Rafa accepts he has to wait for new deal

Liverpool boss Rafael Benítez still hasn’t got the new contract he was promised before the end of the season, but wasn’t willing to complain about the fact when asked about it yesterday.

Tom Hicks promised Rafa would get one just as soon as he’d taken control from George Gillett, but neither of those things has happened yet. Chief Executive Rick Parry’s contract is due up in January, but it seems unlikely either contract will be improved or extended under the current joint ownership structure, where both owners must unanimously agree on such decisions.

Whilst Parry’s only sees him through into the New Year, Rafa still has just under two years left on his, which runs until summer 2010. He’s happy at Anfield, despite the off-field happenings, and any threats on his part to quit should really be taken with a pinch of salt: his family are happy he’s at Anfield too, having taken to life in Liverpool rather well, and so Rafa wouldn’t walk out on a whim.

Rafa’s name will always be linked with vacant manager’s positions at certain clubs, even when the positions aren’t yet vacant. But short of using such interest to hurry along a contract renewal, it’s unlikely Rafa will leave the job he’s started at Anfield. Claudio Ranieri is the latest name linked with the sack, he’s currently boss at Juventus, and although Sam Allardyce is out of work it seems Rafa is one of the first names linked to take his place. Even if Rafa’s agent has been approached, it doesn’t mean Rafa would be interested – but it does help with those contract talks of course.

Rafa shouldn’t really need his agent to mention interest from other clubs to get him a new deal. He’s no automatic right to a new contract, but if the owners believe he’s right for the job then they should be wary of the day Rafa does show some interest. They should be wary that the happiness Montse feels on Merseyside means little if her husband is unhappy. And it wouldn’t just be a lack of a new contract that would make Rafa feel it was time to look elsewhere.

A new contract would also help him feel more secure, but he doesn’t seem to have the threat of the sack hanging over him now like he did for large parts of last season. He knows that nothing is likely to happen with his contract under the current set-up, not in a hurry anyway, and said he wasn’t going to let it bother him. He said: “I’m not worried about the situation at the moment. I am trying to be pragmatic about it and am just concentrating on the things I can improve. It doesn’t make it more difficult for me to plan for the future. I can only control things on the pitch and try to improve the squad. If I can do that, then things will be easier in the future.”

Dismissing any potential interest from Juve or any other clubs, Rafa said: “I’m really pleased and I have two more years left on my contract, so right now I’m just trying to do my job the best I can. I have always said I want to stay here for many years and I have the same idea now.” It’s of course difficult to gauge what will happen next in the boardroom, with even Rick Parry now seemingly kept out of the loop in terms of any possible sale, and Rafa knows that if he loses the support of Tom Hicks his days at Anfield could be numbered regardless of performances. Whatever he feels about his contract situation this isn’t a good time to use the press to grumble about it.

In terms of the club’s future ownership it seems most of those involved have now gone back to playing their cards close to their chests. The partnership remains unsuitable, if not completely unworkable. Dubai are still waiting in the wings, but their offer still remains short of a figure Tom Hicks would accept. But there is some hope in a snippet from Oliver Kay’s piece in The Times today. He writes: “Hicks and Gillett are firmly expected to sell Liverpool in the coming months, with another prospective investor having joined Sheikh Mohammed, the Crown Prince of Dubai, in declaring an interest in recent weeks.”

It’s clear that anyone wishing to buy the club needs to be prepared to bid more than Dubai have bid previously. The club can tick over, much to the regret of supporters, without any real difficulty and without a new stadium. Transfer budgets may be minimal, but the club could at least pay its loan payments.

The current finance is believed to have been extended until July already, and by then the club will have shown for two-and-a-half years how it has coped financially with such a burden. For it to be further extended is a very strong possibility. Hicks and Gillett put a relatively small amount of cash into the club, plus have certain guarantees in place as part of the finance. It isn’t really costing them anything to keep the club ticking over, and unless they needed that cash for other projects then there’s no real hurry on their part to sell.

What the owners do see, Hicks in particular, is a club that will one day make a lot of money from a new stadium and any other facilities it builds on and around the current of Anfield. The new stadium would see a capacity almost 30,000 higher – and all of those would be paying more than a seat on the Kop costs today. And of course some of those will be corporate guests, paying for more than just the match. If as well as this the owners built a hotel, there’d be yet more money coming in, and there are other means to make more money from the club.

At the moment the owners have the keys to that potential future profit. They own LFC. They just can’t actually put the extra funds in right now to bring them all of that extra profit, at least not on terms that make it worthwhile. So their choice is now whether to give the keys to somebody who can, or to keep hold of them until they can do it themselves.

So far they’ve not been offered enough for the keys to hand them over.

If it’s so obvious that putting money in will bring far more money out, why have Dubai still not made an offer Hicks would accept?

It’s one thing building a big stadium; it’s another one filling it. Many of the names on the season ticket waiting list will be duplicates, many more already use a season ticket anyway – it’s just in somebody else’s name because people don’t tend to give up season tickets, they tend to loan them out season by season. As people start to look for ways to save money, football will be on the shortlist for what they cut out or cut down on. And that goes for corporate ticket buyers as much as any individual.

Football’s living off the back of good TV money now – and that might not always be quite as good. And with Sepp Blatter and Michel Platini always looking at how they can change the game, there’s no guarantees football will be as easy to make money from.

In other words, those big future profits are only projects, estimates based on football being as popular in five-to-ten years as it is today. And perhaps Dubai are more cautious than the current owners, perhaps they fear that their money would be better invested elsewhere.

