How Hull did it financially,

from Political Economy of Football,

"THE HULL PHENOMENON – 26/10/08

Hull City were tipped for an instant return to the Championship at the beginning of the season, but their victory against West Brom on Saturday made them joint first at the top of the Premiership before today's matches. So how does one explain the Hull phenomenon? I'm not talking about what has happened on the pitch. When I saw Hull in the Championship last season I did not think they were anything special, but clearly manager Phil Brown has weaved some magic. But what interests me here is the city of Kingston upon Hull and its economic geography. I recently visited it for the first time in many years for a conference held at The Deep aquarium. The nearby Marina was full of boats and there was some very attractive new housing along the waterfront. Driving through the city itself, however, it was clear that there was some problematic social housing whilst even the private housing stock was not all of the highest quality. Many of the more prosperous people connected with the city clearly live in nearby Beverley. The city is still recovering from some terrible floods. This was for many years the home of gloomy if penetrating poet Philip Larkin who had a love-hate relationship with Hull, as he did with most things in life, including his many girlfriends.

On the way into Hull you pass the club's sparkling new stadium. There is no doubt that the city council's decision to build this was pivotal. As befits such a relatively isolated city, Hull was the only place in Britain to have its own municipal telephone service - it still has distinctive white telephone boxes. When the telecommunications company was sold for £130m in 1999, the then council leader decided that £40m would be spent on building a new stadium. It would be offered, rent-free, to the city's football and two rugby league clubs. Hence, the club was not faced with the need to service debt on stadium loans that has brought Southampton to the brink of collapse. Adam Pearson, a former director at Leeds United, bought the club in 2001 and over the following six years, the team was improved and the club put on a sound financial footing. Having seen how debt crippled and then brought Leeds United to its knees, Pearson was determined that things would be different at Hull.

After just avoiding relegation in 2006-7, it became known that Pearson was ready to sell. Surrey-based entrepreneur Paul Duffen was looking for a football club to run. With his partner Russell Bartlett, Duffen explored the possibility of buying West Ham or Cardiff City. Then he travelled to Humberside to meet Pearson. He explained, 'There was a buzz about the place. The attraction of Hull was the potential. It was clear that this club could get much bigger. The city and surrounding area had a big population, the stadium is magnificent and it wsa a very well-run football club. We needed to buy the club and then have £5m or £6m; that figure would allow us to walk into the casino and play for the prize of a Premier League place.' Although the Championship is a very competitive league and has been the graveyard of many ambitions, the gamble has paid off. It is believed that Duffen and Bartlett paid £12m for the club and then invested another £6m in the team.

Success on the pitch can change a community's image of itself for the better. Hull as a city was known most for its failings, although that image was somewhat unfair: it is, for example, the headquarters of one of Britain's most successful specialist food processing companies, Cranswick. Nevertheless, the fact that Hull was the largest city in England never to have had a top flight club contributed to a negative image. With its cluster of museums which attract more visitors than those at York, Hull is developing a tourist trade which will be boosted by the profile that the success of Hull City provides. It allows the city council to spread a positive message about what Hull can offer investors. Philip Larkin's reflection, 'Deprivation is to me what daffodils were to Wordsworth' may become outdated. [The writer holds a substantial shareholding in Cranswick plc and is also a shareholder in Kingston Communications plc]."

Brad Evans

Liverpool finances

from Political Economy:

FIGURES DON'T ADD UP AT 'POOL – 26/10/08

"Liverpool fans will be celebrating today's victory at Chelsea. The club has had its best start to its Premiership campaign for many years. The red half of Merseyside can realistically talk about securing the Premiership title. Off the pitch, things are less rosy. Of course, what with a holding company in Delaware (the state with a reputation for business friendly rules) and a Cayman Islands tax haven link, the corporate arrangements of the current owners would not win a prize for transparency. It would appear that Gillett and Hicks funded their initial purchase of the 'franchise' with a £298m loan from the Royal Bank of Scotland and American bank Wachovia. £174m of that money was used to buy the club from existing shareholders, a deal that brought David Moores, last of the family line to run the club, a cool £90m.

