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Why RBS looks set to own Liverpool FC

Robert Peston | 08:43 UK time, Thursday, 23 September 2010

For those interested in owning Liverpool FC, the important calculation is this one: do they want to pay a premium and buy the club and business now, for something between £420m and £600m, or do they want to wait until it is in the hands of its banks, in the hope of securing Liverpool for more-or-less the £280m value of its bank debt (which includes £40m of penalty fees)?

Anfield

 

Many would say that harsh commercial logic dictates only one answer.

With the 15 October deadline looming for Royal Bank of Scotland, Liverpool's main creditor, to decide whether to take control of the club, most bidders would surely prefer to wait for the fire sale.

Which is why it looks increasingly likely that Liverpool will - before too long - be the property of Royal Bank of Scotland and the US bank Wachovia (which provided around 25% of the bank debt).

There remain big imponderables, however.

One is whether Royal Bank of Scotland can take control without the business falling into administration - which would lead to a nine-point deduction for Liverpool to its Premier League tally (and, right now, would leave it with an interesting minus four points, which is a bit surreal).

As I understand it, lawyers are beavering away on behalf of RBS to investigate whether the bank can take control while avoiding administration.

Also, for the avoidance of doubt, RBS wants to own Liverpool like Superman craves kryptonite. If, in mid-October, RBS does end up formally in charge, its plan would be pass the club on to a new owner as quickly as humanly possible.

The Kop end of Anfield, circa 1969

The Kop end of Anfield, circa 1969

Finally, here's where those figures of £420m to £600m come from for the price tag if you want to buy Liverpool before the fire sale:
• £600m is what the two US owners Tom Hicks and George Gillett would like for the bank debt and their equity. It would value their equity at more than £300m, providing them with a handsome profit.
• £420m would recoup for Hicks and Gillett the £140m odd they've put into Liverpool's holding company, Kop Holdings, via their Cayman Islands vehicle. It would, in essence, give them their money back without a profit.

There may be some Liverpool supporters who feel it is worth paying Messrs Hicks and Gillett somewhere between £140m and £320m to spare Liverpool FC the humiliation of falling into the clutches of its banks - although the evidence of the fans' blogs and websites appears to be that most supporters would in fact rather stick pins in their eyes before handing a profit to the US duo.

I doubt, however, that any of those supporters have a spare £500m lying about that they don't need right now. Which is why it's a pretty fair bet that RBS will end up owning Liverpool (for a bit).

Comments

Page 1 of 3

  • Comment number 1.

    Q. Why did RBS finance the deal for foreigners to buy Liverpool?
    And by the way who financed Kraft to but Cadbury?

    Now who owns RBS?

    We do, but we seem to have 'purchased' (sorry bailed out) a bunch of opportunistic financiers with a very very poor record of picking winners.

    I have this perpetual motion machine that needs a billion or two to develop it - best go to RBS then....

  • Comment number 2.

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

  • Comment number 3.

    But what is the true worth of owning Liverpool FC? RBS may be looking to recoup their loans but a potential investor looking at the business case may come to the conclusion that the club is worth a lot less than the £280M. Perhaps the loans will turn out to be 'sub-prime' in accordance with the bank's track record not forgetting the disastrous acquisition of the Dutch bank Amro. As last night's result proved - football is a risky business!

  • Comment number 4.

    With Gillette out of the picture, all eyes are on Tom Hicks and RBS. As long as Hicks hasn't found some rich lunatic to lend him hundreds of millions of pounds when the deadline hits, RBS absolutely HAVE to take over. All prospective buyers are waiting for this to happen. As soon as it does, and we are praying it will, I wouldn't be surprised to see some interested parties of old slip back into the frame... Then RBS hold a quick auction of suitable and solvent parties (no LBO merchants please), possibly even turning a profit themselves?

    I do wonder though if the only way to legally wipe out the holding company debt would be to officially declare 'administration' and lose 9 points, though the FA appear to be rubber-stamping immunity from penalty in that instance.

    I appreciate RBS really don't want to find themselves in charge of a football club, but they've admitted to over-extending this line of credit, so having got us in this situation (and creamed in the interest), it's time to step up and get us back out again.

    I was greatly reassured by Mr Purslow's comments and manner during the recent interview- let's hope the bank and board win this final trans-Atlantic showdown not just for us fans, but for the very future of Liverpool Football Club.

    Someday soon I'd like to be able to justify to myself buying shirts, match tickets, hotdogs and bovrils again. I'd also prefer to spend my 'footy time' actually worrying about leftbacks and not leverage. One day I'd like to take a grandson or granddaughter to watch the reds, with all this sh*te a distant memory (that the FA learned lessons from).

    I might even reopen my RBS account if they do the right thing!

  • Comment number 5.

    I stopped watching football on a regular basis 10 years ago. I think there needs to be a cap on salaries and the tv money needs to be invested into the infrastructure of clubs. When I first started watching football on a regular basis in the 1970's, it cost the same to go to the cinema as a match. Football has totally lost the plot and if a few clubs have to go bankrupt to resolve the issue, so be it.

  • Comment number 6.

    Isn't it time a football club actually when the way all flesh and nobody rescued it, nobody gives greedy people a fat profit and it is allowed to go bankrupt and disappear down the hole of its own making? This would release the city of Liverpool from half of its bondage to football and possibly turn the eyes of a number of people to a measure of reality.

  • Comment number 7.

    How about some invective directed at the greed of the football profession? Might make a nice diversion from the usual banker bashing...

  • Comment number 8.

    Try asking RBS to support the setting up of a high tech value adding manufacturing company and see how quickly they can get you out of the front door. Vince Cable was right.

  • Comment number 9.

    Any 'institutional' purchaser buying a football club is predominately focused on the owning of prime land that the majority of football clubs historically sits on, or owns, and has absolutely nothing to do with football?

    It can't be denied that a huge percentage of RBS is 'owned' by the taxpayer and may shortly be selling off an insurance arm to fund this potential purchase? Just a thought?

