New England Sports Ventures (NESV), the group that owns the Red Sox among other businesses, recently purchased the Liverpool Football Club (LFC) for $476 million or at a discount of roughly 40% according to Forbes. The business publication valued LFC at $822 million. I think we know why John Henry and his partners wanted to own the football club.
NESV got a such a good deal on LFC because the previous owners, George Gillett Jr. and Tom Hicks, could not make their acquisition debt payment. It appears that the pair purchased LFC by leveraging the team or using it as collateral. Essentially, Gillett and Hicks were foreclosed on and their house (LFC) was sold at a below market rate to make the creditors whole.
As Red Sox fans, we are not concerned about LFC. We want to know if this purchase will financially restrain the Olde Towne Team from signing this winter’s best free agents.
It could negatively affect the product at Fenway since the most of the debt will probably not be the LFC books, assuming it was not primarily purchased from excess cash. It was made clear that…“No debt will be loaded on to the club, and no money will be taken out of the club, in any way, to service their cost of buying it. That is a clear pledge…”
If Red Sox, NESN and other team related operating margins are being planned on to finance the purchase of LFC, then it could FURTHER reduce the desire to go the extra mile or rather dollar for a Mark Teixeira or Alex Rodriguez. But that is nothing new.
The Red Sox only sign free agents that make financial sense for them, which usually means they get outbid by the Yankees and Mets. If player X is going to be four wins over player Y and that will bring in $15 million, then the Red Sox top offer is $15 million. But in New York, those extra four wins will generate $20 million, so Johnny Damon heads south.
Unless Red Sox related revenues fall to extreme levels, which is highly doubtful with NESN and their strong core of players, debt service for the acquisition of LFC will probably not have a negative impact on attaining the next hot free agent. The NESV philosophy of player acquisition has a much bigger impact. Team revenues pay for player costs. As Henry said after purchasing LFC, “I don’t have ‘Sheikh’ in front of my name…We look at revenues in sports as being the ability to send out a strong team on the field.”
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evanbrunell: 
alexconvery: 
CharlieSaponara: 
There's another reason the LFC price was low, as I understand it – the danger of relegation (to a lower division). If this happened, based on poor performance, the team would lose much of its value. This is a kind of risk that doesn't exist in American sports.
Is it possible, then, that NESV will feel constrained to make a large additional investment in LFC for players, with (short-term but real) financial implications for the Sox?
Big spending would be possible, but it would be contra to Henry's statement. Plus, the club can always move back to EPL. LFC is a long-term investment.
With the successes of the Giants, Rangers, Rays & Padres (whose combined payroll is less than the MFY and not much more than the Sox or Phillies) perhaps its time for us to get onto the so-called bridge. The success of rookies and sub-star veterans on these teams demonstrates that we don't NEED to go after the Lees, Teixeiras or Werth's to win it all. The young pitching of the Giants and huge bats and D from so-called washed up hitters & fielders summarily reduced the disparities between All-Stars and role players, rookies and veterans.
If any budgetary constraints occur due to the LFC, the Sox would still make the postseason with Lowrie, Reddick, Kalish, Nava, Navarro, Anderson, Doubront, Bowden, Richardson, Atchison, D-Mac, Patterson. Heck, these guys came very close in 2010. And pretty soon with Lin, Iglesias, Kelly, Pimental, Price, etc., this team will pay for itself; and that, I am certain, is the goal of the FO.
I can guarantee you that Henry & NESV did not pick up "get a good deal" on Liverpool.
You are making the assumption that the Forbes valuation of Liverpool was correct. In fact, the Forbes valuation was so far off that it brings into question the integrity and qualifications of the 3 guys who put out that Forbes article.
In valuing Liverpool, Forbes massively screwed up in that (1) they did not attribute a realistic price-to-sales multiple to Liverpool's finances. In the middle of a world-wide recession they were valuing Liverpool at Dot Com bubble-esque levels. Furthermore, bizarrely (2) Forbes did not take any of Liverpool's debt into consideration when placing a value on the club.
