Interesting article from Forbes Magazine

[Montse]

I saw this posted on the beeb forum but its an interesting financial read also its the first time I had seen mention of the Adidas deal and potential investors....

 

Winner With Losses

Jack Gage, 04.24.06

 

 

David Moores did a masterful job of returning his Liverpool Reds to glory on the pitch. But his refusal to yield control of the club has led to financial strains and a decline in its value.

In December 2004 David Moores, chairman of and largest investor in the fabled Liverpool Reds, appeared to be distraught as he addressed his football team's board. Moores fretted that the financially strapped club would have to scuttle plans for a $290 million stadium. Unwilling to tap into his own inheritance (recently monetized in a public offering of the Littlewoods activewear and sports-pool combine), Moores stressed that the stadium was needed to bring in receipts the Reds needed to remain competitive on the pitch against much wealthier rivals like Manchester United and Chelsea.

 

"These past 12 months have not been easy," said Moores during the meeting. "We are looking at all roads to get investment into this club, including offers already on the table."

 

But a full year and surprising Champions League (all-European tournament) title later, the club's inner circle must have been shocked to hear the same sentiments from Moores. The team posted 2005 operating losses (in the sense of earnings before interest, taxes and depreciation) of $2.9 million despite $52 million in bonus revenue from European competition. We estimate that the value of Liverpool fell 11% in the past year, to $392 million.

 

How could the finances be so dismal? The club had come to life under new coach Rafael Benitez and such star players as midfielder Steven Gerrard and defender Jamie Carragher. Entering last spring's European competition a heavy underdog, it faced overhauled rival Chelsea in the Champions semifinals. After dispatching "Roman's Army," as the property of Russian billionaire Roman Abramovich is known, Liverpool won a come-from-behind upset of Italian powerhouse AC Milan. It was the fifth such title in the team's storied history, dating to 1892.

 

Following the Champions tourney hysteria, Liverpool's fan base soared to 18 million people worldwide, from just 8 million the year before, according to German sports consultant Sport & Markt AG. Besides collecting the bonus revenue, a record number of visitors to the club's Web site generated $1.2 million last year, 11 times 2004 Web-related revenue. Moores has since ironed out a contractual dispute with shirt sponsor Reebok, yielding a more lucrative six-year pact that could be worth $180 million on top of another deal with Adidas. He also extended the club's 12-year sponsorship by Danish brewer Carlsberg, the longest-running commercial partnership in England's elite Premier League.

 

Despite Liverpool's rebound on the pitch, it has taken Moores' commitment and financial legwork just to keep the lights on. The risky business of selling one player to pay another helped the Reds post an accounting profit in 2005, but a $115 million payroll, at 73% of ex-Champions League revenue, is too rich. Had Liverpool missed qualifying for the 2005 Champions bracket, the club very well could have been running $55 million short of breath.

 

While performance on the field does not guarantee financial success (see Japan's Fukuoka Softbank Hawks), a state-of-the-art stadium nearly does. Manchester City went from a $9 million operating loss in 2002 to profits of more than $7 million following its first season in City of Manchester Stadium, putting it in the company of rich clubs like London's Arsenal on a percentage of total revenue basis. The Reds meanwhile pull in only $59 million from stadium revenues; ManU gets more than double that.

 

With a capacity of 45,000, Liverpool's Anfield can't accommodate the crowds Manchester United packs into its Old Trafford stadium (68,000, expanding to 76,000 this year). Worse, Liverpool's ticket prices are lower. Match-day revenue contributed only 27% of total income for Liverpool, a far cry from the 38% to 42% seen at rivals ManU, Newcastle United and Chelsea.

 

Making matters worse, a new broadcasting agreement for the Premier League will diminish fees paid out to clubs. This particularly hurts Liverpool, whose fans travel the farthest of any Premier club (50 miles on average) to home matches, according to research consultant SportsWise.

