LFC - Blame Game Decisions - Part One (The Owners) [Amended]

Three weeks ago I posted my first blog entry about Liverpool Football Club. The football club I have followed since my first long term memories formed. The majority of my family follow LFC, seemingly because my Uncle used to play for 'us'. My first shirt didn't even have a sponsor on it and Mum always struggled to get it off my back for the wash. These days, on the launch of pretty much every new kit I pick up my son and head to the nearest sports store.

However, I became increasingly frustrated with the blame culture surrounding the club. So I wrote my first LFC related blogpost about 'the blame game' and how everyone was looking for a single individual or group to blame. I didn't agree that any single person or group was to blame in isolation and therefore set out my thoughts. I then slowly got sucked into forums and tweets, particularly in relation to the business side of LFC. Being a company director myself I had a certain amount of empathy for our owners and senior management, but yet the more you hear the more you wonder about no smoke without fire.

So three weeks on and I have interacted in forums, emailed numerous people and tweeted till my fingers went numb. All with varying degrees of success. However, I think I'm at the precipice of making informed decisions, so here goes. [Update: I have now updated this post in light of comments made on the original posting which made me reflect on things and put forward new ideas. All shown in italics]

The Owners

I have been asked what H&G have brought to the club. I believe we have a much better playing squad and significant additions have been made (Mascherano, Torres, Johnson, Aquilani). Now I realise that we have had money in from player sales but I don't believe these players would have been signed pre H&G. They have improved the commercial success of the club significantly with new sponsorship deal etc. Why are all the good things down to Christian Purslow and all the bad H&G? We need to continue improving the commercial revenues to drive profits so we can buy more quality players. But this will take time.

The main areas of concern surrounding the owners appear to be about debts and lies. The consensus of those who are anti H&G seems to be that H&G lied about:

- not putting debts onto the club

- the now famous "shovel in the ground within 60 days" statement

In assessing these 'lies' I wanted to be absolutely clear in my own mind that H&G made statements with an intention to deceive. The actual definition of lie being 'a falsehood uttered or acted for the purpose of deception'. So I find a lie and I can then be clear in my own mind that I should be anti H&G. Well you'd think so wouldn't you? The problem being in this case that there is very little chance of really knowing whether there was an intention to deceive. There are grey areas in relation to the exact quotes, or, feasible reasons for a change of plan within every alleged lie. I also kept coming back to the question of 'why would they lie and what have they gained out of it'?

The debts on the club argument I believe comes about from a very early interview with George Gillett. During the interview he said "We have purchased the club with no debt on the club, so I think in that regard it is different (from the Glazer deal)", it was then a reporter who suggested "Unlike Glazer, who saddled United with borrowings of $1.1 billion, Liverpool's new owners said their offer would leave the club debt-free". These are two completly different statements; only one of which are attributable to the owners. Having reviewed the accounts for Liverpool Football Club it is clear that at one point, following the purchase of the club, the club itself was indeed debt free.

I have found no evidence to suggest that either H or G stated the club would always be debt free. So I am reasonably satisfied, having found no direct quote to substantiate the claim, that they did not lie about this.

Whether they lied or not we currently have a reported £245m of debts within the group of companies. Having conducted my own assessment on our clubs debts in comparison to the other 'top four' clubs I quite conclusively proved that our debts are nowhere near as high as the other top clubs. You have to speculate to accumulate. Everyone wants Liverpool to be successful and this requires a direct synergy between on and off the pitch, both of which at this time require investment. It is also important to note that the bulk of those debts are on the holding company, more about that later.

I moved onto the shovel in the ground in 60 days statement. This was always portrayed to me as something which was a cast iron guaranteed statement from either H or G. Indeed spirit of Shankly include a video of this statement on their website. Again I find no promises or cast iron guarantees. George Gillett stated in February 2007 "The shovel needs to be in the ground within, what,(turning to Rick Parry) the next 60 days or so? (after Parry agrees) and we intend to follow that." My belief is that this is not a promise but a statement of intent. There are two mitigating factors which then took this intention off track.

