Leeds United - Marching On Together?

So another season passes with Leeds United failing in their attempt to return to the top flight. Having narrowly missed out on the play-off places the previous season, hopes were high that this could be their year, but the Whites went backwards, ending up in the bottom half of the Championship. Poor results resulted in the January dismissal of manager Simon Grayson, who had guided the team out of League One two years ago, to be replaced by the experienced Neil Warnock.

However, there was little improvement, though Warnock’s cause was not helped by the timing of his arrival – one day after the transfer window closed. That said, given the limited investment in the squad in the last few years, it is doubtful whether Warnock would have been able to spend much in any case.

In fairness to Grayson, it must have been difficult for him to make significant progress, as the club has got into the habit of selling its best players. Before a ball was even kicked, goalkeeper Kasper Schmeichel was sold to promotion rivals Leicester City, and then tricky Ivorian winger Max Gradel, Leeds’ player of the year, joined French club Saint-Étienne in August.

"Howson - Jonny, come home"

The fans’ unhappiness was compounded in January when club captain (and local boy made good) Jonny Howson was transferred to Norwich City. Leeds argued that this was good business, as he was in the last year of his contract, but this was not the first time that the club had allowed itself to get into such a situation. In much the same way, other decent players, such as Jermaine Beckford (to Everton) and Bradley Johnson (also to Norwich) had exited stage left.

This lack of ambition is infuriating to most supporters, especially as it is in marked contrast to a ticket pricing strategy that is Premier League in all but name. Even new captain, Robert Snodgrass, was moved to break ranks after Howson’s unpopular transfer, “How can you say you’re aiming for promotion and then sell your captain?”

It’s not so long ago that Leeds United were a force at the very highest levels, reaching the Champions League semi-finals in 2001, before being eliminated by Valencia. This was in the middle of a purple patch when they finished in the top five of the Premier League every season between 1998 and 2002. Leeds were actually the last club to win the old First Division before the creation of the Premier League in 1992.

Going back further, Don Revie’s Leeds side had been even more potent, never finishing out of the top four between 1965 and 1974, winning two league titles in the process in 1969 and 1974, before the FA chose him as England manager. Known far and wide as “dirty Leeds”, this team could also play a bit, as seen when Jimmy Armfield steered the team to the 1975 European Cup Final, where they were defeated by Bayern Munich (in hugely controversial circumstances).

"Peter Ridsdale - riddle me this"

In short, Leeds United were a genuine big club for many years, though they spectacularly imploded after chairman Peter Ridsdale’s catastrophic attempt to “live the dream” resulted in a financial nightmare. Before the likes of Chelsea and Manchester City brought in their billionaire benefactors, Leeds reported the largest ever loss by an English football club of £49.5 million in 2003 (after a £34 million loss the previous year).

Ridsdale’s decision to “go for it” could be described as courageous, though reckless and irresponsible would seem more appropriate. When he jumped ship in 2003, Leeds were around £100 million in debt, after a grand acquisition strategy using innovative finance models, i.e. other people’s money, to fund player purchases. These included high interest sale-and-leaseback arrangements, which allowed Leeds to spread the cost of buying a player over the length of his contract, and a £60 million loan, a record for English football at the time, which was essentially secured on supporters’ loyalty, i.e. future gate receipts.

A consortium of local businessmen, led by insolvency specialist Gerald Krasner, took over Leeds, but the damage was done. When results on the pitch did not improve, the club could not sustain the massive wage bill, leading to a fire sale of players and many other important assets, including the stadium and the Thorp Arch training ground. The financial turmoil ultimately resulted in two relegations with Leeds dropping to the third tier of English football for the first time in 2007.

"Ken Bates - meet the new boss..."

Before that fateful day, Ken Bates had appeared on the scene with the former Chelsea owner looking for “one last challenge.” Even after all the sales, Krasner’s motley crew was still struggling to make ends meet, so a 50% stake was sold to the old bruiser for a reported £10 million in 2005. Or rather to a company called the Forward Sports Fund (FSF).

Despite extensive cost-cutting measures, two years later the club entered administration in May 2007 via a Company Voluntary Arrangement (CVA) with debts of around £35 million, incurring a 10-point deduction from the Football League, which officially relegated Leeds to League One.

The CVA was challenged by HMRC following an initial offer to settle debts at just one penny for every pound owed, but eventually went through (at an undisclosed higher payment) after it was approved by the required majority of 75% of the voting creditors.

Crucially, one of the major creditors, Astor Investment Holdings (an offshore company registered in the British Virgin Islands), said that they were willing to write-off their £17.6 million loan, but only if FSF remained in charge with Bates as chairman. This seemed extraordinarily generous, not only because other bidders offered more money, but it meant that they were supporting a man who had effectively lost them their cash.

