Oligarchy, Football, Ethics
With the protracted takeover of Reading FC by Thames Sports Investment having finally gone through and the imminent signing of Pavel Pogrebnyak on the point of being rubber stamped, now would appear to be the appropriate time to consider the background to the impact oligarchy has had on the ownership of British football clubs.
You’ll remember that Anton Zingarevich has assumed the ownership of the Berkshire team, laying down £12.7 million for a 51% share this summer while obligated to stump up the remaining 49% (amounting approximately to £12.3 million) by September 2013.
The 29 year old takes over as Reading make their sophomore bow in the Premier League and the deal has been coordinated by Chris Samuelson, the executive behind a previous attempt to gain control of an English concern; Zingarevich’s father Boris having withdrawn from a bid to buy Everton eight years ago.
For those of us whose formative years were spent in awe of the mysterious USSR, such involvement from eastern Europe still has the capacity to provoke surprise, but the St.Petersburgers are far from the first of their ilk to become involved in soccer of course.
Roman Abramovich is the most famous but other notable examples include new Bournemouth co-owner Maxim Demin, the Franco-Israeli Alexandre Gaydamak, once of Portsmouth, Blackpool President Valeri Belokon, Arsenal shareholder Alisher Usmanov and the Heart of Midlothian boardroom duo Vladimir and Roman Romanov. Not all are Russian, although Gaydamak is of Russian descent while Belokon and the Romanovs hail from the former Soviet republics of Latvia and Lithuania respectively.
Of course the other commonality is strident wealth. Boris Zingarevich made his money in timber, Belokon is the Chairperson of the Council of the Baltic International Bank, Usmanov holds interests in lumber, metallurgical industries and the media, and Vladimir Romanov has a major shareholding in the Lithuanian Ūkio Bankas.
Aside from Alexandre Gaydamak’s father Arcadi who grew up in Israel – although he latter boosted this businesses via involvement in Russia – these men all came to prominence at the onset of their fledgling nations’ emergence from decades of communist rule.
Whether they can be counted as oligarchs per se is a moot point – that term is defined by the Oxford English Dictionary as ‘a small group of people having control of a country or organization’ – how small is small can be debated ad nauseam . Private ownership of resources in Soviet times was, of course, minimal, while those resources were nevertheless abundant. Hence, when capitalism arrived in 1991, it was not so much with a jolt, as with a full scale explosion of nuclear proportions.
Among the sectors waiting to be acquired were oil and gas and, with prices low, the opportunity to cash in was there – a few months later, with inflation spiralling, the capital gains were stratospheric.
Taking advantage of a virtual economy with almost non-existent tax rates, many oligarchs gained control of their riches via legal methods including a disastrous (albeit not for them) loans for shares scheme, a voucher privatization programme that saw the vouchers end up in the hands of a few, and cases which included businessmen and local authorities bringing charges against enterprises, forcing bankruptcy and early sales.
As chronicled in Marshall Goldman’s book The Piratization of Russia, Tyumen Oil was one such case of the latter, while the mighty Gazprom rose out of the Ministry of Gas, soon enjoying control over more than a quarter of the world’s known reserves of natural gas.
Oligarchs tended to come in three types – former factory owners who simply retained their position of influence as capitalism arrived, the so-called nomenklatura oligarchs – previous members of the communist political elite – and those on the margins of Soviet society, many of whom had prospered via that era’s lively black market. This last group aside, the faces of those who clung on to influence were often the same as before, constituting, as David Kotz and Fred Weir have dubbed it, ‘a revolution from above’.
Goldman includes Abramovich in the third named group of ‘upstart’ oligarchs and to this day, the Chelsea Chairman has ploughed a carefully planned and non-controversial furrow, perhaps epitomised by his closeness to the man who recently returned to the Presidency of the Russian Federation, Vladimir Putin.
Arriving comparatively late on the scene at the turn of the millennium, Abramovich first rose to prominence as a protégé of that doyen of Russian oligarchs, Boris Berezovsky. Accused of using false papers to sell Siberian oil, a law suit was dropped against him after being switched to a provincial jurisdiction and he followed the path of many businessmen in taking on a role in politics, serving for a time as governor of the provincial outpost of Chukotka – presence in the Russian parliament, the Duma, guaranteeing immunity from law suits.
The petroleum company Sibneft was created out of the ashes of the Ministry of Energy and Abramovich arrived after the firm had been sold for a total of $100 million in 1995, a sum said to be one sixth of the concern’s actual worth. Later, control of Sibneft was transferred to a London-based entity Millhouse Capital while 27% of shares were sold back to the same ‘core shareholders’ from whom it had bought those shares for $542 million nine months before. An extraordinary $612 million dividend was then promptly announced to Sibneft’s stockholders.
As with Jimmy Carr, It is important to state at this point that there was nothing that was illegal about any of these deals. Now a very wealthy man indeed, Abramovich has used his riches to fund the most successful period in Chelsea’s history – a period capped by a first ever European Cup following the Blues’ victory over Bayern Munich in the Champions League Final six weeks or so ago.
So what were the conditions that led such a small band of people to gain economic, financial and, at times, political control of the largest country by land area on earth?
