By Tony Attwood
Two stories at once – this one, and the fact that Arsenal Ladies won the league yesterday (Sunday). I’ll come back to the triumph of Arsenal Ladies in the next piece. First…
Liverpool’s finances look awful – more awful than before. But I don’t think that that is the whole story. Give me a second, and I’ll try and explain.
When it became clear that the finances of Liverpool FC were a perfect example of a basket case inside a basket case, the Spirit of Shankly group of supporters, wrote to RBS asking them not to support the club with finances any further. The idea was to force the owners to sell.
The bank rejected the plan, and took the most unusual of steps of writing to anyone interested explaining why they were still supporting the club. They spoke of it being a going concern, with good prospects, or something like that.
What they didn’t quite spell out was that they (the bank) were indeed supporting the club by continuing the overdraft and loan facilities, but they were laying down a very strict timetable for repayment.
There was also the clear implication that the club needed to get itself sorted financially, and should move back into profit pretty quickly, if they wanted to retain a working relationship with RBS.
Unfortunately, despite having some success in 2008/9 (at least a damn site more than 2009/10) Liverpool made a loss of £55m – their worst ever performance. Which suggests that in a year’s time when we see the 2009/10 figures, there is going to be a lot of stuff hitting a lot of fans. (That’s rotating fans used for air cooling, you understand, not the other kind).
So, £350m in debt and interest payments of £40m per year.
So that’s point one – a reasonably good year on the pitch, but record losses, and an edgy bank.
Now, point two. The accounts suggest that Liverpool FC had to pay the banks £250m owed on 24 January 2010, but they failed to do so. Serious stuff. Then a second date was set: 3rd March, and it looks like they failed to make the payment again.
Then, to keep the bank peaceful Hicks and Gillett appointed a chairman with the explicit task of flogging off the assets. In return RBS agreed to continue the loan, of £237m until a sale is achieved. The bank seems to be ok with this providing the sale is within a few months.
It is because of all this that KPMG the auditor, said that the club is now “dependent on short-term facility extensions”. They also said, “This fact indicates the existence of a material uncertainty which may cast significant doubt upon their ability to continue as a going concern.”
If you have not seen that before (and I know this is UNTOLD Arsenal and so I should be covering stuff that isn’t anywhere else, but this bit is an exception – others have written about it) you might like to try it again.
“This fact indicates the existence of a material uncertainty which may cast significant doubt upon their ability to continue as a going concern.”
Now I know lots of people think that I like to overplay the disaster stuff, and that EPL clubs are safe, and it will all be ok in the end, but this is the auditor of Liverpool talking.
So far then, point one, they made a record loss in a year when they ought to have been making a profit. And point two, they have defaulted on their bank repayments, and are living on the short-term goodwill of the bank.
Point three is that the EPL has taken an interest in the club. So much so that they formally asked Liverpool to state that they were not about to go bust, and could continue into 2010/11. That was a bit silly, since you would hardly expect a business that is up for sale might suggest that it can’t continue trading. But anyway Liverpool said they were fine.
They didn’t talk about the stadium, work on which was supposed to start in March 2007. Nor the fact that they now don’t have a penny for the project.
And this is where it gets really interesting. It is Point Four.
2009/10 was a fairly grotty year for Liverpool. They have slipped from 2nd in the league to 7th (I think), and dropped out of the Champs league early, as opposed to the quarter finals the year before. Which means less match income, less money from TV, and so on. Next season will be even worse.
And this brings me to the key point.
Richard Scudamore is the EPL’s chief executive – the man who is leading the fight with Platini, over the financial rules which will soon govern Champions League football.
Scudamore rejects the notion that all clubs in the Champs League should, like Arsenal, be making a profit. Instead he wants sustainability. Here’s his example: “if you can prove beyond reasonable doubt that what you’re doing is sustainable it should be allowed. If Mr Fayed wants to take X millions of profit from his business and invest that over time I don’t hear any commentators around the game say that what Fulham are doing this season is wrong, or what he’s done over the last 10 years is wrong. But he might fall foul of the current Uefa proposals. It’s the blunt break-even concept versus the sustainability….
“Ultimately the clubs run themselves and we can only take them so far.”
An unfortunate example, given that Mr Fayed has put Fulham up for sale, but think of Liverpool for a moment. Scudamore’s definition of “sustainable football” would give no comfort to Liverpool. Even if Scudamore were to convince Platini, the Liverpool would still not be allowed into the Champions League.
Put together it looks like this…
- The club is living day to day, and must find a new owner quickly who can pay off the debts.
- But the current owners will want more than a takeover – they want profit too.
