However there may be longer term problems according to some. During the furore and when writing my last blog entry I underestimated how strong the anti Hicks and Gillett feeling emanating from some quarters is. There appear to be three main complaints. The first two involve lying and expense claims. The first I assume is because we don't have a new ground built yet and the second has a common theme from somewhere else?
The third complaint, the one which has strong factual evidence behind it, is the level of debt which the club now has. It is not helped by the sheer amount of media coverage our debts seem to attract. So is the debt a failing of the new owners and should they be held accountable? Well as much as some may not like this next statement - it is their club and their company, ergo they can do what they like. We the fans are its consumers and until something changes we are locked together until H&G sell or the fans decide to support someone else or start a new club. Neither look likely at this stage.
So I set off trawling through the company accounts of the 'Top 4' and tried to generate a picture of exactly what the true state of affairs are. Are we really about to self combust or is this simply media and fan hype? Should we be worried - is there anything to hold the owners to account for? Well the answers aren't easy ones, but I'll try.
Please note I have taken the last filed accounts for each club and the figures will have moved since then (for example we are reported to have reduced our debt by £60m so far), I have also rounded all figures to the nearest half million.
FOOTBALL CLUB DEBTS
Straight down to it - Liverpool Football Club has £227.5m of debt which, while a colossal amount of money, is less than Arsenal's £280m and Chelsea's whopping £616m. We are also not too far away from the lowest debts of £210m recorded by Manchester United.
Where I believe there was/is a problem is that our debts are heavily weighted towards our current liabilities, which need to be paid within 1 year. I assume this is down to the bank refinancing which was completed earlier in the year. At the last accounts we had £202.5m of our debt to repay within the coming year compared to AFC:£80m, CFC: £105m and MUFC: £146m.
Ideally our debts would have been refinanced over a longer period pre-credit crunch. This was no doubt the plan at a time when funding was freely available from the banks. Today it's a different world where loan monies are not so freely available and banks are taking advantage where they can. This affects all football clubs not just ours. Who from the 'top 4' splashed the cash this summer? Even United after the cashing in of Ronaldo were quiet, coincidence or clubs bolstering their balance sheets at a time of uncertainty?
I have to confess that I have a degree of sympathy with H&G who are demonised for what exactly? Without them would we really have the quality of players we have now? Probably not and Rafa would have had to continue scrabbling about for bargain players. They have also undertaken a restructuring program to modernise our club and yes the stadium is on hold. But in business you can't get the best facilities and best materials (players) and best management without spending money, it is a question of priorities and timing. The credit crunch timing was lousy for all businesses and certainly not the fault of H&G.
ABILITY TO REPAY THE DEBTS
LFC has the lowest turnover of the four clubs at £159m and generated a profit of £8m. In comparison the highest turnover was CFC with £190m but a loss of £70m... yes £70m! The most profitable was AFC who made £48m out of their £183m turnover. MUFC reported a turnover of £180m generating a profit of £23.5m.
This only represents one year's results though so I looked back at the last 5 years results for each club. MUFC were the most consistent performers averaging a £15.5m profit per annum while AFC pretty much broke even with a 0.5m profit. By comparison we lost £5m per year but again this was dwarfed by Chelsea's £84m per year losses. Yet we are the club everyone talks about as being 'in trouble', we are both owned by wealthy people - in fact we have two.
If you read my last post you will know that I raised criticism about the old regime's abilities to take best advantage of the commercial opportunities open to LFC and turn it into a football global powerhouse. Take our £5m loss per year and add an additional £13m from the new bank sponsorship, plus a possible £5m for keeping hold of a reduced Carlsberg deal before even considering any other new ventures. I believe Christian Purslow is finally pushing LFC in the direction it should have been going 20 years ago. When H&G came in and bought LFC I am sure they could see the un-tapped potential of the business and the club. As on and off the pitch success are inextricably linked this has to be good for all of us.
