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Liverpool walks on

Robert Peston | 08:24 UK time, Tuesday, 23 June 2009

The good news for Liverpool FC supporters is that the club is not about to go bust.

George Gillett and Tom HicksI understand that Royal Bank of Scotland has told its two billionaire owners, George Gillett and Tom Hicks, that their £350m debt - which falls due for repayment on 24 July and is owed to Royal Bank and Wachovia of the US - will be refinanced.

A new lending agreement will be put on place.

The less good news is that Liverpool is a microcosm of the British economy: the club borrowed too much; and it now has to tighten its belt, pay down debt and endeavour to live within its means.

There's no reason for Liverpool supporters to feel hard done by or victimised. With household debt, corporate debt and public-sector debt at record levels in the UK (equivalent in aggregate to 400% or so of GDP), they're living a footballing version of what the next five years will be like in UK plc.

And although there may be less money available to the manager to spend on what his supporters want (am I talking here about Benitez or G Brown?), many would say that's better than the alternative of living with the constant fear of foreclosure by creditors.

Royal Bank and Wachovia will insist on significant payments from Hicks and Gillett in the subsequent six months.

The banks have sway over Hicks and Gillett, because the US duo have pledged a good chunk of their US assets as security against the Liverpool debt - and plainly they would rather not have these US assets seized by the banks.

But there's a proud history, lots of backbone and a talented squad (am I talking here about Liverpool FC or the UK?). It may have been foolish to borrow too much, but the lesson has been learned (presumably) and the fight goes on.

Comments

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  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    Hestor's Package :: Who's insulting who ??

    By all means pay him £9 million if he restores the share price to where it was at its peak of more than £6 so that long term investors can re-establish their investment. But £9 million for raising the price by little more than 30p while small investors still have their lifetime savings wiped out !! Who's insulting who ?? Were the Government Directors instructed to support this in the hope that the UPROAR would deflect attention away from the MP's fiasco ??

  • Comment number 3.

    well what happen to all investors of that bank? is there anyway they could what they invested?

  • Comment number 4.

    is there anyway they could get back the money then?



    [Unsuitable/Broken URL removed by Moderator]

  • Comment number 5.

    Hmm, call me cynical if you like but with RBS, in effect, under government control, Liverpool being very much an area where Labour support is traditionally strong (but could slip either towards the centre or further left, as it has done in the past) and a general election within the year... Nah, you're right, I'm being far to cynical.

  • Comment number 6.

    Isn't a better football club analogy Leeds United and Gordon Brown is the equivalent of Peter Ridsdale - who took Leeds from the top of the Premiership, overspent spectacularly to create a short-lived 'feel-good factor' and left my club in a state that led to administration, Division 3 (yes I know its called Div 1) and probably decades of misery.

    Marching on Together

  • Comment number 7.

    Think you'll find that a lot of Liverpool fans don't see this as a good news at all, in fact far from it, as the following link from the Spirit of Shankly supporters Union shows:

    http://www.spiritofshankly.com/news/RBS-and-MPs-_-No-to-Refinancing.html

    "Tom Hicks and George Gillett are not 'fit and proper' owners of our club. They never have been and never will be. The problem we face is that RBS deem them to be. RBS need to be made aware, again, that we don't want Hicks and Gillett anymore, and we don't want RBS to re-finance the loans and increasing our Clubs debt"

  • Comment number 8.

    Is this really the most important business story to blog about at the moment?

    No mention of refinery workers? £1 trillion of public sector pension liabilities hanging around the private sector's neck? BA seemingly inches away from requiring government support? Banking fees decision in the Lords?

    Apparently not. Instead a story about a club own by foreigners who's overpaid players kick a bag of wind around.

  • Comment number 9.

    No mention of Gillett's recent (and massive) sports asset sales in the US to the tune of c£350m??

    Surely those sales will impact upon the refinancing? i.e. perhaps the RBS/Wachovia deal is more short term than medium/long term. There is also rumour that relations between Hicks and Gillett aren't what they once were...the current financial climate is also inevitably increasing the number of divorces- its not exactly Loverpool at the moment.

    Point is- Gillett may look to increase his Liverpool holding at knock-down prices- leveraging against Hicks' (and his own pressure) to refinance Kop Holdings...

    The premiership remains unbelievably profitable though it remains to be seen if ticket sales and TV rights income will hold up during this (and more importantly the next) financial year/season. Especially with the rights coming up for renewal in a year.

  • Comment number 10.

    Does this mean we have our first nationalised football club? lol, what a state the 'economy' is in, the great ponzi scheme is still in danger of collapse.

  • Comment number 11.

    I'm confused about this whole concept of Liverpool "going bankrupt due to debt".

    The club massively increased turnover and profits last year, and "owns" extremely valuable assets in terms of players, plus Premier League membership, and a coveted entry into the Champions League.

    The only debt associated with the club was that incurred by the owners when they purchased Liverpool FC. None of the debts arise from trading.

    Surely all that would happen if a refinance deal was not arranged with RBS is that the owners would try to sell the club, or the ownership of the club would revert to RBS, who would then sell the club.

    An analogy is with a couple failing to keep up with mortgage payments. If the house is falling apart, then the house will be unsaleable and either the owners or the mortgage lender would knock the house down and sell the land.

    If the house was perfectly sound then the owners would try to sell the house with as little negative equity as possible, or they would default on the mortgage and the house would revert to the bank. In no circumstances would a perfectly good house be knocked down due to bad debts.

    As much as some of the fans of Liverpool FC rivals like to fantasise about the club going bankrupt, this was never going to happen.

    The worst that could have happened was an extended period of ownership by a disinterested party such as RBS, which I can't really see happening as there seem to be plenty of people interested in investing in Premier League teams.

  • Comment number 12.

    Whether Liverpool is a microcosm of UK plc or not the underlying problem is paying down debt without exacerbating the depression. In Liverpools case it is avoiding large spends on players but for the British economy paying down debt will extend or worsen the depression and with the lag of rapidly increasing unemployment the green shoots will turn out to be a mirage.

  • Comment number 13.

    " But there's a proud history, lots of backbone and a talented squad (am I talking here about Liverpool FC or the UK?). It may have been foolish to borrow too much, but the lesson has been learned (presumably) and the fight goes on."

    You can't be talking about Brown. No lessons have been learnt there. He cannot stop spending. Like a shopaholic he will deny he has a problem until one day, kicked from office he begs for "help with my addiction."
    Then the next government will find loads of unwanted, expensive projects like airport runways, broadband trenches and I.D.Cards hidden,unopened in the wardrobe.

  • Comment number 14.

    If it is net worth in £, then two billionaire are worth at least £2bn.
    £350m debt is not high in relation to worth. Most of us owe much more in mortages.

    "live within its means"

    The addicts (of drugs, drinks ,,,) share some of the blame for their conditions and the consequences. But how about the pushers, the dealers, the masterminds, the drug lords who may well be "respected" in society.

    Who encouraged, facilitated and coerced the country to live beyond our means? How? Why?

  • Comment number 15.

    A key point that will not go away (for generations) ....

    "With household debt, corporate debt and public-sector debt at record levels in the UK (equivalent in aggregate to 400% or so of GDP)" ....

    .... yet people were taken in by the concept of "Prudence" ... the most successful example of 'spin' and the biggest con in history ... and here's another one ...

    "But there's a proud history, lots of backbone and a talented squad" ... and "the lesson has been learned (presumably)" ....

    ... talented squad? learning from mistakes? ... 'presumably' is the key word here as I've not seen them ... people just try and get better at "spin" (eg Mandy) and at "deflecting blame" (eg. it's due to a world crisis, and nothing to do with us!) ... rather than taking responsibility, admitting/recognising mistakes and changing things for the better ... and how many of the 'leaders' still in power failed to spot the crisis (and in fact tried hard to 'spin' the opposite) ... and yet now want us to believe their predictions for the future (e.g. Government, Politicians, CBI, Economists ...)