In the end they missed the value of the club by a whopping 40%…! They were off by 40%. Try pulling that stuff if you are a wall street trader or banker and you are out of a job. Do you really think the market for futbol clubs shrank by 40% or do you think that maybe just maybe these 3 Forbes journalists who know very little about finance screwed up their figures.
Despite Hicks going through a financial meltdown with most all of his companies, the irony is of course that this Liverpool deal is the farthest thing from an actual distressed sale. While Hicks & GG may have defaulted on personal loans and are going through their own personal distressed situation, the fact remains that the club hasn't defaulted on anything.
IMO the £300M is OVER valuing the club, but Henry and his team picked that number because it should not only get him at the forefront of possible owners of a great club, but also because it gives the very profitable NESV enough dry powder going forward to build this club.
The fact is that with NESV's £300M purchase, then during Hicks' ownership the Liverpool's value will have increased 37%. 37%!! Wow!
That is a significant valuation change when you consider that during that exact same time
* the value of Microsoft is DOWN 17%
* the FTSE 100 (UK stock market) is DOWN 10%
* the S&P 500 is DOWN 19%
* the Dow Jones Industrial Average is DOWN 12%
* the British Pound is DOWN 25% versus the Euro
* the British Pound is DOWN 19% versus the US Dollar
+37% INCREASE. It just doesn't make much sense, does it?
LFC has done relatively nothing over that time under Hicks' siege of the club to increase real assets of the club. No new stadium. Very limited improvements on the current one. Meanwhile Arsenal have built the hotel/housing complex not to mention a brand new stadium. Even United have built a substantial amount of additional luxury boxes over this time-frame, have re-financed their debt overhang, and have won a closet-full of titles. Based on that, it's hard for me to believe that LFC realistically should have seen a fair market value that was anything close to a +37% increase in value.
In short, the Forbes numbers were embarrassingly wrong… and wrong to the point where you probably shouldn't refer to them in your writing anymore. And in addition, given the 37% appreciation of Liverpool's value during a world-wide recession, it's hard for anyone to truly believe that Henry & NESV picked this up on the cheap. If anything, they probably overpaid.
But kudos to NESV. They have a great great asset now in Liverpool. Lots of similarities between Liverpool 2010 and Sox in 2002. Plus they will be dealing with good passionate people in Merseyside who know how to support a club.
Also…
I am NOT implying that Henry & NESV should not have purchased Liverpool. I am merely pointing out that they paid a very fair price for the club (and may have even over-paid by a little).
In fact I believe the deal is a no-brainer for them. They have the right model in plan to take Liverpool back to greatness.
There are a number of big opportunities with Liverpool that a ripe for the picking for unlocking value.
* Antiquated small stadium that has a lot of revenue potential…. CHECK
* The possibility of a new stadium that has even MORE revenue potential… CHECK
* Antiquated local-only approach to marketing… CHECK (although their recent hire who is in charge of this now is doing a much improved job)
* Antiquated approach to valuing players… CHECK. This sport is dying for a "Moneyball"-approach to things
* A few big world class players (i.e. Reina & Torres = Pedro & Manny) that you can build the team around… CHECK
* A few aging stars (i.e. Gerrard = Nomar) who will be attractive to other teams… CHECK
* An incredible fan base… CHECK
Liverpool is a club who runs their operations @ a profit, so it's not like there are operational deficits to deal with Day 1.
Again, the similarities between Red Sox 2002 and Liverpool 2010 are eerie.
IMO, this is going to be a win-win situation.
Another source on the value of Liverpool.
“Two bankers who requested anonymity say that, under ordinary circumstances, the team would have been worth an additional 100 million to 150 million pounds.”
For a total of 400 to 450 pounds or roughly $650 to $725 million as the value of Liverpool.
http://www.bloomberg.com/news/2010-11-10/john-hen…