Auto sales are at their lowest level in at least 15 years, they say, dropping nearly 32 percent in October. As a testament to the seriousness of their financial crisis, the three automakers assure the committee that they would spend the requested $25 billion in the United States; however, they refuse to say that they would not come back for further bailout funding. Wagoner testifies that GM has cut $9 billion in costs since 2005. He touts labor agreements with the United Auto Workers that will further cut wage and health care expenses, and says that improvements in designing and manufacturing vehicles as well as developing fuel-saving technologies will also assist in reining in manufacturing costs. “As a result of these and other actions, we are now matching—or besting—foreign automakers in terms of productivity, quality and fuel economy,” he says. Wagoner assures the committee that the company was moving quickly to right its business. “We have more work to do in all aspects of our business,” Wagoner said. “This is hard stuff.” He said that GM would use some of the money to pay suppliers and pay for part of the Chevrolet Volt program.
UAW President Grilled - In his own testimony, United Auto Workers President Ron Gettelfinger ranks the relative financial health of the Big Three as Ford being the most solvent, with Chrysler at number two, while General Motors may be at or near insolvency by the end of 2008. The UAW chief faces tough questions as well, as Senator Bob Corker (R-TN) pushes back on union work rules and the jobs bank. “I understand Mr. Gettelfinger has done a good job on behalf of all workers not working and being paid,” Corker says, calling the practice unacceptable in other businesses.
Disagreement among Democrats, Republicans - Democrats support a plan to subtract $25 billion from the $700 billion Wall Street bailout package, known as the Troubled Asset Recovery Program (TARP), while Mitch McConnell (R-KY) has joined the White House call to speed up money previously authorized for the automakers through an Energy Department loan program. “To basically change the qualifications of the money that we have already appropriated is a sound way to go forward,” said McConnell. House Democrats and many environmentalists oppose the use of the Energy Department loan, since it is approved only for projects that lead to significant fuel efficiency improvements. Carl Levin (D-MI) says that in order to get a bill, Republicans must write language that explains how they would quickly get $25 billion from the Energy Department program to automakers. But Levin is realistic about the long road they face. “Progress: No. Effort: Hell, yes. Big-time effort,” he says. “We haven’t seen progress and won’t see progress until we see the language from those who want to see the [Energy Department] funds.” Debbie Stabenow (D-MI) says she will “very reluctantly” agree to reworking the retooling loans if that was the only way to get help now. Other Senate allies of the auto industry, including Claire McCaskill (D-MO) and Ken Salazar (D-CO), opposed the proposal to shift $25 billion from TARP. “I’m not sure we want to throw good money after bad,” Salazar says. Max Baucus (D-MT), chairman of the Senate Finance Committee, says it will be nearly impossible to make a deal before Congress adjourns for the year later this week. “Reading the tea leaves, I just don’t think it’s going to happen,” Baucus says. “There’s not enough time given the opposition of the White House and opposition of the other side of the aisle.” Corker echoes the belief that nothing would get done this year, calling the hearings “the first step in a loan application.”
Further Hearings Slated - The CEOs will return to Capitol Hill for a hearing before the House Financial Services Committee on Tuesday, November 25. [Detroit News, 11/19/2008]
Entity Tags: United Auto Workers, Ford Motor Company, Debbie Stabenow, Chrysler, Carl Levin, Alan Mulally, General Motors, Senate Banking Committee, Max Baucus, Rick Wagoner, Robert Nardelli
Timeline Tags: Global Economic Crises
The British furniture retailer MFI goes into administration, as it is unable to pay rent on many its stores. This is because of falling sales of large items such as kitchens. The company has over 100 outlets throughout the country and has been in trouble for some months. Its failure jeopardizes thousands of jobs. [Daily Telegraph, 11/27/2008] The administrators are unable to find a buyer and the group’s stores close on December 19. Customers who have not yet received their furniture are told to apply to the administrator for a refund. The logistics company DHL, which had handled deliveries for MFI, says it will probably also lay off over 300 people as a result of the failure. [BBC, 12/19/2008]
US government-seized mortgage finance companies Fannie Mae and Freddie Mac suspend foreclosures from November 26, 2008 until January 9, 2009. The six-week suspension on both foreclosures and evictions will give loan servicers time to implement streamlined loan modifications for struggling borrowers. Since September 6, 2008, Fannie and Freddie have been federal government-controlled and sponsored entities that own or guarantee $5.2 billion of the $12 billion US home mortgage market. They offer borrowers who are 90 days or more delinquent with high loan-to-income ratios a chance to modify their mortgage terms to decrease their monthly mortgage payments by roughly 38 percent of the homeowner’s monthly pretax salary. The companies say they plan to reduce interest rates for up to 5 years while lengthening repayment terms as much as 40 years to trim monthly payments. [Bloomberg, 11/20/2008]
Two European commissioners restate their opposition to FIFA’s “6+5” proposal to restrict the number of foreigners fielded by football teams. The statement is issued following a meeting of European sports ministers that FIFA attended. The opposition of Vladimir Spidla and Jan Figel, European commissioners for employment and education respectively, is grounded in the fact that the rule “is based on direct discrimination on the grounds of nationality, and is thus against one of the fundamental principles of EU law.” However, the two commissioners remain “open to discuss ways and means of bringing more balance to the game of football together with FIFA and other interested parties to find a solution that would be compatible with EU law.” Regarding a proposal made by football authorities to ban international transfers of players aged under 18, they have some sympathy for the idea, but “free movement of workers is a fundamental principle of the EU. And a proposal to ban all transfers of under-18s would, at first sight, appear to constitute indirect discrimination in the field of free movement of workers and could be disproportionate in light of the objectives pursued.” [European Commission, 11/28/2008]
The financial industry may cut as much as $2 trillion in credit card account lines over the next 18 months, according to Oppenheimer & Co analyst Meredith Whitney. This is in an effort to reduce damage risks from increasing customer delinquencies and defaults. “[W]e expect available consumer liquidity in the form of credit-card lines to decline by 45 percent,” she adds. According to Whitney, all three remaining major banks—Bank of America, Citigroup, and JP Morgan Chase—are planning or considering reducing credit lines across the board. Credit cards are the second source of liquidity available to consumers, behind wages from work. She criticizes the banking industry for offering ever fewer choices at a time when consumers need credit more than ever: “Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view.” [Consumer Affairs.com, 12/1/2008; Reuters, 12/1/2008]
As more EU companies lay off workers, unemployment rises to its highest level in more than two years. The EU jobless rate rises from a revised 8.1 percent in December, and above the 7.3 percent figure in January 2008, according to a report from the BBC. Annualized inflation in the 16-nation area falls to 1.1 percent in January, its lowest in nearly a decade, down from 1.6 percent in the year to December 2008. According to EU officials, the EU has been in recession since September 2008. The latest unemployment and inflation figures increase pressure on the European Central Bank (ECB) to further cut interest rates in an effort to bolster the economy and bring inflation closer to its 2 percent target. The ECB trims rates by half a percentage point to 2 percent in January, the fourth reduction since September, when rates stood at 4.25 percent. “January’s rise in unemployment and further fall in core inflation support our view that ECB interest rates have much further to fall,” says Jennifer McKeown, an analyst at Capital Economics. “The downturn in the labor market, and indeed the wider economy, points to a further fall in core inflation in the coming months.” Unemployment among European Union nations is highest in Spain, at 14.8 percent, and lowest in the Netherlands, at 2.8 percent. [BBC, 2/27/2009]
According to a report published in February 2009 by the Japanese government, Japan’s economy—the world’s second largest—suffers the biggest monthly drop since records began more than half a century ago, with January marking the fourth successive month that factory output has fallen. Officials conclude that the country is in its worst recession in decades. The figures are published days after government reports that exports plunged nearly 46 percent in comparison to a year ago, reportedly suffering from a fall in foreign product demand. A preliminary report by the Ministry of Economy, Trade, and Industry predicts that output will further fall to 8.3 percent in February, but increase in March by 2.8 percent. The report concludes that a 17.3 percent production drop in transport equipment, including cars and trucks, had the largest negative impact on the overall output decline, and that electronic parts and devices was down 21.8 percent from December, followed next by general machinery and steel, with all 16 industrial areas cutting their output. According to the Japan Automobile Manufacturers’ Association, the country’s car production plunges a record 41 percent in January and vehicle productions decrease by nearly 50 percent to 576,539 vehicles produced in January 2009 compared with 976,975 in January 2008. “Fearful of losing their jobs in the global turndown, consumers no longer want to buy Japanese electronic gadgets and cars,” says Roland Buerk of BBC Tokyo. “The Japanese are shopping less and average household spending fell 5.9 percent in January compared with the same month a year ago.” Jobs are also being slashed, with unemployment rising by more than 200,000 in January 2009. “Japan was once seen as relatively immune to the global crisis because its banks were not as exposed to bad loans as those in the US and Europe,” Buerk will say. “Their reliance on foreign markets to drive its economy out of a long slump in the 1990s has left it painfully exposed.” “The recession is having an increasing impact on the real economy,” Finance Minister Kaoru Yosano will say. [BBC, 2/27/2009; Xinhua News Agency (Beijing), 2/27/2009]
According to a Commerce Department report, in January, new home purchases drop 10 percent to an annual pace of 309,000, the lowest level since data tracking began in 1963. The report, published in February 2009, will attribute the fall to high unemployment and foreclosures. In addition, at 13.5 percent, the median home price falls the most in almost four decades. [Bloomberg, 2/26/2009]
Leeds United chairman Ken Bates falsely claims to the Royal Court of Jersey that he jointly owns Forward Sports Fund, the company that owns Leeds. According to Bates, there are two “management shares” in Forward; he has one, whereas the other is held by his financial advisor Patrick Murrin, who is based in the offshore tax haven of Guernsey. Forward is registered in the Cayman Islands, another tax haven. However, it will later emerge that the two “management shares” do not entail ownership of Forward, and Bates does not hold either of them (Murrin has one, and Peter Boatman, a Geneva-based administrator, has the other). Forward is actually owned by the holders of 10,000 shares in it. Bates will correct this statement later in the year, calling it an “error.” It is unclear how Bates, an experienced businessman, came to believe he was the part-owner of a business worth several million pounds, when he apparently has no interest in it. [Guardian, 9/30/2009]
The Constitutional Court of the Czech Republic confirms a CZK 70,000 (approx. €3,000) fine imposed on corrupt football referee Lubomir Pucek for helping fix a match in the Slovak league between Banska Bystrica and Puchov in 2003. Pucek was found guilty of discussing a bribe with another official over the telephone by a district court, and the verdict has already been confirmed by a regional court. However, Pucek appealed a second time on the grounds that courts have no business fining football referees for corruption, as this was a private matter. The Constitutional Court is of another opinion. “Football competitions should be regarded as a society-wide phenomenon and this fact should be given expresion in the form of an interest in their fairness and proper conduct, excluding the intentional influencing of match results,” says the Constitutional Court. Before his fall, Pucek won the Crystal Whistle for the Czech league’s best referee five times. [MladÃ¡ fronta DNES, 1/12/2009]
The California Nurses Association (CNA) releases the results of a study which found “a national single-payer style health care reform system would provide a major stimulus for the US economy by creating 2.6 million new jobs, and infusing $317 billion in new business and public revenues, with another $100 billion in wages into the US economy.” The study was conducted by the Institute for Health & Socio-Economic Policy (IHSP), a “non-profit policy and research group” that is “the exclusive research arm of the California Nurses Association/National Nurses Organizing Committee.” In addition to the growth in jobs and revenues generated by covering the 47 million Americans who were uninsured as of 2006, the study also found that universal coverage “could be achieved for $63 billion beyond the current $2.1 trillion in direct health care spending,” according to the press release for the study, which also notes that this figure is “six times less than the federal bailout for CitiGroup, and less than half the federal bailout for AIG.” [CalNurses.org, 1/14/2009]
Amid reports of a $15.4 billion loss, $1.2 million in office redecorations and earlier-than-usual million-dollar bonuses using TARP funds, John Thain resigns as CEO of troubled firm Merrill Lynch, recently purchased by Bank of America.
