Suddenly the rest of the footballing world catches up on what we’ve been talking about for two seasons. Big clubs are getting into big financial trouble.
I speak of none other than Liverpool Insolvency – named thus in this blog about a year back because we started to talk about a day when, amazingly, Liverpool might not be able to borrow enough money to keep going.
In fact it isn’t quite like that yet – because rather than close Liverpool by refusing any finance, RBS has said that they will only continue the £350m loan to the club if Tom Hicks and George Gillett guarantee it.
Now we might think, oh well, they are being let off the hook then, but I think there might, just might, be a twist in the tale.
Guaranteeing your borrowing to the bank is what most business owners do when they first start – in effect they put their houses on the line. And we might assume that this is not too much of a problem for the Red Madmen who run the crazy show. After all their houses are probably quite big. But, consider this…
These two guys didn’t use any of their own money to buy Liverpool – they bought it with borrowed money and then paid that money back by putting the debt into Liverpool. As with Manchester IOU the club was bought by itself – although the ownership ends up elsewhere.
If these were men who wanted to put their own money into the show they wouldn’t have done that.
Second, earlier this year Hicks Sports Group defaulted on debts of $525m, in relation to the Dallas Stars ice hockey team and Texas Rangers baseball team. Hicks failed to pay up on a $10m quarterly interest payment.
So we might look at what Hicks said at that point. He said it was a positive decision to miss the payment as “a negotiating tactic” with his bank.
That is curious in the extreme. If you want to force your bank to lend you more money, not paying interest and then openly telling them it is a “negotiating tactic” is a very odd process indeed. Negotiating tactics (at least in my experience) only work when the other side doesn’t know if it is a tactic or not (or put another way – are you for real or are you bluffing?)
I can’t see any explanation other than the fact that the owners of Liverpool are in deep trouble, and that their tactic of selling the club to the Arabs or Russians has backfired. Potential buyers know the club is on the edge of collapse, and so are holding back for when the price drops to virtually zero.
The auditors of the club’s finances said there is “significant doubt” about their ability to keep going if they can’t refinance the loan next month. Which means that Kop Football (Holdings) Limited, would have to sell Liverpool at any price it can get with the deal that the new owners will have to refinance the debt.
So what would you get for your money?
1. A club that can’t win the EPL.
2. A holding company that lost £42.6m loss last year.
3. The need to borrow £350m instantly just to keep going.
4. An expectation from the fans that you would put other money in to buy players
5. An expectation that you would put another £350m in to build a new stadium.
Of course apologists of the club point to the fact that the FC made £10.2m (compared with £36.5m by Arsenal). But here’s the big difference. Arsenal’s £36.5m came after all the debts (ie the mortgage on the ground) were paid. Liverpool’s £10.2m was immediately removed by the owners to pay the £42.6m losses from their holding company.
Put another way if you want to see Liverpool’s true position in comparison with Arsenal you take the £42m loss and the £10m operating profit, and that gives you an overall loss of £32m Overall Liverpool are £32m worse off than last year, and the banks don’t want to refinance the debt, and the owners can’t or won’t put in their own guarantees to cover the debt. Arsenal are £36.5m better off than they were a year back.
So when KPMG says the situation, “may cast significant doubt on the group’s and parent company’s ability to continue as a going concern” they are dead right.
Of course Arsenal have debts – £416m in fact. But the difference is this is guaranteed by three valuable pieces of real estate (Highbury, the industrial premises around the Ems and the Ems itself) and when the downturn ends Highbury and the business properties will be fully sold off. The Liverpool debt is not based on anything so real. In fact, they were supposed to be building a new stadium – given that there is doubt about their ability to continue as a club, that seems unlikely.
Here’s some more fun…
The Liverpool accounts for 2008 just released were late – something which is an offence and for which the club will be fined by Revenue and Customs. Do it too often and the tax men get very excited.
Why would you be late with your accounts? Incompetence? Fear? Desperation that something will turn up? Or maybe like Billy Bunter, you are expecting a postal order. I suspect the last of these.
And another bit: That huge loss made by the club was due to… £36.5m in interest repayments. So no player purchases, none of that developmental stuff. Just paying the money lenders – exactly like their friends in Very Old Trafford.
Here’s the formal statement from KPMG
“The group has credit facilities amounting to £350m which expire on 24 July 2009. The directors have initiated negotiations to secure the replacement finance required … and these negotiations are ongoing. These conditions … indicate the existence of a material uncertainty which may cast significant doubt on the group’s and parent company’s ability to continue as a going concern.”
One instant outcome of this was that Liverpool Insolvency offered £12m for G Barry from Aston “Hold your head” Villa payable over five years. Now in footballing terms £12m isn’t that much. But the only way Liverpool could even try and sort out the money was over five years!
Most football transfers are paid over time – but five years is quite a lot for £12m. And it seems that Villa said no because Manchester Arab said they’d pay up front, and Villa seriously doubted if Liverpool would still be with us in five years in order to pay the money.
Compare that with Arsenal. We don’t buy so many players as Liverpool but when one is wanted (Arshavin for example) the money is there.
If the Liverpool Madmen can sell enough assets around the world they might be able to guarantee the debt, but if so the only way out for them remains the sale of the club and its debts.
In the meanwhile, and based on the Barrry saga, there is no chance at all of Liverpool I. buying any players without selling people first. There are some who say that Arsenal are not rich – but we are not as poor as Liverpool.
If the Arabs and Russians just don’t think its worth the bother, and prefer camel racing, then Liverpool really will be insolvent.
Last point: there is a little bit of talk in the undergrowth that no one wants to buy Newcastle, and rather than risk another £300m of losses in the Championship, the owner (who was warned about his behaviour at the Ems on his last visit) is going to put the club into Administration. Just a rumour – but you never know.
(c) Tony Attwood 2009
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