Many Liverpool fans are baffled by the fact Sheffield United can spend £18m on a goalkeeper, Leeds United and Wolves can drop £35m on strikers, but the Premier League champions – who got to two consecutive Champions League Finals in 2018 and 2019 – seemingly can’t spend a penny.
We didn’t reinvest in the squad last summer – and are not reinvesting this time either. The arrival of Kostas Tsimikas was paid for by the sale of Dejan Lovren to Zenit – and the refusal to reinvigorate the squad has left many frustrated.
In truth, it has confused us all well. There’s a huge new Nike deal; the TV money is still coming in and the global brand is bigger than it ever has been – can we really not afford a centre-back, or more to the point, Thiago?!
But Swiss Ramble, the superb financial football journalist, has laid out the figures to help us, and now you, get a better understanding.
It’s a little painstaking, but it’s worthwhile taking your time to educate yourself on the facts surrounding the situation.
Blindly declaring, ‘FSG are tight!’ doesn’t really do the job once you’ve read this.
And give him a follow on Twitter, too:
To date this summer #LFC have only spent £12m on Olympiacos full-back Tsimikas, while #CFC have splashed £201m. Other have been more prudent, but still been more active than the Reds: #MCFC £71m, #THFC £59m, #MUFC £35m and #SFC £31m. #LFC actually have £3m net sales. pic.twitter.com/4jyRGgk9BW
— Swiss Ramble (@SwissRamble) September 7, 2020
This is somewhat puzzling, given that #LFC have been highly profitable in recent years, so let’s look at what is behind their revenue growth and the impact on the bottom line. As well as the last published accounts (2018/19), we will take a broader view of the last 3 years. pic.twitter.com/6j4obV45lY
— Swiss Ramble (@SwissRamble) September 7, 2020
However, worth noting that this £207m pre-tax profit is entirely due to £207m profit on player sales. Excluding these profits, #LFC would have broken-even. #LFC have spent everything they earned on expenses: revenue £1,353m less operating expenses £1,338m plus interest £15m. pic.twitter.com/eZbaUXiOwq
— Swiss Ramble (@SwissRamble) September 7, 2020
Player sales have been an important part of #LFC strategy, generating £207m profits from this activity over the last 3 years, only surpassed by #CFC £243m, but far higher than the rest of the Big 6: #AFC £139m, #THFC £124m, #MCFC £112m and #MUFC £55m. pic.twitter.com/r2un1QOIGV
— Swiss Ramble (@SwissRamble) September 7, 2020
#LFC match day revenue has grown £22m (35%) in last 3 years from £62m to £84m, mainly due to the expansion of Anfield’s Main Stand. This is the 2nd highest in the Big 6, only surpassed by #THFC (due to their new stadium and playing at Wembley during the construction). pic.twitter.com/URl6uO69b3
— Swiss Ramble (@SwissRamble) September 7, 2020
Revenue distributions from the Premier League TV deal grew by £62m (68%) in last 3 years, partly due to the new deal, but also because #LFC improved their league position from 8th to 2nd. This success on the pitch meant that #LFC growth was the highest of Big 6. pic.twitter.com/LkTRxbterD
— Swiss Ramble (@SwissRamble) September 7, 2020
In the last 3 years #LFC commercial income has grown by £72m (62%) from £116m to £188m, which has helped narrow the gap to #MUFC (flat over this period), due to new sponsorship deals and record retail sales, along with contractual bonuses for winning the Champions League. pic.twitter.com/nrqLp501eo
— Swiss Ramble (@SwissRamble) September 7, 2020
Similarly, #LFC player amortisation, the annual charge to expense transfer fees over a player’s contract, is up by £47m (73%) from £65m to £112m since 2016. This reflects investment in the team, but is still a lot lower than #CFC £168m, #MCFC £127m and #MUFC £126m. pic.twitter.com/VVKpaJHr0D
— Swiss Ramble (@SwissRamble) September 7, 2020
For the cash flow statement, we need to strip out the non-cash accounting entries, both for player trading, namely profit on player sales and player amortisation, and other depreciation, impairment, etc; then adjust for working capital movements.
— Swiss Ramble (@SwissRamble) September 7, 2020
Football clubs do not fully expense transfer fees in the year a player is purchased, but instead write-off the cost evenly over the length of the player’s contract via player amortisation, while any profit made from selling players is immediately booked to the accounts.
