December is always a troubling month for me. The weather suddenly becomes cold and dreary, the days continue to get shorter, and my mind realizes that the end to my sanity is only one month away. I am referring to the approaching chaos that is the January transfer market. “Silly season” never really goes away when the summer window closes at the end of August, but the rumor mill that spins only sporadically throughout the fall suddenly starts to accelerate out of control as January 1st approaches. Supporters from around the globe pour through the obscure corners of the internet searching for the “next (insert any country here) Messi “ whom somehow is being courted by and about to sign with Liverpool. It’s maddening. Nonetheless it is unavoidable, and technically speaking it is an opportunity to improve the club. Both Daniel Sturridge and Luis Suarez were both acquired in January. There is no denying that the club has some weaknesses which necessitate the acquisition of reinforcements (I’m looking in your direction, Simon Mignolet), but realistically what can be done???
One of the biggest pet peeves of mine is when supporters make blanket statements about acquiring players without full knowledge of the process. People always focus on the transfer fee and neglect to consider the wage rate required to convince that player to relocate. For example I’ve heard some supporters lament that we should’ve splurged and spent the £60 million that Manchester United used to get Angel di Maria last summer. But could Liverpool really afford his wage rate (reportedly at £150K-per-week)? I think not. Do you know how many players on Liverpool’s current roster make over £100K/week? Only one and his name is Steven Gerrard (£140K/week). Yet fans continue to flood social media with outrageous demands to bring in players that would instantaneously get paid more than Captain Fantastic. Perhaps this would help improve the results in the short-term, but the long-term financial implication could be devastating. It could bring LFC closer to administration and eventual relegation to League One before bringing us Title #19. Don’t believe me? Ask a Leeds United supporter, if you can find one to actually admit it.
Clearly there must be a way to increase revenue, allowing the club to go after higher-priced talent. One way to achieve that is raising ticket prices, but recently that tactic has begun to appear problematic. During last week’s Stoke City victory, the vocal supporters from the Kop had published a boycott of flags and banners. Why? At first I thought it was merely a protest about the rising cost of ticket prices, which admittedly have been escalating greater than the rate of inflation. My honest gut reaction was that to be a rather selfish protest from the fans. Recent reports list Liverpool as the 7th most expensive season ticket price (£869 per ticket, compared to £2013 for Arsenal and £1895 for Spurs) and the single-most expensive ticket for a match at Anfield is only £59 (ranks 6th in the league – Arsenal again tops at £97 with Chelsea in 2nd at £87). Those prices hardly seem unreasonable to me. As an American, I guess I’ve gotten used to paying outrageous prices, and couldn’t the club use the extra revenue to reinvest in talent? I’ve since learned that this protest was more about giving fans a voice to be heard in the process and not solely about price. That is a fight which I wholeheartedly support. Too often in American sports the greedy ownership groups refuse to “devalue their product” and keep the ticket prices out of the everyday family’s budget. If you don’t want to pay exorbitant prices for great seats, then they’re betting someone else will… even if that someone else happens to wear a corporate suit with clients instead of their favorite player’s jersey with their friends. I was proud to see our American owners step up and agree to listen to the fans as they voice their concerns this week. Not only does it show the owners are listening to the supporters, but it will also bring back an incredible atmosphere to the Kop to hopefully help bring the club continued success. The issue of ticket prices does bring up an interesting conundrum however. If the club can’t raise revenue by raising ticket prices, then how does the club generate more revenue to attract top talent to Merseyside?
Published annual reports at Companies House from each Premier League club in the 2012-13 season can help sort this out. Note that this data doesn’t reflect the most recent Premier League campaign where Manchester City beat out Liverpool for the title, rather the season prior to that when Manchester United won the league in Sir Alex Ferguson’s last season. To no one’s surprise, Manchester United also led the league in turnover (defined as all reportable incoming revenue) with £363-million. What was surprising was the disparity between United and the rest of the league. Arsenal was a distant second place bringing in only £283-million. Much like their position in the table, Liverpool sat in 5th place with only £206-million of incoming revenues. That’s 56.7% of what Manchester United had at their disposal, hardly a level-playing field. Of that £206-million, approximately £45-million came from match-day revenues, £64-million came from television contracts, and £98-million from commercial endeavors (i.e. retail merchandise, property). In each of those individual categories, Liverpool ranked 4th or 5th in the league, similar to where you’d expect to see them in the table. Manchester United led the way with about £109-million from match day income and £153-million from commercial endeavors, while Chelsea barely beat them out for top television revenue at £105-million. In my eyes, there’s plenty of room for improvement.
