Champions League: who’s having a laugh?

Top Four? by Simon Bailey

As the clock ticked round to 90 minutes on Saturday, my friend John grimly declared that if the score stayed as it was we could kiss the league goodbye. My first instinct was to agree. My next thought was that we have been written off twice already this season. My third was that I didn’t really care. And then B52 scored from Denilson’s rebound and all the ‘half empty’ thoughts disappeared. The glass is at least half full.

Not so if you’re a Liverpool fan. Who would have thought that this time last year they thumped United 4-1 with a team that is substantially unchanged from their current squad? Who can see them repeating it this year? Last season they got a good start which flattered to deceive, but this season’s results have been woeful. An embarrassing exit at the group stages of the champions league is one thing, but the impending failure to qualify for next year’s competition shows how low they have sunk this year.

Despite their recent 4 -1 victory over Portsmouth, it has been suggested that Benitez’ form is dipping, much like Houlier’s before him, and if this is true then there are doubts that Rafa will be at Anfield next season. There is also the small matter of 100 million quid that has to be found this summer to keep the banks happy.

Are Liverpool still a top four team? Are these problems just the symptoms of a blip or are they doomed to mid table mediocrity for the forseeable future?

Absolutely not if you believe the latest news from Anfield. Apparently their head honcho has been trawling the market for investors to buy some or all of the Americans’ share in the club. In a scenario reminiscent of the Dragons Den, it has been said that they have been offered £110 million for 40% of the club by an American investment business.  No deal has been struck yet because they’re looking for other investors to invest more for less.

The above figures value the club at £275 million, a figure that seemingly is hotly contested by the two American owners, especially in the light of a potential £1.5 billion offer for United.

The Liverpool plan is simple. Use the incoming money to pay RBS et al. This will raise their credit rating so they can then borrow to build their new ground and everything is tickety-boo. They can use what’s left to purchase the four players that Torres reckons they need, or five if he goes.

If we compare this to our own model, there are some glaring holes in their plan. When we borrowed money for the Stadium, our credit rating was good and the terms of the loan were excellent. It is doubtful that, in this current market and with their considerable debts, Liverpool will be able to strike such a good deal. Inevitably the cost of building a new stadium will impact on on-field performance. This wouldn’t be a problem if there was a constant influx of young and cheap players rising through the ranks to counter excessive spending on the transfer market like we have at Arsenal. Whether they go ahead with this refinancing and new stadium idea or not, I believe that Liverpool won’t be getting Champions league football in the near future.

So, who will make up the top four and qualify for Champions League in seasons to come?  At the moment, ‘top four’ is synonymous with CL qualification and will remain so for the near future at least.

By now most Premier league clubs have realised that future success will depend on financial stability. I very much doubt that we will witness the Portsmouth scenario in the Premier league again. It is also doubtful that when or if United and Liverpool manage to balance their books, they will burden themselves with their current levels of debt again.

Chelsea and City have both converted debt into equity which shows that they are at least heading in the right direction. Wether they can actually turn a profit will remain to be seen. Villa have some financial re-arrangement to do before thay can realistically break even over a given season, and the spuds hide all their figures bar their bottom line so we can never be sure where their money comes from.

United are in an interesting situation right now. The current owners have leveraged the club with £500+ million worth of debt, not to mention the PIK loans that they are personally responsible for. If this situation continues, and all of their profit goes to paying massive interest bills, things will continue to deteriorate. However, if the Red Knights successfully manage to buy united from the Glazers, things will be altogether different.

The club will be debt free with money in the bank for transfers and or infrastructure investment. Their yearly profit will be able to fund transfers instead of debt, and to cap it all the supporters will have a substantial share in the club and a say in how the club is run. All of this coupled with Uniteds’ global brand will see them continue to play at the highest level for the forseeable future.

It is patently obvious from their recent prospectus that the only reason the Glazers got involved with United was to make money, lots of money. I think they will find it hard to turn down the rumoured £1.5Billion offer.

Chelsea are at a crossroads too. Although they have some young players of worth, a lot of their talent is fast reaching its sell-by date. As we have experienced when the Invicibles came to an end, it is very difficult to build a new team overnight even if you have the luxury of a world class scouting and youth development system. If they are going to significantly re-build over the course of the next few years, they won’t pay for it all out of player sales, which means that profit or investment will be required. Abramovich has already said that he has put in enough money and that he expects the club to stand on its own two feet, but it remains to be be seen if this is true or not.

Recently, Mark Hughes said that at the beginning of this season, his brief was to take city into sixth place this year. The implication being that next season they would be challenging for a CL spot or Premier league title. City’s conversion of their debt to their owner into equity indicates that they also want to toe the financial line. I find it hard to believe that operating as they currently are, any of  City, Villa or the spuds will be able to balance their books without continued contributions from their owners. Unless they can get their hands on Champions league money.