- The situation at Liverpool is on a knife edge, and it is getting worse because of this year’s comparative failings.
- The EPL is not even trying to defend Liverpool’s position as it argues with Uefa.
Of course a very rich person might come in and for reasons that might not be very apparent at the moment, pay off the existing owners, pay off the debt, and pump lots of cash into the club. But, there’s just one other issue.
There is a rather nasty rumour doing the rounds about the personal life of one player. I am absolutely not going to mention it, because I have no evidence about its truth, and if it is untrue it is a typical media approach to blackening someone’s name just for the hell of it. I hate it when they do it to Arsenal, and I am not going to support it just because it is Liverpool.
But, the fact is that if someone were about to throw £500m at the club, they might pause for a moment, to see where this story goes, and unfortunately that pause might be a bit too much.
Tony,
Good article.
But is the demise of Liverpool the one reason that we finished higher this year?
And to be picky – did you mean in para 7 “a damn sight”? Or does a damn site refer to Legrove?
I have a bottle of La Grande Dame laid away for when Liverpool go into administration. I feel no pity whatsoever for them. All the clubs with massive debts have outbid us for players at one time or other and have contributed to inflating the market and acceptable wage levels.
As you sow shall you reap.
Manchester IOU next after Liverpool and then we can see how long the russian love affair lasts at Chelsea with a new financial fairplay regime.
The future is bright and red & white.
Thats exactly what happens when you live beyond your means. That applies to real life, as well as football. A lesson to all.
Thanks for an interesting story as usual. It makes me feel really happy to know that we are not in the same situation.
@Terence McG: I thoroughly agree with you. These ‘teams’ have cheated as far as I am concerned, and for too long. It is not a level playing field when some teams are allowed huge financial advantages. All should be equal and live within their means, not beyond their means.
I would not miss any such club that goes under financially, especially if it were a team from the northwest, or just up the road even!
Can’t wait until a big club goes bust although I’d rather is was not Liverpool. Even after Portsmouth the penny hasn’t dropped, the ‘spend big’ oafs are still out in force. The government might have bailed out the banks but I can’t see the same happening with football clubs. Arsenal is for life, not just 1 trophy.
I seem to remember similar things that are being said by Scudamore being said about the banks a couple of years ago. The one good thing about the current financial state of the country is that the government, no matter what the political leanings can’t afford to bail out Liverpool.
But the club with the biggest debts in the EPL Trash.United is permitted to trade in new players etc.How,s that possible with such mounting debt repayments?
Great article Tony, couldn’t agree more.
I wonder how long the RBS goodwill will act, particularly with RBS being government owned and that government about to cut it’s deficit. Could we see the stake in RBS sold on the markets? Would private investors be happy to be propping up LFC?
Interesting times ahead.
Tony
I think, although I’m not 100% certain, that the actual football club makes a healthy operating profit.
The problem is Kop Holdings, which is the shell that Tom and Jerry created to do the LBO, which of course contains all the loans and associated interest payments.
Clearly, there isn’t any income coming into Kop Holdings as all the football club income goes into the subsidiary, so the loss is in effect the interest plus principal repayments on the loan. Which means that that ‘company’ will make a loss each year. Until the debt is paid down.
What I guess things depend on is equity injections from the owners and inter-company transfers from the football club to Kop Holdings, which I guess Rafa wouldn’t be too pleased about!
In the spirit of ‘passionate fans’ switching their passions from owning one club to another one and in the light of history reducing the Egyptian’s ties to London, you think Al Fayed would sell Fulham this summer and buy LFC with his £900m loose change he’s apparently got after paying off his Harrods’ loan??
I guess you might need to ask him what capital gains tax he needs to pay on his Harrods’ money before you work out whether he has the wherewithal to buy out Tom and Jerry, put a downpayment on the stadium and open a new shop to entice Cherie to come home and spend Tony’s illicitly gained millions, as well as Wayne ‘supporting his local economy’ in his ‘new Harrods’ not to mention goading Sir Alex to ‘come help knock the Trafford Centre off its effin’ perch’?
Err……suspect Wayne would only play ball if he bought EFC instead.
Still, there’s Arabs about with money you know…..
Whichever way you look at it, it is still £50m per year being taken out of Liverpool and going straight to the owners (albeit to pay off the loans they took out to buy the club). To Liverpool fans that’s money that should be used to strengthen the squad and improve the club each year, thats being robbed from them. I’m sure ManIOU fans feel exactly the same with the money going out the club to the Glazers for the same thing. I do feel genuine sympathy for the fans of Liverpool (even more so than the Mancs) because they are a passionate lot who really love their club and never asked for this to happen. I’ve been at Anfield when they sing “never walk alone” and its a truly wonderful sight and sound, whether you like Liverpool or not. It’s what makes Football in this country the best in the world.
