Si Steers

Columnist

Liverpool FC: The bigger picture

Si Steers takes a look at what FSG are hoping to achieve long term at Liverpool FC.

A LOT of talk this season has been about the future. Urging patience and consideration of the bigger picture has become a consistent part of the Liverpool narrative over the past 12 months. So, what is the bigger picture, what exactly does it mean?

When John Henry acquired Liverpool Football Club in October 2010, there were two reasons why he might have been interested in purchasing the club. The romantic appeal; one that has perhaps become more relevant since he has immersed himself in the culture of the club and seen an opportunity to awaken a sleeping giant. But at the heart of his decision was business; because buying Liverpool F.C. represented a sound business investment, with a potentially high return.

That is how private equity works; and FSG are essentially a private equity firm dedicated to the sporting market. Confined to US sports until the acquisition of Liverpool, FSG took a calculated risk investing in Liverpool in an attempt to expand its (FSG’s) global portfolio.

There will have been a number of things that attracted Henry to Liverpool; the club’s history, heritage, and global following are the foundations of a high value brand, and all attractive to an investor. But the ultimate deciding reason for FSG to decide to acquire the club was the price; Liverpool was sold for an absolute steal. The acquisition debt and default of loan repayments meant that the club was sold in a distressed state.

This meant that FSG were in an incredibly strong bargaining position during negotiations. Liverpool was eventually sold to FSG for between £250-300m. The valuation of Hicks during negotiations was completely flawed as it was based very loosely on potential future revenue. Hick’s vision for the club was all about the stadium: he saw the added value that a new stadium would add to the bottom line; and the huge gap in the club’s commercial activities.

Liverpool has an incredible amount of potential. Our global fan base is difficult to quantify, but broadly speaking we are in the league of United, Madrid and Barcelona. Despite a worldwide following, we remain just above Schalke in the football ‘rich list’ with annual revenues of £203m (at last count): United pull in an additional £165m per year to put that into context.

Sponsorship

Of course, the recent deals with Standard Chartered and Warrior swell the coffers. Those two deals alone will make the club circa £45m+ per season. To put that into context, our previous shirt deal with Carlsberg was reported to be just over £7m a year, so the Standard Chartered deal at £20m a year is a huge increase.

Sponsorship deals are a key part of the FSG strategy, but they are only part of the solution. Generally speaking, the value of a business is calculated between 6-8 times EBITDA (earnings before interest, tax, depreciation and amortisation) minus debt. EBITDA is essentially bottom line profit. High value sponsorship deals that are tied into long contracts are an essential part of increasing EBITDA at LFC, subsequently increasing long term value.

Stadium

The holy grail for FSG is the stadium solution. Getting more bums on seats and increasing our match day revenue has got to be a primary objective. It will be one of the core reasons FSG invested in the club. It is the reason Hicks and Gillette invested in the club. Increasing the capacity by 20,000 potentially means an extra £1m+ per match day: depending on corporate boxes and pricing.

The key to the stadium solution will be cost. I have often thought that the redevelopment of Anfield is a non-starter: the reason being is that the stadium solution needs to be for the next 100 years. Infrastructure, facilities and capacity have to take precedence over romance. If we spend £200m redeveloping the existing Anfield for an additional 20,000 seats, it will be difficult to secure a naming rights partner to part-fund given heritage of the Anfield name, it will restrict options should capacity become a future issue, and it will not solve regeneration and infrastructure problems.

Building a new stadium solves all three of those issues. With the right naming partner we could potentially secure a £150m deal, giving the club a total £150-200m stadium debt.

Whilst that sounds scary, it is worth remembering that that would not be acquisition debt, and the club’s books are relatively debt-free at the moment. With the additional revenue from the stadium and sponsorship, we should be able to manage debt and stay competitive. But the sums have to work.

