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The empire that is Shakhtar Donetsk FC

Anton Hlushchenko - Shakhtar Stadium - Shutterstock.jpg

Rinat Akhmetov, Ukraine’s richest man, has financed the success of Shakhtar Donetsk FC. But war in the Donbas means that the club is now playing in Lviv, 1,200 kilometres away from its home in Donetsk. Can it survive?

 

Manuel Veth
11 March 2015

Where people once lined up to watch some of Europe’s best football, queues now form for food, medicine, and clothing. The fan shop at the Donbas Arena, the home of Shakhtar Donetsk, has become the home of ‘Pomozhem Detyam’ (Let’s help the kids), a charity run by Rinat Akhmetov, the owner of Shakhtar Donetsk. Along with the infrastructure in the Donbas, both Akhmetov and the club have taken a major hit due to fighting in the region.

For the club, the conflict has meant the forced exile to the Carpathian Mountains of Lviv, located in the far west of Ukraine, an area long considered the heartland of Ukrainian nationalism.

Shakhtar, however, is much more than just a club, it is part of a large investment holding called System Capital Management (SCM). Like Shakhtar, SCM is deeply rooted in the region. This has meant that both organisations have been severely affected by the conflict in the Donbas.

Rinat Akhmetov is Shakhtar Donetsk

To understand the connection between Shakhtar and Akhmetov, one must go back to the early 1990s. In 1995, the then Shakhtar owner Akhat Bragin was assassinated during a football match. Akhmetov, who at the time was Bragin’s right-hand man, took over control of Bragin’s business activities in the Donbas region; and in 1997, formal ownership also of the club. Following its takeover by Akhmetov, Shakhtar became a rare success story in the post-Soviet space, winning 9 Ukrainian championships, eight Ukrainian cups, and the UEFA Cup (now Europa League) in 2009. According to the World Soccer website, the club was thereafter able to increase its revenue from £22.35m in 2009 to £44.45m in 2010. Much of this was due to new commercial deals arising out of the club’s increased popularity following the UEFA Cup win. 

But success came at a price: in the period between 1995 and 2011, Akhmetov spent £900m on the club. This included the cost (£260m) of building the new stadium, the Donbas Arena. Shakhtar’s annual budget of £64.5m, has allowed the club to maintain a squad of elite players from Ukraine as well as top players from abroad. The fact that Shakhtar has been completely dependent on Akhmetov’s money is illustrated by the figures for 2012: the club’s annual revenue stood at £44.45m, £20m short of their costs; and that budget shortfall has been covered by Akhmetov’s company SCM, which also happens to be the sponsor of the club.

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Rinat Akhmetov with his players. Image by Agusyonok via Shutterstock (c)

Success came at a price: in the period between 1995 and 2011 Akhmetov spent £900m on the club

While Akhmetov’s success story with the club has become synonymous with the purchase of highly talented players from South America, the explanation for its success is actually far more complex. As early as 1999, the club had opened a new youth facility in which 3,000 children could train. Furthermore, Akhmetov provided funds for a brand new training base – the Kirsha Training Complex – which, before the Donbas conflict, was considered one of the most modern training facilities in Europe.

Football talent

The club also began to change its philosophy. An internationally experienced coach, the Romanian Mircea Lucescu was hired, and has now coached Shakhtar for eleven years, with enormous success. Marketing, and youth development specialists from abroad were also brought in. One of these men included the Englishman Joe Palmer, who had previously worked for Honda, Royal Mail, and most importantly, the international brand that is Manchester United, working specifically on the club’s TV station – MUTV. As a result, Shakhtar became the first club from the post-Soviet space to introduce club TV. At Shakhtar, Palmer was central to the creation of an intensive marketing campaign that has made Shakhtar one of the most recognisable football brands in Europe. One of the major changes was the introduction of a new logo that combined elements of Ukrainian culture, such as the trident. and merged them with local symbols from the Donbas such as hammers.