Investigating Bonuses - While Thain forgoes a 2008 bonus, New York Attorney General Andrew Cuomo is investigating bonuses paid to Merrill executives in late December, right before the deal closed. Merrill normally pays bonuses in January or February. Cuomo is investigating performance bonuses for Merrill’s CEO and other top executives, calling the bonuses an “oxymoron” during such an “abysmal year.” According to Merrill’s securities filings, Thain’s salary was $750,000 last year.
$837,000 for Redecoration - “Spending company money on a lavish redo at a time when Merrill’s finances were rocky sends the wrong message,” said Amy Borrus, deputy director at the Council of Institutional Investors in Washington. “Given the dire straits that so many financial institutions are in, redecorating the corner office should be way down on their to-do lists.” Someone familiar with Thain’s New York office redecoration claims that the CEO paid decorator Michael Smith $837,000 and his purchases included $87,000 for area rugs, $25,000 for a pedestal table and $68,000 for a 19th century credenza. Smith, a Santa Monica, California-based decorator, was recently commissioned by Michelle Obama to decorate the White House.
35,000 Job Losses - Thain, a former executive for Goldman Sachs Group Inc. and the New York Stock Exchange, joins about 35,000 employees that Bank of America CEO Kenneth Lewis plans to eliminate over the next few years from the combined firms’ total of over 260,000 employees.
Abysmal Performance - Lewis’s credibility was undercut after Merrill reported a record fourth-quarter deficit. Lewis considered backing out of the deal after learning the extent of Merrill’s losses in December 2008, but went ahead with the buyout at the insistence of US regulators who provided a new $138 billion aid package. “There was a certain surprise that the Merrill losses were as steep as they were,” says James Post, a professor of corporate governance and business ethics at Boston University School of Management. “On top of that, I think Lewis didn’t think Thain was doing as much as he could to control the expenses and minimize the losses.” Shares in Bank of America, down 53 percent so far in 2008, slide another 14 percent to $5.71 by the close of New York Stock Exchange composite trading. Thain bought 84,600 shares in Bank of America, at $5.71 each, the day before his ouster, a filing showed. [Bloomberg, 1/22/2009]
New York University economist Nouriel “Dr. Doom” Roubini and Western Europe Finance and Banking analyst Elisa Parisi-Capone of RGE Monitor release new estimates for expected loan losses and writedowns on US originated securitizations:
Loan losses on a total of $12.37 trillion unsecuritized loans are expected to reach $1.6 trillion. Of these, US banks and brokers are expected to incur $1.1 trillion.
Mark-to-market writedowns based on derivatives prices and cash bond indices on a further $10.84 trillion in securities reached $1.92 trillion. According to flow-of-funds data, about 40% of these securities (and losses) are foreign-held. US banks and broker dealers are assumed to incur a share of 30-35%, or $600-700 billion in securities writedowns.
US-originated assets’ total loan losses and securities writedowns are expected to reach about $3.6 trillion. The US banking sector is exposed to half of this figure, or about $1.8 trillion (i.e. $1.1 trillion loan losses + $700bn writedowns).
As of the third quarter of 2008, Federal Deposit Insurance Corporation-insured banks’ capitalization is $1.3 trillion; as of the same period, investment banks had $110bn in equity capital. Roubini and Parisi-Capone say that past recapitalization through the first release of the TARP funds for $230bn, and private capital of $200bn leaves the US banking system very nearly insolvent, should loss estimates materialize.
In order to restore safe lending, additional private and/or public capital of approximately $1 to 1.4 trillion is needed, thus calling for a comprehensive solution along the lines of a “bad bank” proposed by policymakers, or an outright restructuring through a new resolution trust corporation (RTC).
In September 2008, Roubini proposed a solution for the banking crisis that also addresses the root causes of the financial turmoil in the housing and the household sectors. The HOME (Home Owners’ Mortgage Enterprise) program combines an RTC to deal with toxic assets, a homeowners loan corporation to reduce homeowners’ debt, and a reconstruction finance corporation to recapitalize viable banks.
They concluded that total financial system losses will likely hit $3.6 trillion, half of which, according to Roubini, “will be borne by US firms,” and that the losses will overwhelm the US financial system which, in the third quarter of 2008, had a capitalization of $1.3 trillion in commercial banks and $110 billion in investment banks. [Bloomberg, 1/20/2009; AFP Reporter, 1/22/2009] Since September 7, 2006, Dr. Roubini, an economics professor at New York University, has been known as “Dr. Doom” after telling an audience of economists at the International Monetary Fund that an economic crisis was brewing in the coming months and years. He warned that the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession, and laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he said, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac. [New York Times Magazine, 8/15/2008]
Depending on the extent and length of the economic crisis, the International Labor Organization (ILO) predicts in its annual Global Employment Trends Report that global unemployment could increase from 33 million to 51 million people, up 18 million from 2007 figures. The ILO urges global governments to emphasize job creation in their fiscal stimulus packages and improve social protection systems for the unemployed and the employed. “We are now facing a global jobs crisis,” Juan Somavia, ILO director general says. “Progress in poverty reduction is unraveling, and middle classes worldwide are weakening. The political and security implications are daunting.” The ILO is a United Nations organization that has painted three 2009 global unemployment scenarios, ranging from bad to worst. “In all scenarios, there will be a global unemployment rate increase in 2009, particularly the developed economies,” the ILO report says. Its most optimistic scenario is based on the International Monetary Fund’s November 2008 world economic growth projection, which indicates that there would be a global unemployment rate at 6.1 percent. This scenario has 18 million more people unemployed by the end of 2009, in comparison to the end of 2007, with a global unemployment rate of 6.1 percent. Under the ILO’s second and third scenarios, the numbers could rise by 30 million or even 51 million, with a much slower economic recovery, with unemployment reaching higher levels in developed countries. Under the ILO’s third scenario, approximately 200 million workers could be pushed into extreme poverty with incomes as low as $1.25 a day; 140 million would be in Asia. “The world is facing an unprecedented crisis that calls for creative solutions,” the organization says. [Deutsche Presse-Agentur (Hamburg), 1/28/2009]
Deloitte publishes its Football Money League rankings for the 2007-2008 season. The rankings of the top 20 European clubs and their football earnings are:
(1) Real Madrid (€365.8m)
(2) Manchester United (€324.8m)
(3) FC Barcelona (€308.8m)
(4) Bayern Munich (€295.3m)
(5) Chelsea (€268.9m)
(6) Arsenal (€264.4m)
(7) Liverpool (€210.9m)
(8) AC Milan (€209.5m)
(9) AS Roma (€175.4m)
(10) Internazionale (€172.9m)
(11) Juventus (€167.5m)
(12) Olympique Lyonnais (€155.7m)
(13) Schalke 04 (€148.4m)
(14) Tottenham Hotspur (€145.0m)
(15) Hamburger SV (€127.9m)
(16) Olympique de Marseille (€126.8m)
(17) Newcastle United (€125.6m)
(18) VfB Stuttgart (€111.5m)
(19) Fenerbahce (€111.3m)
(20) Manchester City (€104.0m) [Deloitte, 2/13/2009]
Entity Tags: Real Madrid Club de FÃºtbol, Bayern Munich, Olympique de Marseille, Fussball-Club Gelsenkirchen-Schalke 04, Tottenham Hotspur F.C., VfB Stuttgart, Newcastle United F.C., FC Barcelona, Arsenal F.C., Milan, Roma, Manchester City F.C., Fenerbahce S.K., Deloitte, Manchester United F.C., Hamburg SV, Chelsea F.C., Juventus, Liverpool F.C., Olympique Lyonnais, Internazionale
Timeline Tags: Football Business and Politics
US Treasury Secretary Timothy Geithner announces a much bigger plan to rescue the US financial system than previously predicted or envisioned, including a much greater government role in markets and banks since the 1930s (see March 15, 2008). Although the administration provides few details, one central portion of the plan that investors most desired to learn about creates bad banks that rely on taxpayer and private investor funds to purchase and hold bad assets racked up by the banks from subprime mortgages, derivatives, and credit defaults. An additional focal point of the plan stretches the final $350 billion that the Treasury may use for the bailout, relying on the Fed’s capability to create money. This last tranche of funding allows the government to be involved in the management of markets and banks. For example, with the credit markets, the administration and the Fed propose to expand a lending program that spends as much as $1 trillion as a replacement for the $1.2 trillion decline between 2006 and 2008 for the issuance of securities backed primarily by consumer loans. The third component of the plan gives banks new capital to lend, but banks that receive new government assistance will have to cut the salaries and perks of their executives and limit dividends and corporate acquisitions. Banks must also publicly declare more information about their lending practices. With the newly proposed Treasury requirements, banks will have to give monthly statements on how many new loans they make, yet the plan stops short of ordering banks to issue new loans or requiring them to account in detail for the federal money. The Obama administration’s commitment to flood the banking system with funds will combine the $350 billion left in the bailout fund; the rest of the money will be from private investors and the Federal Reserve. Some market observers, along with some federal legislators and economists, criticize the plan for its lack of details. [New York Times, 2/10/2009]
According to economists and other finance experts, most of the major US banks are broke, awash in losses from bad bets that overwhelm the banks’ assets. [Link TV, 2/10/2009; Financial Times, 2/10/2009] None of the experts focus on individual banks, and there are exceptions among the 50 largest banks in the country. Consumers and businesses do not need to fret about their federally insured deposits, and even banks that are technically insolvent can continue operating, and could recover their financial health once the economy improves. Until there is a cure for banks’ bad assets, the credit crisis that is dragging down the economy will linger, since banks cannot resume the lending needed to restart commerce.
Suggested Response - Economists and experts say that the answer is a larger, more direct government role than the recently-unveiled Treasury Department plan. The Obama-Geithner plan leans heavily on sketchy public-private investment funding to buy up the banks’ troubled mortgage-backed securities. Experts say that the government needs to delve in, weed out the weakest banks, inject capital into surviving banks and sell off bad assets. “The historical record shows that you have to do it eventually,” said Adam Posen, a senior fellow at the Peterson Institute for International Economics. “Putting it off only brings more troubles and higher costs in the long run.” The Obama administration’s recovery plan could help spur a timely economic spurt, and the value of the banks’ assets could begin to rise. Absent that, the prescription would not be easy or cheap. Estimates of the capital injection needed range from $1 trillion and beyond. By contrast, the commitment of taxpayer money is the $350 billion remaining in the financial bailout approved by Congress last fall.
