Liverpool count the cost of Reading defeat in cash and embarrassment - 7M sport

Liverpool count the cost of Reading defeat in cash and embarrassment



Posted Friday, January 15, 2010 by theguardian.com

Liverpool count the cost of Reading defeat in cash and embarrassment
The damage to Liverpool's image could be more costly than the £8m the club has lost out on after its embarrasing FA Cup exit.

Liverpool's early exit from the FA Cup will cost the club around £8m compared with the sum they would have received for winning the competition, but the blow to their reputation could be even greater at a time when the owners are hunting for new investment.

While comparatively small beer compared with the cost of their failure to progress in the Champions League, and insignificant next to the doomsday scenario of finishing outside the top four, the effect will be felt at a club where the balance sheet is under constant scrutiny.

Last year's FA Cup winners, Chelsea, earned around £5m in TV and prize money and made in the region of £3m in receipts. The winners of this year's competition will receive £3.8m in prize money, plus £200,000 for each televised match in the third and fourth rounds and £300,000 for each match in the fifth and sixth rounds, plus gate receipts. There is no television fee for semi-final or the final.

The limited funds made available to the manager Rafael Benítez during the transfer window, injuries to key players and the improved form of Manchester City have raised fears that they may fail to qualify for next season's Champions League.

Failure to qualify for this season's knockout phase cost the club only £2.4m in budgetary terms, according to managing director, Christian Purslow, in the wake of their pre-Christmas exit.

But if they miss out on next season's tournament, which has been the key driver in maintaining the balance of power in the Premier League in recent years, they would miss out on a huge slice of revenue.

Last season the Champions League was worth €23.3m (£20.7m) to Liverpool but next season's bounty will be even higher because Uefa has sealed improved sponsorship and TV deals in the interim.

Purslow is continuing to search for new investors willing to meet Tom Hicks' and George Gillett's asking price of £100m for a 25% stake in the club. The managing director has said he is confident of securing fresh investment – which would also help revive plans for a new stadium– before the beginning of next season, but cautioned that "the devil is in the detail".

The club will also have to renegotiate outstanding bank loans in July, a situation that could also be complicated by finishing outside the top four.

Following protracted negotiations the Royal Bank of Scotland and the US bank Wachovia renewed the club's £350m credit facility, of which £290m had been used, in July. But the agreement, made on the condition that the debt was paid down by £60m, is understood only to last 12 months. The club's parent company, Kop Holdings, recorded a loss of £42.6m in 2007-08, partly due to £36.5m in interest payments on the loans.

Professor Tom Cannon, a finance specialist at Liverpool University, feels that Reading's third-round victory could impact on the search for new investment. "It's the effect on the image. It's much easier to raise money for a club that is at the top or seems to be going to the top than a club that seems to be going in the other direction," he said.

Professor Simon Chadwick, head of sports business at Coventry University, agreed. "The FA Cup is not the biggest earner for the clubs but it still very important commercially and financially. More importantly, and given where the FA Cup is broadcast, it can affect a club's global aspiration.

"Going out of the FA Cup is only one small part of a bigger picture of which the main part is making the Champions League group phase. But in terms of sending the right signals, this is the last thing that Liverpool needed."

Cannon also predicted that Liverpool's ongoing malaise on the pitch would start to impact on the amount that potential investors would be prepared to pay for a minority stake.

"They still see Liverpool in the same bracket as Manchester United and Real Madrid, in terms of the value they place on the club and the stadium they want. Until their expectations change, I think it will be hard to get the new investment they need."But he said that qualification for the Champions League remained the crucial factor in enabling the club to maintain income at current levels.

"Given the current distribution in English football, the £30m, £40m, £50m you get from the Champions League is the key differentiator. Getting to the semi-final is worth £46m to £47m. Add in a few other factors like the increase in brand value, and it's more profitable than winning the League."

Cannon said that having handed Benítez a large transfer budget and backed him in his power struggle against the former chief executive Rick Parry, the owners were now faced with a difficult choice. He estimated that sacking the Spaniard would cost at least £12m.

"For all the huffing and puffing, they can still service their debt. But servicing the debt, rebuilding the squad and building a new stadium is a different matter," said Cannon. "It is hard to see how they will service the debt, rebuild the squad to the stage where they can get first or second place, and build the stadium unless Hicks and Gillett reassess what the club is worth."

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