Playing devils advocate

[Dominus Maximus]

So as everyone else, I have tried to follow this ongoing transfer debacle. I have read up and down the interweb, and from what I have read; it seems that most Liverpool fans want Tom Hicks out. And who can blame them? He has bailed on every promise he has delivered, and he has publically admitted his lack of faith for the current Liverpool-Darling, Mr Benitez. As anyone else I have tried stay in the know of the situation and by the looks of it we are close to a conclusion regarding the matter.

What I haven’t seen is a fan supporting Tom Hicks. And for the sake of argument and time wasting, I thought of this defence for Mr. Hicks.

 

DISCLAIMER: This argument does not in any way represent what the poster feels about Tom Hicks, and his plan/money-scheme.

 

Mr Hicks wants profit as any other businessman wants, as DIC wants. So what every happens you shouldn’t automatically assume that by selling the club to DIC, Liverpool would be ‘saved’ and Mr. Benitez would steer the club to a Premiership title by buying 50 players at 20m +.

Hicks envisioned (or at least he sold us the idea of ) Liverpool as a well-staffed football club, with admirable traditions, high moral standards supported by a world-wide fan base playing in front of 70.000 supporters, all forking out 20 quid + for a ticket. A well-oiled machine generating a huge turnover on merchandise, match day income, prize money and new TV deals all amounting to success on the pitch, and finally profit in his pockets. A vision in where he as the Robert Kraft of the 51st state could drive to a match with scousers lined up along the route, singing his name and praising his ego. And I believe the fans out there doesn’t care what he does as long as the title comes through that door.

This can still happen.

 

By acquiring a new loan, old debts would be cleared, and the owners would be free to invest their own money where it would be most necessary - on the pitch. So far Benitez is still in charge, Liverpool have bought and are enjoying their first world class signing in Fernando Torres, and the stadium is only a bank loan away, albeit it is not the stadium that we as fans were looking forward to, it is still larger that Anfield. And here comes the interesting part. Imagine if DIC buys the club for whatever that has been reported. (350m) And then imagine DIC taking all the profit, cutting down all expenses and neglect to invest in the squad, slowly letting the club degrade to mid-table status. What then? Maybe Hicks is actually the saviour. Maybe he was right about approaching Klinsmann. After all ‘Klinsi’ is an interesting choice, and he might bring the pass-and-move fancy attacking play back to Anfield. Maybe Rafa is not the man to lead us forward? Maybe if we supported Hicks we would stand at New Anfield in 2011 with a consecutive Premiership Title infront of a 70.000 max capacity crowd?

 

I don’t’ know about all this right now, but I feel that this DIC ‘thing’ is spiralling out of control. We were afraid of them 11 months ago. A lot of people were happy that we didn’t sell the club to them. Now they are apparently the answers to our prayers?

Edited January 21, 2008 by Flamingo Crouch

[Guest kimusu2002]

You are too optimistic, maybe you are a Yank

 

By servicing 30m interest annually, which is about the profit LFC make each year, you really believe that Rafa will have a big transfer kitty for good players ?

 

If things go horribly wrong with Hicks, our beloved LFC will go bankrupt and Hicks won't be liable for it as all debt are against LFC assets.

 

Not saying that DIC are our saviours, at least they have a LFC fan as the CEO and almost certainly they will not debt against the LFC assets.

[benno2]

You are too optimistic, maybe you are a Yank

 

By servicing 30m interest annually, which is about the profit LFC make each year, you really believe that Rafa will have a big transfer kitty for good players ?

 

If things go horribly wrong with Hicks, our beloved LFC will go bankrupt and Hicks won't be liable for it as all debt are against LFC assets.

 

Not saying that DIC are our saviours, at least they have a LFC fan as the CEO and almost certainly they will not debt against the LFC assets.

 

Since when?

[Rimbeux]

Since when?

 

 

Since the tv money went up by approx £10m with this new deal and we've done ok in Europe. It's a figure before any player trading, but was iro £20m in a good year which has then been reinvested into the club with new players.

[John am Rhein]

Maybe he was right about approaching Klinsmann.

 

Credibility of the post hit zero right there.

