Champions League qualification key for Liverpool finances

The Swiss Ramble has been undertaking his usual forensic analysis of the latest accounts of Liverpool FC.

The club swung from £42m profit before tax to £46m loss, as the impact of COVID-19 resulted in revenue falling £43m (8%) from £533m to £490m, while expenses increased £31m (6%). Profit on player sales fell £18m to £27m, but £4m gain from sale of Melwood. Loss after tax was £39m.

Although the £46m loss is obviously not great, it is actually not too bad compared to others, as all clubs have been adversely impacted by COVID with no fewer than 11 in the Premier League posting losses above £50m to date in 2019/20.

This is the first time Liverpool have posted a loss since 2016. In fact, even with the chunky loss in 2020, their profits in last six years add up to around £200m. The preceding four years (2011-14) saw total losses of £139m, so the improvement in the club’s financial position is evident.

The main driver of the revenue reduction was broadcasting, which fell £59m (23%) from £261m to £202m, while match day dropped £13m (16%) from £84m to £71m. This was partially offset by commercial rising £29m (16%) from £188m to £217m.

Despite the decrease in 2019/20, revenue has still grown by £188m (62%) in the last four years, largely due to commercial £102m and broadcasting £78m. Thanks to the TV rebate and revenue deferral, commercial is now the largest revenue stream with 44%.

Success on the pitch, both domestically and in the Champions League, has driven significant revenue growth and profitability, but they have been adversely impacted by the pandemic (like all other clubs). Champions League qualification is important to future prospects.

The £490m revenue is the second highest in England, within touching distance of Manchester United £509m, having overtaken Manchester City £478m last season. There is then a fair gap to the following clubs: Chelsea £407m.

£217m is the third highest commercial revenue in England, though still a fair way behind Manchester United £279m and Manchester City £246m. However, they are now well ahead of Chelsea £170m

Despite the revenue decline, there was sizeable cost growth. The wage bill rose £16m (5%) from £310m to £326m and other expenses increasing £23m (23%) from £100m to £123m. There was a highly incentivized bonus scheme for winning the Premier League, Champions League, etc. Wages have increased by £117m (56%) in the last three years, the highest growth of the Big Six.

The Swiss Rambnle’s rough estimate is that COVID resulted in £60m reduction to revenue, split between £25m lost (match day £11m, TV rebates £14m) and £35m broadcasting deferred to 2020/21. Without this, revenue would have been a club record £550m and the club would have made £10m profit.

Liverpool was also hit by profit on player sales falling £18m from £45m to £27m, mainly Danny Ings to Southampton, Ryan Kent to Rangers and Simon Mignolet to Club Brugge. That’s not bad, but a fair way below Chelsea £143m, Leicester City £63m and Arsenal £60m.

The club have become increasingly reliant on profit from player sales, generating an impressive £333m from this activity since 2015, compared to just £28m in the preceding four-year period. A core part of the club’s strategy is they have become a club that sells well. In last six years only Chelsea have made more from player trading than the Reds with £475m. However, Liverpool £333m is miles ahead of the rest of the Big Six.

The club earned £70m (€80m) after reaching Champions League last 16. This was £28m less than previous season when they won the competition, but still the second highest of English clubs. In addition, received £4m for 2018/19 final (played after financial year-end), but £2m COVID rebate.

The Champions League has been an important driver of revenue growth with an impressive €272m earned in the last three seasons alone (in last five years only behind Manchester City in England). On the other hand, as Klopp said, if they fail to qualify, “it would mean a huge financial loss.”

FSG have sold 10% of their company to Red Bird Capital, which should help strengthen the balance sheet, cover COVID losses (estimated at £120m) and fund Anfield expansion. This might facilitate some transfer spending, but is unlikely to go towards a massive “war chest”.

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The Political Economy of Football V2

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