Related article: The Stadium issue, we have to get it right

On the pitch

The appointment of Comolli was the indicator of how FSG will be approaching football strategy. It is all about building a sustainable talent pool and investing in high quality youth. The issue many supporters will have with this strategy is that in being very forward-looking, it doesn’t address the right now. Comolli divides opinions amongst LFC fans, but I think he has a critical role in the club’s future. By increasing our revenue we will be able to compete financially, but we won’t be throwing money at it like City or Chelsea.

Player investment will always be dependent on club income. How we perform commercially will be essential to how we can compete. There is a huge amount of debate amongst LFC fans about the quality of our new signings, but we are going to have to get used to investing in youth under FSG. When investing in youth and building from the bottom up, you need a strategist in post that takes a 3-5 year view on player development and analysing potential. That is what Comolli is all about.

It is pointless judging Comolli (and Carroll/Henderson) right now, as the role Comolli has and the reasons the club invested in Carroll and Henderson are about looking at least three years ahead.

It may not work out with Comolli, but FSG favour a structure that drives sustainable and strategic player acquisition and youth development. In my view, that is how you build a successful football club.

Related article: The Comolli role

The FSG end game

The positive thing for Liverpool fans is that FSG don’t appear to be interested in dividends. They are interested in leveraging the club’s potential with a view to significantly increasing its value. As they have proven at the Red Sox, they are not afraid of the long haul which is unusual in private equity.

The business model FSG are using is all about sustainability. It is about increasing our revenue and building a strong financial performance. It is in the interests of FSG for us to be competitive on the pitch. The promising thing so far is that FSG appear to be sensitive to our culture whilst driving modernisation (unlike a certain other pair of Americans). In many ways our culture has been a barrier to modernisation for a generation. We have needed to make the transition to business since the inception of the Premier League.

Whilst FSG are in this ultimately for a big return, they also seem to be driven by winning and genuinely want to see us succeed. It is very difficult to predict how long FSG will be at Liverpool; but with the stadium solution and debt I would expect 10-15 years, possibly longer. What happens after that is anyone’s guess – maybe Henry would be open to a supporter bid in a similar model to Barcelona?

The FSG blueprint is all about building; they have made the initial investment, and I would guess they won’t put any more equity into the club. What happens now is down to us; how well we do on the pitch and off it will ultimately determine the value and profit FSG get back.

So it is in all of our interests to succeed. But it will take time: they may not be sheikhs, but if they get it right they could secure a successful future for the club for a generation, especially with FFP coming into force.

They have learnt from the failings of the previous regime, and they will be in this for the long haul.

Professional communicator and fanatical Liverpool fan. I write for This is Anfield, Paul Tomkins (The Tomkins Times) and Liverpool FC.
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  • EA

    Excellent article, exactly what I’ve been thinking the whole time.

    People love Anfield – don’t get me wrong, I love it too – but it just won’t work. Do our fans want to see us competing with the best always, or being tied down because of financial constraints and lesser facilities?

    Of course, FSG seem heaven sent at the moment, i do feel they’ll be here for a while, but fans need to be constantly wary as these people only have one goal in mind: To make a profit – and as long as we are successful on the pitch no one will care.

  • Ashfah Hussain

    Chi Bai lu, buy the right players please and buy British last.

  • Trevlfcmad

    great article. its very refreshing to read a positive article about lfc(spent too much time reading anti lfc site liverpool-kop)

    • Adrian

      your rite about the other site he don,t like it when he don,t get his own way  long live the king and this is a true lfc site

      • MCM

        Agreed. They can’t be LFC fans…must be imposters trying to get us a bad name. Doesn’t matter what the subject, they are always negative.
        This article was very good, well balnaced and nicely informative. Great to read a site where opinions and views are possitive, open minded adn excited.
        Kenny knows more than most of us, so I’m just enjoying the ride.

  • YNWA

    Excellent article!