 

When Hicks is hounded out, hopefully that will be top of the accusations hurled at him.

[Murphman]

The only faint praise I'll give to Hicks, IF DIC buy him and Gillette out and they walk with say, £50m profit, you have to acknowledge they have absolutely run rings around Moores and Parry. If DIC are prepared to pay millions of pounds over and above what the yanks did to 'buy' our club they would havebeen prepared too pay that sum a year ago and blown the yanks bid out of the water. Apparently the reason they didn't is because they got pissed off with the way Parry in particular treated them when the Americans came on the scene.

 

So Moores undervalued the club by (insert figure in millions) and Parry backed the wrong horse. What a pair of incompetent twots, no wonder we're struggling to keep up with the other three.

[RafaShanks]

So Moores undervalued the club by (insert figure in millions) and Parry backed the wrong horse. What a pair of incompetent twots, no wonder we're struggling to keep up with the other three.

 

Is the right answer.

 

G+H are entrepreneurs and saw us coming.

 

We've been well and trully butt f**ked!!!

 

I'm very surprised that DIC have come back in after the way they were treated IMHO.

[John am Rhein]

Apparently the reason they didn't is because they got pissed off with the way Parry in particular treated them when the Americans came on the scene.

 

What's the chances Parry exhibited the all-too-common British fawning deference to Americans combined with barely disguised contempt for Arabs?

[John am Rhein]

I'm very surprised that DIC have come back in after the way they were treated IMHO.

 

Maybe the fancy putting Parry in the stocks...

[David Hodgson]

Credibility of the post hit zero right there.

 

When Hicks is hounded out, hopefully that will be top of the accusations hurled at him.

 

You're right, in terms of the way Hicks has handled things.

 

However, I have hunch that Klinsman will prove himself a top manager.

[John am Rhein]

However, I have hunch that Klinsman will prove himself a top manager.

 

If he does then put him on the shortlist - but otherwise let the sausage munchers take the risk. And, in fact, its less of a risk for them anyway: the 'Trainer' job at Bayern is less important than the 'Manager' job at Liverpool.

[boohog]

What we should not forget about DIC is that they will secure the financing of the acquisition against the clubs assets and they will use similar securitisation techniques as G&H to construct and finance the stadium. The debt and the potential consequences will be the same.

 

The only upside is whether they are prepared to provide additional funding in the form of equity or downstream loans to fund transfers and bridge cashflow shortfalls during the construction process. Also whether they are more willing than G&H to 'weather a storm' in the event that performance drops.

[surf]

You are too optimistic, maybe you are a Yank

 

By servicing 30m interest annually, which is about the profit LFC make each year, you really believe that Rafa will have a big transfer kitty for good players ?

 

If things go horribly wrong with Hicks, our beloved LFC will go bankrupt and Hicks won't be liable for it as all debt are against LFC assets.

 

Not saying that DIC are our saviours, at least they have a LFC fan as the CEO and almost certainly they will not debt against the LFC assets.

 

IIRC (someone please correct me if i'm talking b******s ) we only had about 10-20m long term debt around the time of the takeover, so our annual debt burden was very low. If the new 350m loan is secured against the club and means we're paying 30m annually (doesn't that sound a little high?) then we're a lot worse off. Furthermore, that doesn't include investment in the new stadium. 

 

I don't like the sound of this at all. 

[surf]

What we should not forget about DIC is that they will secure the financing of the acquisition against the clubs assets and they will use similar securitisation techniques as G&H to construct and finance the stadium. The debt and the potential consequences will be the same.

 

The only upside is whether they are prepared to provide additional funding in the form of equity or downstream loans to fund transfers and bridge cashflow shortfalls during the construction process. Also whether they are more willing than G&H to 'weather a storm' in the event that performance drops.

 

Apart from a potential bigger transfer kitty ican imagine their higher creditworthiness means a lower interest rate and lower interst payments. I can also imagine their deeper pockets mean they're able (though not necessarily willing) to invest in the 'real' new stadium, rather than the scaled down version.

[boohog]

Apart from a potential bigger transfer kitty ican imagine their higher creditworthiness means a lower interest rate and lower interst payments. I can also imagine their deeper pockets mean they're able (though not necessarily willing) to invest in the 'real' new stadium, rather than the scaled down version.

