Wednesday 6 October 2010

Liverpool FC ~ Leveraged Finance denouement

Very interesting stories around today about the fate of Liverpool. Peston as ever has the insider skinny from Martin Broughton by the sounds of it.

We Capitalists have warned of the dangers of leveraged finance in football clubs for a long time. When you think about it,the Premier league is akin to a poker game in a casino, one player in the poker game using his overdraft up against a Sheikh and a Russian billionaire. It takes no genius to know who is going out first.

However, the most interesting piece of news here is that no one has yet done the due diligence to see what the new owners will do. At Man Utd the new owners circumvented rules that are designed to stop companies being bought with debt raised against their own assets (they did this by re-financing after the deal). Who is to say the New England investors won't do the same?

Liverpool will then be left with debts half of what they have now, which is a plus, but will still be heavily indebted - and to American owners who have not proved a good match with Scouse fans (socialists and capitalists are never going to make happy bedfellows are they?).

Worse for Liverpool, the New England investors are not going to give Gillette and Hicks a penny, that will mean RBS foreclosing on the loan and Liverpool being docked points in the Premier League. Ouch, I look forward to the solutions suggested to get around this.


Old BE said...

I would be surprised if anyone would be willing to invest in any English club until the outcome of the ECJ TV-rights case is known. That could bring the whole industry crashing down.

Demetrius said...

As someone who was on The Kop in the 1940's and with family links back to the foundation of the club this has been a disaster waiting to happen. You only have to look down the divisions and indeed into the Conference to see what could happen.

Mark Wadsworth said...

Those are the rules of football. Wealthy businessmen do it for ego reasons as much as anything, like having a yacht or a trophy wife or something.

It isn't 'the fans' paying those outrageous salaries, it's wealthy businessmen outbidding each other and who have lost touch with reality and/or whose egos get the better of them.

CityUnslicker said...

MW, just to link in BE's point; it is the fans if they want to be involved, Sky sell the rights at profit and have overpaid to keep competition out of their market.

The silly salaries are of course hugely subsidised, but footie costs way more to follow than it used too. As a keen Leeds fan I know because its a long time since I subscribed to Sky Sports etc.

James Higham said...

In non-economspeak, Liverpool are f***ed.

roym said...

apparently the club won't be docked points as it is solvent as opposed to the parent company.

from the press assoc;
"the Premier League have clarified the rules regarding parent companies so that if the club itself is a fully solvent entity - as Liverpool is - then the penalty clause should not apply"

In any event, I doubt the premiership would want to see their brand tarnished by one of their marquee names being docked points.