Liverpool supporters wake every morning hoping today will bring some firm news on the future direction of the ownership of the club. Sooner or later we’ll get that breaking news ticker on one of the sports news channels. It’s just hard to say when, and more to the point hard to say how, or who.
Reading between the lines of the various statements and leaked media reports, only two certainties show through consistently. George Gillett wants out. Dubai International Capital want in.
The uncertainty comes from Tom Hicks’ position. Publicly he maintains the image of being intent on staying on at the club and having no interest in selling to DIC. He tries to give the impression that he wants to keep at least what he’s got now, and maybe even get a little bit of George Gillett’s share. But more than one source, in more than one country, says he’s been talking to DIC recently.
George Gillett arrived at Anfield a year ago wanting to be a hero, hoping to get amongst the fans on the Kop and to dishing out the high-fives. Instead he’s getting two fingers from the Kop, alongside his co-owner Hicks, to songs like “You lying b******s, get out of our club.”
Gillett had fallen out with Hicks, according to reports, on a number of occasions over the past year, but being blown up by Hicks for his part in offering Klinsmann the manager’s job for non-footballing reasons upset him quite a lot, as did Hicks’ decision to reveal publicly the details of their credit agreement. Perhaps Gillett still thought at that point that he could get the fans to love him. Instead it was becoming clear to supporters that “Snoogy Doogy” could never have happened in the first place. In fact just about everything that had been promised, and everything that seemed to have been promised, was a sham.
With little scope to make any kind of annual profit from the club, with the loss of his dreamed-of hero-status chances, and with a massive rift with his partner showing no signs of ever healing, there’s nothing left at Anfield now for Gillett. His son Foster has cleared out for good from Melwood, this was partly because of the situation Gillett was in, but he will have hardly needed to be asked twice if his wife’s reported dislike for the city of Liverpool was true.
Gillett had to offer Tom Hicks first refusal on his half of the club under the terms of their original agreement, but Hicks hasn’t got the ability to buy that half on his own. Gillett was then free to allow DIC a chance to buy it, which they will almost certainly take up just as soon as they’ve inspected the accounts.
The ultimate boss of DIC is Sheikh Mohammed, the ruler of Dubai and also Prime Minister and Vice President of the United Arab Emirates. The day-to-day running of DIC is a task that falls to founder and chairman Sameer al-Ansari. It was well publicised at the time of the first DIC takeover attempt that al-Ansari was a Liverpool supporter. But what only emerged very recently, first revealed by Tony Barrett of the Echo, is that the Sheikh has also been a Liverpool fan dating back to his teens.
It sounds too good to be true, especially given similar claims were once attributed to former suitor Thaksin Shinawatra who had also been photographed in a Manchester United shirt. It’s also often said of new signings, to help them endear themselves with supporters a little more from the off. The performances of Fernando Torres are what endear him to fans now, but it did him no harm ahead of his move that he was seen wearing a captain’s armband that seemed to read “You’ll Never Walk Alone.” (Later stories said the first word was “We’ll”, and it was something he and his friends often said to each other, but the love was already there by then.)
But just because it sounds too good to be true doesn’t mean that it isn’t true. And from what can be gathered it most definitely is true – and would Tony Barrett, with access to a multitude of sources, allow himself to be duped like that? It’s safe to say that the claim has been checked, just to make sure that there were no crossed wires.
This little piece of information, that the two most influential people in an organisation about to try and buy Liverpool FC are actually supporters, is one that is key to working out what drives them on in their pursuit of the club, and how far they might go to get what they want.
DIC have access to a phenomenal amount of money. It’s such a large amount that it’s actually quite difficult to grasp the concept of. But they don’t throw it around for the sake of it. They spend it wisely, hoping to make it grow, and trying to diversify in terms of where their money is invested, avoiding being over-reliant on one particular commodity or market. It’s this side of their nature that makes it a worry for some fans about just how far they’ll go in securing Liverpool FC.