  • Comment number 10.

    They think it's all over...

  • Comment number 11.

    It looks like it's ferry across the Styx not the Mersey for Liverpool Fc.

  • Comment number 12.

    On the basis of results on the pitch over the last few days Shrewsbury Town are better than Liverpool. Don't tell that to any American millionaires though.

    Graham Turner's Barmy Army.

  • Comment number 13.

    At 10:01am on 23 Sep 2010, LFCforumCo wrote:

    "I might even reopen my RBS account if they do the right thing!"


    Assuming you live in England, there is probably little point in doing this unless you are happy to have the account moved on to Santander sometime in the next 18 months. RBS have agreed to sell all their English branches and accounts to Santeander.

  • Comment number 14.

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

  • Comment number 15.

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

  • Comment number 16.

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

  • Comment number 17.

    So when will it be Man Uniteds turn?

  • Comment number 18.

    What went wrong with such a magnificent club? Maybe sport and money really do not mix.

  • Comment number 19.

    If they are owned by RBS, then the owners will also have the ignominy of having Standard Chartered being advertised on their shirts.

    Given that the banks have had to take ownership for non payment of obligations, LFC isnt a great advert for either bank.

    I cant think of a better case for liquidation.

  • Comment number 20.

    If they are owned by RBS, then the owners will also have the ignominy of having Standard Chartered being advertised on their shirts.

    Given that the banks have had to take ownership for non payment of obligations, LFC isnt a great advert for either bank.

  • Comment number 21.

    Oh Sizzler, your accurate but libellous comments have caused the system to break!

  • Comment number 22.

    Aren't some people at Goldman Sachs a bit keen on owning a football club? I know they really want a team in Manchester but Liverpool is only at the other end of the canal and equally red in as many ways.

    I just find it odd that RBS ever thought lending money to a football club was a sound commercial proposition unless they had an eye for a controversial property development if it all went belly up. Sporting clubs are notoriously bad investments.

    The simple truth this emphasises yet again is the complete and utter absurdity of bank behaviour during the recent boom. The boom may have blown up and left a mess all over the place, but the lessons still have not been learned. Any chance of someone losing their bonus on the back of this?

    Speaking as a conscripted shareholder for RBS I don't really care what happens but I want the shirts, trousers, underwear and socks off the backs of the supposed owners. It has to be seen that they crawl home cold, naked, bruised and unloved for there to be any justice!

  • Comment number 23.

    It's too easy to laff at the scousers but those who deserve derision are the US duo.
    They're still looking to make a profit. On the figures the value of their equity is zilch, nowt, not a bean.
    If Liverpool played as well as Man U. (ducks under the parapet to miss the bullets) the investment might have been worth while but they don't and it isn't.
    Don't write off Liverpool though, there's still Everton! (Ducks even lower.)

  • Comment number 24.

    It's not about RBS 'buying a football club'.

    They either:

    a) extend the existing loan (again), or

    b) take over the club and own it for the brief period necessary to sell it for a more realistic price than the £600 - £800 million Hicks has been asking.

    If they extend the loan, the club is doomed and RBS would be lucky to recover their money.

  • Comment number 25.

    Can we keep the anti-Liverpudlian generalisms to a minimum please people?

  • Comment number 26.

    Flipping "Cayman Islands Vehicle"! Are these tax dodgers entirely without principle?

    So let's do our best to ensure they make a stonkin' great loss on this deal - it'll be far more entertaining than any footie game!

  • Comment number 27.

    In all the sympathy for Liverpool's eternally humble fans (not tongue in cheek at all) people are missing the bigger picture.

    RBS is still nationalised. It is still a publicly owned, taxpayer funded operation. For them to take over a football club would be a huge conflict of interest, and would effectively mean taxpayers not only funding bonuses for bankers, but astronomical wages for footballers.

    Surely the Premier League will not allow a football club to be taken over by a state-owned bank.

  • Comment number 28.

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

  • Comment number 29.

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

  • Comment number 30.

    I'm perplexed; why is mention of a certain news site seen as profane?
    Why can I not mention n*wsn*t Sc*t*la*d? It's a perfectly legitimate website. Is control of the news agenda really that important? (rhetorical question)

  • Comment number 31.

    If the bank takes it on it will loan the first passer by £600m to buy the club so it doesn't have to book a loss and bonuses won't be affected. The whole cycle of lunacy will start again.

    I say the fans should do a Wimbledon. The Club IS the fans. Don't give em another penny.

  • Comment number 32.

    Maybe the RBS want Liverpool to play in the SPL?
    Save face for inviting Celtic and Rangers into the premier.

    Why not? stranger things have happened in the world

  • Comment number 33.

    Liverpool football club can not be allowed to become bankrupt because "THEY ARE TOO BIG TO FAIL" (see their glorious history etc).

    Therefore I suggest the tax payer be forced to bail them out with no choice in the matter. Mr + Mrs Tax payer can then have the priviledge of working everyday for a pitence to pay top players their £100,000 plus per week tax free salary just for running around a bit on a Saturday.

    Why not.... thats exactly what happened with the bank bailouts / banker's bonuses.

    After all you have to pay top wages is you want top players and top performance. Northampton Town not withstanding.

  • Comment number 34.

    Robert –
    does this mean that Liverpool FC seems unable to work a loan?

  • Comment number 35.

    Very simple solution.

    RBS take temporary charge and to appease the tax payers can sell the assets: The playing squad should yield c150m which immediately reduces the cost base.
    Then add into this 20 years worth of naming rights for the current or future stadium should get us another £100m.
    Then sell the club to whichever idiots and/or mercenaries who think that football finances will one day be structured with a degree of sanity.

    Football in England is a microsm of all that went wrong in the first place - over valued 'assets' purchased at inflated prices by huge borrowings against future revenue.

  • Comment number 36.

