MOSCOW (Mineweb.com) – If Israeli diamantaire Lev Leviev and trade mediator Arkady Gaydamak buy football clubs, as they have recently done, the Roman Empire rule of thumb would be that the businesses of the two men are running into difficulty.
English tabloid readers have been told that Roman Abramovich — the Russian oligarch who accumulated roughly $20 billion milking his oil, aluminium, and gold assets, and then selling them – invented the idea of establishing personal character, institutional respectability, and political asylum by buying the Chelsea Football Club, and pushing it to the top of its league with expensive acquisitions. But Abramovich, who has made up for lack of ideas of his own with very swift fingers, was not the first.
In modern football history, it was a Greek named George Koskotas, house painter by trade, who deserves the credit for the idea that, if your asset acquisitions are in doubt, buy a football team, and let the team’s winning streak deflect suspicion of its owner; and deter investigations of how he came by the cash that, according to the fans, is the key to the club’s success. Koskotas bought his Athens football club after taking over, and looting the Bank of Crete. He was subsequently to discover that football success and media popularity weren’t protection enough from prosecution by the then Socialist government of Greece, led by Andreas Papandreou. An attempt to flee Greece for asylum in the United States, and a deal with US officials to accuse Papandreou of corruption, was foiled when the FBI arrested Koskotas on landing. Ultimately, he was transferred from a US prison to a Greek prison to serve a lengthy sentence for fraud.
But the Koskotas ploy had a much longer, Roman precedent. Almost two thousand years earlier, it was well-known that the more corrupt the consuls, or aspiring caesars, were in business, and the more ruthless in politics, the more extravagant were the Coliseum games they organized for the Roman public. Just the business of supplying exotic animals for parading and killing made fortunes that tied purveyors and shippers all over the empire to the imperial candidates in Rome. The multi-million dollar purchases of footballers from Africa or South America, and their agents, duplicate this antique trade, the rationale for which is something more potent than public entertainment, and also riskier. The problem the Roman consuls quickly ran into was that the rapid cost inflation of their games triggered a cycle of worsening corruption, taxation and criminality which became very unentertaining, indeed.
Football club investment, with its insurance and player purchase schemes that link media rights and related revenues to winning games, is a pyramid scheme, in which the day will inevitably come when winning turns into losing, and debts become unpayable. Getting out of the game before that happens is usually unpopular, but it’s a knack Abramovich may have to learn.
Until he does, the English prime minister Tony Blair isn’t the man Prime Minister Papandreou was; and it remains to be seen if the official investigation now under way into football finance will shake the high-level protection Abramovich’s cash flow receives in the UK. Whether Arkady Gaydamak, father of Alexander Gaydamak, the new purchaser of Portsmouth Football Club, receives similar protection remains to be seen.
Before the Portsmouth deal, Gaydamak senior had acquired Beitar Jerusalem, a football club, and Hapoel Jerusalem, a basketball club. Leviev has bought Hapoel Tel Aviv, a football club. Their gamble is limited to Israel, where the only one of the two reported to be under investigation is Gaydamak. He has said he is innocent of money laundering, and also of other allegations, reported in European jurisdictions, related to his past dealings in Angola and France.
Both Leviev and Gaydamak have enjoyed better relations with the Russian government in the past than they do today – Leviev to assure rough diamond supplies to his cutting factories, and Gaydamak to earn commissions on Soviet debt, arms, and oil trading. Leviev has steadily lost ground in the past three years, as men he was close to exited from the government; and as federal officials began a crackdown on the leakage of rough diamonds from Airosa to favoured buyers.
A scheme, with which Leviev is thought to have been associated, to help accumulate stocks of Russian rough in Israel, and encourage Israeli influence to improve US policy towards Russia, reappears from time to time, at least in the imaginations of Israeli politicians and diamantaires. The latest version, suggested by Israelis close to Ehud Olmert, a prime minister in waiting, is that if the Kremlin would agree to a big increase in Alrosa’s deliveries to Israel, Olmert will neutralize President Vladimir Putin’s opponents from the Yukos oil empire, who have found refuge, and public platform, in Israel – Leonid Nevziin, Mikhail Brudno, and others. The Kremlin has heard this all before (when the target list included ex-oligarch Vladimir Gusinsky), and has no reason to believe it.
Leviev, on the other hand, senses the opportunity of capturing more Russian rough, as De Beers’s share dwindles to nothing; and ultimately, perhaps, of positioning himself to capture equity in Airosa, if, after the federal restructuring now under way, the Kremlin decides to privatize a sizeable stake. So far, however, he’s failed to develop the diamond-mining business he promised to start in the Urals two years ago; he has not drawn more Airosa rough into the domestic cutting industry, let alone his own Ruis plant; and he has no obvious friends left in the Airosa export establishment. These shortcomings are not as ignominious and comprehensive as those which Leviev’s Israeli rival, Beny Steinmetz, has suffered in Russia.
What exactly the Kremlin can achieve with Airosa in the last two years of President Putin’s term depends on how successful Putin himself was in frightening Sakha boss Vyacheslav Shtirov into subservience, when they met on January 6. For the time being, this is very much an internal affair, and neither Leviev nor any of the other major Israeli diamantaires is likely to be able to capitalize in the short term. In the longer term, the government is likely to make sure that Alrosa’s marketing strategy allows noone to corner the bulk of the trade, in order to rig a sub-market price or build buffer stocks abroad, and no-one to replace De Beers.
Gaydamak’s return to Russia has so far failed to produce notable success, either in the Angolan or Congolese diamond schemes he has proposed to Airosa, and to the government ministers who sit on its board. He has thoroughly failed to reestablish himself in the debt trading markets, in which he had undoubted success almost a decade ago. It is a sign of how weak he feels himself to be that Gaydamak thought to ingratiate himself with the Kremlin, and promote himself, by recently buying the Moskovsky Novosti (Moscow News) media group, which has been a bastion of anti-Putin sentiment, funded by the Yukos group. Now, under Gaydamak, it is nothing at all.
Buying media was the Russian oligarchs’ initial target to enhance their reputations and promote their agendas. Football clubs were not. The reason was that in the Soviet Union, sports clubs, especially football and ice hockey, had always been part of the social outlays of the great state and city-forming enterprises. When these were privatized, the oligarchs who acquired them saw the clubs as a negative balance-sheet item – at least until Abramovich gave them a different idea. Now men like aluminium oligarch Oleg Deripaska are keen supporters of the football teams around his plants, and also in the southern region that may be his political base in future – the Kuban.
Buying newspapers is not a gamble like football clubs because the former always lose money. It is a mark of Leviev’s shrewdness that he has not lost money in Russia on either. He is acutely sensitive, however, of what is published about him, and will telephone proprietors personally to remind them of their obligations, when he is offended. Gaydamak has been threatening in a similar fashion. They are about to learn that such tactics do npt avail them much, if their objective is to inspire the teams they put their money on to win public trust.