Shakhtar became the first club from the post-Soviet space to introduce club TV

Akhmetov relied on specialists who clearly understood the business of football more than he did, in order to build the Shakhtar product, which is more than can be said of some other oligarch football owners. In Jakob Preuss’ excellent documentary ‘The Other Chelsea – A Story from Donetsk’, he compares Shakhtar to Chelsea FC; clubs that are similar only in that they are both owned by oligarchs.

Another important role fell to Patrick van Leeuven, a Dutchman who, between 2006 and 2013, was instrumental in setting up the Shakhtar Academy. He had previously worked for Feyenoord Rotterdam’s youth academy. Another key figure is the Ukrainian Sergey Palkin, who was brought in, in June 2003, as the club’s director of finance, but has since become acting CEO. He previously worked as a senior auditor for Coopers & Lybrand LLP. All of these men had one thing in common: they were highly educated and had collected valuable business knowledge outside of Ukraine.

With Akhmetov’s vast funds these men were able to grow the club into a real brand with modern facilities, a brand new stadium, and an excellent youth academy. All staple requirements for a successful football club. In this regard Shakhtar reflects SCM.

SCM

SCM originated from the empire that Akhmetov inherited from Bragin in 1995. Since then his assets have grown to include over 100 companies in mining and metals, energy, finance, telecommunication, real estate, media, clay production, oil products, retail, grocery, heavy engineering, transportation, and agriculture, to name but a few. SCM also operates on a global basis in Ukraine, Russia, USA, Italy, Great Britain, Switzerland, and Bulgaria, and, before the conflict, employed over 300,000 people.

As with Shakhtar, Rinat Akhmetov is simply listed as the owner of the holding company, and has handed over the daily operations to specialists such as Oleg Popov who is the acting CEO of the company, and in this capacity also controls the finances of the football club.

Alex Sun - Donbass Arena - Shutterstock.jpg

SCM paid for the entire cost of the Donbas Arena. Image by Alex Sun via Shutterstock (c)

SCM has been the formal owner of the club since April 2006 when Shakhtar Donetsk was transferred from Rinat Akhmetov and various other shareholders to SCM, which was able to take control of 99.998 per cent of the club (Akhmetov retained the remaining 0.002 per cent). With this transfer of ownership, the club became an official holding of SCM, with Oleg Popov as the official chairman of the club, and with Palkin as the acting CEO. Sources in Ukraine have said that the main motivation behind this move was the fact that this would make Shakhtar and SCM appear to be a more modern and transparent company.

‘Shakhtar is actually one of the few clubs in Ukrainian football that pays taxes.’

As one journalist described to me: ‘This move was not about hiding anything, quite the contrary, Shakhtar is actually one of the few clubs in Ukrainian football that pays their taxes.’ Instead, the move was most likely about appearances, as Akhmetov’s absolute control over SCM meant that the club remained under his control, and he remained in the position as the club’s president. In fact, the restructuring of SCM and Shakhtar appears to be part of a plan that is designed to portray the company as a modern transparent corporation, and in turn Akhmetov as a clean and legitimate businessman.

Conflict in Ukraine 1 – Shakhtar Donetsk - 0

This transparency sets the team further apart from other clubs playing in Ukraine. According to the Shakhtar Code, the club also developed a club philosophy, which included the following statement: 'To be an ambassador of Ukrainian football in the world and of international football in Ukraine, ultimately driving the development of football culture in our country.'

The club itself had begun a marketing campaign that makes them look like a team that is representing not only Donetsk and the Donbas, but which instead represents all of Ukraine. When the conflict began in the Donbas, however, and the club was forced into exile in Lviv, its ambitions to become an all-Ukrainian club caused some fans to half jokingly refer to Shakhtar Donetsk, Shakhtar Lviv, or Shakhtar Kyiv, on social media platforms. Indeed, with the club playing in Lviv, and training in Kyiv, the label 'all-Ukrainian club' is perhaps a fitting one for Shakhtar at the moment.

