Liverpool’s owners can’t afford to alienate Rafa

Having secured the £350m loan that will keep them as Liverpool’s owners, Tom Hicks and George Gillett have now turned to Rafa Benitez to secure his continuation as the club’s manager. The financial roller coaster in the last month exposed Tom Hicks and George Gillett’s own financial weakness and reluctance to part with their money. In addition, more disturbingly, to thousands of fans, they were found short in the goodwill department, having decided to approach Jurgen Klinsmann to replace Rafa, in an underhanded move. For Liverpool fans this was the last straw.
The £350m used to cover the initial loan, players transfers, existing debt, and the first phase of the new stadium, raises the question of how Liverpool will generate sufficient amounts of revenue to help pay for those massive £30m annual interest repayments. A look at the enormous benefits of winning the CL title shows why the American owners can ill afford to lose Rafa.
The 2005 financial highlights show that Liverpool increased its cup competition revenues by a staggering 480% based just on the CL title. From approximately £5.5m to £38m in a year, this increase more than made up for losses from TV revenue, merchandising, and Reebok’s sponsorship dispute. Liverpool recorded a 32% increase in revenue from £91.6m to £121m and turned 2004 loss of £21.9m into a £9.5m profit in 2005.
The feel good factor continued in 2006 even though Liverpool failed to advance in the CL but their appearance in the Coca Cola FIFA CWC because of the 2005 Cl title ensured a fair chunk of change. As did a substantial increase in merchandising with many thousands of jerseys sold following the Istanbul triumph. The sustained boost in these sources of revenue and a small increase in ticket prices resulted in a marginally smaller turnover of £119m in 2006 as compared to the previous year. Liverpool recorded a £5.9m loss after 2005’s profit £9.5m mainly because of the hefty amount paid for new transfers and wages of surplus players. However the point is that the benefits of winning the CL title carried over the following year and mitigated further losses.
This underscores how Liverpool’s success is predicated on doing well in international competitions. Some analysts are predicting that the unsettled global economy will sap further soccer TV subscriptions and merchandising essentially leading to a smaller pot of cash from these two sources. This will most likely result in a hefty and unpopular rise in ticket prices similar to Man Utd following the Glazers buyout. Amongst the big four, Liverpool has the most affordable ticket prices.
Rafa may have his problems with the PL but his success in the CL and its significant effect on Liverpool’s financial well being should be well understood by the club owners. It ensures their own survival.

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