Football finance expert David Conn asks the question that sends shivers down Scouse spines...
When, aged 62, Roy Hodgson was finally handed his dream job this summer Ã¢ÂÂ Ã¢ÂÂthe biggest in club football,Ã¢ÂÂ he said of Liverpool, and heÃ¢ÂÂs been around a bit Ã¢ÂÂ his immediate tasks were more about salvage than success.
This was not a Bob Paisley moment, a modest, self-effacing football man taking over an Anfield operation engineered by Bill Shankly to reign supreme for years, as Liverpool went on to do under Paisley, winning six League Championships and three European Cups between 1974 and 1983.
HodgsonÃ¢ÂÂs arrival was more reminiscent of ShanklyÃ¢ÂÂs own, who in 1959 faced a restoration job at a spent, exhausted club Ã¢ÂÂ although Liverpool then were mired in the Second Division, not feeling they are in crisis because they finished seventh in the Premier League. Yet this was truly a modern crisis for Liverpool, on a scale which would surely have appalled even the indomitable Shankly.
Bank debts alone, at a club famous for prudence approaching parsimony, had mushroomed to ÃÂ£250m. The bulk of that had been directly loaded onto the club to pay the borrowings American owners Tom Hicks and George Gillett took on when they bought the club in February 2007.
The pair arrived promising to relaunch Liverpool to the glories Shankly and his boot room successors delivered, but instead they left a trail of debt and broken dreams. Their vow then, to build Liverpool the long-mooted new stadium in neighbouring Stanley Park, produced grand designs but barely a sod of earth overturned.
Rather than funding Liverpool to where they were in the 1970s and 1980s, the spectre began to loom instead of Leeds United in the early 2000s, over-borrowed and at risk of collapse. The auditors, KPMG, commented alarmingly on the clubÃ¢ÂÂs financial accounts in 2008 and 2009 that the short-term loans to the club from Royal Bank of Scotland and Wachovia Ã¢ÂÂmay cast significant doubt on the groupÃ¢ÂÂs and parent companyÃ¢ÂÂs ability to continue as a going concern.Ã¢ÂÂ
Leeds, in the infamous admission of the then chairman Peter Ridsdale, had at least spent their borrowings Ã¢ÂÂliving the dreamÃ¢ÂÂ, reaching the Champions League semi-final before plunging into football and financial collapse. Liverpool won the Champions League on that wondrous Istanbul night in 2005, and reached the final in 2007 with Hicks and Gillett only months in the Anfield boardroom.
The new owners: cue fanfare
Since then, the pair have loaned money in Ã¢ÂÂ ÃÂ£144m by this year Ã¢ÂÂ to buy Fernando Torres and provide Rafael Benitez with a significant transfer fund which few argue the manager spent wisely. Yet in the summer of 2009, after Liverpool finished second in the Premier League, Benitez spent ÃÂ£20m on Roma's Alberto Aquilani and a remarkable ÃÂ£18m for Glen Johnson from penniless Portsmouth. It added up to not much more than he received for selling his world-class midfield anchor Xabi Alonso to Real Madrid for ÃÂ£30m, Alvaro Arbeloa, also to the Bernabeu, for ÃÂ£3.5m, and disposing of other squad players.
FALLING FURTHER BEHINDLiverpool finished seventh last season, crucially dropping out of the Champions League that earned them not just vital credibility but cold hard cash: ÃÂ£23m TV money from the run to the 2008 semi-final, ÃÂ£19m from 2009's journey to the quarter-final.
In April, Hicks and Gillett Ã¢ÂÂ who had first tried to soldier on, then searched the world for new investors Ã¢ÂÂ finally accepted, under pressure from the banks, that they had to sell outright, and appointed new chairman Martin Broughton to reel in a buyer.
The great Liverpool Football Club limped into this summer up for sale, their very existence financially uncertain, staring at a season with no Champions League football and that vital tranche of income lost, key players questioning seriously whether they wanted to stay, and supporters in open rebellion against the owners.
Fan banners used to celebrate achievement...
Hicks and Gillett denied the club was in serious financial risk, and Broughton maintained they did not have to sell Torres or other players to pay off debt. But the power lay with decisions made in bank headquarters, not at the Melwood training ground.
Rogan Taylor, a lifelong Liverpool fan and long-term campaigner for supportersÃ¢ÂÂ rights, is a director of Share Liverpool, a supporters trust formed to raise ÃÂ£50m to buy an immovable 10 percent stake in the club, and thus play a part reflecting the views of fans in the clubÃ¢ÂÂs running.