The initial loan was replaced in January by a £350.5m facility with the same banks. The plan was to load the whole debt on the football club, but chief executive Rick Parry and Moores (now honorary life president) invoked a 'whitewash clause' that required all board members to agree on debt deals. The compromise that was agreed was to let the football club have £105m, much of which has been used to buy players. The remaining £245m then sat with the Delaware holding company, Kop Football. The rates on these loans are about nine per cent a year so they will cost the club £25m a year. This is broadly equivalent to the revenue raised by last season's run to the Champions League semi-final. European performance generally represents the difference between breaking and even and making a profit at the club.

Supporters are concerned that the requirement to service debt will inhibit transfer spending, and could eventually prove impossible to sustain from current revenue. Share Liverpool, the supporters group with aspirations to buy the club on behalf of the fans, have used well regarded financial modelling software to forecast the club's financial performance. They predict annual losses of between £30m and £70m over the next five years as player costs increase. One note of caution is that the credit crunch could actually lead to a reduction in transfer fees and wages as clubs are less active in the market (see Chelsea story below). Share Liverpool argue that, on their figures, the club do not have a large enough stadium or commercial income to support their player and debt costs. Hicks and Gillett dispute these projections, which do seem a bit like worst case scenarios, and point to recent commercial deals with Paddy Power and Thomas Cook worth £10m as evidence that they are enhancing the club's commercial appeal.

Ultimately Liverpool's ability to compete on the highest level depends on moving to a new stadium, a project that poses the most serious questions about the stewardship of the current owners. They insist that their plans for a 75,000-seat stadium are on hold only until the worst of the banking crisis is over - although a global recession may make lenders unwilling to fund this type of project. What is not clear is where the £300m - £400m for the Stanley Park stadium is coming from. They already face the challenge of refinancing their loans next July, and it is difficult to see how they will be able to secure the debt against the club without providing fresh capital. Until they do, critics will argue that they are caught in a Catch-22 of their own design. Without a new stadium and the revenue streams it will bring, they cannot clear their acquisition debt, but may be unable to build one because of an inability to raise fresh finance.

So what will happen? In more difficult financial times, the idea of a shared stadium with Everton - which many figures in public life in the north-west favour - is bound to be revived, but it would raise a storm of protest from fans of both clubs. It may well be that Dubai Investment Corporation will yet buy the club once the financial position in the Gulf state is clearer. At the moment, there is some concern about a level of debt which is said to be near that of national GDP, as well as the slowing down of the property boom. However, it is believed that the acquisition of Charlton was stopped by the head of the royal family because he feared that its effective ownership by his son (albeit operating through someone else) would raise 'conflict of interest' issues which would threaten the purchase of the greater prize of Liverpool. I am far from sure that the conflict of interest rule would have stood up to a well funded court challenge, but in the present climate of questioning foreign ownership, that is publicity Dubai's rulers could do without. They care about their reputation which is one consideration that should endear them to 'Pool fans. Certainly, I would have been delighted to see them own Charlton."

Brad Evans

Investors Eye Newcastle

A Kuwait investor is apparently considering buying Newcastle. Newcastle United is a good football club, but I wouldn't know how to value it. Good fans, good players. Negatives: a lot of players get injured perhaps due to St. James's turf?, bad owner-Ashley, and in the relegation zone.

Brad Evans

More on Liverpool and Liverpulians

Liverpool MPs urge the government to force action so that the loan Gillett and Hicks took out is not renewed.

One bright spot: hospitality sales, where revenues are up 70%.

Brad Evans

Liverpool for Sale?

Yes.

Brad Evans

Real Mallorca pursuing Webster claim

apparently, not against the player Jonas Gutierrez, but against Newcastle.

Brad Evans

Bundesliga limits foreign ownership

some clubs, like Hannover 96, complain. Story here.

My position is that it is better to limit crummy ownership. Who cares where they're from?

Brad Evans