Future Ownership of Liverpool Football Club

Posted: January 19, 2010 by mcdonaldtaf in Business, Finance
Tags: , , , , , , , , , ,

Let us skip past the Hicks and Gillett part of this post shall we? By now you should either sign up to the idea that the owners lied, filled their pockets with gold, piled us into debt for no reason while making our club a laughing-stock, or,  just be tired of the continual drone of news stories, protests and blog posts. Either way there is a very compelling argument to say that our owners, for the mistakes they have made, should put the ‘for sale’ sign up, take what they can and leave the Anfield area (not that they will without financial inducement). Allowing our club to move on to pastures new, but would pastures new bring a short respite or a long-term solution?

As mentioned in the past it is a tall order (if not an impossible one) for any new owner to come in and keep everyone happy. Once any finance issues are dealt with the demands quickly return to driving on the pitch success – requiring transfer funds. Fund transfers with loan finance and you end up back with people complaining about debts. Fund it from your own pocket and fans get worried about being reliant on one ‘sugar daddy’ individual. You need look no further than Old Trafford to see how true this is. Despite their recent success on the pitch (providing some respite from fan protests) the sale of Ronaldo, without a like for like replacement, and their recent bond issue has quickly brought the fan’s focus back to the club’s finances.

I have argued in the past that debts are a natural part of company growth and I stand by that argument. But with debts, from leveraged buy outs, being disproportionate to the club’s income and profitability, while success on the pitch (itself driven in part by luck) determines, to a large extent, revenues it is no wonder that banks are clamping down on football clubs. That’s not to say that banks have closed the ‘doors to debt’  but they will certainly now be looking for more security.

So what is the right type of ownership model for Liverpool Football Club? Part of my dissertation for my MSc will focus on club ownership and therefore I have been getting more and more involved in this element of football. We are in the midst of a great sea change within football. Where a club’s community roots are pulled away by the practises of business. A business’s purpose is to create or add value so it may then be sold for a return, quite at odds with what was historically the raison d’etre for football clubs. The increased value representing the profit and thus benefit for the owners with yearly losses, subject to having enough capital in the interim, not really considered of great detriment (Nor keeping all of your stakeholders happy, especially those who are inextricably linked to the business anyway).

There’s little point going back to the now clear dangers of the DIC deal (which I have covered before). Instead you may remember that the Kraft family were in talks with David Moores to buy the club at one stage. The same Kraft family who appear to now be on the verge of buying Cadburys. So would we have been any better off had Moores sold to the Kraft family? Well in all likelihood, no. Take a look at some of these quotes from the Kraft family today and tell me if they sound familiar.

  • “We have great respect for Cadbury’s brands, heritage and people.”
  • “[we] will now work with the Kraft Foods’ management to ensure the continued success and growth of the business”

Excluding any mention of Snoogy Doogy it sounds all too familiar to the rhetoric used by Hicks and Gillett, doesn’t it? I often wonder if there is a book of standard ‘must says’ at times of takeover. When it comes down to it respect will soon fly out of the window in pursuit of increasing value.

Then, guess what? People are already worrying about the level of debts Kraft will take on as part of this takeover. Yes, it’s a leveraged buy out. But we’re not talking about £200m or even £300m in this case, Kraft will be borrowing £7bn to effect the takeover! Now don’t read and interpret this post as me telling you ‘thanks god for Hicks and Gillett’, but instead as a way of indicating that football is becoming more and more business like, and, less and less community or fan driven by the day. We are losing our football clubs and if you’re depressed now I’m afraid I haven’t finished yet.

I’ve been giving serious consideration to, and conducting research on, fan ownership over the past few weeks. I have concerns over this method of ownership but my research to date would indicate that the model works very well at Barcelona. It is also lauded by some as a possible ‘perfect ownership’ model for football clubs. Subject to the right structures being in place it would appear that fan ownership can work, although I am still concerned about the political nature of renewing club presidents etc.

Good news then, a perfect ownership model exists? Well for us – no, not really and here’s why. Christian Purslow tells us we’re on the verge of investment into the club from other sources. That investment will go to pay off a large part of our debts, which then (ironically) allows us to borrow more. Work on the new stadium will then commence . We have already seen record-breaking sponsorship deals being signed and it’s expected that the naming rights to the new stadium could fetch in excess of £200m. So if the investment comes to fruition this will spark a chain of events which will see us with a new stadium, larger match day revenues and increased commercial revenues. All of which will drive up profits. For all those who cry about them never seeing a ‘spade in the ground’, believe me – you will – but you probably don’t want to. Because this is the only way to create significant value within the business

As everything takes shape the club will do what its investors want it to do in creating value. This is what businesses and investors are for. In fact it will create so much value that, just in the way my Mum put the sweets on the top shelf, fan ownership will also be out of reach.

Share Liverpool are looking to raise £250m for a 60% stake in the club, valuing it at £417m. It is however safe to expect the club to be worth double that in 2-3 years should the owners’ plans work out (Arsenal are currently valued at £800m and Manchester United £1bn). I assume Share Liverpool’s figure of £250m is set at a level they believe can realistically be raised. Even if you double it, they would still feasibly be short by £300m in 2 – 3 years time. It is exactly the same in Manchester. How can the fans put together the money required to buy the club when an Abu Dhabi consortium is looking at paying £1.2bn for it? As value is created within the football clubs they move further and further away from the ‘perfect ownership’ model.

So as fans we are left with the unpalatable realisation that we either come second to the requirement of creating value within the business, or, we wait for our football club to implode and fall to a value where we can achieve fan ownership. In our case I guess maybe Hicks and Gillett could develop a conscience and sell out to Share Liverpool for £250m… pigs… flying… where?

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Comments
  1. Brian Fitzpatrick says:

    Hi,

    I have found this article very interesting and a good place to start for my dissertation. The area of this been ownership issues at Liverpool FC and how the debt pilesd on Liverpool has affected our performnce. Hicks and Gillete purchased the club as a quick money making scam and this is wrong in my eyes. They had no interest on our club. I see you did a masters disseration on it, any information in terms of finance of the club and the ownership issues will be appreciated.

    Also anyone else who wants to comment on the state of our club because of the greed of the American owners to make money with no interest in football performance and how this debt piled on our club has seem to send our club into a downward spiral in performance and results.

    Thanks,

    Brian

  2. mcdonaldtaf says:

    Hi Brian, you may want to check out my latest post which includes a full copy of my own dissertation.

    Thanks for the comment.

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