 

One way to boost operating income would be to solicit some new equity capital and invest in a new stadium. But Moores, who owns 51% of the team, is not enthusiastic about diluting his stake. (He declines to be interviewed on the subject.)

 

There is equity money to be had from, for example, the owner of the NFL's New England Patriots, Robert Kraft. The billionaire has reportedly offered to bankroll up to $100 million of the proposed construction of Liverpool's new stadium in return for a minority stake and has even hosted Liverpool Chief Executive Richard Parry at Foxboro Stadium in the U.S. Who better to have as an investor than Kraft, who pumped $350 million of his own money into a new stadium for a Patriots franchise he bought for $172 million in 1994 and turned into a three-time Super Bowl champion and the third-most-valuable football team, worth $1 billion. Kraft also owns the New England Revolution of Major League Soccer.

 

Prior to Kraft, Thailand's wealthy Prime Minister Thaksin Shinawatra made intimations that he, the Thai government or private Thai companies (depending on the day) had interest in the club. But how a 30% stake worth up to $110 million would be financed dissolved talks prematurely. Another knocking at Liverpool's door has been Spanish tycoon Juan Villalonga, a former president of Spanish telecom giant Telefónica.

 

By far Liverpool's most visible suitor has been Moores' fellow club director, centimillionaire British businessman Steven Morgan. Boardroom bickering spilled over once again in February at the club's annual general meeting as Morgan, now the third-largest shareholder, contended that Liverpool's debt burden ($47 million) meant he should get a discount on buying a majority stake.

 

As early as 2004's general meeting, it was Morgan's wife who voiced her frustration over spurned attempts by her husband to scoop up shares in the club. "Here is a local, successful businessman willing to put millions into this club," said Didy Morgan. "Yet we're still waiting by the phone."

 

Morgan, flush from a likely sale of his stake in a hotel group, may renew his efforts to recapitalize the club. At some point, if the price gets high enough or the balance sheet strained enough, Moores might just take the money.

 

Forbes mag

[Escargot]

Can't believe Liverpool fans travel furthest "on average" to home games.

 

South-west coach trips to Old Toilet only count once?

[mally]

centimillionaire British businessman Steven Morgan.

Forbes mag

 

[Guest Scot]

 

That's a Nike swoosh = Steve Morgan + new kit deal = investment

[Mono]

I could have sworn I read that same article a month ago

[_00_deathscar]

"The Liverpool Reds"

"Champions League (all-European tournament)"

 

Geez....

 

Cringeworthy words and vocab side, an interesting article.

[Skillz]

Terrible article written with an obvious agenda

[SkippyjonJones]

but a $115 million payroll, at 73% of ex-Champions League revenue

 

 

so if the article is trying to compare the tp clubs them why not publish their revenue as well. and the % of payroll compared to turnover excluding CL income.

 

and why Exclude CL income. If the payroll figures include bonuses due to CL sucess then it makes no sense at all. and why not compare to other sports.

 

 

I was under the impression that our payroll was at 53% (could be a little higher) of turnover - which is below other clubs (IE Chelsea is a hell of a lot higher) and below most US sports as well.

 

 

 

very poor article which only pulls facts selectively instead of being impartial and allowing the reader to draw their own conclusions.

[Kite]

so if the article is trying to compare the tp clubs them why not publish their revenue as well. and the % of payroll compared to turnover excluding CL income.

 

and why Exclude CL income. If the payroll figures include bonuses due to CL sucess then it makes no sense at all. and why not compare to other sports.

I was under the impression that our payroll was at 53% (could be a little higher) of turnover - which is below other clubs (IE Chelsea is a hell of a lot higher) and below most US sports as well.

very poor article which only pulls facts selectively instead of being impartial and allowing the reader to draw their own conclusions.

Good point there. I thought the article had a bit of spin about it, obviously if our progress in the CL was less, then also our payroll figure would also be less. You're right too about our wages to turnover ratio being low - that was one of the positive points mentioned at the last agm, as far as I remember.