IMO the ultimate problems lie with the capitalist systems in place that allow this type of ownership to be possible. It is at these systems that we should direct our protests, and the individuals (Glazers, Hicks etc as well as many in the corporate world) that take advantage of them for their own personal gains. I think we also need to look at separating sport, especially football, from business in the long term. Yes, it is wise that clubs should balance their books, but football clubs are not businesses in the way BHS, M&S, Sainsburys are etc and it is this corporisation of Football clubs that is also the issue. They shouldn’t be run for profit for the benefit of a few owners or shareholders, and all profits should go back to the clubs to spend each year. I think we need to get back to clubs being clubs again in the traditional sense.
Rhys I think you are right – one bit of Liverpool makes money – but in common with many clubs (Tottenham is another example) the money is spread around in different companies to confuse us all.
I think Mr Fayed owns Harrods through a Virgin Isles company, and that probably answers the tax questions.
Because Samuel, Man U has a schedule of repayment that is being stuck to for the moment. Liverpool’s owners took the money from the bank that was intended for the new stadium, and used it as part of the buyout, I believe. That is why RBS wants out – but obviously only in a way that actually gets them their money back.
AaronGsi, I think it has more to do with people who want to do things not in favour of the club/company they own but see to their own personal benefits. But I’m affraid this is down to human nature. Or the dark side of human beings. And I think it is fair to say we all have our dark side or things when we don’t behave in the way we should. Let him who is without a sin throw the first rock?
How can you stop such persons? By making strict rules I think that can prevent such things. But it will mean that less money will go around in football and this is bad for the people who run football (FA, UEFA, FIFA) so I don’t think they will shoot in their own foot.
The crazy thing about finance in football is that the more money you put into football the more it needs. This is why I struggle to understand why people see football clubs as a good investment. ManU are / were a money making machine but once you talk the interest repayments on the capital needed to buy the club out of the profits there is not enough money to give the investors a return and provide the funds in transfer fees & wages to keep ManU at the top of the table. Once you slip from the CL places you are in a vicious circle. Less income means poorer players means finishing lower and so on. All the time the interest payments still have to be paid until the capital is paid off. As I understand ManU have not even started to repay the capital. Does anyone know better?
Rhys,
Regardless of the ownership structure, even if you are correct and LFC itself is in profit I highly doubt the profit will cover the loss of the parent company on the interest bill, hence any profit will be taken to pay down the debt.
No money for transfers (unless they’re bought via loans) without player sales. Bye bye Torres.
Liverpool as a club made an operating loss before tax of £16 million, down from a £10.2 million profit the previous year.
That resulted in the group making a loss before tax of £54.9 million, an increase of £14 million from 2008, which in turn contributed to Kop Holdings’ debt rising from £299.8 million in 2008 to £351.4 million last year.
Former chief executive Rick Parry received a £4.295 million pay-off when he left last summer.
– as reported on soccernet.
It is an open secret that the next British government, whichever form it takes, is intent on implementing austerity measures. Like it or not, these policies are recessionary in nature. Those companies teetering on a knife’s edge will inevitably bite the dust. What a bright and wonderful future for Liverpool.
Catastrophic management of club, of what is effectively a national asset, part of our national game.
I used to love this club when I was a kid, Brian Hall, Stevie Heighway, Tommy Smith, and all their achievements were massive.
No matter how partisan for our own team we might be, I think everyone recognises Liverpool’s superb history.
Assuming the club goes into administration, how could it be remade?
Could the local lads such as Carra and Gerrard step in and fund an AFC Wimbledon-type venture?
Will the ground be sold to pay off debt? The city of Liverpool has already had a debt-fuelled building boom, what appetite is left for that, now we are bouncing around in the foothills of global debt deflation?
Really, the EPL a disaster, Scudamore is a berk. All the foreign mercenaries will slink off into the sunset, and the people who supported them will be left wonder, “What just happened?”
But Torres I expect to be the 1st £100m player after he wins Spain this year’s World Cup. He’ll probably end up at FC Barcelona. Adios, Fernando.
There’s 2 sides to this, because if a team like Liverpool go…it could have a detrimental effect on the league’s viewership.
Many of the asian and european based Premier League viewers, are Liverpool fans due to their history of European success…infact along with Man Utd, they share the majority of followers in the league.
This would surely affect the value when it comes to TV contracts, and inturn affect us?