To simplify events, they were offered the chance to buy Liverpool FC just over a year ago, for under £200m. They pulled out, in disgust effectively, after finding that the club had been negotiating with the Americans behind their backs. Now a year on they are willing to pay between £400m and £500m. How can they be willing to pay at least twice what they could have paid a year ago? The truth is, according at least to their side of the story, that they never stopped wanting to buy into the club. It was a matter of honour that saw them drop out a year ago – they genuinely found it to be bad-mannered and disrespectful to be treated the way Moores and Parry treated them.
If they do buy into the club, it will be based on a strong business case for doing so – but their support of the club is such that the business case may not be quite as strong as other investments they go for. They’ll still expect to make money, eventually, and certainly won’t be another Roman Abramovich, but they will be buying the club as football fans as much as wealthy investors if they succeed.
They do seem to be resigned to having to take over in two stages however. The first stage is to buy Gillett’s half, but they also want to buy Hicks out at a later stage. The situation with the banks is one big obstacle they face – the £350m of debt is not a small amount, the structure of the deal makes it expensive too. But they are believed to have got things moving in terms of getting the banks to look at releasing the club from those debt commitments should they take over. They are hoping to find a way of buying at least a small amount of the club from Hicks too, which would give them the majority shareholding in the club and in turn more power to get things back on track. But Hicks is another obstacle in front of them.
At the moment Hicks owns half of the club and is telling the public that he won’t be selling that half. The family line is they are here for the long term and are not willing to sell. Yet they have been talking to DIC, more than one source saying that Hicks was in Dubai last week, and reports this week saying he followed that visit with one to London to talk with the British-based DIC representatives dealing with the details of the possible takeover.
He is as much a target for the abuse from fans as Gillett is, if not more. At first Gillett’s silence was interpreted as a sign that he was being bullied into acting along with Hicks’ plans, but he’s had more than enough time to indicate if that’s true or otherwise.
Hicks is the one out of the two owners that has made most of the statements, or has done most of the interviews, from last autumn until yesterday. As a result, it’s his comments that were thrown up as having been in contradiction of each other. He told the US media that the UK press had made up stories he was going to fire Rafa – then later admitted that Klinsmann had been lined up to replace Rafa. Rafa was to be sacked if he didn’t make the group stages of the Champions League. He denied having spoken to DIC before Christmas – then admitted to having spoken to DIC before Christmas about a minority shareholding, which would give the club money to play with, and less reliance on debt.
The owners almost ran out of time in securing the new finance deal. Without doing so they’d have been in trouble because their existing one-year deal was due to run out in days. DIC had been hopeful of securing a chance to buy into the club then, amidst the panic the owners would clearly have been in, but the owners got their deal. It bought them some time, financially at least, and so DIC have to try harder.
Hicks feels he can still make something of an improvement at the club. But it’s hard to see how. Many fans will say that Hicks has no other interest in the club than making as much money as possible out it. That as soon as DIC made a high-enough offer he’d be out like a shot. This may be true, but even giving the family the benefit of the doubt it’s hard to see how their staying on at the club could be better than DIC taking over in full.
It’s the root of all evil, but also what every club needs if they’re to get on in the football world: LFC needs more money to invest in its squad and to build a stadium.
DIC have money and access to more people with money. Hicks has money – but nowhere near as much. Gillett has even less.
The current owners bought the club with a 100% loan a year ago, in fact more than 100% because it included a little extra to pay for other expenditure related to the club. They’ve just borrowed a whole load more, to pay that loan off and to give them some more money for expenditure related to the club. The interest will have to be paid by the club, and estimated at £30m it leaves very little at all for Rafa to spend on players. Worse still, there are genuine fears that failure to qualify for the Champions League next season would leave a shortfall. The loan interest could not be paid unless the owners paid it out of their own pocket. Or unless the club sold players – and as Leeds found out just before their slide into near obscurity, as soon as word gets out that the club is in crisis, transfer fees will be much lower than they would have been.
