Liverpool Told to Cut Debt

Liverpool Football Club is on the hunt for investors to inject fresh capital into the Merseyside outfit. Owners Tom Hicks and George Gillett are open to either a partial sale or complete takeover of the club depending on the terms. But there is a particular urgency to the search as the clubs’ refinancing hinges upon a reduction in the current debt levels,

“Liverpool soccer club will have to cut debt by 100 million pounds ($160 million) before its bankers consider refinancing the Premier League team’s loans, managing director Christian Purslow said.

The 18-time English champion has 237 million pounds in debt,”

Source: Bloomberg News

Weakest of the Top 4

Although the Liverpool’s 237 million pounds debt pales in comparison to Manchester United’s 700 million pound debt (champions even in debt…), it is still substantial relative to Liverpool’s particular economic situation.

Liverpool’s reported revenue for the 2007/2008 period was 159 million pounds, this was composed of 41% Broadcast Revenue, 32% Commercial Sources, and 27% Match Day Revenues. The mix may have changed slightly in the past two years, but not likely by much as Match Day revenues are largely capped by the lack of a new stadium. This means that among the Top 4, Liverpool are the most reliant on Broadcast Revenue for their survival, with a large share of that coming from participation in the Champions League.

Outstanding debt was 237 million pounds as last reported, given this yearly financing costs are likely in the 30 million pound range assuming that Liverpool have the unfavorable rates that football clubs usually pay. Debts at a level almost 150% of club turnover are likely to result in higher fees as a penalty for the declining credit quality of the club.

With a spot in Europe under threat, a substantial portion of the club’s broadcast revenue, it is no wonder that the club’s bankers are requiring a draw down in the debt levels before releasing new financing.