    I'm afraid innovation, jobs and exports are the things we need to look at, not house prices or football, and many more enterprises, and nations, will go 'bust' due to a lethal combination of Poweromics* & Ignoromics** ... and unrest, wars and deaths*** will inevitably occur unless things change radically and quickly ... which they currently are not ... now history does tell us this ... and the plan is ...?

    ... to adopt more 'spin' and 'celebrity', talk up the green shoots of recovery, deflect people's attention away from the problems and hope that their memories are short ... the problem is that these 'real problems' are not going away ... they are just getting worse ...



    David Clift. A Future 500 Leader

    * Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.

    ** Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better.

    *** http://books.google.co.uk/books?id=-8xAIgkewOUC&printsec=frontcover (chapter 8)



  • Comment number 16.

    #11. At 09:38am on 23 Jun 2009, doobiedave wrote:

    "I'm confused about this whole concept of Liverpool "going bankrupt due to debt".

    The club massively increased turnover and profits last year, and "owns" extremely valuable assets in terms of players, plus Premier League membership, and a coveted entry into the Champions League."


    Think parent or holding company, Liverpool FC is not going bankrupt but the company that owns Liverpool FC might - the FA apparently makes no differential between the two, it doesn't matter if the actual football club is solvent if the parent company get into trouble, as Southampton found out a few weeks ago. Also, the football club would become an asset of the official receiver...

  • Comment number 17.

    No,Robert,the situation of Liverpool FC and the UK are not at all
    analogous.The banks in the former case can require repayment of their
    loans (or at least a reduction in the club's spending)whereas the
    British taxpayer is unable to do anything to prevent Mr.Brown's
    spending like the proverbial drunken sailor on shore leave.In fact,the
    only thing that may stop him is a gilt buyers' strike;but this 1976
    type of solution is of scant consolation.

  • Comment number 18.

    Its interesting in all of this to think about the one issue that ties all of the problems together and Mr Peston amongst others hasnt talked about too much.

    If the Government INVESTED hugely in RBS Shares (and Lloyds Banking) which they did, there should be an expectation of a profit. Mr Peston has talked about that point widely.

    what hasnt been talked through is the implications of this profit. The price UK Plc paid for its RBS and Lloyds shares was from memory 65p and then 20p(ish) for the former and 50p for the latter.

    lets say that over the next 3 years those shares go to £1 and 1.50, there will be a huge profit. UK Plc doesnt pay CGT on its shares, so this profit will be available to Mr Brown or more likely mr Cameron to use elsewhere.

    Rather like LFC, the "unexpected sale" of something valuable (or the planned sale of something in the future) could be the way that we get out of this mess.

    Were UK Plc to receive circa £100Bn of profit, even at these low levels, wouldnt that pay off a huge amount of the debt mountain.

    Sure the shares couldnt be sold in one block, but over the next few years their value will increase and a staged resale of the shares could be extremely profitable and that money could repay a huge amount of debt....now all LFC need to do is find an RBS or Lloyds that cost them virtually nothing and could be worth a fortune......if Ronaldo is worth £80M what price Steven Gerard....

  • Comment number 19.

    Re "Boilerplated"

    "Think parent or holding company, Liverpool FC is not going bankrupt but the company that owns Liverpool FC might - the FA apparently makes no differential between the two, it doesn't matter if the actual football club is solvent if the parent company get into trouble, as Southampton found out a few weeks ago. Also, the football club would become an asset of the official receiver..."

    Actually, I don't think I'm confused, I think a lot of other people are!

    The job of the official receiver would consist of identifying the holding company's creditors, which consist solely of RBS, and dispersing the holding company's assets, which would mean Liverpool FC passed into the hands of RBS. Official receivers only get involved where an business entity has failed a "going-concern" test and the creditors have petitioned for a winding up of the company, a brave move for RBS to take with Liverpool FC.

    The analogy with Southampton FC was one I was originally going to address in my original post. The situation with Southampton FC is different, in that the holding company's only assets were Southampton FC, and the only debts arose from the trading losses incurred by Southampton FC. This is not the case with Liverpool FC, where turnover and profits are increasing year-on-year.

  • Comment number 20.

    Post 11 I feel you have got on your rose coloured spectacles.

    RBS is only one of the two banks. Remember Wachovia were the bank that pushed Woolworth's into administration also just because RBS have agreed to refinance doesn't mean it is on the same terms as before.

    I imagine that RBS will want.

    1) A considerable amount of the debit paid down (why else would Gillete be looking to sell the Montreal Ice Hockey team)?
    2) A higher rate of interest.

    They may also make it clear that this is a short term deal to allow Hicks and Gillette to not have to make a forced sale like is happening at Newcastle thus allowing them to get much more of their money back.

    Also if football in the Premier League is such a hot ticket why are so many clubs for sale?

  • Comment number 21.

    What is really concerning for our beloved club now is taht it is owned and controllled by two carpetbeggars,who are now beholding to the RBS bank who has been run like a printing machine for worthless notes,no doubt there will be a massive fee and margin charged for this refianancing which will eat into the monies available for the club to compete at the top level once they stop competing and the source of cash drys up is when our club goes into freefall

  • Comment number 22.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 23.

    Thanks for ruining my day Robert. As you may be able to detect from my tone, I am not happy with this turn of events.

  • Comment number 24.

    There is a lesson here for all non-business people to see how crooked common business practice really is.

    You put up your own money as collateral on a loan to buy a football club. You purchase and then re-finance the club - like a re-mortgage. With the money you raise you pay yourself back the collateral and any costs involved (including your travel to and from the club from America to set the deal up in the first place).

    You then own a football club (or more accurately the bank owns it on your behalf) and your liability is removed. If the club goes bust you loose nothing and if it's successful you can pay yourself a nice fat directors wage.

    This practice has been going on in business for years - Private Equity is built around this model.

    The WHOLE JUSTIFICATION FOR PROFIT TAKING is defended by the Free market loonies as there is a RISK INVOLVED.

    In the case above - where is the risk? There is a small risk while you're own money is down as collateral, but this is merely a short term position you are quickly out of. This is incomparable to the potential profits that can be taken.

    This model also relies on the asset values rising so they can always be 're-financed' - which basically means cashing in on future value (value that has not yet been earnt)

    Ordinary folks couldn't do this because they do not have the wealth to put down the collateral to start with. The reasons for this are complicated and historic - but essentially there are the 'haves' and the 'have nots'.

    There isn't a single person reading this blog who could have bought Liverpool - I can guarantee it.

    So that's what the ordinary folk need to be fighting against. Is it right that a 'rich mans club' can play with the things that people love? (and no, I'm not a Liverpool fan, but it's the same for any football fan). However the club is more than simply a football club - the Hillsborough disaster shows that it's actually a community.

    Without the risks and the moral hazard the Free market Economy simply becomes a giant cartel for the rich. Sure - things may work out for Liverpool, but look how they have gone for Newcastle, or Southampton - for every success there is a failure.

    So can anyone of the numerous Free market winbags defend the absence of risk and what it does to the system? If the system is fair, then why doesn't everyone face the same risks on their investment. There's always moaning about the 'idiots who borrowed money they couldn't pay back' as being the cause of the boom and the subsequent recession. So why do the poor have to accept the risk and the rich have absolved themselves of it with their crooked manipulation of the system?

    If you ask ANY MULTI MILLIONAIRE they will happily tell you that "the first million is the hardest to make"

    Ergo - after that it gets easier.....

    Some system then, once you get to the top (or more likely are born into it) - then you find it easier to retain your position.

    No wonder all these bankers are desperate to become multi-millionaries. If you follow this logic then the ones who are there will stay there and it will become harder and harder for anyone else to break the ceiling.

    So who's still up for this game of Capitalism? Still think you can win?

    You might get lucky, but the longer the game goes on the less likely it will become (wealth being a finite amount at any fixed point in time). it's highly likely most ordinary people will die trying to win (or bring their death forward through stress and anxiety)

    What we have is a world of suckers - all playing a game where the cards are stacked against them - the ONLY solution is to turn the table over and end the game.....

  • Comment number 25.

