The proposed takeover of Liverpool by New England Sports Ventures (NESV) for £300 million has the club’s supporters excited about a new dawn. Not without reason: American owners Tom Hicks and George Gillett’s leveraged takeover in 2007 has taken Liverpool out of the Champions League and to the precipice of financial oblivion.
But are the Dippers too excited, too early, about the new takeover, just as they were in 2007?
Certainly Liverpool supporters should be cautious in welcoming the new ownership. After all, even if the legal challenge from Hicks and Gillett is seen off in the High Court next week, there is no guarantee that NESV, which also owns the Boston Red Sox baseball team,will pay-off all debt from the stricken Merseyside club, let alone plough Manchester City-style millions into player acquisition.
While NESV has promised to eliminate “all acquisition debt” potentially up to £100 million of working capital debt is also owed by the club. It is an educated but sensible guess that this so-called football debt is unlikely to be cleared by NESV in the acquisition. In fact, no promises to such effect have been made.
Neither are funds guaranteed to build the long-awaited new stadium on Stanley Park or bring Anfield into the 21st century. The new stadium is essential to Liverpool developing the revenues streams that will keep the club in touch with the new ‘big four’ of Manchester United, Chelsea, Arsenal and Manchester City.
Without new revenue, there is no guarantee Liverpool will not slip behind Tottenham Hotspur, Aston Villa and even crosstown rivals Everton in the Premier League pecking order. After all Liverpool is minuscule in financial terms. The last published accounts showed a £54.9 million pre-tax loss, with annual interest totalling £40.1 million on gross debt of £378.6 million. It’s the direct result of a leverage buyout the owners promised wouldn’t happen.
While the debt is significantly lower at Anfield than that built up by the Glazer family at Old Trafford, so is Liverpool’s operating profit, which was just £27.4 million in the last recorded accounts. The Anfield club is significantly under-commercialised in comparison to major rivals and revenues are just 60 per cent of that at Old Trafford. Without Champions League football Liverpool may not even break even under the new UEFA financial fair play rules.
It’s a situation that has led Royal Bank of Scotland to take control of the Anfield board, marginalising the American owners and forcing through a sale. The £300 million sales price is tantamount to a firesale given the £500 million value placed on the club by this year’s Forbes magazine valuation.
No wonder Hicks and Gillett are willing to take the sale to court or face losing up to £140 million in equity they have loaned the club. Liverpool’s dilemma; the alternative to takeover by NESV is probably administration, with RBS now keen to liquidate whatever assets it can from the club and walk away.
Liverpool’s financial turmoil has, of course, resulted in chronic under-investment in the playing squad over the past two seasons. Not that Rafa Benitez did much with the millions the board handed him in six years on Merseyside.
The irony in Liverpool supporters’ understandable protests over Hicks and Gillett is that the leverage buyout was previously greeted by jubilant celebration. It proved yet another false dawn in more than 20 years of domestic failure down the East Lancs Road.
However, United supporters should be cautious in celebrating Liverpool’s recent decline as amusing as it may seem. There but for the grace; the risks associated in a leveraged buyout having been amply demonstrated at Anfield.
The Glazers have more time than their compatriots 30 miles east, having paid off bank debt through the £504 million bond issues last January. But if the wolves have been kept from the door then under-investment in the playing squad is perhaps only 18 months behind Liverpool. There is every risk that retirements will materially affect the playing squad’s quality at Old Trafford.
Meanwhile, Anfield waits to see which owner will squeeze the club next.