    As a York City season ticket holder I can honestly say I don't give a damn. It's all an illusion (or maybe delusion) to me.

  • Comment number 37.

    Wasn't WOTW predicting this a while back?

  • Comment number 38.

    16 ejswede,

    And then depression set in, the clearest sign yet that the entire ponzi pyramid could well topple sooner rather than later.

  • Comment number 39.

    "£420m would recoup for Hicks and Gillett the £140m odd they've put into Liverpool's holding company, Kop Holdings, via their Cayman Islands vehicle. It would, in essence, give them their money back"

    Why won't they sell for less than £420m? Surely a small loss would be better than the huge loss they would suffer if RBS took over

  • Comment number 40.

    I have read a lot of comments on here, on why have Liverpool got into such a mess and the club should be run properly and the greed of football.

    these comments are somewhat misguided, as Liverpool was always run reasonably well internally on a day to day level, and still is. The club actually makes an operational profit year on year, which shows that it is a good operating business. Unfortunately, the 2 owners borrowed money to fund their purchase of the club, and leveraged this loan against the club, so immediatley the club are not just having to pay back the loan but the interest on it. both of these added factors meant that the operating profit generated each year, was now not enough to service the loan and the debt the Americans owners had heaped onto the club. This has created a vicious circle, where several refinances have taken place, increasing the debt, therefore increasing the interest rate and value of interest.
    Basically, the Owners bought a well run club, with someones else's money and mortgaged it up to the eyeballs and beyond!

  • Comment number 41.

    To Mathew with one 'l'.

    If RBS seize the club then it's the club's healthy profits that cover wages etc, not the bank/taxpayer. At the moment the club is paying £110,000 per day in interest. That would pay the wages of 7 Fernando Torreses every week.

    With the debt gone, LFC is a very healthy business indeed- not the best argument for liquidation is it? Just a good argument against allowing leveraged buyouts within sport. The FA need to come out of their gentlemen's clubs and stamp out this kind of activity.

  • Comment number 42.

    #14 Mark Stone,

    If you are going to have 'pop' at Liverpool supporters then at least get your facts right. It was the previous owner David Moores who welcomed the Americans with open arms - an act that even he has publically regreted. The supporters only responded to the promises that were made and then renaged upon.

    Now back to the business situation.

    Is it feasible for RBS to extend the loan? Whilst it is possible it does not make any business sense for them to do so as the degree of risk would merely increase. They were associated with the insertion of Martin Broughton and Barclays Capital to find new owners. Both Broughton and Purslow have said that there are a small number of interested parties who are engaged in 'due diligence' Therefore, extension would not be in RBS's best interest. However, that dos not mean that they would want to become 'official owners'.

    It should be noted that Liverpool FC would not itself go into administration. As an entity in its own right it is highly profitable organisation. It would be the Hicks and Gillett Kop Holdings that would be in administration. Hence the 9 point penalty may not come into force.

  • Comment number 43.

    Now the Red Knights have gone quiet, i hope to see a similar fate for Man (USA) Utd.

  • Comment number 44.

    Morpheus - your are clearly discussing a topic of which the basic details you are ignorant. No offence, but everything you said was ridiculous and thus pointless.

    RATM_kick - it wouldn't be 'bail out', it's RBS calling in a loan, repossessing a business in order to sell it on and recover their money.

    There seems to be quite a few pundits in here with strong opinions and no grasp of what's actually happening other than having skim-read the article or headline. BBC do have a news section on rugby and tennis!

  • Comment number 45.

    No one is going to pay more than £260 million for Liverpool . The banks have probably already wrote off 50% of the debt. So I would suggest £200 million could be the eventual selling price . Not bad for a club fighting relegation.

    PS Lets hope the Glaziers are next in line for a financial kicking ...

  • Comment number 46.

    Let it like any other business follow the commercial route. It is likely that on that basis it will go into administration and the bidders will appear. The usual line is to get the bank to capitalise some of its debt ie to take cut in value - and this is likely to be the opening stance.
    So, RBS will also be a loser unless it then moves to receivership - and that's when it will get interesting.
    Anybody want to ask the question of Standard Chartered? "Why did you sponsor this disaster with the supposed largest deal in premiership history? Was not your key role to use surplus funds to finance cataract surgery in the third world? Should a head roll for this incompetence?"

  • Comment number 47.

    #40 So when will it be MU turn ?

  • Comment number 48.

    Crisis - what crisis? - I see no crisis here.....

    Revolution, what revolution? - I see no revolution here....the police may be 'retreating from the streets' - but then it's just a 'blip in the world of Capitalism' - surely?

    I've just got back from Greece - and I can assure you, categorically, without any doubt in my mind - they will default on their obligations.

    Once the first country takes the plunge - the others will follow.

    Liverpool are a reflection on the world's economies - living in la la land, hoping that growth (or in their case a very rich and fairly stupid investor) will fall out of the sky, against all reason and sense.

    I hear wrangles on the board (regarding someone's son) are surfacing and a 'dark private equity' fund are being lined up for salvation (of sorts) - but as with everything else, when the tide of money rolls back - the bickering starts. Suddenly old alliances are smashed in favour of extreme self preservation.

    A tip for the LFC fans - bide your time, in about 3 years time you will be able to pick up this club for a fraction of the price being touted at the moment.

    As with everything else - it looks like the desperation of government to avoid deflation is failing - it's looking more and more like Japanese stagnation every day.

    On the brightside - it looks like while I've been away Vince cable must have done something right as the financial pages are full of 'anti-business secretary' today in an effort to scare the minions about regulation of an industry out of control.

    I am so glad I saw this coming. It is better to face reality than to depend on fantasy.

    Watch this story - you're going to hear a lot more like it over the course of next year.....now that's a prediction you can count on.

  • Comment number 49.

