Saturday, 28 April 2012

The Americanisation of The Liverpool Way

Liverpool FC need to evolve in order to progress. Stating the obvious, for this to happen we need revenue. Without the Champions League or a new stadium, revenues are hard to come by, so new innovative streams of income need to be found. 

It is really important that, as we search for new revenue streams, we stay true to who we are. We must never deviate from the blueprint for success that Bill Shankly set out for the club, an ethos that can be summed up in three very simple statements:
  1. We play “pass and move” attacking football. Our fans always get value for money from the team. 
  2. The only important people are the fans. Everything the club does is for them. 
  3. We do our business behind closed doors. We do not wash our dirty laundry in public. 
These things together will bring success, and success will make the people happy. That, in a nutshell, is The Liverpool Way. 

To the credit of Fenway Sports Group, they have taken the time to understand these guiding principles and the critical importance of them. When asked last year about the Kenny Dalglish contract negotiations, Henry responded “What is going on in that regard is private. It is something called The Liverpool Way.” 

This brings us on to the recent announcement that Liverpool will be the subject of a fly on the wall documentary by Fox. The documentary will give viewers a close look into the inner workings of our club. What will this mean for the blueprint for success fed down to us from Shankly? 

Firstly, we will get to see the pass and move philosophy being bred into players at all levels of the club. The documentary will offer us a unique insight into how we are applying our traditions and ethos to the modern day game. It could offer fans who have doubts about the direction Dalglish is taking the club some reassurance that we are on the right track. Do we really need a documentary to show us this though? Surely the judgement on whether or not we are playing the right brand of football comes from our performances on the pitch.

Secondly, it is opening the gates of Anfield and Melwood to the fans. If the fans are the most important people, why shouldn’t they be allowed to see what goes on inside the club at every level? Fenway Sports Group must have great confidence that the cameras will capture the club in a way that enhances our image around the world and increases our global fan base. We are the only English club to grant our fans this much access. That’s got to be a good thing, right? Well, not necessarily. In opening the doors to our fans, we are also opening it to our fiercest rivals. 

The third element is the most concerning one. By its very nature, a fly on the wall documentary has to be dramatic. Every drama must have highs and lows, and it is how the low points are edited that will be most important.

Having watched the HBO 247 series, there are two key elements that make this type of documentary a success. The first thing they do really well is offer an intimate portrait of the players and staff. Cameras follow them into their homes to give a truly unique insight into their personal lives. They show “hotel hang time” and the banter between the players. Anybody who has seen LFC TV’s Melwood Soccer Skills show will see that we probably have nothing to worry about on this front. The banter is healthy at Melwood. Our team spirit is strong. 

The second element of the show is all about the cameras getting up close and personal with the team during the highs and the lows. In HBO's 247: The Road To The Winter Classic series it is the locker room rant by New York Ranger’s coach John Tortorella that is arguably the best part of the whole series. It is this sort of drama that the producers will be looking for from Liverpool FC. Is that really something we want the world to see?

The recent disclosures by the club, that Fox will not film during the FA Cup Final and that the club has full editorial control, are reassuring for fans but may well cause Fox an issue. If they let Kenny Dalglish loose in the cutting room they may have a very short series indeed. 

It seems inevitable that there will have to be some drama. Without some fireworks, it will be a ratings flop and that defeats the object. They will find it incredibly difficult to get the balance right. How can they paint an intimate portrait of the club without showing us washing our dirty laundry in public?

We now must wait to see how Fox's editors, guided by FSG, portray one of English sport's greatest institutions. If this series is done well, it will market the club in America in a positive fashion. If it is done badly, it will make us a laughing stock.

Sunday, 22 April 2012

The Changing Shape of LFC's Revenue Model

The 2012 Deloittes Money League was recently published, and there were some interesting numbers for Liverpool fans.

We continued to slide down the Money League table, falling behind Inter Milan into 9th place (our 2009 high point was 7th).

Here is Deloittes 5 year view of our total revenues:

What is really interesting is how the revenue model is changing. Here is how things look in a snap shot:

As you can see, we have lost significant revenues from TV and Match Day due to the lack of Champions League football. However, we have made up some of these losses due to the strong sponsorship deal signed with Standard Chartered. 

When we participated in The Champions League, "Broadcasting" accounted for 43% of our total revenue. Last year, it dropped to 36%. Before we signed the deal with Standard Chartered, "Commercial" made up just 34% of out total revenue. It now represents 42%. 

What these numbers show is just how good a job Ian Ayre did as Commercial Director, bringing in the revenue to enable us to compete in the transfer market with clubs enjoying the financial benefits of Champions League football. The numbers also show us just how crucial it is that we get back into that competition for the 2013/14 season.

Next year's accounts will show a further shift towards "Commercial" as the key driver of revenue. "Broadcasting" and "Match Day" revenues will fall further due to non-participation in the Europa League whilst our commercial revenue will grow thanks to the new kit deal with Warrior. It is looking highly likely that "Commercial" will soon account for 50% of our total club revenue.

There are only two ways we can buck this trend: 1) Get a new stadium 2) Get back into the Champions League. The big risk is that the longer we go without both of these revenue drivers the harder it will be for us to strike such lucrative sponsorship deals.

The 2012/13 season will be a crucial one for Liverpool's future, both on and off the pitch.