You can also add to this that Dubai are confident Tom Hicks will be forced to sell in the end. With nobody else competing with them for LFC, they are happy to sit and wait for the right moment. The club hasn’t particularly gone up or down in value since the last round of refinancing, so they can bide their time without worrying too much about it working out more expensive to wait. Not that this stopped them previously.

Despite all the claims about members of the Sheikh’s family being fans, admirers, occasional watchers or otherwise of LFC, their interest remains purely based on making money. That doesn’t mean it can’t be a lot of fun for supporters at the same time, but there is no urgency on their part. The club won’t really change value if it has 18 or 19 league titles; it won’t go down in price in Manchester United go equal on 18. That drives us onto demanding success, and more transfer money, but it doesn’t quite do it for Dubai.

New interest means that Dubai either have competition, and so may finally up their bid to avoid being gazumped like last time, or it means they have new partners, which again could see the bid go up as more investors join up to share the risks and rewards. At the moment it’s hard to tell, but there is every chance this would be a completely separate bid.

If potential new investors are led by someone with the same kind of passion that supporters feel for this club, then there’s a very strong chance that the gap between valuations will be bridged and a price finally agreed. Then the club can finally move forward.

If not then we remain at the mercy of the credit crunch, with the markets deciding who folds first, before we can end this 1:1 voting system where both voters barely talk. Rafa could be waiting a while for that new contract – but hopefully not too long.

33 thoughts on “Rafa accepts he has to wait for new deal”

  1. Jim – how wonderful is it to have you back writing, whether i agree with you or not.

    Rafa’s contract matters due to the background of how we got to where we are now! Rafa falling out with the owners, the owners going for Klinnsman, the owners backing off after Rafa recovered the CL position, Rafa and Parry’s relationship failing, Gillett and Rafa’s relationship failing, and the owners failing to talk to each other to agree anything!

    Rafa clearly doesn’t want to leave, particularly now we’re showing a bit of form (and he and his family do appear to love the place). BUT, as we’ve seen in this so-called ‘credit crunch’, uncertainty breeds uncertainty and volatility and many other words with negative meanings.

    That said, I’ll go with the theory that 18 months left on his contract means he’ll be here for a while. After all Wenger didn’t sign a new contract until there was only a few months remaining. But god-forbid the owners allow Rafa’s contract to run-down like Moyes’ has – which in the end unsettles the whole team.

    At least, as you point out Jim, Parry’s contract falls first. Hopefully what happens with him gives us a positive indication of what will happen to Rafa.

    The ownership issue is much much more important than Rafa.. But let’s see how this global economy’s cash injections, interest rate cuts and oil price reductions work to effect the Hicks and Gillett relationship. I just hope there out of our hair soon.

    By the way, any prospective buyer – DIC or not – would want to wait to see how the world economy impacts (on Hicks and Gillett) before paying over the odds for a team. Would you pay £70m more for a house knowing it could potentially be reduced drastically within weeks?!

  2. @midlands-red: Thanks MR. If we all agreed it’d be a boring world!

    The issue of Rafa’s contract is one that would be controversial even if we had the most placid, Red, rich, ideal owners on earth. Last season people wanted him sacked, not just the knee-jerk phone-in regulars, but people who’d decided enough was enough during that bad spell. Even on Sunday people were calling for his head as City got their 2nd! There’s still an element of support who say he shouldn’t be offered a new deal until we’ve seen how this season pans out, as well as those who say he’s done enough already to get at least another four years!

    Contracts are worthless now anyway in many ways. If Rafa got a call off Real tomorrow, and actually wanted to go, he’d go. Likewise if the owners wanted rid of him, he’d go. Compensation gets paid, but all the contract really does is make those decisions something you don’t do quite as lightly.

    I still believe that if Rafa really was unhappy he’d be able to persuade the family to move elsewhere. And I also believe that any unhappiness or frustration he has will build up, so one day he might really mean it when he threatens to quit (he’s done that a few times now, supposedly).

    I agree on the dangers of having a manager who players perceive hasn’t got long left – as well as your examples, look at how Man U did when Ferguson was in his supposed final season. Rafa may decide to listen to offers in the summer if he’s not had a new contract, especially if they’re the kind of offers where he’s likely to be shown the respect he deserves. But we may – should – have a different ownership setup by then.

    (Klinsmann will be looking for work soon too, by the looks of it, confirming just how lucky we were to dodge that particular bullet).

  3. Nice informative read, Jim. Thanks for that.

    I didn’t realise we could be shut of Parry so soon, lets hope the replacement puts the club and fans ahead of the already bulging wallets of our owners.

    Parry will not be missed.

    I would like to know the situation with regards interest payments. I wonder have we 1). actually paid any or 2). if we have did we pay them, was it using the loan money itself or via current income? The answer to that question would tell alot about the viability of the current, non stadium, model H&G have adopted. Anybody able to shed some light on it??

  4. “If it’s so obvious that putting money in will bring far more money out, why have Dubai still not made an offer Hicks would accept?”
    Because he’s a con man and he’s asking too much.

    “Despite all the claims about members of the Sheikh’s family being fans, admirers, occasional watchers or otherwise of LFC, their interest remains purely based on making money”
    Take out the words “purely based” and you may have a point and add the words “but not just making money and you most certainly have a point.

    “That drives us onto demanding success, and more transfer money, but it doesn’t quite do it for Dubai.”
    Says who ?? Pure fanciful thinking.

    Still the same old Jim chipping away.

  5. @ Jim – point taken on the validity of contracts. I think with Rafa – and any other manager in this situation – however, that when they’re signing players (noting we don’t have a Director of Football) it’s easier when they know you’re going to be around as well _ unless you’re Xabi maybe!