Pessimism - In a new report Nouriel Roubini, professor of economics at the Stern School of Business at New York University, estimates that total losses on loans by American financial firms and the fall in the market value of the assets they hold will reach $3.6 trillion, up from his previous estimate of $2 trillion. [Global Economic Monitor, 2/10/2009] Of the total, he calculates that American banks face half that risk, or $1.8 trillion, with the rest borne by other financial institutions in the United States and abroad. “The United States banking system is effectively insolvent,” Roubini says. [International Herald Tribune, 2/13/2009]
The private security contractor Blackwater Worldwide announces that it is changing its name to Xe. In addition, other business units within the group are to change their names. Blackwater Airships, which offers surveillance services for intelligence gathering, becomes Guardian Flight Systems. Blackwater Target Systems, the unit that develops and builds targets, is now known as GSD Manufacturing. The best-known part of the business—Blackwater Lodge and Training Center—will now be called US Training Center. Spokeswoman Anne Tyrrell says the company spent over a year searching for a new name before choosing Xe, which is pronounced “zee.” According to Tyrrell, the idea behind the name change is “to define the company as what it is today and not what it used to be,” because, “We’ve taken the company to a place where it is no longer accurately described as Blackwater.” She adds that the new name has no meaning. “It was just a choice of a name,” she says. “We thought of it internally.” Xe is also the chemical symbol for the element xenon. In addition, company executives also take on new positions. For example, Gary Jackson, longtime president of Blackwater Lodge and Training, now becomes president of Xe. The name change follows a series of problems the company has had in Iraq and Afghanistan (see, for example January 28, 2009). National security expert R. J. Hillhouse comments that the company is “obviously trying to distance itself from their image as reckless cowboys that’s etched into the world’s mind from [an incident where company employees shot several bystanders in Iraq].” With a new name, “there are a lot of people who probably won’t connect the dots,” she says. “In a year or two, people won’t remember that’s Blackwater.” [Washington Post, 2/14/2009]
Chelsea announces that the club lost £65.7m in the 2007-08 football season, down from the £74m lost the previous season. The club generated revenues of €268.9m in the 2007-2008 season (see February 2009). Chelsea chief executive Peter Kenyon says, “There is no doubt that the positive upward trends of turnover and the continued reduction in losses shows that Chelsea is building a strong business base to build on in what will be challenging times.” [BBC, 2/13/2009]
Less than one month after his inauguration, President Barack Obama signs into law a $787 billion recovery package, stating that this will “set our economy on a firmer foundation.” However, Obama reiterates during the bill’s signing ceremony at the Denver Museum of Nature and Science that he will not pretend “that today marks the end of our economic problems, nor does it constitute all of what we have to do to turn our economy around. Today marks the beginning of the end, the beginning of what we need to do to create jobs for Americans scrambling in the wake of layoffs.” The legislative battle on the bill ended with only three Republican votes in the Senate and none in the House. As president-elect, Obama initially expected to spend between $675 billion and $775 billion on the recovery package, and the final number is almost exactly that. However, Congress included $70 billion worth of tax cuts in the bill they approved, although more than a few economists say $70 billion in tax cuts won’t create as many new jobs as $70 billion in spending would. According to the government’s Recovery (.gov) Web site, the 2009 American Recovery and Reinvestment Act:
Saves and creates more than 3.5 million jobs over the next two years;
Takes a big step toward computerizing Americans’ health records, reducing medical errors, and saving billions in health care costs;
Revives the renewable energy industry and provides the capital over the next three years to eventually double domestic renewable energy capacity;
Undertakes the largest weatherization program in history by modernizing 75 percent of federal building space and more than one million homes;
Increases college affordability for seven million students by funding the shortfall in Pell Grants, increasing the maximum award level by $500, and providing a new higher education tax cut to nearly four million students;
Enacts the largest increase in funding of the nation’s roads, bridges, and mass transit systems since the creation of the national highway system in the 1950s;
Provides an $800 “Making Work Pay” tax credit for 129 million working households, and cuts taxes for the families of millions of children through an expansion of the Child Tax Credit;
Requires unprecedented levels of transparency, oversight, and accountability.
White House press secretary Robert Gibbs says Obama will seek additional stimulus/recovery funding if needed. [New York Times, 2/17/2009; recovery.gov, 2/17/2009]
Alisher Usmanov, an Uzbek businessman of dubious repute (see September 2, 2007), increases his interest in Arsenal, an English Premier League football club in North London. Red & White Holdings, of which Usmanov is a co-owner, raises its shareholding to 25 percent, which gives it a veto over major decisions. The company, run by former Arsenal vice chairman David Dein, first bought an interest in Arsenal in 2007 (see Shortly Before August 31, 2007). Red & White Holdings is now the largest shareholder in Arsenal, followed by Danny Fiszman (24.11 percent), Nina Bracewell-Smith (15.9 percent), and Stan Kroenke (12.4 percent). Shares in Arsenal are currently changing hands for around £7,500, down from their peak of around £10,500 a year and a half ago. If Usmanov’s interest reaches 30 percent, he will be mandated to launch a takeover bid under Stock Exchange rules. [Times (London), 2/17/2009]
UEFA president Michel Platini (see January 26, 2007) addresses the European Parliament in Brussels and outlines his program as head of the governing body of the continent’s most popular sport. Platini advocates the idea of financial fair play, which he says will lead to competitive balance in European competitions. He also insists that football should not be treated as an economic activity, and that the sport’s specific nature should be recognised officially. Furthermore, the UEFA president calls, among other things, for a ban on the movement abroad of people who play football but are under the age of 18. Regarding the specific nature of football, Platini argues that certain laws governing the rest of society should not apply to the game because such application is based on “the false equation that professional sport equals a purely economic activity.” [UEFA, 2/22/2009]
Citigroup CEO Vikram Pandit is in talks with the US government to increase the amount of public ownership of the bank in a move both politicians and bank bosses hope will avert the need for the ailing corporation to be taken into FDIC receivership (see March 15, 2008). Talks commenced after Citigroup shares dropped more than 20 percent in late trading on Friday, leaving the business with a share value of $10.6 billion, with balance sheet assets of $1.95 trillion. Government receivership of Citigroup is seen as politically unpalatable, and US taxpayers could conceivably own up to 40 percent of Citigroup. Economists see government takeover of the corporation as evidence of other major banks struggling with insolvency. The failure of major banks will have calamitous repercussions. The US treasury says it remains committed to helping the banking industry recover without taking complete control. “Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption… is that banks should remain in private hands,” the Treasury Department said in a joint statement with the Federal Reserve. Speculation that a major Wall Street institution could be taken into public ownership toppled the market on Friday, February 20; likely targets were heavily rumored to be Citigroup and Bank of America. Bank of America lost nearly half its share value in three days before rallying late Friday afternoon. The latest talks center on a Treasury Department proposal to convert preference shares in Citigroup into new ordinary shares. This move would not involve additional taxpayer funds, but taxpayers would surrender the guaranteed dividends that come with preference stock, as well as some degree of protection in the event of a corporate collapse. Serious questions remain, such as the price at which new shares are issued. Estimates of the size of the government’s eventual stake range from 25 percent to 40 percent. With this move, Barack Obama’s administration would become a major presence on Citigroup’s ordinary share register, thus diluting the interests of existing investors, and heightening fears of political pressure being brought on US banks. Some analysts suggest that banks relying on taxpayer bail-outs are being encouraged to focus lending and liquidity on the national US market. [Guardian, 2/23/2009]
The European Commission announces that an index of euro-region executive and consumer sentiment has dropped to 65.4 from 67.2. This is a record low and is caused by the global economic crisis. Responding to this and other bad news Jacques Cailloux, chief euro area economist at Royal Bank of Scotland in London, says, “Today’s data has dashed any hope of a tentative stabilization” in the economy. He also predicts a change in policy by the European Central Bank (ECB): “Any sense that the ECB may pause after a March rate cut can be thrown out the window. They will go very low and they will have to start embarking on additional measures.” [Bloomberg, 2/26/2009]
A report ordered by FIFA from the Institute for European Affairs (INEA) is published stating that FIFA’s “6+5” rule to limit the number of foreigners fielded by football clubs is not illegal under Europan Union law, despite repeated European Union statements to the contrary (see May 8, 2008 and November 28, 2008). “There is no conflict with European law,” INEA chairman Professor Jurgen Gramke tells a press conference. “The 6+5 rule does not impinge on the core area of the right to freedom of movement. The rule is merely a rule of the game declared in the general interest of sport in order to improve the sporting balance between clubs and associations.” The report says that, at worst, the 6+5 rule could constitute “indirect discrimination” because “it is not directly based on the nationality of professional players.” [Institute for European Affairs, 10/24/2008 ; Daily Telegraph, 2/26/2009]
The European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the World Bank pledge to invest €24.5 billion in countries such as Latvia and Hungary that have been hit by the global economic slump. In a joint statement, the three groups announce that the two-year joint initiative will include equity and debt financing, and access to credit and risk insurance aimed at encouraging lending, on top of the countries’ national government responses. The bailout is designed to “deploy rapid, large-scale and coordinated financial assistance… to support lending to the real economy through private banking groups, in particular to small-and medium-sized enterprises.… The response takes into account the different macroeconomic circumstances in, and financial pressures on countries in Eastern Europe, acknowledging the diversity of challenges stemming from the global financial retrenchment,” the groups add. The EBRD was founded in 1991 to assist the transition of former communist nations to market economies—investing across 30 countries including Ukraine, Moldova, and Russia. “The institutions are working together to find practical, efficient and timely solutions to the crisis in eastern Europe,” says EBRD President Thomas Mirow. [BBC, 2/27/2009]
Official numbers released today show that the US economy fell by 6.2 percent during the fourth quarter of 2008. The decline was much worse than analysts initially predicted, sending US stocks spiraling lower. “Plunging exports and the biggest fall in consumer spending in 28 years dragged the annualized figure down from the preliminary estimate of 3.8 percent,” the BBC reports. As a whole, in 2008, the economy grew at its slowest pace since 2001, posting a mere 1.1 percent growth. The blue-chip Dow Jones industrial average dropped 119.15 points, or 1.66 percent, to 7,062.93. The broader Standard & Poor’s 500 Index fell 2.36 percent to 735.09, a 12-year low. US consumer spending accounts for nearly two-thirds of domestic economic activity, but fell by a rate of 4.3 percent in the final quarter—the biggest fall since the second quarter of 1980. This was a revision of the earlier figure of 3.5 percent. Rising unemployment, sliding home values, increasing numbers of repossessions, and the slumping value of investments indicate that many US consumers are hanging on to disposable cash. US exports fell at the sharpest rate since 1970 at an annual rate of 23.6 percent, down from 19.7 percent. Prior to the current economic crunch, exports supported the economy. “It shows the weak state of the world’s largest economy,” says Matt Esteve, a currency trader at Tempus Consulting. “Latest GDP figures are just awful and illustrates the weak state of the world’s largest economy.” Boris Schlossberg, director of currency research at GFT Forex, adds, “There is doom all over,” but predicts that the dollar would not weaken too much against the euro since “there’s no good news on the other side of the Atlantic, either.” [BBC, 2/27/2009]
Citigroup logo. [Source: Citigroup]The latest government bailout gives Citigroup bond holders excellent terms and doesn’t provide the bank with new money. Instead, Citigroup cut expenses with the elimination of preferred stock dividends, and also converted shares into common equity at an above-market-value of $3.25, positioning itself to take the first hit if it encounters additional losses. Analysts are predicting that the company’s losses will continue to increase. Since the beginning of 2009, Citigroup’s stock has fallen 78 percent. “Debt holders could eventually be required to participate in further government-led restructuring actions,” Standard and Poor’s says. [Bloomberg, 3/2/2009] Citigroup CEO Vikram Pandit tells investors that increasing the bank’s “tangible” common equity from $29.7 billion to as much as $81 billion should “take confidence issues off the table,” about the bank’s loss absorption ability. The bank lost $27.7 billion in 2008, and is predicted to lose $1.24 billion during the first six months of 2009. “There’s no difference here,” says Christopher Whalen, co-founder of Institutional Risk Analytics, a Torrance, California risk-advisory firm. “It won’t fix revenue, and you’re still going to see loss rates.” Whalen says that the government’s efforts are mainly protecting other financial institutions and foreign goverments that are Citigroup bonds holders. “The taxpayer is funding the operating loss and protecting the bondholders,” Whalen notes. “The subsidy for the banks will become one of the biggest lines in Washington’s budget.”
Government Should Organize Citigroup, AIG Bondholders - Whalen also says it would be better if the government organized Citigroup and insurer American International Group Inc. bondholders, since the insurer received a $150 billion US bailout, and also made a deal with the government to convert some of its debt to equity. US government investment fell by more than 50 percent, and the government plans to convert up to $25 billion of its preferred stock to common shares, gaining a 36 percent stake in the bank. At Friday’s closing price of $1.50, government investment is worth approximately $11.5 billion. The bank itself has a stock market value of $8.2 billion as of market closing on February 27.