    40. At 1:00pm on 23 Sep 2010, aprint wrote:

    "I have read a lot of comments on here, on why have Liverpool got into such a mess and the club should be run properly and the greed of football."

    it's not a Liverpool thing - all business has been run on the basis of ever expanding growth being able to match the ever expanding debts being run up - Liverpoool are merely an example of many.

    This story is about Liverpool, but it could be about blockbuster (going into Administration today), woolworths, any bank you like or even the treasury.

    All a house of cards I'm afraid - and despite the interference of the media - nothing has changed in this respect for the last 3 years - asset devaluation continues and debts continue to be written off.

    ...that's why they call it a depression....

  • Comment number 50.

    37. At 12:57pm on 23 Sep 2010, szjon wrote:

    "Wasn't WOTW predicting this a while back?"

    Sshhhh now.....you'll make people think I am clever, when in fact all I do is apply reason and logic to the situation and don't let my emotions (or self interest) intefere with the conclusions drawn.

    38. At 12:59pm on 23 Sep 2010, JavaMan wrote:

    "And then depression set in, the clearest sign yet that the entire ponzi pyramid could well topple sooner rather than later."

    ...and we have the 'biggest Ponzi of them all' offering loans to countries to help them out with their debts. It's in the first stages of 'draw down' - just like Madoff's scheme went - where those who get out first survive and those left in are crushed.

    Good to see you - as you can see little has changed - in fact nothing has changed other than the people are awakened and they are pretty peeved about the situation in which they find themselves.

    I've been to Greece - and I am now more sure than ever that everything is going to happen as predicted. It was a real insight into the future for us all.

  • Comment number 51.

    Is buying and selling a football club, in the hope of making vast profits using somebody elses money immoral?

    I hope LFC fans boycott the club en masse.

  • Comment number 52.

    44. At 1:29pm on 23 Sep 2010, LFCforumCo

    Thanks for the detailed critique.
    Good luck to the real fans !

  • Comment number 53.

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

  • Comment number 54.

    Has no-one learned the lessons of Luton Town ? What will it take to realise that the 'football bubble' is set to burst ?

  • Comment number 55.

    Are people actually reading any of the sensible financial comments on this column.

    as stated before, Liverpool Football Club makes a very good operational profit, only the ever increasing loan repayments and interest on this loan (that the owners took out to purchase the club), take the club from profit every year into the red!!!!!

    Therefore, if RBS seized the club from the Americans, the loan and interest on the loan, would no longer be payable. also meaning the club would be profitable.

    The Americans would no longer be the owners, but they would still be liable for any outstanding debt, not Liverpool FC.

    The club would be sold quickly at a far more realistic price and RBS would get their money back.

    It is the Americans who are really in trouble here.

  • Comment number 56.

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

  • Comment number 57.

    43.
    Much as I dislike Man Utd in footballing terms, I think its shameful that many people would like to see other teams suffer because of finance.
    Its meant to be about sport and entertainment. If I want to see a bunch of international financiers battle it out then I'll just not bother watching the action on the pitch and study the clubs finances instead. Perhaps we should have an alternative league where we just see whose pockets are deepest at the beginning of the season and award all the trophies to them.
    My main joy at the moment is watching Man City fail after spending all that money.
    5. is right, the whole thing is a joke.
    (and I'd rather see LFC go bust than see Hicks and Gillett make any money.)
    Yet again another are of our life is completely wrecked through LBO's (?) and the banks.

  • Comment number 58.

    @40 aprint

    Completely agree. I've never understood the legality of a Leveraged Buy Out, in that you can borrow money to buy something (ie Liverpool FC), and then once you own it, transfer the debt into the name of that asset. In effect you've bought that asset for nothing. That's what seems to have happened at Liverpool, and seems to be the case at Man Utd and a few others as well.

    Someone big is going to fail because of this.

  • Comment number 59.

    Purslow was interviewed yesterday concerning this process. Conspicuous in its absence was any question about what happens in the event of not achieving a sale in time for the RBS deadline.

    However, Purslow did say something interesting:

    "When we sell the business, that debt will be reduced or go away, which will make us the most profitable club in the Premier League."

    WHEN WE SELL - Now that suggests to me one of three things:

    a) He knows the club will be sold by deadline day.
    b) He knows the bank will extend the loan to give them more time to find a buyer.
    c) He knows the bank will repossess the club but keep the UK board of 3 in place to ensure stability and continue working on selling LFC on the bank's behalf at a realistic price.

    Of the above, it's choice 'b' that we're all afraid of- though I doubt RBS want to cause that big a sh*t-storm when the club represents a complete bargain to a solvent investor at £280 - 300million.

    Choice 'a' or 'c' would do nicely if Purslow, as promised, asks the right questions of new owners (unlike Moores!).

  • Comment number 60.

    Thank you Robert for clarifying this. Yet another example of Fred Goodwin's incompetence. What a clown. I love Liverpool FC along with millions of other supporters but I'm afraid we're all going to have to suffer and wait and go through this process to finally rid us of the yanks and the private equity gamblers. The one shining light is Liverpool is not Portsmouth and neither is it a Man City or even a Chelsea in that it's fan base is GLOBAL. It's more true for Man Utd and to a certain lesser extent: Arsenal. I'm sorry to say but do you think given the chance and the prices at the time that Abramovich; or the Sheikh would seriously have bought either of the blues if LFC hadn't been so overpriced? Why do you think the Glazers prize Man Utd so much?
    I know I'm LFC but talk to anyone outside these respective towns and it's Man Utd, Liverpool that has the most appeal.


    Messrs Hicks and Gillet are well aware of this and is the reason why they value it so ridiculously high. However, they're caught between a rock and a hard place and I seriously doubt that they will default; instead a real possibility is some very hard bargaining around the 15th (although I read earlier it was the 6th October so not sure where the 15th has come from). I think it will be sold for something just higher than the 280m. After all, Hicks has said himself that he's interested in making money and uses poker tactics of bluff and double bluff.