    @ Jim – if you could throw some light on a similar point I have to @ Stephen above – re. where did the money from from for our transfers – Riera, Keane etc. – was it Rafa’s dealings and run in the CL plus EPL position OR did Hicks and Gillett actually put their hands in their pocket OR are we to be happy that H&G didn’t take Rafa’s wheeling and dealings money to pay off their debts?

    Re. Parry – at the moment, I’m not sure whether I want him to stay or go. I do think he used last weekends BBC interview to promote himself after his own troubles. I also think that without him (and Moores) – who are trying to make-up for getting us in this mess – we would be further in debt. Who knows what would happen if Parry left. Perhaps, better maintain the current stability ie devil we know – than move to something altogether uncertain.

    @ Jofrad – I understand the worry re. ownership and whether DIC may or may not buy the club but your tones a bit harsh re. Jim. I see him like a journo who has a line – you may agree or disagree – but no need to jab your finger into his eyes as you do so. But having said all of that, I’m sure Jim’s able to fight his own battles!

  6. Midlands-red,
    You’re right but I just don’t like journalistic speculation dressed up as fact.
    I have no intention of upsetting anyone but It makes me SO MAD !!

  7. jim,

    i hope that your statement questioning why sam allardyce should not be linked with the juve job ahead of rafa was some of that dry englis humor.

    interesting about parry’s contract. i had not seen that anywhere else.

    your point on why “dubai” wont pay tom o hick’s asking price is a red herring. you accept that tom o and georgie boy are here solely for the purpose of making money. you cannot then impugn “dubai” for playing the same game. i think that the naivete regarding potential owners is over among the fans. they just want an owner who can deliver what they promise, and “dubai” appears to have the funds that tom o and georgie boy dont.

    i am sceptical that tom o and georgie boy have renewed their financing. wachovia is in deep trouble. the only journalist to say this is Chris Bascombe, and since his scathing and treacherous match report for the sunderland match last year, his contacts within anfield have dwindled (rafa clearly despises him now) and he has become a sort of party-line/rick parry kissing ass parrot. i take everything that bascombe writes now with a huge grain of salt. he has made a pact with the devil (parry) in order to be able to keep producing exclusives. and in so doing he has lost his journalistic ability to balance a story.

    good to have you back, sorry to see though that your tune has not changed even after the stadium, which you were so sure was going to get financing and begin work on in September, has turned out to be just another set of false promises from cheech and chong.

    i had an idea that you were not writing much anymore because you had undergone a crisis of faith in hicks and that you were now fed up with the whole thing, but sadly i dont see that.

    nothing left to say other than for those of us who wont accept the situation, continue the boycott.

  8. Jim, for what it’s worth it is good to see you back posting.

    Dubai if they are more serious about owning us for matters more than making money need to be prepared to make that loss initally, but they are not, which I think is one of the reasons why Jofrad Jim realises the obvious that it is more about making money than not. I agree that to so say ‘purely’ is a bit over the top, but so far I haven’t seen any evidence to suggest otherwise. On that matter actually, why is it not ok for Jim to say absolutely that it’s about making money only, only for you to say “add the words “but not just making money and you most certainly have a point.” …Likewise how do you know it isn’t about purely making money?

  9. Hi all,

    Some quick replies, sorry if they seem brief…

    Rafa’s contract. We made a point in summer 2007 of signing the major players up to extended deals, to avoid them slipping under the limits that make the buy-yourself-out rules come into play. Managers aren’t tied in or protected that way really, but it makes sense to me to ensure a manager is always no less than 2 years from the end of his deal. So this summer, Rafa hit the 2 year mark, so that would have been the time to give him an extra two years, making it four in all. Do that every two years, or perhaps extend it by a year each year. The worst things that can happen then are 1) We realise he wasn’t the man for us after all and so have to pay him off, or 2) He realises he wants to go, so we get compensation to put towards the next manager’s wages. If it gets to a summer and you realise he’s not worth giving an extension to, then really you’ve got to ask if he should be your manager at all. It gives the papers something to speculate on if his contract is running out, which is arguably going to be enough to tip the balance away from him being in control of his squad, messes up team spirit and all the rest of it. All to save probably £2m, and only if you actually decide to sack him!

    Transfer money, summer. I’ve not actually gone through and added up the likely fees from our summer dealings, but the net budget for Rafa was always set at £20m, this was confirmed even quite late into the window. The story about extra money being (almost) borrowed to buy Barry confuses the issue really in that the impression was always that Rafa had been given the clear information that his budget was £20m. He expected to sell Xabi for maybe £16m, and to get Barry for maybe £12m – and seemed to have those values the wrong way round. Add to that there was a portion of the fee to be paid to Sociedad if we sold Xabi.

    As for where that money came from – well I don’t know of anything more being added from outside of the club’s normal ways of getting money. Not since the refinancing in January. The owners did put some cash in then, something like £20m each, but that’s it as far as I know. Of the refinancing there was something like £245m for Kop Holdings, to which they added their £20m or so each, and that paid off the original £298m loan. The club had £105m in its name, but £60m of that was ring-fenced for the stadium. Of the £45m left it was supposed to be for working capital and transfers. Some people say that the £45m included the costs of Skrtel and Mascherano, although there’s a lot of dispute about how much Mascherano actually cost. Plus we sold Momo at the same time as we got Skrtel…

    Before the owners came in we could barely afford to spend money in the summer, which is why Moores lent the club £10m for Kuyt. But even if you said we break even before transfers are taken into consideration, even allowing for the higher wage bill, the TV money’s improved since then, so it’ll be interesting to find out eventually why it was ‘only’ £20m.