 

I'm afraid it doesn't quite work like that. they will finance it on a non-recourse leveraged finance basis - i.e. DIC will have no liability if the club goes under (which will be the same basis if G&H secure the clubs assets against the loan) and the terms of the loan will not benefit from the owner's creditworthiness.

 

For this type of financing interest rates are very standardised and depend almost exclusively on the creditworthiness of the underlying company. The only reason there may be a marginal saving would be due to long standing bank relationships, but both G&H and DIC being very active investors both benefit from this. At best we would be looking at saving 1/4-1/2% p.a. on the interest max.

 

Agree with the latter point being potential upside though.

[surf]

Cheers boohog.

How about the 30m annual burden on a 350m loan, does this sound reasonable to you? At rates like those i'm tempted to break open the piggy bank and loan G&H the money myself...

[koppper]

Devils Advocate:

 

Say Hicks doesn't sell and they get the loan, then we have to service interest payments of 30 million per annum which wipes out our profits and leaves nothing in the transfer kitty. This would rise to over 60 million once a new loan is taken to cover the actual cost of the stadium. Any manager would also want at least 20 million per annum to stay in the top 4 because if we missed out even for 1 year, the value of "our" club goes down by at least 50 million.

 

Therefore, even if they can get they can get the stadium re-financed on top of the current re-financing, they would still need to fund 50 million pa out of their own pockets, with the risk of losing out big time if we slip out of the top 4. Given that they don't even want to fund anything at all from their own pockets and that Gillett and possibly Hicks are strapped for cash, they only have 1 option - SELL. If they hang on, the downside risk is too much.

 

I hope that they get the 220 million which they put in plus say 20 million in various stadium plans, plus 20 million in paid interest, plus 10 million profit = 270 million in total.....I don't think that they are in a strong position, and DIC know this.

 

p.s. I get annoyed when I see articles talking about loans taken out to cover G+H funded transfers. We only spent net +20million ffs, after reaching the CL final. They took money out of the transfer kitty, not the other way around.

 

 

They should sell now while they can get their money back with a small profit - then we can ALL count ourselves lucky not to have suffered too much.

Edited January 21, 2008 by koppper

[Guest sniffer]

What's the chances Parry exhibited the all-too-common British fawning deference to Americans combined with barely disguised contempt for Arabs?

 

If the DIC win the day, the first thing I expect to happen is Parry being kicked out.

[Magic8Ball]

Devils Advocate:

 

Say Hicks doesn't sell and they get the loan, then we have to service interest payments of 30 million per annum which wipes out our profits and leaves nothing in the transfer kitty. This would rise to over 60 million once a new loan is taken to cover the actual cost of the stadium. Any manager would also want at least 20 million per annum to stay in the top 4 because if we missed out even for 1 year, the value of "our" club goes down by at least 50 million.

 

Therefore, even if they can get they can get the stadium re-financed on top of the current re-financing, they would still need to fund 50 million pa out of their own pockets, with the risk of losing out big time if we slip out of the top 4. Given that they don't even want to fund anything at all from their own pockets and that Gillett and possibly Hicks are strapped for cash, they only have 1 option - SELL. If they hang on, the downside risk is too much.

 

I hope that they get the 220 million which they put in plus say 20 million in various stadium plans, plus 20 million in paid interest, plus 10 million profit = 270 million in total.....I don't think that they are in a strong position, and DIC know this.

 

p.s. I get annoyed when I see articles talking about loans taken out to cover G+H funded transfers. We only spent net +20million ffs, after reaching the CL final. They took money out of the transfer kitty, not the other way around.

They should sell now while they can get their money back with a small profit - then we can ALL count ourselves lucky not to have suffered too much.

I suspect that Hicks does want to sell, but he also wants to get DIC to finance ( bankroll/loan) him money for his other ventures, ( just my gut as he went to them for a loan in the first place).

 

I hope DIC promise him the loan, buy the club outright, then renaige on the deal

[boohog]

Cheers boohog.

