In an unexpected (by me at least) development the bank RBS (which owns Nat West) sneaked out a statement while I was on holiday, explaining why it keeps on lending money to Liverpool – and why it wants to do it more and more.
These wonderful and exciting people said, “In our view and that of the executive management of the club, it is financially healthy and able to service comfortably its debt obligations from cash flow generated by its playing and commercial activities. It is in our commercial interest to support the club.”
So to be quite clear on this the bank has said, no matter how counter productive it is for the club to be massively in debt, and to have taken the money that was given for the new stadium and used it instead to arrange the buy out of the club by the Americans, the bank approves. The loan is great news for the bank, and they would like more of it. There is no way they are going to stop.
The fact is that Liverpool Insolvency pay the bank £36.5m each year every year and has no chance of paying the money it borrowed back to the bank. They can just about manage the interest, nothing more.
Likewise they also have limited chance of going bust in the eyes of the bank because there will always be other American sports owners, not to mention oil billionaires wanting to take the club over. And there are a bunch of people who want to go to football matches at Liverpool.
But there is an even stronger back up for the bank – the clubs’ owners have now put up guarantees to the effect that they will pay up on the club’s debt if the club were to go bust.
In terms of Liverpool going bust there are a couple of ways this could happen.
First, they could do a Leeds – paying more and more money for players, putting them on ever higher salaries, and endlessly upping the cost of running the club. The problem with this strategy is that if ever the money runs out then the club is in trouble.
I’ve no idea what would happen if Liverpool didn’t get into the Champs League for a couple of years (remember they didn’t about 3 or 4 years ago – Everton took their place). When this happened they got UEFA to change the rules at the last second, and so were given a spot – maybe they can rely on that again, but I am not sure.
It is possible for any big club not to get in to the Champs League for a year or two. Milan didn’t last year, Bayern Munich have missed out on occasion, and even the big two in Spain have had their off years.
So it is possible that a downturn for Liverpool could leave to a big enough drop in income to make it hard to pay back this year’s debt interest.
Second, the owners could find that they are called upon to use their wealth in other areas of their business. If one of the other franchises that they hold went down, then they could find themselves unable to guarantee the £350m debt, and the bank would not like that.
The situation is different at West Iceland United where the bank owns the club and the bank has gone bust. What the bank is trying to do is avoid being ordered by the courts to pay the money it owes to its creditors because that would mean having to arrange a quick sale of the club – and that would bring in a much lower level of money. An announcement on the next steps is expected any time now.
As for Arsenal – there is no debt to be rearranged. It is there, and fixed and working its way through, just like the mortgage on your house (if you have a mortgage that is. And a house).
Now you might think this is excellent news – Arsenal have been prudent, and although they have taken a risk with the apartments at Highbury and the business premises they bought up – they have structured their assets in such a way as to be able to handle the delay in income.
But from a banking point of view, this is a disaster. The banks love Liverpool because, as they say, Liverpool is good news for the banks. Same for Manchester IOU although they are much closer to the edge than Liverpool. But Arsenal are of no interest because Arsenal are not under the thumb of the banks. The mortgage is an agreement which is running its course and will ultimately be paid off.
So the banks support big clubs in debt, and indeed have a vested interest in football in debt. They will keep football in debt as long as they possibly can – and in this regard they are aided by the FA, the EPL, UEFA and the eternally corrupt FIFA. If any of these organisations had the interest of football at heart they would remove the power of the bankers and sort out football finances. The fact that they fail to says it all really.
There is some movement on the financial front – and you may have noticed a stream of little clubs getting 10 or more points penalties for financial problems – but this is a matter that is kept in the realm of the little clubs. The notion of controlling the finances of the bigger clubs seems way beyond the reach of the FA etc, and for this the bankers are eternally grateful.
(c) Tony Attwood 2009
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