    It’ll also be interesting to find out how we’d find £20m next year, if this year’s came out of that £45m.

    With Parry there’s little doubt that with hindsight most fans would go back and have him removed from office long before the takeover. We’ve not got a times machine though, so we’ve got to forget that. I find it hard to work out what kind of guy the owners would bring in to replace him, given that they’d both want someone they could trust, and neither would trust the other’s choice. I can imagine Parry getting six-month extensions before he gets replaced!

    As bad as Parry might be, I can’t think personally of anyone better than him right now in that position. Well, not anyone who’d actually get the job anyway.

    Jofrad The argument about whether or not “Dubai/DIC/Dubai Holdings” would be the sugar daddies some fans want or even worse than Hicks and Gillett is one we perhaps should all agree to disagree on. I’d suggest the fact they’ve not yet blown H&G out of the water with an offer they can’t turn down suggests that they aren’t going to be sugar daddies, but that doesn’t prove they’ll be “bad” as such. But I don’t know many people now who genuinely think that Dubai have the passion for LFC that a life-long Liverpool fan would have. I’d say most Liverpool fans would happily subsidise LFC if they were wealthy enough, you can’t expect that from people who are looking at LFC as an investment. It’s not a criticism of Dubai, I wouldn’t expect them to have their heart fighting their head over this deal, but I feel it’s a point some fans really haven’t thought about. Dubai aren’t thinking to themselves that they’ll buy the club, then decide how much to spend on transfers. They’ve already had the figures in front of them, they know what the club makes now, they’ve worked out a budget for the overall deal. It makes sense for them to put money in at the start for a big signing, but that’s out of their overall long-term planning.

    Even when we hear the line that comes from “Dubai” about them looking at it not just for profit but also as an investment that they can brag about, the “prestige” of owning LFC, perhaps using us alongside publicity for new ventures, or as part of their bids to buy new business and so on, again that’s still about making money!

    For all of his faults, David Moores never took a penny profit from LFC until the very end – he was/is a fan and his motivation was to hopefully see us win things. He could easily have taken £5m a year profit from the club every year if he’d wanted to, I’m sure, but he didn’t. That’s a lot to ask of anyone, and unfortunately we’ve not got anyone like that, but with billions in the bank, to take over now. Even if Moores had been taking profits every year, you feel that he’d have done without as much, or any, if one summer he felt we needed a bit more of a push in the transfer market. I just don’t see Dubai doing this unless they can tie the extra transfer money to extra profits further down the line.

    Maybe these new interested investors will have the passion to do that little bit more than a pure investor would, we’ll have to see!

    Interest Payments. Differing opinions on this really, it’s hard to say if the loans included the interest from the first loan or not, or if they included the interest on themselves. The first loan was £298m, which was made up of about £185m purchase costs and £60m debt at takeover. That doesn’t add up to £298m, but the owners have said/implied more than once that Torres and Babel came out of borrowed money, so maybe (and I know it can be disputed) that accounts for some of the missing £50m. Maybe some of what was left went on interest payments, probably built into the loan itself.

    The next loan went up by a total of £52m, but included a £60m portion for the stadium. But before you start thinking that this means we were kind-of £8m better off, the owners did put in that £45m or so in January. That was still a loan, just a loan from them to the Kop group of companies rather than a bank loan. They’ll be getting interest on that too, one of them might even have borrowed his half of that £45m! It’s a bit early in the day to work out what that all means, and if any of it could be interest, so I won’t try!

    Sam Allardyce. Cory – yes, a touch of sarcasm, following “Big” Sam’s regular criticism of Rafa prior to him getting the boot from Newcastle. He used to be quite full of himself, and if he was accurate then it’s amazing he’s still out of work now!

    Wachovia / 18 months / 2011 / 2037 etc… This is taken from Kop Football Holdings Ltd’s accounts (KFHL – and KFL are the company in between KFHL and LFC). It might answer some of the questions above too:
    27. Post Balance Sheet Events
    Since the yearend the Group has sold various players for combined fees of £8.6million. Acquisitions to the playing staff since the year end have occurred for total transfer fees of £10.9 million.

    On 25 January 2008, the Group refinanced the existing credit facility with RBS. The new credit facility is with RBS, as the issuing bank, and provldes for £350.5 million of availability. The borrowers are KFL, in the amount of £245.0 million, and the Club for £105.5 million. This represents an increase of £54.0 million from the prior facility. The Club’s portion of the credit facility is to be used for working capital and the new stadlum development. The total credit facility is secured by letters of credit and personal guarantees of the Owners totalling £185.0 million with the remainder being secured by the Club’s assets.

    During January 2008, the new credit facility was drawn in the amounts of £245.0 million by KFL and £14.4 million by the Club. The proceeds, together with an intercompany loan from Kop Football (Cayman) Llmlted for the amount of £43.5 million were used to pay off the prior facility with RBS, the Club’s facilities with the Bank of Ireland and the fees related to the refinancing. The new credit facility is due on the 24 January 2009, with the ability to extend to 24 July 2009 by written request. Interest accrues at a rate of LlBOR plus 3.5% and is payable at various times as selected by KFL and the Club ranging from monthly, quarterly or semi-annually.

    On 31 January 2008, KFL entered into a Master Swap Agreement (“Master Swap”) in relation to Facility A of the credit facility with RBS and Wachovia Bank (together, the “Arrangers” of the new credit facility). The Master Swap with RBS is in the amount of £183.75 million (“RBS Master Swap”). The RBS Master Swap has a fixed rate of 4.957% per year and terminates on 31 January 2011. The Master Swap with Wachovia Bank is in the amount of £61.25 million (“Wachovia Master Swap”). The Wachovla Master Swap has a fixed rate of 4.975% per year and terminates on 31 January 2011.

