Liverpool’s accounts for the 2021/22 period show a business in robust health, but one that faces challenges moving forward in order to keep challenging at the summit.
Record revenues that rose £107m to £594m for the 2021/22 financial year, published today, are somewhat skewed by the £83m boost that a full year of fans back in stadiums post pandemic delivered. But a £7.5m profit and most of the key markers moving in the right direction do point to a business that has emerged resolute from an unprecedented three years off the pitch, when traditional revenue streams were stifled and the biggest clubs across in Europe were haemorrhaging money.
However, within the numbers there are clues to how difficult it has become to operate at the highest level.
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Liverpool’s staff costs have risen some 76 per cent over the last five years, rising from £208m to £366m. Even over the past 12 months, through bonus payments and new and improved longer-term deals for a host of players, the payroll has risen by £54m.
Liverpool’s wage to revenue ratio still falls comfortably below UEFA’s recommended 70 per cent, the Reds at 61.6 per cent. But rising costs are expected to continue, with transfer fees and wages all likely to keep on growing at a time when Liverpool know that they need to enter the transfer market in a significant way this summer.
The administration expenses for Liverpool, which boils down to the costs involved in running the football club, have risen over the same five-year period by 70 per cent, from £320m to £545m. The club has been adept at absorbing the costs for the continued growth of the business on and off the pitch, but with the riches that come with competitive success less assured than they were, and with a sizeable amount of money needed for Jurgen Klopp to remould his side for a new era, the hunt for investment into the football club makes more sense.
During that same five-year period the Reds' revenue has increased 96 per cent, although there is far less certainty over those continuing to rise ahead of the growth in costs that has been seen. The club also moved up from seventh to third place in the latest Deloitte Football Money League - its highest position in the rankings since they were first introduced after the 1996/97 season.
“The cost of running a football club does continue to rise,” said Liverpool managing director Andy Hughes in a statement that accompanied the annual results.
“But we maintain our position of growing this club with significant investment with new and existing players signing contracts and the construction of the new Anfield Road Stand which we look forward to coming on stream in the summer. In the last five years we have invested over £250m in infrastructure and created world-class facilities for our players, staff and supporters.
“What’s important now is to finish this season as strong as possible, both on and off the pitch, while we continue to manage costs and explore opportunities for growth in our commercial operations so we can continue to reinvest revenues in players and infrastructure.”
When Fenway Sports Group acquired Liverpool in 2010 the mantra at the time is one that has continued, with the ownership group focused on a sustainable football club financially. That model, while having been applauded post the near-ruinous regime of Tom Hicks and George Gillett, has found itself challenged in recent years as the Reds have been outspent considerably by some of their rivals in the transfer market, the club having leaned on the sale of players to aid transfer spend.
Liverpool came close to history and what would have been an unprecedented quadruple last season. The Reds won the FA Cup and the Carabao Cup, were 15 minutes away from the Premier League crown on a nail-biting final day of the season, and beaten finalists in the UEFA Champions League.
Despite all that success and playing in every possible club game that they could have, all 63 of them, the Reds made a £7.5m profit and posted revenues below Manchester City’s £613m, with the Citizens also having bagged profits of £41.7m for the same period.
The challenge is not just City now either. Manchester United have returned to the fore, potentially backed by new ownership in the coming months, while Chelsea’s spending spree under Todd Boehly and Clearlake Capital, where more than £500m has been splashed since last summer, has skewed the transfer market once more. Arsenal, too, are returning to prominence while the likes of Newcastle United, backed by the Saudi Arabian Public Investment Fund, are likely to emerge as genuine challengers soon, while Tottenham Hotspur remain strong competitors as part of the so called ‘big six’.
FSG principal John Henry revealed in a Q&A session with the Boston Sports Journal last week that the Reds weren’t for sale and that the search was focused on a minority investment instead.
FSG are looking to sell equity in the club in return for a chunk of capital, some of which is understood to be earmarked for the capital expenditure needed to meet the initial payments for some of the transfer business that would need to be addressed this summer. While amortising transfer fees over the life of a players’ contract means that Liverpool can absorb a significant spend, what is required is the money to make those payments in the first instance without disrupting cash flow too significantly. Chelsea’s major transfer push, built on amortising deals over seven and eight years, was achievable because the club had been flooded with readily available funds through Clearlake’s investment position just months before.
The ability to press ahead with a serious rebuild, which is what is required at Liverpool, means that it would be hard to absorb such costs on the balance sheet when the margins between profit and loss are already pretty thin, and where costs are only predicted to rise even further.
With Financial Fair Play set to get a stronger set of teeth and with Manchester City in the crosshairs of the Premier League through its investigation of the Premier League champions and subsequent allegations of multiple breaches of profit and sustainability rules, there will be more roadblocks in the way of clubs that don’t seek to operate sustainably.
The issue for Liverpool is that success on the pitch and how healthy the club is off it go hand in hand. Unlike in baseball, where FSG own the Boston Red Sox, fallow periods of little success can’t be so easily taken on the chin, to miss out on the riches that the top four and the Champions League brings to Liverpool would be significantly impactful should it be prolonged, especially with the size of the payroll and the costs associated with running the football club.
Liverpool may yet make the top four this season, even though the challenge will be significant. But regardless of what happens they will need to reinvest in the playing squad to give themselves the best possible chance of maintaining their position and the financial rewards that come with it.
Finding the extra cash to do that in a sustainable way, with a lack of saleable assets at their disposal this summer, means that a recapitalisation of the business is appealing, provided FSG can find a partner they can work with who can also help them scale the business and unlock some of the latent value investors believe lies within the Premier League in the coming years.
More significant revenue streams are on the way, especially with the move toward direct-to-consumer streaming that we are likely to see within the broadcast industry over the next decade or so, where clubs potentially have a greater say over rights. Liverpool need to be a continued part of the conversation year after year at the very top, and that is the challenge that faces FSG and any potential new partner.
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