Ã¢ÂÂSadly it has become palpably clear over the last three years that the decision to sell the club to Hicks and Gillett was about the most disastrous in the clubÃ¢ÂÂs 118-year history,Ã¢ÂÂ he argues. Ã¢ÂÂWe had very little debt before, the new stadium could have been financed in a straightforward way, but instead we became a sinking ship, in an ocean of debt, waiting for another passing billionaire to bail us out. As Liverpool supporters, we could never have foreseen the club being in this state.Ã¢ÂÂ
So HodgsonÃ¢ÂÂs first days in the Anfield managerÃ¢ÂÂs office, the pinnacle of his remarkable football journey from non-league player at clubs like Gravesend & Northfleet and Maidstone United in the 1970s, were spent trying to convince elite stars Steven Gerrard, Fernando Torres and Javier Mascherano that there could be a worthwhile future at Liverpool.
Keenly aware of how greatly the team relied upon Gerrard and Torres, and that such players see Champions League football as their natural milieu rather than a prize to be fought for, HodgsonÃ¢ÂÂs immediate job constituted a charm offensive. Ã¢ÂÂIÃ¢ÂÂll be trying to persuade them that this is the place to be,Ã¢ÂÂ he said. Ã¢ÂÂIÃ¢ÂÂll ask them to give me a chance, to work with you, and to improve on last season.Ã¢ÂÂ
Chairman Broughton used the unveiling of the new manager not to promise unbridled success, but to make optimistic noises that the club could be dug out of its financial hole - that a buyer could be found to dispatch Hicks and Gillett and build the club a future. Ã¢ÂÂThere have been no offers at this stage,Ã¢ÂÂ Broughton said of the sale process he was overseeing. Ã¢ÂÂBut weÃ¢ÂÂre hopeful a deal can be done by the end of the transfer window.Ã¢ÂÂ It wasn't.
HodgsonÃ¢ÂÂs delighted statement, Ã¢ÂÂIÃ¢ÂÂm honoured to be taking on BritainÃ¢ÂÂs most successful football club,Ã¢ÂÂ still just about holds true, but it is based on glories receding further into the past. Manchester United drew equal in 2009 to LiverpoolÃ¢ÂÂs record of 18 League Championship wins, and were just a point plus goal difference short of surpassing it last season. Much more significant than that is last seasonÃ¢ÂÂs landmark, which made it fully 20 years since Liverpool last won the championship Ã¢ÂÂ a startling gap after the clubiÃ¢ÂÂs routine dominance of the 1970s and 1980s.
LESSONS FROM HISTORYThose decades of the boot room managerial conveyor belt, of Keegan and Toshack, Dalglish and Rush, Hansen and Lawrenson, terraces and tragedy, belonged monopolistically to Liverpool. The Premier League era, in which money became so determining a factor, was claimed from the start by United.
Liverpool grew terrified about falling behind their rivals financially and on the field in the early 1990s as United began to seriously ring in the cash, slapping extra tiers on Old Trafford until it reached its current 76,000 capacity.
In 1991 Liverpool's then chairman David Moores invested ÃÂ£12m to help turn Anfield all-seater. Redeveloping the Kop and Centenary Stand settled the ground into its current 45,000 capacity, but as the decade passed Moores and chief executive Rick Parry gradually realised they need to sell many more tickets to prevent LiverpoolÃ¢ÂÂs financial eclipse by United.
Yet since the first plans were made more than a decade ago, for a new 60,000- or 70,000- seat stadium to be built on Stanley Park, nothing has happened. Liverpool remain stuck at Anfield Ã¢ÂÂ a true home the fans love, but whose leaving they have pragmatically accepted Ã¢ÂÂ increasingly short of the money required for top players, while United expanded, Roman Abramovich sunk ÃÂ£800m into Chelsea and Arsenal built the Emirates.
Just waiting for the call...
Tottenham finding their feet last season and the genuine billionaire takeovers at Manchester City and Aston Villa have cast Liverpool further behind, and the debts, losses and failure to qualify for the Champions League all threatened to make permanent that inferior status. That is why, in modern terms, the summer of 2010 was a Shankly, not a Paisley moment, and why BroughtonÃ¢ÂÂs task was to find not just an investor, but a saviour.
Hicks and Gillett were the buyers supposed to make it all right again, buying the club in February 2007 when a deal had been almost done with Dubai International Capital Ã¢ÂÂ which may not, given DubaiÃ¢ÂÂs epic collapse since, have turned out any better. When the American pair strode on to the Anfield turf for their first public appearance after the takeover, they had clearly been briefed about what their new audience would most like them to say.