    On 31 January 2008, the Club entered into a Forward Start Swaption Collar (“Swaption”) with the Arrangers in relation to Faclllty C (or the stadium facility) of the credit facility. The Swaption gives the Club the right, but not the obligation, to pay a fixed range of Interest on the credit facility. The Swaption has 75% participation with RBS at a collar rate between 4.335 – 6.00% per year and 25% participation with Wachovia Bank at a collar rate of 4.34 – 6.00% per year. The agreement will be cash settled at 31 July 2009 and terminates on 31 July 2037.

    And no, I don’t fully understand all that!


    So much for a short reply, but to sum it all up I think it’s safe to say that we still don’t really know what’s going on. Dubai’s people are still confident of taking over by the way, but they don’t really seem willing to explain what’s holding everything up. But then again, a lot of the things being said behind the scenes by different people have to be taken with a pinch of salt. People are saying one thing to one person, and something else to another, and it’s like certain people are trying to use the rumourmill to get a message out that might sway someone else’s thinking. Hopefully this new bidder will be willing to get things moving a little more quickly, because the overall feeling I have is that Hicks and Dubai are quite happy not to budge ground at the moment, they both feel the other will need to budge first.

  10. Hello peeps.

    A very reliable source said yesterday that LFC had not yet been given an extension of their loans until June. It was proffesor Tom Cannon the football finance expert from Liverpool (the wee guy with the glasses) said that with the situation at RBS and Wachovia he does not know whether the two banks will be able to refinance the loans at all never mind cough up the money for a new stadium. He was banging on about it all day yesterday on the radio.

  11. @I am The Egg Man: It’s a miracle anyone believes a word the Evertonian Tom Cannon says about anything, let alone Liverpool. He seems to do a lot of guessing, but presents it as fact.

  12. BTW: I went and watched the Shankley show last night at the Royal Court in Liverpool City Center and it was brilliant well worth going to watch. I highly recomend that you all go and watch it before it ends. I think it is on for two weeks max.

    @Jim – The £500 billion that the government is prepared to lend the banks is to start the process of business’s being able to borrow from banks rolling again. Also as part of the £25 billion that the government has spent on shares in the banks the conditions surrounding that deal is that the government will not be able to vote as a board member but they will be able to make low interest loans available to businesses. So yesterdays actions will make it more likely for the club to get refinancing in Jan.

  13. Thanks for posting that literature on the finance and dates. Have to say it’s a little overwhelming!! – You can’t skim read that sort of thing. Will have to digest it on the weekend when I havent been at work all day before responding…

  14. Hello everyone. Good reading.

    I think Dubai in some form or other will eventually get a stake, sooner or later. Things have changed significantly from 6-12 months ago. Lack of liquidity generally may give people who are cash rich opportunities to acquire assets in the west at very good prices. In the current climate I can’t imagine Dubai upping their bid, but rather continuing to be very patient.

    As for the other bidder, maybe there’s some truth in it, I guess time will tell. But I can’t help wondering if Oliver Kay visits football-rumours.com. There’s a rumour on there about Indian interest in LFC:

    “Liverpool have now convinced Sheik Mohammed and Ansil of India that Liverpool F C are worth the 750 million that Hicks and Gillette are asking…”

    Big pinch of salt from me.

  15. The Financial Situation at Liverpool Football Club: A commentary prepared by ShareLiverpoolFC.

    Background

    Like all informed fans of Liverpool FC (The Liverpool Football Club and Athletic Grounds Limited (“LFC”)) ShareLiverpoolFC (“SLFC”), the fan organisation committed to acquiring an equity stake in LFC, has major concerns over the current financial position of LFC.To help understand the current position SLFC has undertaken a review of LFC’s finances using financial modelling widely used in the football industry. Basically we have used the latest published audited accounts (31st July 2007) of LFC and Kop Football Limited (LFC’s immediate parent company (“Kop Football”) and together with LFC and LFC’s subsidiary companies herinafter referred to as the “LFC Group”) as a starting point and in light of information in the public domain we ran the figures in such accounts forward to establish an estimate of the current financial position and projections of future trading results and cash flows. The software we have used is widely used by clubs in the Premier and Football Leagues to run their own in house profit and loss and cash flow projections, so SLFC is confident that the results of the exercise give a fair estimate of LFC’s current and likely future financial position under the current ownership, capital structure and cost base of the club. The software also enables us to run multiple projections based on different levels of performance on the field

    Structure

    LFC is currently owned by Messrs Hicks and Gillett (the “Owners”) through a chain of onshore and offshore holding companies. Earlier this year the Owners negotiated a re-financing package for the LFC Group that resulted in bank facilities being put in place totalling some £350.5m. £245m of this facility was placed with Kop Football and £105.5m with LFC. As far as SLFC is aware, Kop Football owns no other sources of income other than LFC and its subsidiaries. Accordingly, the Owners will have to either look to cash flows generated by LFC or inject additional capital to fund the interest cost (and ultimately repayment) of this debt. SLFC estimates that the LFC Group’s cost of borrowing is approximately 9% at the moment; which, on the level of the facilities we estimate is drawn down, equates to a total interest cost of some £25m pa for the LFC Group. This debt has to be refinanced in either January or July 2009. Given the current lack of liquidity in the credit markets and the move by banks to higher quality security, this refinancing is going to be at best difficult for the LFC Group. Not only is there little in the way of tangible assets within the the LFC Group to act as security, but also our projections show that the club is now not generating sufficient profits to cover the interest cost at this level.

