Liverpool left to tumble into £420m black hole

American owners pledge £20m for Benitez's spending despite mounting losses

The financial black hole otherwise known as Kop Football Limited – or KFL, the holding company of Liverpool – owed a total of £421.6m to creditors at the end of the 2007-08 financial year, but Liverpool’s manager, Rafa Benitez, will still be given summer transfer funds of around £20m plus whatever he makes in sales, according to sources close to the club’s owners, Tom Hicks and George Gillett.

Yet unease at the financial problems at Anfield persists, as does doubt over whether the American pair will be able to remain in control for much longer. They continue to seek fresh investment and are open-minded about selling up. Of the £421.6m owed by KFL, £58.247m was due, at a nominal 10 per cent rate of annual interest, to a Caribbean-based holding firm, Kop Football (Cayman), also controlled by Hicks and Gillett.

The KFL accounts, to 31 July 2008, showed a yearly loss of £42.6m, mainly because of interest of £36.5m to repay bank loans the Americans used to buy Liverpool in their unpopular “leveraged” buyout. The pair now face a deadline date of 24 July to refinance £350m in loans with the Royal Bank of Scotland, a process they expect to negotiate smoothly, although a fans’ group called last night for RBS to refuse to finance the pair any longer.

Liverpool’s auditors, KPMG, caused alarm when stating that the refinancing issue was “a material uncertainty which may cast significant doubt on the group’s and parent company’s ability to continue as a going concern.”

The Spirit of Shankly group has now urged supporters to write to the RBS branch that holds Liverpool’s account and to lobby local MPs “urging them to step in and prevent the taxpayer-owned bank from refinancing the loans taken out by Hicks and Gillett. It is these loans that helped them to buy – and to remain in ownership of – Liverpool Football Club. The release of Liverpool’s accounts show, yet again, the huge debt levels and crippling interest payments facing the club. This has, unsurprisingly, angered fans, who have never accepted Tom Hicks and George Gillett as ‘fit and proper’ owners. The open opposition to the current regime at the club, which has existed since they first started breaching their promises to the fans, is now one of open revolt.”

KFL’s debts increased by £77.5m in a year, partly because of £18.7m spent in the period on work relating to the proposed new stadium in Stanley Park, including on architects’ fees. “This is for a stadium that is as far away as ever from being started, let alone finished,” said one source.

Liverpool also wrote off £10.3m in the financial year 2006-07 on money spent on previous stadium designs that were ditched. In all at least £30m has been spent on a stadium, now planned as a 73,000-seat arena, that has yet even to be subject to feasibility studies over issues including traffic.

The debts that KFL had accumulated by the end of July 2008 are likely to have grown since. The accounts say it “has received £21.3m from Cayman to fund player transfers since the year end.”

Insiders close to Hicks and Gillett insist that the club is not in peril, and that the money being poured in via Cayman highlights devotion to the club and a willingness to fund it. Hicks and Gillett do not, yet, intend to ask KFL to pay interest or repay capital to the Cayman arm of their business.

One source close to Hicks said: “The wider picture is that Tom and George own an asset that is performing well, that they have invested a lot of money in, and that as a result of their investment has just enjoyed one of its best seasons in ages, finishing second in the Premier League. There is nothing they can say to minimise or mitigate the debt, and the accounts are there for everyone to see. But they believe the club is going in the right direction.

“Six months ago there was a chief executive [Rick Parry, about to depart] who’s relationship with at least one owner [Hicks] was untenable. The manager’s position was in doubt, which meant the players felt unstable. The owners were not getting on and commercially the club was standing still. Things look very different now. Rafa has a new deal, the players are happy and settled and there is money for more squad investment. Tom and George are united in their ambitions.

“Most clubs have debt. Liverpool’s is lower than any of their major competitors in the Premier League. As for the stadium, there are major construction projects on hold all over the world because of the credit situation.”

*Liverpool appear likely to be writing off a further £4m loss after their Italian left-back Andrea Dossena’s request for a transfer. The 27-year-old has looked the least convincing of Benitez’s buys from last summer and is unlikely to fetch much more than £3m for the Liverpool manager, who paid £7m to bring him from Udinese.