    When Martin Broughton, was brought on it meant the beginning of the end for the yanks. The end is nigh! Go team Purslow, Hodgson, Broughton, Stevie G.

    There are interested parties looking at the books as Christian has already said. People don't do due dilligence just for fun.




  • Comment number 61.

    When RBS take over Liverpool perhaps they can compare notes with Lloyds who effectively own Rangers in Scotland.

    Bank of Scotland got similarly over extended to Rangers and David Murray as RBS did with Liverpool.

  • Comment number 62.

    Watch out for middle class bureaucrats masquerading as football fans.
    Hint. They're good at creating forums.

  • Comment number 63.

    Foredeckdave. So, you were pleased to see them arrive. You said it yourself. That was my point. You rang talksport in your thousands. Just because you were stupid enough to fall for their patter don't take your anger out on me. Calm down, calm down.

  • Comment number 64.

    IR35_SURVIVOR: At the moment Man Utd's success (merchandise income, prize money etc) and stadium size contributes enough income to service their colossal debt.

    Therefore it will be Man Utd's turn when, like LFC, they slip up one season and fail to get into the Champions League.

    Their situation is a little different in that, unlike at LFC now, if/when they eventually default the size of the debt would probably be far greater than the value of the club. Until then it seems their lenders are happy with their massive interest income.

  • Comment number 65.

    Let Liverpool go to RBS (= UK gov = taxpayer). Sell Torres and restore the science and education budget. Give Liverpool FC to the supporters club. Pay off the loss to RBS by stopping the bonuses.

  • Comment number 66.

    As usual people are confusing this situation with the "crisis of capitalism" that they desperately crave. LFC is over-levered. The owners might get lucky and find a white knight who is willing to pay up for the franchise, but more likely the banks will force a sale (either before or after taking owenership) and it will be to someone who may or may not have alot of money to spend but will almost certainly not be debt financed (no-one in their right mind is going to want the PR disaster of lending against LFC assets again). This kind of thing is normal business cycle stuff - the owners over extended themselves and the business plan went awry. The banks should never have lent so much money against this business but they make mistakes like that every business cycle. Now, there may well be more twists and turns in the financial crisis. Greece is bankrupt as it owes more than 100% of its income, in a normalised state will pay around 5% interest on that and will never grow at more than 3 or 4% per annum. Its simple mathematics. What intrigues me is that the same people who correctly identify that Greece is bust can't seem to appreciate that the UK needs to stop its stock of debt rising to similar unsustainable levels. We have about 2 to 3 years to get our debt under control (let's not forget it rises every single day), otherwise we will find ourselves in the same debt trap as Greece and have the choice of either defaulting or devaluing. All of this is irrelevant to LFC by the way. Please can one of you lefties explain how LFC is an example of how the evils of capitalism inevitably lead to debt-fuelled destruction, and yet the answer to the UK's debt problems is spend, spend, spend?

  • Comment number 67.

    #50 - Good to see you back dear boy. For a second I was worried that those 'dark forces about which we know little' may have got to you, then I realised they are only interested in real threats.

  • Comment number 68.

    Yes, but the key question, and one which I'm sure Vince Cable for one, would like answered is - were any bonuses paid out to bankers on the back of this loan? I'm sure that the masters of the universe rewarded themselves handsomely for yet again demonstrating their unique skills and talents for wealth creation. It's a pity Liverpool havn't had enough footballers with unique skills and talents for goal creation in their team over the last few years - otherwise they might have got better results on the field, translating to better results on the balance sheet, and maybe those banker bonuses would have been justified. Ahh.. but I'd have to be a Marxist to think like that, wouldn't I?

  • Comment number 69.

    WOTW:

    Re Greek default, should I beleive you, or the EU's(Economic and Monetary Affairs Commissioner) Olli Rehn. Today he said "there will be no restructuring of Greek sovereign debt nor ... any other eurozone country."

    You're in a bank right? How are Greek bond prices/CDS doing?

  • Comment number 70.

    @50 WOTW

    You should come to Ireland, things are getting interesting here too. I'm a brit, just currently over here, interests in Poland too, they were out marching there yesterday, something to do with austerity and cuts apparently.....

  • Comment number 71.

    5. At 10:14am on 23 Sep 2010, timawells wrote:
    I stopped watching football on a regular basis 10 years ago. I think there needs to be a cap on salaries and the tv money needs to be invested into the infrastructure of clubs. When I first started watching football on a regular basis in the 1970's, it cost the same to go to the cinema as a match. Football has totally lost the plot and if a few clubs have to go bankrupt to resolve the issue, so be it.

    - I agree Tim, but that won't happen any time soon. What real impact has a recession had on the Football industry really?

  • Comment number 72.

    Post 51 that is what Private Equity Houses do all the time, as do management buyouts.

    The plan / scam works as follows.

    We borrow lots of money and put little money in ourselves. A purchase of GBP 100 million is often only backed by GBP 5 to GBP 10 million of investors money.

    Then many realisable assets are sold to gain a profit which can be given out in dividends to the shareholders who take 100% of the dividend despite only putting 10% of the cash up.

    They sack a number of people, shut down a number of parts of the business, they call it efficiency saving or something similar. Then any profits made are used to pay off the interest which is generally an interest only loan.

    The hope is in two or three years that the business can be sold for say GBP 140 million now it is more efficient and profitable (apparently).

    The GBP 90 million loan is repaid and the buyers who put up on GBP 10 million take back GBP 50 million. Nice work if you can get it!

    After all it worked so well at Woolworths and MFI amongst others.

    For those crowing about Liverpool from Manchester it could reasonably be argued that the selling of Christiano Ronaldo with no replacement is selling of a part of the business like the first step of the private equity scam and the Glazers seem to have taken a lot in dividends over the years.

    As a few have alluded to United won't be far behind Liverpool.



  • Comment number 73.

    65. At 3:14pm on 23 Sep 2010, WolfiePeters

    Excellent!

  • Comment number 74.