The next couple of seasons are crucial. If any of these pretenders want to realistically get into the top four on a permanent basis, they need to do it now before the rules are changed. The money earned over a couple of champions league seasons may be enough to balance the books  and satisfy Uefa. That is if they can stand the pace of the competition when they get there.

Thats a lot of ifs and buts and maybes though. If the Glazers sell United, or if Liverpool attract new investors, they could theoretically qualify. Maybe Chelsea and City will be able to run without any more money from their owners. Perhaps Villa or the Spuds will earn enough from Europe before the rules are changed.

The only certainty in all of this is that Arsenal are the only club that ticks all the boxes. Do we have a current squad that can compete realistically in all competitions ? Yes. Do we have a constant influx of talent coming up through the ranks? Yes. Are we turning enough profit to service our debts and operate in the transfer market when required? Yes. Will we qualify under Uefa’s new rules? Yes. Do we have a proven Champions league record? Yes.

As far as the ‘top four’ is concerned, there’s us, and, well it’s just us really. All the rest of the clubs have so many issues that a place in the top four and Europe can’t be guaranteed for any of them.

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25 Replies to “Champions League: who’s having a laugh?”

  1. Great article, very true in pointing out that Arsenal are the only club being run like a successful football club, while it seems all the rest are Owners playtoys or money makers. Could be an interesting few years ahead. I’d back Fulham for CL Football 😉 haha

  2. ok.but how will United pay the 1500 million back that it will take to pay off the yanks?

  3. Simon – The Red Knights or whatever they are called are a collection of Hedge funds. Hedge funds exist for one reason and one reason only – to make money, lots of it. If they buy ManU they will demand a return, it will be less than the interest rates of the PIK loans, it may be less than the 9.5% the bond issue is at but it will not be much less probably in the region of 8%. If they pay the reported sum of £1.5 billion for Utd the annual charge will be £120 million. That’s about half of ManU’s turnover if my memory serves me correctly, take another 50% of turnover for the wage bill and that leaves next to nothing for transfers. ManU’s recent turnover figures are based on 3 league titles and 2 CL final appearances, one successful. ManU cannot expect to achieve that every 2 out of 3 seasons so their current turnover is on the high side and without new signings they have no hope of sustaining that kind of performance.

  4. They could sell Rooney and do an Everton: make profit on him for one year. I think the could should be read as “will” and to Real Madrid.

  5. Walter the problem is they are running out of family silver. They will probably get £20 million or so for Vidic in the summer and they could get what £50 – £80 million for Rooney but after that the pickings get a little sparse. Can you imagine if Rooney had sustained the injury instead of RVP, where would ManU be now? So if they sell him they will be well and truly screwed.

  6. george: The Red Knights would have bought the club with their own money, so there is no debt. It’s like you or I going out and buying our new car: there is no outstanding debt as long as it was your own money that you traded for the car. What the Glazer’s did is borrow money to buy the car, and then use money they made from using the car to pay off the debt.

    Marc. Disagree somewhat, some of their interest undoubtedly is in taking over the club in order to avoid United going down the pan. Its not an investment that you’re going to make money out of. They’re not about to buy the club and then do to it exactly what the Glazer’s have done, surely? *Cue conspiracy theory*

    However, these people didn’t make their money by just handing it out. If the Red Knights take over, there’s going to be 50-60 driven, ambitious and wealthy people all vying for control. Not a recipe for success.

    You also overstate the importance of success to the clubs financial situation. Yes, Champions League footy is needed, but if they only made the quarters/first knockout round for the next five years the effect on the balance sheet wouldn’t be significant. Ditto the Premier League: their TV money won’t fluctuate much, just the performance related component. The difference between 4th and 1st isn’t significant to a club that size.

    Regardless of their relative success, revenues (matchday, sponsorship and merchandising) will continue to grow too. If they spend less on transfers due to attempting to come to terms with their debts, perhaps wage growth will slow somewhat too.

    Don’t expect them to be as competitive, (unless something changes, I can’t see them managing a net transfer spend without racking up more debt) but people are massively overstating the impact of a small decline in performance. The biggie, as we all know is CL qualification. Fall out of the CL for more than a season and then you can talk about significant falls in revenue.

  7. Rooney won’t go to Real, he’d just burn in the sun and he’s too thick to cope with another country anyway!

  8. i think i read last year that rooney has been learnign spanish for a long time. not to say that he’ll go to a spanish club, simply that i think he’d probably do better with the lingo at least than a certain david beckham who’s done pretty well for himself over the years :p

  9. Who is having a laugh ? Not in Chelsea for the moment I think. LOL.
    Sorry couldn’t resist.

  10. Really Walter I am deeply shocked. Just because those less fortunate than ourselves have a bad day it does not mean that we should make their lives more miserable.

