Slavia's troubles rooted in financial wrangle

An angry mob stormed the field at halftime of a recent Slavia Praha match, as the storied soccer club looks poised for demotion from the country's top league into the lowly third division.

At issue are mounting debts and the fact that most of the players have not been paid since the beginning of the year, an offense for which the Czech Football Association (ČMFS) stripped the club of its professional license May 6.

The catastrophic financial situation begs the question of how a club that just two years ago was playing in elite European competitions - and reaping the correspondingly elite financial rewards - could have fallen so far so fast.

The answer has roots in both the obscure and the increasingly common, with an unusually lax securities-trading law at one end and a growing international connection between soccer and money laundering at the other.

As a 2009 report by the Organization for Economic Co-operation and Development (OECD) concluded, "Football clubs are indeed seen by criminals as the perfect vehicles for money laundering."

In the Czech Republic, the pull can be all the stronger as the country is only one of three in the world (alongside the Marshall Islands and Nauru) to still legally allow bearer shares - an unusual investment vehicle that lets stockholders make trades without so much as alerting financial market authorities, disclosing who owns the shares or even the price at which they were traded. Possession of a physical piece of paper is the only evidence that someone is a shareholder.

Just two years ago, Slavia was coming off back-to-back Gambrinus liga championship, as well as qualification for lucrative European competitions that rake in millions of euros in television revenues before a team even takes to the field. An appearance in the group stage of the Champions League alone was worth approximately 3 million euros.

"Either after the fat gains from the Champions League and the European Cups someone intentionally tunneled the club or - and I tend to believe this - the management started to spend wildly on unnecessary things," said Tomáš Dvorský, chairman of the Slavia fan club.

But if Slavia's owners were spending their profits recklessly, there would surely have been a paper trail - except nobody seems to know who the owners actually are.

Under growing scrutiny as it seeks a credit lifeline or potential buyer, Slavia recently announced its main shareholder is one Antonín Franc. But by now it has been almost universally accepted that Franc serves as a front for businessman Petr Sisák, who formerly employed Franc as his chauffeur.

Sisák has appeared in court on numerous occasions for accusations of tunneling, a practice whereby someone buys a company, strips it of assets for their own financial gain and leaves little but a shell behind. He was once sentenced to eight months' probation after serving as chairman of the board for the First Silesian Bank, which went bankrupt under suspicious circumstances, and he has been connected with the firms Ekoagrobanka, Zbrojovka Brno and ČS fondy, all which also filed for bankruptcy.

One wonders why the Gambrinus liga, which the ČMFS oversees, would allow for one of its flagship clubs to operate under such a veil of secrecy. After all, major sports franchises in places like Germany, the United States and the United Kingdom not only publicly disclose club ownership, but owners also face an approval process by the leagues themselves, or at least the other owners.

But the ČMFS insists its hands are tied.

"The association cannot break the law," said Jaroslav Kolář, a ČMFS spokesman. "If there is valid unregistered stock, the association cannot do anything. It is a trap; the club can be owned by anyone or change owners at any time. First of all, there must be the political will to cancel unregistered stock."

Bearer shares - the formal name for the unregistered stock that Kolář refers to - must be possessed in paper form by the shareholder. The paper shares are traded and sold without oversight, they need not be registered with any regulatory body and, again, it is in fact impossible to tell at any given time who exactly owns the shares unless the actual pieces of paper are presented.

According to the Czech Capital Information Agency, there are more than 12,000 Czech companies that utilize bearer shares in paper form, more than half the total joint-stock companies registered in the country.

While the government is now considering a law that would force firms to disclose their ownership when bidding on public contracts, Prime Minister Petr Nečas (Civic Democrats, ODS) has blocked larger reform on bearer shares. The Public Affairs party (VV) sought to include the outlawing of bearer shares in last year's coalition agreement but found itself impeded by the ODS and TOP 09. More recently, a Social Democratic Party (ČSSD) proposal to do the same was virtually ignored in Parliament.

It was these unusual equity vehicles that were used to cut out the English National Investment Company (ENIC) from its ownership stake in Slavia in 2008 as new shares were issued, diluting ENIC's stake.

"We have never sold any of our shares in the club. They remain and have always been in the custody of our lawyers," said Matthew Collecott, a board member at ENIC and finance director at Tottenham Hotspur, a London-based English Premier League club also owned by ENIC.

"What has happened [at Slavia] is in no way the responsibility of ENIC. We completely understand the fans' position, as we did when we acquired the club over 10 years ago, a period that saw the club win the league, win the domestic cup and regularly competing in Europe. You must look to the recent management and purported owners for answers."

And while it appears ENIC was clearly wronged in this case - a court in London has already awarded it 105 million Kč in damages, adding to Slavia's debt woes - even the seemingly most legitimate owners in the world of soccer generate as many questions as answers. ENIC itself is officially registered at a post-office box in the Bahamas, a noted tax haven, according to filings made when the company bought Tottenham.

As the OECD report notes, "The cross-border money flows that are involved [in soccer clubs] may largely fall outside the control of national and supranational football organizations." This, in turn, makes owning a soccer club ideal for either money laundering or, at the very least, tax dodging.

Graham Johnson, a crime reporter and author of the book Football and Gangsters, stumbled into investigating the murky connections between the sport, organized crime and money laundering after growing up in Liverpool.

"We export three things: football, The Beatles and organized crime, and two of them live side by side," he said. "Football has replaced boxing as the platform of choice for organized crime, and organized crime is spreading its influence in parts of Central and Eastern Europe."

Among the simplest money-laundering schemes deployed by soccer clubs is to distort attendance numbers at the matches, according to Johnson.

"The difference between the real take at the gate and the fraudulent amount is the amount of money laundered," he said.

So, in a sport rife with tax dodgers, criminals and thieves, who gets hurt the most? One might think the fans, but even they need to shoulder some of the blame for where Slavia finds itself.

"Slavia fans have changed into animals and that obviously damages the club's football reputation," said Slavia spokesman Kolář, of the on-field fan riot that ensued May 5.

"The same fans happily celebrated the league title a year and half ago, and they had no interest at all in who the owner was."

- Filip Šenk contributed to this report.

Benjamin Cunningham can be reached at
bcunningham@praguepost.com