    #64 I think its a shame that we are talking about football clubs in this manner. I'm a Gunner sorry , loved the clashes in 71,89 etc.
    Was offered tickets to see AFC v Barga(?) £50 a time from a friend, that I'm affraid is far to much. That would have cost me £200 for a night with the boys, cannot jutify that.

    Fotoball needs to be brought back to reality , soon some of the MU supporters might not be able to buy all the bits you talk about and fergie will not be there forever , then they could be in real trouble

  • Comment number 75.

    #63,

    What a WUM you are - but not really a good one. Not suprising when you listen to talksport is it?

  • Comment number 76.

    I just think it will be settled by the end of October. Hicks & Gillett will wait to see what RBS do i.e. call in the debt or extend the loan period. Hicks is a bluffer and we will go past the deadline. See http://www.businessweek.com/magazine/content/10_23/b4181042631701.htm

    note the texas rangers filing for bankruptcy as well as hopes to make a couple of hundred million on selling LFC.

    Appears to me he's in trouble and will hold his nerve right up until the end. He knows there are interested parties and what is happening is a game of bluff and double bluff. As Robert Preston has pointed out: why pay a premium now when you know it will go for less. It all depends on the two bidders. Only then we will see the true value of the club and given its history, fan base and global appeal I think only Man Utd, Barca and Real have greater appeal despite how much I loathe to admit. Hicks knows this and I also believe that Purslow is telling the truth in terms of profitability and almost all the profits are spent servicing loans. Go team broughton, purslow, dalglish, hodgson, torres, Stevie, Carra and Big Pepe Reina.

  • Comment number 77.

    @67 roger knight.

    You still didn't answer my request. name, rank, serial number etc. remember?

  • Comment number 78.

    "66. At 3:17pm on 23 Sep 2010, a_sensible_comment wrote:

    As usual people are confusing this situation with the "crisis of capitalism" that they desperately crave."

    Nobody's confused (except perhaps you) - Liverpoool is merely another 'business within the crisis' and one which is suffering.....and nobody craves the crisis - it's merely inevitable. Ignoring it or denying it isn't going to change that. If you haven't worked that out by now then you're going to be having the same argument for the next decade I think.

    "LFC is over-levered. The owners might get lucky and find a white knight who is willing to pay up for the franchise, but more likely the banks will force a sale (either before or after taking owenership) and it will be to someone who may or may not have alot of money to spend but will almost certainly not be debt financed (no-one in their right mind is going to want the PR disaster of lending against LFC assets again)."

    Ah - so in the midsts of the biggest asset devaluation ever, you're 'hoping' for a white knight to swoop in and save the day. Know any billionaires with a proclivity for football and a generous disposition? Me thinks that Billionaires are billionaires because they are not generous, what you require is an oxymoron - or maybe just a rich moron. The experience of other owners is not really a selling point for a new one is it now?

    "This kind of thing is normal business cycle stuff - the owners over extended themselves and the business plan went awry."

    Ah the old 'business cycle' is it then? So what causes the business cycle? - seems like the business cycle is very much in line with the economic cycle - which is based on the storing of surplus capital until it reaches a point of overproductive collapse - or wait, let me guess, here comes a new owner just dying to get his hands on the asset because he believes he can be 'the one' - or maybe it's a new market CHINA! - oh wait, we've already been there haven't we. How much longer are you going to peddle this austrian cycle? We can all see the cycles - but for 10 points, can you explain what causes the cycle? - and you cannot cheat and refer to surplus value, that's my bag.

    "The banks should never have lent so much money against this business but they make mistakes like that every business cycle."

    Mistakes - of chasing diminishing profit margins forcing the irrational lending to satisfy shareholders. Isn't it funny how all these mistakes start occuring just before the crisis comes - it's almost like they're all doing the same thing

    "Now, there may well be more twists and turns in the financial crisis. Greece is bankrupt as it owes more than 100% of its income, in a normalised state will pay around 5% interest on that and will never grow at more than 3 or 4% per annum. Its simple mathematics. What intrigues me is that the same people who correctly identify that Greece is bust can't seem to appreciate that the UK needs to stop its stock of debt rising to similar unsustainable levels. We have about 2 to 3 years to get our debt under control (let's not forget it rises every single day), otherwise we will find ourselves in the same debt trap as Greece and have the choice of either defaulting or devaluing."

    ...and yet you don't seem to have noticed our debt rising for the last 50 years (or more) - you're arriving a little late to this party and I never said it was fancy dress - so why are you in a monkey suit?

    "All of this is irrelevant to LFC by the way. Please can one of you lefties explain how LFC is an example of how the evils of capitalism inevitably lead to debt-fuelled destruction, and yet the answer to the UK's debt problems is spend, spend, spend?"

    Diminishing marginal returns - go and read up on it and you will find your answers. The same problem that inflicts LFC is the same one that inflicts every UK business, big, small, bank or not. Maybe this will explain your business cycle - although it won't agree that there will necessarily be an upturn in that cycle.

    http://en.wikipedia.org/wiki/Diminishing_returns

    next time, please do make a sensible comment - it's so disapointing when you don't live up to your name. That's one thing I do at least!

  • Comment number 79.

    61. At 2:39pm on 23 Sep 2010, Ian_the_chopper

    Long time no see - how have you been keeping?

    The failures of banking are everywhere - paper tigers have been built and the wind of change is blowing them all away...

    I'm just waiting for the justification that 'not all football clubs are badly managed' in the same tune that 'not all banks are badly managed' - but just as with banks, when all these badly managed clubs fold - who are the rest going to play?

  • Comment number 80.

    67. At 3:18pm on 23 Sep 2010, Roger Knight wrote:

    #50 - Good to see you back dear boy. For a second I was worried that those 'dark forces about which we know little' may have got to you, then I realised they are only interested in real threats.