  • Alanmslevin

    I agree with the article in general. However what I disagree with is that FSG won’t put any more money into the club. I believe they will. It will be short term investment equalling long term success. We need a bit more to be spent to get us to the next level.
    I don’t think we’re far off. They have to be ambitious. Theres no point in accepting second best. If being the best means spending money then so be it. As for the naming rights. £150 million is a bit generous. I don’t think FSG will accept that. They will want to maximise the brand. I cannot see them settling for less than 200 million over 10 years.
     What the author failed to  mention and this is simple economics is supply and demand. Liverpools demand is greater than the supply. Liverpool have a 65,000 waiting list on season tickets. They could fill a 72,000 seater stadium without any hassle. With the eventual option of increasing that to 80,000 making it bigger than the theatre of delusions.
    Damien Comolli is right in investing in youth, but we need variations, we have reliable, solid players that will give 110%, now we need flair to take us to the next level.

    • deanzzyy

      gud job by lfc, following in the footsteps of mufc. wud be extremely challenging tho as mufc keeps evolving every year

    • Adrian

      kenny said to,day he expects more support in the coming window

    • Thomasmurray

      Amen. 100% agree with that.

  • Jack

    Fantastic article!!

  • http://www.liverpoolblogg.no www.liverpoolblogg.no

    VERY good post, so good we re-posted it on our facebook-site.

    - Walk on

  • Jd47

    I am patient its just we have been patient for 20 years now so we do have a right to get a bit annoyed at this point but I believe in what LFC are doing now and hopefully we can push for the league soon and bring in some very talented youth players.

  • http://www.facebook.com/Chri5mitH ChriS SmiTH

    naive! FSG are in it for the money, their PR is slick and that the main difference between them and the previous yankers…dont forget they ignored Kenny, criticised Rafa, also loaded debt on the Club & only removed hodgson when 10,000 didnt show @ Anfield ….a lot of info will be released this summer..they should have offered shares to the supporters! 

  • JulHI

    Redeveloping another 20,000 Anfield seats means another 20,000 Liverpool loyal fans going to be cheated by the poor team performance!

  • Toucantalk

    Agree with some of the points but disagree with one. I don’t think it is ‘pointless’ judging the performance of the likes of Carroll and Henderson – not at all. You don’t spend a combined £55M for potential. You spend that kind for money for immediate impact. If you want potential and allow a learning curve of 3 years, then by all means do so but is it prudent to spend such large sums of money?! Both Carroll and Henderson were poor value for the money and many are simply offering excuses to cover up that fact. And the way some of the argument goes, you’d think these two were 17-18 years of age. They are in their early 20s and there are many other players in other clubs of the same age or even younger who are showing more on the pitch.

  • distressed red

    all that is pointless , if the performances dnt improve . . nobody is going to sponsor a team that struggles to get into Europa cup . . Stop saying we are looking into future , and accept the guys we have are overpriced and not capable of taking us where we want to go and worse still the way things things are they might even end up driving out the odd good players we have ..,Before you think about finances , future and all that but we have to first sort out the playing staff and coaching staff first . coz the its performances of the team that are most imp , if we are competitive there rest will follow. .

  • http://www.facebook.com/people/Michael-Bruckner/599103960 Michael Bruckner

    Finally an article worthy of appearing here. Could no longer stand reading all the negative comments left by so many so called LFC supporters. 

    I had almost given up on TiA! Seems everyone these days wants success overnight. Possibly an echo of today´s throw-away society. To me it was always clear what the “project” was since our new owners took over, and that it will take 3-5 years to come to fruition. 

    I just hope that the doom and gloom mongers that leave comments here of late will read your article and finally grasp what is “actually” happening. 

    Many, many thanks for a superb article, YNWA!…

    • MCM

      Well said! And despite how we are feeling this morning after the smash and grab in west London, that doesn’t change.

      We support our club…in good and difficult times. We get behind them and offer everything we cna to do our bit to help performances improve.
      Imagine if players were coming out with some of the Negative drivell we read on the blogs from so called ‘Supporters’. And don’t offer the ‘they get paid a fortune…etc..’ as it’s us who claim to be supporters for life.
      Ther is another word we could use…Detractors. You can’t be both. Shame!