Analyst: Investors Should Avoid Citigroup Shares - Richard Ramsden, head of a group of analysts at Goldman Sachs Group, recommends that investors avoid investing in Citigroup shares: “It is unclear whether this is the last round of capital restructuring, which means that existing equity may be further diluted in the future.” The bank’s move to convert preferred shares to common equity led Moody’s Investors Service to adjust its senior debt rating for the bank from A3 to A2. Standard and Poor’s also changed its outlook on the bank’s debt from negative to stable. “Citi will face a tough credit cycle in the next two years, which will likely result in weak and volatile earnings,” S&P analyst Scott Sprinzen says. “We cannot rule out the possibility that further government support may prove necessary.” With the first two Citigroup rescue bailouts, the US Treasury bought $45 billion of preferred stock, and the Federal Reserve and FDIC guaranteed the bank against all but $29 billion of losses on a $301 billion portfolio of assets. With the third bailout, the Treasury, the Government of Singapore Investment Corporation, Saudi Prince Alwaleed bin Talal, and other preferred stockholders, agreed to take common stock at $3.25 a share, giving up dividends. The chairman of the House Ways and Means Committee, Charles Rangel (D-NY), says: “The administration and the past administration have tried so many different ways that we can only hope and pray that this time they get it right. It seems like with the banks it is a never-ending thing.” [Bloomberg, 2/28/2009]
Third US Rescue Forces Citigroup Board Changes - The Obama administration demonstrated its willingness to force changes on executives at top banks that receive taxpayer-funded rescue packages by pressing Citigroup to reorganize its 15-member board with new, more independent members. The move sends a message to Wall Street that there are consequences when taxpayer dollars are used to save them. “The government is the new boss, and the new executive committee is no longer on Park Avenue,” says Michael Holland who, as chairman and founder of New York’s Holland & Co., manages nearly $4 billion in investments. [Bloomberg, 3/2/2009]
Entity Tags: Government of Singapore Investment Corporation, Christopher Whalen, Charles Rangel, Alwaleed bin Talal, AIG (American International Group, Inc.), Federal Deposit Insurance Corporation, Vikram Pandit, US Department of the Treasury, Citigroup, Richard Ramsden, Moody’s Investors Service, Standard & Poor’s, Michael Holland, Institutional Risk Analytics, Scott Sprinzen, US Federal Reserve
Timeline Tags: Global Economic Crises
European Union Leaders hold an emergency summit in Brussels, saying they are determined to avoid protectionist moves in response to the economic crisis that might cause a rift between nations in the East and West. The summit comes on the heels of French President Nicolas Sarkozy’s pledge to help his nation’s car industry, if jobs were safeguarded in France. Sarkozy’s pledge raised fears that national protectionism could scuttle hopes of a Eurozone recovery. Speaking after their meeting, European Commission President Jose Manuel Barroso says, “There was consensus on the need to avoid any unilateral protectionist measures.” German Chancellor Angela Merkel says that the newest EU member states that are former communist countries were not all in the same situation. Czech Republic Prime Minister Mirek Topolanek, the current EU president who also chairs the talks, condemns Sarkozy’s comments, saying: “We need a Europe without barriers but also a just and fair Europe. I think that it was perfectly clear that the European Union isn’t going to leave anybody in the lurch.” British Prime Minister Gordon Brown adds: “Today was the start of a European consensus on all these major issues that are facing the world community, including ‘no’ to protectionism. Bold global action, a global grand bargain, is not now just necessary, but it is vitally urgent.” President Sarkozy denies accusations of protectionism levied at his €6 billion (approximately $8 billion) bail-out plan to keep French carmakers manufacturing in France, but says that if the US defended its own industries, perhaps Europe should do the same. There is no announcement of a new EU aid package for the badly-hit economies of Central and Eastern Europe. The summit comes a week after the same EU leaders met to discuss reforming the EU’s financial system. Brown says the G20 talks next month represent an opportunity to agree on a new deal. “Only by working together will we deliver the EU and international recovery we need,” he says. This week, Brown will become the first European leader to hold talks with President Obama, who is also expected to visit Prague in April. [BBC, 3/1/2009]
According to a survey of factories released by Credit Lyonnais South Asia (CLSA), a brokerage firm that monitors Asia-Pacific markets, although Chinese manufacturing contracted in January and February, the rate was slower in February than the previous month. The survey is issued as China’s legislature and a top government advisory body meet in Beijing. It is expected that the meeting will yield additional measures to stimulate the economy. In a statement released with the survey, CLSA declares, “The rate of contraction
remained marked, reflecting a reduction in global demand and an uncertain economic outlook.” Manufacturing is reportedly 40 percent of China’s economic output. A drop in exports demand has led to thousands of factory closures, prompting protests by laid-off workers. Chinese leaders are concerned that additional job losses may fuel unrest. According to the CLSA survey, production and new orders fell in February, and manufacturers continued to shed jobs in an effort to cut costs. “Manufacturing activity is still contracting, only at a more moderate pace than at the end of 2008,” says Eric Fishwick, the head of CLSA’s economic research. China is one of the few major economies still growing, although growth fell to a seven-year low of 6.8 percent in the final quarter of 2008, compared with the same period a year earlier. Last November, the government announced a $586 billion plan to boost domestic consumption in an attempt to assist in cushioning the impact of the global slowdown. Officials say that the effects of public works spending will be slow. Quoting Premier Wen Jiabao, Xinhua News Agency reports that some indicators, such as recent upturns in power demand and rising steel output, suggest that the economy is stabilizing. However, trends remain dismal in the US and around the globe. “China cannot expect to recover just by spending its way out of the slowdown,” says Jing Ulrich, JP Morgan’s chairwoman of China equities in a report issued today. “While early signs of economic stabilization are encouraging, it remains to be seen if this uptrend is sustainable.” [International Herald Tribune, 3/2/2009]
Having received over $170 billion in taxpayer bailout funds in the last five months, troubled insurance giant American International Group (AIG) pays executives nearly $200 million in bonuses. The largest are bonus payouts that cover AIG Financial Products executives who sold risky credit default swap contracts that caused huge losses for the insurer (see September 16, 2008). Despite a request by US Treasury Secretary Timothy Geithner for the insurance conglomerate to curtail future bonus pay—and AIG’s agreement to do so—the global insurer cuts bonus checks on Sunday, March 15, 2009, in order to meet a bonus payment agreement deadline. The Treasury Department has publicly acknowledged that the government does not have the legal authority to block current bonus payments, although AIG stated in early March that it suffered its largest corporate loss in history, when it reported fourth quarter 2008 losses of $61.7 billion.
Treasury Tried to Prevent Payments - An anonymous Obama administration official says that on March 11 Geithner called AIG Chairman Edward Liddy demanding that the CEO renegotiate the insurer’s present bonus structure. In a letter, Liddy informed Geithner that outside lawyers had advised AIG that the company could face lawsuits, should they not make the contractually obligated payments. “AIG’s hands are tied,” Liddy wrote, although acknowledging that, with the company’s fiduciary situation, he found it “distasteful and difficult” to approve and pay the bonuses. He wrote that the early 2008 bonus payments agreement was entered into prior to the company being forced last fall to obtain the first taxpayer bailout because of the company’s severe financial distress.
Some Monies Already Paid Out - A white paper generated by AIG asserted that the firm had already distributed $55 million in “retention pay” to nearly 400 AIG Financial Products employees. According to the white paper, the global entity “will labor to reduce 2009 bonus payment amounts,” trimming payouts by at least 30 percent this year. [Associated Press, 3/15/2009]
In a speech to the Tulsa Chamber of Commerce, Federal Reserve Bank of Kansas City President Thomas Hoenig declares that US banks’ ability to remain viable during a deeper recession—while undergoing federal government stress tests—demonstrates that most don’t need more taxpayer money. “Although the United States has several thousand banks, only 19 have more than $100 billion of assets,” Hoenig says. “After supervising authorities evaluate their condition, it is likely that few would require further government intervention.” Designed to demonstrate how much extra capital banks may need to survive a deeper economic downturn, the stress tests are to conclude by April 30, 2009, with the 19 biggest banks’ test results to be disseminated to President Barack Obama in meetings with his economic team. Hoenig reiterates his view that the government shouldn’t prop up failing financial institutions but take them over temporarily and wind them down, as with the 1984 takeover of Continental Illinois National Bank & Trust Co. “I encourage Congress to enact a new resolution process for systematically important firms,” he says. “There has been much talk lately about a new resolution process for systemically important firms that Congress could enact, and implement it as quickly as possible, but we do not have to wait for new authority. We can act immediately, using essentially the same steps we used for Continental. An extremely large firm that has failed would have to be temporarily operated as a conservatorship or a bridge organization and then reprivatized as quickly as is economically feasible. We cannot simply add more capital without a change in the firm’s ownership and management and expect different outcomes.” Hoenig declares that calling a firm “too big to fail” is a “misstatement” because a bank deemed insolvent “has failed.” “I believe that failure is an option,” he says. After the government’s fourth rescue of American International Group Inc. (AIG), Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke called for new powers to take over and sell off failing financial companies, and also called for stronger regulation to constrict risks that might endanger the financial system. The Federal Deposit Insurance Corporation has the authority to take over failing firms, and dispose of their assets, but no such authority exists for non-banking financial firms such as a hedge fund or AIG, which have extensive links throughout the banking system. During a Q&A after his speech, Hoenig tells the audience that the Fed must be prepared to make a timely removal of its stimulus to deter a period of high inflation that could be likened to that of the early 1980s. “You cannot wait until you know for sure the economy is recovering,” Hoenig says, adding that “employment growth tends to lag” and may not be the best indicator of recovery. “We will watch every indicator of data that suggests we have a recovery under way.” He also says that if the US manages its economy well, the US dollar should remain the world’s reserve currency. “It is a matter of running your economy properly,” he says. “When the US does that, and I think we will, I think we will remain the largest, most successful reserve currency on the face of the earth.” [Bloomberg, 4/9/2009]
FIFA’s Dispute Resolution Chamber hands down a ruling punishing the Swiss club FC Sion and its Egyptian goalkeeper Essam El Hadary over Al Hadary’s transfer from the Egyptian club Al Ahly in February 2008. The goalkeeper is banned for four months, starting from the next season, and Sion is ordered to pay Al Ahly a transfer fee of US$1.25 million and also prevented from registering new players for two transfer windows, i.e. more than a year. The move was illegal under FIFA regulations because El Hadary was under contract with Al Ahly and there was no agreement between the clubs. FC Sion says it will appeal the ruling. [BBC, 6/2/2009; Court of Arbitration for Sport, 6/1/2010 ]
According to unemployment statistics compiled by Eurostat, the European Union unemployment rate has risen to 9.2 percent, its highest since September 1999, with 3.1 million jobs lost in April 2009, an increase of 556,000 from March. In the Eurozone, 396,000 jobs were shed and almost 15 million became unemployed. The lowest unemployment figures were in the Netherlands at 3.0 percent and Austria at 4.2 percent. The highest figures were in Spain at 18.1 percent, Latvia, 17.4 percent, and Lithuania, 16.8 percent. Eurostat is the Statistical Office of the European Communities located in Luxumbourg and is charged with providing statistics for comparisons between European countries and regions. The Eurozone is comprised of the 15 EU states that have adopted the euro and created a currency union. [MercoPress, 6/3/2009; Eurostat.com, 6/3/2009; Ezine Articles, 6/3/2009]
