18 November 2019

Must Read! Nike, Anfield and the next level of Liverpool's financial transformation under FSG


Dean Rudge looks back at the last decade off the field at Liverpool and the remarkable transformation under FSG


Liverpool are about to enter the new decade as the first side to bank roughly £250million from TV money - their reward for winning the Champions League and amassing 97 points in the Premier League - but they began it on the cusp of going out of business.

As the chimes of Auld Lang Syne faded away on Merseyside, Liverpool must have felt in the grip of a permanent hangover. Back-to-back scrappy wins over Midlands duo Wolverhampton Wanderers and Aston Villa underlined the dysfunction within the side as 2009 came to an end, although much deeper problems ran off the pitch.

A lack of funds to strengthen the squad - both Xabi Alonso and Alvaro Arbeloa had departed over the summer, replaced by Alberto Aquilani and Glen Johnson - caused open tension between manager Rafael Benítez and the club’s American ownership, Tom Hicks and George Gillett. Financial issues at Anfield amounted to far more than adequately replacing the club’s defensive midfielder, though.

Liverpool were drowning in debt that they could not pay back, a legacy of the method by which Hicks and Gillett had taken control of the club in 2007. Loans owed to the Royal Bank of Scotland, to the tune of around £240million, were due in January 2010, but the club failed to deliver. An impossible reality, whereby a bank would own one of England’s greatest football clubs, lingered.

A pair of extensions granted by RBS in order to facilitate a sale, first to March and then to Liverpool’s date with destiny, the 15th of October, gave Liverpool breathing space. Funny to think, now, given Liverpool’s roaring success in the second half of the decade that the club began it being a bank’s biggest creditor.

At the end of that season, Liverpool’s books showed revenues of £185million, almost £65million higher than they were five years earlier following the Miracle of Istanbul. Alarmingly, however, the club posted losses of £20million, driven almost entirely by the £18million interest payable on the club’s debt load and the £8million paid for sacking Benitez and his coaching staff at the end of the season.


This was the fourth time in five seasons that Liverpool had found themselves in the red, despite being a mainstay in the Champions League and winning silverware during a successful period for the club.

There were several reasons: As Liverpool’s revenues climbed, so did their cost base, worsened by the interest on the debt load and millions paid out to former management. The Reds’ wage bill almost doubled between 2005 and 2010 - from £64million to  £114million - outpacing the growth in income as Liverpool paid top dollar to hang onto their best and brightest.

The result at the end of a largely forgettable season was a seventh-placed finish - the club’s worse since 1999 - and the looming uncertainty of Liverpool’s ownership. Now all these costs would eat into revenues that would not be topped up by Champions League money going into 2010/11.

As the frenzy deepened that summer, rumours emerged that the club’s best players, Steven Gerrard and Fernando Torres, may be sold in order to bank the cash needed to meet some of the debt obligations.


The Royal Bank of Scotland, for its part, was actively striving not to push Liverpool into administration and land the club with a possible nine-point deduction by calling in its debt.

After Martin Broughton was brought in by RBS in April to help bring about a sale, a buyer was found at the beginning of the new season, though Hicks and Gillett did go down easily; in addition to debts being paid, they demanded their additional investments, estimated at around £140million, returned and a nice profit on top. All told, the two men were looking for roughly £600million.

History had other ideas. A court in London ruled against Hicks and Gillett and ordered that Liverpool’s directors could agree a £300million takeover that would expunge Liverpool’s debts and set them back on the path to prosperity. John Henry and his New England Sports Ventures - soon to be known as Fenway Sports Group - were now at the helm.

THE MONEYBALL YEARS

The midway point of the decade began for Liverpool with news that Steven Gerrard would be departing Anfield after 17 years and nearly 700 games, just a day after the club captain scored two penalties in a 2-2 draw with newly-promoted Leicester.

Having engineered a title fight the previous season on the back of Luis Suarez’ individual brilliance and the attacking qualities of Daniel Sturridge, Raheem Sterling and Philippe Coutinho, Liverpool were struggling, not helped, of course, by the loss of both Suarez (to Barcelona) and Sturridge (to injury).

The Reds began the new year in eighth-place with seven defeats already on the board and progress in the Champions League - Liverpool’s first appearance in the competition since 2009/10, oddly enough - limited to a Group Stage showing.

John Henry, entering his fifth year at the top of the Liverpool tree, threw his support behind manager Brendan Rodgers, who had taken his place in the dugout back in 2012 as a replacement for club legend Kenny Dalglish. The American acknowledged that with the loss of Suarez and Sturridge, teething problems were expected.

Rodgers, however, would not see out the calendar year at Anfield.

For Liverpool, the season would end with the disappointment of yet another season outside of the Champions League places and a failure to replicate the domestic cup run of three years earlier. Nevertheless, it seemed, Liverpool’s financial results were back on track.


Revenues were now within a whisker of £300million, more than £110million higher than they were five years ago, thanks to the club’s return to Champions League and a climb in match day earnings.

