Wednesday, May 12, 2010
The State of Liverpool FC – An Idiots Guide
While "senior sources" at the club (Christan Purslow) try to facilitate a smear campaign against the manager, pretend everything is rosy at the club and briefs the press to headline the Rick Parry pay off on the day the club's financials are tactically released on election results day; here's what's really going on at Liverpool Football Club:
The figures released on Friday 8th May 2010 indicate that Liverpool FC is in net debt to the tune of £351m; an increase of £52m from last year’s figure.
A total of £233.996m is owed to RBS, in addition to an inter-company loan of £144.441m owed to “Kop Cayman”; a company owned by Gillett and Hicks based in the Cayman Island for tax reasons; a company that have loaned Liverpool FC £144.441m at an interest rate of 10%. This is the “own money” that Gillett and Hicks claim to have put into the club. In reality, they’re just charging the club 10% interest for lending that money through an offshore limited liability company that they aren’t even personally liable for – Liverpool FC are.
Liverpool FC are not paying the interest off on that £144.4m however. It is being charged as a “compound interest”, meaning the interest isn’t paid, but is instead “rolled up” to the grand total. For example, this year (if I’ve got this right):
£144.4m @ 10% interest = £14.44m payable this year.
Instead of paying that £14.44m, it is rolled onto the total making the outstanding debt owed to Kop Cayman £158.88m. The following year this is then charged at a further 10% interest:
£158.88m @ 10% interest = £15.88m payable next year.
Instead of paying that £15.88m, it is rolled onto the total making the outstanding debt owed to Kop Cayman £174.76m. The following year this is then charged at a further 10% interest:
£174.76m @ 10% interest = £17.76m payable next year.
Instead of paying that £17.76m, it is rolled onto the total making the outstanding debt owed to Kop Cayman £192.52m etc etc etc...
The debt soon spirals out of control, as you can see; and don’t forget, this only concerns the £144.4m owed to Gillett and Hick’s Cayman Islands company – it doesn’t concern the huge £234m owed to RBS.
The financial figures released last week are for the 2008/09 season.
Those figures declare the club made a loss of around £52m for that year, due to the interest repayments on the loans and another £22m spent on the new ground; on what that was spent on we have no idea. There’s nothing to show for it anyway – and the total spend on the new ground now exceeds £50m. To put that into perspective – Sunderland managed to build the 48,000 seat Stadium of Light for a lot less than that. We have a few fences up at the back of the Anfield Road End!
Anyway – we made a loss of £52m that year despite finishing 2nd in the league and reaching the latter stages of the Champions League. The accounts also declared a profit made on player transfers (despite Purslow telling us we don’t need to sell players to balance the books and service debt, and Rafa being accused of wasting millions on players – the accounts prove otherwise).
What are next year’s figures (which will reflect the financial state we’re in today) going to look like with a 7th place league finish and an early elimination from the Champions League? We will also have an increased debt to service as explained above.
Then what about the figures for the next financial year when there’s no Champions League money at all coming in?
While the current owners are in place, we are going to continue to fall further and further into debt. We cannot meet the repayments on the loan as it stands now, and with our revenue due to fall with the lack of Champions League football, we’re on the brink of going into administration.
Anyone with hopes of making any signings in the summer or any future transfer windows needs a reality check. We are going to be very lucky to be hold onto the players we’ve got, never mind being able to bring anybody else in.
Gerrard and Torres don’t want to leave because they don’t like the manager (Purslow is feeding this story to the media to whip up the “Rafa Out campaign”); they want to leave as they know there is zero chance of any new players of any quality arriving at the club in its current state. They also know there’s zero chance of any top class manager coming to the club if Benitez decides to walk or is pushed; no manager worth his salt would come to work at the club under these conditions. They know the club is only going one way.
Until Gillett and Hicks are removed from the club, we’re only going to decline. It really is as simple as that. Nothing else matters.
And remember – these debts haven’t been accumulated through overspending in trying to buy success and compete like was the case at Portsmouth, Leeds and various other clubs – they are entirely generated through debt loaded onto the club just so Gillett and Hicks can own us and bleed us dry with expense claims, management fees, arrangement fees for every refinance deal and wasting over £50m of the club’s money on a non-existent new stadium.
This isn’t the result of bad individual club management as Richard Scudamore of The Premier League claims; it is the result of a leveraged buyout that has loaded the cost of buying the club onto the club to repay. Something The Premier League, The FA, UEFA and FIFA should be doing everything in their power to prevent ever happening again.
