Breaking the Back of our Club?

Posted: June 6, 2010 by mcdonaldtaf in Business, Finance, Manager Talk
Tags: , , , , , , ,

Many will tell you how important the spine of a side is. Indeed without so many injuries, last season may have been all together different for Liverpool Football Club. Reina, Carragher, Mascherano, Gerrard and Torres represent a formidable spine, with the last three representing the major value of the playing squad.

Off the pitch Liverpool Football Club, in the financial year ending July 2009, made a loss of £14m. Now yes there were exceptional costs for offloading Parry and co. but the year also represented increased revenues from finishing second in the league and playing champions league football. In fact the club accounts state “A large part of the [turnover] increase is due to the higher broadcasting income as a result of the club challenging for the premier league title at the end of the 08/09 season.”

So what does that mean to the club moving forwards? Well we can expect to see those revenues, which were given a boost in 08/09, significantly reduced in 09/10; and with no champions league football, impacted upon further in the upcoming season.

Many will point to our Standard Chartered deal as a source of salvation, but are we really expected to believe they’ll be paying the same amount while we’re not competing in the champions league? Add to this the increasing unhappiness from the fan base, with many now boycotting merchandise, and you have to worry about the future.

But we have plenty of reserves right? Well the net assets (the total amount of what the club owns minus what they owe) has depleted over recent years. Think of net assets as the reserves (the wiggle room) and while they were, just a few years ago, in excess of £40m they are now down to £14m. That is £14m ‘underpinned’ by including over £40m of stadium costs in the assets. A stadium which is yet to see the foundations laid for, with no sight of progress being made.  In fact if the club posts results in 09/10 any worse than in 08/09 the club will be, in all likelihood, technically insolvent (they will owe out more than they have). If the club decides it cannot continue with the stadium, for whatever reason, I believe those stadium costs would have to be removed – resulting in more serious insolvency.

Making a loss in 09/10 may not happen though. We already know that the sale of Alonso, Dossena and Voronin will generate a profit of £17.1m within the 09/10 year. But therein lies the problem. With no champions league football and a more competitive premier league the chances of significantly increasing revenues, other than from player sales, could be severely hampered. Without new financial capital coming into the club (shareholder investment) the upcoming season represents one when insolvency potentially looms – unless they cash in on the playing assets of the club.

In the meeting between Richard Scudamore of the Premier League and Spirit of Shankly, when challenged about the club’s interest payments burden, Richard advised that “the Club did have other options to service its interest payments before more serious difficulties occurred.” Spirit of Shankly took this to mean ” In the Union’s view this was effectively the liquidation of playing assets.” It’s hard to argue with that assessment in my opinion.

So while the club’s net assets are underpinned by ‘stadium development costs’ the entire club’s financial well-being appears to be underpinned by the quality of the playing squad. Particularly in relation to its star players – Torres, Gerrard and Mascherano are feasibly worth anywhere between £100m – £150m.

The signs are there. Since when has any manager of Liverpool Football Club been sacked after one bad season? Never mind a Manager who took the club so close to the title and delivered a Champions League and F.A. Cup. I suspect the truth is that Rafa wasn’t only not getting any new money to spend. He was also faced with losing one or more of the club’s prized assets to balance the books. What we know of Rafa no doubt made him a liability in the board’s eyes. If he was to lose one of his star players I think we may have seen some new ‘facts’ coming out. So the man who created or improved the prized assets and has regularly returned a profit on players has to leave. Can anyone think of another available manager who has made such an impact to a club’s finances through player trading? No, me neither.

I recently had the opportunity to write a thank you note to Rafa, which I am assured he will get. While I thanked him for what he’d done to the club generally, I was remiss in not thanking him for leaving us with the ability to keep our club financially secure. It is Rafa’s development of players, his ideas, diligence and stubbornness (a trait he is all too often maligned for) which will stop our club becoming the next Leeds, Southampton or Portsmouth… for now. If the club is forced to sell its star players over the coming years who will develop the next ones? Not only to keep us competitive on the pitch but financially secure off it. This may not be the end but it could certainly be the beginning of it.

