The Liverpool Daily Post – 12th May 2012

By Bill Gleeson, The Liverpool Post

THE latest financial accounts of Liverpool Football Club, filed at Companies House last week, are a clear illustration of the vagaries affecting the English club game.

The volatile nature of player valuations and the riches to be earned or lost by qualifying or failing to qualify for Europe make football club finances highly erratic.

The club’s failure to qualify for Champions League football in the 2010/11 season adversely affected its top line income. Media income, for example, was down £14m, but this loss was more than offset by a £15m rise in commercial revenues arising from Liverpool’s lucrative shirt sponsorship deal with Standard Chartered.

“They have done very well to replace lost Champions League money with shirt sponsor money,” said football finance expert James Dow, who runs his own Warrington-based corporate finance practice Dow Schofield Watts. “It’s an excellent operating performance. Credit is due to the management team, who achieved the shirt deal despite the background noise created by the takeover. That’s not normally attractive to sponsors.”

While top line financial performance was steady or flat depending on your point of view, bottom line performance was significantly down. The loss for the financial year was £49m. The deficit was almost exactly equal to the amount shown in the accounts as an exceptional loss. The vast majority of this sum results from writing off sums that had previously been capitalised in connection with the development of the now abandoned plans for a new stadium at Stanley Park.

Had it not been for the exceptional write-off, Liverpool would have broken even.

Mr Dow added: “That suggests the shareholders are not putting their hands in their pockets and that’s following the Everton model.

“It’s an ‘eat what you kill’ model. All the money spent by the club is only what they get from income. There is no additional money from shareholders.”

Mr Dow, who has in the past advised Everton Football Club and Barcelona, believes Liverpool’s shareholders will need to invest fresh money in the club if it is to close the currently gaping points gap with the two Manchester clubs.

He said: “There remains an extremely strong correlation between players’ wages and points won.

“The investors have to put their hands in their pockets, but they will also shortly have to balance that with the financial fair play rules.

“Competition now is fiercer for Champions League places in the Premier League than it was just a couple of years ago.”

The latest accounts show that turnover in the 2010/11 season decreased only slightly from £184.5m the year before to £183.6m.

Matchday revenue decreased from £42.9m to £40.9m, suggesting that the absence of Champions League had little impact on gates.

Commercial revenue increased from £62.1m to £77.4m, driven primarily by the new Standard Chartered shirt sponsorship agreement.

Administrative expenses before exceptional costs have increased by £10.7m. The major changes in this category were an increase in staff costs offset by a reduction in other operating charges and a reduction in amortisation costs.

In the director’s report published with the accounts, the club states: “Also included in administration expenses is an exceptional amount of £59m (2010 £7.8m). This includes £49.2m in relation to a charge in respect of establishing an impairment provision against the HKS design new stadium costs and £8.4m in relation to the costs of the changes in coaching staff and associated expenses.” This last item, of course, is a reference to the pay-off given to former club manager Roy Hodgson and his coaching team.

The profit on the disposal of player registrations has shown an increase from £22.8m in 2010 to £43.3m in 2011. A good proportion of this will be accounted for by the sale of Fernando Torres to Chelsea for £50m.

Interest payable has shown a £14.6m decrease over the 2010 figure. This reduction will have arisen as a result of the change in ownership of the football club. Former owners Tom Hicks and George Gillett had used debt to finance their ownership of the club, giving rise to an expensive annual interest charge.

All of these ups and downs in the club’s fortunes have resulted in the loss before tax deepening from £19.9m in 2010 to a loss before tax of £49.3m in 2011.

The club’s balance sheet shows that the transfer value of player purchases increased from a net book value of £85m in 2010 to £148.8m in 2011. During the year, the club spent £131.1m on new players. This was offset by the net book value of disposals of £31.1m and amortisation of £36.3m.