The club which stands out as unable to repay their debts in the short to medium term is CFC with the highest debts and biggest losses. The biggest worry for their fans should be that without Abramovich they will probably not even be able to service their debts, never mind pay them back. This is not a position LFC appear to be in. In fact with potential yet to be realised you would have to ask what the potential of the banks 'pulling the plug' or us not being able to sell the club really are. Especially when you compare 'apples to apples' like I'm trying to here.
THE PARENT COMPANIES WHICH OWN THE CLUBS
After looking at the clubs I turned my attention to the parent companies of each club. This is where all of the debts of ownership are held and I found something interesting. Remembering that we are the club which is in such strife. CFC's total debts are £850m, AFC £674m, MUFC £620m and LFC... well, by comparison a relatively low £446m.
However the sales (turnover) of our parent company are a lot lower than our competitors as well (MUFC:£256m, AFC: £222m, CFC:£210m and LFC £162m). This is something I am sure Mr. Purslow and his management team are working on. I am more convinced than ever that our failings in the past are biting us on the backside. Despite this we have a team which remains in the top 4 in the country, finished second in the Premiership last season and is classed as a contender for all competitions.
SUMMARY
A scoring system and league table is quite obviously called for in this context.
As we are looking at the debts and the ability to repay I have taken the holding company's total debts (worst case scenario) and made an adjustment for every pound of average football club profit (last 5 years)[Av P/L], last year's profit/loss from the football club [P/L LY] and holding company [PL L/Y HC] and for every pound of turnover [T/O] from last year. So we're taking the total debt and reducing it with every pound of profit or turnover or adding on any losses (ability to repay). The lowest score wins.
Premiership top 4 League Tables
Club - Debts Av P/L P/L LY P/L LY HC T/O SCORE
1. LFC - 446m -5m 8m -42m 162m 323m
2. MUFC - 619.5m 15.5m 23.5m -21.5m 256m 346m
3. AFC - 674m 0.5m 48m 36m 222m 367.5m
4. CFC - 850m -84m -70m -84.5m 210m 878.5m
[NB - Sorry about formatting but I haven't got time to put into a table]
If that's not enough look at the holding companies in isolation. There is a simple ratio which will show the relative position of the company's debts to income. For every £1 of sales MUFC achieves there has historically been £2.54 of debt incurred, AFC £3.04 and CFC £4.05. Liverpool FC has £2.75 of debt for every £1 of sales. All my calculations clearly indicate that we are not the worst performing of the 'top 4'. In fact we appear to be either the 1st or 2nd best performing in all of the calculations relating to debt.
There is a downside though. We are reliant on our banks to continue loan finance for the foreseeable future unless an investor comes in. But consider this, so are hundreds of businesses across the UK and all of the other top 4 clubs in the Premiership. Consider Chelsea losing Abramovich, or, Abramovich losing his billions (which some say he is already doing)? I believe no one will buy CFC as they won't want to take the debts on and the banks would not be able to see a way back to solvency for the club. Abramovich appears to have literally tried to buy the Premiership for the fun of it. But there is no sign of prudence for the longer term stability of the club which has been applied to ours.
I imagine (because as much as I would love to I can't spend a week, or month, or years mulling through their business asking questions) that the pressure comes from the structuring of the debts. The banks are probably using this to their advantage and renewing short term deals. This keeps the pressure on the club and no doubt strangles cash flow at transfer time. Think of your bank saying yes you can have a mortgage but we want the money back in 12 months! Two possible fixes are a relaxing on lending policies as the global financial recovery continues and/or the ongoing actions taken by Christian Purslow to push our club to where it should be (increasing profits). Which is with a new ground and a sensible annual transfer budget to keep us competitive and successful. Both of these things will generate additional revenues and profits. Setting us up as the football global powerhouse we should have been years ago.
FINAL NOTE
Before any accountants come in on this I am aware this is not the official way of assessing the liquidity of the business but I could be here all day analysing accounts. I could come up with all sorts of bamboozling data and ratios but I just wanted a quick snapshot of the state of affairs, along with a simple explanation. I hope I achieved that.
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