THE BUSINESS OF FOOTBALL — from near bankruptcy to £100+ million
It is probably no secret that I am a Liverpool fan. From an ecstatic Stevie G adorning the wall of my room to the majestic Mo Salah on my Facebook timeline, I publicly display my affection for this club every chance I get. But, I’m not going to bore you with my sappy romanticism. Instead, this story hopefully gives you a little glimpse into how Liverpool Football Club, one of the biggest institutions in the game, went from near bankruptcy to recording £100+ million in profits in the space of less than a decade.
In February 2007, lifelong fan David Moores sold his stake in Liverpool FC to American businessmen George Gillett and Tom Hicks, who funded this takeover through a leveraged buyout. They assured fans that the funds were not borrowed and that they were not “doing a Glazer”, whose ownership of Manchester United FC was funded using the same.
Now, wtf IS a leveraged buyout?
A leveraged buyout or LBO is an instrument in which a company A can acquire company B through loans obtained using B’s assets as collateral. The interest payments on said loans are paid through cash flow from the combined entity (A+B). However, because the loans are against B’s collateral, in case the interest payments are not met, it is B that bears the brunt. In this case, A was Hicks and Gillet, while B was Liverpool FC.
All of this came to a point where the club had debts of £350+ million. The Royal Bank of Scotland, the main financier of the takeover, took the owners to court against default in payments. Liverpool Football Club, a 100+-year-old institution and one of the most successful clubs in world football, was about to go under.
Enter John W Henry and Fenway Sports Group. The American Sports Company, also the owners of the Boston Red Sox, bought the club in 2010 for about £300 million, promising to operate in a “sustainable manner”.
WHERE THE ££ AT?
If you are still reading, great. This is where we get to the actual money part. Football clubs earn money primarily through three streams — broadcasting revenue (TV deals), matchday revenue (people in the stadium) and commercial revenue (partners, partners, partners).
Clubs in the lower tiers of English football are desperate to get into the Premier League. Apart from testing yourself against some of the best players, the PL is the most lucrative league in the world. The current deal running through 2015–19 stands at a whopping £5.14 BILLION. LFC’s slice of the pie for 2017–18 was about £146 million, aided by a memorable and lucrative run to the Champions League final which brought in another ~£60 million. Regular participation in the Champions League has ensured supplementary broadcasting revenue trickles in, whilst being an important factor in attracting the best talent.
The matchday revenue, helped by the newly built Main Stand at Anfield, the home of LFC, has jumped from £51 million in 2013–14 to £81 million in 2017–18, a 59% increase.
Through partnerships with various brands, LFC netted a total of £154 million last year, up from £104 million in 2013–14. The club’s success on the pitch has translated into off the pitch progress, with Standard Chartered, New Balance being the primary partners, among others.
Another way football clubs make money is spotting and developing talented youth, and selling them for a premium. Southampton FC and AS Monaco, among others, follow a similar model.
Due to the high level of debt incurred, Liverpool had to contend with selling some of their best players. Fernando Torres to Chelsea, Luis Suarez and Phillipe Coutinho to Barcelona, and Raheem Sterling to Manchester City brought in a combined transfer income in excess £300 million!
That said, Liverpool have been spending handsomely in the transfer market themselves. They broke the world record for a defender by signing Big Virgil for £75 million, followed by Fabinho, Naby Keita and Allison— in £40, £50 £60 million range.
The headline-grabbing transfers have been balanced by shrewd buys of Andrew Robertson and Xherdan Shaqiri from relegated Hull and Stoke respectively for a combined value of £21 million. Free transfers of James Milner added some much-needed squad depth and steel. On the flipside, Dominic Solanke, with 21 appearances and 1 goal for Liverpool, was sold to AFC Bournemouth for £19 million. Negotiating these figures has been down to the genius of LFC’s sporting director, Michael Edwards.
So, what’s next in store for a club that just recorded a never seen before level of profit?
These numbers only reinforce belief in the way FSG are running the club. Through a meticulous, sustainable business model, they have been able to balance the books to show healthier financial statements, in turn allowing them to invest in growth on and off the pitch. A determined march toward the evasive Premier League title has only been made harder by a relentless Manchester City. But a return to the table of European elite doesn’t look too far away for Liverpool Football Club.