    I am not at all sure that they can help it. The Soviet Union was always the home of disinformation and undoubtedly the coca cola in the ground contains numerous mind-bending drugs so that the supporters of the club once known as Chelsea are really not at all aware of what they are watching, or what sort of people they have in their club.

    No, I think mostly we should feel sorry for Chelsea, and we should put out our hands in warm friendship. To all Untold readers I would say, if you see a stray walking along the streets tonight, welcome him into your home, spray him down with insectiside, and give him some dog meat. He will be your friend for life, and you can rest assured that you have been humane and kind at this most difficult time.

    Actually I don’t think I feel very well.

  11. Abrahamovich has asked Putin to invade Khyrgistan and has requested he impound their entire GDP for the advancement of next year’s European campaign.

  12. Not sure the Red Knights will be using their own cash lets see…I smell bullsh*t

    I do think Man Utd, Chelsea and Man City have to spend serious large amounts of money to replace or improve their teams – Man Utd particularly need to spend big to replace Giggs and Scholes like £100 million+ and its not clear they got it! Not sure the new UEFA rules will allow it (at City and Chel)

    Also those faux Gooners who say we need to spend big and then we’ll win a trophy need to look at Berbatov £30m plus what £5m a year and he is just starting to play well – this proves that most improvement in players comes on the training ground (patience) and vindicates Arsenes’s policy as this is true then it is best to do it with players that cost £2-3m and cost £750k a year that way you can buy a few and build a squad…

    Also what better buys than Arshavin and Vermaelen and value for money too!

    I expect one purchase this summer – a keeper – just keep grinding it in and it will come good as we watch others fall away, exhausted financially (remember Leeds and Old Weary!).

    Anyway I reckon we’ll win something this season – Come On!!!

  13. Just checked outside Tony, not a dog on the street over here… And as I don’t have a dog, I’m out of dog food anyway.
    Oops, just remembered the father of the girlfriend of one of my sons (who was with us at the Villa game) is a Chelsea fan. He should have picked a decent team to support….

  14. Although I’d like to, I’m not writing L’pool off for a CL place this season. Because no one expects them to do anything other than implode the pressure is off them in a way. Besides, I’d like them to win next Sunday!!!!

  15. We can easily end up like the other clubs if the Russian guy or the American dude buys over Arsenal and load Arsenal with debts. I do not think Arsenal is immune to the dangers that the rest are facing unless a large portion of the club’s shares is handed over to the fans.

    No doubt we have a good stream of young players coming on and a stadium rapidly being paid for. However, there are definite concerns on how Kroenke is planning to fund his purchase of Arsenal. He might work the same shit that the rest are doing.

  16. Ah yes ,its a fine time to be an Arsenal fan -looking of moving on up while
    the rest are going downhill without brakes.Maybe from that wreck we could salvage a Torres or a J.Cole or even a Vidic.
    I just hope all those pundits who said that Arsenal would fall out of the top four have spouses who know how to administer the heimlich maneuver.
    In the meantime – all aboard the AW juggernaut.

  17. Hi Singapore…

    Arsenal is immune from such situations due to three facts..

    1) We have two owners so no one guy will be the sole master of the club.

    2) We already have a big debt so no one would give us debt easily on good terms especially if one plans to take it for buying shares.

    3) The biggest of all: No owner has a reason to take debts. We already have a stream of players coming from youth teams. We do not need a new stadium.

    Finally I would still want the fans to remain vigilant to avoid any problem.

  18. i said it before, utd are eligible to play under new uefa rules(i heard it somewhere and u guys can correct me) becoz they make a profit even if they are in debt adn we all know how corrupt uefa and fifa are….

  19. @abhishek
    i can’t understand ur points, i think if owner borrows money to buy club, club has to pay it that’s loading the club with debt…..then ur points are inconsequential…

  20. i think if owner borrows money to buy club, club has to pay it that’s loading the club with debt…..then ur points are inconsequential…


    Actually no.. If the owner has put the club as mortgage and brought the debt in the name of club only then the club is liable to pay (like Man U)..

    Since Arsenal has already got so much debt in its name, it is hard to get another debt this soon.. So its hard to load Arsenal with more debt.. In case of Arsenal the owner needs to puts in his money or take loan in his name which will keep Arsenal safe..

  21. Wether the dragons are hedge funds or not, their proposal is to buy the club to prevent it from being in the situation its in at the moment. They are made up of united fans who want to see their club continue. it would be a bit daft of them to expect 120 million quid a year out of their ‘investment’. it would leave them in a worse position than they are already in. their situation would become more like our own where several wealthy people own shares in the club. the value of these shares will increase if the team is successful and these shares will be able to be sold for profit.

    as for kroenke and usmanov, i believe that kroenke is working with the board as a foil to counter usmanov. seeing as how the bank(s) that hold our mortgage hold the first charge against our assets, it doesnt make us a good case for a leveraged buy out. who is going to lend millions and not have the first charge as security? especially in this market.

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