West Ham, Newcastle at Center of U.K. Soccer Tax-Fraud Probe – Bloomberg

Two U.K. soccer teams found themselves in the middle of the sport’s latest scandal after authorities conducted sweeping raids and made arrests over suspected tax fraud.

The offices of West Ham United and Newcastle United were targeted, according to the BBC and other U.K. media. One of the men arrested was Lee Charnley, Newcastle’s managing director, the BBC said.

U.K. tax authorities have targeted teams, sending Glasgow’s Rangers into bankruptcy in 2013 and into Scotland’s lower leagues, and looked at players’ so-called image rights, when part of their pay is based on marketing income instead of just salary. And officials in other countries have cracked down on attempts to avoid taxes for players and teams. Real Madrid and Barcelona — two of the world’s most popular clubs — have also had run-ins with authorities.

“HMRC has recently ‘discovered’ footballers as a soft target,” said Tom Wesel of Milestone International Tax Consultants in the U.K. “These raids could be a scare tactic, forcing the clubs to negotiate over arrangements that were entered into in good faith with professional advice. Or, the clubs may have been daft enough to engage in what was obviously fraud. We don’t know. Nor, perhaps, does HMRC yet.”

Wednesday’s developments come less than six months after the U.K.’ tax authority’s head of compliance told a parliamentary panel that 43 players, 12 clubs and 8 soccer agents were under inquiry over potential irregularities linked to so-called image-rights contracts, allowing less tax to be paid.

Clubs including London’s Leyton Orient, which faces a June court hearing, Portsmouth and Blackpool have come under HMRC scrutiny in the last few years.

The investigation could be another blow to the reputation of soccer, which is still recovering from a corruption scandal that shook the top leadership of the sport’s global governing body two years ago.

In the U.K. tax probe, officials from Her Majesty’s Revenue and Customs seized computers, mobile phones and financial documents during searches in the northeast and southeast of England, the agency said in a statement. French authorities are assisting with the investigation and also made arrests, it said. London’s West Ham and Newcastle have purchased players from France in recent seasons.

Officials for both West Ham, which is in the Premier League, and Newcastle, which this month won promotion to the top league for next season, couldn’t be reached to comment by Bloomberg News. West Ham said that it is cooperating with the HMRC, according to the BBC.

The probe could be another headache for Newcastle owner Mike Ashley, whose Sports Direct Plc sporting-goods chain has been enduring a difficult year.

Ashley, who is the retailer’s majority shareholder and chief executive officer, has seen profits drop in half while investors have twice sought the removal of the company’s chairman. Ashley himself is being sued by a former associate, Jeff Blue, who says in the lawsuit that he’s owed 14 million pounds ($18 million) in a fight over a bonus.

West Ham Chief Executive Officer Karen Brady is Conservative Party peer in the House of Lords, British Parliament’s upper house, and a judge on the U.K. version of The Apprentice. The club occupies London’s Olympic Stadium, a decision widely criticized for costing taxpayers more than originally forecast, as well as leading to several issues of crowd trouble due to security issues.