    Ah Roger - didn't we already establish that you will say anything to win an argument?
    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/09/ofcom_expected_to_review_news.html

    Stick to the truth and you might gain some credibility - tell us that you're an 86 year old WWII veteran in order you can show faux outrage at the use of the word fascism - and you won't.

  • Comment number 81.

    during Browns incompetent reign as Ch of Ex many people overborrowed from uncontrolled banks and ended up repossesed. Time for a football team to go down. If the hypocritical fans stopped supporting all these over paid foreign players who send money to their momma and viewers kicked the sky box into touch perhaps a return to a proper level playing field and then a real sporting contest could be achieved.

  • Comment number 82.

    Great article. If they can go into RBS' hands without going into administration then no one would even think of buying Liverpool before the 15th. But...if they can't then it gets trickier. Would a nine point deduction and the mere idea of being in administration greatly reduce the value of the club by so much as to make it untouchable for a buyer? Nine points off for certain means no chance of Champions League and thus a mass exodus of the top quality players. Talk about asset stripping.

  • Comment number 83.

    69. At 3:21pm on 23 Sep 2010, Dale_Lemma wrote:

    "WOTW:

    Re Greek default, should I beleive you, or the EU's(Economic and Monetary Affairs Commissioner) Olli Rehn. Today he said "there will be no restructuring of Greek sovereign debt nor ... any other eurozone country."

    Of course he does - he has a vested interest. We all know EU commisioners were born to be wrong. I mean this guy is predicting stirling growth for Ireland next year - I mean of course there will be, look at all the new markets lining up to invest in Ireland right now..
    http://www.rte.ie/business/2010/0505/eurozone.html
    ...yes, the same ireland...
    http://online.wsj.com/article/BT-CO-20100923-700740.html

    "You're in a bank right? How are Greek bond prices/CDS doing?"

    Not strictly a bank - but on the QT, the bond spread has returned to the April crisis levels and nobody's noticed.

    Seems that ECB bailout was only temporary (as they always are)

    http://seekingalpha.com/article/223125-greek-5-year-cds-continue-to-march-toward-all-time-highs

    Slightly old article, but nothing has really changed, only got worse really.

  • Comment number 84.

    70. At 3:21pm on 23 Sep 2010, szjon wrote:

    "You should come to Ireland, things are getting interesting here too. I'm a brit, just currently over here, interests in Poland too, they were out marching there yesterday, something to do with austerity and cuts apparently....."

    ...as I told my Greek friend on the train...do not worry, we have not forgotten you - the birthplace of the debt revolution is marked in the same way as the birthplace of democracy.

    it's almost like the world is waking up to the fact that we're not paying for this crisis politico's - better go and look elsewhere.

  • Comment number 85.

    Liverpool fans must be quaking in their boots.
    What's worse? Strife off the pitch, or disaster on it?

  • Comment number 86.

    An outcome that sees the current owners suffer anything other that a 100% loss would be a total travesty.

  • Comment number 87.

    74. At 4:00pm on 23 Sep 2010, IR35_SURVIVOR wrote:

    "#64 I think its a shame that we are talking about football clubs in this manner. I'm a Gunner sorry , loved the clashes in 71,89 etc.
    Was offered tickets to see AFC v Barga(?) £50 a time from a friend, that I'm affraid is far to much. That would have cost me £200 for a night with the boys, cannot jutify that. "

    Ah but the 'football model' doesn't involve ticket prices and fans anymore - it's all about international merchandise sales (which is why fans are treated with such contempt). Unfortunately world wide recessions tend to blow giant holes in such plans.

    Save your money and watch it on the internet for free.

  • Comment number 88.

    77. At 4:33pm on 23 Sep 2010, szjon wrote:

    "@67 roger knight.

    You still didn't answer my request. name, rank, serial number etc. remember?"

    He's had that 'memory erasing' that's been applied by the Government - you know, the thing you saw Will Smith using on Men in black.

    I'm afraid some people will go to any lengths to win an argument - when actually all you need is the truth!

  • Comment number 89.

    Liquidation is a moot point, as is Administration likely to be - at least in the eyes of the FA.

    For liquidation or Administration it is largely about assets, profit margins, and the ability to pay off debt - and this is only about paying off debt and is largely down to an incredibly poor loan deal brokered between RBS and the owners (any business requiring loans of several million usualy have a realistic agreement to pay it over many years - not an agreement that requires it to paid in full in under 3).

    As has already been stated by the LFC board, if it were not for the debt repayments Liverpool would currently be the wealthiest Football club in the Premierleague. By that they mean that Liverpool actualy has one of, if not the highest, levels of income - that makes the business of Cop Holdings VERY lucerative.

    So LFC (cop holdings) as a business is in debt simply because of the loans used originaly to purchase the business. It cannot go into liquidation because of this fact - it cannot go bankrupt because of this fact - and therefore the whole argument of Administration is also likely to wind up being a moot point as well.

    If RBS does take control, it is very likely that Liverpool will be placed into Administration and it is equaly as unlikely that the FA would impose any points deficit.

    This is not Portsmouth who was financialy bankrupt. Again, Liverpool is not, nor is it ever likely to be, bankrupt.

  • Comment number 90.

    As something of expert in this field, I suggest that if Liverpool were taken over (and it is feasible to avoid bankruptcy), then there would be a re-sale within a matter of days. My guess would be that the exit route has already been mapped out and a price and fees decided.

    RBS do not want any adverse publicity, nor do they want to risk damaging a commercial asset, so they will likely have this deal in the bag. However, I do not rule out G&H pulling a rabbit out of a hat in terms of a renegotiated deal, either with a significant capital injection or a new loan elsewhere.

  • Comment number 91.

    well i'm a liverpool fan and season ticket holder and go to most games. i cant believe how liverpool fc have got themselves into this mess, 18 months ago we were right in the thick end of a title battle, only alonso went really that summer, 1 person dont make that much different surely.

    I wish the just get this whole saga is resolved before january so maybe we can sign a few players and finish in the top 10!! I don'y think roy is our man they should have asked king kenny.

