*Europe holds key as Liverpool's worried owners juggle with figures*
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*More than any ordinary business — and we know that football is not that — the “going concern� question is a sensitive one for top European clubs. *
For Liverpool, it is vital not only to their future as a solvent company but also their continued participation in the Champions League, on which they rely increasingly for the income to service their burgeoning debt.
It is a delicate situation. Uefa, which runs the Champions League, demands that clubs provide detailed financial forecasts before it will issue them with a licence to compete in its competitions.
But, despite worrying levels of debt and the caveat from their auditor at KPMG about their ability to remain solvent, George Gillett Jr and Tom Hicks, the co-owners, must have done enough to convince Uefa that Liverpool will not go bankrupt halfway through next season or the club would already have been thrown out of Europe.
Given the continued reluctance of banks to lend money in the recession, the language of Liverpool’s accountants is not wholly unexpected. Auditors are required by financial regulators to make their assessments about whether a company is a going concern on the assumption that it can stay in business for the next 12 months. Increasingly, confidence in that assumption is low.
Yet the fact that a £350 million credit facility secured by Kop Football (Holdings) Ltd, the club’s holding company, is due for repayment on July 24 is undeniable. So, too, is the lack of a replacement arrangement with RBS and Wachovia, despite the insistence of the owners that there will be one in the coming weeks.
So KPMG has a duty to highlight the “material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern�. Experts say this constitutes a special alert for shareholders — or, in this case, supporters. It is essentially code for “you should be worried about this�.
What is worrying for Liverpool is a basic admission that the club are not generating enough income to cover interest payments totalling £36.5 million and the ambition to attract the biggest — and most expensive — players to Anfield. Staff costs in the 2007-08 season were nearly £90 million.
Even if Gillett and Hicks do successfully renegotiate the soon-to-expire credit facility, there remains the question about their long-term ability to take losses that at the last count were £42.6 million.
There will be continued pressure on the owners’ American sports businesses to prop up Liverpool’s financial house of cards if the credit crunch continues to equal crippling lending terms.
It surely has not helped that they made a dud call on the direction of interest rates, entering into fixed agreements between 4.3 per cent and 6 per cent as the Bank of England cut its rate to a record low of 0.5 per cent. The cost of exiting these hedging agreements would total £30.6 million, prompting KPMG to describe them as “potentially onerous contracts�.
The bottom line is, when they add it all up, will they reckon it is worth it?
*Liverpool Supporters' Group Brands Hicks & Gillett 'Failures'*
Angry Liverpool supporters on Merseyside have today expressed their anger at the perceived failures of the club's co-owners Tom Hicks and George Gillett. The American pair have saddled the club with enormous debts that have had accountants of the club's parent company, Kop Holdings Ltd, expressing significant misgivings about whether the Reds can continue as "a going concern".
Hicks and Gillett have until July 24 to refinance the club's £350 million debt, otherwise the club could be facing up to a pretty grim set of economic circumstances.
This has led the leader of supporters' group 'Spirit of Shankly', an organisation that has never veiwed the Americans kindly, to state forcefully their opinion of the two men, who they feel are on the verge of forcing the famous old club out of existence.
"The revelations just underline Hicks and Gillett’s utter failure as owners, and the club has not progressed one iota as far as investment is concerned," the leader of the group, Paul Rice, told The Liverpool Echo.
"Fans should be very concerned with these figures as the Americans have saddled Liverpool with debt which could force the club into administration.
"There have been rumours going around about them getting an extension but we urge Royal Bank of Scotland to not refinance the loan and instead seek more responsible and appropriate custodians for Liverpool Football Club.
"All an extension would do is deepen the club’s problems.
"The owners have clearly been delaying the inevitable in terms of publishing these accounts and I don’t think the scale of the problem is a surprise to anyone.
"Our club is going nowhere with Hicks and Gillett in charge and we need them out. They have been extremely lucky over the past season as relative success on the field has taken the edge off demands for them to go but this [set of financial figures] reinforces what we have known all along.
"Until they are gone this vicious circle of putting the club into massive debt and using profits to make huge interest payments will continue."
It was also confirmed today that the duo's plans for a new stadium for the Reds in Stanley Park were on hold until at least 2012. Sources in London have also reportedly indicated to The Echo that all interest in Dubai and Kuwait, where consortia were exploring the possibility of purchasing the club, has now vanished.