    Trading results / projections

    We estimate the club made a profit last year (to July 2008). However, financially 2007/8 was an unusually good year for LFC due to unusually high profits earned on the sale of players, increased Premier League revenues that the players contracts have not yet caught up with and qualification / a good run in the Champions League. Our projections show that financial performance is deteriorating in this current year and worsening significantly over the next few years even with continued participation in the Champions League. Over the next five years we anticipate losses to range between £30m to £70m pa. These projected losses are largely due to the club not having a big enough stadium or commercial income to support its current player and debt costs.

    As mentioned earlier, the LFC Group have to re-finance their bank facilities by next July. Our projections show that the current level of facilities (which includes the £60m ring fenced for the new Stadium) would be fully utilised during the 2009/10 year with cash needs still increasing due to continued losses. Therefore, unless the Owners inject more equity capital in the meantime, the LFC Group could be facing even higher levels of indebtedness and related interest costs.

    Why is the debt so high?

    The last audited accounts produced when the club was under the control of its previous owners showed net bank debt of only some £25m. Also, at that time there was no shareholder debt at all secured on the club’s assets. Since then additional bank facilities of some £325.5m have been put in place by Kop Football and LFC with very little increase in tangible assets to show for it. It is true that some considerable amounts have been spent on new players in this period but our estimates show that net cash expenditure, after allowing for the sale of players, since the change in ownership only amounts to about a net £53m

    Of the current total bank facilities of £350.5m, £245m is held at the Kop Football level and £105.5m at the club level. In round figures, of the £245 borrowed by Kop Football £180m was paid to the previous shareholders and £64m has been lent to the club. At the club level £45.5m of the £105.5m facility is in respect of day to day working capital needs, including the purchase of new players. The remaining £60m was meant to be allocated to getting the new stadium under way. Given that the new stadium has been shelved for now apparently due to lack of funds we are not sure how this £60m facility is currently being used.

    As part of the security for the LFC Group’s borrowings, LFC has given RBS (and the other secured creditors) a charge over the share capital of LFC and LFC has provided RBS (and the other secured creditors) with security over all of its assets in respect of up to aproximately £165m of the bank facilities. This £165m exceeds the book value of the assets currently on the club’s balance sheet.

    The main reasons why the LFC Group debt is high, and will continue increasing, without new capital being injected are:

    1) The Owners used borrowings rather than their own capital to cover the initial cost of buying the equity in the club;

    2) The club is moving in to a loss making situation due to too high a cost base for a) the current size of its stadium and b) the current level of contribution from its commercial activities.; and

    3) Interest costs will continue to contribute significantly to future trading losses which, without the injection of new capital by the owners, will need to be financed by further borrowing.

    The key issues that arise from the above are:-

    1) Interest cost. The club has been burdened with an unacceptable level of bank borrowing. Assuming total facilities are used this would amount to an interest cost of £15m pa at club level. (£9.5m to the bank and £5.5m to Kop Football) On top of this Kop Football is incurring additional net interest cost of some £16m pa. We worry that the Owners may look to fund this additional interest out of cash flows generated by the club. Our profit and loss account and cash flow projections show that the club cannot afford this.

    2) Refinancing problems. All this debt has to be refinanced in 2009. As mentioned above, the lack of liquidity in the credit markets and the move by banks to higher grade security makes us believe that the Owners are likely to have great difficulty in refinancing this debt due to their apparent lack of cash / free collateral and the apparent lack of future profitability to service the cost of the debt. This could result in major operational problems for the club.

    3) Credit risk of owners. As mentioned earlier, the club has provided RBS (and the other secured creditors) with security for up to £165m of the bank facilities whereas its total bank facility is £105.5m. So the club is in effect also securing that part of Kop Football’s debt that it lent on to the club. This level of security exceeds the book value of the assets on the club’s balance sheet. If the “football bubble” was to burst, the “goodwill” which is currently inflating the values of football clubs would evaporate, therefore, reducing the value of the security held by RBS (and the other secured creditors). In such a scenario, if Kop Football was to default on its bank borrowings it may not be possible for RBS (and the other secured creditors) to simply take control of LFC and sell it, as there may not be the buyers prepared to take on LFC’s debt obligations. In such circumstances, there would be the risk to the club being put into administration by RBS (and the other secured creditors) to enable them to realise their security over the club’s assets, basically player’s contracts. We have no way of knowing about the wider financial security of the owners, but given the current market conditions, the calls for restrictions on the ownership of Premier League clubs and the level of borrowing there may be risk here for the club.

    Champions League

    Our projections show that even with continued participation in the Champions League the club will not continue to trade profitably from 2009 onwards with its current cost base and debt levels. Were the club not to qualify for the Champions League next season it could lose up to a further £30m pa.

    Stadium

    Another major factor regarding the future profitability of the club is the stadium capacity.
    Increasing the capacity is essential. We have an open mind as to whether in the present circumstances this is best achieved by building a new stadium or enlarging Anfield. Our projections don’t include any provision for increased income from a larger stadium as we do not see how the Owners can raise the necessary finance given the existing debt levels already associated with the club. Our calculations indicate that the funding of a new / larger stadium wouldn’t be a problem if the club was largely debt free before commencing the project. We estimate that additional revenues from a larger stadium could equate to about £20m pa. Amongst other things, this could give the club some protection from a down turn in revenues in any years that the club didn’t qualify for the Champions League. Like most observers, we believe that a new larger capacity stadium is essential if the club is to remain competitive at the highest level. The longer this project is delayed the more difficult it will be for the club to maintain its competitive position.

