Thursday, 23 April 2009
What have Liverpool, Arsenal, Chelsea and Man Utd done to our game?
Everyone remembers those newsreels of 1930's football crowds with 80,000 happy souls shoe horned into a ground to watch Blackpool and Preston North End play a cup game. Some things stand out in those images, firstly that never in modern day life will there be so much Brillcream in one place, there is no way the guys in the middle had their feet in contact with the ground, just how long was the line for the bogs at half time, and what happened to all those football rattles?
These days the average fan needs to trade in those old clackers for calculators. This week during the anniversary of the Hillsborough disaster Tom Hicks, the co-owner of Liverpool FC, defaulted on a $10M payment on a $525M loan for his American sports interests, the Dallas Stars ice hockey team and the Texas Rangers baseball team. Bloomberg states that this default came about because the teams in question could not meet their operating cost and pay down the debt at the same time. Hick maintains that this is in fact a negotiating tactic with the banks to get them to refinace the loan in reasonable terms.
Now feel free to try and negotiate with your mortgage lender by not paying them and see how long before you’re dossing in a doorway in Charring Cross. The loan was already tenuous, spread as it is between a consortium of some 40 banks. Now this form of borrowing, which was first seen in a major way when Rupert Murdoch scrambled to save his media empire in the late 80s early 90s, does work but only if there is a considerable and realisable amount of assets to secure it against. In Murdoch’s case, there were parts of his empire that could be sold off if any trouble meeting a payment was seen coming. The problem with a sports team is you can’t really sell off a part of it. You can’t sell one stand, the back four and the dressing rooms to fund the rest of the club.
Hicks has stated that he will fund the teams himself should they have any difficulty in meeting their operating costs until such time as new finance can be put in place. It may be half a world away from Stanley Park but what happens in Texas will provide a big insight into the future fate of Liverpool FC. At the start of last year Hicks and Gillette quietly removed the personal assets that they had secured the loan to buy the club with. This does not mean that they felt the club would fail or the assets would be called in by the club’s lenders, its more likely they were needed to shore up other businesses in their respective empires. They may well have felt they could weather the storm elsewhere and put the assets back before the deadline to refinance LFC fell due in January 09. They couldn’t and they didn’t.
Instead the banks RBS and Wachovia (which is also one of the lenders that Hicks defaulted on in the US this week) were asked to refinance the club (at this stage the plans for a new stadium were well and truly off the table) with only the club’s cashflow and assets as any means of both securing and repaying the loan.. They refused. The only thing that could be agreed was a 6 month extension to provide the necessary security, find another lender, bring in new investors or sell the club. To date, and for various reasons, none of those things has happened.
In August 2010 Malcom Glazier will have to refinance Manchester United’s almost 3 quarters of a billion pounds of debt. Man U are financed by what is called a PIK loan where the principal is not repayed, the interest is merely serviced. Glazier has recently reached an agreement with 3 New York hedge funds (Perry Capital, Och-Ziff and Citadel) whereby, should he fail to be able to refinance, they will assume majority control of the club. No plan has been offered by Glazier at any point as to how the principle, which was £660M last time around, will ever be repaid.
Arsenal have always been held up as a very astute club who had resisted the urge to either go down the route of massive borrowings or throwing open the baordroom doors to the nouveau riche. Their plan involved borrowing to build a new stadium which would generate the cash from ticket sales due to increased capacity to allow them to compete with the biggest clubs in Europe. They would pay off this loan by redeveloping the Highbury site into a mixed used retail, commercial and residential development which, when sold, could pay off the cost of the new stadium (this is a simplified version but I fear I am already risking boring people). The idea was good, the idea would have served as a model for other clubs, if the launch of the new development hadn’t arrived in the middle of the biggest world recession since before the war. Now they have the debt from the new stadium, the debt from the Highbury development and no sign of the profit they had hoped to generate. As of last November, the clubs debts were listed at £320M but these accounts still listed Highbury Square as an asset. Now they face a carve up of the club between Russia (well technically it’s Uzbekistan) and America.
Chelski seemed immune to this, their own pet Russian had bottomless pockets and was happy to throw money at the club like it was going out of fashion. In fact he has thrown about £600M (excluding the purchase price) at the club since he bought it. At the height of his powers he was worth a reputed £12Billion. What he is worth now is really anyone’s guess. According to RIA Novosti, the Russian press agency, his companies have lost $9billion of their value in the collapse of the Russian stock market. It has also been reported that he had to sign over his holdings in North America to he VTB in order to secure $2Billion in financing to shore up his empire. What is known is that he has cut 15 of the clubs scouting staff, forced the players to pay for their meals at the clubs training complex, reduced the number of free tickets given to players to two each and insisted that plans be drawn up to repay the money he has lent the club.
Ultimately who is it that will pay for this? For the greed or vanity of rich men? Easy, I will, so will you, so will every football fan. All of us who have stood in the rain and sang ourselves hoarse, who have gone without to buy our tickets when times were tough and who spent freely in the club shops and hospitality areas when times were good. Man U fans have seen a 42% increase in ticket prices since the Glaziers took over the club. Liverpool fans must look at July and think, what will happen their club. Arsenal must wonder if their squad will be cherry picked by the likes of Real Madrid, Barcalona, or the Milan clubs. Chelsea fans must think what happens if Roman loses interest in the club, there is no way they can possible support themselves without his money.
If Michel Platini gets his way, then clubs will be limited to the amount of their turnover they can spend on transfers and wages, and those who fail to adhere to this would be blocked from entering European competitions. This is not meant to be an attack on the clubs mentioned, nor is it intended to make out that they are the only ones guilty of this, all clubs in their own way mortgage their future for present success. Football is a risk, that’s part of the thrill, that’s what makes you dig deep every summer and buy your season ticket. All fans dream of watching their club win cup finals, or getting into Europe, our hopes and dreams are what tie us to our clubs. But while we dream of success they dream of more money. While we think of cup runs, they think of Asian media rights and global image sales.
To paraphrase the 70's one hit wonder "What have they done to my club ma?"
Submitted By Celtic Hammer
Posted by Hammersfan at 21:39