    Robert

    No offence but your posts are getting worse. When you eventually talk about something other than the banks it just seems to be anything you may have heard on the way to work!!! Come on Robert at least make it look like you are interested in what you are writting about!!

  • Comment number 26.

    As a Liverpool fan, I am quite glad to see this because it means that Rafa Benitez actually has some to use. But it seems that RBS are putting themselves into more trouble

  • Comment number 27.

    "With household debt, corporate debt and public-sector debt at record levels in the UK (equivalent in aggregate to 400% or so of GDP)"

    Do you know, I've been saying on and off for 12 months that these figures being bandied about for gross debt would be far, far, far more usefully interpreted if we were also given the figures for nett debt.

    Sure, the absolute volume of gross debt is a problem area in itself. The greater it is, the greater the amount of compensating gross assets, and the more we are at risk from asset-value fluctuation.

    But surely the key measures of our national financial position are:-

    1. What is our nett financial position with the rest of the world? How much of this 400% of GDP debt is not matched by other countries' gross debt owed to us?

    2. What is the nett trend movement of this debt? Are we, as a country, becoming more indebted or less indebted?

    3. What is happening to our overall nett wealth? How good is the "security" that we can offer to those who may be prepared to lend us money? Do we have oodles of solid assets that can, if necessary, be given away to pay down debt? Is the value of our gross wealth increasing by more than the amount of our gross debt?

    Why can't we be shown a national balance sheet and financial flows statement? They surely can't be that difficult to produce.

  • Comment number 28.

    Regarding the 5th paragraph - do Liverpool supporters even need a reason to feel hard done by or victimised?

    And as for the "belt-tightening", Benitez is about to spend £18.5 million on a slightly above average full back. Only a few other clubs in the whole world can afford to do that right now.

  • Comment number 29.

    " 20. At 10:06am on 23 Jun 2009, Ian_the_chopper wrote:
    Post 11 I feel you have got on your rose coloured spectacles."

    I'm a LFC fan, nothing about this situation is going to persuade me to put on my rose-coloured spectacles!

    "I imagine that RBS will want....a considerable amount of the debit paid down (why else would Gillete be looking to sell the Montreal Ice Hockey team)?"

    Gillet is looking to sell the Canadiens as he's made a rational business choice. He's cashed in his NHL holding as he see's the Premier League team as a more profitable entity, given it's global reach and potential for expansion. As soon as the debt with the banks is paid down, the interest payments decrease and he starts to make money.

    "Also if football in the Premier League is such a hot ticket why are so many clubs for sale?"

    Well, I can turn that around for you quite easily, if the Premier League is such a poor investment, why are so many people looking to invest? PL owners are looking to sell as a seat at the Premier League table has increased massively in value recently. Hicks and Gillet could sell very probably sell right now and make a huge profit on their investments.

  • Comment number 30.

    "28. At 10:38am on 23 Jun 2009, nick78447 wrote:

    Regarding the 5th paragraph - do Liverpool supporters even need a reason to feel hard done by or victimised?"

    Given bigoted comments such as yours, perhaps the much touchy souls amongst Liverpool supporters would indeed have a reason, yes.

  • Comment number 31.

    The club was never "about to go bust" in the first place. The loan was taken out by the owners in buying the club. If it had been called in, they would no doubt have sold the club to the highest bidder, assuming one could be found willing to deal with these two lying parasites.

    What is particularly frustrating is that despite their claims they aren't able to build the new stadium, they now look likely to get a new credit arrangement which would have more than covered the costs, if they weren't solely interested in lining their own pockets risk-free at the expense of the club, and of the local community.

    This isn't just a matter for football supporters, the stadium was supposed to be the cornerstone of regeneration work in the Anfield area, thanks to these two, one of the poorest regions in Europe is not getting the development promised.

    This is only good news for the club owners and, possibly, the bank.

  • Comment number 32.

    RBS do some very wierd things... Whilst pouring millions into the sponsorship of Formula One this alledgedly Scottish bank wouldn't give a penny in sponsorship to Scottish motorsport to help local drivers.

    I know two race drivers that work for RBS but they wouldn't even help them. Putting up a few tens of thousands would have made a massive difference.

  • Comment number 33.

    "It may have been foolish to borrow too much, but the lesson has been learned (presumably) and the fight goes on."

    This is just unbelievable. Liverpool FC only had debts of around £40m before the takeover, when George Gillett falsely assured us "We are buying the club without any debt on the club."

    You make it sound as if the money borrowed has in some way benefitted the club, it hasn't, merely brought us plentiful embarrassments in the media.

    Please do some basic research, you're a journalist for god's sake!

  • Comment number 34.

    Football is an utterly unsustainable business model and everyone has known it for some years - certainly since Fiorentina went under in the 90s.
    The only way to make money from a football club is for a rich man to buy it and sell it to an even richer man. The game has become dominated by wealthy men seeking to validate their positions in society through the adulation of the masses. The trouble is, now that the richest people in the world own football clubs, who are they going to sell them to? There aren't enough billionaires left to buy them. The only way is down. There are too many clubs and the whole 'industry' can only go down from here.

  • Comment number 35.

    Sorry, but football must be the biggest "hyped" "industry" in the UK.

    The UK is full of over paid people kicking bags of air about and worse wannbe children kicking bags of air about. Yet the lifestyle and morals of the footballers is in the gutter.

    If people in this country backed industry in this manner maybe we would have a fighting chance on the world stage,,, mind you our international performance in footy isnt great eh ?

  • Comment number 36.

    It seems to me totally wrong that public companies can be bought by people who use the companies they are buying to pay for the purchase. Liverpool Manchester United and if I recall Harrods are all funding their own purchase.
    Nobody seems to actually pay for these companies except the companies themselves.

  • Comment number 37.

    24, Bravo!

  • Comment number 38.

    A £350m debt for a club worth in excess of twice that amount is no problem at all. Most of are in a far worse position with our mortgage until the last 5-10 years of repayments yet no-one claims we will go bankrupt because of it.

    RBS will keep refinancing and rightly so as long as Liverpool have more assets than the loan and RBs is itself solvent. That is how Banks make their money.

  • Comment number 39.

    Post 29 Liverpool FC have been hawked around the market for some considerable time the problem is simple in that no one was prepared to pay the price the American's wanted or needed! As Mike Ashley found out a forced sale will get you no where near what you need.

    Many of the supposed saviours of Liverpool in the past have been based in Dubai and unless you have been living on another planet you will know that the Dubia economy makes ours look positively rosy at present and they have huge financial problems.

    There are a limited number of people with the cash available or ability to raise the money invloved. If it is such a good buy why hasn't someone bought them by now?

    Liverpool as a club has reached it's natural limit in its current stadium which like many in the premier league is an improved and updated verision of an older stadium. Everton are in the same position as are a number of other clubs such as Portsmouth and Fulham.

    Since the building of the centenary stand at Anfield development at Liverpool has not moved forward. They are also constrained in their earnings on corporate hospitality.

    They need a new stadium in order to compete with Man Utd and Arsenal who have stadiums that can hold approx two thirds and one third respectively more supporters than Anfield. Both also earn much more from Corporate hospitality. Both also seem to be able to push through ticket price increases without reducing attendance. This is perhaps not an option for Liverpool with their more traditional fan base.

    I am not having a go at the club it is just that the new stadium which is in stasis whilst all this uncertainty goes on is only getting more expensive by the day as its building is being delayed.

    Anyone looking to buy Liverpool has a moral obligation to go through with the new ground which will require funding, or finance of at least GBP 300 million at best.

    The economics of football have reached their limit and the collapse of Setanta is merely one sign that the bubble is about to burst on the premier league.

  • Comment number 40.

    #34. At 11:07am on 23 Jun 2009, eddixon wrote:

    "Football is an utterly unsustainable business model and everyone has known it for some years - certainly since Fiorentina went under in the 90s. ..//.."