Even a relatively successful season – a good run in the Champions League and a top four finish – just about keeps the club ticking over.
They struggled to get the £350m finance so far – and by all accounts will struggle as much to borrow the stadium building costs. A lot of the money they’ve borrowed seems to have gone down a black hole – but the banks don’t arrange loans for free, and this kind of loan at those kind of amounts attracts Torres-sized arrangement fees. And that’s before interest is paid. The money that was supposedly left over from that £350m – to spend on players and getting the stadium underway – isn’t perhaps as great as we’d previously been lead to believe.
Of course, without being able to release details just yet, the Hicks family may well have the plans in place to get the stadium moving along, and may have a way of allowing the club to survive if it doesn’t qualify for the Champions League. All the other clubs fighting for fourth this season will improve their squads in the summer, so Liverpool can’t afford to stand still if they want to finish at least fourth next season. But of course Liverpool fans wanted far more than that from a takeover, far more.
The Hicks family are trying to give the impression of wanting to see success at the club – but it remains difficult to see how they can do this without outside help. The money borrowed recently supposedly included money for players. But what happens next summer? The interest is already higher than Rafa’s net spend for last year, so how can he buy players in each of the summers between 2009 and 2011 when the stadium supposedly opens? We needed big money signings to boost us to a squad at the same level as Manchester United – but then we need investment every year to keep us at the same level. The current situation just does not seem to have that as a possibility.
In fact this may prove to the way in for DIC. If they can buy Gillett’s half, paying off his loans, and buy a portion of Hicks’ share, paying off his loans in part at least, the club no longer needs to find ridiculous amounts of interest. DIC originally intended to buy the club and fund the stadium with a mixture of borrowed money and their own equity. They were looking at a long-term returns, and were looking at the investment as a whole – to include the stadium costs as well as the purchase costs. It’s hard to see how the current model can be profitable, and hard to see how Hicks can change the current model without the help of someone like DIC.
Hicks seems to have been offered a choice of a guaranteed profit now by getting out now, or a potentially higher profit later by sticking around to see if DIC’s investment gives the club the breathing room to improve on and off the field.
So we’re now left with a number of possible outcomes and nothing seems to have happened since the first time we heard DIC were back in for the club again. But that’s because DIC don’t publicise their actions too much. Yes, the press have been getting occasional briefings, yes we’ve read reports – but we’ve not had any quotes, and this leaves us all unsure as to what the facts are, and what has been added to a report to juice it up a little.
DIC’s desire to buy the club is much stronger than it perhaps seems to be. They’ll not discuss the deal in public until it’s done or given up on, which gives the impression that not much is happening, that they’re only half-hearted in their attempts – but this isn’t how it actually is. The Sheikh’s personal involvement is significant, as is the story that he was a Red from being a teenager, making the two most significant members of DIC fans of the club. Look at past deals they’ve been involved in and they’ve never allowed talks to take this long. They waited to see what the reaction from Liverpool supporters would be before taking talks further – the response they saw on the banners at Anfield is said to have encouraged them enormously, smashing their expectations of the kind of response they’d get. They’ve turned down what might have been an easy option to get into football by knocking back a reported offer from Newcastle to buy their current owner out. And that’s not the first time they’ve declined the opportunity to get into another club. Obviously Liverpool fans learned thanks to the last takeover not to take anyone’s word for anything – and until a takeover is successful by DIC and we see their actions take shape we can’t be sure they are the right people for the club. But it goes without saying that it’s hard to imagine a situation any worse than the one we’re in now. DIC’s desire to become a part of the club is partly to make a profit, and partly out of a desire to own a club they support, no doubt mixed with the prestige that comes from being in charge of a top football team.
