Hertha Berlin – spiralling debt, gambles and ‘delusions of grandeur’ – The Athletic

In the fourth of our series ‘Crisis Clubs’ examining the financial states of five European football teams, Raphael Honigstein digs into the numbers at Hertha Berlin, analyses how and why things have been so perilous for them, and what might be a potential way out.

There’s still Lyon to come later this week — and even more insight via The Athletic Football Podcast.

The thing you have to understand about two-time German champions Hertha (1930 and 1931) is that their plight in the Bundesliga’s second division is just the latest instalment of misery; a fitting complement to decades of controversies, spiralling debt and misplaced hubris.

For as long as any of their supporters can remember, the odd decent spell has only ever been a short-lived prelude to more pain in the Charlottenburg district of Berlin the club call home. Hertha have always found new — yet at the same time familiar — ways to fail.

In the inaugural Bundesliga season 61 years ago, the club known as “The Old Dame” barely avoided relegation, and they only did so because they had bribed a player from 1860 Munich, their opponents in the penultimate game of the season, not to score against them. A year later, Hertha were sent down to the second division by the German Football Association, having been caught paying illegal signing-on fees to players.

The early 1970s saw some success, including reaching the semi-finals of the UEFA Cup (today’s Europa League) but Hertha were caught up in a big match-rigging scandal that had far-reaching financial implications. They dropped to 2. Bundesliga in 1980 and then to the third division in 1986. Two promotions later, they were back in the top flight for a single season but then spent six more years in 2. Bundesliga, with as few as 3,000 people turning up to their home games in the 75,000-capacity Olympic Stadium.

At the turn of the century, manager Jurgen Rober oversaw a golden era that culminated in a Champions League campaign (1999-2000). But after another relegation in 2010, 150 hooded men invaded the pitch, ripped up the dugouts and chased players into the dressing rooms. Hertha came straight back up, then went down once more in 2012.

In 2003, Berlin’s mayor Klaus Wowereit had called his city “poor, but sexy” in an attempt to lure artists, musicians, creatives and young companies to the German capital. Keen to partake in the hype and to discard their image as German football’s “Skandalnudel” — a tabloid term for D-list celebrities whose sole chance of attention is doing silly things — Hertha modelled themselves as a “start-up club” following their promotion back to the top division in 2013.

General manager Michael Preetz, a former centre-forward for the club, chief finance officer Ingo Schiller and head of marketing Thomas Herrich wrote a strategy paper called “Agenda 2025”, which proved extraordinarily prescient — but only as far as the predicted ascent of RB Leipzig from their place at the time in the third division to “title contenders” (along with Bayern Munich and Borussia Dortmund) was concerned. Hertha, they envisaged, would be just below that bracket in the “international competitions” rank.

They are 12th in the 18-team 2. Bundesliga after another relegation last season, they are unlikely to hit even that pretty modest target over the next 13 months unless the German FA dreams up its own version of the old Anglo-Italian Cup competition for second-division sides like them.

The last decade at Hertha has been a whirlwind of coach hirings and firings — Germany playing great and former U.S. men’s national team manager Jurgen Klinsmann lasted 76 days in the middle of the 2019-20 season — allied with gambles in the transfer market, extraordinary levels of debt and changes of ownership.

It has been far from plain sailing for a club named after a 19th-century steamboat, and there are potentially rocky waters still ahead.

How did they get into this mess?

In early 2014, Hertha sold just under 10 per cent of the subsidiary company running the club to U.S. private equity firm KKR for €61million (now £53m; $66.6m). The money was used to pay down existing debt and buy back assets such as marketing and catering rights that had been mortgaged in the past.

Supporters held banners describing KKR as “locusts” looking to asset-strip but the Americans did not interfere with the sporting side. The firm’s time as a passive investor coincided with Hertha doing well on the pitch. After saving them from relegation in 2015, club icon Pal Dardai led them to two Europa League qualifications and then 10th and 11th-place finishes in the following four seasons.

The club, however, were aiming higher. If they really were to compete with blue-chip sides, they needed to build their own stadium for about €200million and leave their tenancy at the Olympiastadion, a draughty, eerie relic from the Nazi Olympics in 1936 that remained half empty on most occasions. A new club slogan — “We try. We fail. We win” — was supposed to attract more institutional money but KKR’s stake, which had since been raised to 36.3 per cent, proved an obstacle.

Hertha fans just opt for “Losers!” on a banner at Paderborn in 2014 (Thomas Starke/Bongarts/Getty Images)

Hertha decided to gamble.