  • Draex

    Great article, but you’ve missed the huge hole in the middle of their strategy – CL football without it we wont get half the things you’ve mentioned.. With Kenny at the helm we are destined for mid-table mediocracy unless they address the management we wont pull in any decent players.  He is archaic (whilst a club legend) and not good enough for the modern game – FSG wont allow him to spunk another 100mil on english dross that has less heart than foreign mercenaries.. Let alone when was the last time he gave youth a chance?

    • mcillist

       i think you should go back and carefully read the part about comolli all over again before you start about kenny throwing away 100mil

  • Guest

    38% STILL think we will get 4th spot – now that really is a laugh.What planet are they living on? Time they got real!

    • Spaniard

      38% of people are muppets then

  • David

    Great Article!!

    As FSG are largely in favour of developing youth, i thing we should start Coates and give Suso and Sterling there chance as we are definitely out of the top 4 race. We can focus on the F.A cup and by playing youth in the remaining league fixtures, we are building for the future. Where we finish in the league is irrelevant as we are already in Europa. As for the so called LFC fans that shout for success over night, we would end up in massive debt again, not addressing the stadium issue and paying for it in the coming years. FSG are right to steadily get us back to where we once were. YNWA

  • patrickferris

    Yep let’s all follow Kenny like we did Souness cuz that turned out great before, after all they’re legends so they can’t do wrong. 

    • MCM

      Souness?? I’m sorry which of Kenny’s achievemntes as manager do you want to compare with Souness? Titles, FA Cup’S, league Cup, LAte 80′s Side vs early 90′s side of Souness, Titles with 2 teams, one of 6 managers to have won everything domestically?

      You are trying to compare Pure gold with a yellow marker pen. GO away and start again.

      • mcillist

         well said that person is a imposter ha ha

      • patrickferris

        Look at this Liverpool team Swansea are about to overtake us.. Get your head out of the 80′s and back to Reality. Kenny took over a brilliant team then. If he took over Barcelona now are sure he’d win a lot too! Any manager that buys Carroll, Downing, Adam, Henderson for around 80 million doesn’t have a clue full stop.   

        • MCM

          Do your research…and see how much of what Kenny took over in 85 was still there in 88…created IMO best LFC side I ever saw. Blackburn…not great I think when he took over at bottom of 2nd Division.
          The point made was that Sounes and Kenny are chalk and cheese and no comparrison.
          In 1987 we won nothing as Kenny changed the team. How did we all feel about progress then? Change takes time. We have been witout our best players for large parts of the year, lost FT who I think papered over the cracks in the seasons he was here and need to give new buys time. SOme won’t make it as is ALWAYS the case, but some will be great.
          Why bother supporting LFC if you are going to spend your days being som miserable? Half empty?

          • patrickferris

            You make sense and 88 was way before my time so I’ll take your word for it. My worry is only his buys, we’re not in the 80′s any more and Kenny just about wasted 100 million on average players and you know that’s true, they’re awful. He had a stupid idea about buying British players and it’s his fault. What if he plans on buying more British players? When the Carroll story broke I bet you were like me and thought 35 million for Carroll was a joke WE COULD ALL SEE IT but Kenny and when we were first linked with Downing no Liverpool fan wanted him because we all spent the last 10 years watching him and he was always average.. Does this not worry you?

          • macca

             makes me laugh all this he did well then so he will now,i think he is competing in a much tougher league now than back then and its full of billionaire owners,also the king is a lot lot older now so he is going to be a bit worse possibly and the game has changed and is a lot tougher and he comes across as grouchy unfortunately which doesnt do our club or anybody any favours and i just hope that doesnt rub off on the players,just because he was successfull a long time ago doesnt mean he will be again,the germans invaded france successfully(with great luck and skill) and all of europe so assumed they could do the same with russia because they had before,and they were smashed ultimately as they failed to take into account the different circumstances……………..,kenny needs luck and to take circumstances into account more-he hasnt had much luck so far having leiva and suarez and gerrard out for long periods,he also needs to lighten up a bit and take a leaf out of arrys book i feel as it makes it easy for the press to portray him as a bit of a cranky old nob hed,look at jose and he had the press in his palm.