How about the 30m annual burden on a 350m loan, does this sound reasonable to you? At rates like those i'm tempted to break open the piggy bank and loan G&H the money myself...

 

3 month libor is c. 5.6%

They are likely to pay between 2.25% and 3.25% over that dependent on the term and structure of the financing plus 1% fees upfront. That equates to something like 26m-30m per annum.

 

Remeber this isn't exactly like lending to a supermarket or asset based lending. If things go wrong with a football club, banks take a bath big time. And the amount of debt we are talking about is quite steep.

[surf]

So what you're saying is there's quite a risk premium. I was (perhaps somewhat naively) comparing investing in a stadium to investing in a house: long term deals. In the case of the stadium, the increased revenues from the extra attendance could be used to pay off the loan within 10-15 years. I'd have thought banks would be very interested and given the right securities doesn't sound like too much risk involved to me. Also, interest rates must have gone up since i bought my house last year (around 5% for >20 years fixed).

[koppper]

What if, when built, we issue some type of debenture/season ticket thingie?

[boohog]

So what you're saying is there's quite a risk premium. I was (perhaps somewhat naively) comparing investing in a stadium to investing in a house: long term deals. In the case of the stadium, the increased revenues from the extra attendance could be used to pay off the loan within 10-15 years. I'd have thought banks would be very interested and given the right securities doesn't sound like too much risk involved to me. Also, interest rates must have gone up since i bought my house last year (around 5% for >20 years fixed).

 

The issue with the stadium is there is no real alternative use unless Everton bought it. They\d either have to take a big haircut on value for a less affluent sports club to take it, or knock it down and build housing. When it comes to assets its all about alternative use. Your house for example has a market of tens of thousands of potential buyers and the valuation is ultimately dependent on the strength of the housing market. Therefore the risk the bank takes is much much lower.

 

What if, when built, we issue some type of debenture/season ticket thingie?

 

The cost referred to on the 350m is for high risk acquisition finance. You are talking about the new stadium finance. During the project phase this will be pretty expensive (same cost ballpark as the proposed refinancing). Once completed, the club will be able to securitise the stadium and finance it through the bond markets as per Arsenal.

 

Arsenals bonds pay 5.142% but they also pay a credit-insurer (to reduce the credit risk to investors) a premium, probably circa 1%. So all in they cost a little over 6%.

[reniformis]

I'm really really confused with this. Hicks may act like a fat blundering oaf, but he's a successful businessman. He seems to our eyes to be hell bent on running the club into the ground. It just doesn't add up. If he stays and carries out his plan, the club could be worthless in five years. Why would he do that? Is there some sneaky business technique I've not yet heard of? I could understand why he'd want to siphon off money to his other businesses but to siphon it off to give to the banks then be left with a financially f***ed investment? What's that about? Unless he owns the banks, of course.

 

 

On the other hand his plans may be to bring in extra revenue to the club to help pay off these loans eg from his other businesses (unlikely judging by his current actions), new revenue streams (eg selling the naming rights for Anfield immediately or some other sponsorship), putting ticket prices up or selling players (shudder) which I guess he could achieve by having a smaller squad and a manager who doesn't subscribe to rotation to the degree Rafa does? Lets face it, shipping say five squad players on 40 grand a week out = £10m a year saved on wages, not to mention any transfer fees they may bring in. Rafa won't change his methods though.

 

I personally don't believe Hicks will sell up. If the stories about him wanting out are true then why sign Skrtl, why bother paying millions for the stadium plans to be redrawn?

 

Either this is brinksmanship for a sale, which we all hope, or he intends to see this through but has something else up his sleeve. He must have, because his actions thus far make no financial sense whatsoever. I reckon the fans will end up paying with higher ticket prices, or one of those schemes like the mancs have where you can't renew your season ticket without paying in advance for cup tickets as well. They know that as long as the team isn't in freefall at the same time, then people will still buy them. They'll moan, but they'll pay if they can afford it. If they can't, someone else will. This is the only ace they hold whilst we still have a ground that can't accommodate everybody that wants to go, and you can bet they'll use it.

[Dominus Maximus]

Out of interest. Does anyone know how Arsenal got their stadium built? Who payed what and how their debt is structured?