    Agree with everything you say, it's a problem that has also been staring F1 in the face for a few years - hence all the moves over the last few years to limit the money being spent within the sport. As for football, the two worst things that happened to football (in England at least) was the Premier League and jumping into bed with Mr Murdoch who was quite prepared to over-bid for the TV rights (for his own commercial needs), thus allowing the good times to roll even further towards the cliff edge...

  • Comment number 41.

    If my understanding is right...

    There are a lot of very poor quality comments above.

    Indeed, Liverpool FC's day-to-day operating is in the green, and annual reports are also in the green, but the parent company is quite strongly in the red.

    From my understanding, the parent company (Kop Holdings LTD) are taking the money out of LFC to help cover interest payments.

    Refinancing the loan means Liverpool won't be reclaimed by the banks in the immediate future, but there's still the problem that a 350mil loan will need to be repaid in 6 months time.

    With the possible sale of the NHL (?) team by Gillett raising 330m, [I assume he will look to Hicks to raise an equal portion of the 350m debt - 250 on Kop 100 on LFC] then it raises the possibility that this will be met, but I imagine that the RBS will claim a high price from Kop Holdings, and thus, LFC, for this refinancing.

    People are saying Utd, Arsenal, etc, are all in similiar situations - but they aren't. They have loans that feature over periods of 5-10 if not more years. With a decent monthly payment plan to cover not just interest payments but partial repayment of the loan, that's (VERY) manageable.

    In Liverpool's situation, from what I understand, the interest payments are ludicrously high compared to what they would be if it was a long-term loan, and the money being paid out by the club is only covering interest.

    There are two fundamental differences, that I keep talking about in 606 and on here as well as with friends. Day-to-day costs and a loan deadline. Day-to-day, yeah, Liverpool's clearly in the green. They would be in the green if they only had a few million pounds in the bank spare. When it comes, though, this loan will come and bite them very VERY hard.

    Unless the owners actually do pay off this loan soon, the banks will one day stop refinancing the loan. Now, with the sale of the NHL club etc there is a strong chance this loan will be paid off on the next re-financing deadlines.

    For the commentor above who said football was an overhyped industry, and it was essentially the sale of a club to a rich person, then to an even richer person, you are sadly completely mistaken.

    With the predominant influx coming from gate receipts and merchandising (look at the case of Real - they expect shirt sales from Kaka and C. Ronaldo (transfers amounting to approx 150 million Euros) to pay off the cost of the players within a year or so,)), football is a very self-sustaining business, the beauty of it is that it reaches the masses on arguably a more global scale than anything else has ever done before - villages in remote parts of the world have replica kits before they have things such as running water (look at the Inter Campus for a very fine example, albeit in this case charitable by F.C. Internazionale).

    Barcelona - another great side - is hardly an unsustainable business model either. Their side is predominantly raised from the youth teams and very successful (Having just done a treble for the first time ever in La Liga) and they are also massively in the profit year-in year-out.

    Football is a very sustainable business - if run well - simply because of the sheer number of people that follow it - by some estimates Real Madrid have several hundred million casual fans across the globe, if they all purchase one replica shirt each then you've raised to the tune of 5 billion Euros? Not to mention that a lot of the owners do not see Football Clubs as a business model - and instead a toy. Look over in Italy for the best long-term examples, where Berlusconi or Moratti have both owned their clubs (AC & Inter respectively) for a decade or two, they are the clubs number one fans (Moratti's father was the owner of Inter in its best ever era), and have invested heavily in it as such.


    Back to Liverpool

    As a part-time Liverpool fan, who lives in Liverpool, I think this news will be taken reasonably badly by fans. Alot of them were hoping for the RBS to take over the club and then sell it in its entireity to a more suitable - cash - buyer, and with it the promise of cash injection. Coupled with the sale of the NHL team, this news is being taken as renewed determination by the Americans to cling on to Liverpool - and for LFC fans, that means clinging onto the promises they have made and broken since coming into power.

  • Comment number 42.

    All those crying about the state of the economy are obviously too young to remember Thatcher's Britain. Either that or they did well out of the misery the Tories caused.

    Yes things are bad at tyhe moment but at least during this recession, you no longer have to wait years for an operation, you will not die in a hospital corridor, you don't have a 15% mortgage and there's not yet 4 million plus on the dole. Those of you that want Cameron and the Tories running our economy, you reap what you sow. The worst thing is, it won't be Tory voters suffering!

  • Comment number 43.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 44.

    More spin, but this time of the tragi comedic variety.

    What alternative do RBS have other than to refinance? What do they know about running a football club? Why would Liverpool be worth more than the debt? You can buy Newcastle for GBP 100 million, or Sheffield Wednesday for GBP20 million.

    Why has Gerrard (arguably their most valuable player) announced a date for retirement? Where is Benitiz from? Where is Torres from? Do you really think that Real Madrid could not spot a desperate seller when they see one?

    What kind of reputational damage would RBS suffer if they are seen to be the entity that destroy Liverpool FC? Much better to play a longer game, stick the Americans with all kind of covenants and warranties and let them take the heat for the inevitable collapse.

    I don´t need no GBP 9 million in incentive payments to work out that strategy. What it does tell you is that the American owners are desperate, and RBS holds the intelligence of the average Liverpool supporter in complete contempt.

    If you are a Liverpool supporter and a tax payer then you are being played for double fools and sneered at at every turn. Maybe you can console yourselves by looking at glossy PR brochures for the mythical new stadium.

  • Comment number 45.

    I'd just like to add one more thing


    Liverpool FC clearly IS a sustainable business model - it is in the profit. Had the method of purchase for the club arisen from cash, rather than a loan, then Liverpool would have exceptionally brilliant finances.

    Real Madrid, again, is another case of a (currently) sustainable business model. It does, however, have significantly higher risks than Liverpool - relying on the income of future shirt sales to finance transfers for said players, but history shows us this is actually quite reliable - a la Beckham, Figo, Zidane, Ronaldo.

    I do think, though, one day Real will get it wrong (somehow - I'm not quite sure how, if you're signing the worlds best footballers then they will ALWAYS sell shirts, really) and when they do they will end up being a catastrophic disaster - but so far it is sustainable.

  • Comment number 46.

    "There's no reason for Liverpool supporters to feel hard done by or victimised."

    It's not "Liverpool"'s debt though - it's the debt incurred by the owners to buy the club. Undertakings were given that this debt would not be loaded onto the club.

    The two owners haven't actually invested any money in the business. Implying that "the club borrowed too much" is a total misrepresentation of what happened, and suggests overspending when in fact the club has been profitable.

    The analogy with the UK economy is fatally flawed and underlines your miscomprehension of the Liverpool situation, and as such this comes across as a very poorly researched blog.

  • Comment number 47.

    armagediontimes -

    I think there are a few points you've grossly missed out in all this mess.

    You should read my lengthy post (num 41) as I think I explain to quite some depth the benefit (for the Americans) of this particular refinancing.

    You need to consider the evidence, such as the impending NHL club sale by Gillett expected to raise ~330m pounds, which is in its own nearly enough to cover Liverpool's debt.

  • Comment number 48.

    Hmmmm best stick to business news Robert and leave the sport to others. The club hasn't overspent by £350million G&H bought the club for that value then instantly put the loan onto the clubs books, it is this which has led to the £40m losses.

  • Comment number 49.

    Post 41 a very cogent and informed view on many points.

    The key point as you state is that Liverpool's debt is effectively an agreed overdraft that has to be renegotiated on a regular basis whilst Aresenal in particular have what is almost a repayment mortgage.

    I won't comment on Glazier and Man Utd as I dont' know their exact position but fear their position may not be too dissimilar from Liverpool's but as it has been all quiet on that front I imagine their due dates are further in future than Liverpool's are.

    I wonder just what the US assets that were pledged as security were? Did they for example include the Canadiens which would be perhaps the most high profile asset that Gillette had? The American economy is hardly flush at the moment so how accurate are the valuations on those assets?

    RBS more than most knows the cost of relying on US asset values to sustain a business.

    Both RBS and Wachovia had to be rescued in 2008 so both are under new more stringent management. Don't count the chickens re this deal until it is signed, sealed and delivered.

