Liverpool, Manchester United & Premier League Debt

By on Jun 7, 2009 in English League Football, Latest | 4 comments

How bad, then, is the situation at Liverpool? KPMG’s report on their current financial position makes for worrying reading for the club’s supporters, though there is a case for saying that there are elements of the media coverage of the report which are focusing on the most sensationalist aspects of the report, but none of this means that the comments that “significant doubt on the group’s and parent company’s ability to continue as a going concern” weren’t made, or that there weren’t sound reasons for them being made.

By January of this year, the club had spent almost all (£313m) of the £350m loan that they had taken out to fund the take-over of the club and subsequent further running costs. Gillett and Hicks had been working to the assumption that they would get the financing to move the club from Anfield and into a new stadium, but over two years on they seem less likely than ever to be leaving for pastures new. The truth is largely as the media has reported. Gillett and Hicks have “pulled a Glazer” and loaded the club that they now own with a massive (and in many senses unnecessary) debt.

Manchester United supporters reading this may be tempted to chortle, but they should probably think again. Manchester United’s total debt is now £700m, and the sum total amount that they have got for this debt is, well, new ownership. Nothing else. As things stand, United remain solvent. They have covered the bare minimum of the interest payments required, but the debt has increased since they took it on. Success on the pitch has made things a little easier for them, but it costs more than ever to be a Manchester United supporter and success is not guaranteed in perpetuity.

On top of this, Manchester United secured a new shirt sponsorship deal with a company called Aon. Aon are very proud of this, and recently confirmed it on their website with a vomit-inducing press release to that effect. The press release says much about how sponsors view relations with clubs and supporters. Mention of the word “passion”? Check. Unverifiable claims about amount of support and “unrivalled passion”, which will come as news to anybody that has visited Old Trafford and sampled the atmosphere – or lack thereof – over the last couple of years or so? Check.

The absurdity of the situations at Old Trafford and Anfield is that these are the clubs that, to the extent that such a thing is possible, it should be more or less impossible to lose money. These are amongst the most successful clubs on the richest continent in world football, playing in the richest club competitions that the game has ever seen and being comparatively successful. Taking Manchester United and Liverpool and straddling the two of them with over £1bn of debt is such an extraordinary achievement that it almost merits a polite round of applause.

One wonders what Manchester United and Liverpool might be capable of if they had an extra £1bn to spend on players, wages and facilities. Liverpool might already be on their way to their new stadium, and Manchester United’s domination of the English game might be even more complete than it already is. They’re not the only clubs in this sort of predicament. Arsenal owe more than £400m after they failed to sell all of the flats at the Highury stadium, meaning that they had to extend a bank loan taken out to cover the cost of building The Emirates Stadium. Chelsea, meanwhile, remain £701m in debt to Roman Abramovich. This money is not incurring any interest, but stories about how any of these loans will ever be repaid are, perhaps unsurprisingly, in short supply.

This is the key question here. Manchester United owe almost three times their annual turnover. Rumour has it that Liverpool lost out on Gareth Barry because Manchester City could pay Aston Villa £12m up front, whereas Liverpool could only pay in instalments. City, meanwhile, may be storing up figures of this size of their own in a few years’ time. Leaving aside all moral arguments about taking on debts of this size – of which there are many – and any concerns about the immediate liquidity of Premier League football clubs, it remains the question that no-one dares to ask: in anything like the medium to long term, how exactly is this money ever going to be repaid?

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    4 Comments

  1. The probable answer is ‘NEVER’. And what this is all stroring up long term is a Day Of Reckoning on a scale never thought possible. Just like the country now in fact. The big boys all think they’re immune for ever from that. But meanwhile the time bomb ticks away. As this site has pointed out of late, after Burnley’s promotion the number of original members of the league now in the premiership is up to seven. If one discounts Accrington – the day might not be too far off when they’ll all be back there and the ‘arrivistes’ may have been well and truly zapped. Wouldn’t that be brilliant?!

    Paul Blackwell

    June 7, 2009

  2. Yes, the answer is “never”. But that’s modern finances. Whereas old fashioned people like me think that both in terms of personal finance and in business, you should live within your means. Unfortunately, those who make the money make debt work for them. Banks don’t really want the debt repaid, because continued interest payments in perpetuity will earn them more. The danger is, as Paul Blackwell just alluded to, the economic time-bomb that we think won’t hit Man United and Liverpool, but which we didn’t think would hit Enron either, or indeed much of the Western economy. You’d imagine that if Liverpool and United were ever in serious trouble, the figures of the type that have been circling around Chelsea, Man City and Portsmouth in recent years would be in there like a shot to take over. But it’s still unsatisfactory, it still means debt to an individual or consortium, which, when you bear in mind that pre-Glazer United weren’t in any debt at all, would be very frustrating.

    Gervillian Swike

    June 7, 2009

  3. Manchester United would be in for the likes of Kaka and Benzema if it wasnt for the takeover. Thats not to say that the players would come but Manchester United have always been an attractive prospect for players despite the weather.

    Something has to come crashing down soon, but United should be OK purely down to the sheer size of the brand and fan base.

    United Ticket Agency

    June 9, 2009

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