Some Manchester United supporters maybe watching the troubles at Liverpool with a grin, but the mess at Anfield is no smiling matter because the contagion could spread to Old Trafford much more easily than many are ready to admit.
1. Both Liverpool and Manchester United were bought by ownership groups who used a leveraged buy out, a transaction in which the target being acquired is used to fund its own purchase by taking out debt against its value.
2. Each of those ownership groups is the sole owner of the club. Should external conditions render the owners financially unstable it would be disastrous for the club (see Sacha Gaydamak’s exit at Portsmouth). While many other clubs bear the risk of having a single owner, the consequences are magnified in a highly leveraged situation. A debt laden balance sheet hinders the ability to find reasonably priced financing and quickly amplifies the damage an unstable owner can inflict. Continue reading “Liverpool Is No Laughing Matter For ManUtd Supporters”
Political Economy of Football has posted a quick summary of the debt and interest payments made by Premier League clubs in 2009.
In total top flight clubs paid out 150m in interest charges, with Manchester United paying out 41.9m of that alone. That means that the Red Devils account for a whopping 28% of the financing costs paid out by the league.
Read the full article here.
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.
Manchester United today was able to report a £48.2m pre-tax profit thanks only to the £80m transfer of Portuguese superstar C. Ronaldo. Otherwise it would have been another year in the red to the tune of £31.8m. Much of the loss is due to a hefty £41.9m interest bill on the £509.5m loans the club has outstanding. This debt figure does not include the £175m in PIK loans the club also holds. The Glazers are reported to be interested in a bond sale later this year to refinance a portion of the club’s debts. Read more here at F365.
It should be extremely concerning to the world of football when it’s most popular club (arguably) can not turn a profit without a one-time, extraordinary event like the sale of Ronaldo. Man United are not the only club in financial trouble, red ink is showing up all over the Premier League in clubs like Hull and most spectacularly at Portsmouth.