A Points Deduction For Liverpool: Theoretically Possible, But Almost Certainly No

By on Oct 8, 2010 in English League Football, Finance, Latest | 6 comments

The lead story on the BBC Football website this afternoon may have given Liverpool supporters (who, it has to be said, are now getting close enough to feelings of perpetual panic to be able to warrant the soubriquet “long-suffering”) further palpitations. After the confirmation that a sale of the the club to John W Henry’s New England Sports Ventures had been agreed, the BBC is now reporting that the ongoing legal wrangles that have inevitably followed the confirmation of the sale agreement may yet force the club into administration and that this may mean that the club incurs a nine point deduction. Nothing in this analysis of what could happen is untrue, however the key word here is “may”, and if the situation that could theoretically push the club into administration does come to pass, all eyes will fall upon the Premier League, because there are no guarantees that such a situation would automatically mean that the club would be docked points.

If the sale of Liverpool Football Club is not completed by the 15th of October, it has been widely accepted that the Royal Bank of Scotland will step in to take over the running of the club. Their intention is force the sale of the club come hell or high water. One of the key questions that remains definitively unanswered, however, is whether this constitutes the club being required to be placed into administration in the first place. Entering into administration is a manouevre that can be performed by one of the club’s creditors or by the club itself, and can be defined as notifying the Insolvency Service that the club is “insolvent” (by which we mean unable to meet its day-to-day financial obligations) and appointing a licenced insolvency practitioner to attempt to rescue it, by agreeing a CVA with creditors, selling the club or selling its assets and liquidating the company. The insolvency practitioner shouldn’t be influenced by any argument other than whether creditors are to be paid and whether the company can be maintained as a going concern.

So, Liverpool entering into administration (in a legal sense) is not something that automatically comes to pass if RBS takes over the running of the club. At Portsmouth last season, for example, the club didn’t enter into administration as soon as Balram Chainrai took over its running. It entered administration when Andrew Andronikou took over the running of it. If, however, the above process is followed. what may matter will be which company is put into administration. Liverpool’s ownership structure is a predictably complex series of holding companies, but it is Kop Football that is the holding company that owns Liverpool FC. If the holding company is placed into administration, the Premier League will have to decide whether Liverpool Football Club is, as a wholly-owned subsiduary of Kop Football, also insolvent as a result of this decision. They will then have to decide how they wish to act upon this, if at all. The glare of the public eye would be upon them and it would be widely expected that no “favours” would be granted because the club in question is one of its “bigger” ones. Would they have the nerve to see such a scenario through?

There are two opposing views, each relating to events involving specific clubs in recent years, which offer conflicting views of what would happen next. When West Ham United’s holding company entered into administration in November 2008, the club were not penalised by the Premier League because they were not the only business interest that the holding company. On the other hand, however, when Southampton’s former owners attempted to side-step a points deduction by putting the club’s holding company, Southampton Leisure Holdings, into administration, the Football League concluded that the two companies were “inextricably linked as one economic entity” and deducted the points from Southampton anyway. Taking a broader view of proceedings, however, the Premier League seems likely to favour to take a “lighter touch” view on financial problems than the Football League would (it is difficult to imagine, for example, the Premier League handing out the sort of punative points deductions that have come the way of the likes of Luton Town and Rotherham United), so quite what decision would be reached in such a circumstance is anybody’s guess.

In spite of the BBC’s headline, it seems highly unlikely that such a scenario would come to pass. The only interest of RBS is to recoup the money that it has borrowed, and a points deduction would make Liverpool Football Club less valuable than it currently is. We can only speculate as to what, specifically, the terms of the proposed to sale of Liverpool to NESV are, but it seems improbable that they take into account the possibility of the club being deducted nine Premier League points this season. Even without being able to precisely quantify what the “value” of those nine points would be (and bearing in mind that each place in the Premier League is worth £800,000 – the difference between finishing, say, eighth and fifteenth is £5.6m), it would be madness for RBS to step in and take action that would be likely to significantly devalue the very asset that they wish to sell, which a points deduction would certainly do.

The truth of the matter, however, is that Liverpool are sailing close to the wind – at least, far closer than most would have imagined that they could or would have done just a few months ago. There are plenty of villains and potential villains involved in this story, but the ultimate responsibility for this car crash lies with the Premier League and the Football Association. The Glazer leveraged buy-out of Manchester United took place in 2005, and the Gillett & Hicks take-over of Liverpool took place almost two years later. Even now, leveraged buy-outs are not banned under the financial rules of football even though they could be. Ultimately, it is the laissez-faire financial regulation of the game in this country that is responsible for what has been done to both Liverpool and Manchester United more than any individual (or group of individuals) could ever be, and this still doesn’t seem likely to be changed in the near future. As such, supporters of any club could be the next to fall victim to what has befallen Liverpool.

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    6 Comments

  1. Ian,
    I might be wrong, but i thought the club cant be sold whilst these boardroom legal wranglings are going on though. Unless the club goes into administration, in which case they effectively go away. Those wranglings are going to go well over the deadline, so RBS effectively have to either extend the deadline – and with them being accountable to the taxpayer this is in the public eye on all angles they may feel thats a step to far, or most likely in my mind is an extension happens, but isnt long enough (too long an extension and the sale may fall through) and administration then becomes inevitable.

    Stu

    October 8, 2010

  2. “Liverpool’s ownership structure is a predictably complex series of holding companies, but it is Kop Football that is the holding company that owns Liverpool FC. If the holding company is placed into administration, the Premier League will have to decide whether Liverpool Football Club is, as a wholly-owned subsiduary of Kop Football, also insolvent as a result of this decision. ”

    Rule 67 of the Premier League (sporting sanctions relating to administration) is clear, I would have thought:

    “Upon a Club or its Parent Undertaking suffering an Event of Insolvency the Board shall have the power to impose upon the Club a deduction of 9 points”

    Where Kop Holdings are the Parent Undertaking company.

    In West Ham’s case, (not withstanding that football insolvency rules have changed in the last two seasons) they escaped a deduction, because while the club’s holding company went into administration, it was wholly down to one of the other companies under the holding companies umbrella (the Straumur investment bank), and the Premier League rules only allow for an appeal if the club officials “could not reasonably have expected to have control”, which in West Ham’s case was clearcut before the decision needed making. In Liverpool’s case, it’s just as clear cut, because the repossession (because let’s be honest, that’s what it is) is soley down to the loan used to buy the club being loaded back onto the club.

    However, one angle no-one’s looked at, is that would RBS (publicly co-owned) be able to morally put Liverpool into administration, if the owe the Taxman (or indeed anyone other than Hicks and Gillett) anything?

    Rob

    October 8, 2010

  3. I’m sure the Premier League will do everything in its power to avoid punishing one of its favoured sons.

    Dermot O'Dreary

    October 8, 2010

  4. Dermot hit the nail on the head. In contrast to the Football League if Liverpool did go into Administration the first thing the Premier League would be thinking would be “How do we get out of deducting points?”

    Point deductions are, of course, only to be used on the peasantry not the aristocracy.

    Micky F

    October 9, 2010

  5. it seems to me that liverpool went into administration when the rbs appointed broughton to find a buyer for the club. can someone explain the difference?

    bern

    October 12, 2010

  6. Bern,

    Administration is a legal process which involves notifying the Insolvency Service.

    admin

    October 13, 2010

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