If ever a football club’s season could be described as the proverbial “game of two halves†that would be the one experienced by Liverpool fans this year. Following Roy Hodgson’s appointment as manager last July as the replacement for the popular Rafael Benitez, the Reds endured their worst league start in more than 50 years, falling into the relegation zone in October after a dismal home defeat to newly promoted Blackpool.
Hodgson’s grim tenure came to an end in January, when he was replaced by Kenny Dalglish, who inspired a revival that took Liverpool back up the table to sixth place. Moreover, the team threw off the shackles and played some sparkling football, including wins over Manchester United, Chelsea and Manchester City. Although Dalglish’s record in his previous reign on the Mersey was highly impressive, winning three league titles and two FA Cups, some had expressed doubts about the Scot’s credentials, as he had not managed a club for more than a decade and he was initially appointed on a temporary basis.
However, the mood at Anfield has clearly taken a massive turn for the better and virtually all of the non-believers have now been converted. Thus, it was no surprise that Dalglish was duly confirmed as permanent manager a couple of weeks ago, when he was given a three-year contract along with his first team coach Steve Clarke. As new owner John W Henry said, “Kenny is a legendary figure, both as a supremely gifted footballer and successful manager.â€
"John W Henry - the man with a plan"
The new ownership is, of course, the other vital change to occur at Liverpool during this momentous season with New England Sports Ventures (NESV) taking over from the reviled pair of Tom Hicks and George Gillett last October. Well known for its stewardship of the Boston Red Sox, one of the most famous baseball teams, and involvement in NASCAR, the company has now changed its name to the Fenway Sports Group (FSG), but the key executives remain the same. As far as Liverpool are concerned that means John W Henry, the principal owner, and Tom Werner, the chairman, who both hold 50% of the voting rights in the football club.
They look like a good fit for Liverpool, as explained by the club’s former chairman Martin Broughton, “New England have a lot of experience in developing, investing in and taking Boston Red Sox - as the closest parallel - from being a club with a wonderful history, a wonderful tradition that had lost the winning way, and bringing it back to being a winner.†In fact, after buying the Red Sox in 2002, NESV delivered success just two years later, as they won the World Series in 2004, ending an 86-year wait for honours, and then repeating the feat in 2007.
On the face of it, they could not be more different to their unpopular predecessors, Hicks and Gillett, who saddled Liverpool with a mountain of debt when they bought the club in March 2007. Ever since then, the Reds had been on a financial knife edge. Even though the eternally optimistic former managing director Christian Purslow claimed that he could not “conceive of a situation where Liverpool Football Club could go into administrationâ€, the reality was that the choice had been taken out of his hands.
"Luis Suarez - happy days"
The club’s bank loans were due for repayment in January 2010, but the club failed to make the £250 million payment, and the club only survived when the bank extended the date first to March and then by a further seven months to October to facilitate the sale of the club. Liverpool’s auditors KPMG had gone public with their concern over the level of debt the previous year, when they described the issue as “a material uncertainty which may cast significant doubt on the group’s and parent company’s ability to continue as a going concern.â€
UEFA were also well aware of Liverpool’s financial difficulties. Last month William Gaillard, Senior Advisor to UEFA President Michel Platini, spoke about them, while warning football dignitaries of the dangers of leveraged buy-outs, “The club has been rescued, thank God, but it was a close call. They suddenly found themselves being owned by two failed banks that had been taken over by governments.â€
In fact, the Royal Bank of Scotland (or indeed Wachovia) could have put the club into administration (with a nine point penalty) at any time in the last few months of the Hicks and Gillett regime. Importantly, this meant that RBS could dictate terms, allowing them to place Purslow and commercial director Ian Ayre on a reconstituted board, while stipulating that the owners could no longer appoint new representatives to the board. This meant that when the decision to sell the club was taken, Hicks and Gillett no longer had a majority, so could be outvoted by the other board members.
