Liverpool’s Troubles Continue

I seem to be writing at length about Liverpool in each monthly report, but the club’s troubles continue.    They are in much greater difficulty than any of the top clubs.  At the beginning of October they are in the relegation places after a shock home loss to Blackpool.   No doubt they will pull clear as the season progresses.   But their chances of winning a Champions League place are far receding, let alone being in contention for the title.

The club’s problems on the pitch are undoubtedly related to those off it.   Roy Hodgson has spoken of a cloud hanging over the club.   There was not as much money to spend in the transfer window as was needed.    There is no doubt that the unsettled situation in relation to the ownership of the club has had a subtle, indirect but nevertheless real effect on performances.

So what is the current position?   Tom Hicks launched a scheme to secure sole control of the club, George Gillett having encountered difficulties with one of his personal loans.   It did seem for a while that a private equity outfit might re-finance Hicks’s loans.   But this all came to nothing and in any case the board, where the Americans can be outvoted three to two, made it clear that they would block the scheme, having taken legal advice that they would be entitled to do so (as they would be acting against the interests of the shareholders).

The loans provided by Royal Bank of Scotland (RBS) and American bank Wachovia have to be re-financed in the middle of October.    RBS would then be in a position to declare the loans in default and seize control of the club.   They have made a lot of money out of their loans to Liverpool, but they do not really want to be in control of the club.   Any takeover would have to be conducted in such a way that it avoided the club going into administration and incurring a points penalty which would make it a much less attractive prospect to a potential purchaser.    RBS also do not really want all the bother of selling on a football club; they have enough problems to contend with as it is.   If things went wrong, they could easily incur the wrath of the large numbers of Liverpool fans round the world and consequent bad publicity which they could do without.

It’s a fast-moving situation and any predictions could easily be disproved by rapidly changing events.   However, here is what I think is the most likely scenario.   RBS will permit a short extension of the loans to allow a sale to proceed.   Liverpool says that there are now some credible buyers that are close to making a bid.    Of course, that raises another problem, the inflated price being demanded by the owners who want to see a return on their investment.    Whether we will see all this sorted out by the end of the year remains to be seen.   But the longer it goes on, the more Liverpool and its fans will suffer.

Manchester City has been in the news with a £121m loss in the last financial year, reflecting the large sums they have spent on acquiring players.   This is the second largest annual loss in the history of the Premier League, only exceeded by that at Chelsea in the first year when Roman Abramovich was in charge.   City’s outgoings on wages now exceed the club’s total revenues.

This poses a challenge as next season Uefa’s new financial fair play rules come into operation.   Clubs will only be allowed to incur a £39m loss over a three-year period, although some forms of expenditure are excluded from this target.    The last thing City want is to qualify for the Champions League and then be excluded because of their over spending.

City does have an escape strategy.   First, they want to build up revenue, which is already improving.   Average attendances at Eastlands are up.   They have capped season tickets at 35,000 and claim to have a waiting list of 10,000, although this sounds like a suspiciously round figure.   They plan to expand the capacity at Eastlands.  The most modest variant of this plan would see it increase by 5,000.   A more ambitious plan would expand it by 20,000 to rival Old Trafford as the largest club ground in the country.   High earning corporate capacity would also be increased.

City also point out that they have built up the size and quality of the squad and will not need to spend so much in the transfer market.    Perhaps so, but their biggest constraint is their large wage bill.   It is difficult to see how this can be substantially reduced without impairing the quality of the squad.

Of the top clubs, Arsenal appears to be in the best financial shape, having announced record profits.   However, this is mainly the result of the property development side of the club.   The Highbury Square development is starting to deliver the results that were hoped for, although there are still some units to be disposed of.   The football side of the club is really only breaking even.   The real question now is whether this financial success can be translated into results on the pitch which would seem to involve spending more money on players.

In the non-league system, Ilkeston Town is the latest club to bite the dust, having been forced into liquidation.   However, there are hopes of a phoenix club being formed next season with a number of investors interested.    Mansfield Town managed to find a benefactor as it faced administration.    Benefactors certainly still exist with Crawley Town being promised a £1m war chest in the January transfer window to help secure promotion to the Football League on top of the £500,000 already made available by the new owners.    It seems there are still people prepared to turn a big fortune into a small one by getting involved with a football club.

Wyn Grant is a regular contributor to Albion Road and also the publisher of footballeconomy.com, a website covering the business and economy of the game of football.