    I feel sorry for Gerrard, he has given his whole carrer to LFC and DOES deserve the right to play for a madrid or barca to win a league title cos he wont a LFC unless he plays well into his late 30's if he is lucky.

    Torres should go, he don't like it cos we r not in champions league but no LFC fan does!! so instead of looking for a move which never developed and moaning at being lied to pull your socks up and score the goals to help us. wear you heart on your sleeve, you get paid enough...

  • Comment number 92.

    Welcome back WOTW!

    I have just been a lurker here for a while but your brutally insightful posts are unmissable.

    Keep up the good work & don't let the "free" market dogmatists get you down.

  • Comment number 93.

    Post 79 WOTW like you I have been out of the Country. In the other EU economic basket case Spain.

    Unlike the Greeks the Spanish seem relatively sanguine about it all. I suppose forty years of fascist rule under Franco and abject poverty in those days makes even todays situation seem not too bad.

    Like Greece Spain really is up the creek without the paddle. Anyone who ventured to a Spanish holiday resort this year could see signs of the carnage.

    The Brits are staying all inclusive to hedge against the crap exchange rate so bars are shutting left right and centre even in big resorts.

    Virtually all of the English Premier League is dependent on either a bank loan or an overseas sugar daddy and they are all desperately hoping that the tv income bubble doesn't burst. te question merely is who will be next not if there will be a next one.

    Coning back to the third EU basket case Ireland the big story is about to break there.

    http://www.postonline.co.uk/post/news/1734890/goldman-sachs-dual-quinn-role

    What a surprise Goldman's seem to be playing both sides of the game.

    I think it is only a matter of time before AIB cause the Irish government to have to call in the IMF.

  • Comment number 94.

    timawells @ 10.14am

    I think you have pointed correctly to the more pertinent bigger picture.
    Football began losing something as the US influenced crazy wages in sports began to take hold in this game too. It became a financial nightmare as players began to earn 50 to 100,000 pounds a WEEK and managers salaries headed in to the 5 and 10's of millions of pounds also. This craziness has simply snowballed and produced what we are seeing now. The costs to the fans has gone through the roof, even the times the matches are played is dictated to by the advertisers and tv stations, it's all about money and the game itself has slid into second place. As much as I love the game there's no human being, let alone a sportsman, on the planet worth 80 million pounds or 150,000 a week in wages. Welcome to the world of greed, and a level of greed that was initiated by the USA and spread like a cancer through many top sports.
    There's a limit to everything and what we see now is the tip of the iceberg that will sink the sport as we once knew it in the UK. Sad, sad stuff.

  • Comment number 95.

    These are worrying times for many of us who have supported LFC all our lives which, in my case, is over half a century.

    I am afraid we have to get used to the fact that the LFC we knew and loved and grew up with, has gone forever.



    http://lfctruth.wordpress.com/2010/09/13/the-lfc-times/

  • Comment number 96.

    89. At 5:10pm on 23 Sep 2010, Phil Wells wrote:
    This is not Portsmouth who was financialy bankrupt. Again, Liverpool is not, nor is it ever likely to be, bankrupt.

    Well no, I suppose not, not as long as fans are happy for their money to be spent on interest payments.

  • Comment number 97.

    If Man Utd fans can raise almost £1 billion to try and get rid of their owners, why don't Liverpool fans do the same - they must be able to raise at least halh that amount and £500 million could then be spent on getting rid of the current owners, stablising the club & bringing in the new players you clearly need.

    I personally think it is disgraceful that this is happing the English's biggest club (Historicially) and the banks should institute a ruling that all football clubs should be paid for 100% - NO MORE LOANS !!!

    Come on fans - buy back your club and run it yourselves !!!

  • Comment number 98.

    # 42. At 1:09pm on 23 Sep 2010, foredeckdave wrote:

    "It should be noted that Liverpool FC would not itself go into administration. As an entity in its own right it is highly profitable organisation. It would be the Hicks and Gillett Kop Holdings that would be in administration. Hence the 9 point penalty may not come into force."

    I think you'l find that will still result in a points deduction etc. I know (from experiance of a southampton fan) that when the parent company goes into admin it's not treated as a seperate entity from the club. Our board attempted to make the same case and failed. Of course football league and prem may take a different line to one another but it seems, to me, only fair and just that if they find themselves in a similar position (no matter how big a club they are) they shoulkd suffer the same fate.

  • Comment number 99.

    ' Try asking RBS to support the setting up of a high tech value adding manufacturing company and see how quickly they can get you out of the front door'

    Could'nt agree with this comment more!! The fact of the matter is that banks like RBS...were happy playing their finances like they were playing the top table of a casino...prudence...not quite!!! And whats worse they expect the tax payer to bail them out along with their dodgy deals- of which LFC is one- when their numbers did'nt come up. So LFC will be owned by the bank which is owned by the tax-payer - so LFC is owned by the tax-payer? Whilst the state owning everything on merseyside might be welcome....this surely is'nt right when the nations bank refuses to lend to many 'worthy' businesses up and down the land because they've sunk a load of cash chasing a lost cause......
    Here's an idea for RBS- Ladbrokes are giving 66-1 on Liverpool to win the premier league.....only needs a stake of 4.25m and they've re-couped their dosh! Now they do like a lost cause!

  • Comment number 100.

    "borrowed money to fund their purchase of the club, and leveraged this loan against the club" This is a great example of why the world economy hit the fan. Howzabout I buy Microsoft even though I'm skint, with the collateral of the Microsoft Corporation.

    Any and all attempts to hurt these owners financially would be well worthwhile.

    Finally, it's really time for the administrative penalties to be dropped. They're patently arbitrary and unfair. Much better idea to make all owners have to pass an initial solvency test, and keep passing it or lose ownership of the club to the league--who would then sell it to interested buyers. Letting the clubs go into debt just ends up hurting the fans.

 

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