Firm Financial Footing – At What Cost?

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Via Flickr from Alex Jilitsky

By Jim Kostecki

“The transfer policy was not about cutting costs. It was – and will be in the future – about getting maximum value for what is spent so that we can build quality and depth…The ethos is to win. We will invest to succeed. But we will not mortgage the future with risky spending.”

These are the words John W. Henry penned in an open letter to Liverpool supporters on September 3rd, 2012, two days after the summer transfer window closed. The letter was in response to Liverpool’s failure to secure a replacement to striker Andy Carroll – the club’s record signing in January 2011, who was loaned out just 18 months after his arrival.  Many of the Liverpool faithful felt confused, betrayed and let down by the transfer window madness that seemed to be a microcosm of the club’s overall failure to compete for a coveted Champions League position.

That was 2012 – fast forward to the present day, and with less than a week to go in the summer transfer window, Liverpool are yet again faced with the prospect of failing to secure some needed signings. Many fans feel the time to spend is now, and failure to do so will guarantee Liverpool stays a mid-table side for many years to come.

But how easy it is to be so near-sighted in the modern game. It has been well documented that FSG’s focus is to maintain a level of financial stability while still aiming to compete at the highest level. Whether or not that is achievable is another story. The £25 million spent last summer on Joe Allen and Fabio Borini, both of whom have never really broken into the first team, remind us of just how important it is to pay the right price for the right player.

So far this transfer window, Liverpool ranks sixth among EPL clubs in terms of money spent (totaling £23.3 million). The more intriguing number is the £27.5 million in fees received, giving the club a net profit of £4.2 million. Furthermore, out of the seven other EPL clubs that have spent more than £20 million this transfer window, all of them are at least £20 million in the red. FSG must become comfortable with being willing to spend money on quality transfer targets that add depth to the squad – even if it means spending exceeds revenue.

Another primary focus of FSG has been to greatly reduce the wage bill.  Replacing the fan favorite Pepe Reina, who reportedly earned around £100,000 a week, with an ambitious and young Simon Mignolet was certainly aimed at easing the burden on the checkbook – especially considering Reina’s form over the last few seasons. Additionally, losing the likes of Stuart Downing, Jay Spearing, Jonjo Shelvey and Jamie Carragher (retirement) further reduced Liverpool’s weekly wage bill this summer by almost £500,000.

It is hard to argue against a business model that ensures the club’s long term financial stability. It relies heavily on rational thinking, sound business practice and maximizing current revenue streams (in 2010, Liverpool signed a then record £20 million sponsorship deal with Standard Chartered). FSG have been willing to invest in the club (example here and here), while at times refusing to take the extra step to add quality to the squad (example here and here). By no means is this a simple road to navigate, but the owners must not let past transfer failures prevent squad improvement.

After barely edging past a brave Notts County side in the League Cup last night – and losing the likes of Joe Allen, Kolo Toure and Aly Cissokho to injury – now is the time for FSG to restore the fans’ confidence in their mission. With the transfer market closing in just a few days, the owners must back their manager and ensure the club has the necessary resources to compete.

There is a worrying line from John Henry’s 2012 open letter to the fans: “We have no fear of spending and competing with the very best but we will not overpay for players.” Drastic times call for drastic measures, and it is uncertain whether the FSG business model can adapt to the ever changing transfer market environment.

You can follow Jim Kostecki on Twitter @jim_kostecki

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2 thoughts on “Firm Financial Footing – At What Cost?

  1. we earned £209 million last year i would love Ian Ayre to show the fans the books and a list of LFCs overheads, other clubs are going into debt because they know they have got £60 million coming from the new Sky TV deal, FSG know that LFC will always sell shirts worldwide and attract sponsorship money because of our history, they dont need to invest in quality to take us back into the champions league they can let us sit in 6th place and still rake the profits in, as for JWHs statement about never allowing the club to get in financial dire straights again well that was not the club, LFC as a business has always done well, good fan base, top sponsorship deals and we are always among the top 4 kit sales/merchandising world wide, we were in danger because the previous owners borrowed money to buy the club, Rick Parry never did his research and the 2 cowboys were just a pair of chancers trying to make a few bucks

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  2. In general I agree with the gist of the article, but one point stands out for me as troubling:

    “Replacing the fan favorite Pepe Reina, who reportedly earned around £100,000 a week, with an ambitious and young Simon Mignolet was certainly aimed at easing the burden on the checkbook – especially considering Reina’s form over the last few seasons.”

    I think that in this you are being counter intuitive to prove your point. Surely the poor form of the past 3 seasons (comparative to previous seasons) had a major influence in the decision to replace Pepe, rather than being an afterthought behind reducing the wage bill? Plus you entirely fail to mention that every man and his dog assumed that Pepe was off to Barca.

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