A Look at FC United & Liverpool/Finances

David Conn/The Guardian

Liverpool have no guarantee that new owners will not load debt on to club
• New owner not asked for written pledge
• Henry emails Guardian to explain details of deal

Liverpool's chairman, Martin Broughton, and former managing director Christian Purslow did not ask John W Henry, the new owner, for written guarantees not to load his costs of taking over Liverpool on to the club, it has emerged. Broughton and Purslow, a spokesman said, took the view that such a commitment would not be strictly legally enforceable, but were assured by Henry, and his 16 partners in New England Sports Ventures, that they would not burden the club with their "acquisition costs".

In a detailed email Henry sent to the Guardian answering questions about the takeover, he confirmed that approach, saying he has paid off the £200m "acquisition debt" loaded on to Liverpool by previous owners, Tom Hicks and George Gillett. The only debt which Liverpool now owe, Henry said, is £37m to Royal Bank of Scotland for development work on the proposed new stadium, which NESV is now reviewing. "The simplest thing to say is that we removed all debt but the stadium debt," Henry wrote. "LFC is not servicing debt other than stadium debt."

He explained that NESV does not intend to extract money from Liverpool, as Hicks and Gillett did, to service its own costs of buying the club, and said Broughton and Purslow never asked for such a commitment in writing.

The spokesman for Broughton and Purslow, who voted to sell the club to NESV based largely on Henry's assurance that no "acquisition debt" would be loaded on the club, said they had not asked for written guarantees because such future commitments are not strictly legally enforceable. Hicks and Gillett said in their own official offer document when buying the club in February 2007 that the payment of interest on their £200m borrowings "will not depend to any significant extent on the business of Liverpool". But subsequently they did pay the multi-million pound interest costs out of the club's earnings. RBS confirmed that the £200m Hicks and Gillett "acquisition debt" has now been repaid, leaving the £37m stadium debt.

Henry, in Liverpool to meet the manager Roy Hodgson, his players, staff and officials, declined in his email to explain how NESV raised the £218m cash required to buy Liverpool, and whether any of it was borrowed. "I have certain obligations to my partners regarding confidentiality of a private company and in not disclosing our financials publicly," he said. "LFC discloses its financials annually, so monies going in and going out are disclosed. But I'm not going to disclose NESV financials or financing information."

www.guardian.co.uk/football/2010/nov/02/john-henry-liverpool-takover



David Conn/The Guardian

John W Henry asks Liverpool supporters to take him on trustIn an exclusive interview, the new owner insists acquisition debts will not become the club's liability

So, Liverpool supporters must accept John W Henry on trust when he assures them he will not make the football club pay his takeover costs, as his countrymen, Tom Hicks and George Gillett, so notoriously did before him.

Henry has revealed that Martin Broughton, Liverpool's chairman, and Christian Purslow, the club's former managing director, did not ask New England Sports Ventures for a "contractual commitment" not to load their own costs on to the club. A spokesman for Broughton and Purslow said they did not believe such a commitment would be legally enforceable, and were reassured because NESV was paying off the £200m "acquisition debt" with which Hicks and Gillett saddled Liverpool.

Henry, in a detailed email to the Guardian answering questions about the takeover, emphasised that he has paid off that debt, leaving the club with only £37m owed to Royal Bank of Scotland for development work on a proposed new stadium in Stanley Park, which NESV is now reviewing.

"The simplest thing to say is that we removed all debt but the stadium debt," Henry wrote. "LFC is not servicing debt other than stadium debt."

RBS confirmed to the Guardian that the £200m has been paid off – £150m of it was owed to RBS, £50m to Wachovia – and NESV has not saddled Liverpool with any new debt to replace it.

Henry, who is in Liverpool this week for fact-finding meetings with Roy Hodgson, players and club staff, wrote in his email that NESV does not intend to extract money from the club to pay its own costs. Rather, he said, they plan to put money in, as they have at the Boston Red Sox, where they have taken no dividend in nine seasons of ownership of the baseball club.

"The fact is, LFC is going to require substantial investment, as did the Red Sox," Henry wrote. "All of NESV profits thus far have been poured into improving our business units and their facilities. There have been no profit distributions to partners since the inception [of NESV in 2001]."

Henry has said his approach to Liverpool is to listen – to Hodgson, to whom he has promised some patience, players, staff and supporters – before formulating the plans to restore the club to health on and off the field. In his email, he confessed to feeling tired after his transatlantic flight, and said of his scheduled meetings at the club: "Big day tomorrow, big challenges ahead."

Henry wrote that NESV is not looking to take money out of Liverpool in the short term – pointing to investment in the Red Sox as evidence – but to increase the club's value by building it up. "This is the wrong business to get into for profit," he argued. "Some day [hopefully a long time from now] these clubs and businesses will probably be worth more than we paid for them, but only if we do the right things day-to-day for the long term."