2007: £44m debt (£3m per year to service)
2008: £350m debt (£36.5m per year to service)
2009: £378m debt (£40m per year to service)
Those are the levels of debt on the club, with it being only £44m before Gillett and Hicks bought the club. Therefore the club’s profits were able to be invested back into the squad, allowing us to compete on the pitch. We’re now crippled by debts we cannot service, when that £40m leaving the club each year in interest repayments should be being spent on new players.
£76.5m has left the club in interest repayments alone in the past 2 years – and in that time – the manager has not spent a single penny on new players. It’s been a sell to buy policy, with profits being made on transfers in the past few transfer windows as the books needed to be balanced; all while the clubs around us are spending to strengthen. How can we be expected to compete under those conditions?
The debt is growing with every passing day. As a result of the lack of investment in the squad (as well as bad luck with injuries / poor decisions / players out of form etc), we’re paying the price on the field with declining performances which will therefore reduce the club’s revenue even further – giving us even less money to service increasing debts. A vicious circle. It’s unsustainable.
Liverpool FC is paying £110,000 every single day in interest repayments to service a debt we should never have in the first place. That’s £110,000 a day of the club’s money that me and you generate, that we should be seeing spent on new players or developing the club; instead – we are standing back and watching the club being raped in front of our very eyes.
Monday, May 10, 2010
Sums up everything nicely:
In six months, the Benitez era will seem like a golden age
In the dressing room and on the balance sheet, Liverpool have fallen over the edge, writes Dion Fanning.
I f Liverpool thought this season was bad, the summer may have them looking back wistfully. The release of their latest financial figures might shake some sense into those who think that Rafael Benitez's possible departure will make things better. Liverpool, as the figures show, are in great peril. In six months, the Benitez era will seem like a golden age.
The idea that Jose Mourinho can be parachuted in to save the club should crash up against the reality of these numbers. For the second successive year, the auditors, KPMG, expressed "material uncertainty" about Liverpool's ability to continue as a going concern.
The new chairman Martin Broughton has had to appear before the Premier League to give a guarantee, which had to be backed up by the banks, that Liverpool will be able to fulfil their fixtures next season (anyone who saw Liverpool's performance in Portsmouth this season may question if that guarantee was given last season). Yet some people cling to the view that Liverpool need simply to sign a new full-back. There is no quick-fix for Liverpool. There may be no slow-fix either.
This weekend, it does not seem as inevitable that Benitez will leave. At this stage, the decay has affected him so profoundly that it would be no bad thing for him to go. At the very least, his departure would allow those who criticise his management to understand slowly what he was up against. Alan Curbishley won't be able to do much better.
On Friday, an internet campaign launched by a Liverpool forum resulted in journalists receiving hundreds of emails from supporters backing Benitez. It is customary for their loyalty to be applauded slightly patronisingly at this point before asking at what other club would a manager be backed in this way?
Benitez earned their loyalty by providing as magical a night as any Liverpool fan has experienced in Istanbul, defying Chelsea in the semi-final and challenging for the title last season. He earned their loyalty by being misunderstood, as Liverpool people feel they are, and he earned their devotion by rumbling Tom Hicks and George Gillett.
So when they chant his name or send an email, they are not displaying blind devotion. They are acknowledging the complications of managing a club that has no future until things change and recognising that Benitez has, imperfectly, managed until this season somehow to keep Liverpool competitive.
Once Liverpool's players started spinning about the race for fourth and once Benitez started talking about how the value of the club had increased during his time at Anfield, then things were destined to unravel. That was not Benitez's racket. At his best, he felt no need to point to his record because he didn't respect the people who were looking it up.
They were wrong about everything: wrong about his transfer record, wrong about rotation, wrong about how often he rested Torres. Yet they never shut up and they wore Benitez down. The reasons Rafael Benitez is no longer the right manager for Liverpool are exactly the same as the reasons he was such a successful manager of Liverpool. His stubbornness allowed him to ignore the voices that told him he should buy Michael Owen or play Steven Gerrard in his "favoured" central midfield position.
Then he became distracted and demented by the financial position and gaining control. His attempt to sell Xabi Alonso was a disaster -- not because Alonso was in sparkling form and it made no sense -- but because his return to form was achieved not by coaxing the best from him but by instilling a sense of resentment that made his departure inevitable.
One of the key tenets of Benitez's philosophy is that he does not get close to the players. There is nothing wrong with that but it works best if the manager does not hold resentments if the players react to that distance, as Alonso did. The sadness in the fracturing of the relationship with the player once known as 'Son of Rafa' was compounded when, having taken the biggest risk of his career at Liverpool, Benitez barely saw any of the transfer fee.
