Liverpool: the financial collapse and what the papers did not say

Yesterday the stories about Liverpool flowed around like a dark murky flowing thing you would not want to put your hand in.

We knew that the owners were trying in utter desperation to do something, anything, that would allow them to refinance the £350.5m of debts six months ago.

We now know from leaked papers obtained by Bloomberg that they even thought about taking on the insane PIK loan which would have been so expensive they would have added another £100m to the debt!  So out of the RBS can of £350 worms, into something far more horrible.

In now turns out that in March there was a dead secret offer of a rights issue run by Rothschild and Merrill Lynch.  £50m for a minority stake in a beaten up old club that hasn’t won the league in 20 years.

Yesterday the big story was that Liverpool’s annual throw-away on over-priced players was being cut to £20m a year – which most of the papers and broadcast media ran with.   But with RBS demanding £65m a year repayment, and only a tiny fraction of this raised with a new sponsorship deal, where is that £20m coming from?

But everyone ran the story, and so on the basis that if you say something enough it ends up being true, it became true.  At least yesterday.

However a little prodding shows there is something else utterly nasty lurking at the bottom of the sink, or given the state of Liverpool’s finance, the sewer.

Because somehow, at one money they were so desperate they would go for PIK funding and then they not only don’t need it, they also talk of Benitez having £20m a year – infinitely more than the Lord Wenger of course (who makes a profit on transfers most years).

Even more oddly, other plans were dropped too. An 8% rise increase in ticket prices went out the window.  And a plan gradually to convert cheap seats into corporate areas vanished.  These plans are not dead – they sit their like a crab looking at the boiling water, ready to snip your fingers.  (Actually that is a fairly ludicrous simile, but I’ve left it in because I think it is funny).

They are still playing with the ludicrous “Liverpool brand” academies, still looking for yet more secondary sponsors, and oh, you will love this one, they are going to improve the catering facilities to increase commercial revenue from £59m to £111.4m in the next five years.

Oh yes.  Last time we heard stuff like that it was from Leeds.

A few days back I ran this little analysis of the net outflow of funds at Liverpool in terms of transfer fees year on year in Pounds Sterling.

  • 2000: 24.75m
  • 2001: 0.46m
  • 2002: 13.5m
  • 2003: 8.5m
  • 2004: 15.75m
  • 2005: 20.65m
  • 2006: 19.5m
  • 2007: 46.75m
  • 2008: 19.55m

Now ask the question: is Liverpool is to be restricted to £20m a year, would that make any difference?  In fact not, because many years Liverpool don’t spend £20m.

So, let’s summarise.

1.  We now know that Liverpool were on the edge of borrowing the most expensive money in the universe to try and meet the repayment from the bank.  They were also ready to hand over part of the ownership, for more money.

2.  They also had plans to up the price of the tickets and have insane schemes to raise millions from selling pies.

3.  Meanwhile they continue to pay back RBS £60m a year.

4.  Suddenly, just when we start asking these difficult questions they announce that the manager can waste £20m a year on players – which they announce as a cut but which is more or less business as usual.

5.  We still don’t know where this money to pay RBS is coming from.

6.  The owners swore blind that they were not going to do a Manchester U and were never going to use the clubs own money to buy the club.   Absolutely, they wouldn’t.   And then they did.

The conclusion can now only be that they have got a plan to get their money out but this scheme involves something so stinky lurking in the background it is going to be worse than the time they found a whole load of corpses in the garden of one of the terrace houses that backs onto the ground.

Yesterday’s story was far too convenient, and far too unlikely, to be true.  The situation is far, far, far worse than that.   The notion that “Liverpool is the new Leeds” is about to look optimistic.  I’d say Liverpool is the new Chester.

(c) Tony Attwood 2009

20 Replies to “Liverpool: the financial collapse and what the papers did not say”

  1. hope it does not happen. it is a shame to the english football to be on the mercy of people with no scruples, with no concern of infrastructure, history or supporters. hope it can come in rules against these kind of procedures. very happy this has not happened to Arsenal, Kroenke seems like a blessing in disguise thinking about the alternative in usmananov. Not the least the cooperation skill he has shown with other board members and stakeholders. I hope he keeps up and stays at the 29,9%. Do not support any eventual takeover though. The future does look optimistic. When it comes to Liverpool, Chelskji and Man Utd the future does not look that bright, and I hope they overcome their hassles. As an Arsenal supporter I believe in the prospect of the club and want the club to compete with the best, though I do not know how much of a loss chelskji would be ;-). Best of luck Liverpool!