Meanwhile, commercial income had almost doubled from £62million in 2009/10 to £116million, as the club reaped the rewards of its more lucrative partnerships with Standard Chartered (who had replaced long-serving partner Carlsberg in 2010) and Warrior Sports (entering the third years of its arrangement after Liverpool failed to agree suitable terms with Adidas).

The Warrior Sports deal in particular was a feather in the cap for Liverpool’s ownership, with the Boston-based brand, a subsidiary of New Balance, already a sponsor of another of Henry’s sports teams, the Boston Red Sox. As Liverpool’s brand grew during these years, the club saw a surge in merchandise demand and opened a glut of new retail outlets across the world.

But far more importantly, Liverpool’s accounts at the end of the season showed a first profit since 2007/08, not counting the meagre £1million posted the season before. This was somewhat bittersweet for Liverpool, as it was largely down to the sale of their talisman, Luis Suarez, for a reported £73million.

In Henry’s first three seasons as Liverpool owner - counting 2010/11 - the club reported losses of £140million, adding to the more than £50million of losses accrued since Gerrard had lifted the Champions League trophy in Istanbul back in 2005.

The early departures of managers and coaching staff throughout these years meant the club was consistently paying out termination fees in the millions at the end of the season. Meanwhile back in 2010/11 the club wrote off £50million at stroke, after scrapping plans for a new stadium in favour of undertaking further expansion work at Liverpool’s existing ground.

Another of the reasons for these losses was that Henry continued to oversee investment in the squad, one badly in need of quality after that disappointing season in 2009/10, even as he sought to balance the books and return Liverpool to an even keel.


The zenith of Henry’s investment during this period came back in 2012/13, when new manager Rodgers oversaw a net spend of roughly £50million on the likes of Joe Allen, Daniel Sturridge, Fabio Borini and Philippe Coutinho after a disappointing eight-placed finish the season before. This represented, for Henry, a fair investment for a side without Champions League income to bolster their earnings.

On the back of the Suarez sale and a return to the Champions League, Rodgers again spent big, as the squad was completely revamped with the likes of Adam Lallana, Dejan Lovren, Lazar Markovic, Mario Balotelli, Alberto Moreno, Divock Origi, Emre Can and Rickie Lambert joining the club.

This had the effect of cranking up Liverpool’s wage bill to £166million by the end of the season, more than £50million higher than five years ago. Hindsight vision is 20/20 when it comes to player recruitment but it’s clear Liverpool had left behind the sparse years that marked the end of Rafa’s tenure at the club five years earlier.

Henry’s strategy during these years was dubbed by some as Moneyball, after the tactic he had admired in action by the MLB side Oakland Athletics at the beginning of the 21st century. In short, Liverpool would try to operate on budget while signing the best players to give them statistically the best chance of winning.

As an example, with the height of power of Andy Carroll to play into back in 2011, Moneyball decreed that the best and most accurate crosser should be bought to give Liverpool the best chance of winning. Hence why Stewart Downing and Charlie Adam were scouted and bought in, and so on.
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Liverpool know Firmino's true worth

The problem with this theory for Liverpool is that Premier League transfers inflated exponentially year-on-year, and the larger and richer a side is, the harder it is to avoid paying top dollar for a player’s signature. So, Liverpool’s net spend during these years remained material, even if it was not in the league of their Premier League rivals.

At the same time, Liverpool were somewhat poor sellers during these years, actually making losses on player transfers for three straight seasons. Chief among these was the failure to recoup any serious money for the permanent transfer of Carroll, a £35million signing only three months into the John Henry era, to West Ham in June 2013.

Liverpool’s expenses on transfers and salaries were small change to the likes of Manchester City and Chelsea, of course, but then Henry’s strategy had never been to replicate those business models.

There was also the small matter of Financial Fair Play rules, newly introduced in the first half of the decade, barring clubs from reaching too far beyond their limits. Manchester City - who had posted losses nearing £200million at the start of the decade - were slapped with UEFA sanctions at the end of 2013/14, a warning to clubs of the dangers of overspending.

So, with the 2015/16 season and the second half of the decade fast approaching, Liverpool were in something of a quandary. Their club captain and icon Steven Gerrard was leaving, Raheem Sterling was actively forcing a move and the club would have to settle for a place in the Europa League once again, meaning investment would continue to be limited in the face of their free-spending rivals.

Another summer of recruitment - notably, the addition of Roberto Firmino - followed, but after another poor start to the season Rodgers’ time was up. Handing Rodgers the sack after the Merseyside Derby just six weeks into the new season, the club reached out to a man who had months before walked away from a team he had successfully built back up to the biggest team in the league: an achievement, clearly, Liverpool were desperate to emulate. His name was Jurgen Klopp.

EUROPE AND THE MONEY

As money on offer from Premier League and UEFA broadcasting has continued to rise and rise throughout the decade, few teams benefited as much as Liverpool, thanks to their successes under the management of Jurgen Klopp and his team.

A stop-start first season domestically was overshadowed by Liverpool’s first European final appearance in nine years, when they were outmatched by Unai Emery’s Sevilla after taking the lead through a sublime Daniel Sturridge goal.

