Nothing Proven Yet – A Cautionary Note

Posted: February 16, 2011 by mcdonaldtaf in Business, Finance, Liverpool FC
Tags: , , , , , , ,

As I classed Andy Carroll as the marmite footballer, it would appear my last post was a marmite post. I believe it fell down 50/50 between those who agreed with what I was saying, and others who felt I was being overly negative. The most astounding responses I received though (on twitter mainly) were from people who were just happy we were ‘spending money again’. It would appear that to some, any climbing up the league table is secondary to ‘keeping up with the Joneses’. I find this mentality of ‘potentially wasting money being ok, as long as we’re spending it’ quite baffling to be honest.

I understand some of the logic behind it. Following the years of the ‘sell to buy’ and then ‘sell to survive’ policies of Hicks and Gillett it was indeed good to see the money coming in being used on the squad, and not interest payments. I was merely questioning the way in which the money was being used on a largely unproven striker. I also pointed out that I could well be proved wrong, but at this moment in time I do not see where the value is coming from. Andy Carroll was a risk and with risk comes the potential for reward or loss. Which way it falls is anyone’s guess at this moment in time.

In much the same way as Carroll needs to prove which way it will go, FSG find themselves in the same boat – with the same advantages from some. Some heralded the spending of £58m in a single transfer window as proof of a new successful era under FSG. Where they were putting up the money for success – putting their money where their mouth was if you like. Now before I continue let me say that I have the utmost respect for FSG and I also DO believe they are the genuine deal. However, nothing has been proven yet and as such I remain cautiously optimistic.

In good hands?

Yes we did spend £58m in a single window, but in the same window we re-couped at least £56m. So the absolute maximum amount of money invested was £2m. Invested has to be the key word here. To gain Suarez and Carroll we ‘traded’ Torres and Babel and ‘invested’ £2m. I’m unsure how anyone is now arriving at the conclusion that FSG are the ‘real deal’ based on our transfer dealings. During the first Winter transfer window under Hicks and Gillett, including the late acquisition of Mascherano, we ‘invested’ £25.1m and ‘traded’ no one.

Now of course some of you may have just shouted at your monitor that ‘RBS invested that money’ and you’d be quite right to do so. But some are taking FSG’s word as gospel, in much the same way as they may have done with Hicks and Gillett. None of us outside of the club and it’s financial stakeholders are aware of how the finances of the club are made up. We know what we have been told, but until the first year’s accounts (and possibly the second year’s accounts) are published nothing is proven.

Then there is the stadium, which thankfully has not had any mention of a shovel associated to it. But while Christian Purslow’s words were effectively written off as the sour grapes of an ex CEO, put it together with Martin Broughton’s removal of the new stadium clause for FSG and some quiet alarm bells should be going off. At this moment in time I genuinely believe that a new stadium is simply not on the cards. There are several factors behind that, but most notably I do not believe FSG have the financial resource to fund it. They could possibly borrow to facilitate a new stadium, but they will then face the same problems Hicks and Gillett did. Namely that lending institutions are still reluctant to lend and that they may find themselves shouting against (and being drowned out by) a powerful fan voice, from a fan base which has already been stung once.

Hicks and Gillett may be gone but the problems they had remain. If FSG don’t have access to hundreds of millions of pounds, how do they fund player investment and invest in new infrastructure, while driving the commercial elements of the business forward? Especially when any sudden increase in debts would be, at the very least, frowned upon by the very people they are trying to engender themselves to.

In a nutshell I suspect these are the very real problems John Henry discussed in his early press conferences. They haven’t gone away and aren’t about to. There is little doubting that a Liverpool Football Club competing on the pitch, delivering success with a filled 75,000 stadium will return them to the top of Domestic and European football. A true powerhouse which will deliver significant value to FSG. How much value? Well consider United and Arsenal with their valuations ranging from £800m to £1.2bn. The problem remains though, how do they get there?

For me I am hopeful of a bright future under FSG. They have certainly made great strides forward in other areas voiced by fans. However I am realistic enough to realise that while things have improved at the club – FSG’s words on financial matters remain just that, words. We are yet to see any substance being delivered. In the meantime. Nothing is proven. We haven’t seen Andy Carroll play in a red shirt and we are yet to see FSG prove their intentions are both honourable and on the right course for our great club. Until they do, perhaps others should maybe take a step back – remember the ‘for everything else there’s Tom and George’ banners? Whatever happened to once bitten, twice shy? As such a pragmatic soul and having seemingly understood what this club means to us, I suspect that John Henry actually expects nothing less from us.

  1. ollie says:

    its hard to disagree with you there Taf. my brother and i chatted about the Carroll transfer the day after and he was impressed with FSG and delighted we spent 50+ million. it wasn’t until i pointed out that we spent around 3 million that he started to reevaluate.

    In FSG’s defense they did say many times that they didn’t see the winter transfer window as a good time to buy because of inflated prices. Also the Torres saga only came about maybe 12 days before the deadline and they showed there business acumen by getting 50m for a player in my opinion in decline. had we only sold babel and brought in saurez then they could certainly be heralded as big spenders.

    Dalglish did mention that they had wanted to sign more players most notably Adam and very late on Young.

    The summer will be the time to judge them and its likely to be very busy. we must have a dozen or so players that need to shipped out and replaced.

    so far i like FSG, they seem genuine and have a good background but i wont be making any banners about them yet.

    • mcdonaldtaf says:

      I agree Ollie, summer will provide the first opportunity for FSG to really show some commitment (from a financial perspective). Although we may have news before the stadium before that as well. As I say though I’m expecting a re-development of Anfield.