In an interview with Bill Moyers, Robert Reich, former labor secretary under President Clinton, says: “I believe that there’s no doubt that we’re going down to government intervention everywhere, government ownership unprecedented in this country. And it’s a long road and a slippery slope. Essentially, capitalism has swamped democracy. The Bush administration started the bank bailouts because the financial system had overreached with wild speculation and was on the verge of breaking down. Tim Geithner and [President] Obama are continuing these big bank bailouts, and I happen to think the bailouts have not worked very well, except as a kind of socialism for big corporations. There’s no such thing as pure capitalism without rules and regulations that set limits on profit making, because otherwise it’s everybody out for themselves. Otherwise, nobody can trust anybody. Otherwise, it’s the law of the jungle.… We rely upon government to set the boundaries—this can’t happen because it’s fraud, that can’t happen because you’re stealing something, this can’t happen because you’re imposing a huge burden on other people. Unless you have a democratic system that allows the rules to be created not by the companies but by the people and the people’s representatives reflecting what the public needs—not what the corporations need—you’re going to have a system that is not a democracy and not democratic capitalism. It’s super capitalism without the democracy. People pressuring their individual Congress members and Obama standing up to the banking industry will force real regulation. There will be no recovery in the sense of going back to where we were because the old path was unsustainable. If we don’t lift middle class wages, if we don’t get some control over Wall Street, if we don’t have genuine health care reform, if we don’t do something about the environment and global warming, we will not have a recovery. The next downturn is going to be worse than the downturn we just had, so there’s no going backwards. In every conversation I’ve participated in with the president, I was left with the impression that he understood this very, very well. I think most of the people around him understand this. The question is can he pull this off? Can he overcome the vested interests? It will be a clear indication of his toughness with regard to the willingness to twist arms and demand that the public interest be foremost.” [Bill Moyers Journal, 6/12/2009]
Arsenal’s board of directors turns down a proposal that the football club raise capital by means of a rights issue. The suggestion was put forward by Red & White Holdings, an investment vehicle co-owned by the controversial Uzbek businessman Alisher Usmanov (see September 2, 2007). Under the plan, all shareholders would be invited to subscribe new shares, but if one or more did not exercise this right, the additional shares would be offered to the other shareholders. Red & White Holdings says that the extra money would be used to repay some of the club’s debt and to finance additional signings of established players. However, club officials suspect this is a ploy to allow Usmanov to increase his stake. In addition, they say the debt is manageable and that they prefer to sign young players, who are cheaper. [Guardian, 7/8/2009]
Jeff Castelli, a former CIA Rome station chief involved in the blown rendition of Islamist extremist Hassan Mustafa Osama Nasr in Milan (see Noon February 17, 2003), joins a Los Angeles-based marketing analysis company called PhaseOne Communications. Castelli had left the agency the previous year over the fallout from the rendition’s exposure. His role at PhaseOne, owned by former CIA officer Reynold Stelloh, is unknown. However, although most of the company’s clients are commercial, a source familiar with the business will say that his main responsibility will probably be generating government contracts. Reporter Jeff Stein will comment that a 2004 description of the company in a trade journal “suggests its work may be applicable to managing the effectiveness of US government propaganda operations.” The journal said, “The formulas and systems used by PhaseOne were originally derived during World War II as elements of classified work of US and British intelligence analysts, who developed the science of content analysis to a point where it was able to successfully predict enemy behavior based on public communications.” Stein will add, “Knowledgeable observers said they would not be surprised if PhaseOne were contracted by the government to analyze the effectiveness of terrorist propaganda against the United States, and vice-versa.” [Congressional Quarterly, 9/17/2009]
“The global recession is now over and a recovery has begun,” says Olivier Blanchard, chief economist of the International Monetary Fund (IMF). However, he says, the global recession has not been typical, so neither will the economic revival be. Writing in an article released by the IMF, Blanchard states: “One should not expect very high growth rates in the recovery. The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come.” The word “recovery” has a precise technological meaning—that the economy is again growing but, essentially, has not returned to previous levels of output, wealth, and employment. In other words, the economy is healing, yet is not yet healed. According to Blanchard, “The recession has been so destructive that we may not go back to the old growth path [and] potential output may be lower than it was before the crisis.” Blanchard says that growth is coming for most countries, for at least the next few quarters, but will not be sturdy enough to decrease unemployment. He says growth is still dependent on fiscal and monetary government stimulus policies. “To sustain growth will require delicate rebalancing acts, both within and across countries,” he says. “Sustained recovery in the United States and elsewhere eventually requires rebalancing from public to private spending.” He also says that big fiscal deficits orchestrated to rouse the economy must be unwound. “The United States can’t rely on low interest rates to sustain the recovery, nor can it rely on consumer spending or investment filling the gap. Consumers are likely to save more in coming years. Businesses don’t need to invest much for the next few years, because so much of their capacity is idle. Sustained recovery is likely to require an increase in US net exports and a corresponding decrease in the rest of the world, coming mainly from Asia. China, for one, should increase its domestic demand,” he adds. [Marketwatch, 8/18/2009]
Leeds United bans all Guardian reporters from its stadium, Elland Road. The ban is in response to a series of articles written by Guardian columnist David Conn about the mystery of who actually owns Leeds. [Guardian, 10/19/2009] For example, three weeks previously Conn published an article highlighting the fact that the club’s chairman, the controversial Ken Bates, had falsely claimed to own the club (see January 2009). Leeds is owned by Forward Sports Fund, a company registered in the Cayman Islands and administered by the Geneva-based Chateau Fiduciaire. However, the public does not know who owns Forward Sports Fund. According to Conn, the question of Forward’s ownership is important because of the role it played in the club’s insolvency in 2007. [Guardian, 9/30/2009]
The American-Turkish Council (ATC) announces that its board of directors has elected former US Deputy Secretary of State Richard Armitage to become its chairman. Armitage will replace former National Security Adviser Brent Scowcroft, who has served as chairman for nine years and will soon retire. According to a statement by the board, Armitage will take office on January 1, 2010. The ATC says it thinks Armitage will strengthen the business, defense, trade, investment, foreign policy, and cultural relations between the United States and Turkey. He and Scowcroft will travel to Turkey on November 16-20 for senior-level discussions with Turkey’s government, military, and business leadership. [World Bulletin, 12/8/2008]
The Spanish government announces that the “Beckham law” will cease to apply on January 1, 2010. The law was passed in 2005 in order to lure top foreign executives to Spain by giving them a massive tax break (see 2005). However, most of the people who took advantage of the law were footballers, in particular England and Real Madrid midfielder David Beckham. The law’s repeal will lead to Spanish clubs having to pay foreign players more in future, creating a more level playing field for signings with clubs in other European countries. [Xinhua News Agency (Beijing), 11/4/2009]
The Greek government releases a final draft of its budget that aims to cut the deficit to 8.7 percent of GDP in 2010. The deficit is now well over 10 percent, so such a reduction would show EU partners and markets that the country is trying to sort its finances out. However, the draft budget also sees public debt rising to 121 percent of GDP in 2010, from 113.4 percent in 2009. EU forecasts on Greece for 2010 are worse, with the deficit seen at 12.2 percent of GDP and national debt rising to 124.9 percent, the highest ratio in the EU. [Reuters, 3/3/2010]
The ratings agency Standard & Poor’s puts Greece’s credit rating, currently A-, on negative watch with a view to downgrading it. [Reuters, 3/3/2010]
Fitch Ratings cuts its assessment of Greek government debt to BBB+ and says that the outlook for the country is negative. Fitch had previously cut its rating for the debt to A-, when the Greek government revealed that its budget deficit was higher than expected. This reduction is the first time in 10 years a ratings agency has put Greece below the A investment grade. [Reuters, 3/3/2010]
The controversial Russian-Uzbek businessman Alisher Usmanov (see September 2, 2007) increases his stake in English football club Arsenal. The shareholding is held by the investment vehicle Red & White Holdings, of which Usmanov is co-owner, and is now just over 26 percent. This makes Usmanov’s company the second largest shareholder in Arsenal, behind US businessman Stan Kroenke, who now has 29.9 percent. [BBC, 12/11/2009]
In response to Greece’s financial problems, Greek Prime Minister Georgios Papandreou outlines policies to cut the country’s ballooning budget deficit and try to regain the trust of investors and EU partners. Papandreou pledges a 10 percent cut in social security spending in 2010. He also says he will abolish bonuses at government-run banks and put a 90 percent tax on private bankers’ bonuses. Further, he promises a serious fight against corruption and tax evasion, calling them the country’s biggest problems. In addition, he announces a drastic overhaul of the pension system in six months and a new tax system that will make the wealthier carry more of the burden. [Reuters, 3/3/2010]
Chelsea announces that the club made a loss of £44m the previous season. This is the smallest loss since the football club was taken over by Roman Abramovich in 2003 and was achieved despite a fall in turnover from £213.1m to £206.4m. Chief executive Ron Gourlay comments, “It is still our aim to be self-sufficient and we will achieve this by increasing our revenues as we continue to leverage off our brand.” [Guardian, 12/30/2009]
Andy Anson, chief executive of the English bid team for the 2018 World Cup says that of the 24 members of FIFA’s executive committee who will vote on the World Cup’s allocation, “at least 13 are buyable.” The comments are made to a closed gathering of senior civil servants, including a Downing Street representative, a few journalists, and other members of the bid team at a dinner party in a private room of the InterContinental hotel in Mayfair, London. Anson makes the statement in response to a question about corruption at FIFA, adding that he and his team had come to this conclusion after much thought. According to Patrick Collins, a Daily Mail journalist present: “[Anson’s] colleagues coughed loudly and fixed him with incinerating glares. Somebody explained that the notion of ‘buying’ delegates had never crossed English minds. Anson realised the import of his remark and started to retract. Later, we were spun the line that things had been said which could easily be taken the wrong way.” Following the World Cup’s allocation to Russia, Collins will publish details of the conversation, despite the fact that it was conducted on an off-the-record basis. He will say he is doing so because by its reaction to the numerous corruption allegations made against FIFA during the bidding process the bid team “so lightly shed integrity and self-respect.” [Daily Mail, 12/5/2010]
FC Moscow withdraws from the Russian first division just over one month before the football season begins. The withdrawal is announced by Sports Projects, a subsidiary of the club’s owners Norilsk Nickel. The reasons given for the withdrawal are that the parent company’s operations are based in other parts of Russia and support from Moscow city council is not forthcoming. FC Moscow was an offshoot of the famous FC Torpedo Moscow club and was founded in 1997. The club’s place in the league is to be taken by Alania Vladikavkaz. [CNN, 2/5/2010]
Deloitte publishes its Football Money League rankings for the 2008-2009 season, in which Real Madrid was the first European club to earn more than €400m. The rankings of the top 20 European clubs and their football earnings are:
(1) Real Madrid (€401.4m)
(2) FC Barcelona (€365.9m)
(3) Manchester United (€327.0m)
(4) Bayern Munich (€289.5m)
(5) Arsenal (€263.0m)
(6) Chelsea (€242.3m)
(7) Liverpool (€217.0m)
(8) Juventus (€203.2m)
(9) Internazionale (€196.5m)
(10) AC Milan (€196.5m)
(11) Hamburger SV (€146.7m)
(12) AS Roma (€146.4m)
(13) Olympique Lyonnais (€139.6m)
(14) Olympique de Marseille (€133.2m)
(15) Tottenham Hotspur (€132.7m)
(16) Schalke 04 (€124.5m)
(17) Werder Bremen (€114.7m)
(18) Borussia Dortmund (€103.5m)
(19) Manchester City (€102.2m)
(20) Newcastle United (€101.0m) [Deloitte, 3/2010 ]
Entity Tags: Olympique de Marseille, Bayern Munich, Olympique Lyonnais, Roma, SV Werder Bremen, Tottenham Hotspur F.C., Newcastle United F.C., Ballspiel-Verein Borussia 1909 e. V. Dortmund, Arsenal F.C., Milan, Real Madrid Club de FÃºtbol, Manchester City F.C., FC Barcelona, Deloitte, Manchester United F.C., Fussball-Club Gelsenkirchen-Schalke 04, Chelsea F.C., Internazionale, Juventus, Liverpool F.C., Hamburg SV
Timeline Tags: Football Business and Politics
The Premier League deducts nine points from Portsmouth because the club, which is insolvent, is to go into administration. Portsmouth previously had 19 points, but now has only 10, 14 less than 19th-placed Hull. The deduction therefore virtually guarantees that Portsmouth will be one of the three teams relegated to the second tier of English football when the season ends in two months’ time. A Premier League statement says, “Following the High Court’s decision that Portsmouth FC’s administration is valid, the Premier League board convened today to apply the League’s rules and policies in relation to a member club suffering an event of insolvency.” Portsmouth’s debts are said to be around £65m. [Daily Telegraph, 3/17/2010]
The Football Association agrees England will play an international friendly match in Thailand in the summer of 2011 in an attempt to influence the vote of Worawi Makudi, a Thai member of FIFA’s executive committee that is to vote on the hosts of the 2018 World Cup. This game is one a series of matches designed by England to influence executive committee votes; such matches will also be played with Egypt as well as Trinidad and Tobago. [insideworldfootball, 4/23/2010] However, Makudi will vote for the Spain/Portugal bid (see Around 2:00 p.m. December 2, 2010) and England will then cancel the game in Thailand (see December 3, 2010).