Hicks seems intent on staying, his son’s appearance at the game on Saturday and his perhaps ill-advised decision to go into the Sandon show that they aren’t willing to quit with an easy profit now. Something is driving them on, and although it could just be money it may be more than that. They’d be lying if they said they were childhood Reds, or that they even watched much soccer before arriving at Anfield, but the passion for the team can be catching. Perhaps it’s a desire to prove the critics wrong. In Texas the word is getting out that they made a mess of things in England. In Texas they’re quite well respected, especially with Hicks being a pal of Bush. Word did start to spread to the US press, and maybe they feel a need to prove that they can make a success of this venture. Image is important, and banners reading “If it ain’t broke don’t Hicks it” aren’t good for their image. They are claiming privately that they’ve got ideas in place that will allow Liverpool to compete – but until those ideas kick in it remains a case of having to take their word – and even they’ll admit that this would be expecting a little too much. We need actions, not words. Until then we can’t be sure what the Hicks family’s desire is – but it’s hard to deny that the desire is there.
It looks most likely that the next phase of Liverpool’s history will be under joint US-Dubai ownership, and the biggest fear here is that this will be as bad as the current regime: two parties who don’t get on having an equal say in the club’s future. Compromises need to be made now and agreements need to be put in place before the ownership changes hands. Somebody needs the casting vote.
All of that will go on, behind the scenes, with little being revealed in public. It’s hard to put a realistic timescale on it, despite talk of mid-March deadlines, but the longer the current state of limbo drags on the worse it gets for the club. Players want to talk about contracts, agents want to offer their clients, and clubs want to speak about our fringe players. But talking is about all that can be done – because nobody is there to make a final decision.
The talking must stop, and soon – we need to see action. That’s not to say hasty decisions need to be made – but it has to be a priority now to close the various deals that will mark the next era in the club’s history.
17 thoughts on “Reds takeover talks must become actions”
THE HICKS PLAN AS SEEN BY DIC.
Hicks is focused on an end game.
How can he maximise the value of his shareholding whilst eliminating as much of the downside risk as possible?
Clearly once the ground is built (and full each week) the business will be worth of alot of money. As Arsenal has shown. But the cost of getting there; the stadium and keeping a player roster that keeps liverpool in the CL each year is prohibitive.
What he needs is a risk free and cheap way of getting to that prize.
Gillett selling presents an excellent opportunity. Despite noises to the contrary he wont be buying Gillett’s stake. Too much financial exposure. He needs a partner. He needs access to additional financial strength.
He wants DIC as a partner. He wants to sell a portion of his stake to cover his share of the future ground development costs (the extra £300m that is needed on top of the £350m). And if he can clear off the original loan even better. A 20% holding for free if you like. Or if he doesnt clear off the original loan a guarantee that as a minority holder he can still have access to his share of club surpluses/ revenues to pay his interest debt.
He does not want to cash out now. He wants to get to the profitable end game. But DIC cannot walk away expecting to call his bluff. Hicks has a plan even with his disengaged partner.
The plan would include a ‘fire sale’. Gerrard and Torres to go (£70m) would help eliminate the need for CL qualification for each of the next 5 years. Just maintain a presence in the Premiership and perhaps UEFA as a bonus. And rebuild once the stadium is in place.
Parry who is on a £1m payment clause should his contract be terminated at any point for any reason is culpable of a crime against football. Liverpool is heading for meltdown.
Just a thought – We all know that Hicks’ plan needs a stadium if is to sell with a huge profit.
However, assuming DIC take over Gillets stake. They can conceivably use the stadium against Hicks and force him out that way.
All they have to do is refuse to finance their half of the stadium until Hicks has sold up. Hicks will not be able to pay for the stadium himself. Therefore, Liverpool’s value doesn’t rise and Hicks can be paid off with a reasonable profit on his original investment.
In the meantime DIC can fund the rebuilding of the team and have success on the pitch – something that Hicks is, obviously, not as interested in.
I would happily stay in Anfield for a few more years if it means we get rid of HIcks without him making a killing off of us!!