  • Comment number 50.

    46. At 12:10pm on 23 Jun 2009, flagstaaf wrote:

    Irrespective of what has been said in the media, what the owners claimed, or what we would like to think, the situation is as follows:

    Liverpool FC are in 100m of debt directly due to this ownership change, and may have some debt previous to this ontop of that

    Kop Holdings LTD have 250m of debt directly due to...

  • Comment number 51.

    No.42. ScottishScouser says "send more Bees!"

    How we remember:

    (i) Britain being bankrupt after World War II
    The NHS surviving on borrowed money from the USA
    Rationing for 10 years after the war ended

    (ii) Britain being bankrupt in the 1970s
    Denis Healey writing to the IMF for a survival loan
    The UK was the sick man of Europe
    Industrial strike action ensured the dead were left unburied, no electricity in the winter as the miners went on strike, British Leyland losing 250,000 cars per year to strike action, and strikes happening on average every 6 minutes
    Inflation running at 27% per annum
    Prices and Incomes policies, and yet more strike action
    Marginal rate of income tax being over 100%
    The brain drain

    (iii) Harsh medicine under the Thatcher years
    Unemployment climbed to 3 million, as the government no longer continued to bail out loss making nationalised industries with money it didn't have
    Sterling becoming a petro-currency due to North sea oil, which pushed the exchange rate to over 2 dollars to the pound, which killed off any remaining export based industry
    The house price boom and bust
    The miners' strike, following on from the 1970's one which brought down the Heath government

    (iv) The Major years
    Interest rates shooting up to prop up sterling in the ERM
    House repossessions and negative equity
    Unemployment back up to 3 million

    (v) The New Labour years
    The worst boom and bust since World War I
    Housing crisis
    Anarchic free market economy running completely out of control
    Britain running out of money again
    20% of British workers working for the public sector
    Imports far outweigh exports
    Savage public spending cuts and tax rises to come, to pay for the cost of bailing out the British financial sector
    Loss of wealth to China, Brazil, India
    Outsourcing of jobs to low cost countries
    Unemployment to eventually rise to over 3 million
    Huge over-indebtedness of British households, businesses and government


    I wonder how Britain's story will continue........

  • Comment number 52.

    #42 ScottishScouser says "send more Bees!" said we should remember what happened under Thatcher....

    I agree but of course Brown and Co have doubled the damage she did by allowing house price inflation to go through the roof, manufacturing to virtually collapse, household debt to reach record levels, govt debt to also reach record levels, the trade deficit to reach new heights, pension values to collapse and so on and so forth..

    A plague on both the Tory and Labour houses..... I'm for Scottish independence! We can't afford either of these parties anymore.

  • Comment number 53.

    The difference between liverpool and southampton is that liverpool would get potential investors especially if the price is lower than what it is now

    Plus if the club was put up for sale, then www.shareliverpoolfc.co.uk would come into play where potentially 100,000 fans across the globe would love to put £5,000 in each to buy the club. we could then use the other £150million to buy players and ensure financial stability before selling the club to a proper owner at roughly £7500 a share, making a 50% profit.

  • Comment number 54.

    #47 Henry - It is highly unlikely that Gillet intends using proceeds from the NHL sale to reduce debt. More likely he will use what he needs to pay whatever arrangement fees RBS are demanding.

    Your analysis of Spain is incorrect. Both Real Madrid and Barcelona fulfill social and political functions that go far beyond football. Real are effectively guaranteed by the government. The 4 tallest buildings in the Iberian Peninsula are located on the former Real training ground. Why do you think this is? The answer is that it provided a method for funneling large amounts of money to Real.

    Neither Real nor Barcelona are for sale at any price. You could up in Spain with more billions than a man could count - but you would still not buy those football clubs.

    In England clubs scour the business world in search of shirt sponsors - In Barcelona they pay UNICEF to put that name on their shirts. Their model is sustainable because it does not depend on money - although when money is necessary to compete then they can find it.

  • Comment number 55.

    So the taxpayer has bailed out a football club now - whatever next?

  • Comment number 56.

    41, 45 47 etc

    Perhaps I should clarify. Liverpool and several other big name clubs may well be in the green on a day to day basis, but they are only there as a result of unsustainable debt financing. Television revenues are going to go down, as are shirt sales.
    Whilst the government happily trills about 'green shoots' and the banks can afford to splatter millions at their executives, it's the man in the street who is going to bear the real brunt of the recession. It's the man in the street who is carries these football clubs, and the man in the street who is going to have to choose between food or football shirts and his subscription to expensive premium football channels.

    The cold winds of change are only just starting to hit the man in the street, and are gathering pace (220,000 thousand out of a job in Q1 09 was it?), and you can be damn sure that if someone has to cut costs as they are out of a job, paying a fortune to watch football should be pretty high on the list.

    And if the model is sustainable and things are going so well, why did the owners of Liverpool try and sell last year? Looking at it from a business perpective, paying out £220 odd million for a company that generates an operating profit of about £5 million (so somewhere in the region of 2%) doesn't seem like great a great long term deal to me. Unless you have a plan to get someone else to finance it, pay for the redevelopment and sell it as fast as you can to someone richer.



  • Comment number 57.

    Why would the BBC want readers/viewers to believe Liverpool FC are in debt, and that Liverpool FC are in the process of refinancing its loan with RBoS?
    Does Liverpool FC have a loan at RBoS?

    RBoS could, in theory at least, become owners of Liverpool FC. Would that be terrible for RBoS?
    For Liverpool supporters it would be embarrassing, I'm sure, but I think RBoS would feel pretty comfortable with the idea and not worry too much about loosing their money. They probably consider the club to be soundly run, and the club's market value to be well above what they lent Gillett/Hicks to buy it.

    Would RBoS be comfortable with Gillett/Hicks if they started to sell off assets of Liverpool FC in order to cover costs of their loan with the bank?
    (Would your bank allow you to sell the tires of you car to meet the payments on your car loan? I think the bank would frown upon that sort of thing. They'd prefer to repossess the car un-chopped, provided you didn't meet your payments.)

  • Comment number 58.

    Fact is, as a high-profile Permier League team there's no way the 'powers-that-be' would let Liverpool go under. Contrast that with my team, Southampton, who are on the brink of extinction because they are in a lower league which is run differently from the Premiership. Yes, it does make me sick and as far as I am concerned (and other SFC fans have said the same) the sooner football implodes, resulting in a complete restructuring of the whole system the better.

  • Comment number 59.

    Nice attempt Mr. Peston.

    Less topical but as #6 points out, the UK economy bares far more resemblance with that of Leeds United in terms of being spend-thrift and now paying the price, even that of Newcastle United, frittering money on fanciful schemes which don't amount to much.

    Maybe making Shearer manager is the equivalent of the VAT cut, a PR stunt with no real economic/football management basis.

    What happens to people like me, staying within my means, no short-term frivilties for long term hardship. The government is never going to have to bail me out, so where are my rewards? I'm a realist and very aptly i am a Macclesfield Town fan.

    Football is everything that is wrong with the UK, women want to be WAGs, Footballers are revered as something to be, if i'd spent more time playing football and less time studying Economics who knows etc. maybe i'm just bitter.

    RBS/Wachovia would cease the assets normal circumstances, but what is the largely government owned RBS going to do with a premiership football club?

  • Comment number 60.

    #7 neither are GB + Co fit and proper management for UK PLC

  • Comment number 61.

    I go with the football analogy but I would not put Brown in goal and I certainly would not pay to watch Mendelson score!

  • Comment number 62.

    >There's no reason for Liverpool supporters to feel hard done by or
    >victimised. ... they're living a footballing version of what the next
    >five years will be like in UK plc.

    Faulty logic Mr. Person. Liverpool supporters have as much reason as the rest of us to feel hard done by and victimised !!!

  • Comment number 63.