He explained that among Premier League clubs, he most approves of the financial methods at Arsenal. They borrowed to build the Emirates Stadium, and despite instability among the major shareholders, none has taken a dividend and the club's substantial profits are available for investment in the club. "I admire Arsenal very much," Henry said, "and part of that is that they are profitable. To me, the word profitable means sustainable – able to sustain a business that has a high degree of excellence. Again I would refer to Arsenal."

Yet, despite Henry setting out this philosophy of investment, rather than "leveraged" debt, it is significant that Henry was not asked by Broughton and Purslow to give a written, contractual commitment not to load NESV's costs of taking over Liverpool on to the club.

Of that idea, Henry said: "It wasn't asked for. I don't remember anything being discussed along these lines except that there was a desire for all of the debt to be removed except stadium debt."

The spokesman for Broughton and Purslow explained that they did not ask NESV for such a written commitment because, as a promise not to do something in the future, it would not strictly be legally enforceable. The spokesman pointed to the assurance which Hicks and Gillett famously gave when they took over Liverpool in February 2007, in their own offer document. It detailed the £298m borrowing facilities they had arranged with Royal Bank of Scotland to finance their takeover and subsequent investment in Liverpool – the club itself cost £174m – and they stated: "The payment of interest on … the facilities will not depend to any significant extent on the business of Liverpool."

As it turned out, Hicks and Gillett did pay the interest on those bank loans, approximately £35m in each year they owned the club, from Liverpool's earnings, which helped push the club into a £53m loss last year despite record income of £185m.

Broughton and Purslow point to the worthlessness of that written assurance as part of the reasoning for not seeking a similar assurance from NESV now.

Instead, they say, NESV has a track record at the Red Sox, which was not a leveraged buyout, and of investing successfully in the baseball club rather than taking money out. The spokesman pointed to the fact that Henry has made good on his promise at Liverpool to pay off the £200m Hicks and Gillett "acquisition debt" and not replace it with NESV's own takeover costs. "The proof of NESV's commitment not to put acquisition finance on the club is in their actions," the spokesman said, "not in written commitments which ultimately would not be legally enforceable."

Legal experts the Guardian has spoken to, including one QC, agreed it was probably true that a future commitment not to load takeover costs on to the club would be difficult to enforce. However, they expressed surprise that no written commitments were asked for. They argued that clauses could have been included in the sale, or a "letter of comfort" signed, which would have had symbolic value, placed obstacles in the way of loading acquisition costs on to the club, and made it extremely embarrassing for NESV ever to do so.

One lawyer also argued that the club could be protected by involving a supporters' trust in its constitution, whose approval would be required if the club were ever to be made to service acquisition debt.

Henry did meet the Spirit of Shankly and Share Liverpool fans groups immediately after his takeover; and he has spoken positively about engaging with supporters, although he has yet to decide his preferred way to do so.

Both groups, which campaigned vociferously against Hicks and Gillett, are asking NESV for a partnership, in which a supporters' trust would hold a meaningful stake in Liverpool and be represented on the board.

For an American owner, feeling his way into English football culture and seeking to right the wrongs to the club he has bought, that would be a hugely progressive initiative. Henry, reading, thinking, listening, must find ways to cement a constructive relationship with Liverpool supporters, who at present must take him on trust

www.guardian.co.uk/football/blog/2010/nov/02/liverpool-john-w-henry-nesv

Henry 'paying off' the Liverpool debt, eh? Like Paladini and his pals 'paid off' the ABC loan.

Verbals are god in these discussions. It is easy to say that the Club has no debt when the holding company has, when another company which owns the Ground, the holding company, or something else, has.

Or when the debt is deemed to have been converted in some way to equity. It may disappear as a loan, but if a buyer must come up with that sum in order to acquire the shares, or the Club must come up with the money in order to get rid of the owner, it scarcely matters.

Picking one's way through the doubletalk is absorbing and instructive. There usually comes a point when they make their intentions clearer in their efforts to cover them up than
if they had just come out and said what they were really up to.

The Arsenal situation is interesting. It is hard to separate fact from fantasy when talking to Gooners. The new Ground gives them such an advantage that since they've been playing there, Manchester United won three titles in a row and Chelsea the other one.

Arsenal have won none. The logic of boasting about its size when it holds 15,000 less than their chief rival's OLD stadium escapes me. Boasting on the one hand that Arsenal is now the second richest Club in the world while complaining that Chelsea and United outperform them only because they spend more on players.

Arsenal apparently prefer to have no debt, although, actually, they are in debt, and one of the reasons it is lower than United and Chelsea is that they aren't winning titles because they aren't signing better players.

This may all change, of course, of Kroenke moves in. It will be interesting to see if the Arsenal tradition of thrift and steady intermittent success rather than outright domination remain intact.

Especially if Clubs presently playing at smaller Grounds increase their capacities.