Lord Triesman, the chairman of the English FA and 2018 World Cup bid, makes several allegations about corruption and bad practice in football over lunch with a former lover. The woman, Melissa Jacobs, records the conversation and will later provide it to the Mail on Sunday for publication. Triesman, a former government minister and member of the House of Lords, says that there is “some evidence” Spain and Russia may collude over the forthcoming World Cup in South Africa and their bids to host the 2018 event—according to him, in return for Russia helping bribe referees in the current tournament, Spain will withdraw its offer to host the later tournament, leaving the way clear for Russia to win. Triesman also claims that one Latin American football administrator wants an honorary knighthood from the Queen in order to vote for England. In addition, Triesman is dismissive of the Premier League’s fit and proper persons test for club owners, pointing out that, given the way it is designed, notorious Zimbabwean dictator Robert Mugage would pass the test, whereas Nobel Peace Prize winner Nelson Mandela would not. [Daily Mail, 5/17/2011] After the Mail on Sunday publishes the allegations, Triesman will resign from both his positions (see May 16, 2010).
Lord Triesman resigns from his positions as chairman of the Football Association and the 2018 England World Cup bid following the publication by the Mail on Sunday of allegations of corruption he made privately (see (May 2, 2010)). The allegations were made over lunch with a former lover, Melissa Jacobs, who recorded the conversation and then provided it to the Mail. Most explosively, Triesman suggested Spain might drop its bid to host the 2018 World Cup if Russia helped ensure referees were favorable to it at the 2010 World Cup. This would leave the way clearer for Russia to host the 2018 event. “A private conversation with someone whom I thought to be a friend was taped without my knowledge and passed to a national newspaper,” says Triesman in a statement. “That same friend has also chosen to greatly exaggerate the extent of our friendship. In that conversation I commentated on speculation circulating about conspiracies around the world. Those comments were never intended to be taken seriously, as indeed is the case with many private conversations. Entrapment, especially by a friend, is an unpleasant experience both for my family and me but it leaves me with no alternative but to resign.” [BBC, 5/16/2010]
University of Barcelona professor Jose Maria Gay publishes a report into the finances of Spanish football clubs. The report paints a grim picture, showing that the 20 La Liga clubs owed a total of €3.5bn in the 2008-2009 season, a €40m increase from the previous term. The report also shows the slowing pace of revenue growth in 2008-2009—down from 10 percent to 4 percent—and total expenses of €1.7bn, up €249m. Salary costs, in particular player wages, accounted for 85 percent of turnover. [Forbes, 5/19/2010]
Real Mallorca, which finished fifth in the recently concluded La Liga season, applies to go into bankruptcy administration. The club has a debt of €85m (US$103m). Majority shareholder Mateu Alemany comments: “Over the past two years, Mallorca has suffered a very complex economic situation, with serious financial problems and an inability to meet its commitments. This is a legal instrument that enables Mallorca to see the future in another way—to have a budget structure that has logic and controls debt, to take stringent budgetary measures to bring spending in line with earning capacity.” According to a recently published report into Spanish football finances (see May 18, 2010), Mallorca made a loss of €5.2m for the 2008-2009 season, on revenues of €28.1m. Its playing staff budget for the 2009-2010 season was €34.6m. [Forbes, 5/19/2010]
The Court of Arbitration for Sport rules against the Swiss club FC Sion and its goalkeeper Essam El Hadary in a dispute over the player’s transfer from the Egyptian club Al Ahly two years ago. The decision confirms a ruling of FIFA’s Dispute Resolution Chamber (see April 16, 2009) that ordered compensation to be paid to Al Ahly for the transfer and banned Sion from signing new players for two transfer windows. Although the original ruling is altered in some minor ways, the transfer ban remains in force. [Court of Arbitration for Sport, 6/1/2010 ]
The Swiss club FC Sion signs a number of players in the summer transfer window. It does so before a ban on signing players it is soon to be under takes effect (see June 1, 2010). The players are Loïc Chatton (signed from Biel), Steven Deana (Vaduz), Michael Dingsdag (Heerenveen), Jonas Elmer (Aarau), Rodrigo Lacerda (Strasbourg), Branislav Micic (Le Mont), Dragan Mrdja (Vojvodina), and George Ogararu (Ajax Amsterdam). [Swiss Football League, 2010]
Businessman Sandro Rosell is elected president of Spanish football club FC Barcelona, succeeding Joan Laporta, who had been in charge for seven years. Rosell, a former Barcelona vice president who resigned in 2005 after arguing with Laporta, wins more than 60 percent of votes cast by club members. [BBC, 6/13/2010]
Sheikh Abdullah Bin Nassar Al-Thani, a member of the Qatari royal family, agrees to buy a majority stake in Malaga football club for €36m from current president Fernando Sanz. “The agreement has already been notified to the Spanish Sports Council and will be completed shortly, given that said public body has provided its verbal approval of the agreement’s terms and conditions,” says the club. Al-Thani, who will also assume the club’s debt, is extremely wealthy and manages a business empire based in the United Arab Emirates, which employs around 3,000 people and operates in more than 30 countries. His interests include hotel chains, shopping centres, mobile phone companies, car dealerships, and a bank. Malaga’s highest ever finish in the Spanish top flight is seventh, and they have been relegated to the second tier frequently. They recently finished 17th out of 20 clubs in Spain’s Premiera Division. Al-Thani comments, “Our goal is to help Malaga take the necessary steps to consolidate its presence in La Liga and to reinforce the excitement and hopes of the supporters.” [Reuters, 6/26/2011]
FC Barcelona takes out a €150m loan to cover the football club’s expenses. The need for the loan was announced a week before it was taken out, when newly elected club president Sandro Rosell said the loan was to pay wages for players, coaching staff, and other employees. The loan is provided by a group of Spanish banks headed by Santander and La Caixa. [Press Association (London), 7/14/2010]
UEFA bans the Spanish football club Real Mallorca from European competition because it is not in compliance with its financial regulations. Mallorca has had a successful season and qualified for the Europa League, but went into administration in May (see (May 19, 2010)). Villareal is set to take Mallorca’s place in the competition if an appeal is unsuccessful. [Sport Business, 7/23/2010]
Real Mallorca appeals to the Union of European Football Associations (UEFA) to reverse a recent decision banning the club from next season’s Europa League. The club was banned from European competition (see (July 22, 2010)) because it is currently in administration and not in compliance with UEFA’s financial guidelines (see (May 19, 2010)). At the same time as the appeal, Mallorca issues a statement pointing out that the ban will make its financial situation worse, as it would deprive the club “of a series of revenue in different concepts, such as ticketing, sponsorship, and income from the competition.” It adds, “Ethically and legally, RCD Mallorca believes reason is on their side and [the club] will not relent in the effort to show that he has earned the right to challenge the Europa League.” [Goal, 7/26/2010]
UEFA upholds a decision banning Spanish football team Real Mallorca from European competition (see (May 19, 2010), (July 22, 2010), and July 26, 2010). “At its meeting on July 14, 2010, the club financial control panel unanimously concluded that the licence had not been correctly awarded to RCD Mallorca and that the club did not sufficiently fulfil its financial obligations,” says UEFA of the reason for the ban. Mallorca indicates that it will appeal to the Court of Arbitration for Sport. [AFP, 7/30/2010]
Arsenal announces record pre-tax profits of £56m for the 2009-2010 season, although a large amount of the club’s revenues was generated by the club’s property development side. Turnover increased to a record £379.9m from £313.3m, although the club’s overall turnover from its football business was marginally down, owing to five fewer home cup matches, as well as reduced income from merchandising and catering. The wage bill increased from £104m to £110.7m and is now around 50 per cent of non-property income. The club says that the business’s property arm, the Highbury Square development, is debt free and making money. The sale of 362 apartments at Highbury Square and the social housing at Queensland Road, developments that were part of the recent move to a new stadium, generated revenues of £156.9m and allowed Arsenal to repay in full the £129.6m in bank loans taken to fund the construction. The group’s overall net debt was reduced from £297.7m to £135.6m. [Guardian, 9/24/2010] Arsenal is one of only four Premier League clubs to make a profit for the 2009-2010 season, when the clubs’ losses totalled £484m. [Guardian, 5/19/2011]
Manchester United announces a record operating profit of over £100m for the 2009-2010 football season, but it is more than offset by loans taken on when the club was purchased by the Glazer family. The record profit was helped by increases in commercial, broadcasting, and matchday revenues, the later boosted by increased ticket prices. Nevertheless, the club made a huge overall loss due to interest repayments and one-off costs related to a £509m bond issue. In addition to the bonds, the club also has to service £225m in payment in kind loans, currently bearing interest at 16.25 per cent. The overall result was also harmed by a £40.6m write-down on an interest rate swap that had to be paid when the club launched its bond offer at the beginning of the year, as well as £19m lost on fluctuating exchange rates. [Guardian, 10/8/2010]
Czech businessman and former Dukla Prague owner Bohumir Duricko guns down alleged underworld figure Vaclav Kocka Jr. The shooting occurs at the prestigious Monarch restaurant in Prague, at the launch of a book by former Social Democrat Prime Minister Jiri Paroubek. Paroubek, an acquaintance of Duricko’s, has left the building when the shooting occurs. [Mlada fronta DNES, 10/10/2008]
FC Barcelona president Sandro Rosell announces that in the previous season the football club made a record loss of €79.6m and that its debt has climbed to €430m. Rosell also proposes that the club file suit against previous president Joan Laporta over dubious bookkeeping practices, a proposal that is approved by a narrow majority at the general assembly of club’s members. According to Rosell, when he took over from Laporta (see June 13, 2010), he had the club’s books checked by outside auditors. The results of the audit led him to propose the action against Laporta, with whom he has been in conflict for several years. [DPA, 10/16/2010]
Former World Cup-winning captain and coach Franz Beckenbauer, now a member of FIFA’s executive committee that will vote on the 2018 and 2022 World Cup hosts, backs Australia’s bid to organize the 2022 event. “Australia was a perfect host for the Olympics,” Beckenbauer says. “They know how to handle these big events. The football World Cup—it’s even bigger than the Olympics because it’s more cities, it’s more spectacular than the Olympics—I think you can do it.” He adds: “Australia has shown the world many, many times that [they] can handle these big events. There is no doubt that Australia can host the World Cup and organise the World Cup.” [Fox Sports, 10/26/2010] Beckenbauer does not specifically say he will vote for Australia, but it seems likely that the one vote it will get is from him (see Around 2:30 p.m. December 2, 2010).