It’s still too soon to tell how the 2013-14 numbers will improve the situation (the figures show in the above paragraph were published in May of this year), but we can get a pretty decent indication that the gap is starting to narrow. Television revenues for the 2013-14 have been published by the league, and Liverpool jumped from 5th place to the top. It’s difficult to compare these results from what was posted in the 2012-13 annual reports because I’m not 100% certain that it’s an “apples-to-apples” comparison. Nonetheless we know that serious improvement was realized by Liverpool for them to jump four spots in the rankings. According to this most recently published report, the only variables under consideration are Facility Fees (direct correlation to the number of live national games your club is selected to play in) and Merit Payment (direct payment for your league finish). Clearly there was a revived national interest in Liverpool’s late title push, because they ended up getting selected for 28 national broadcasts. Manchester City, Manchester United, Chelsea and Arsenal were tied for second place with only 25 broadcasts. What’s the moral of the story? Be competitive on the pitch and you’ll increase your television revenues. Unless you are Manchester United in which case it matters not because clearly the fans were still interested to watch them finish 7th in the league and sing “Moyes In!!” to their television sets.
Earlier this week it was announced that the club are moving forward with plans to expand the capacity at Anfield, and that added revenue will certainly help. Exactly how much will it help? Early forecasts from the club have them targeting an annual figure around £90-million for match day revenue once the expansion is complete. That’s double of what they earned in 2012-13 if accurate. That figure would put them in the same vicinity as second-place Arsenal who earned £93-million on match day two seasons ago and well ahead of the likes of Chelsea (£71-million) and Manchester City (£40-million… not a misprint, £40-million is the correct figure). Not quite in the United stratosphere, but getting closer.
Liverpool reported a wage bill around £132-million in 2012-13, 5th highest in the league. Compared against their incoming revenue, and they spent 64% of their budget on player wages. Looking at the figures from the top seven perennial contenders, and Liverpool are right in the middle. Manchester City spent a whopping 86% on wages, which shockingly wasn’t the highest in the league that season (that dubious honor went to Queens Park Rangers, who despite spending 128% of incoming revenue on players got relegated anyway). Everton was at 73%, while Chelsea was at 69%. Manchester United, despite their enormous bloated salaries, still only hit 50% of their revenue. Arsenal and Spurs were not far behind Liverpool. What does this all mean? Not a whole lot, except that Liverpool appear to be operating under the same financial considerations as their competition. I’d also like to add that arbitrarily adding a £150K-per-week player without offsetting against a departing player adds about £8-million to the wage bill, or another 4% against incoming revenues. Considering how the club is still operating at a slight loss, any significant additions to the wage bill had better be successful.
What about Champions League? The figures listed above do not take into consideration revenues generated from UEFA competition. Despite their shaky start in that competition, Liverpool have already increased their earnings by approximately £15-million (includes UEFA bonus plus pro-rated match day revenues) and that could increase another £6-million if they can defeat FC Basel on Wednesday and make it to the knockout stage. Not including peripheral revenues (i.e. merchandise sales) associated with Champions League play, and Liverpool could increase their annual revenue expectation by more than 10%. Imagine if you were offered a 10% increase in your annual salary for performance incentive. It’s not insignificant.
All of this information does little more than show you the business side of Liverpool Football Club appears to be headed in the right direction. Two years ago, LFC sat around 5th place in every major financial category. Two years from now, we should be closer to 2nd or 3rd. But we need to remain relevant in the league to keep up our television revenue and we need to keep qualifying for Champions League if we are to continue trending upwards. While it appears as though Manchester United is on a different fiscal planet than the rest of the league, that gap is shrinking as well. Early estimates have their 2013-14 turnover reducing from £363-million down about 20%, and lack of European football this season should drop it even further. They are still paying off debts leveraged by the Glazers from their 2005 takeover of the club, and £389-million of that debt remains to be paid. They no longer can afford to be careless. The gap is shrinking, and alarm bells are ringing at Old Trafford.
None of this really matters if Liverpool can’t continue to win. The Reds have won two in a row, and if we can somehow win the next five games then consider what we’ll have achieved. We’ll have advanced to the knockout stage in Champions League by defeating Basel, we’ll have advanced to the League Cup semifinals by beating AFC Bournemouth, and we’ll be back in the thick of the top 4 race by defeating Sunderland and rivals Manchester United, and Arsenal as well. It will be a tough task to complete, no question. But it wasn’t that long ago when this team won 11 in a row so a 7-game winning streak is certainly possible. So get on down to the pub and cheer the Reds on to victory this week!!! We need you now more than ever!!