1. The world credit markets became strangled by the credit crunch. The IMF expects that the world's losses will total $2.8 trillion by the time it is over. These were, indeed are, unprecedented times and possibly the worst financial calamity of modern times. As each month passed from January 2007 the tightening of the credit markets increased to a peak in September 2008. Banks collapsed and the world's governments had to step in to bail out banking institutions and large corporations. During this time America's wealthiest people are expected to have lost a quarter of their wealth. The facts cannot be denied and I find it interesting that, it would appear, some expect a 'protective credit crunch bubble' to have formed around Anfield. It has been noted elsewhere that even Abramovich has lost a considerable amount of wealth during this period, all while his club creeps up to owing him £1bn! Let's see if those loans stay interest free if the hard times hit shall we?
2. It has been suggested that the original plans for the club were not acceptable to H&G and new architects were quickly brought in to re-design the stadium. I have seen comments suggesting that the original plans (of which I have some up on my office wall) were simply not good enough and the plans put in place by Moores and Parry not realistically achievable. Question - why spend millions of pounds on preparation for a new stadium you never intend to build if you are simply here to cash in?

The fans were however quite clearly under the impression that work was imminent on the new stadium in January 2008 after the following statements. Hicks in January 2008 (months after the commonly accepted start date for the credit crunch):

“With the refinancing process now done, club supporters can look forward to the timely commencement of construction work on the new stadium and renew their focus on actions on the pitch."

A month before Rick Parry had told fans:

“The situation in the credit markets has not affected our design, programme, or implementation of building our new stadium. The priority has always been to build a winning team on the pitch and everything else we do is geared towards that."

These quote were provided to me and I verified them. They caused me to re-think my initial posting and I have to confess this update was nearly very different. However, it dawned on me that there was something neither I or others had thought of. Which I believe adds weight to the credit crunch theory.

So lets start a timeline from January 2008, the date of the last comment provided. Hypothesise that everyone's happy and the bank are making the 'right noises' about continued backing after already recently providing £350m of new funding. Then look at the backers in question, RBS and Wachovia. In April 2008 RBS attempted a rights issue to try and raise £12bn as it battled against the credit crunch and asset write downs from ABN Amro. A sure sign of the rot setting in at the bank. By October of the same year the government had to step in and inject £37bn. Then turn your attention to Wachovia. In the second quarter of 2008 the bank lost £8.9bn, in June the CEO was ousted and a new one was in by July. In September the bank lost, in two days, £5bn of deposits and 27% of its stock value. On September 28th the regulators were concerned that the bank didn't have enough short term funds to open the next day. The bank was then bought out by Citigroup in a deal forced upon Wachovia by the US government and regulators.

While the Hicks and Parry statements were made months after the credit crunch started, the credit crunch did not affect the banks who were backing LFC until after the statements. The timing fits in perfectly with having to put the stadium on hold. Within 9 months of Hicks' statement both of the banks had effectively collapsed, the blame for this not resting anywhere near Anfield. So the banks come back this year in the new era of ultra cautiousness and demand a repayment of £60m, which was paid. So now we have to find new ways of funding the stadium, which from what I can see is happening.

I have listened to the recordings on the spirit of Shankly website and yes there is contradictory information given by Gillett, but I assume this was an 'off the hoof' meeting, which was possibly confused by the facts stated (especially in relation to the 60 days comment). Is it possible that George Gillett says that Tom Hicks must have promised the shovel in the ground because neither of them promised it? Is it possible that contradictory dates are given for the credit crunch because there is not a specific day it started (as noted above)? More questions, no answers, no concrete proof.

I'm not getting into the expenses row. The Kop Football holding company is entirely the personal property and liability of H&G, within it lies the asset of Liverpool Football Club. They are entitled, with the confines of the law, to extract whatever money they want from it. You see there's the kicker the debts we are all up in arms about. Well the bulk of them appear to be the personal liabilities of H&G.

For those worrying about the possibilty of Liverpool being the next Leeds. Leeds' turnover (in the run up to it going into administration) was less than half of Liverpool Football Club and the football club posted a £50m loss in 2003. My brief research into what would happen if Kop Holdings became insolvent strongly indicates that the football club would not be severely affected. During my research I found the following quote from law notes "However, no court has yet found subsidiary companies liable for their holding company’s debts." I also came across a news story in relation to Thomas Cook, whose parent company became insolvent. They continued to trade normally and the shares in the company were then sold on by the receivers of the parent company. This is more than likely, in my opinion, to be what would happen to Liverpool Football Club in this scenario.