To get behind the Shareliverpoolfc scheme as quickly as possible so they can gate crash this party.
I would like to see this excellent website strive to drive support for this scheme and see were it takes us.
From a media point of view this would be a global sports story of the decade if it came about.
Could Hicks cope with this media intertest, as the Black Knight.
The clock is ticking.
There are other options for the stadium if it looks like stmichel’s Meltdown scenario approaches. 1. DIC could build a stadium via an independent non-Hicks company. 2. Could shareliverpoolFC either participate with DIC or again independently build a stadium. If hicks was threatening the continued viability of the club I would expect the govt and local authority to work with DIC/The fans to cooperate, once a stadium was built LFC could be forced via comp.Purchase order to lease it. Fanciful I know but in the meltdown situation, which I have said in previous posts is a danger, there would be a total war waged against hicks by everyone.
“The talking must stop, and soon – we need to see action”
Amen to that. It is essential the current uncertainty surrounding the ownership of the club must be settled before the end of the season. It is inconceivable to think that this can be allowed drag on much longer and I dont think fans could even contmeplate the state of their own sanity if this was still unresolved come next August.
Off the field at least this season as a Liverpool supporter has been an emotional drain but hopefully come May 21st we’ll “have won it 6 times” and the seasons troubles will be nothing more barstool chat.
Good read as always Jim, lets just hope the “breaking news ticker on one of the sports news channels” starts breaking the news we eagerly anticipate sooner rather than later so we can all finally get some much needed piece of mind.
I’ve tried hard to separate the emotional side of me from the pragmatic but whichever way I look at it, Hicks has to go.
The reasons are both sensible – he lied to us – and emotional – once a liar always a liar – so go he must.
The history of our great club has been seriously stained by Hicks and Gillett (and Parry and Moores). But in a few years from now I hope this period will be a small dot in what has been a very successful footballing period in our history.
So, Jim, the action(s) I want to see is to have Hicks gone by any means necessary and his sons and uncle tom cobbly and all following him out of the door.
Here comes my words of sacrilege………IF this means we don’t qualify for next years Champions League but force them out then so be it. At least then we can see how good Rafa is when he only has the league to really concentrate on. And, yes, this does mean I want Rafa to stay – because he’s a first rate manager inspite of a turbulent to say the least season and I think his record deserves it.
Ok – it won’t mean that DIC will be much better. But it does mean that DIC will have to be frank with us from the outset re. what their aims are and how they plan to get there. Then, hopefully, they will sink back into the darklights, not uttering a word until decisions have been made.
Actions speak far louder than words for me. Let’s not get suckered into the PR of it all.
Hicks and Gillett turn the lights off when you get out of our club and leave the keys behind too.
As usual, an excellent article Jim.
I sometimes fear that the press has too much sway on the majority of Liverpool fans. Although there are elements of the press who actually know what they’re talking about (Barret/Bascombe/Holt), a lot of the journalists don’t know anymore about the club than the average fan. Yet too many fans believe what they see ‘coz it’s on da telly’.
At the moment, emotion would tell me that DIC would save us…But these are the same feelings that cropped up once the Americans appeared on the scene. DIC i’m sure will bring their own problems, that goes without saying, but they seem to be a much more sleek, professional PR machine, which is what we need. They do their business in the boardrooms, something which Hicks & Gillette are not doing (Hicks uses the media far too much, and Gillette…well, Gillette doesn’t seem to do anything).
Hicks seems to be driven by pride, which in a way isn’t the worst thing in the world, but he’s got to realise that the only way he can gain credibility is by going into a share with DIC and following their example of a backseat role.
I feel Moores and Parry have really let us down in all this, seeking self-preservation ahead of genuine interests was bad for the club. Apparently DIC refused Moores and Parry seats on the board on their initial takeover, the Americans saw this as an opportunity and took advantage. I don’t care at all if DIC don’t show up to our matches, as Shankly said the board is there to sign the cheques, they don’t come in to the ‘Holy Trinity’.
