Avoiding the Drop

While Real Madrid, Chelsea, and Manchester City have been out spending to supplement their weak squads during the transfer market thus far, Liverpool, the team that perhaps most needed to strengthen their roster, has been quiet. If you’re of the opinion that Liverpool overachieved last season, than this is very, very ominous news.

Rafa Benitez has been saying lately that there’s cash to spend, but it seems more and more like the intially touted prospects – Carlos Tevez and David Silva – will be unavailable. The other player clearly in Benitez’s sights, Gareth Barry, was poached off the market by Manchester City, making the sale of Xabi Alonso far less attractive. Estimates put the club’s transfer budget at around £20 million, plus whatever can be gained from player sales.

Even if Liverpool can scrape together funding for a decent transfer period, the long term financial future of the club is seriously murky. Later next month, owners Hicks and Gillett are set to refinance their £350 million loan with the Royal Bank of Scotland and Wachovia, and the banks are likely to agree to a deal. Fans, disgusted with the owners, aren’t on board with the refinancing plan; supporter’s group the Spirit of Shankly is even planning a letter writing campaign, hoping that the bank will deny the refinancing and force Hicks and Gillett to sell.

Hicks and Gillett have been less than honest about the financial terms of their takeover. Back in 2007, Gillett said that they’d “purchased the club with no debt on the club”; while that’s technically accurate (all of the debt resides in Kop Holdings, not Liverpool FC), it was a disingenuous statement designed to assure fans that they weren’t doing what the Glazers did to Manchester United. Ultimately, though, they’ve done EXACTLY what the Glazers did: load a club that previously had manageable debts up with massive unmanageable ones. To add insult to injury, they also saddled the club with £2 million in travel expenses for last year alone.

Hicks and Gillett also talked about starting construction on a new stadium in June of 2007. A new stadium is really the only way left to maximize profits for the club (the club has outgrown Anfield’s 45,000 seats), but plans for the construction of that stadium are on perpetual hold while the club’s debt situation is resolved. The obvious solution – build a stadium and groundshare with Everton – is completely out of the question for supporters of both clubs. Still, the Liverpool City Council thinks that’s the way to go, especially if the city wants to be included as a venue for the 2018 World Cup bid.

Last season, Liverpool posted a record turnover of £164.2 million; in spite of that turnover, only £10 million was profit and Kop Holdings still had to pay £42.6 million just to satisfy the interest on their loan. In other words, the best year Liverpool’s ever had still put them £32.6 million indebt and no closer to paying off their debts or building a new stadium. There’s more red on the Liverpool books than on the pitch at Anfield these days.

While Newcastle is criticized for not including relegation clauses and West Ham’s ridiculed for their dealings in the crazy Icelandic baking world, Liverpool have escaped some of that scrutiny because of the simple fact that they’re still a winning team. Unlike Chelsea (who mostly owe Roman Abramovich money) and Arsenal (who’ve structured their debts in a more responsible way), Liverpool would be in serious financial trouble should they fail to make the Champions League even once. With Manchester City and Chelsea able to afford to bring in players to supplement their squad, Liverpool is left wanting; should they fail to bring in players and then falter next season, we could be looking at the beginnings of the next Leeds United.