    I'd like to make one correction to Robert Peston's commentary. Liverpool Football Club did NOT borrow too much, it was the two individuals that bought the club and who were then able to offload all or a substantial proportion of that debt onto the very company that they had just bought. A recipe for disaster if I ever saw one.

    As for the banks, well in the heady days before the credit crunch there was, and still is, a huge amount of profit to be made by lending such huge sums to finance these takeovers.

    Firstly, these types of debt should be financed by the individuals themeselves and legislation should be passed to prevent such huge debts finding their way onto the acuired companies balance sheet. I have no problem with them using the dividends paid to them by the acquired company to do so.

    Secondly, those involved in any takeover bid should have to put a substantial amount of their own money into any acquisiton. If banks were only allowed to finance up to 60% of any deal, then the acquirers would have something to lose instead of being able to effectively play with the bank's (taxpayer's) money and then walk away with limited liability protection if the whole thing turns sour.

    Liverpool, unlike United have been unfortunate in the timing of the credit crunch. United were able to make the necessary investment and build the revenue streams before the crunch hit, Liverpool barely got started before the global crisis hit.

    Who's to blame? Well I feel that Moores and Parry are to blame. For the want of a few extra millions the club has been sold to a couple of US business speculators who thought that they could emulate the Glazers. But for this the club could have been sold to the Dubai International Capital Group, for whom the global credit crisis is nothing more than a minor inconvenience. The new stadium would be well underway and the only club in this country that could have attracted David Villa would have splashed out the £35-40m necessary to acquire his services.

  • Comment number 64.

    So Mr Peston, after talking down the British economy for the last year you now turn to football. How strange you leave out the biggest debt in football - that of Manchester United! They also are owned by an American family. Is it that they have not borrowed from British Banks that you left them alone? You are perfectly correct in the simularity of HMG and now 2 clubs who owe money to American owners,however. HMG has chosen this "special alliance" with America for years. This has cost British lives following them into war. British jobs,from their subprime loans. And now the Americans begin to hold the future of our national game.

  • Comment number 65.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 66.

    #38 hackerjack

    Close...but...

    "RBS will keep refinancing and rightly so as long as Liverpool have more assets than the loan and RBs is itself solvent"

    ...actually it's more accurate that RBS will keep lending as long as the perceived VALUE of the assets is greater than the loan.

    ...and therein lies the problem, assets are, and always get, over-valued (it's a bubble). Especially when some of your assets are players (who get injured and subject to hype).

    The value of assets is driven by how much money people have in this economy, everyone felt reach 2 years ago so they didn't mind overpaying for things (Torres, Alonso, Voronin, Kewell etc) - and in fact making huge losses on some of them.

    This is why the Government insists on increasing the rate of growth all of the time. Mainly because this big ponzi will collapse if growth slows or stops alltogether. If you do not get new entrants into your Ponzi scheme then it will collapse (as history as taught us)

    What is going to happen when there is a flood of players onto the market because of all the clubs that have to shed players? It's like every other market and the prices will fall.

    The loss of Setanta money is an added curveball.

    The future doesn't look good for football, it's long exceeded it's original model where fans (shareholders ) provided the income and capital, and moved into a new world where debt provides the income - sound familiar to anyone?

    When I look at the Real Madrid purchases it looks like football has gone mad - such is the arrogance of the owners. If you look at the situation it doesn't even make financial sense, if you have Kaka and Ronaldo in the same team - surely they will be in competition for shirt sales (because I don't know anyone who buys 2 shirts from the same club) - therefore their individual value is decreased (as opposed to them being at different clubs where they would maximise their shirt sales).
    ..and all this in a declining market (because I'd rather buy food than a Real shirt) - does this make any sense at all?

    The moral of this tale is that money ruins everything. It will ruin this sport (and many others) in the long term, and just like business we're all fooled by the short term gains (championships, cups etc) and miss out on how it will all play out.

    I don't beleive there are enough Liverpool fans attanding matches to cover the debt payments in a year. Therefore if the merchandise dries up then the ticket prices must rise (or miss payments) - they are certainly not alone in this situation.

  • Comment number 67.

    #40 Boilerplated

    "jumping into bed with Mr Murdoch who was quite prepared to over-bid for the TV rights (for his own commercial needs)"

    Agreed - and the overpayment to secure TV rights and create a barrier to entry for other market participants is also where it went wrong for Setanta.

    I thought this practice was banned? Did I read my Economics books wrong? I thought the whole point of a "Free market" was to ensure all participants have a fair shot.

    ....or is that only for businesses who are NOT friends of the Government.

    You can see how the whole sordid scam works now - just proving no-one is 'un-buyable' and that if you have money you can easily amass more.

  • Comment number 68.

    What gets me about the whole takeover business is how gullible the overwhelming majority of Liverpool supporters were at the outset; the notion that the two American owners bought in the club for anything but personal gain is a fine one. Now we find that their grand plan has run into trouble with the banks - it is all so depressingly predictable.

    I fear it will take one of our great clubs to hit rock bottom/go bust, then and only then will see changes put in place which will hopefully safeguard the future of great institutions like Liverpool and United.

    The comparison with Hanks and Gillett and the UK economy works on many different levels. We are in the midst of a national scandal with our grubby expense fiddling politicians picking the national pocket; they are morally bankrupt just like those who are trying to make a fast buck out of clubs like Liverpool.

  • Comment number 69.

    Wee scamp

    I'm for Scottish independence! We can't afford either of these parties anymore.
    ----------------------
    I couln't agree more. The UK will soon be the hated man of Europe never mind the old man of Europe, as soon as Cameron and his Ant-Euro cronies get in.

    Scottish independence and closer liknks to Europe for me.

    I still maintain, it was far worse under Thatcher and Major. How many Boom's and Busts did we have? Three was it? I seem to remember people doing fairly well since 1997, then we hit some bad times, not solely the result of the UK Government and everybody thinks it's time for a change.

  • Comment number 70.

    #24 Says it all really.

  • Comment number 71.

    I'd be interested to know if the banks' assessment of risk in refinancing this is based on the assumption that Liverpool will continue to qualify for the highly lucrative European Champions League for the forseeable future. Similar questions might apply to any refinancing of the Glazier debts at Manchester United.
    None of us want to believe that there is anything nasty going on off the field, yet the fact remains that if either of these teams were to suffer even a moderate season and finish outside the ECL places, financial carnage would ensue. This was what happened to Leeds - they spent against assumed earnings from the ECL which, in the event, they failed to qualify for. The rest is history.
    In recent years the qualifiers for the ECL have consistently been (in no particular order) Liverpool, Arsenal, Chelsea and Man Utd. Is this because success brings money which brings more success? Or is there something more sinister? Makes you think, doesn't it?

  • Comment number 72.

    #41 Henry
    "football is a very self-sustaining business"

    You're off your rocker.


    I don't know which "remote villages" you're on about - maybe in the North of England?
    I have been to "remote villages" in Africa and India and I didn't see any replica football shirts (except the ones we donated to them) - and where you do see them in poor contries they are often fakes and not the originals (therefore not benefitting the club financially).

    Trust me, there aren't many poor people who will spend 45 days wages on a shirt (those working for less than £1 per day)

    As I said in a earlier post - Ronaldo and Kaka are in competition for shirt sales as they are at the same club. Only a fool would buy 2 shirts of the club he 'supported' (because we're not talking about any Spanish supporters here).

    The only way football is sustainable is if Economies keep growing year on year - I realise you might have been asleep for the last 12 months but I've got news for you - it aint happening no more.

    Football is a SPORT and should stay that way.

  • Comment number 73.

    #45 Henry

    Where do you get your facts from?

    Real Madrid has always been owned by a rich man, and for good reason. There are rules about investing personal money in Spanish clubs, however if you do your research you will find that the new owner has set up a system of loaning money to Real for buying players - as have previous owners.

    Yeah sure it's sustainable - like it's sustainable for me to put my house on Red on the roulette wheel (as long as it doesn't come up black).

  • Comment number 74.

    #59 and if RBS did cease the assets of LFC what would the chances of labour retaining any seats in the surrounding area.

