Ex-director spills on cuts to the Hearts

HEARTS' aspirations of long-term profitability centre around the ongoing process of reducing the club's wage bill. It is an area where harsh lessons have been learned by Vladimir Romanov and his Ukio Bankas Investment Group during their five-year tenure at Tynecastle.

Yesterday's 10 million debt-for-equity proposal was a most welcome, and indeed generous, gesture from UBIG. There is no question of shareholders voting against the plan at next month's EGM with Hearts' announcing 34.78m of debt in May this year. Nonetheless, long-term means of trading towards profitability are scarce, so developing players on low to medium-level salaries and selling them at a profit remains priority.

Recent years have seen millions shaved off the wage bill, with exorbitant earners like Mauricio Pinilla, Bruno Aguiar and Jose Goncalves moved on. In that regard, Hearts have worked hard to completely alter their policy from the early days of Romanov's reign. The Russian businessman has clearly learned from a spate of initial foolhardiness.

Throughout 2005 and 2006, it seemed anyone with a foreign surname who had kicked a ball was offered a five-figure weekly wage by Hearts. Liutauras Varanavicius, a club director and close confidant of Romanov at the time, remembers it well. He knows it contributed heavily to a rapid rise in debt from which the club is now gradually recovering. "What happened in the beginning was wrong," he said. "Romanov took over with a long-term structure but the club was losing money right from the start. Without making the adjustments at the beginning, the club continued in the same direction as before.

"In my opinion, those actions were possible to take immediately, but it took some time. Hearts were already in too much debt for most of the fans and the people of the club. If we hadn't started cutting costs that would be a bigger disaster.

"At the beginning, the money being paid out was written off as 'local culture'. Everybody is paying that amount, so we should also pay that amount. It was unusual but we were strangers coming into a different country and we didn't want to make lots of drastic changes.

"After a while everybody understood that, actually, business is done the same way everywhere. You just earn what you earn, and that's all."

With European football luminaries like Takis Fyssas and Edgaras Jankauskas lured by salaries in excess of 10,000 per week in 2005, it was inevitable that new recruits thereafter would try to squeeze every penny out of Hearts. "That was the situation," said Varanavicius. "I have been out of Hearts for some time now but I see that players like Rudi Skacel came back to the club and I believe he is getting several times less than he was getting before."

Skacel's return is a fine illustration of Romanov's more sensible financial prudence, which can be traced back over a three-year period. In July 2007, Hearts' wage bill peaked at 12.45m, with operating costs at 7.7m. By July 2009, the wage bill had fallen by 16 per cent to 10.48m, with operating costs almost halved at 4.3m.

The club's next set of accounts will show another considerable drop in salary costs after the departures of Goncalves, Larry Kingston, Christian Nade and Michael Stewart. The trend is set to continue. At the end of this season, one of the club's highest earners, Ruben Palazuelos, is out of contract along with Ismael Bouzid.

Hearts must be mindful of UEFA's new financial fair play regulations, which will force clubs to achieve "break-even" status by the end of 2012. Those who fail will be precluded from European competition come season 2013/14. UEFA will demand that clubs do not spend more than the income they generate and there will be risk assessments carried out to monitor debt and salary levels. Liabilities will also need to be paid without delay.

"Financial discipline is an essential element of the measures which . . seek to curb the spiralling transfer fees, player salaries and other outgoings that have endangered European club football for some years now," says the UEFA website.

"Hearts' debt was supposed to come down from the very beginning. It's good that it's finally happening," said Varanavicius. "Maybe at the beginning there were different expectations about return on investment. Now there is a more realistic approach. The players are really coming through the academy and this is the right direction.

"The monetary crisis really helped to correct the system. The new initiative from UEFA will help a lot. The new licensing requirements will force clubs to reduce debt."

With UBIG due to gobble up another batch of Hearts shares in exchange for waiving 10m worth of debt, the gradual process of improving the club's financial health continues. Late payment of wages, as reported last week, must also be addressed to avoid needless doubt over the viability of those backing Hearts.

Romanov enjoys a colourful blast at Scottish football from time to time, be it the SFA, referees, the Old Firm or the media who get his goat. However his actions are what concern Hearts and their supporters most. "Actions are usually worth more than words," explained Varanavicius, whose relationship with Romanov became fractured due to disagreements over Lithuanian football.

"We see now that Hearts is running okay. Everybody is still there, the squad is playing well so I don't think anybody can say Romanov is not keeping his word.

"The only problem is that the club currently relies only on one person. If he is not well himself, then it could be a problem for the club. That's all. In my opinion, every club should have more than one [major] shareholder. We already have this situation everywhere in eastern Europe, especially where bankruptcy of the owner could mean bankruptcy of the club. Even for Rangers it is not good to have one owner."

Asked if UBIG would be expected to continue its finance of Hearts in Romanov's absence, Varanavicius replied: "UBIG is Romanov."

The inference is that Hearts' negative bank balance is fine provided UBIG and Romanov's income from elsewhere stays healthy. The Russian, in comparison to his predecessor, Chris Robinson, at least has a parent company to fall back on.

UBIG's 10m gesture will be ratified by shareholders at an EGM on Thursday, November 11. Provided Hearts maintain their side of the bargain and continue to reduce the wage bill, both parties can continue to work in tandem to sustain one of Scottish football's finest institutions.