Friday, May 14, 2010

Sean McGuire: Profits Don’t Matter When Bottom Line Is So Poor

Liverpool FC must persuade every one of its season ticket holders to part with an extra £1,900 just to break even.

That is the magnitude of the mammoth £54.9m pre-tax loss for the 2008-09 season that the club’s accounts revealed when they were published last week.

Talk of an operating profit of £27.4m is misleading as it doesn’t take into account the £42.6m cost of “player amortisation and trading” or the interest payments on the club’s huge loans.

Interest payments alone account for more than £40m – with £8.1m going to the parent company based in the Cayman Islands owned by the club’s co-owners Tom Hicks and George Gillett.

Only salesmen are happy with operating profits. To everyone else it’s the bottom line which is critical.

It’s like saying your household is in a healthy financial position, if only you didn’t have to pay your mortgage or tax on your wages.

The trouble is that Liverpool face reduced income due to their seventh-placed finish and poor European performance this year – and if you were in charge of Liverpool’s finances, would you budget for higher performance-related pay next season or not?

The accounts also showed the club’s costs soared again, with its wage bill increasing by more than £12m to nearly £103m. Its number of full-time staff shot up from 386 to 474.

However the increase in turnover – up £161.8m to £184.8m – was largely attributed to broadcasting revenue and prize money, which was not the result of any endeavour by Liverpool’s commercial team.

While the £20m-a-season sponsorship deal with Standard Chartered will make a sizable difference, which will only boost the bottom line if costs don’t continue to rise.

The club’s owners want to sell but probably have an unrealistic price in mind and have brought in a temporary chairman to join an unsettled manager at a time some of the club’s most illustrious players are entering the veterans’ stage of their careers.

The fans are angry and in rebellious mood at what they see as the near ruination of their great club and at the slow and very painful public weakening of that incomparable spirit which, in all its different manifestations, made Liverpool one of the really very few great sports clubs in Europe.

But someone in a position of influence at the club is going to have to have the guts and the vision and the courage to explain to the fans of Liverpool what the plan for the rebuilding of the club involves and they need to do that very soon.

No one believes that next season will be much better than the ignominy of this season. Only someone who is blind to reality – both financial and playing reality – can look forward to 2010-11 with any confidence.

There is only one thing to do. Accept that the rebuilding process will take some time and that the club’s finances need to be sorted out as a priority.

Only when the club is under the control, and then the direct management of a group of people with a plan for its future success, based on the harsh truths of its current predicament will fans have the faith and belief to rally round the team, stick together for a few tough years and then look with real confidence to a much better future.

Whatever now happens, the status quo is not an option.

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