Whatever happens, it needs to be sorted sooner rather than later, we need stability, I have every faith in Rafa and with the right leadership at the top, we can crack the monopoly at the top of the Premiership.
Maybe someone Jim or otherwise can explain this one for me… A basic question I know, but something which is confusing me, anyway here goes:
The current loan is for 18 months or at least must be underwritten again in 18 months so we understand. Obviously we are not going to be paying back 350 million by then so why is this? Furthermore, the so often quoted £30 million per year in interest – is this pure interest, or is say 20 million of it paying off the 350 million borrowed, and 10 million in interest, thus the actual loan would in fact be worth (currently) at 525 million, or is the 350 million inclusive of all the interest in the first place, if any of that makes any sense?!?
I wonder this because if the 30 million is pure interest and theres also a payment due for part of the 350 then the loan is much bigger in effect.
As far as i see it, even if 30 million is all that has to be paid off each year then doesnt that mean that it will take 12 years to be paid off, i.e 12 x 30 = 360. Doesnt that mean that even when the stadium is built we will not see any benefit from it for say another 7 years after that if (with the stadium loan included) we are paying 55 million each year!? – Help DIC!
Apologies because i’m sure this has already been explained and i’m sure i have even probably read it, but this has been the most protracted affairs in the history of football in my defence!
Martin, you have touched one of the scarier aspects. The refinancing package of £350m was secured as follows: £105m secured on the assets of LFC and the clubs direct responsibility, £185M secured on Kop Investment but with the club expected to service the debt. The remaining £60m is secured on personal financial guarantees of Hicks and Gillett but again the club is expected to service this by way of dividends to them. That’s all she wrote!!! At 9% the interest payment is £30m or so, I have seen no report of any arrangement to amortise the debt by way of capital repayment. Gives you the willies does’t it? Oh and the club is also expected to pay the wages and buy snoogy doogy!!
Great article again Jim – this site seems to be the best place to come to stay informed (at least that I’m aware of) so thanks for that.
They say a week is a long time in politics, but its amazing how quickly things can change in football too. Look how many people were after Rafa’s head before last Tuesday. I don’t think I’ve seen a single dissenting post since.
Now hopefully the ownership issue will be resolved as quickly as possible. We don’t know if DIC will be any better than Hicks, but surely they can’t be any worse. And they have access to more funds so all this crazy loan-negotiating-and-interest-payment merry-go-round surely wouldn’t be an issue. But Hicks is no mug. As I’ve said before he knows LFC is a goldmine, and he also knows a much bigger stadium is absolutely key.
I don’t think its in anybody’s interests remotely to allow the club to head towards any sort of meltdown, not even Hicks’. LFC is one of the world’s biggest brands in one of the world’s biggest industries. Look at the revenues of Man Utd and Real Madrid. Can Liverpool get there? Of course they can. But both Hicks and DIC know that those sorts of revenues require a huge stadium and sustained success at the highest level.
So while I agree that all this instability is dire, I think it demonstrates that this is not about a quick buck for any party (except maybe Gillett lol). I’m encouraged that this is about putting LFC where we all want it to be.
thanks john, appreciate your explanation. However, i still do not understand how that works in effect. If what you intimate is correct and we must service 9% per year, then that means that we have to pay off 9% each year PLUS whatever is remaining of the 350 million that is yet to be paid off.
You know what, I’ve just figured it out and its not good – The club pays off the interest each year, year after year, and pays off some of the original loan amount. By the time we build a new stadium this is likely to be £650 million. Then once the stadium is built, Hicks et al will expect someone to come in and buy the club for say £900 million, paying off the main part of the loans remaining and leaving him with £250 million profit plus the difference of the original part of the loan that has also been paid off.