        • Brucie

          Kenny took over Fagans side for One year, I’ll just repeat that, Kenny took over Fagans Liverpool team for ONE year as a player manager.

          That side was effective yet dull, everything went through the middle.

          Every season after it was HIS side, Kennedy,Neal,Lawro,Himself,Rush in and amongst others who are equally worth naming left or were pushed into the shadows. Nicol,Ablett,Gillespie,McMahon,Spackman,Beardsley,Barnes,Houghton,Aldridge,Walsh all came through via purchase or promotion under Kenny.

          9 of those just happened to be regulars,so to say his tenure was based on someone elses side is both factually incorrect, and perhaps, damn right ignorant.

          • patrickferris

            I agree that was ignorant, it was before my time, but I wasn’t comparing 
            Souness to Kenny in the first place. I just meant we should’t follow a manager on his past glory. 

    • Dagger

      That is silly on so many levels.

      Souness was never blindly followed, we ALL gave him a chance and time to prove himself but from trying to completely alter a club philosophy and to that infamous personal own goal of his he alienated himself from us.

      His personality as a player could never transition into our manager, as it was proven.

      Kenny is the opposite, he’s proven, he’s already shown there is progress,given the blatantly obvious piece of silver now back at the club, and perhaps the more discrete yet still tangible change of philosophy back to that of pass and move.

      It’s obvious to those who are willing to wait that he’s pefectly the right man for the job; he was twenty years ago and still is.

  • Hamidtusaddaq_kop

    whatever happens this season we will have done better then last season its all about progression 

  • Dave

    An article written in the midst of blind faith. Disappointing.

    In case you haven’t noticed, Liverpool are a mid-table club with a mediocre team complimented by FOUR top class players(Reina, Agger, Gerrard, Suarez), two players on the verge of being top class(Skrtel, Enrique) and one very promising youngster(Martin Kelly). The rest of the squad(not including the youngsters and with the loan exception of Bellamy) can be summed up in one word, dross. 

    The big picture is that Liverpool will finish 7th this season, and won’t improve on that without major change, major investment and the sale of utter garbage like Andy Carroll.

    Take your blinkers off and look at the real big picture, not the rosey one you’ve painted through tinted vision.

  • Dagger

    Enjoyed reading that, but such is the problem with sections, and only sections,Of our support is that they want everything yesterday. Which obviously goes against the idea of the club.

    Looking at everything here as a whole it been a season of progression and development. I think it’s fair to say we are play excellent, yet unproductive football at the moment so that’s a huge turn around on the last 15 years of essentially being a bonafied counter attacking side. Plus we’ve won a trophy,and still have a chance at a double.

    Of course there are things that haven’t worked yet, or possibly never will but that’s all part of the rebuilding job. Back when I was a part of the site I remember a few smart minds suggesting this is perhaps the biggest rebuilding since Shanks took over, and I concur. Although it’s fair to say our progression has been greater than the great mans with a trophy inside a year.

    There’s plenty of things to be excited about, but you’ve just got to dare to dream into the future rather than look at the last result.

    Nothings ever built over night, I mean you can’t build a highly successful business inside 12 months, you can’t built a piece of modern architecture inside 12months, and, Rome was never built over night, or over a year. What you can do is lay the foundations for a brighter future, and gradually build things up brick by brick, and I think we are doing that.

    It’s just a shame that there is a minority who aren’t prepared to wait, because afterall we’ve waited 20 odd years so what’s another year or two going to do?

    Be patient,be prepared to accept there will be set backs and try to survey the project as a whole instead of the micro analysing our fan base is guilty of. When success comes, you may just enjoy it a bit more.