  2. the crazy gang is on the way up again, hoping Leeds can take the step up again as well. It is a shame with all that amount of support and being in the league one, the supporters have shown tremendous loyalty and support and hope for their reward

  3. the crazy gang is on the way up again which is a good sign, and hoping Leeds can take the step up again as well. It is a shame with all that amount of support and being in the league one, the supporters have shown tremendous loyalty and support and hope for their reward.

  4. Was it coincidence Leeds and Liverpool played each other and that the next days this news came out ?
    Maybe there was some talk between the boards before, during or after the game this week on how can you keep a dead body alive ?
    It will be intresting to see how Liverpool will work its way out of the sewer, if they still can that is.
    Anyway I wouldn’t feel sorry for Liverpool, they wouldn’t be sorry for Arsenal it we would have done the same. Maybe you could feel a bit sorry for the fans, because after all, the fans are innocent and can not have influence on the things going on behind closed doors.

  5. I am ambivalent about the prospect of Liverpool collapsing. On the one hand for a club that totally dominated English (and European) football for so many years, so recently, to fall so far from grace, makes me feel very uncomfortable. On the other hand, a shock of this magnitude might just get the powers that be to admit that The Lord Wenger is right, and do something to stop one of the more ridiculous excesses of the capitalist system.

    I still do not understand how Liverpool and ManU supporters accept the reality of people “buying” their clubs with borrowed money, and then passing on that debt to the clubs. It can only be that they do not believe it, either through a lack of understanding or through denial.

    What would we do if that happened to us? Do we know if our big two shareholders would follow the Chelsea route or the Liverpool/ManU route?

  6. Cape Gooner, what is the difference between a Chelskji route or a Liverpool/Man Utd. route? Am I right in assuming your opinion being that Chelsea is better? My opinion is that at least Man utd have a big stadium and talent development system, even though huge debt, while Chelsea have built a new training ground I understand but huge debt with no solution on their stadium (not even filling the current one on champions league nights). Their squad is ageing as well. Liverpool has a huge debt and desperately need a new stadium

  7. Hi Tony

    Really nice article. I can also feel something cooking up although I am very far here in Mumbai(India). But a background check on the owners(esp. Hicks)reveal a very similar story.

    He took over Corinthians with a group of investors and promised the fans with a new stadium. Finally he left the club after infighting with his partners and falling out with the fans. Before leaving he also left the club relegated to a lower league. And of course the club’s dream of a stadium was never fulfilled.

    Now if we compare the story with LFC. He has already fallen out with his partner Gillett and Gillett wants to sell his stake. The stadium promise is nowhere to be fulfilled and the fans don’t like them anymore. The club looks on the verge of crisis and he may sell his stake soon.

    The similarity between the two is amazingly high. I just hope that they don’t get relegated.

  8. Really nice article. I can also feel something cooking up although I am very far here in Mumbai(India). But a background check on the owners(esp. Hicks)reveal a very similar story.

    He took over Corinthians with a group of investors and promised the fans with a new stadium. Finally he left the club after infighting with his partners and falling out with the fans. Before leaving he also left the club relegated to a lower league. And of course the club’s dream of a stadium was never fulfilled.

    Now if we compare the story with LFC. He has already fallen out with his partner Gillett and Gillett wants to sell his stake. The stadium promise is nowhere to be fulfilled and the fans don’t like them anymore. The club looks on the verge of crisis and he may sell his stake soon.

    The similarity between the two is amazingly high. I just hope that they don’t get relegated.

  9. Nice article Tony. Some good points coming out. Also, to be able to spend the supposed 20 mill (or whatever amount they actually do spend), they have to sell players first!

  10. Nice one Tony. As JediKnut pointed out, it looks like the P20m is NET. I for one would be unhappy to see Liverpool collapse – it is a big club with a lot of history.

  11. I have quite a few friends who are Liverpool supporters. I know how devastated they will be should anything happen to their club. For a club with so much history to find itself in such financial cesspit, is really sad, not just for Liverpool, but for English Premier League as a whole. Perhaphs when Liverpool fails, the FA will wake up and the media, as well as the stupid pundits, who are all overdosed on financial doping, will now begin to extol the virtue of the Arsenal Financial Model.