This will effectively mean that the club and its supporters will pay around say 400-500 million for this to happen but at the end of it we will own nothing, Hicks will have paid nothing, yet will have made a huge profit. If DIC take over we will still not own the club, someone else will whether or not they sell it, but at least the club wont have to pay for it all and own nothing!
Excuse my french but what a f****** debacle! And what a mistake in selling to Hicks and Gillett. Surely they couldnt have been so naive to not have expected that this would have happened?! I remember when it was mooted that G&H were going to takeover and i looked at their personal wealth using the internet – right there and then i couldnt figure out how they could afford to buy the club with their own money, and thats with no business acumen or financial savvy, so how could someone like Moores, Parry, their lawyers and the smartest busines people involved with LFC not see that this would happen?! This opens a can of worms in that what was the real motivation for them accepting the Yanks offer? More money? Maybe I’m being a bit harsh on them, especially considering what Moores has done for us but it makes you think. No wonder DIC left in digust, knowing what i know now!
I pray for Liverpool Football Club.
…one last shock, as if we needed any more.
If DIC takeover, is it in their own interest to buy the club outright with their own equity? If, as explained in my last post, the costs for the stadium and purchase of the club can be paid using loans and the subsequent interest met by the club, why would they reduce the amount of profit that can be made when finally selling by paying for the entire cost of it all themselves?
Jim said in this article: “DIC originally intended to buy the club and fund the stadium with a mixture of borrowed money and their own equity”
If it costs them £700 million to buy the club and the stadium it would be more profitable for them to borrow say £300 million, have the club pay off this entire £300 million itself over a period of time, then when they sell for £900 million their profit is actually 500 million (900 million selling price minus the 400 million they actually spent out of their own money). This would be far more attractive than spending 700 million of their own money and then only getting a 200 million profit.
Which when you think about it opens up another question – What of the people who finally buy of DIC?
Surely using the same logic, evidence of which we see exactly in the Glazer’s takeover of United, it will be more profitable for the buyers of DIC to also take out a loan and have the club pay off part of this loan over a period of time, so that when they sell they can also make more profit!
Thsi effectively means that the club continually, perpetually, must pay of some wise guys loan interest payments for the rest of time. It doesnt neccessarily have to be all doom and gloom – it is not like United are short of spending a bob or two come the summer, but if there’s anything I have learnt from figuring all of this out, its that a Share Liverpool FC takeover if achievalbe would be the best thing that could happen to our club. Even if Liverpool must take out a loan to build the stadium like Arsenal did then at last once the club has paid this off, something we’ll be doing forever anyway under someone else’s ownership, we’ll have 100% of the profits.
Martin. I am not an accountant and have no direct experience of this level of mergers and acquisitions. I have to reduce it to simpler terms. I believe the Hicks Gillett refinancing deal is interest only. They were able via the financial projects they put together, to convince the banks that they could improve the revenue streams for our club to a level at which the interest payments could be met. If I manage to get an interest-only mortgage for a house the lender will want to see what arrangements i am making to pay off the debt at the end of the loan period. An endowment or other saving arrangement is typical obviously. It would be considered risky if I were to rely only on the value of the house growing to the point at which I could sell it, pay off the loan and have change! This latter scenario is as I understand it the Hicks/Gillett plan for their loan obligations.
Only in the two leveraged buyout situation (LFC & ManU) does the situation exist where the club services all debt. I will be shot down if I am wrong but I don’t think messrs Shinawatra, Ellis, Gold, Ashley et al load the cost of servicing their original acquisition on their respective clubs.
Just think, if those financial projections are accurate and the club can find £30m in surplus revenue each year, we could be paying £10-15million per annum to reduce our total debt. Obviously some of the £350m is legitimate business debt and is correctly charged on the club. It is the cost of buying the original shareholders out which shout not have been the clubs responsibility.
Just to add to what John’s said above, the £30m figure everyone quotes for interest is based on an interest rate of around 8.5%, which I’m told is a realistic rate given the nature of the loan. Loans of hundreds of millions aren’t usually done on an 18 month basis!
