The 'Dubai Effect' Still to be Felt by LFC?

I recently wrote on the potential side step we took in relation to DIC's proposed takeover which fell through. Given the recent goings on in Dubai it is possible that fate dealt us a kind blow during the ownership wrangle. It is unfortunate then that Liverpool FC may still find itself within the turbulence of what is happening in Dubai.

When reading the articles about Dubai last night two notable names kept coming up. Reports suggest that the bank most likely to be affected by the Dubai fall out is our shiny new sponsor Standard Chartered. It is unknown at this juncture as to how indebted the Dubai companies in mention are to Standard Chartered. Worryingly though there is now talk of a second wave to the credit crunch - with our new sponsor at the fore front of it. Standard Chartered fared quite well during the credit crunch, hence their ability to enter into a record breaking (at the time) shirt deal with Liverpool. It is early days with the Dubai 'situation' but Standard Chartered will certainly be a name to keep an eye on.

The other name which has been thrown into the mix of the potentialy affected is RBS. RBS is a different 'kettle of fish' altogether, having been battered by the first wave of the credit crunch. In the blame game part one I put together the timing of their demise and it's impact on Liverpool Football Club. Following the first wave of the credit crunch Liverpool's owners had to pay off £60m of the debt capital. This was despite the club being in a relatively stronger position financially than its competitors (in relation to debt). Is it conceivable that a second wave of bad debts (not from Anfield) to hit the bank could mean they have to impact on their good customers again? It is certainly possible that they will once again have to shore up their own finances. Any more demands for capital repayment will no doubt have an impact on any transfer budget and future growth plans for the club.

On the plus side this may yet all blow over and in a year's time some will be back wishing that DIC had bought us. Many are suggesting that Abu Dhabi will still ride to Dubai's rescue, see it's not what you know...

Liverpool Football Club - On the brink of collapse somewhere!

This morning in an alternative universe Liverpool Football Club woke up to a brand new world. Over the past 24 hours their owners have found themselves in increasing difficulty as the Dubai Government, who own the club through it investment vehicle DIC, find themselves on the brink of collapse. £44bn has been wiped off the stock of Dubai related companies and the credit ratings of its major companies downgraded.

What does this mean for Liverpool Football Club? Well DIC had followed their usual protocols of applying high leverage against the business assets to support it. The club has benefited from major activity in the transfer market and the building of a new stadium, which is 50% complete. If the Dubai government is unable to reach agreement with its companies' creditors then it could effectively collapse.

This would mean disaster for Liverpool Football Club as it is unlikely that anyone will see the opportunity to make a return on such a highly leveraged business. It is inevitable that work on the new stadium will cease and the possibility of a fire sale of its most prized footballing assets including players Fernando Torres, David Villa, David Silva and Steven Gerrard are more likely than ever. Given the debts were placed directly onto the club and guaranteed by DIC rather than through a special investment vehicle (holding company) it is highly likely that Liverpool will face a points deduction from the FA.

One of the truly great clubs of all time woke up this morning and found itself on the brink of falling down a deep black financial hole.

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Back to reality.

What would have DIC done that would have been any different to H&G? In a world where credit was easy companies grew on the back of leverage against assets. What I believe would have been different would have been the sheer level of debts. Much like CFC face destruction if Abramovich fails, so would we.

IF H&G fail then LFC will be bought and we will not (I believe) face any points deduction. The debt levels are more than acceptable to a potential buyer at the moment and the company is run by an effective management team who are delivering its potential after years of neglect. This turnaround will take time and patience is required. Much like it is with Rafa at the moment.

We can't go out and buy players without taking on extra risk. It is a balancing act and one which Christian Purslow and his team is managing very very well!

Please do not comment on this page unless you have evidence of business reasons why H&G are bad for LFC. I don't want emotive comments, I want cold hard facts. Before you do, go do some research. I have done a lot for you and would refer you back to Blame Game Part One.

This morning I woke up and thought, thank god for that!