    The Future

    The conclusion we draw from the last eighteen months is that the Owners are struggling to provide the financial resources necessary to take the club forward. They have burdened the club with the economic consequences of an unacceptable level of debt as they have been either unable or unwilling to use their own funds to invest in the club.

    The Owners should recognise that their tenure is damaging the club, especially as regards the delay in the start of the new stadium, the debt they have saddled the club with and the fact that they have lost the trust of the supporters. We would urge the Owners to open discussions to sell the club to potential new owners who can demonstrate themselves to be better placed to serve the club.

    SLFC would want to participate with a suitable new owner in any purchase. SLFC’s long term objective is to own LFC for the benefit of its fans. However, in the medium term our strategy is to work with potential new investors to help achieve a change of ownership and represent the fans interests by acquiring a stake in the club. After the experience of the current owners it will be important for any new owner to ensure that they have the confidence of the fans. We believe that the participation of SLFC will assist with this.

    Lastly, in the short term, before any change in ownership is achieved, we would urge the Owners to convert the £64m loan due from LFC to Kop Football in to share capital. Doing this will not only reduce the club’s interest cost and improve the club’s balance sheet gearing, but also ensure that none of these funds are withdrawn from the club to help Kop Football fund it’s own interest cost. Around £180m of the debt at the Kop Football level represents the cost of buying the equity in the club. The cost of this should be met from the Owner’s own resources not the club’s.

  16. the main point i take from the above post is that with the credit markets in their current state, hicks and gillett look to be in huge trouble. too make LFC profitable medium/long-term they need to build a stadium. they cannot borrow the money to do that. without those expected future revenues, the net present value of LFC is no enough to pay for the amount of borrowing that theyve done. their ponzi scheme looks to be crashing around them, unless somehow the credit markets unfreeze. i would not bet on that happening for at least another 1-2 years. check out this article from contractjournal.com:

    By Grant Prior
    Laing O’Rourke chiefs believe construction of Liverpool FC’s planned new £350m stadium will not start until the end of 2009 at the earliest.

    The football club confirmed a “short term” delay in the project last month.
    But a source close to the project told CJ that work will not get under-way for more than a year.
    The source said: “The earliest date the contractors are looking at starting is late next year if it happens at all.
    “The bottom line is that the club has no money. Laing O’Rourke has been in discussions with them for the last two years where they have been constantly paring down the design because they can’t come up with the funds.”
    Preparatory work on the site in Stanley Park started earlier this year and the stadium was originally due to be finished by August 2011

  17. How bad is the credit crunch? And what does it mean for our club?

    You can understand why these questions are at the fore of a critique of Hicks and Gillett (as well as the Glazers at United etc.)

    To explain how much of a liquidity – cash flow – problem there is at the moment, I just received an offer on my house. The offer gives me a substantial deposit for another larger house, but even with this hard cash I’m struggling to get a deal that makes financial sense. Now, I’m at the lower end of the scale – with an A1 credit history – but can’t get what I’d usually expect.

    Hicks and Gillett don’t want to put their hand in their pocket. Or can’t! How the hell are the banks going to give them more money for a stadium when a) the Banks are struggling b) Hicks and Gillett are struggling c) costs of raw material are changing and d) the prospective punters are about to find they’re jobless or simply money is tight making the Banks nervous about who’s going to fill the stadium.

    It’s true that the banks have been involved in some dodgy lending of late – recklessly lending money to those who could ill-afford it – but I suspect current crunching has them reviewing their risk-models. One would hope – not only for our interest as Liverpool die-hards but the logic of Hicks and Gillett’s position – that they pull the deal.

    The issue then will be, if Hicks and Gillett are told ‘no’ by the banks – will they walk away (still seeking a profit) or will they hang on until the banks get lending again _ the impression we get is that Gillett is already struggling, time will tell about Hicks.

    I can’t wait for Hicks and Gillett to break their silence again – and reveal more about where they are financially. Parry last week was a huge let down, again!

  18. What is undeniable about the current situation is that H&G are businessmen plain and simple and don’t give a damn about the club or its fans. They must be aware of the strength of feeling against them yet I sense that they will hang on to the club for as long as they possibly can, irrespective of the damage they are causing. Liverpool’s reputation has taken a monumental battering in the last year and you do not have to be an accountant to appreciate that the club’s finances are a mess.
    One thing, however, I do think they’ve learnt and that is to keep their mouths shut, so I’m not expecting any statements from them unless they’re forced to by circumstances. I wait patiently but not expectantly for their welcome exit from our club.

  19. Thanks for posting that from SLFC Cory, makes interesting reading. Obviously there are motives behind them posting a critique like this but the figures used seem ti corellate with the generally purported figures seen on the likes of here and the media. Certainly if they are correct then, a) I don’t see how G&H can afford not to sell at some point relatively soon, and b) that we are in trouble if they don’t!

  20. While I will dance like a leprechaun on crack the moment it’s officially confirmed that G&H have both sold their shares in the club, it seems necessary to provide a bit of doom-and-gloom perspective on what could happen instead. This is in some ways an extension of what Jofrad has said above and it primarly relates to concerns about Hicks.

    Acknowledging that the dire worldwide credit crunch won’t last forever, what’s to stop the current owners from selling our most valuable assets (Torres, Mascherano, Gerrard, Reina, etc.) to generate enough cash to tide over interest payments until borrowing money becomes easier? If – as ShareLiverpool predicts – LFC is looking ahead to financial losses in the next few seasons without the benefit of a new stadium, the owners may decide to fund this gap through player sales as a means of generating cash and reducing the payroll. It won’t matter if we’re at the bottom of the table in terms of stadium revenues (there’s a waiting list a mile long for season tickets) and the revenue from CL qualification will be neglible as compared to the savings they could achieve with a brutal axe.