In an attempt to make themselves more appealing to investors, they prematurely bought back KKR’s shares for €71million at the end of 2018. They raised the money by placing a €40m five-year bond with a 6.5 per cent coupon on the capital markets and mortgaging future income from hospitality.

Six months later, London-based financier Lars Windhorst entered the fray. He bought 37.5 per cent of the club for €125million and promised to transform them into a world-class side. “Hertha can become a true ‘big-city club’, like the clubs in London or Madrid,” Windhorst told German newspaper Der Spiegel.

In a later interview with Bild am Sonntag, another paper, Windhorst explained that his investment was meant to be “extremely long-term and sustainable”, “for at least 10 years and maybe 20” and predicted that Hertha would soon be worth €1billion or more.

How bad is it?

Windhorst raised his share to 49.9 per cent for €99million more in November 2019. “We will be able to make investments of a different dimension in the next transfer periods,” Preetz said. Indeed — despite battling relegation, Hertha brought in Krzysztof Piatek (from AC Milan), Lucas Tousart (Lyon), current Wolverhampton Wanderers forward Matheus Cunha (RB Leipzig) and Santiago Ascacibar (Stuttgart) for a total of €77m that winter.

They spent more than any other club in Europe in that January window under caretaker manager Klinsmann, who had replaced Ante Covic at the end of the November. “In hindsight, it would have been better to be more careful (with our spending) that winter,” Preetz said in a recent documentary by German public broadcaster RBB.

Klinsmann, who won the 1990 World Cup as a player and took hosts Germany to the semi-finals 16 years later as manager, had worked as Windhorst’s advisor and represented his interests as a member of Hertha’s supervisory board. He called Hertha “Europe’s most exciting football project, a sleeping giant” and tried to raise spirits with his trademark adopted-Californian optimism. Results stabilised but just three months into his spell, Klinsmann was suddenly gone again.

Klinsmann’s reign was brief (Andreas Gora/picture alliance via Getty Images)

“He came into my office at 9am and said, ‘I’m off’. Something like that has never happened in the Bundesliga before, until this day. It was a mix of a lack of respect, a lack of character and cowardice,” Preetz said.

GO DEEPER

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In a Facebook video the next evening, Klinsmann stoked rumours he had left because Preetz and chairman Werner Gegenbauer had not given him more power.

“We couldn’t agree on the division of responsibilities,” said the former Tottenham Hotspur striker. “I’m used to the English model, where managers only report to the owner. I was very annoyed by that.”

Even Windhorst was miffed by Klinsmann’s sudden exit. “The way he left was unacceptable,” Windhorst said at a joint press conference with Gegenbauer and Preetz. “I guess he blew a fuse. That can happen if you’re an adolescent. But it shouldn’t happen in business, when serious agreements between adults are in place.”

Windhorst in 2021 (Christophe Gateau/picture alliance via Getty Images)

A few days later, newspaper Sport-Bild reported Klinsmann had criticised the club for having “no culture of performance, only vested interests and a total lack of charisma in the leadership” in a leaked diary.

Former assistant coach Alexander Nouri took over but he did not last long either, albeit through little fault of his own — all Bundesliga games were suspended because of the Covid-19 pandemic in mid-March. By the time games kicked off again two months later, Bruno Labbadia was appointed as their fourth coach of the season, but forward Salomon Kalou posting a video from the dressing room ahead of the season’s much-debated restart was the bigger story: the Ivorian filmed himself breaking social-distancing protocol and was then suspended following a public outcry.

Labbadia eventually took them to a 10th-place finish but the combination of big spending on transfers and loss of income during the pandemic saw Hertha’s debts hit a record €141million at the end of that 2019-20 season. Fortunately, Windhorst was on hand to pledge a further €150m by the following October in return for 64 per cent of the club’s subsidiary company.

The Bundesliga’s 50+1 rule — 50 per cent plus one share of the voting rights at any club in the competition must be held by its members — was not violated by the move. Hertha still held a majority of the voting rights and Windhorst could only nominate four out of nine supervisory board members. One of these was former Arsenal and Germany goalkeeper Jens Lehmann, who was fired a year later after asking if TV pundit Dennis Aogo was “a token black man” in a text message he had mistakenly sent to Aogo himself. Gegenbauer said “Such statements are in no way representative of the values that Hertha BSC stands for”, and Lehmann apologised.

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Labbadia was fired halfway through the following season as Hertha fought against the drop once more. There was no reprieve for Preetz either, who took the brunt of the blame for their enduring struggles on the pitch. He was sacked after 12 years in charge. In the meantime, Dardai returned and saved the club from relegation once more.