Even though he is from Texas, Tom Hicks did not know when to “fold them†and tried to block the sale, describing the transaction as “an epic swindle at the hands of rogue corporate directors.†So RBS brought a legal action before the High Court to obtain a judgment on the ability of the new board to complete the sale to NESV, which they duly won. Even the elegant Broughton could not resist putting the boot in, describing the former owners’ actions as “a flagrant abuse of their undertakings.â€
Acting on behalf of the club, Barclays Capital had contacted 130 potential investors, but only two bids had been received before the deadline with NESV’s winning out. They paid a total of £300 million for the club: £218 million for the equity, effectively the amount that Hicks and Gillett owed to RBS, and £83 million to assume responsibility for other debts. This was a pretty good outcome for the club, as the acquisition debt was wiped out, leaving NESV with more funds to spend on the football side of the club – and it had the added bonus of serving up a side order of schadenfreude, as Hicks and Gillett lost their £144 million investment.
The last accounts published under the old administration reflected the club’s financial shortcomings, as they reported a £20 million loss, which was £6 million worse than the previous year, even though profit on player sales rose dramatically from £4 million to £23 million, mainly due to the sale of Xabi Alonso to Real Madrid. The wage bill climbed an incredible 18% to £113 million, which was much higher than the 4% revenue growth.
That said, for the last two years, Liverpool have only made a small loss before interest payments, £2.3 million in 2010 and £3.5 million in 2009, but the impact of interest on the loans that Hicks and Gillett took out to buy the club has been hugely detrimental with net interest payable increasing from £13 million last year to £18 million in 2010.
However, that’s not the whole story, as these are only the accounts for The Liverpool Football Club and Athletic Grounds Limited, while the majority of the club’s debt was held in the holding company. Unfortunately, the 2010 accounts for Kop Football (Holdings) Limited, the largest group company incorporated in the UK, have not yet been published, but we do know that the net interest payable at that level in 2009 was a whopping £40 million, leading to a net loss for the group of £55 million. If we make the reasonable assumption that the level of interest in 2010 is the same, this would mean that the club had paid around £125 million of interest during Hicks and Gillett’s unhappy reign.
Hodgson’s grim tenure came to an end in January, when he was replaced by Kenny Dalglish, who inspired a revival that took Liverpool back up the table to sixth place. Moreover, the team threw off the shackles and played some sparkling football, including wins over Manchester United, Chelsea and Manchester City. Although Dalglish’s record in his previous reign on the Mersey was highly impressive, winning three league titles and two FA Cups, some had expressed doubts about the Scot’s credentials, as he had not managed a club for more than a decade and he was initially appointed on a temporary basis.
However, the mood at Anfield has clearly taken a massive turn for the better and virtually all of the non-believers have now been converted. Thus, it was no surprise that Dalglish was duly confirmed as permanent manager a couple of weeks ago, when he was given a three-year contract along with his first team coach Steve Clarke. As new owner John W Henry said, “Kenny is a legendary figure, both as a supremely gifted footballer and successful manager.â€
"John W Henry - the man with a plan"
The new ownership is, of course, the other vital change to occur at Liverpool during this momentous season with New England Sports Ventures (NESV) taking over from the reviled pair of Tom Hicks and George Gillett last October. Well known for its stewardship of the Boston Red Sox, one of the most famous baseball teams, and involvement in NASCAR, the company has now changed its name to the Fenway Sports Group (FSG), but the key executives remain the same. As far as Liverpool are concerned that means John W Henry, the principal owner, and Tom Werner, the chairman, who both hold 50% of the voting rights in the football club.
They look like a good fit for Liverpool, as explained by the club’s former chairman Martin Broughton, “New England have a lot of experience in developing, investing in and taking Boston Red Sox - as the closest parallel - from being a club with a wonderful history, a wonderful tradition that had lost the winning way, and bringing it back to being a winner.†In fact, after buying the Red Sox in 2002, NESV delivered success just two years later, as they won the World Series in 2004, ending an 86-year wait for honours, and then repeating the feat in 2007.