    I got to thinking about how Hicks offloaded Alex Rodriguez, a very famous and lauded baseball player who signed for Hicks’s Texas Rangers with the most lucrative contract in baseball history. Do you think Hicks gave a damn about Rangers fans when Rodriguez was traded to the Yankees? Hicks saved himself an absolute bundle on payroll even though Rodriguez was named Most Valuable Player the year before.

    I’m still of the mind that Gillett wants to sell (he’s looking to start a Major League Soccer “franchise” in Montreal), but at a top-dollar/pound price. Hicks is the one that really worries me, though, as I fear he’ll pillage the club before relinquishing control.

    My best hope for the outcome: that what I’ve written above turns out to be a piece of absolute bollocks and the banks force through a sale of the club starting in January.

  21. Hey, Julie, welcome back! Where have you been? Seems too many ‘bloggers’ have gone missing in recent weeks/months but hopefully now Jim is writing again everyone will start flooding back.

    Hicks does seem to be the problem. But every problem should have a solution right?! In his case, it’s money.

    I’d need to know a littl emore about the Rodrigues situation to properly comment but I suspect, as in the case of the capital markets at the moment, fear of what could happen would be a deterrent to selling Torres etc. So unless the fee is sooooo astronomical – ie the £135m quoted for Ronaldo – I can’t see it.

    The issue for me is not so much how many supporters are on the waiting list – this will ebb and flow and will change according to the economic circumstance of the fans – but how many people are queing to the buy the club and at what price and to what extent are they affected by the credit situation? It cannot be the case, surely, that football is the only business in the world sheltered from the financial and, soon to be, economic shock going on around us. In which case thecurrent value of the club cannot be sustained: it must decline?

    Then the questions are: what will Hicks and Gillett do with a tightening financial/economic climate; change in the mood of the banks; and prospective buyers who are decreasing the price they’re willing to pay for the club or – if today’s guardian is to be believed http://www.guardian.co.uk/football/2008/oct/10/charltonathletic-liverpool – pulling out of altogether?

    It seems if Hicks and Gillett arer going to be saying anything re. their investment in the club other potential investors of the Banks will soon be speaking on their behalf.

  22. Dubai set to drop Liverpool interest after bid for Charlton?

    //http://www.guardian.co.uk/football/2008/oct/10/charltonathletic-liverpool

  23. This international break is killing me! Hard to believe Dubai would go for Charlton ahead of the reds. Not much of a fan base or history there. Sure hope Wigan is not another Stoke! Three points would set us up nicely for stamford bridge. I know Chelsea have a powerful squad, but the loss of Essien, Drogba, Carvalho, Deco and J Cole, surely makes them weaker? Imagine the belief if we took their long standing home record!

  24. http://www.mirror.co.uk/sport/sport-front-page/2008/10/12/fernando-torres-could-leave-liverpool-if-rafa-benitez-isn-t-given-new-deal-115875-20796781/

    “Sunday Mirror Sport reported last month that Liverpool had failed to deliver on Hicks’s promise to hand Benitez (below) a new deal. In a strange twist to the saga, a source close to the Texan said all questions regarding the manager’s future should now be directed to chief executive Rick Parry.

    “Tom has asked me to pass back any enquiries regarding the manager to the club and Rick Parry,” said the spokesman.

    That represents a major U-turn on Hicks’s stance earlier this year, when his call for Parry to step down from his position was backed up by the vow to extend Benitez’s contract by a further 12 months.”

    Could it be (please God) that Thomas O Hicks is losing interest in Liverpool. We can but hope.

  25. Either that Jofrad or he realises the board is split on offering Benitez a new deal – i.e. Gillett it’s widely reported doesn’t like him at all. If no new contract can be issued then Hicks is shifting the blame onto Parry in the face of obvious revolt from the Liverpool fans who can’t understand why Hicks isn’t offering Rafa a new contract.

  26. Nice article though I don’t agree with its sentiment.

    I get the impression it’s one of those Hicks-sponsored articles expressing a few facts with slanted opinion. On the one hand it points to Hicks and Gillett buying the club and then Hicks being the sole buyer………..ie ‘Funny thing, though. Liverpool FC was anything but quiet and frugal during the most recent transfer period. Hicks even paid a premium to acquire Irish national team star Robbie Keane.

    No mention of (year/permanent) delay in building the stadium. In fact no indication of any negatives regarding the owners.

    As I say interesting, if not completely believable.

    PS Jim – your glad to see some of the old names positing on your site agin!

  27. I think the point that the article fails to mention is that Hick’s stated catagoricaly that there would be no debt when he bought the club. In effect he led the fans along a merry dance until he owned the club and then he told the truth. If Hicks had sais from day one that he would be borrowing money and that some would be lumped onto the club and he explained how it wasn’t such a bad thing then I could understand his resentment towards his treatment. The fans are not just pissed of at Hick’s they are pissed of full stop at the manner in which people like Hick’s and Gillette make a killing at their expense and then wonder why they get pissed at the thought of having to pay of their interest and line their coffers. The article was very one sided and sounded full of self pity.

  28. I’m no expert, but if profit related pay is concerned how much of the 650k pension does Fred Goodwin deserve? I believe the government should strip him of the pension he doesnt deserve. The RBS made recorded losses last year of 24 billion UKP.

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