Mohamed bin Hammam, president of the Asian Football Confederation and a senior member of FIFA’s executive committee that is soon to vote on the allocation of the 2018 and 2022 World Cups, criticizes a Sunday Times investigation which recently revealed two of his fellow committee members were corrupt. The investigation led to the suspension of the two men, Nigeria’s Amos Adamu and Tahiti’s Reynald Temarii, from the committee, after they agreed to accept money from Sunday Times reporters posing as lobbyists to vote a certain way. “Forging identity, fabricating evidence, and setting traps are unethical behaviours in my point of view,” says bin Hammam. “One thing about Middle East media, these are rare happenings there. Is it ethical to use unethical measures to protect the ethic? How can we serve justice and look for fairness by not acting justly and fairly? How will we clean dirty laundry by using dirty water?” [Daily Mail, 11/2/2010]
Some Spanish football clubs fail to back a proposed agreement on how to share income from collectively-sold domestic television rights from the 2015-16 season. Under the agreement, the largest two Spanish clubs, Read Madrid and Barcelona, would share 34 percent of all income, Atletico Madrid and Valencia would share 11 percent, the remaining 16 top-tier Spanish clubs would split 45 percent equally, and there would be parachute payments for relegated clubs. The proposal is opposed by Sevilla, Zaragoza, Villarreal, Real Sociedad, Athletic Bilbao, and Espanyol, with Malaga undecided. “Only Real Madrid and Barcelona stand to gain from this,” says Sevilla president Jose Maria del Nido, spokesman for the rebels. “The two giants have earned €1,500 million more than the next club in the last 10 years, and with this agreement in place four clubs—Real Madrid, Barcelona, Atletico Madrid, and Valencia—will all earn more in the next six years than a team that finishes third in the league.” The rebels propose a different agreement under which revenue would be shared more equally. “Of the 79 leagues played 51 have been won by Real Madrid or Barcelona, which is 65 percent against 35 percent for the rest,” adds del Nido. “In the last 10 years the two big clubs have won 80 percent of the titles with 20 percent for the rest. And most significantly, in the last five years only these two have won the title. If this continues the league title will have been sold in advance for the next 10 years.” [Soccerlens, 11/18/2010]
Entity Tags: Jose Maria del Nido, Villarreal Club de FÃºtbol, S.A.D., FC Barcelona, Sevilla FÃºtbol Club S.A.D., Valencia, Club AtlÃ©tico de Madrid, S.A.D., Real Madrid Club de FÃºtbol, Reial Club Deportiu Espanyol de Barcelona, Real Zaragoza, S.A.D., Real Sociedad de FÃºtbol, S.A.D.
Timeline Tags: Football Business and Politics
The South American Football Confederation, Comnebol, decides that the three representatives of its members on FIFA’s executive committee will vote for the Spain/Portugal bid to host the 2018 World Cup. [Guardian, 11/24/2010] The three representatives are Julio Grondona (Argentina), Ricardo Teixeira (Brazil), and Nicolas Leoz (Paraguay). [BBC, 12/2/2010]
Mohamed bin Hammam, a Qatari, senior FIFA executive committee member, and president of the Asian Football Confederation, denies that he has agreed to back the Spain/Portugal bid for the 2018 World Cup in return for Spain backing the Qatari bid. The claim was recently reported in the Spanish daily Marca, which purported to carry an interview with him expressing his support for Spain/Portugal. “A Spanish newspaper, called Marca, which I have never heard of, completely fabricated an interview with me, pretending that Asia and I will support Spain’s bid,” says bin Hammam. “The Asian executive committee had taken a decision to support Europe in 2018. However, no decision was taken to back any one country. We agreed to give the four Asian members the freedom to select the country that they deem appropriate.” [Daily Mail, 11/28/2010] It will later be reported that bin Hammam did indeed vote for Spain/Portugal (see May 1, 2011).
England and South Korea agree to vote for each other as potential hosts of the World Cup finals in 2018 and 2022. The deal is concluded by the English and South Korean members of FIFA’s executive committee, Geoff Thompson and Mong Joon Chung, over a whisky with British Prime Minister David Cameron. Chung is to vote for England to host the finals in 2018, whereas Thompson is to vote for South Korea in 2022. Thompson will carry out his end of the bargain (see Around 2:30 p.m. December 2, 2010), although Chung will not (see (December 1, 2010) and Around 2:00 p.m. December 2, 2010). [Guardian, 12/4/2010]
Russian Prime Minister Vladimir Putin calls officials in the government of South Korea to get them to influence a forthcoming vote to be cast by South Korean FIFA executive committee member Mong Joon Chung. Putin wants Chung to vote for Russia’s bid to host the 2018 World Cup. The leverage Putin uses to get the officials to pressure Chung is that South Korea needs Russian support in dealings with North Korea. Chung, a hugely wealthy member of the Hyundai dynasty with close links to South Korea’s ruling party, is then asked to vote for Russia. He has a pact with England to vote for its bid (see Before December 1, 2010), but does as he is now asked and votes for Russia (see Around 2:00 p.m. December 2, 2010). [Guardian, 12/4/2010]
FIFA president Sepp Blatter warns fellow members of the organization’s executive committee of the “evils of the media” shortly before they vote on who will host the 2018 and 2022 World Cups. The remarks will be interpreted by some as encouragement not to vote for the English campaign, as the English media outlets Panorama and the Sunday Times have recently exposed corruption at FIFA. England will actually be eliminated in the first round of voting (see Around 2:00 p.m. December 2, 2010). Andy Anson, the chief executive of the failed English bid, will later say: “I think that was unhelpful—the last thing those guys hear before they go and tick the box is the evil of the media. That is not helpful and actually inaccurate. I was told by someone who was in the room that that’s the last thing they were told by Sepp Blatter. There was a final sum-up before they voted and I think it was at the beginning of that.” [Press Association (London), 12/3/2011] It is unclear who the “someone who was in the room” is. However, one of the voters in the room is Geoff Thompson, chairman of England’s bid. [BBC, 12/2/2010]
England are eliminated in the first round of voting for the 2018 World Cup, after receiving only two votes. The full results of the first round and the FIFA executive committee members who voted for the various potential hosts are:
England: two votes. Geoff Thompson (England) and Issa Hayatou (Cameroon). [BBC, 12/2/2010]
Holland/Belgium: four votes. Michel D’Hooghe (Belgium) and Michel Platini (France, see December 4, 2010). [BBC, 12/2/2010]
Spain/Portugal: seven votes. Angel Maria Villar Llona (Spain), Julio Grondona (Argentina), Ricardo Teixeira (Brazil), Nicolas Leoz (Paraguay, see November 24, 2010), Mohamed bin Hammam (Qatar, see May 1, 2011), Worawi Makudi (Thailand), and Hany Abo Rida (Egypt). [Daily Telegraph, 11/25/2010]
Russia: nine votes. Vitaly Mutko (Russia) and Chuck Blazer (USA, see December 10, 2010).
The other members of the executive committee who voted (two for Holland/Belgium, the rest for Russia) are Sepp Blatter (Switzerland), Mong Joon Chung (South Korea), Jack Warner (Trinidad and Tobago), Senes Erzik (Turkey), Junji Ogura (Japan), Marios Lefkaritis (Cyprus), Jacques Anouma (Ivory Coast), Franz Beckenbauer (Germany), and Rafael Salguero (Guatemala). [BBC, 12/2/2010] As there is no absolute majority in the first round, the vote will go to a second round. [BBC, 12/2/2010]
Entity Tags: Jack Warner, Worawi Makudi, Vitaly Mutko, Issa Hayatou, Hany Abo Rida, Geoff Thompson, Franz Beckenbauer, Senes Erzik, Angel Maria Villar Llona, Chuck Blazer, International Federation of Association Football, Ricardo Terra Teixeira, Nicolas Leoz, Rafael Salguero, Julio Grondona, Michel D’Hooghe, Marios Lefkaritis, Jacques Anouma, Joseph S. Blatter, Junji Ogura, Mong Joon Chung, Michel Platini, Mohamed bin Hammam
Timeline Tags: Football Business and Politics
FIFA’s executive committee votes to award the 2018 World Cup finals to Russia, which receives an absolute majority in the second round of the ballot. England was eliminated in the first round (see Around 2:00 p.m. December 2, 2010). The full results of the second round and the FIFA executive committee members who voted for the various potential hosts are:
Holland/Belgium: two votes. Michel D’Hooghe (Belgium). [BBC, 12/2/2010]
Spain/Portugal: seven votes. Angel Maria Villar Llona, Julio Grondona (Argentina), Ricardo Teixeira (Brazil), Nicolas Leoz (Paraguay, see November 24, 2010), Mohamed bin Hammam (Qatar, see May 1, 2011), Worawi Makudi (Thailand), and Hany Abo Rida (Egypt). [Daily Telegraph, 11/25/2010]
Russia: 13 votes. Vitaly Mutko (Russia) and Chuck Blazer (USA, see December 10, 2010).
The other members of the executive committee who voted (one for Holland/Belgium, the rest for Russia) are Sepp Blatter (Switzerland), Michel Platini (France), Mong Joon Chung (South Korea), Jack Warner (Trinidad and Tobago), Senes Erzik (Turkey), Geoff Thompson (England), Issa Hayatou (Cameroon), Junji Ogura (Japan), Marios Lefkaritis (Cyprus), Jacques Anouma (Ivory Coast), Franz Beckenbauer (Germany), and Rafael Salguero (Guatemala). [BBC, 12/2/2010]
Entity Tags: International Federation of Association Football, Ricardo Terra Teixeira, Hany Abo Rida, Vitaly Mutko, Worawi Makudi, Franz Beckenbauer, Rafael Salguero, Angel Maria Villar Llona, Chuck Blazer, Nicolas Leoz, Senes Erzik, Mohamed bin Hammam, Jacques Anouma, Jack Warner, Issa Hayatou, Joseph S. Blatter, Geoff Thompson, Mong Joon Chung, Michel D’Hooghe, Marios Lefkaritis, Julio Grondona, Junji Ogura, Michel Platini
Timeline Tags: Football Business and Politics
Australia is eliminated in the first round of voting for the 2022 World Cup hosts, after receiving only one vote. The full results of the first round and the FIFA executive committee members who voted for the various potential hosts are:
Australia: one vote. Franz Beckenbauer (see October 26, 2010).
Japan: two votes. Junji Ogura (Japan).
United States: three votes. Chuck Blazer (USA).
South Korea: four votes. Mong Joon Chung (South Korea) and Geoff Thompson (England, see Before December 1, 2010).
Qatar: 11 votes. Mohamed bin Hammam (Qatar). [BBC, 12/2/2010; BBC, 12/2/2010]
The other FIFA executive committee members who vote are Sepp Blatter (Switzerland), Jack Warner (Trinidad and Tobago), Senes Erzik (Turkey), Marios Lefkaritis (Cyprus), Jacques Anouma (Ivory Coast), Rafael Salguero (Guatemala), Geoff Thompson (England), Issa Hayatou (Cameroon), Michel D’Hooghe (Belgium), Michel Platini (France), Angel Maria Villar Llona (Spain), Julio Grondona (Argentina), Ricardo Teixeira (Brazil), Nicolas Leoz (Paraguay), Worawi Makudi (Thailand), Hany Abo Rida (Egypt), and Vitaly Mutko (Russia). [BBC, 12/2/2010] As there is no absolute majority in the first round, the vote will go to a second round. [BBC, 12/2/2010]
Entity Tags: Issa Hayatou, Vitaly Mutko, Senes Erzik, Worawi Makudi, International Federation of Association Football, Geoff Thompson, Franz Beckenbauer, Hany Abo Rida, Angel Maria Villar Llona, Chuck Blazer, Rafael Salguero, Ricardo Terra Teixeira, Mong Joon Chung, Joseph S. Blatter, Julio Grondona, Junji Ogura, Nicolas Leoz, Jacques Anouma, Marios Lefkaritis, Jack Warner, Mohamed bin Hammam, Michel D’Hooghe, Michel Platini
Timeline Tags: Football Business and Politics
Japan is eliminated in the second round of voting for the 2022 World Cup hosts, after receiving only two votes. Australia was previously eliminated in the first round (see Around 2:30 p.m. December 2, 2010). The full results of the second round and the FIFA executive committee members who voted for the various potential hosts are:
Japan: two votes. Junji Ogura (Japan).