But from here Liverpool have gone from strength-to-strength, building a world-class squad in the years that followed: 2016 Sadio Mane and Gini Wijnaldum; 2017 Mohamed Salah, Virgil van Dijk, Alex Oxlade-Chamberlain and Andy Robertson; 2018 Alisson Becker, Fabinho and Naby Keita.

The Moneyball tactic that had marked the first half of the decade fell to the wayside, with Liverpool smashing the world record for both a defender and a goalkeeper and investing huge sums to build a world-class spine. Yet bargains remained, especially with the signing of Robertson who has blossomed into one of the best in the world under Klopp’s tutelage.

With this team, Liverpool put together three top four finishes for the first time since 2008/09, amassing 97 points last time out, far and away the record for only a second-placed finish. Of far higher value, but a byproduct of consistent league success, the club enjoyed two Champions League finals, culminating in Jordan Henderson lifting the trophy earlier this year with victory over Tottenham in Madrid.


Liverpool were resilient in the transfer market in 2019, opting instead to spend nominal sums on young talent and a back-up keeper to the outstanding Alisson, with money in reserve if and when it is needed. Top of the table heading into the new decade, it’s proved a smart policy so far.

By 2017/18, the year Liverpool came within a Karius howler of possibly lifting the Champions League for the sixth time, the club’s turnover had spiked to £455million, which was some £270million higher than it was back when the decade began, aided by continued growth across all three revenue streams.

Alive to the knowledge that the club really benefit from an increased commercial standing, Liverpool continued to sign up partner after partner and expand their commercial empire in the last five years, leaving them with commercial revenues of slightly under £155million by the close of 2017/18.

Moving forward, Liverpool in May 2018 agreed to extend and increase terms with Standard Chartered until the close of 2022/23 and also brought in Western Union as the club’s first official sleeve partner, after the Premier League sanctioned such advertising, and AXA as official training kit partner. In addition, Liverpool have a portfolio of 20 other sponsors.

NIKE AND THE NEXT STEPS

But its the kit partner where Liverpool have really run out winners, having in recent weeks successfully overcome, via a court ruling, New Balance’s attempts to maintain the duo’s partnership. A deal with Nike to begin in 2020/21 looms, under which the American giant plans to use big names of the profile of Drake, LeBron James and Serena Williams to help the club’s brand soar even higher.

Meanwhile, Liverpool have also seen a bump in earnings through matchday activities, after the club in September 2016 successfully wrapped up expansion work on the Main Stand. This project involved adding a new third tier, new facilities and enhanced corporate spaces. The bottom line is that as a result, Anfield swelled in capacity by around 8,500 seats.

On the back of this success, with Liverpool now turning over more than £80million a season from matchday activities - almost double the figure back in 2009/10 - the club in August this year confirmed intentions to take the capacity at Anfield beyond 60,000 in the future. Money loaned directly by FSG helped fund stadium this expansion work, further evidence of FSG’s desire to see Liverpool grow.

Furthermore, Liverpool in the second half of the decade put to bed the club’s failure to derive fair value for their sales. Having, as mentioned, been forced to declare losses for three successive seasons, the club’s profit from transfer activities in the four seasons after added up to £260million.


Almost half of this figure came from the sale of Philippe Coutinho in January 2018, allowing the club to declare a then world-record pre-tax profit of £125million.

As chief operating officer Andy Hughes noted earlier this year, “What we have seen is a stable and sustained improvement in the club's financial position over recent years.

“This growth and increase in revenue has enabled us to significantly reinvest both in the playing squad and the football operational infrastructure.

“Financial results do fluctuate depending on player trading costs and timing of payments,” he acknowledged, “but what's clear in these latest results is the further strengthening of our underlying financial footing and profits being reinvested in the squad and infrastructure."

A Champions League winner and within a hair’s breadth of winning the Premier League, Liverpool could see revenues close in on £500million for 2018/19, which if achieved would see Liverpool join an exclusive club currently occupied by only Manchester United and Manchester City.

For almost the entire decade, FSG endured every high and low on the journey to this milestone. Ahead of the Champions League final in Madrid back in June, Tom Werner, Liverpool’s chairman and Henry’s partner, underlined FSG’s commitment.

“I hope people now know that we are focused on continuing the progress of this club,” he remarked. “We have no intention of selling. We have reached a position where I think the club is in the best shape it's been for a very long time. We have always said that our desire is to win silverware.”

Back in May 2012, Christian Purslow - who served as Liverpool’s managing director at the turn of the decade before departing in the days around Liverpool’s takeover - had remarked of FSG: ”One thing I will say about American owners is the idea that there is some emotional connection is obviously rubbish.

"It's an investment game, Liverpool is an investment,” he maintained.

Seven years, one Champions League, one of the best teams in the world and many millions later, few in Liverpool red would agree with that simplistic assessment.

FSG will no doubt one day see a return on their purchase. But this decade and the incredible progress on and off the pitch has shown their involvement at Anfield is worth much more than just dollars and cents to them. And they are not finished yet

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