  12. Tony – Nice piece. It’s no secret that I hate Liverpool with a passion. I’ve had to many Liverpool fans sit and tell how good they are, this is definitely their season to win the PL when they are no more than average and how Arsenal are broke and are going to drop out of the top 4. So not only would I be happy for Liverpool to go bust in a spectacular way but I think it is now critical to the survival of the PL for a big name to go bust. Leeds were a big club but what had they won in the previous 20 years? Liverpool going bust would send out shockwaves that would change the running of the sport permanently. One of the benefits for Arsenal would be rules that would forbid leveraged takeovers thus protecting us from Usmanov

  13. “One of the benefits for Arsenal would be rules that would forbid leveraged takeovers thus protecting us from Usmanov” Marc, That is a statement that can only come from a man with genuine forethought. Yes indeed! Such permanent changes is very welcome.

  14. I’d be sad for Liverpool if they go under, but I take the point that the shockwaves could help to protect us.

    There was a programme on Five Live about Usmanov, quite well researched by a Russian journalist, which made the point that Arsenal is a status symbol, an expensive version of a yacht, for him. In other words he wants to out-Abramovich Abramovich by owning a football club, but – unlike Abramovich – it isn’t because he fancies a toy; he’s not that serious a football fan and doesn’t want to pick the team or decide who we buy. Besides, insofar as he’s interested in football at all, he’s a United supporter.

    For this reason, I see him as less of a threat than Kroenke, who, like his fellow-Americans with Liverpool, was attracted to English football because he imagined there were huge profits to make. Kroenke is rich, but he’s not mega-rich on the Usmanov scale, and he’s got all those ice-hockey teams to look after. What better than a nice little London football club, with a shiny new stadium just built to prop up the things that are close to his heart: American sports of various kinds.

    I don’t want Usmanov or Kroenke or – equally important – their heirs to get any kind of control over Arsenal. But of the two, as the Liverpool mess is showing us clearly, an American who is in it for the money – our money, that is – seems a bigger threat in the short term.

  15. Insightful article, Tony! I agree with Marc and like to add that the collapse of Liverpool could only serve good not only for Arsenal but also the whole English football. Then we could be proud of the way our “custodians” (read: shareholders) chose in handing over their shares to trustable hands. Except Dein of course. Liverpool fans could only blame their previous owners for selling to hicks and gil. With recent development of EPL clubs ownership issues, I think our boards did much better in their decisions and politics. Maybe you could write another insightful article regarding this boards politic? 🙂

  16. gilette and hicks must shit a brick every time rafa signs a new player with a big wage bill.

    if rules did change so that leveraged takeovers were forbidden, wouldnt this be like platinis proposed new rules governing the movement of under 18s in europe, in that it flies in the face of current legislation.

    free movement in euroland is allowed, just as takeover thingies in the business world are allowed.

    we would have to have luck on our side if one set of rules were introduced and the other set refused.

    dont get me wrong, i dread the thought of slug boy getting his paws on our club, but it would be better if the current board and lady bracewell sorted it out amongst themselves.

    as for liverpool, well they havent got a paddle have they? but i dont expect them to go without a fight

  17. Indeed, pig, sorting things out with Lady Bracewell is the best option for the board right now. However, if Liverpool fails, the effect will bring a permanent change as I am sure that the FA will react to the shockwave.

  18. Hi Sebjob, the difference is that Liverpool/ManU have massive debts owed to banks and hedge funds, while Chelsea are financed by a rich man. Although Abromovich has structured his cash input as a loan, it is by no means certain that he expects his money back. There is certainly no indication that he demands any interest – while ManU have an interest bill of 80 plus million per annum.

  19. It will be a sad day indeed if Liverpool implode -despite the rivalry we hope they turn the corner and see the light at the end of the tunnel.As almost everyone have commented ,Rafa’s spending on players have been excessive and will incur more losses on the long term.They have better follow Arsenal’s policy and get lean and mean.Better start now or risk the club going down Leeds’ path.
    Nice simile about the crab – but I feel its like the crab being in boiling
    murky water waiting to snip off anyone’s fingers.
    Talking about crabs, has anyone visited this very funny & offbeat Arsenal site -http://crabfootball.wordpress.com ?You won’t regret it.

  20. Cape Gooner, if Abrahimovich does not want the money back or back without interest or on low interest I can understand. Platini talked about him and Moratti when referring to the new balance sheet policy. Unfortunately I can not remember where I read it but suspect BBC or Goal.com (huge difference in reliability those two sources). There Platini referred to owners being worried and complaining that the massive money spending at clubs made it hard for them to sell their own club. An assumption I make here is that this is Abrahimovic

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