- After being trapped in a ‘new owner – new hope – increased debt – disillusionment’ cycle since 1981 Heart of Midlothian FC recently became a fan-owned club.
- Two crises had struck the club due to traditional business decisions being made by successive owners: the ‘stadium crisis’ in 2004 and the ‘Romanov crisis’ in 2012.
- In 2013 Hearts was rescued by a coalition of an individual investor, Ann Budge, and The Foundation of Hearts, set up by dedicated fans to purchase the club and revolutionise how it was run.
- Under the new ownership scheme the financial position of the club improved dramatically, including eliminating all long-term debt, construction of a new stand at Tynecastle Park Stadium, deals with problematic corporate sponsors cancelled, staff being paid a living wage and a reinvigorated role for Hearts in the wider community.
Not one crisis but two
The first major problem Hearts of Midlothian faced was the stadium crisis, which started in 1998 when the club won the Scottish Cup. This achievement led to a period of overspending on player transfer fees and wages, with then owners, Edinburgh businessmen Chris Robinson and Leslie Deans, tyring to build on the success. The pair had been running the club like a traditional business and this style mixed with the overspending saw Hearts £19million in debt by mid-2004. The suggested solution to impending financial disaster was to sell Tynecastle Park stadium, which the club had called home since 1886. This plan and the lack of discussion with the local community angered supporters and lead to the launch of the ‘Save Our Hearts’ campaign. Ultimately the deal to sell to a property development company was cancelled when new owner Vladimir Romanov purchased the club in 2005.
Romanov’s promises to win the Champions League, not sell Tynecastle Park Stadium and invest in players was met with enthusiasm. In order to dig the club out of its multimillion-pound hole, Romanov used funds from Ukio Banko Investiciju Grupe, a Lithuanian bank which he also owned. Hearts had gone from a Scottish-owned team to becoming a foreign-controlled subsidiary of the bank, with Tynecastle Park stadium held as security against the loan.
Off-pitch relationships became turbulent; sackings and resignations of key players and staff, and interference in football matters led to player and fan discontent. These issues continued with increasing evidence of significant governance and financial failings, with reportedly no board meetings held in the first six years that Romanov was in charge. Due to a system of centralised power, there was no formal or informal way for Romanov to be held accountable for his actions. In 2011, despite promising to never do so, Romanov proposed selling Tynecastle Park stadium to pay off the club’s debts. He also announced that he was willing to sell the club.
A new hope
Following this announcement from Romanov, The Foundation of Hearts made it’s first attempt to take over the club. The Foundation was formed in 2010 as evidence of Hearts’ dangerous financial position, lack of accountability and poor management decisions and governance became increasingly apparent. This new model of a mutual structure funded by supporters would break the ‘new owner – new hope – increased debt – disillusionment’ cycle.
The Foundation was a volunteer-run, not-for-profit organisation and consisted of members paying a monthly subscription to achieve the goal of Hearts becoming a supporter-owned club. This model would put fans right at the centre of the work and decision-making needed to rescue the club and turn its fortunes around. But their initial offer to buy the club was rejected.
Hearts was later placed into administration in June 2013 and, following complex negotiations, it was rescued in 2014 by businesswoman Ann Budge in partnership with The Foundation of Hearts. The solution included a commitment to transfer ownership to the Foundation within five years, with the Foundation repaying the initial loan from Budge’s company.
By proposing a completely different model of club ownership the Foundation was able to engage in a long-term project to change the business into a new, responsible and resilient configuration. The Foundation’s ownership plan offered no financial return to those paying into the shared ownership scheme. Instead it was an emotional investment from fans to further support their beloved football club and make it a force for good in their local community. There were now core values underpinning the running of the club – such as emotional commitment, long-term thinking, benefiting others, professional ethics, trust and prudence – all in stark contrast to the management style of previous owners.
“…we need to be seen as one of the major institutions in the city… It’s not all about the football club, it is about where we sit in the community, in the city.” Ann Budge
The following season Hearts won promotion back into the top Scottish football league. And as well as building a new stadium stand, the club became the first football club in the UK to have a charity on its playing kit after securing a deal with Save the Children and cancelling its previous sponsorship agreement with Wonga, the problematic pay-day loan company. With two years remaining on their contract, the removal of Wonga was seen as a radical but responsible move and was accepted throughout the club’s network of stakeholders and supporters.
Hearts also became the first UK football club to pay all staff the National Living Wage. This showed that the club was now a responsible employer and while it increased costs for the organisation, the move displayed an understanding of the wider role the club plays in the community, which in turn serves and looks after the club.
“The benefactors are wholly supportive of the way in which the Club is being rebuilt and the values that underpin its activities.” Ann Budge
This vastly different mindset between previous owners of the club and that of Budge and the Foundation was underpinned by the necessity for shared trust between the fans and the board. In order to mobilize Hearts’ network of stakeholders Budge realised she needed to ‘think like a supporter’. This approach encouraged information-sharing, discussion and diversity of opinion, spreading the distribution of power while ensuring professionals were trusted to do their jobs.
“I had to engage, from day one, with the supporters in a very positive way and the way to do that… was tell them the truth, say it as it is and if we need your help, we’ll tell you we need your help and if you can help us, I’m sure you will. And I believe that’s what has partly contributed to the success of the Foundation.” Ann Budge.
Finally, in August 2021 Hearts became the UK’s largest fan-owned club after Budge’s majority shareholding was signed over to the Foundation.
The beautiful game
So, although the business of the beautiful game can sometimes be ugly, it isn’t inevitable. Putting community at the heart of ownership and decision-making can revolutionise the purpose and running of a football club. Ripping up the established system of ownership and decentralising the power of the majority shareholder can create a platform for effective collaboration and changes for the benefit not just of the club as an organisation, but as an important cornerstone of the local community. And, it can still win matches.
This case study is a result of an ongoing research collaboration with Emeritius Professor Andrew Adams, Heriot-Watt University and Stephen Morrow, University of Stirling University.