Liverpool spent more than three years looking for heavyweight backers to take them to the next level. They found a helium balloon. And it's tied to a skip.
The club's American owners, Tom Hicks and George Gillett, can try to spin their £350m refinancing, announced yesterday, in any positive light they wish. That is their prerogative as the outfitters who dressed the emperor in new clothes.
But facts stand in the way of any claims that Liverpool are better off now than a year ago. At the bank? Absolutely not. On the pitch? No. Dressing-room morale? Hardly. On the terraces? You are joking, aren't you?
When David Moores (Liverpool's former 51 per cent owner) and Rick Parry (the chief executive) swallowed the Americans' assurances that they were big hitters with deep pockets, they were sold a pup. And the pup is threatening to disgrace itself on the 1892 antique carpet.
Here is what Gillett said in February last year, seeking to distance himself and Hicks from the kind of tactics the Glazer family used when buying Manchester United and ladening it with debt. "We have purchased the club with no debt on the club so, in that regard, it is different [to the Glazers]."
No longer true. It is the same as the Glazers, except that Hicks and Gillett, even now, have not put any of their own money in. Every cent, either spent so far or earmarked, has been borrowed.
At the time of the takeover, Liverpool had debts of £60m, some of that relating to the takeover itself. Hicks' and Gillett's refinancing involves transferring that, plus the £185m of debt they used to buy Liverpool, into a new £245m bundle owed to the Royal Bank of Scotland and Wachovia Bank via their Kop investment vehicle.
On top of that, Liverpool will have £105m of new debt – guaranteed against its assets – to start work on the stadium, and for working capital. Total: £350m debt, and Liverpool in hock to a greater extent than ever. Parry can take credit for persuading the Americans to shovel a chunk of the liabilities into a subsidiary pot. They wanted all £350m directly on Liverpool's books.
But the reddest of herrings is that Hicks and Gillett are providing "owner cash, letters of credit and personal guarantees" against £225m of the £245m bundle. What does that actually mean? It means Hicks and Gillett are personally responsible for that cash, and will be keener than ever to skim any Liverpool profits to repay it. It does not mean they will stump up so much as a fiver of their hard-earned to buy any players or masonry.
Herein lies the risk, to the owners and the club. Liverpool are not cash cows on the scale of Manchester United or Arsenal. Their most profitable season was 2004-05, with pre-tax profits of £9.46m. The next year they lost £5m on a turnover of £119m. Interest payments alone on £350m of debt will be around £25m a year before capital repayments start. And that is before around £250m more is borrowed to pay for the new stadium, although that loan, in fairness, should fund itself via naming rights, sponsorship and ticket sales.
The financial figures for 2006-07 should look good because of last season's Champions' League run. But any stutters from here on in – like failing to be consistent top-table European participants – and things could look sticky. The finance is crucial. It underpins everything. It is the reason that Moores and Parry spent years courting potential investors.
"After much careful consideration, I have agreed to sell my shares to assist in securing the investment needed for the new stadium and for the playing squad," Moores said when he sold his shares for £89.6m. Moores and his fellow former owners did not want to borrow that investment themselves. The Americans did. And Liverpool have gone from Premiership also-rans, pootling along financially, to Premiership also-rans pootling deeper into the red.
What they said... and what happened
George Gillett, Feb 2007: "[Steven Gerrard and Jamie Carragher] spoke extremely warmly about Rafa and made us aware that they feel this man is truly one of the great geniuses in the recent history of the sport."
Since: Interview Jürgen Klinnsman behind Rafa Benitez's back.
George Gillett, Feb 2007: "The first spade will start going into the ground on that [stadium] project by March ." Since: Work yet to start.
George Gillett, Feb 2007: "We have purchased the club with no debt on the club so, in that regard, it is different [to the Glazers' buyout]."
Since: £105m debt on the club's books. (£60m previously).
Tom Hicks, Feb 2007: "It was not a question of money, it was a question of 'Are we the proper custodians?' and I believe we are ... Over the next 30 years I'll be happy to put a lot of my family's money into this club."
Since: No money up front from either Hicks' or Gillett's own reserves.
Rick Parry, Feb 2007: "The partnership created by George and Tom is a very special one. They're bringing to the table... real resources and a strong commitment and understanding of the traditions of Liverpool."
Since: Real resources of £350m borrowed money.
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