[lfc-news] Reds foot bill for failures - Echo

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Liverpool Echo, 5 Nov 2004
Reds foot bill for failures
EXCLUSIVE by Chris Bascombe, Liverpool Echo

THE cost of Liverpool's failure to qualify for last season's Champions
League is graphically underlined today with club accounts revealing record
losses of £21.9m.

Shareholders were given full details of the Reds finances in their annual
report.

Some of the figures make grim reading, but Liverpool insist the situation
is not as bad as it looks.

Twelve months ago the club reported an operating profit of £3.6m.

This year's loss of £21.9m represents a turnaround of minus £25.5m year on
year.

Chief executive Rick Parry (pictured above) says the Anfield board knew the
financial results would be unfavourable after the team's performance over
the last two years, but the most important figure - that of the club's net
debt - actually shows a decrease from 2003.

Liverpool were in debt to the tune of £18.9m in July, 2003. Now that figure
stands at £15.4m, and it is this which the club say is the most important
factor.

The losses reflect payments which have already been made. It is the debts
which reveal the true state of a club's finances.

Parry insists today's report will not have any impact on Liverpool's
decision to press ahead with plans for a new stadium.

And manager Rafa Benitez can continue to expect backing in the transfer
market as he tries to rebuild a squad capable of competing for the title.

"The key business objective for the year was to secure an immediate return
to the Champions League," said Parry.

"The board, therefore, took a conscious decision to continue to invest in
the team in the summer of 2003 and to budget for a loss.

"Instead the main financial target was to ensure there was no increase in
net debt. Both these objectives were achieved.

"The loss is esentially attributable to two factors. The loss of Champions
League revenue and the decision to change the management team.

"The loss in itself does not constrain player spending, after all we did
invest significantly in the summer.

"It is the level of debt and future cash flows that govern our transfer
activity."

The cost of dismissing Gerard Houllier and his back-room team will
undoubtedly raise most eyebrows among fans and shareholders.

Under the heading 'termination payments' - a euphemism for the 'paying off'
of contracts of players and staff - it is revealed Liverpool spent an
extraordinary £10.7m.

This accounts for the departure of Houllier, Phil Thompson, Christian
Damiano and Joe Corrigan, as well as those first-team players considered
surplus to requirements.

That means Liverpool paying up on contracts to a number of players
including previous record signing Emile Heskey and Markus Babbel.

The report does not go into details on individual cases.

In normal circumstances, such pay-outs are not necessary. The club does not
sack its manager and back-room team every season.

Liverpool knew how expensive it would be to change their manager - Houllier
still had a year of his contract left to run - but felt it was a price they
had to pay.

Despite this, it is the lack of Champions League football in 2003-4 which
caused the biggest financial headache.

Europe's elite competition is worth a minimum of £15m and the UEFA Cup is a
poor relative.

Liverpool earned £14m less from all cup competitions including Worthington,
UEFA and FA Cup in 2004 compared to 2003. Champions League qualification
accounts for virtually the whole sum.

When the Reds won the UEFA Cup in 2001, they were paid £14m, largely thanks
to TV revenue.

Last season Liverpool generated a mere £3m from their European campaign
when they only reached the last 16, losing to Marseille.

Lack of interest from television networks is responsible for the gulf in
payments.

In 2001, desperate for top-class football having lost Premiership rights,
the BBC paid a huge sum to the Reds to follow their UEFA Cup adventure.

By 2003, there was no competition for coverage as the BBC had just won back
Match of the Day.

Another key element of the losses is what is termed 'amortisation'.

When Liverpool sign a player, such as Djibril Cisse, for £14m, payments are
accounted for over the course of his contract.

Thus, the fee to Auxerre will appear as just under £3m for the next five
years of Cisse's stay.

This remains the case even when the fee has already been paid in full.

In this year's report, Liverpool are still recording payments for those
purchased as far back as 2002, such as Salif Diao, El-Hadji Diouf and Bruno
Cheyrou.

In fact, most of these transfer payments have been concluded, but accounts
still show a figure of £17.3m in amortisation fees over the last 12 months.

A further factor in the losses is a fee of £3.5m to write off the value of
Anfield, ahead of the planned move to Stanley Park. Liverpool will pay this
annually for the next four years.

When the club move to Stanley Park, Anfield will have no value to the club.

Auditors took the decision to write off the loss of the famous stadium now.

When the loss of £21.9m is underlined, many supporters will ask where money
will come from to fund new signings.

But Liverpool hope the worst of their pain is behind them.

The club made a calculated gamble in the summer of 2003 by signing Harry
Kewell and Steve Finnan, as well as Florent Sinama-Pongolle and Anthony Le
Tallec. The board knew this would incur further losses.

But they decided that without strengthening the squad the minimum
requirement of Champions League qualification may not be achieved.

The policy paid off when the club finished in the top four last May.

The club has good reason to be optimistic it will progress into the last 16
of the Champions League this year and could earn at least £15m.

Plans to attract investment are also ongoing. While the Thai links are now
virtually dead in the water, Steve Morgan continues to discuss how he can
pump more revenue into the club.

Wage levels and gate receipts have remained steady, while revenue from
commercial ventures increased from £28.4m in 2003 to £30.6m this year.

If the club had found itself in dire straits, the losses could have been
wiped out by sanctioning the sale of Steven Gerrard to Chelsea for £25m.

The fact such an abomination was so strongly resisted demonstrated
Liverpool's belief this year's losses will not be repeated in seasons to come.

Thus far, Benitez has been able to start rebuilding his squad by wheeling
and dealing in the transfer market.

Alonso, Luis Garcia, Antonio Nunez and Josemi were purchased due to the
sale of Michael Owen and Danny Murphy, as well as the offloading of big
earners such as El Hadji Diouf and Bruno Cheyrou on loan.

Benitez will be in a similar situation in January as he begins his search
for a striker.


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