— Swiss Ramble (@SwissRamble) September 7, 2020
If the player were to be sold at this point for £35m, profit on player sales from an accounting perspective would be £23m, i.e. sales proceeds of £35m less remaining book value of £12m. pic.twitter.com/p3m3MRn5GG
— Swiss Ramble (@SwissRamble) September 7, 2020
Working capital measures short-term liquidity, defined as current assets less current liabilities. Changes in working capital can cause operating cash flow to differ from net profit, as clubs book revenue and expenses when they occur instead of when cash actually changes hands.
— Swiss Ramble (@SwissRamble) September 7, 2020
Some clubs had large working capital movements, e.g. #THFC cash flow benefited from a £197m positive movement (increase in creditors), but #LFC only had £16m beneficial impact, while #CFC cash flow was adversely impacted by a £75m negative movement (increase in debtors). pic.twitter.com/7ks3elueFH
— Swiss Ramble (@SwissRamble) September 7, 2020
In this way, over the last 3 years #LFC £15m operating profit has been adjusted to give £307m operating cash flow, while #MCFC operating loss of £74m becomes a much higher operating cash flow of £470m. #THFC £640m and #MUFC £635m had even more. pic.twitter.com/J3y8g5OTQO
— Swiss Ramble (@SwissRamble) September 7, 2020
#LFC have also spent £90m on capital expenditure, including the Main Stand expansion and Kirkby training ground. This outlay is only reflected in the profit and loss account via depreciation. Second highest in Big 6, though dwarfed by #THFC £1 bln investment in new stadium. pic.twitter.com/1jxJAkbqWT
— Swiss Ramble (@SwissRamble) September 7, 2020
Thanks to tax losses in previous years, #LFC has not had to pay any corporation tax in the last three seasons, compared to large payments at #THFC £47m, #AFC £20m and #MUFC £15m. pic.twitter.com/Y64i4ShwXT
— Swiss Ramble (@SwissRamble) September 7, 2020
#THFC had to take on £510m additional debt (to finance the new stadium), while Abramovich pumped £258m into #CFC and #MCFC received £64m more funding (mainly new share capital). In contrast, #LFC had £34m net repayment of loans, while #MUFC paid £69m dividends to their owners. pic.twitter.com/Jc4X8VPA56
— Swiss Ramble (@SwissRamble) September 7, 2020
#AFC and #THFC could absorb those cash outflows, as they had built up large cash balances in prior years. Even after #LFC £29m cash inflow, their £38m cash was still significantly lower than their rivals (as at end June 2019): #MUFC £308m, #AFC £167m, #MCFC £130m and #THFC £123m. pic.twitter.com/LHFOC72LPz
— Swiss Ramble (@SwissRamble) September 7, 2020
The good news is #LFC have absolutely no issues with Financial Fair Play. Their £207m profit over the three-year monitoring period is further boosted by £69m allowable expense deductions (youth, community, women, depreciation, etc), which gives them a £275m break-even surplus. pic.twitter.com/nXNkTafqaK
— Swiss Ramble (@SwissRamble) September 7, 2020
Based on average revenue of £3.2m a match, #LFC match day income will be around £13m lower in 2019/20, as there were 4 fewer matches, including 4 Premier League games played behind closed doors. The reduction in Champions League games was offset by more FA Cup games. pic.twitter.com/RO38ef1g9S
— Swiss Ramble (@SwissRamble) September 7, 2020
The impact of #LFC being eliminated in the Champions League last 16 by Atletico Madrid, compared to winning the trophy (for the 6th time) in 2018/19, is £27m (£71m vs. £98m). The decrease in prize money is slightly offset by a higher TV pool (better league position prior season). pic.twitter.com/HsVRZhmOLb
— Swiss Ramble (@SwissRamble) September 7, 2020
Like every other club, #LFC will be very concerned about the impact of COVID-19 on their finances. This is almost impossible to quantify, especially how this will affect sponsorships, including the lucrative new Nike kit deal, and when fans will be allowed back to the stadium.
— Swiss Ramble (@SwissRamble) September 7, 2020
In any case, it’s clearly a major financial concern, which has resulted in many clubs taking out huge loans, e.g. #THFC £175m and #MUFC £140m, while even Stan Kroenke at #AFC has replaced an external loan with an owner’s loan (to lower interest payments).
— Swiss Ramble (@SwissRamble) September 7, 2020
Could #LFC invest more money in the transfer market? Yes, but they would probably have to “sell to buy”, unless they changed their business model, which would require increasing debt (either via an external loan or an injection from the owners).
— Swiss Ramble (@SwissRamble) September 7, 2020