The answer is ‘exceedingly open ones’. Those going into business in the Russia as communism fell were met with a decidedly paltry list of obstacles and the legal and institutional apparatus that underpins society in the West was largely absent.
Regulation was slighter even than the shoddy American framework that led to the credit crunch and the financial crisis of 2008-9. Russia possessed no corporate governance laws, no accounting and commercial codes, little auditing, no anti-monopoly laws and little financial regulation. Bankruptcy procedures were non-existent while conversely, the remaining red tape was applied in the wrong places – it was almost impossible to start up a new firm, so the successful enterprises largely turned out to be the old national industries in sheep’s clothing. True competition and entrepreneurship was stifled.
In addition, less tangible institutions such as norms and values – in short, ‘accepted ways of behaving’ – were also ill defined, unsurprisingly in a country wholly unfamiliar with notions of democracy. To paraphrase the fashionable chant of these times, those who assumed power really could ‘do what they want’. To make sure, and as Goldman summed it up, it was ‘virtually unthinkable that a businessman can today rise to significant power and wealth without a patron at court.’
It’s easy to see why those with something of a grip on power at the outset were able to retain such influence. The lack of start-ups meant newly privatised state businesses received no competition, financial reporting was deemed unnecessary – the aforementioned Berezovsky quoted his earnings at a preposterous $40 million in 1997 – and arbitrage was rife – buyers and sellers took full advantage of the difference in commodity prices between regions of this vast country.
The mafia’s role in Russian society is also commonly referred to. In 1994, the Russian newspaper Izvestia claimed the mafia controlled 70% of the private sector while in a 1996 survey conducted by Timothy Frye and Andrei Shleifer, 76% of small business owners claimed they would find it impossible to operate without a krisha – an evocative term that means, literally, ‘roof’ . In addition, a questionnaire in the same year which took in the opinions of 887 Russian managers saw 75% of respondents state ‘extortion with violence’ as a common occurrence.
But active as the mafia undoubtedly has been, the football oligarchs have avoided such associations and to repeat, their noses are pretty much clean as far as illegalities are concerned. ‘It’s the fault of the system, not the individuals’ is the common refrain.
Western suspicions of dodgy dealing can often be refuted by lack of evidence – two Daily Telegraph articles from the excellent Matt Scott casting light doubts on the putative Zingarevich regime at the Madejski went largely unnoticed while the ‘Fit and Proper Persons’ test has presumably now been passed with flying colours.
Zingarevich senior made his money in another of Russia’s monstrously large natural resources, timber; and his company Ilim Pulp has been successful to a degree that has allowed a fortune of $460 million to be amassed (small in comparison to the main oligarchs), while he has taken on a directorship role with Enerl, a New York based power company.
Samuelson, meanwhile, has a history of representing Russia’s business elite. As reported by Private Eye, his Valmet company management group was intimately involved with the Yukos empire of another of the most famous oligarchs, Mikhail Khodorkovsky while his associate Peter Bond featured in a Bank of New York money laundering investigation, ending up being jailed for nine years by the Isle of Man authorities. However, it should be stressed that Samuelson himself has never been accused of any wrongdoing and as Wyn Grant has said, ‘guilt by association’ is no crime.
The more scaremongering articles on Russian ownership tend to focus on the reputation the country has for organised crime when objections should be raised for more prosaic reasons.
Instead, attention should be drawn to the arcane rules that governed the way government property was shared out, with family members often exempt from the usual barriers to entry; the way share auctions were often transferred to distant locations at the last minute, preventing the attendance of anyone beyond a small in-the-know cabal; banks’ tendency to issue loans only to insiders; the fact that it required at one point a mere $75,000 to set up a bank of one’s own – yes, $75,000; how share prices were rendered stupidly cheap by subsequent inflation, the exploitation of tax havens and Russia’s 2001 ranking in the Price Waterhouse Coopers opacity index as the most corrupt place to do business in the world.
By 2001, 5 oligarchs – none of whom are on the list of those in charge of British football clubs, it must be said – controlled 95% of Russia’s aluminium, 18% of its oil, 40% of its copper, 20% of its steel and 20% of its car production. Such concentration of a nation’s wealth in the hands of the few while the country experienced a devastatingly dramatic drop in Gross Domestic Product and widespread poverty and inequality was startling.
For it is an ethical and moral issue that might lead us to question oligarchy and what it has brought to football. Sure, businessmen from outside the former USSR may also have gained their fortunes through questionable means, although the US robber barons of the early twentieth century at least built steel mills and railroads. Roman Abramovich and company may bring much joy and happiness to Chelsea and other clubs, but is their intervention fair?
Most fans won’t care – and indeed, there is no solid evidence that Anton Zingarevich cannot be a force for good – he has spent much of his formative years in Berkshire; the Royals’ two signings so far this summer have been free transfers and the extended nature of the takeover ratification process leads one to hope that the people involved will be proper and fit – but if more ownership changes are in the offing up and down the land, let’s try and analyse them from a non-partisan, balanced perspective and remember the extraordinary circumstances that led to the rise of Russian business.