    Is this the first example of political interference with RBS loan book for electorial reasons. Just delay the loan recall until after the next GE then ???????

    PS much like RBS was not allowed to fail in a orderly manner along with Norhern Rock etc and the forced marriage of loydds etc

  • Comment number 75.

    72. At 2:27pm on 23 Jun 2009, writingsonthewall wrote:


    What I meant to say is... football, when run properly, is a self-sustaining business.

    Obviously we need not look any further than Parma, Leeds, for situations where they truly aren't.

    As an (amateur) football journalist, I've had responses and posts from people as widespread as Pakistan, Palestine, Brazil, Singapore, India, Australia commenting about various aspects - and I know quite a few of them own replica shirts.

    As someone who grew up not too far from China, I can tell you - alot of people in these countries do indulge in buying replica shirts. For the main part, genuine ones, but I wouldn't want to comment authoratively on percentages.

    It's true that to the Real Madrid fan base, yes, they will be in direct competition for shirt sales.

    But.

    There's also the Ronaldo fanbase, and the Kaka fanbase. As an Inter fan, and an administrator for an Inter fan website, I can actually directly see the searches people put in to find our website. I also know quite a few people who started supporting us after signing Figo, Ibrahimovic, etc.


    Roma's another example of a self sustaining business. There is minimial investment (to my awareness) of money from the Sensi family anymore, and their expenditure depends solely on their income for that year - (partly the reason why there are so many De Rossi rumours, as they failed to qualify for the Champions League). Milan in the last couple of years, too, are a self-sustained business - not reliant on any of Berlusconi's money (indeed as Gallaini has repeatedly said in the media).


    However, I do agree. Football is a sport, and it should stay that way. Which brings me back to the point I made in my original post about clubs being owned by fans (and I don't mean a la Barcelona necessairly, but also at Inter, or AC, where the clubs owners are a wealthy fan).

  • Comment number 76.

    #57 Armageddontimes

    ....and seeing as 'cash is king' at the moment it's hardly likely Gillet will want to repay any debt.

    Why on earth would he? He could let Liverpool go bankrupt and walk away (perhaps loosing some previously over-valued asset in the US) and still keep the cash from the hockey sale.

    What Henry is forgetting is that businessmen generally have no morals - and therefore wouldn't think twice about 'cutting loose' the club in order to retain his cash.

    Don't believe it? Remember Leeds? Remember Newcastle? Both with huge fan bases and both managed to screw themselves over.

    It's like pass the parcel and it's whoever gets left holding it when the music stops.

  • Comment number 77.

    Well, Real has always been owned by a rich person but the money is just fronted temporarily against shirt sales - they made back the money they spent on Beckham (which in the end, a few months after the actual purchase and then with a negotiation they made with United, only came to approx 15 million pounds) within months of him signing for them.

    I don't remember who, but someone - possibly in the Real hierarchy but possibly from Marca - made indications recently that over a 5-10 year period Real expect to actually pay off the Ronaldo + Kaka transfers and profit another 70+ million ontop of that.

  • Comment number 78.

    From my perceptions as keeping a relatively keen eye on the whole Liverpool affair, as well as being a mainly unbiased observer on it, I get the impression that Gillett and Hicks are interested in Liverpool a bit more than just as a purely money making scheme. Yes, it's true they were trying to sell it at 500M, but at the same time, if they weren't planning to pay off the debt, then what would the point have been in refinancing it?

    I'm not sure how the guarantees have been agreed on their loan - the 100m on LFC I assume is guaranteed by the club itself, but I don't know if the 250m on Kop Holdings LTD is guaranteed by G&H personally (a la Abrahamovic), but you also have to consider the damage it'd do to them if they defaulted on a loan.

    I know it's not quite the same system, but if you default on a loan you find it much harder to get one again in future. If G&H have a history of causing the banks hassle by defaulting on loans, don't you think it'd do them some serious credibility damage? Particularly in a time when banks are already cautious about loaning money out to people who can't repay it?

  • Comment number 79.

    The other thing..

    Businessmen tend to be quite 'light' on cash, as cash has actually very little value. It's much easier to keep your wealth in things like shares in your own company, etc, and have a small amount (a few tens or hundreds of millions as 'spending money' if you like) on hand.

    As they say, being rich is good debt management.

  • Comment number 80.

    #75 Henry

    You say you're a football journalist but I don't know any 'Kaka' fans or 'Ronaldo' fans. Most fans support a club wouldn't be seen dead in a shirt that's not their own. The people you are referring to are the fairweather fans - and when times are hard they are the first to stop spending.

    Regardless of the number of fake shirts out there - the world Economy is in decline, and I'm afraid football is no exception.

    As someone else pointed out Real and Barcelona are 'too big to fail' in Spain and therefore attract Government money - which gives them the impression of sustainability.

    The 'well run' argument might have been accepted about 2 years ago - but there were 'well run' banks which went bust (although everyone claims they weren't in hind-sight). The problem is (as with all businesses in competition) is well run = successful, success comes from taking risks - risk taking can lead to downfall - downfall is intepreted as 'being badly run'.

    Just like the Economy, it's within the system. Find me a football fan who is happy his team is languishing in the 3rd division and I'll find you a pension holder who is happy with a 0.0001% return on his pension fund.

    This drives the risks - the risks lead to the downfall.

  • Comment number 81.

    Hell, my friend who is a Stockport fan is happy his team is in League One :P


    Barcelona are, to my knowledge, not governmentally supported at all. Albeit, Real Madrid were heavily subsidised by the King (?) of Spain when they nearly went bust quite a few years ago, but I don't think (though I will give it to you the source of their vast finances now are ... suspicious at the least) they are so anymore.


    Success is not about taking risks, its about taking calculated risks. Indeed its a bit of a proliferate problem in football that this isn't the case. Poor risk taking can lead to downfall - indeed even some (unlucky) calculated risks can lead to downfall, but that's why companies employ massive risk analysis teams. Maybe football should start that?

  • Comment number 82.

    Mr. Peston is clearly wrong. The Club haven't borrowed absolutely anything, what's more, it gave a nice surplus. The problem lies in these 2 characters which the Club wrongly accepted as shareholders, who leveraged their entry to the club without spending a penny with a leveraged transaction. Respect your writing, Mr. Peston, you Pestisiced your reputation. Try to tell the truth next time.

  • Comment number 83.

    Sorry - forgot to address your first paragraph.


    Fair weather fans or not (and I do think its a bit disgraceful, to be honest) they still go ahead and purchase the shirts of the club their favourite player signs for.

    When Ricardo Quaresma signed for Inter we had a SWATHE of Portugese (mainly, though not exclusively) sign up to an Inter forum which I help moderate, solely because of him.

    Like it or not, there is quite a large portion of football fans (particularly from countries in which you can't directly identify with a local team - again something I have experienced as part of where I grew up) who support 'the big names', or the 'in player', rather than a team. It also helps to have little or no knowledge of club rivalries, history, etc.

    (Not to sound racist, just speaking from my experience)

  • Comment number 84.

    Dear Robert,

    I'm Spanish and I'm curious to know what you think about the Real Madrid strategy of borrowing so much right now (a wee reminder, they've got euro 500m debt and they have just borrowed an extra euro 300m, just for signing during this summer). Do you think it is foolish? I can not honestly work out how that strategy will be successful after being following your blog for a year or so and witnessing what has happened in the financial world. Are they the only clever guys here or they are doing some secret tricks?

  • Comment number 85.

    Any comment on that debt mountain called ManU?

  • Comment number 86.

    24# thewritingsonthewall wrote:

    "You put up your own money as collateral on a loan to buy a football club. You purchase and then re-finance the club - like a re-mortgage. With the money you raise you pay yourself back the collateral and any costs involved (including your travel to and from the club from America to set the deal up in the first place).

    You then own a football club (or more accurately the bank owns it on your behalf) and your liability is removed. If the club goes bust you loose nothing and if it's successful you can pay yourself a nice fat directors wage.

    This practice has been going on in business for years - Private Equity is built around this model."