Hicks and Gillett are borrowing money to try and make money. DIC are looking at how they can make more money out of the cash they already have. In fact DIC could have lent the money to H&G, more of a risk than putting it in the bank, but for a higher interest rate than they would have got had they done so.
In simple terms, if you put £5000 into a savings account, your interest rate will be lower than that charged by the bank to the next customer in the queue who takes out a loan for £5000. The bank makes its profit on the differences between the rate they pay to savers, and the rate they take from borrowers. Go and look at the offers on any high street bank’s website and I’m sure you’ll see a marked difference.
DIC have money. They can stick it all in the HSBC, where they may get a good rate as they are shareholders, or they can look to get better returns on it in other ways.
Rather than getting, say 5% interest on £400m by leaving it sitting in a bank, why not invest it in a football club? 5% a year makes them around £20m a year (obviously that goes up a little each year as the interest is paid on last year’s interest too!) So, rounding things off, after five years their £400m is now £500m. What if they used the £400m to buy the club instead?
They would probably fund the stadium using a loan that on opening of the stadium would be secured against the stadium itself, on an arrangement that would see the loan fully paid up after say 20 years. Very much like a mortgage. If that’s the club’s only debt, and they get a reasonable interest rate, it should be no problem for the club to do that and still have money left over for transfers. Even if it’s not always sold out, there’ll still be increased money coming in from the gates, and there’ll be naming rights negotiated too.
Meanwhile the club is growing in value. If DIC want to sell up five years down the line, with the club having moved into its new stadium and shown itself to be able to make good money there, they’ll get a much larger amount than the £400m they first put in.
£400m buys a club that is on the knife’s edge of fourth place, just about able to break even each season after it’s paid its debts. What would it cost for one that was making a substantial profit every season and challenging for the title? One that was in a new stadium which it had no problems paying for, in fact it made a healthy profit from. They’d get a lot more than £400m, a lot more than the £500m or so they’d have got from putting it into the bank, and that is what the investment side of the deal means to DIC. They don’t actually need the £20m a year every year – it might as well stay in the club and allow the club more scope for investing in the squad. They’ll get their £20m a year back at a later date.
Hicks can also see the day that the club has its new stadium and is bringing more money in than it does now. Naming rights can still be obtained to help pay for the stadium, but the interest payments will almost certainly be higher, the deal almost certainly less favourable. And instead of the club being able to use the rest of its income to improve and maintain the squad, keep a top manager happy and maintain ticket prices at a reasonable level, the current situation sees the club lacking the spare funds to do that. DIC can afford to leave their investment in the club for five years without taking a penny back out during that time, but the current owners have no choice – they have to demand the club pays the interest – and it’s not the £20m a year that DIC are happy to wait a few years for, it’s £30m. Where’s the scope for improving the squad? How can a top manager be reassured he’ll have the funds he needs – and if he turns out not to be a top manager, how can the club afford to replace him and his squad? And of course, a question we’ve almost forgotten about in recent times, how can the owners keep ticket prices down?
All of that is in as simple terms as I can put them really, and all of it comes from what I’ve been told and what I’ve read. The figures are obviously approximate, an expert could no doubt shoot them down, but the principle remains the same.
Hicks is borrowing money, hoping to make more money than it costs to borrow that money.
DIC intend to use their own money, hoping to make more money than they would by lending it to someone.
Unless we hear otherwise, at this moment in time it does feel like whatever Hicks can do, DIC can do better.
Thanks Guys, appreciate your comments. I concur absolutely with your sentiments above Jim.
Nice one Jim. I’m taking my 5 grand out of HSBC and looking to buy a football club. Seriously though, keep up the good work on this site your articles are widely circulated and admired for their clarity and depth.
What I dont quite understand is that with all the money in the world sitting in DIC’s treasury, they could have easily buy the 350million loan from RBS and then play hard ball with both Hicks and Gillet.
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