Tom Hicks got his PR firm to confirm last night what we’ve known all along – Liverpool Football Club will be paying the interest on the loan he took out to make himself richer.
Hicks, alongside his long-lost partner George Gillett, persuaded Liverpool’s then chairman David Moores to sell his shares a year ago, and persuaded him to recommend the rest of the shareholders do the same. Moores, with the help of chief executive Rick Parry, convinced shareholders and supporters that these two guys from America were what we’d scoured the globe looking for: the investors that would get us back on par with Manchester United in terms of financial muscle, which was the key to getting us back in contention for league titles after a long barren period in the wilderness.
The new investors we were looking for would ensure that we could build a new stadium without having to reduce our transfer budget during the development period. In fact we were looking for investors with the financial capabilities to increase our transfer budget from the off, a long-term plan that would see us ultimately become self-sufficient, but in the early stages would see us working from that initial injection of capital.
Unfortunately the two people who bought our club were financially incapable of doing that. They had to borrow heavily to buy the shares from the previous holder, and despite their boasts of clearing Liverpool’s debt, which was around £45m before their involvement, all they’d done was shuffled it into a different place. They borrowed nearly £300m when they took the club over, and that’s now increased to £350m.
Their argument is that most of it isn’t secured on the club. £105m of it is now owed by the club. Their trumpeted removal of the debt was all well and good – but it only got put into a different pocket for a year, and has now been put firmly back into the club’s pocket. And in that year it’s more than doubled from that £45m at the start of last year, to the £105m figure we see now.
They talk about the remainder of the debt being at the “holding company level”. That’s all well and good, but the holding company only has one asset – Liverpool Football Club. The owners, Hicks and Gillett, technically don’t own Liverpool FC. They own the holding company, which in turn owns Liverpool FC. The £245m debt the holding company now has is secured on the owners and their assets, but that security would only be required if the holding company was incapable of making the payments on the loan. So who will the holding company be getting its money from?
Well Hicks got his PR company to own up for him. A spokesman from Financial Dynamics, said on his behalf: “The holding company debt is supported by the assets it acquired and should there ever be any shortfall in cash flow at the club or anywhere else in Kop in any given year, Kop’s ownership, under the terms of the financing package, is prepared to fund whatever is required. The debt is being handled exactly as it is handled at the vast majority of professional sports teams.”
Think about this carefully. Liverpool FC will need to find approximately £9m a year in interest payments to keep on top of the £105m it is now in debt by.
The holding company will need to find approximately £21m a year in interest to keep on top of its £245m debt. The holding company (known as Kop) does not have any other means with which to generate income than that which it is paid by Liverpool Football Club. So it is expecting Liverpool Football club, as well as finding its own £9m interest, to also find another £21m interest to pay for the “Kop” loan. That’s £30m in all that the club has to find each year the debt is at this level. And let’s face it, the debt’s not going to decrease in any short space of time.
If, for some reason, there was no way on earth that Liverpool Football Club could pay the £21m interest to the holding company, the statement says that “Kop’s ownership (Hicks and Gillett) …is prepared to fund whatever is required.”
Now when you read a statement like that at face value you would be forgiven for assuming that the owners are prepared to see the club through any future difficulties. Say, for example, Liverpool failed to qualify for the Champions League next season, and could only afford, for example, £4m of that £21m interest needed by the holding company, that the owners would happily dig deep and stump up the other £17m. Well think again.
In that example, the owners have three choices. Firstly, stump up the £17m from out of their own funds. Secondly, allow the banks to use the security the owners put down against this loan to recover the money they required. Finally, use the assets the club has in order to find that £17m.
They aren’t going to go for either of the first two options.
So faced with a shortfall in the holding company’s requirements, the owners would seek to use the club’s assets to pay that interest. They may consider selling a stake in the club to another investor, although if the club’s in such a precarious financial position most investors would steer clear for the sort of price the owners would be asking. There’s very little else that can be sold – except players.
And this is where the club starts to decline further and further. Even if we qualify for the Champions League, we’re already using up £30m of our annual income on interest payments to cover the owners’ own investment. That’s before we start borrowing the £300m+ required for the new stadium. We’ll simply be unable to afford high-quality player purchases by the time we’ve paid off that year’s debt interest. The teams above and below us will have the funds to buy, and their squads will improve accordingly. Ours will at best stagnate, until the year comes where we do drop out of the Champions League places.
And if we are out of the Champions League places, we lose a potential £25m. The holding company finds that after we’ve paid our wage bill, paid instalments on past transfers and spent what we need to spend for the day-to-day running of the club, we can’t pay them their interest. And to the holding company there’s only one way to achieve that. Goodbye Fernando Torres, goodbye Pepe Reina, Xabi Alonso, Javier Mascherano, Steven Gerrard – it doesn’t matter, who. Just as long as that interest payment is made.
And now, not only have we failed to get our squad up to the standards of our rivals, not only have we failed to at least keep the gap between us and our rivals the same, not only have we failed to at least keep our own squad as strong as it was, we’ve actually had to weaken our squad.
Under these owners the club is in a mess, the future of the club is on a tightrope.
We’re gambling on Champions League qualification, and even then on relative success in the Champions League. Without it, we are in serious danger of following the same path Leeds followed. And don’t for one moment think “it can’t happen to us”, because it can.
And the chances are that Hicks and Gillett will have ridden off into the sunset long before it gets to the Leeds stage – they’ll transfer the debt onto the club’s assets, pay off their own loans and disappear. Their gamble is weighted in such a way that if they win, they get rich, but if they lose, they just don’t get any richer. They don’t lose. The only losers are Liverpool Football Club and its supporters.
Dubai International Capital are said to still be in negotiations with Hicks and Gillett to get the club out of their hands. Even though the finance deal went through, it doesn’t mean DIC won’t buy. And there’s no saying that DIC will still please Liverpool supporters all the time. But it’s almost impossible that they could be any worse.
We’ve got to get behind the players and the manager; they need us now more than ever. Those dissenting voices on phone-ins and message-boards who think we’re going to be alright under Hicks after all need to sit back and think about what’s really going on.
The owners will bail out as soon as they see a threat to their existing assets – we’ve got to do all we can to bring that threat forward.