Liverpool FC: Why it went wrong, and how it could get better

Feb 4 2008 By Andy Kelly

A RECORD seventh Champions League final, another legendary semi-final victory over Chelsea, the arrival of a £20m striker and the unveiling of plans for a 70,000 seat new stadium.

Had you offered all these things to any Liverpool FC fan on February 6, 2007, as Americans Tom Hicks and George Gillett completed their takeover of the club, they would probably have bitten your hand off.

Remarkably though, all those things have happened in the last year at Anfield – but the first anniversary approaches with demonstrations demanding the removal of the owners.

The empty seats next to Rick Parry and David Moores in the Anfield directors’ box, presumably left deliberately clear, speak volumes not just about the absence of the co-owners but the current absence of leadership at the club.

How have we gone from the welcoming banners for uncles Tom and George to the chants of “Get out of our club” and “Liverpool Football Club is in the wrong hands” which have been so prevalent in recent weeks?

How has Tom Hicks gone from the billionaire with the big bank balance to being labelled by some of the Kop faithful as the “liar” with a big head in just 12 months?

The demonstrations may have switched to post-match to ensure support for the team is not affected, but the thousands who stayed behind on Saturday made it clear the criticisms are not going away.

How have we gone from talk of the club’s future being secured for the next 30 years to the possibility of another sale, this time to Dubai International Capital, and possibly within days?

The answer lies in broken promises, whether real or perceived, and a fair amount of bad luck along the way.

As a city, Liverpool has a history of warmly welcoming needy new arrivals. The difference when Tom Hicks and George Gillett came to town was that here were two men who did not need help but could provide it.

They had, it was hoped, the financial muscle and marketing prowess which would finally allow Liverpool to challenge the riches of Manchester United and Chelsea, returning the club to the summit of English football.

Importantly, they did not have the negative human rights perceptions of then Thai prime minister Thaksin Shinawatra, now ensconced at Manchester City, who had been courted previously.

They had also promised not to load the club with debt, as Malcolm Glazer had at Old Trafford, prompting those gleeful chants of “USA, USA” from the Liverpool supporters which seem a lifetime ago now.

Fans were even prepared to turn a blind eye to Tom Hicks’s supposed close friendship with President George Bush, a significant sacrifice for some.

There was ready acceptance of the £220m deal quite simply because the club badly needed a change. Insiders describe the Moores era at the club as one of unbelievable inertia, where “getting things done was unbelievably difficult.”

An all too frequent summing up of his stewardship was that his method of keeping The Liverpool Way going was to do nothing.

AT THE famous Anfield press conference to announce the deal, both Hicks and Gillett said almost all the right things, though perhaps the lapse into “franchise” speak sparked the alarm bells for some even then.

Gillett, 69, said: “Our main priority is winning, then passion, respect for tradition, and legacy.”

“We didn’t come over here to be the guys to milk the franchise,” said Hicks, 61. “It is not just about money. If I just wanted to make money there are other things I could do.”

Yet milking the franchise and failing to respect that tradition are the two charges most laid against the Americans today.

FINANCE

While the initial deal did indeed not put debt on the club, it was so short-term as to need renegotiating last month.

The new £350m deal with Royal Bank of Scotland and Wichovia puts £105m of debt directly on Liverpool FC, with £60m committed for the first stage of work on the new stadium and the rest for transfers and normal capital workings.

Some, though not all, accept that as legitimate, but it is the part of the debt placed on Kop Football Holdings, the company formed by the Americans to run the club, which is most controversial.

A spokesman for Hicks recently made it clear that the asset itself – ie, Liverpool Football Club – will be expected to “service” that debt of almost £200m, though with Gillett and Hicks on standby if the club fails to produce the necessary profits. Essentially, the club pays for the loan used to buy the club.

It should not come as any huge surprise. As early as last March, Daily Post business editor Bill Gleeson warned of possible repayments of around £21m a year, perhaps by the club paying its first ever dividend to the new shareholders. With refinancing, those estimates have jumped to around the £30m mark.