So the club (to the best of my understanding) has £105m of debts which is up by £60m post H&G. For that £60m the club has the planning permission and 'soft costs' met for the stadium and an improved playing squad. The clubs wage bill jumped up £12m in the last financial year and will no doubt jump up again this financial year, in light of improved contracts and improved player acquisitions. Another matter that seems to often get overlooked is that during the H&G years the 50% stake in LFC TV was bought back from Granada at a cost of c.£15m. when you start looking at all of these 'improvements for the future' with a good spread across players, players' salaries, stadia and commercial improvements it is hard to understand why people feel the debts are being used for anything other than future prosperity.

I have heard concerns about a points deduction following the administration incident at Southampton Football Club. Again I believe this to be an entirely different situation. Southampton Football Club purposefully placed their holding company into administration to avoid the points deduction. The league reported "The holding company is solvent in its own right. It only becomes insolvent when account is taken of the position of Southampton football club and the other group companies." This is clearly not the position that Kop Holdings would find itself in.

I have been asked about the auditors comments at the end of the last financial year when they suggested that Kop Holdings may not be able to continue trading as a going concern.

There are three things to consider with the auditor's notes:

1. Auditors by law have to be ultra cautious. They get sent to prison if they aren't. This is obviously important with companies who are in the media spotlight.

2. They were talking about Kop Holdings and you have to separate the two companies out IMO. Kop Holdings would have been struggling. £42.6m loss and only £10m from its subsidiary available. Loan finance had dried up so an injection of capital was required. Which was provided.

3. Both the owners have recently sold other major assets. Hicks has also said our star players won't be sold. Now two things with that. I have noticed he stopped short of saying no players will be sold and we can't all be up in arms if, say, Mascherano leaves in the summer because he wants to.

So, an intention to lie or deceive? I still cannot find any concrete evidence of it and believe me I have looked. I always come back to the same old question, why lie? What benefit do they get from lying?

To me it makes little sense to plough millions into any company if you are just there to asset strip or cash in on it. I am also satisfied, based on the information collated to date, that the companies are solvent and improving. In the unlikely event of the club 'going under' it would simply be sold on by the banks and I do not believe the league would be likely to deduct points.

So where do I stand? Well as I started to be honest, which is H&G neutral. Mainly because, while I do not believe they have caused significant detrimental damage, they have made mistakes. Their own warring, the media attention and the Klinsmann incident mean that they have to prove they have learnt from past mistakes. They have to earn my trust as a fan. I also remain open to the possibility that while I haven't found evidence of lying, they may have been disingenuous at times. Although again I have found no real evidence of this.

I still strongly believe that the club could open up its communication channels and resolve most of this, if there truly is nothing to hide. However, have I seen evidence of enough harm being done to warrant me being anti H&G and wanting them out of the club? No. I also see improvements being made to the club commercially and I see the club moving forward. Our playing squad is stronger than it was, could it have more depth, well there's never enough depth is there?

I don't want Rafa to be handed an open chequebook and end up in the same position as Chelsea. People often overlook, because of his wealth, that the future of Chelsea Football Club is in the hands of one individual. If he fails believe me Chelsea Football Club will disappear! We have to be run as a profiting, successful and commercially astute business. This means debts and expenses and everything else that comes along with business. It is just the reality of the situation. The bonus - well off the pitch success is generally driven on the pitch so investment in the squad is, within prudent financial limits, assured.

FINAL NOTE: Please feel free to post your point of view. Feel free to disagree with me. But, convince me! Give me something to go on, something concrete. You see I've asked this of many anti H&G fans. Not one has yet delivered me a link or other evidence to validate their assertions. I'm happy to keep an open mind and I'm happy to join and go to demonstrations with spirit of Shankly if I am convinced it is the right course of action. It needs to be warranted and personally at the moment, it isn't.

Coming soon... Part Two - Rafael Benitez and Part Three - Spirit of Shankly, Forums and the Fans