Hertha lost more money that season owing to the effects of the pandemic, but Schiller insisted everything would be fine. “The partnership (with Windhorst) puts us in a relatively comfortable position and keeps us stable,” he said.

But income failed to keep up and Preetz’s successor Fredi Bobic found that Windhorst’s millions had effectively been spent. The former Germany forward embarked on a cost-cutting programme that brought in net transfer receipts of €30million in the summer of 2021 but signings such as Kevin-Prince Boateng and Stefan Jovetic failed to lift the club out of the Bundesliga’s bottom half.

Dardai was sacked, in November 2021. So was the next man, Tayfun Korkut, the following March after taking nine points from 14 games. Veteran firefighter Felix Magath came in to douse the flames and Hertha just about scraped through, thanks to a 2-1 aggregate win over Hamburg in the promotion/relegation play-off.

Magath kept Hertha up in 2022 – just (Christian Charisius/picture alliance via Getty Images)

The tussle for control behind the scenes meanwhile descended into open civil war.

Windhorst said he regretted investing in Hertha and declared he would stop cooperating with Gegenbauer, who was due for re-election in May 2022. The septuagenarian then resigned before the vote. Schiller, one of the main architects of Hertha’s house of credit cards, also left.

The UK’s Financial Times later reported that Windhorst had hired an Israeli company to spy on Gegenbauer and orchestrate a social media campaign against him. Windhorst denied those accusations, but an internal review by Hertha found “sufficient evidence” of the ploy.

New chairman Kay Bernstein, a former Hertha ultra, promised to “detoxify” the club but things only got worse on the pitch. Bobic was sacked in January 2023 as Hertha were once more sucked into a fight for top-flight survival. Coach Sandro Schwarz followed Bobic out of the door in April. He was replaced by — you guessed it — Dardai, who became the club’s ninth manager in four seasons.

This time though, Dardai’s Hertha did go down, after years of risky financial dealing and infighting.

GO DEEPER

Berlin: A tale of two clubs, heading in different directions — as Bobic pays the price

What’s the way out?

Last November, Windhorst agreed to sell his stake, 64.7 per cent, to 777 Partners. The Miami-based group — also now trying to buy troubled Premier League club Everton — then raised its equity in the subsidiary company to 78.8 per cent and invested €100million in the club.

In July, we saw how seemingly desperate Windhorst was to exit the club when the Financial Times reported that he told a London court 777 had agreed to pay only €15million up front and that he could not remember how much money he had actually received at that point. Windhorst said he had sold Hertha for €65m, offset against a €50m loan via a 777 company, and was in line for a bonus payment of €35m if Hertha won the Bundesliga — yes, you read that correctly; if they finished top of a division from which they had just been relegated.

Hertha needed the 777 money urgently. This spring, there were indications the Bundesliga might not license their participation in the second division for 2023-24 because they could not show sufficient funds to be sure of finishing the campaign. They were unable to pay back the €40m bond from years earlier, too, and had to negotiate a two-year extension with their creditors to receive the all-clear from the footballing authorities.

Following another fire sale of players in the summer, Hertha have reduced their budget for the first team from €80million to €30m this season but they will once again lose money — €64m by their own estimate. Since they will not go up, their reliance on cash injections from 777 will only increase in the next few years, and the building of that new stadium remains a pipe dream.

(Left to right) Hertha president Kay Bernstein, Josh Wander of 777 and Thomas Herrich, managing director, after 777’s investment was confirmed in March (Andreas Gora/picture alliance via Getty Images)

Hertha is only one of 777’s football interests, however. The group bought Italy’s Genoa in September 2021, Brazilian side Vasco da Gama the following February, Belgium’s Standard Liege in the March, Red Star of Paris the next month and secured minority investment in Australian club Melbourne Victory last October.

As its proposed takeover of Everton rumbles on, questions about how much money 777 has and where it comes from are being assessed during the approvals process.

The group claims to manage more than £10billion in assets and insists the money to buy Everton is coming from an existing pot, although U.S. debt provider A-Cap “is one of multiple lenders to 777 Partners and its portfolio of companies”, according to a spokesperson.

Whether Bernstein is the right man to revive this terminally-stricken old dame is also doubtful. But at least he is not living in the fantasy world of wishful thinking that many of the club’s previous hierarchy had blissfully occupied.

Bernstein has proclaimed an “end of the delusions of grandeur” and vowed to turn the club around by embarking on a much more humble “Berlin way”, with the help of youth players and a new leadership team with established links to Hertha.

It is an interesting re-branding effort, but Hertha have no alternative.

After spending money like there was no tomorrow, this supposed “big-city club” are destined to be small fry for years to come.

(Top photos: Getty Images; design: Sam Richardson)