    I totally agree with this analysis. The banks who allow the refinance are ofcourse acting as the major sukkas in this arrangement - but of course the individual's who run the banks and offered the refinance lined their own pockets in bonuses as a result of the deal.

    That's why it was so desparately important that we let the banks fail, but Gordon and Darling stepped up and completed the ring of evil.

  • Comment number 87.

    Surely the case of Liverpool is vastly different to the UK. Much, if not all, of the debt being refinanced was put in place to purchase the club, not by the club living beyond its means.

    Also the two purchasers are very wealthy individuals whose assets can stand up as a bona fide guarantee against borrowing such a sum. That one of the owners has recently sold a major stake hold in another franchise may point to the importance of the club to the owners' future wealth.

    It is, if anything, a millstone around the club's neck to have to pay off the debt it had placed on its head due to a bizarre sale by the former owner.

    Indeed that the club made a profit of £10 million last year seems unworthy of mention. It was its parent company that lost £40 million through renegotiating deals on that debt.

  • Comment number 88.

    The RBS is 70% owned bythe british tax payer and therefore until the debt is repaid 70% owners of Liverpool and its debts.

    My advice to the RBS loan sharks would be strip the club of valuable assets as it does with homeowners and then auction the club back to Hicks and Gillette or any other potential buyer. Although the club would initally lose out it would be entirely debt free and able to push on higher and faster in the long run. You never know Liverpool might even be able to afford a new stadium.

  • Comment number 89.

    Isn't it time to cap the player's wages to help the football clubs out as running costs are high with out the wage bill being in the millions instead of thousands?

  • Comment number 90.

    #77 Henry

    ...and their wages are paid by....?

    The model you describes is identical to the one put forward for clubs themselves. Beckham may have been a success for Real - but only because they found a bigger fool to sell him on to.

    Will LA Galaxy also be making money from him? Me-thinks a whacking great loss will occur when his contract ends.

    Don't believe that because there are huge sums of money involve that it means anyone knows what they are doing!

  • Comment number 91.

    41# henry wrote : "villages in remote parts of the world have replica kits before they have things such as running water"

    Sorry Henry, but those without running water don't actually pay royalties on their 'replica kits'. You see, they are replica replica kits.

    "they expect shirt sales from Kaka and C. Ronaldo (transfers amounting to approx 150 million Euros) to pay off the cost of the players within a year or so,)), football is a very self-sustaining business,"

    If I recall 'they' expected the entire capitalist sytem to not come within a hairs breadth of complete collapse last year. I don't think thier expectations are much to go on.

    Income or not, football exhibits all the hall marks of a bubble and clearly it's going to collapse.

  • Comment number 92.

    Real didn't recieve a penny for LA Galaxy's signing of Beckham.

    And I believe LA Galaxy have made quite a lot of money off Beckham, particularly in shirts sales, but also his more indirect effect of increasing gate receipts (they are something like 3x more attendance than other MLS clubs).

    Their wages are to the tune of 10m euros a year from the club (There are other, quite substantial amounts of merchandising, etc, that they make seperately) but this is nothing compared to what the club makes from shirt sales. If I remember correctly, AC Milan had sold to the tune of 500,000 Ronaldinho shirts before he even played a game for them. Don't quote me on that though, I'd have to look up the statistic formally.

  • Comment number 93.

    91

    The credit crunch was the epitamy of how the capitalist system DOES work - old business models that are invalidated for whatever reason collapse, and new ones come up in their place. If the government hadnt (and that is a different debate) of bailed out the banks, then we would see a whole new crop of banks arising in their place with adapted models to hedge this risk or eradicate it completely.

    Businesses that collapsed under the crunch were not running sustainable models - clearly. Consider it a 'cleansing' of poorly run businesses to some extent. Companies collapsing creates opportunities for newer, more 'modern', updated ones to take their place.


    With the reference to replica kits, yes, they don't pay royalties - but I was referring to again projects such as the Inter Campus where the club supply them (free of charge) free kits, as well as things such as schools, running water, etc.

    All genuine, too!

  • Comment number 94.

    #78 Henry. I am not certain as to the exact structure of the debt at Liverpool - but I suspect it is non recourse or limited recourse financing. If this is the case then the banks have access only to the assets of the entity that is being financed - in this case Liverpool FC which is likely to include the stadium, the players, and the LFC "brand."

    Gillet and Hicks will refinance the debt, because the debt is due for repayment and they do not want, or are unable, to repay that debt. If they do not refinance then most likely the financed assets (i.e. the club) would be acquired by the bank(s). Almost certainly RBS do not want to own Liverpool FC - both because of adverse PR, and the fact that Liverpool FC is almost certainly worth a lot less than the amount of outstanding debt. Refinancing allows RBS to avoid making any write downs on the loan, and most probably allows them to collect an arrangement fee and hence improve cash flow and allow the fantasy of financial recovery to maintained a while longer.

    Liverpool FC will ultimately collapse because the debt is greater than the value of the club. The only questions are one of timing and who can be lined up to take the blame for the collapse.

    No doubt the financial establishment would be delighted should there be a sudden upsurge of hooliganism as this would provide cover for pulling the plug and allow Liverpool supporters themselves to be blamed for destroying the club.

  • Comment number 95.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 96.

    94


    The value of the debt and assets of the club are comparable - it would be hard to firmly fix either way if one was more than the other.

    As I pointed out in my first post here, G has sold his shares (80% of) an NHL club at 330 million pounds, and rumour has it that they are looking to sell more stuff. I think to write off Liverpool as 'waiting for bank reclaimation' would be HIGHLY erroneous. I get the feeling (not truly based on any empirical evidence) that, barring a screw up with the NHL sale/similiar, this will be the last time Liverpool is refinanced before the loan is formally paid off.

  • Comment number 97.

    sorry, one more thing.


    I don't see at all how you've brought hooliganism into this

    On a seperate note, I think to be honest that Liverpool is worth more to the Americans as theirs, rather than repossessed by the banks. They should still be able to shift it for 400million or so, making a decent amount on the money they borrowed in the first place (though it would probably translate into a loss once the itnerest payments are considered) but certainly just to write off something like this and annoy the banks would be a massive error by the Americans.

    As has been said before, you can't rule it out completely, not all businessmen are competent businessmen, but I would be highly surprised if that is what happened

  • Comment number 98.

    I suppose before making Comment 27 I should have realised that a post about debt at a football club was going to generate comments 99% of which were about the football club, and 1% about debt.

    Only 5 more comments to go, before I would have been proved right. For the first 100, anyway!

  • Comment number 99.

    . At 09:15am on 23 Jun 2009, GregKingston wrote:
    Is this really the most important business story to blog about at the moment?

    No mention of refinery workers? 1 trillion of public sector pension liabilities hanging around the private sector's neck? BA seemingly inches away from requiring government support? Banking fees decision in the Lords?

    Apparently not. Instead a story about a club own by foreigners who's overpaid players kick a bag of wind around.


    =========================================

    I dont think its pestons job to pick the most "important" business stories for his blog mate. How do you define what's important?? You may care about the refinery workers but I might not. Its his blog to comment on the topic he see's as being perhaps the most interesting or generating the most debate.

    Gnd for good measure, good story. I can see a few scousers crying into their pints tonight!

  • Comment number 100.

    The journalist who wrote the original piece described himself as somebody who 'would not support Liverpool at all' on the radio. It was very clear from the discussion he and the radio presenters had that he was a fan of a rival club. I'm not sure what impact that has on this discussion but I do think he is posted a very negative account of the situation at Liverpool, which is actually no worse than any other major Premiership club and better than most. LFC will be taken over by the bank in the very, very, very unlikely event that two billionaire owners, with massive assets, manage to default on debt/interest payments. If that happens, the bank will sell and the most likely buyer would be a cash-rich Middle Eastern group. This is why fans of rival clubs should be very glad about the situation at Liverpool and why Liverpool fans are annoyed ... but not worried.

    Nice try, Robert Peston.

    You're not fooling anyone, mate.

 

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