They described Liverpool as a club of Ã¢ÂÂoutstanding historical wealthÃ¢ÂÂ Ã¢ÂÂ a strange choice of phrase Ã¢ÂÂ and said they would Ã¢ÂÂdo everything in [their] powerÃ¢ÂÂ to uphold its Ã¢ÂÂcherished traditionsÃ¢ÂÂ. They peppered their press conference with reverential mentions of the Kop. Seeking to reassure supporters they had not bought one of world footballÃ¢ÂÂs greatest clubs simply to turn a buck, the two men installed their sons as directors and said they foresaw being involved for years, making Ã¢ÂÂa multi-generational family commitment.Ã¢ÂÂ
Amid all that PR were two specific pledges, whose breaking has stoked the outrage of Liverpool supporters more than any other letdown. They would, Hicks and Gillett promised, not Ã¢ÂÂdo a GlazersÃ¢ÂÂ, a reference to the takeover at Old Trafford by the Florida family who loaded their own ÃÂ£559m borrowings to do the deal onto the club itself to pay off. Hicks also said that within 60 days the spades would go in at Stanley Park.
Ã¢ÂÂEverybody connected with the club, ex-players and supporters, believed we had what we wanted,Ã¢ÂÂ laments Phil Thompson, the former Liverpool great who lived his own dream, from fan on the Kop to captain raising the European Cup, to assistant manager under Gerrard Houllier, and caretaker manager himself when Houllier fell ill.
Ã¢ÂÂWe were led to believe that George Gillett had a lot of money, that Tom Hicks had billions, and now we were going to compete with Abramovich. But their promises, including that they would not put debt on the football club, were not kept, and this we have found extremely hard to bear.Ã¢ÂÂ
Immediately after they announced their deal, it became clear that Hicks and Gillett had borrowed the money Ã¢ÂÂ ÃÂ£174m plus professional fees, making ÃÂ£185m in total Ã¢ÂÂ from the Royal Bank of Scotland. At the time, LiverpoolÃ¢ÂÂs own net debt, restrained with almost paranoid caution by Parry and Moores, was ÃÂ£44.8m. But the club was struggling to keep its place in the vital, Champions League-qualifying top four, and the documents revealed that Moores had personally lent the club ÃÂ£10m in August 2006, with which Benitez bought Dirk Kuyt from Feyenoord.
Parry and Moores: careful with the cash
Moores had that money repaid and famously now, but somewhat overlooked in all the optimism back then, Hicks and Gillett paid him ÃÂ£89.6m personally for his shares. Moores broke his silence in May when he wrote a long letter to The Times saying he felt betrayed by Hicks and Gillett, but he did not offer to put a chunk of that ÃÂ£89.6m towards finding a solution.
TAKEN INTO ACCOUNTIt didn't take long after the takeover for the revelation that Hicks and Gillett did in fact Ã¢ÂÂdo a GlazerÃ¢ÂÂ after all. They have made Liverpool itself responsible for paying off the debts and the interest which they themselves took on to buy the club in the first place. They were not billionaires bringing sentiment and cash to Liverpool, but investors bearing debt.
The first accounts published by the club after the takeover that was supposed to propel it back to the big time came in June 2009, showing that HicksÃ¢ÂÂ and GillettÃ¢ÂÂs parent company had borrowed ÃÂ£313m from Royal Bank of Scotland and Wachovia, which included the ÃÂ£185m they originally took out to buy the club. Despite record turnover of ÃÂ£164.2m Ã¢ÂÂ from Sky TV money, a full Anfield and a more concerted commercial operation Ã¢ÂÂ Liverpool lost ÃÂ£40.9m.
The club had had to pay interest of ÃÂ£36.5m on all that borrowed money, which the banks, with huge problems of their own, had lent only for a year. KPMG laced LiverpoolÃ¢ÂÂs accounts with that warning that the clubÃ¢ÂÂs very existence was threatened. Hicks and Gillett argued this was an accounting technicality, and persuaded the banks to renew the loans rÃ¢ÂÂ but only for another year, and with significant new money loaned in by the owners.
It had also become clear very quickly that Hicks and Gillett were not dream saviours who would be able or prepared to wave a cheque book to spirit the new Stanley Park stadium into being. They were going to borrow the money for that too, a cost which had spiralled from ÃÂ£100m to an estimated ÃÂ£450m.