On the face of it, they could not be more different to their unpopular predecessors, Hicks and Gillett, who saddled Liverpool with a mountain of debt when they bought the club in March 2007. Ever since then, the Reds had been on a financial knife edge. Even though the eternally optimistic former managing director Christian Purslow claimed that he could not “conceive of a situation where Liverpool Football Club could go into administrationâ€, the reality was that the choice had been taken out of his hands.
"Luis Suarez - happy days"
The club’s bank loans were due for repayment in January 2010, but the club failed to make the £250 million payment, and the club only survived when the bank extended the date first to March and then by a further seven months to October to facilitate the sale of the club. Liverpool’s auditors KPMG had gone public with their concern over the level of debt the previous year, when they described the issue as “a material uncertainty which may cast significant doubt on the group’s and parent company’s ability to continue as a going concern.â€
UEFA were also well aware of Liverpool’s financial difficulties. Last month William Gaillard, Senior Advisor to UEFA President Michel Platini, spoke about them, while warning football dignitaries of the dangers of leveraged buy-outs, “The club has been rescued, thank God, but it was a close call. They suddenly found themselves being owned by two failed banks that had been taken over by governments.â€
In fact, the Royal Bank of Scotland (or indeed Wachovia) could have put the club into administration (with a nine point penalty) at any time in the last few months of the Hicks and Gillett regime. Importantly, this meant that RBS could dictate terms, allowing them to place Purslow and commercial director Ian Ayre on a reconstituted board, while stipulating that the owners could no longer appoint new representatives to the board. This meant that when the decision to sell the club was taken, Hicks and Gillett no longer had a majority, so could be outvoted by the other board members.
Even though he is from Texas, Tom Hicks did not know when to “fold them†and tried to block the sale, describing the transaction as “an epic swindle at the hands of rogue corporate directors.†So RBS brought a legal action before the High Court to obtain a judgment on the ability of the new board to complete the sale to NESV, which they duly won. Even the elegant Broughton could not resist putting the boot in, describing the former owners’ actions as “a flagrant abuse of their undertakings.â€
Acting on behalf of the club, Barclays Capital had contacted 130 potential investors, but only two bids had been received before the deadline with NESV’s winning out. They paid a total of £300 million for the club: £218 million for the equity, effectively the amount that Hicks and Gillett owed to RBS, and £83 million to assume responsibility for other debts. This was a pretty good outcome for the club, as the acquisition debt was wiped out, leaving NESV with more funds to spend on the football side of the club – and it had the added bonus of serving up a side order of schadenfreude, as Hicks and Gillett lost their £144 million investment.
The last accounts published under the old administration reflected the club’s financial shortcomings, as they reported a £20 million loss, which was £6 million worse than the previous year, even though profit on player sales rose dramatically from £4 million to £23 million, mainly due to the sale of Xabi Alonso to Real Madrid. The wage bill climbed an incredible 18% to £113 million, which was much higher than the 4% revenue growth.
That said, for the last two years, Liverpool have only made a small loss before interest payments, £2.3 million in 2010 and £3.5 million in 2009, but the impact of interest on the loans that Hicks and Gillett took out to buy the club has been hugely detrimental with net interest payable increasing from £13 million last year to £18 million in 2010.
However, that’s not the whole story, as these are only the accounts for The Liverpool Football Club and Athletic Grounds Limited, while the majority of the club’s debt was held in the holding company. Unfortunately, the 2010 accounts for Kop Football (Holdings) Limited, the largest group company incorporated in the UK, have not yet been published, but we do know that the net interest payable at that level in 2009 was a whopping £40 million, leading to a net loss for the group of £55 million. If we make the reasonable assumption that the level of interest in 2010 is the same, this would mean that the club had paid around £125 million of interest during Hicks and Gillett’s unhappy reign.