It is now clear the only thing which prevented the whole debt coming onto the club at this stage was the stubborn refusal of both chief executive Rick Parry and former owner David Moores to sanction it. Both are members of the Kop Holdings board (along with Hicks and Gillett, and sons Foster and Tommy).

The Daily Post has learned that bankers demanded an agreement from all six board members on the refinancing deal, allowing Parry and Moores the opportunity to block it.

Removing them from the board at this stage would have been viewed as too antagonistic, so the compromise was agreed.

Rick Parry’s letter to season ticket holders last February saying “the club is in very safe hands” is suddenly ringing distinctly hollow for many.

It is not quite Glazer, but it is a mini-Glazer and the natives are not just restless, but rebellious. A new fans group, Sons of Shankly, intends to boycott club merchandise as part of a campaign to hit the owners where it most hurts. Others, led by the University of Liverpool’s Rogan Taylor have launched a radical plan to buy the club with a one member, one share, one vote proposal which seeks 100,000 investors at £5,000 each. Both could be overtaken if the DIC bid materialises as expected, though some in the Anfield hierarchy believe fans are clinging to an option they know little about.

“The question you should ask fans is what details they know of the DIC bid? The reality is most know hardly anything and are grasping that option because of the anti-American feeling,” said one senior figure.

THE STADIUM

“I’d rather be a lucky general than a good one,” was how Napoleon put it, and in that sense Messrs Hicks and Gillett shouldn’t be looking to enter too many battlefields any time soon. When they took over, the Stanley Park stadium was costed at around £225m. But they thought the designs “obsolete” and new designs were commissioned by Dallas-based HKS.

Unveiled in July, 2007, to almost universal approval, they offered the tantalising prospect of future expansion to beyond 76,000 seats, making the stadium larger than Old Trafford.

The new cost was £300m but that didn’t stand still for long. Just a few months later and a cost of £450m had developed, thanks to rising steel and construction costs worldwide. At the same time, the value of the dollar has plummeted by around 10% in a year against the European currencies in which Liverpool FC does most of its business, making the costs weigh even heavier on two men whose assets were also almost completely held in dollars.

On top of that, the global credit crunch has made borrowing money even more expensive. The first plans were scrapped and a revised plan for a straight 70,000 seat stadium by HKS was unveiled last month, costed at £400m. Work has not started properly yet and another huge loan will be needed to pay for it.

INSTABILITY

The first cracks in the normal united front presented by Liverpool FC to the world were between manager Rafael Benitez and the two Americans. The frustrated Spaniard – regarded by insiders as “difficult” – was told to concentrate on improving the team when he wanted to be dealing for players, prompting his infamous “I am concentrating on preparing my team” press confer- ence last November where he repeated the mantra ad nauseum to a bemused press pack.

Then came last month’s shock confirmation from Tom Hicks that he and Gillett had spoken to Jurgen Klinsmann about possibly replacing Benitez as an “insurance policy”.

The chants in support of Benitez, the man who had delivered Istanbul and one of the great FA Cup finals, were now allied to calls for the removal of the Americans.

Behind the scenes Gillett, 69, has been increasingly angered by his partner’s public gaffes and their relationship is now considered deeply strained. Gillett refused to put his name to the press release regarding the refinancing deal, and has not commented publicly on it. His son Foster left Liverpool three weeks ago, and a return in any meaningful capacity is regarded as unlikely. A source said: “Announcing the refinancing like a triumph was a mistake, that’s why Gillett didn’t want to put his name to it. Hicks will never understand The Liverpool Way.”

THE SOLUTION

So what to do? While Tom Hicks has regularly stated his intention to stay at Liverpool – despite admitting talks with DIC about selling them a 15% stake – sources say George Gillett is hoping his partner will take a profit on his shares and sell to the Arab consortium, “but he doesn't expect it to happen”. Gillett himself could take the money thought to be on the table from DIC, or both could go. One of the problems is Hicks’s valuation of the club at £1bn because of the revenues which he believes the new stadium will create come 2011. It is astonishing that, at Liverpool FC, once a bastion of stability, neither the owners, the chief executive, any of the board – or, indeed, the manager – can be assured of their current position.

TOMORROW: David Bartlett on how the American deal was done and where all the money went.