  2. Ed Margerum says:

    You are suffering from Post-traumatic stress syndrome. That’s to be expected. The H&G experience was scarring. You are correct in waiting for FSG to establish their reputation in the minds of LFC fans. FSG has owned the club for 4 months now and that isn’t enough time to establish credibility. I’m not sure that they can be judged on the amount of money spent on transfers. The object is not how much money is spent, but how much the team is improved. Transfer fees are a new concept to FSG and time is needed to see how they spend in the long term. As far as a new or refurbished Anfield, I believe FSG has the money for either, but they probably will seek financing. Financing for bricks and mortar is relatively low cost unlike H&G’s or the Glazers leveraged buy-out high interest rate financing. However, as you have pointed out, FSG hasn’t made any statement as to the future of LFC’s stadium. I see no reason for alarm at Broughton’s elimination of the clause promising to build a new stadium as that leaves the option of refurbishment open. Incidentally, FSG over the past ten years has spent $265 million refurbishing Fenway Park and that expense ends this year which should give FSG more money to spend on Anfield.
    For the changes made to Fenway Park under FSG see

    • mcdonaldtaf says:

      Agreed that 4 months is nowhere near enough time. The post was really trying to reign in some people’s expectations. Some are thinking we are there and everything is going to be fine. The reality is that real challenges lay ahead if we are to be truly competitive.

      Agree that funding for a stadium would be easier and the dreaded naming rights issue would come up as well. That said we really don;t want to saddle ourselves with too much in the way of interest payments.

  3. Sam Wanjere says:

    I remain cautiously optimistic but can still understand the underlying pessimism you raise. Valid arguments there. One thing I would use as prima facie evidence of LFC being in good hands is all reports of financial prudence I read about NESV/FSG accounts, and company profiles I keep checking out. I know, they are not fool proof and so I too will wait and see more, especially the yet to be published end year accounts. I have a positive gut feel but remain ready to act as I and many did to drive out any parasitic owner from the club I adore.

    I like the arguments raised, do think they’re heavy on negativity but fully know where you’re coming from.

  4. Ed Margerum says:

    It will be interesting to see how the stadium issue is handled. A new stadium often benefits from tax breaks that don’t apply to refitting an existing stadium. Interest rates for property loans on a new property may be lower than on an existing property. If there are loans, look to see if the loan is to FSG or to LFC. The former is a much better arrangement for the club than the latter.

  5. Joe Singh says:

    Just as FSG took their time in changing manager I think this approach needs to continue by the fans to judge FSG.

    FSG also need to take a similar approach on the stadium issue as well. We will soon find out if FSG have the money to go forward with the stadium plan.

    I think what is a bigger priority at this stage is the playing squad. This summer is going to be another big window as far as the owners are concerned in terms statement of intent.

  6. Ed Margerum says:

    We have no idea how much money FSG has. The active partners are not on par with the oligarchs. There are unknown passive partners about which we know nothing. Speculation is futile. Note that NESV has spent $265 (£165) million on Fenway Park improvements over 10 years without going into debt. That increased capacity by a mere 6000. Most of that money went into upgrading the facility. That’s a decent amount of money spent without much hope of immediate return. NESV is methodical and doesn’t rush into projects. You can be certain that they will do something on the stadium issue after they have got expert advice on possible expansion of Anfield to whatever capacity they think necessary for keeping LFC a “big team”. As far as I know, the only options are to expand or to build new. Doing nothing is not an option.

    • Bobby C says:

      ” a decent amount of money spent without much hope of immediate return. ”

      That’s not true at all. They raised ticket prices tremendously since they’ve started the redevelopment project. Fenway has some of the most expansive ticket prices in MLB. They also benefit from being THE team in the whole of New England (save for parts of Connecticut) which includes a city of Boston with some very wealthy people in the financial sector (though not so much in recent years), and they had a long streak of consecutive sell-outs crowds that went on for years (it’s especially impressive when you consider they 81 home games they play each season).

      The Red Sox’s annual revenue increased tremendously since they took over, competing against other big teams. So it’ fair to say that they DO anticipate immediate returns from investing in new infrastructures.

      What I’m worried about is whether LFC can afford to raise ticket prices the way the Red Sox did. I’m an American so my knowledge of the Merseyside area is of course, not that intimate, but LFC has a much smaller hold in the football market (in terms of spending power) compared to the American baseball market, which as i mentioned, has the monopoly over a much larger, richer region of the States.

      Henry mentioned that the Asian market is an heretofore under-tapped market— I would expect NESV to go into that market more aggressively then LFC have previously— though that potential is limited to sponsorships since television deals are collective in the EPL. Don’t be surprised if they go the Bundesliga route of looking to Asian football players such as Honda, though I admit that it’s clearly not that simple.

      H&G, for all their leveraged debt issues, did increased the revenue stream of LFC- to pull off a £20 million a year shirt sponsorship in the year when we finished 7th is pretty remarkable. Manu’s shirt sponsorship deal is about the same as Liverpool’s.

      What I do expect though, is that unlike H&G who increased the revenue stream in order to service their debt in their leveraged buy-out, FSG is likely to reinvest money back into the club. Most of the big money signings from FSG for the Red Sox are the fruits of this phenomenon.

      If you can’t tell already, i’m a baseball fan. Though oddly enough, I’m a yankees supporter (Red Sox’s arch nemesis). A manu to our Liverpool, speaking of cognitive dissonance. Though I must say I’m very impressed with what FSG had done with Red Sox, even though it was to the yankees’ detriment.

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