Liverpool FC (The Reds) | Special Thread

It’s a similar story when comparing #LFC with leading European clubs over past 2 years, though their £110m gross spend is only £4m less than Barcelona £114m and £82m more than Real Madrid. On a net basis, the Reds have spent nearly as much (£70m) as Bayern Munich £88m.


 
Looking at transfers since FSG acquired the club in October 2010, #LFC had £1.1 bln gross spend (£575m net), but they have been significantly outpaced by #CFC £1.8 bln, #MCFC £1.8 bln and #MUFC £1.5 bln. In other words, this disparity is nothing new for Liverpool.
 
This is somewhat puzzling to #LFC fans, given their success on the pitch (Champions League winners 2019, Premier League title 2020), so let’s look at their financials since FSG arrived. The last published accounts were for 2019/20, so this review covers 10 years from 2010/11.
 
In the last 10 years, #LFC made £61m pre-tax profit, though this is a “game of two halves”, as first 5 years delivered £80m losses, offset by £141m profits in last 5 years, despite big £46m loss in 2020. Nevertheless, still less than half #THFC £338m, #MUFC £191m and #AFC £112m.


 
However, worth noting that this £61m pre-tax profit is entirely due to £359m profit on player sales. Excluding these profits, #LFC would have made a large loss. #LFC have spent more than they earned on expenses: revenue £3,257m less operating expenses £3,517m plus interest £42m.

 
To reinforce this point, #LFC operating loss was £260m in last 10 years. Even in the highly profitable 2019, operating profit was just £1m. That said, most football clubs lose money at the operating level, though #MUFC and #THFC are exceptions with £402m and £109m respectively.

 
Player sales have been an important part of #LFC strategy, generating £359m profits in the last 10 years, including £124m in 2019. Only surpassed by #CFC £602m, but significantly higher than #MCFC £208m and #MUFC £117m. In short, Liverpool are very reliant on player trading.
 
In fact, #LFC £490m is 5th highest revenue in the world per the Deloitte Money League, which is the first time they have been in the top five since back in 2002 and means they have improved 4 places since 2011. However, still miles behind Barcelona and Real Madrid, both £627m.
 
#LFC match day revenue has grown £30m (73%) in last 10 years from £41m to £71m, mainly due to expansion of Anfield’s Main Stand. Would have been higher without some games played behind closed doors in 2020. Growth only below #THFC (new stadium), but still just 4th highest in PL.
 
#LFC broadcasting revenue has more than tripled since 2011, rising £136m from £66m to £202m, the highest growth of the Big Six. The 2020 revenue was significantly impacted by COVID rebates and revenue deferred to 2020/21 accounts for games played after 31st May accounting close.
 
The Premier League has not published details of 2020 TV money distributions, but #LFC grew by £97m from £55m to £152m in 2019, mainly due to new central deals, but also better merit payments. However, as Warren Buffet said, this is a case of “A rising tide floats all boats”


 
European TV money has seen massive growth with #LFC earning an impressive €272m in the last 3 years, more than any other English club, having won the Champions League and reached the final in this period. I estimate they also got €89m in 2021, so CL qualification is imperative.
 
In the last 10 years #LFC commercial income has grown by £140m from £77m to £217m, due to new sponsorship deals and higher retail sales. #MUFC have been flat over last 4 years, but still earned almost £900m more than the Reds in the decade, while #MCFC were over £500m higher.
 
However, here’s the thing. All of the revenue growth has been eaten up by higher costs. In fact. #LFC wages have grown by £197m since 2011, the highest in the Big Six, due to recruiting better quality players and higher bonus payments. The focus has been on extending contracts.

 
Per the club’s audited accounts, #LFC £326m wage bill, including all staff, is the second highest in England, only behind #MCFC £351m, but ahead of #MUFC £284m and #CFC £283m. This includes social security and highly incentivized bonus payments, i.e. it’s the price of success.
 
Similarly, #LFC player amortisation, the annual charge to expense transfer fees over a player’s contract, has almost tripled from £36m to £106m since 2011. This reflects investment in the team, but is still lower than #MCFC £146m, #CFC £127m, #MUFC £123m and #AFC £109m.
 
The profit and loss account does not tell the whole story, as it only shows accounting profit, which is very different from actual cash movements. In last 10 years #LFC had £61m pre-tax profit (£260m operating loss), but £130m cash inflow after other expenditure and financing.
 
For the cash flow statement, we need to do 2 things: (1) first, strip out the non-cash accounting entries, both for player trading, namely profit on player sales and player amortisation, and other depreciation, impairment, etc; (2) then, adjust for working capital movements.

At this stage we should understand how football clubs account for player trading, both for purchases and sales, as the accounting treatment in the profit and loss account is completely different to the actual cash movements.
 
Football clubs do not fully expense transfer fees in the year a player is purchased, but instead write-off the cost evenly over the length of the player’s contract via player amortisation, while any profit made from selling players is immediately booked to the accounts.
 
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