United States: five votes. Chuck Blazer (USA).
South Korea: five votes. Mong Joon Chung (South Korea) and Geoff Thompson (England, see Before December 1, 2010).
Qatar: 10 votes. Mohamed bin Hammam (Qatar). [BBC, 12/2/2010; BBC, 12/2/2010]
The other FIFA executive committee members who vote are Sepp Blatter (Switzerland), Jack Warner (Trinidad and Tobago), Senes Erzik (Turkey), Marios Lefkaritis (Cyprus), Jacques Anouma (Ivory Coast), Franz Beckenbauer (Germany), Rafael Salguero (Guatemala), Issa Hayatou (Cameroon), Michel D’Hooghe (Belgium), Michel Platini (France), Angel Maria Villar Llona (Spain), Julio Grondona (Argentina), Ricardo Teixeira (Brazil), Nicolas Leoz (Paraguay), Worawi Makudi (Thailand), Hany Abo Rida (Egypt), and Vitaly Mutko (Russia). [BBC, 12/2/2010] As there is no absolute majority in the second round, the vote will go to a third round. [BBC, 12/2/2010]
Entity Tags: International Federation of Association Football, Ricardo Terra Teixeira, Senes Erzik, Vitaly Mutko, Hany Abo Rida, Franz Beckenbauer, Geoff Thompson, Angel Maria Villar Llona, Chuck Blazer, Nicolas Leoz, Worawi Makudi, Mohamed bin Hammam, Jacques Anouma, Jack Warner, Issa Hayatou, Joseph S. Blatter, Mong Joon Chung, Rafael Salguero, Marios Lefkaritis, Junji Ogura, Michel D’Hooghe, Michel Platini, Julio Grondona
Timeline Tags: Football Business and Politics
South Korea is eliminated in the third round of voting for the 2022 World Cup hosts, after receiving only five votes. Australia and Japan have already been eliminated in previous rounds (see Around 2:30 p.m. December 2, 2010 and Around 2:30 p.m. December 2, 2010). The full results of the third round and the FIFA executive committee members who voted for the various potential hosts are:
South Korea: five votes. Mong Joon Chung (South Korea) and Geoff Thompson (England, see Before December 1, 2010).
United States: six votes. Chuck Blazer (USA).
Qatar: 11 votes. Mohamed bin Hammam (Qatar). [BBC, 12/2/2010; BBC, 12/2/2010]
The other FIFA executive committee members who vote are Sepp Blatter (Switzerland), Jack Warner (Trinidad and Tobago), Senes Erzik (Turkey), Marios Lefkaritis (Cyprus), Jacques Anouma (Ivory Coast), Franz Beckenbauer (Germany), Rafael Salguero (Guatemala), Issa Hayatou (Cameroon), Michel D’Hooghe (Belgium), Michel Platini (France), Angel Maria Villar Llona (Spain), Julio Grondona (Argentina), Ricardo Teixeira (Brazil), Nicolas Leoz (Paraguay), Worawi Makudi (Thailand), Hany Abo Rida (Egypt), Junji Ogura (Japan), and Vitaly Mutko (Russia). [BBC, 12/2/2010] As there is no absolute majority in the third round, the vote will go to a fourth round. [BBC, 12/2/2010]
Entity Tags: Hany Abo Rida, Rafael Salguero, Ricardo Terra Teixeira, Geoff Thompson, Vitaly Mutko, Worawi Makudi, Franz Beckenbauer, Angel Maria Villar Llona, Chuck Blazer, Mong Joon Chung, Senes Erzik, Michel Platini, Jack Warner, Issa Hayatou, International Federation of Association Football, Mohamed bin Hammam, Jacques Anouma, Nicolas Leoz, Julio Grondona, Junji Ogura, Joseph S. Blatter, Michel D’Hooghe, Marios Lefkaritis
Timeline Tags: Football Business and Politics
FIFA’s executive committee votes to award the 2022 World Cup finals to Qatar, which receives an absolute majority in the fourth round of the ballot. Australia, Japan, and South Korea have already been eliminated in previous rounds (see Around 2:30 p.m. December 2, 2010, Around 2:30 p.m. December 2, 2010, and Around 2:30 p.m. December 2, 2010). The full results of the fourth round and the FIFA executive committee members who voted for the various potential hosts are:
United States: eight votes. Chuck Blazer (USA).
Qatar: 14 votes. Mohamed bin Hammam (Qatar). [BBC, 12/2/2010; BBC, 12/2/2010]
The other FIFA executive committee members who vote are Sepp Blatter (Switzerland), Jack Warner (Trinidad and Tobago), Senes Erzik (Turkey), Marios Lefkaritis (Cyprus), Jacques Anouma (Ivory Coast), Franz Beckenbauer (Germany), Mong Joon Chung (South Korea), Geoff Thompson (England), Rafael Salguero (Guatemala), Issa Hayatou (Cameroon), Michel D’Hooghe (Belgium), Michel Platini (France), Angel Maria Villar Llona (Spain), Julio Grondona (Argentina), Ricardo Teixeira (Brazil), Nicolas Leoz (Paraguay), Worawi Makudi (Thailand), Hany Abo Rida (Egypt), Junji Ogura (Japan), and Vitaly Mutko (Russia). [BBC, 12/2/2010]
Entity Tags: Geoff Thompson, Nicolas Leoz, Franz Beckenbauer, Ricardo Terra Teixeira, Senes Erzik, Vitaly Mutko, Mong Joon Chung, Angel Maria Villar Llona, Worawi Makudi, Chuck Blazer, Rafael Salguero, Michel D’Hooghe, Michel Platini, International Federation of Association Football, Hany Abo Rida, Issa Hayatou, Jack Warner, Mohamed bin Hammam, Joseph S. Blatter, Junji Ogura, Julio Grondona, Marios Lefkaritis, Jacques Anouma
Timeline Tags: Football Business and Politics
The Football Association decides to cancel a friendly match scheduled to be played by England in Thailand at the end of the season. The match was agreed earlier in the year in an attempt to induce Worawi Makudi, a Thai member of FIFA’s executive committee, to vote for England’s bid to host the 2018 World Cup (see Shortly Before April 23, 2010). However, Makudi voted for Spain (see Around 2:00 p.m. December 2, 2010), and England now cancels the game in retaliation. [Daily Telegraph, 12/3/2010]
British journalist Charles Sale says that UEFA president and FIFA executive committee member Michel Platini voted for Holland/Belgium in the first round of voting for the 2018 World Cup hosts (see Around 2:00 p.m. December 2, 2010). He adds that Platini voted for Russia in the second round. [Daily Mail, 12/4/2010] It is unclear how Sale could know this, as the vote is secret. However, the details of the vote indicate that two or three voters switched from Holland/Belgium in the first round to Russia in the second. [BBC, 12/2/2010]
Chuck Blazer, the US representative on FIFA’s executive committee, says he voted for Russia to host the 2018 World Cup. “I voted for Russia,” Blazer says. “England clearly had a great bid. But in the end, I look at England and say, ‘What more would we have when we’re finished other than what I am certain would have been a great World Cup?’ I believe that when we’re finished in Russia, we’ll have accomplished a lot of different things. We can open up a market that is important from a world perspective.” [Daily Telegraph, 12/10/2010]
The government of Brazil publishes a law granting FIFA a series of federal tax exemptions for the 2014 World Cup and the 2013 Confederations Cup. The exemptions come into force on January 1, 2011, and are part of FIFA’s requirements for holding a World Cup. According to the law, FIFA does not need to pay taxes on imported goods, contributions to social security related to imported goods and services, or contributions to programs for social integration and heritage formation related to imports. However, the exemption for equipment and construction of the stadia to be used for team training in the World Cup’s 12 host cities is not authorized by Brazil’s Ministry of Finance. The ministry says this exemption would allow “undue expansion of tax incentives to stadia with the purpose to offer support, whose characteristics deviate from the aims and the reasons justifying the granting of benefits.” However, according to Brazil’s Ministry of Sports, the country’s gains with the Cup will be greater than the tax exemption granted to FIFA. [Xinhua News Agency (Beijing), 12/21/2010]
The Swiss club FC Sion, which has been prohibited by the game’s ruling bodies from signing new players (see June 1, 2010), buys no new players during the winter transfer window. The only change the club makes during this period is that the player Didier Crettenand is given a new contract. [Swiss Football League, 2011] However, the club will buy players during the next transfer window, breaching the transfer ban (see Summer 2011).
The Qatari Mohamed Bin Hammam is re-elected president of the Asian Football Confederation (AFC) at the organization’s congress in Doha, Qatar. Bin Hammam has already held the position for two terms. Another result of the AFC elections is that the South Korean Chung Mong-Joon loses his position as vice president of FIFA, being replaced by Prince Ali Bin Al Hussein of Jordan. Chung was known as a critic of FIFA president Sepp Blatter, although it is unclear whether Hussein will offer Blatter any support. [Guardian, 1/6/2011]
Spanish football clubs conclude a new TV revenue-sharing agreement, which has been under negotiation for some time (see (November 17, 2010)). Under the deal, Real Madrid and Barcelona will share 35 percent of TV revenues; the second and third most popular clubs, Atletico Madrid and Valencia, will share 11 percent; and the remaining 16 clubs will get 45 percent between them. In addition, for the first time the Spanish league will offer a “parachute payment” to protect teams that are relegated to a lower tier: the sudden drop into the second division—and large fall in TV income—had previously been difficult for clubs to handle as they still had to pay high wages despite playing in a lesser competition. The unequal distribution draws some protest. For example, Sevilla sporting director Ramon Rodriguez Verdejo comments that the Spanish league “reminds me more and more of Scotland,” which has been dominated by two clubs for decades. Sports Illustrated and Guardian columnist Sid Lowe adds that the “inequality” between Barcelona and Read Madrid on the one hand and the other 18 clubs on the other is now “enshrined,” commenting that the other 18 teams in Spain “no longer aspire… to be the best; but they [do] aspire to stay in business.” [Sports Illustrated, 1/14/2011]
Fans of Deportivo La Coruna protest a new agreement on how television revenue will be shared among Spanish football clubs at the team’s La Liga match against Barcelona. Under the new agreement, Barcelona will receive approximately 17 percent of all revenue, while La Coruna will get less than three percent (see Shortly Before January 8, 2011). One banner displayed by the fans reads, “We don’t want a Scottish league.” [Sports Illustrated, 1/14/2011]
Guenter Hirsch, a member of FIFA’s ethics committee, resigns from his position on the body. In a letter to commission chairman Claudio Sulser, Hirsch comments, “The events of the past few weeks [the awarding of the 2018 and 2022 World Cups to Russia and Qatar] have raised and strengthened the impression that responsible persons in FIFA have no real interest in playing an active role in resolving, punishing, and avoiding violations against ethic regulations of FIFA.” FIFA responds to the resignation with a statement saying that Hirsch has not attended a committee meeting for four years. [BBC, 1/10/2011]
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