The truth is, playing in exile has hurt the club financially. While playing 1,200 kilometres away from home, Shakhtar has actually been able to attract more fans to their games than their current city rival Karpaty Lviv (average attendance is 8,417 vs. 6,300). At the same time, however, the director of the club Sergei Palkin has made it clear that playing in the Lviv Arena, even in front of a capacity crowd, in the Champions League, has actually cost the club money, because the Lviv Arena only seats 34,000 compared to the 58,000 at the Donbas Arena.

The players

Recently, there have been problems surrounding 13 Brazilian players that Shakhtar employs. They threatened to not return to Ukraine, and expressed a desire to leave the club citing security fears. Fortunately for the club they were able to fight off the mutiny during the summer. Rumours of a fire sale of players appeared again during the winter transfer window, but Shakhtar was able to resist several offers from abroad, including a concrete offer from Chelsea for the Brazilian attacking midfielder Douglas Costa, for whom the fee was rumoured to be in the region of £30m. It certainly helped that the club launched an extensive training camp in Brazil, in what was openly percieved as an appeasement mission for the club’s Brazilian stars; and that the club is still in contention in the Champions League.

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£30m man, Douglas Costa up against Franck Ribery. Image by Vlad1988 via Shutterstock (c)

13 Brazilian players threatened to not return to Ukraine, and expressed a desire to leave the club citing security fears.

In truth, however, the ‘Shakhtar Code’ has always been to purchase the best young talented players from South America and the former USSR; and to sell them at a profit when the time is right. Shakhtar has been an especially appealing destination for such players as the club is a regular in the Champions League, in which the Brazilians, for example, can showcase their skills to clubs in Western Europe. With that aim in mind, Shakhtar have worked together with various player agents, and have a well-established scouting network. 

There is, however, also a dark side to the story. The club has been accused of having several players on their books that are part of Third-Party-Ownership deals, a practice that has been banned by FIFA this winter but is currently under review.

The club has been running a deficit by playing in Lviv, and is looking to sell its highly talented South American players.

In light of the current crisis and the fact that the club has been running a deficit by playing in Lviv, it is no surprise that Shakhtar is looking to sell one or two of its highly talented South American players this upcoming summer. This, however, has always been a major part of the club’s methods. Still, the continued insecurity in the Donbas could mean that player agents may take advantage of the situation, in order to force cheaper transfers to clubs in Western Europe.

Feeling the pressure

The major game changer for the club may yet be the political and economic pressure that Akhmetov has faced in recent months. For one, he has lost influence in Ukrainian politics. The most recent example is the presidency of the Football Federation of Ukraine (FFU). Here, Akhmetov’s biggest economic and political rival Ihor Kolomoyskyi has announced his intention to run for the position.

As Ukrainian journalist Denis Trubetskoi has pointed out on Twitter, former FFU president Anatoliy Konkov was long regarded as Akhmetov’s man, but the ongoing conflict in the Donbas has put a major dent into Akhmetov’s influence over Ukraine’s politics, economics, and sport.

It is not only in football that Akhmetov is feeling the pressure; he is facing investigations by Ukraine’s secret service into his alleged financing of Russian separatist forces in the Donbas. That these allegations are likely politically motivated, and instigated by his economic and political opposition, points to a major shift in power within the clan structure of the country.

Since the beginning of the conflict in the Donbas, Kolomoyskyi has been able to gain back much of the control he lost during the time when the Party of Regions was in power; and he has since taken over many areas that were traditionally controlled by Akhmetov. Before Maidan and the conflict, it was Kolomoyskyi and his Dnipropetrovsk connection that were on the economic retreat, as Akhmetov’s business appeared to control the country.

While a lull in the fighting in the Donbas suggests that peace might be achievable in eastern Ukraine, it remains to be seen whether Akhmetov can regain his political and economic might; and if Shakhtar can maintain its position as Ukraine’s biggest football club. 

 

Standfirst image: The inside of the Donbass Arena. Image by Anton Hlushchenko via Shutterstock (c)

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