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Monday, 9 April 2012

Selling Dirk is Moneyball Gone Mad

Reports in the news recently suggest that Dirk Kuyt could be on his way out of Anfield for as little as £1m. The story has been reported in numerous newspapers and interestingly by Dominic King, who is a respected Liverpool reporter with good contacts at the club. It would therefore appear that this is more than just ‘paper talk’.

The thinking behind the move is that Kuyt’s wages of £70k are excessive and, given his age, such money could be used more efficiently by bringing in a younger player on a lower wage. Kuyt also has just one year left on his contract, hence the low fee. It is classic FSG style ‘Moneyball’.

However, it is in cases like this that the Moneyball model is fundamentally flawed. There is no way we could replace what Dirk Kuyt offers Liverpool for £1m, and £70k per week is below the going rate for a top class midfielder.

The fact that Kuyt is one of the more mature members of our squad is actually a benefit. We are short of players who are proven to excel at the very highest level, something Dirk Kuyt has done throughout his career. Having him around for another year makes perfect sense as Liverpool’s transition continues. Selling him for £1m makes no sense at all.

This is a player who has scored in the quarter finals, semi finals and final of the Champions League. This is a player who started every game of the 2010 World Cup for Holland, who was instrumental in their march to the final. This is the man who came off the bench in the 100th minute of the Carling Cup final to score a goal, clear an effort off the line and then score again in the penalty shoot out. Without him, the Carling Cup could well be sitting in Cardiff now.

When the going gets tough, Dirk Kuyt gets going. He sweats blood for the cause every time he puts the shirt on. He is a vital cog in our chain and the squad will be weaker next season without him. His agent has confirmed he wants to stay, so let him.

If we are looking to replenish our squad, we should start with some of our newer flops, not a tried, tested and trusted legend.

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Tuesday, 3 April 2012

Closing The Gap: Why FSG Must Act Now

The gap between Liverpool and Manchester United can be measured in more than just league points. The total annual gap between the two clubs in terms of revenues generated now sits at a very concerning £148m per year. The chart below shows how this is broken down:

Source: Deloittes Football Money League 2010/11

Here are the same numbers broken down by the actual revenue gap between the two clubs for each sector:

A large part of the gap in TV revenue can be closed by Liverpool’s actions on the pitch. For example, £30m in TV revenue would be immediately generated through participation in the Champions League. This scenario would also mean a higher merit payment from The Premier League (c. £6m) and more lucrative gate receipts and commercial sponsorship opportunities (up to £4m).

The £26m commercial gap could be partially closed by selling naming rights for the existing Anfield stadium. Whilst this would not generate anywhere near the £400m paid by the Abu Dhabi government for the Etihad stadium, it is not inconceivable that it could bring in an additional £15m per season.

Here is how the revenue gap between Liverpool and Manchester United would look if we incorporate the £55m of increased income detailed above:

Clearly, even with success on the pitch there is still a very significant gap between the two clubs. The majority of this gap comes from the difference in match day revenue. Even with Champions League qualification, the match day revenue gap would stand at £66m per year. Here is a breakdown of this huge difference:

Source: Swiss Ramble

This revenue gap is a huge problem for Liverpool. From 2013/14, the FFP rules will put severe restrictions on a club’s ability to invest over and above its annual income. Even if Liverpool manage to qualify for the Champions League each year, the £93m revenue gap Manchester United will command will mean that they can invest far more heavily in squad improvements. The doomsday scenario for Liverpool is that United’s superiority off the field will inevitably be matched with more success on it, as the quality of both squads drifts further apart.

United’s Achilles Heel

There is another aspect to the FFP rules which does not sit as comfortably in United’s favour: that of club debt. The following chart shows the sheer scale of United’s debt and the financial burden it puts on them each season. Here is a breakdown of their actual profit performance last year:

Source: Swiss Ramble

Any operating profits United make are massively reduced by their need to service the £540m acquisition debt. In 2011 alone, the interest payable was a whopping £43.5m. The net effect of this in terms of FFP is that United will have a break even spend allowance of £45m per year. However, given that the last Liverpool FC accounts available show a £2.3m loss before interest, and the general consensus that FSG will not spend more than they earn, this total is highly likely to be considerably more than Liverpool’s available spend. That is, of course, unless Liverpool’s revenue streams are significantly increased.

Put simply, in order to operate on a par with United off the pitch, Liverpool must get back into the Champions League and get the right financial model in place for a new stadium.

Given how fundamental a new stadium is to Liverpool’s finances, why is there not already a spade in the ground?

The answer to this question comes through the key words ‘right financial model’. FSG are reportedly looking to generate £150m of the estimated £300m cost through up front sponsorship deals. Should they pull this off, the cost to service the additional £150m would be somewhere in the region of £10m per year. This cost would be offset by an additional £1.2m per game in match day revenue (Based on £47 per head) which would bring in close to £35m per year.

There are lots of risks attached to this financial model. If FSG are unable to secure the funding up front, the debt servicing costs could double. Another risk factor comes from the possibility that Liverpool will fail to fill the stadium or attract corporate guests, leading to the revenue per head being significantly reduced. This is a very real possibility, given that the Isla Gladstone corporate facility was only half full during the last days of the Hodgson era. Yet another risk is that there could be short term cash flow issues affecting Liverpool’s ability to compete in the transfer market and therefore the league. 

However, taking everything into account, there is absolutely no alternative for FSG: They must find that right financial model for a new stadium, and find it now.
The consequences of building works not starting in the immediate future are almost too much to bear.

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Note: The main source for the Premier League finances in this article is the exceptional

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