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Debt and the Premiership

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Liverpool in trouble


Liverpool's parent company owned by Tom Hicks and George Gillett suffered a £42.6m loss last year - mainly due to interest payments on the debts the Americans took on to buy the club.


In the annual accounts released tonight, Liverpool's accountants have also warned that remaining uncertainty over refinancing the £350m debt before the July 24 deadline ''may cast significant doubt on the group's and parent company's ability to continue as a going concern''.


Although Hicks and Gillett say they are confident of securing a refinancing deal, the figures reveal that the financial success of the football club is being swallowed up by the cost of servicing the parent company's loans.


The accounts for the year ending July 2008 showed Liverpool made a £10.2m profit but the parent company Kop Football (Holdings) Ltd made a substantial loss of £42.6m, mainly due to interest payments totalling £36.5m.


The clubs accountants KPMG LLP also expressed a warning in their notes in the filed accounts.


The accountants said: ''The group has credit facilities amounting to £350m which expire on 24 July 2009. The directors have initiated negotiations to secure the replacement finance required by the group and these negotiations are ongoing.


''These conditions.. indicate the existence of a material uncertainty which may cast significant doubt on the group's and parent company's ability to continue as a going concern.''


The club's turnover was a record £159.1m compared to £133.9m the year before, with a profit of £10.2m.


That was reflected by a similar turnover for Kop Football (Holdings) of £164m - most coming from the football club - but the overall loss of £42.6m.


Hicks and Gillett have been scouring the globe to find investors keen on putting money into the club but so far without success.


It is not Hicks' only problem - he has said he is prepared to sell a majority shareholding in his Texas Rangers baseball team after the Hicks Sports Group in April defaulted on £325m (525m US dollars) in loans relating to that team and his Dallas Stars ice hockey side.


Sean Hamil, a lecturer at the University of London's Birkbeck Sport Business Centre, told Bloomberg: ''Any company, never mind a sports company, which is not able to cover interest from operating activities has three options: refinance, get new equity investors, or sell it to somebody else who's prepared to absorb the debt and start from scratch.''


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Man Utd's debt


United published accounts for the 2007-08 season for three companies incorporated in the UK; Manchester United Football Ltd, effectively the football club; their immediate parent, Red Football Ltd, the vehicle set up by the Glazers to hold their interest in the club; and Red Football Joint Ventures Ltd, the ultimate UK-based parent.


In a move that suggests a degree of disdain for supporters who have taken a keen interest in the club's finances since the Glazers took control in 2005, United and the family chose not to comment on results that showed debt with the ultimate parent company had spiralled to £699 million. Instead they were left to draw their own conclusions from a trawl through the occasionally Byzantine structure of England's dominant club.


On the surface things look rosy enough. United remain the most effective money-maker in the world's richest league, generating record turnover of £256 million in 2007-08, a wonderful season on the pitch that ended with retention of the Premier League title and victory in the Champions League final.


Those titles generated a 50 per cent increase in media revenues to £90.4 million, augmented by £101 million in match-day revenue from Old Trafford, up around 10 per cent on 2007, and commercial income rose by 14 per cent to £64 million. Taken together this generated an operating profit in the football club accounts of £66 million.


Look deeper however and the picture that emerges confirms the trends established during the Glazers' relatively short tenure. United remain the pre-eminent money-maker in English football, but profits at the football club level are wiped out by the need to service rising levels of debt.


While the football club showed an operating profit,Red Football Ltd recorded a loss of £21.4 million, and Red Football Joint Ventures Ltd a loss of £44.8 million, in large part to interest costs during the year of £68.8 million.


When the Glazers bought the club for £828 million in 2005 they borrowed £556 million to help them do it, securing about 70 per cent of that against the club. As of June last year, according to these accounts, that debt stood at £699 million.


The principle reason for the spiralling level of debt it increased by £33 million compared to 2006-07 is the structure of the loans. The majority of the debt, £518 million, is bank debt secured against the club and their assets, including Old Trafford and the Carrington training ground.


A further £175 million is in "payment in kind" loans, effectively a form of equity, accruing interest at a penal 14.25 per cent annually. That interest is not paid off but rolled over annually, swelling the PIK loans by £23 million in the last year.


Club sources argue that as this debt is effectively secured against the Glazers' assets, rather than the club, there is no need for concern. They also point out that the losses are swollen by the accounting device of writing off "goodwill", effectively the amount by which the Glazers overpaid to buy the club, which amounted to £35 million in the last year.


What will worry supporters and, those in the Government and the Football Association concerned by United's reliance on such a heavily-leverage business model, is that even the bank debt is increasing, by £8 million. Interest is being serviced, but debt is not being reduced.


In theory none of this will matter if United continue to perform on the pitch and commercially, and if the banks retain their appetite for carrying the club's debt as the impact of the credit crunch, which largely post-dates these accounts, plays out.


The questions concerning supporters last night were what happens if the pre-eminence of recent seasons is threatened. Will the recession impact on the club's ability to sell out Old Trafford and more importantly the 10,000 executive seats that contribute close to half the revenue? Will a significant bid for Cristiano Ronaldo prove irresistible?


And will chief executive David Gill, paid £1.7 million last year for guiding the club between the demands of their Scottish manager and American owners, secure a replacement for shirt sponsor AIG willing to match the £19 million the American insurer presently pays?


The answers will become clear in time, but last night fans were left to reflect on confirmation of the Glazers' legacy to United; a burden of debt that leaves even the most commercially astute and successful of clubs running to keep up.


Man Utd are lucky that Aon have agreed to pay them £20m/season.

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Guest neesy111

what the glaziers and the two at liverpool have simply done, is to get a loan to buy the club (which they can via their other assets) and then pay the loan off from the club's income

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The problem is that neither of them are actually paying the debt off. The principal for Man Utd's debt is due in a few years and they don't have the money to pay for it. Liverpool need to refinance their debt right away and they're struggling to do it.

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Guest gggg

With the money they've spent paying off these two cowboys debt they could have built a new stadium.

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So we'll hang out in the championship for a year or two, jettison fat wages and come back just in time for half of the teams to be deducted administration points.

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Posted this in the Shearer thread but probably should have been here !


In amongst all the discussion about our financial position and needing bank facility agreements before decisions can be made etc etc here is more evidence of the imperious nature of banks relationships with football clubs today.

In this case a club who, on the surface have everything we could wish for in terms of playing success and yet even for them it looks like trouble could be looming.

What hope for a return to the days when football clubs were just that - clubs - and not billionaires toys or parts of  of multi-national corporation's portfolios.



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