Monday, 15 March 2010

“We are ownership neutral” – Is this Liverpool’s 2005 moment?

Warning: this post gives sympathetic coverage of Liverpool Football Club’s problems with owners and debt, if you wouldn’t piss on a scouser if he was on fire, please navigate away from this page.

The quote in the title of this post is something repeated several times (with some perverse pride) by Dan Johnson, the Premier League Head of Communications at the BBC’s “Football in the Red” debate in Manchester two weeks ago.  His statement was met with derision by the audience because it summed up the football authorities’ blasé approach to one of the key problems in the national sport.  I may have lost my temper with him and accused him of ludicrous complacency.

I do have some sympathy for Dan (who I can only imagine was desperate for a challenge when he accepted the role), after all the man has to clean up after Richard “£866,000 and no clouds in the sky” Scudamore.  Dan tried to fob the BBC audience off with the Premier League’s souped up “Fit and Proper Person Test” and the laughable new “early warning system” (relying on auditors to spot problems, just like they did so brilliantly at Enron, Lehman Brothers or Portsmouth FC).  The Premier League can tinker with processes and procedures, but the overall philosophy hasn’t changed, if it’s legal the Premier League are in favour of it, if Pompey have four owners in 12 months, that’s fine.

This weekend, news has emerged that a private equity firm, Rhone Group has offered to invest £110-120m (reports differ) in Liverpool FC in exchange for a 40% stake.  The club’s current owners, Hicks and Gillett would have to accept this 40% dilution, but with the deadline for their Kop Football (Holdings) Ltd acquisition vehicle to reduce its debt rapidly approaching, not accepting such an offer could lead to the owners forfeiting their shares in the club.

The financial structure at Liverpool is not dissimilar to that at United, with over-stretched owners desperate to solve a debt crisis that was entirely of their own making.  Neither club has gained anything from the leveraged buyouts that were used to acquire them.  In United’s case, the main consequence has been the pricing out of traditional supporters, whilst at Liverpool Hicks and Gillett’s stewardship has further delayed the building of a new stadium that everyone agrees is needed.

Although (according to figures from Benitez’s net transfer spending since he took over at Liverpool is actually £1m higher than Sir Alex Ferguson’s over the same period (and that is ignoring the proceeds from the sale of Ronaldo destined for the PIKs), the amount of revenue generated from matches at Anfield is far too small vs. other comparable clubs.  Hicks and Gillett haven’t produced accounts for last season yet, but looking at the 2007/08 numbers, Liverpool only generated revenue of £1.3m per home game vs. £2.3m at Chelsea (who have other sources of cash of course) and more than £3m per game at Old Trafford and the Emirates (these other clubs’ figures are for 2008/09).

Last season reported
Competitive home games
Average attendance
Average attendance/capacity

Revenue per game (£m)
Revenue per available seat/game (£)
Revenue per occupied seat/game (£)

The reporting in the weekend papers suggests that Rhone Group would pay down Kop Football (Holdings) Ltd’s debt with its equity injection.  This would greatly improve the chances of raising capital for a new ground.  So far, so altruistic (“Scouse Knights” perhaps?).  But of course the arrival of a business like Rhone Group on the scene marks a new, sad twist in the pawning of the English game.  The Glazers made a half-hearted and wholly unconvincing attempt to paint themselves (or at least Joel) as United fans.  Hicks and Gillett launched their takeover talking of their intention to be “custodians” of the club which they would hold as a “family asset”.  Whilst many Liverpool supporters had been hoping Dubai International Capital would acquire the club, the acquisition by Hicks and Gillett was initially generally viewed positively by fans and it took eleven months before organised supporter opposition began in earnest.

Rhone Group will not of course claim to be staffed entirely by Liverpool supporters, they are transparently in it for the money.  For many Liverpool supporters, the temptation may well be to welcome any new owners, especially one who could pay down almost half the club and parent company’s debts.  I think welcoming such attention would be a terrible mistake, private equity firms can’t spell altruism let alone practice it.  Look again at the table of matchday income above again.  Liverpool bring in around £30 per occupied seat per game.  The two London clubs bring in more than £50.  United is now far closer to Arsenal than its traditional north western rivals.  In 2004/05, the last year of the plc, the equivalent number for United was £33, revenue per seat has risen 45% since the takeover, a small amount of the change is “mix” (relatively more corporate facilities when the quadrants opened) but the vast majority of the change is from higher ticket prices.

Rhone Group (and no doubt other similar organisations) see the opportunity to get into Liverpool at an enterprise value of just over £400m.  They no doubt see a famous club with a global brand, charging ticket prices 30% below those at United.  They see desperate current owners.  They smell a money making opportunity.

For the Premier League, a deal along the lines Rhone Group are proposing will no doubt be seen as a triumph.  At least £100m can be knocked off the Premier League’s debt total, a shiny new stadium may well appear, the appeal of the league to global capital will be confirmed.

Best. League. In. The. World. Fact.

As Dan from the Premier League said, they are “ownership neutral”, they care nothing for the motivation of people who buy into our top clubs, they care nothing about the consequences that flow from allowing financial buyers to acquire clubs, and if in five years time aggressive pricing policies have stopped thousands of Liverpool FC’s traditional, working class support from being able to see their club, well, that’s business......

Of course next weekend we play Liverpool at Old Trafford, just over 100 years after we first played them there. I understand how controversial the idea is of United and Liverpool supporters coming together in some way to protest at what has been done to our clubs, but I’d ask people to think who the real enemy are before dismissing all such ideas out of hand.