The only reason the club was for sale in the first place had been to find wealthy backers to fund that new stadium, to lift the clubÃ¢ÂÂs earning power so it could keep up with United, Chelsea and Arsenal, and now the arrivistes of Manchester City, Spurs and Villa.
Yet in August 2008 Hicks and Gillett put out the briefest of statements containing the not very shocking news that the stadium was not going up any time soon. Ã¢ÂÂThe building of the new stadium will be subject to delay,Ã¢ÂÂ the statement said, blaming Ã¢ÂÂglobal market conditionsÃ¢ÂÂ.
It was true, of course, that the worldwide banking collapse and recession had made major building projects harder to finance, but nobody had said when the pair took over that they would be borrowing the money to build the stadium. Moores and Parry maintained they needed rich men to stand behind the project: Anfield, a painfully shattered neighbourhood of boarded up terraced houses around the football ground, is not Highbury in Islington, where Arsenal have made a fortune converting their old stadium into eminently desirable apartments.
Highbury Square: High-cost, high-yield
Hicks and Gillett were the men chosen to facilitate this plan to build Liverpool their new future, but they did not spend their own cash and found they could not borrow the money. So Liverpool have languished at Anfield, with the new stadium no further on than shiny images on the architectsÃ¢ÂÂ Apple Macs. Under Benitez, the team arguably overperformed to come second in 2009 but last season, shorn of Alonso, few fans protested that seventh was not the teamÃ¢ÂÂs true level, as Gerrard and Torres creaked and RafaÃ¢ÂÂs tenure reached its unhappy end.
The most recent accounts, for the year to July 31 2009, published in May this year, showed that LiverpoolÃ¢ÂÂs borrowings had in fact gone down to ÃÂ£250m. Hicks and Gillett had been forced to lend ÃÂ£144m themselves, which they did via their company in the Cayman Islands, to keep spending on players up and bank borrowing tolerable.
Yet the banks had extended the loans this time by only weeks, from January 24, 2010 to March 3. So KPMG made the same cautionary note, that there was Ã¢ÂÂmaterial uncertainty which may cast significant doubtÃ¢ÂÂ on LiverpoolÃ¢ÂÂs ability Ã¢ÂÂto continue as a going concernÃ¢ÂÂ, due to the clubÃ¢ÂÂs reliance on Ã¢ÂÂshort-term facility extensions.Ã¢ÂÂ
Broughton, the chairman of British Airways, was introduced as a business figure of genuine repute to attract a buyer and relieve Liverpool of the aberration in the clubÃ¢ÂÂs history which the Hicks and Gillett takeover represents, although the pair were insisting on a profit for selling. Hodgson immediately worked the phones to Gerrard, Torres and Mascherano, whose deliberations Ã¢ÂÂ and in the latter's case, defection to Barcelona Ã¢ÂÂ reinforced the fall in fortunes which LiverpoolÃ¢ÂÂs status has taken.
Thompson hopes Liverpool can move on, finance the stadium, compete again Ã¢ÂÂ and, as importantly, reclaim the pride of the club. Ã¢ÂÂThe debt we have been saddled with makes my heart bleed,Ã¢ÂÂ he says passionately. Ã¢ÂÂWeÃ¢ÂÂre Liverpool, a special club with worldwide support, but the owners failed to realise the importance of what they had.
"WeÃ¢ÂÂre not a brand; the Liverpool supporters still believe in the football club. There is a closeness, a dignity about the fans and the club, which the owners didnÃ¢ÂÂt get. Now we have to pull together, support Hodgson and work to get the club to where it should be.Ã¢ÂÂStung by debt and decline and cringing at their own welcome for the initial warm words of Hicks and Gillett, fans have formed protest groups like Spirit of Shankly to oppose the owners and emphasise the clubÃ¢ÂÂs core values.
Share Liverpool's Taylor says they wonÃ¢ÂÂt be stung again: Ã¢ÂÂHicks and Gillett were welcomed with open arms, but the three years since have been a gradual realisation of how bad a state the club is in. Now, from any new owners, we will need to see action, not words. Liverpool fans, through all this, have lost their virginity.Ã¢ÂÂ
Still, Liverpool were not Leeds, but only due to the patience of banks. Hicks and Gillett can claim justifiably they funded the club Ã¢ÂÂ with loans Ã¢ÂÂ to keep trying to compete. But they also loaded Liverpool with the borrowings they made to buy the club in the first place, a piece of financial chicanery which would indeed, surely, have greatly offended the spirit of Shankly.
From the September 2010 issue of FourFourTwo. Subscribe here