http://www.anfieldroad.com/news/200801242798/how-reds-owners-mislead-fans-over-transfer-funding.html How Reds owners mislead fans over transfer funding
Posted on January 24th, 2008 by Jim Boardman
Liverpool’s owners borrowed £298m to take the club over, of which they spent at total of £218.9m on buying the shares and paying off the debt. There are few clues as to where the other £79m went, or what the extra £52m they are trying to borrow now will go to.
In the Champions League, Liverpool earned a decent sum thanks to getting through to the final. According to UEFA.com, the way that CL revenue is shared between the two clubs sees it split into two halves. One half is distributed as fixed sums based on criteria including games played, results, progress and so on. The other half is paid out based on a figure relating to the “commercial markets of the national associations involved”.
For Liverpool, who went all the way to the final, the competition was quite lucrative.
For the first half of the split, UEFA gave Liverpool the following sums:
* €2.0m - For participation.
* €1.0m - Surplus income distributed to each club
* €2.4m - Fee per group game (Six games at €0.4m each)
* €2.4m - Win bonus per group game (Four wins at €0.6m each)
* €0.3m - Draw bonus per group game (One draw at €0.3m)
* €2.2m - Bonus for reaching knockout stages
* €2.5m - Bonus for reaching QFs
* €3.0m - Bonus for reaching Semis
* €4.0m - Bonus for reaching final (AC Milan received €7.0m)
That’s a total of €19.8m for the first half of the prize allocation.The calculation of each club’s share of the other half of the revenue was based on “the value of its national market, as well as the number of clubs per association, the positions in domestic championships in 2005/06 and the number of games they played in the 2006/07 UEFA Champions League.” Liverpool received €12.418m.
Liverpool’s total income was therefore €32.218m, which at today’s exchange rates is £24.714m sterling.
Most of Liverpool’s summer transfer dealings were for undisclosed fees. Where fees have been mentioned, they were often incorrect. For example Fernando Torres, often quoted as costing £26.5m actually cost at most £20m. It’s difficult to find accurate figures, but writer Paul Tomkins went to a lot of effort to research the transfer dealings of the past few years in an article discussing the spending of Rafa Benitez v Alex Ferguson. Only the club could truly verify if those figures are correct, but I would take Paul’s word for these figures above most other articles on the subject.
Paul’s article shows Rafa spent £48.45m on transfers in 2007, and that’s including the January transfer window which was before the owners arrived, where he listed Javier Mascherano’s loan fee of £1.5m and Alvara Arbeloa’s £2.6m fee. That £48.45m spent is offset by the money Rafa clawed back. According to the article, that was a total of £27.75m.
So overall, Rafa’s net spending on transfers for 2007 was £20.7m. That is less than the money received from the Champions League run.
Obviously the club have other costs, such as wages and maintenance of the ground. But they’ve other sources of income which will dwarf those costs. Looking at these estimates from the Telegraph just before Athens, Liverpool were expected to receive £28.44m from the Premier League, based on their final position and money from the existing TV deals.
Even without adding in money from merchandising and ticket sales it’s easy to see why Rafa was so frustrated in the summer. He didn’t get anything over and above what the club had earned all by itself; those promises of extra funds were false.
His attempts to sign Javier Mascherano, on a deal that would see the £17m fee spread over the full five years of his contract, have been blocked and the midfielder now looks likely to ply his trade in Italy next season. That’s a devastating blow to Rafa, to the supporters and to the player himself, one of the best holding midfielders in the world and young enough to get even better. Yet it should not have happened - there was enough money there to do this deal, but somehow it’s gone into a black hole.
How can the owners claim they’ve had to borrow to pay for Torres and Babel? Where has all this money gone?
On February 6th last year Kop Football Ltd, the holding company owned by Hicks and Gillett, which in turn owns the Reds now, issued the official document outlining its offer. Referred to in the document as “Kop”, their intentions were set out quite clearly regarding transfers.
The Board of Liverpool unanimously recommends that Liverpool Shareholders accept the Offer. In considering the reasonableness of the Offer, the Liverpool Board has taken the following considerations into account: .
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• Kop has indicated that it is committed to an annual budget for player transfers and is able to supplement this should Liverpool’s management and Kop agree additional funds are required; and So, the holding company can supplement the transfer budget and agree additional funds. It’s easy to see the Hicks and Gillett get-out in that respect - there has to be an agreement with the “management” and the holding company. The holding company can always claim it doesn’t agree. But it’s clear how that statement was intended to read. And of course Gillett claimed last June that they had agreed a plan with Rafa. So why were no additional funds forthcoming? Why did they break their agreement with Rafa?
In the same document the outgoing chairman David Moores also spoke, in his recommendation that other shareholders sell up, about investment in the squad:
After much careful consideration, I have agreed to sell my shares to assist in securing the investment needed for the new stadium and for the playing squad. I urge all my fellow shareholders to do the same and to support the offer. By doing so, I believe you will be backing the successful future of Liverpool Football Club. So Moores recommended the offer’s acceptance based on the provision of investment in both the new stadium and also in the playing squad.
Under the section entitled “Intentions” was the following statement relating to squad strengthening:
The families are well aware of the importance of investment in new players to achieve on-pitch success and as such are prepared to commit resources to make appropriate investment in the playing squad. The Gillett family’s investment in the Montreal Canadiens demonstrates its belief in investing in teams to generate success. The Gillett family has invested in the Canadiens playing squad to the maximum allowable level as permitted by the National Hockey League. Likewise, Thomas O. Hicks has demonstrated his commitment to winning through his ownership and continual investment in the playing squads of both the Dallas Stars and Texas Rangers. So again, there is no doubt whatsoever that the owners knew they were expected to provide more funding for transfers than would have been available without the takeover. That should have been part of their planning, part of their calculations, but of course we are talking here of a pair of individuals who were able to announce plans for a new stadium, work on planning permission for it, and only then discover the plans were too expensive by almost 50%.
Again, more proof that the owners were aware of the importance of the improvements needed to the squad:
7. Background to and reasons for the Offer
…As a pre-requisite to any investment, the Board required that any new investor appreciated both the need for continued player funding and to facilitate the building of the new stadium at Stanley Park. It was equally important to the Board of Liverpool that any new investor understood and appreciated Liverpool’s unique heritage and tradition built up over so many years. So, the owners knew they were expected, under the terms of their offer, to improve the playing squad by investing more money in it than would be possible without a takeover.
Yet by allowing less to be spent on transfers than had been brought in by reaching the Champions League final, they failed to do this.
They’ve broken the terms of the offer, if not in legal terms in moral terms. They did not stick to the spirit of the offer, the spirit which saw all the shareholders accept the offer so quickly.
They had the opportunity to carry out due diligence, which they did at great speed, suggesting it was hardly adequate to check the full details of the club’s financial position. They paid much more per share than DIC had been planning to pay. Quite simply, to make an offer which included undertakings to build a new stadium and to invest funds in the playing squad, they needed to be sure they could fulfil these obligations. To complain now - a year later - that they shouldn’t have to put money into transfers is not acceptable. They got the club because they promised that they would.
Perhaps this explains to any of their supporters just why the ground resounded to chants accusing the owners of lying, and why there were so many banners making similar accusations.
I’ve emailed both George Gillett and Tom Hicks to ask them for their response to the above. If they intend to continue in ownership of this club they need to explain how their decision to back out of promises made in legal documents lead to their rift with the manager, a rift that dates back to last May. And a rift which has had such a negative impact on the club.