Instead, he was forced to gamble on a fragile player like Alberto Aquilani and the pressure was on once it quickly became apparent that the title would not be achieved as many had expected. Benitez had been exhausted by the battles he had to fight. He was contaminated by the bullshit coming down the line and the players appear to have had enough.
Just as his success masked the dysfunction of the regime he was employed by, his failures have hidden them too. Benitez took on Hicks and Gillett and paid the price: not the loss of his job but the loss of his vision of what the team should be. Like all obsessives, he is always at risk of losing touch with reality.
Liverpool, out of the top four and with their most glorious footballer Fernando Torres agonising over his future, have more chance of sinking further next season than they do of reclaiming a Champions League place.
Torres is not bigger than the club, the old cliché that may yet be used by the accountants this summer after he makes an impact on the balance sheet, but there is a strong case to be made that it stands or falls with him right now. For many reasons, Torres is no ordinary footballer. He is loyal and curious about his surroundings. His talent ensured he would be a favourite at Liverpool, but his heart quickly bound him to Anfield. His disillusionment, not about last season, but about the future, is likely to see him leave in the summer. Even if the banks were to allow Liverpool to replace him, he is irreplaceable.
Broughton has announced that Liverpool do not need to sell him to service their debts but when £85m has been paid in interest since 2007, the needs of the money men can sometimes become insatiable.
Torres will have his choices and he may decide, despite their failure to qualify for the Champions League, that Manchester City are the best option. Certainly, they can offer a challenge in the future that Liverpool cannot. If they could persuade Torres then it would be a spectacular announcement of their intentions which could speak even louder than qualification for the Champions League.
Liverpool are being squeezed by teams who have been allowed to build and clubs that have not been so badly run. Tottenham's progress has been through shrewd investment and the acquisition of a squad that Liverpool can only envy. Peter Crouch might have stayed at Liverpool if he had been offered a contract that would have made his time on the bench bearable. Instead, he ended up at Spurs, along with Robbie Keane, who played no more time at Tottenham than he did at Liverpool but nobody seemed to notice before he headed off to Glasgow.
City and Spurs are ready to replace Liverpool. They have energy, ambition and new ideas. Liverpool are just trying to make it through the night. They have been ripped from their community by the decision of David Moores to sell the club to Hicks and Gillett. The desire of supporters to see the club return to ownership they understand has now been replaced by the pressing urgency to find somebody to rescue them.
There was a time when Moores and Rick Parry (who received a pay-off of £3m, the latest accounts revealed) searched the world looking for new investment. Moores could have borrowed on the club to build a new stadium instead of selling to the Americans, who were borrowing on the club to buy it, and Liverpool would be in a better position today. Instead, he made a rash decision and a poor business one for him and for Liverpool.
Those were the good days when the world felt it could trust people like Hicks and Gillett. Because there were so many of them, they must be doing something right.
Last week's accounts showed Liverpool's loss was 34 per cent worse than 2008's figure as £40.1m went on servicing the club's £351.4m debt to Royal Bank of Scotland and US firm Wachovia. These loans have been extended until the sale but the club is now, according to KPMG, "dependent on short-term facility extensions". They are living hand to mouth. And yet they claim that Torres doesn't need to be sold. They do not need to sell him, much as a wino doesn't need a bed for the night.
It is worth noting that the accounts were taken in a good year for Liverpool, a run in the Champions League and second in the league. Next year, if there is a next year, things will be worse.
But still they blame the manager. Benitez is said to be torn about his departure. A number of senior players would be happy to see him go and a number would prefer if he stayed. His management style is undoubtedly wearing on players but Liverpool aren't faced with too many alternatives.
Few managers will be tempted in the summer to join a club which may not still have owners and has no money. Martin O'Neill is the only candidate who appeals, especially if he feels he has done as much as he can at Aston Villa. Liverpool may not end up like Leeds but there is every indication they could end up like Newcastle, who, unlike Liverpool, had a stadium that gave them the revenue to compete. Liverpool have nothing, not even freedom, as that isn't afforded to the indebted.
The days of standing on the edge of the abyss are over, Liverpool have fallen over the edge. Benitez seems reluctant not to fall with them. He staked his reputation on the club and he found that even when it plummeted, he didn't want to give it all up.
He has been promised riches and finances at Juventus but still he hesitates. He is bound by something more. He is a flawed hero but history will see his management as no less heroic for the reality that it was doomed.