Realistically the club needs to cut its costs and we all know the players’ wage bill represents a major outlay for all football clubs. At the same time the club cannot afford to make any major losses. To do so could leave it open to becoming insolvent, having run out of ‘wiggle room’. Facing decreasing revenues from it’s main sources of income (matchday, media and commercial) it will have no where else to go other than its player trading account. One way or the other the books must be balanced!

Of course we’ll be told that players want champions league football and the club was left with little choice but to let them go. As usual our club will try and spin rather than admit the club is in a financially perilous state. Maybe everything is rosy and we’ll start next season with our spine in tact. Maybe…. or maybe we’ll sell one or two of our star players, reinvest half (if we’re lucky) and return a profit. After all the hard work done to get where we are and because of a lack of commitment or compassion from the owners, I fear this could be the beginning of a long downward slope.

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Comments
  1. Sam Wanjere says:

    McDonald, you’ve captured a conversational minefield with utmost accuracy and brevity. Kudos.

    [While worrying in the background] I marvel that the media is now “catching up” on Rafa’s strengths, which include his maligned stubbornness, rotation policy and tactics. That notwithstanding, the situation we find ourselves in, needless to say, is dire. We’re now more alike Leeds or Parma than we are any of the so-called big four. It is shocking and anti-Liverpool Way to have sacked Rafa the way he was. Not even Houllier, whose own tenure was more or less over to us fans, had to go thus.

    While we can’t cry over spilt milk where do we go from here? Boycotting merchandise will hurt the club a lot and lose goodwill. I feel that there isn’t any easy way to go round that. The fans are hurt and genuinely feel betrayed. Who can blame them? Will sale of match tickets follow? Who knows. There’s a point to be asked about whether StanChart will keep paying up when the club is going through extended periods of mediocrity, coupled with lack of top level continental football that represents the best return for money.

    Yet through all this those two bozos hold on to end up selling this club at a valuation only they know! For anyone else’s info, I think I saw some report reading Malcolm Glazer has defaulted or is in arrears in 24 of 25 mortgages he’s (or his companies) taken! Debt is a reality that threatens to kill the English game.

    I won’t even go to the managerless situation this club finds itself in. It is that maligned Spanish legend that kept us going, whether by generating funds from player sales, taking us to the UEFA CL lucrative knockout stages or just continuing to generate interest in this mighty institution.

    From a long-suffering fan’s point of view, unfortunately, even with a new manager, whoever that may be, we will see player departures, lowering of our wage bill, inability to attract world class talent in the short run (except people like Jovanovic who actually want to play at Anfield), and any other thing that prevents us from nearing winning the league.

    All in all, it’s a well done and painfully accurate article.

  2. redlee6963 says:

    spot on mate we are indeed on the slippery slope,shame rafa haters didnt see the bigger picture.i fear for our future as a club whilst the two clowns remain in charge to me i cant see anyone coming to rescue our club whilst the asking price remains so high! theres not that many football loving owners who would part with excess of 800 million pounds,i foresee the iminent ddepartures of masch & torres for starters just to balence the books ie ronaldo to madrid as wot happened last year to the mancs with only approx 12million spent on valencia and obertan,we will also endup with a cheap manager who will have a clause in the contract not to discuss boardroom politics,thus consigning us to also rans for the title and fighting for europa league status ie everton villa we shall fall behind man city who will then take our place as top 4 contender,sad times indeed,rafa going has damaged our one last hope of defying the boardroom and our link to wot is going on,i would also like to thank rafa for the last 5 years for making me feel like i did in the glorious 80s times i thought i would never see again. keep up the good work thanks

  3. […] finally here is an excellent read from Taf McDonald more… (Couldn’t have said it better, […]

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