"Ross McCormack - just can't get enough"

That does not make much sense – unless Bates was in some way connected to these companies. Indeed, he initially stated that the two shares in FSF were owned by him and his financial advisor, Patrick Murrin, but later corrected this “error” when he revealed that were in fact 10,000 shares in FSF – with undisclosed owners.

Although the club admitted that there had once been a link between Astor and FSF, they said that this had been severed in 2006 before the club went into administration, an explanation that was accepted by the administrators. This may seem a trivial issue, but it is important, as if there had been a link, then Astor would not have been able to vote on the CVA as an “unconnected” creditor and it would not have been passed.

Whatever the circumstances behind the exit from administration, the result was clear: FSF had retained control of an asset, which was now profitable after the slashing of the wage bill, while clearing almost all of the debts. Of course, this phoenix-like rise from the ashes was perfectly legal, albeit perhaps not the most moral course of action, as it left many bills largely unpaid, including many from small businesses and £7.7 million owed to the taxman.

Leeds United did not get away entirely scot-free, as the Football League imposed a further15-point deduction, due to the club not following its rules on clubs entering administration, which meant that they missed out on automatic promotion from League One and ended up losing to Doncaster Rovers in the play-off final.

"Luciano Becchio - don't cry for me, Argentina"

The ownership issue was still far from transparent. Indeed, the report from the House of Common select committee on football governance specifically singled out Leeds for criticism with MP Damien Collins stating, “The principle is that it should never be allowed to happen again that football clubs are bought by offshore trusts of which we have no idea who the owners are.”

Under pressure from the Premier League, who require its clubs to publish the names of all shareholders with stakes of 10% or more, the Football League tightened its rules, following which Leeds “clarified” its ownership: Leeds United Football Club Limited was owned by Leeds City Holdings Limited, which was majority owned by FSF, which was owned by three discretionary trust funds, which were in turn owned by Chateau Fiduciare, a Swiss-based trustee.

Far from clearing up the situation, this statement only added to the confusion, bringing to mind Sir Walter Scott’s famous quote, “Oh, what a tangled web we weave, when first we practice to deceive.”

Never mind, because in May 2011 Leeds issued another statement, following the “scaremongering arising out of the football governance inquiry”, which addressed the ownership issue: “The chairman, Ken Bates, has completed the purchase of FSF Limited for an undisclosed sum. FSF Limited is now owned by Outro Limited, which is wholly owned by Ken Bates.”

"Andy Lonergan - hold it now, hit it"

This was not enough for that man Collins, “Very important questions remain unanswered about the real identity of the previous owners of Leeds United, and the nature of the sale of the club to Ken Bates.” The most obvious question is why FSF would sell at a time when the riches of the Premier League appeared to be within reach, having supported the club through the dog days in League One?

Also, why wouldn’t they hold a beauty contest for other potential bidders to secure the maximum return on their investment? The price that Bates paid was (surprise, surprise) undisclosed, but it is unlikely to be that high, given that the man himself informed the High Court in 2009 that he had little cash with most of his wealth tied up in assets. It is true that there are not too many people rich (or foolish) enough to invest in a football club, but they do exist, e.g. the Liebherr family at Southampton and Vichai Raksriaksorn at Leicester City.

Whatever FSF’s thinking was, Bates is still holding the reins at Leeds. His time as chairman has been colourful to say the least, featuring bans for the BBC and Guardian, when irked by their reports on his activities, and insults aplenty for those fans of the club who have the temerity to disagree with his approach, describing them as “morons” and “dissidents”. That is by no means the end of his seemingly customer hostile strategy, as evidenced by the stratospheric ticket prices.

"Michael Brown - tough love"

Even when he made a valid point about adopting a long-term strategy, it was done in a crass manner, “In an age of instant gratification, Leeds United is having a long, drawn-out affair with plenty of foreplay and slow arousal.”

In fairness to Bates, other owners have gone down the path of splashing the cash with little success to show for it, so his prudent policy is not all bad. As he said, “All football clubs are now realising that you have to get your balance sheet and your profit and losses right first and then play football, otherwise as you're seeing every week you won't be able to play football.”

Indeed, he has managed to steadfastly improve the finances at Leeds, while reversing the club’s slide down the divisions, which is an achievement. However, it should be remembered that this financial recovery was originally due to the tactical administration, which cleared the club’s debts and enabled it to start afresh.

So how do the club’s finances look these days? Not too bad at all.

In 2011 the club made a profit after tax of £3.5 million, which was the highest since the £4.5 million reported in 2008 for the first 14 months after coming out of administration. Even though £2.6 million was due to the club recognising a deferred tax asset arising from previous losses, this still left a solid £0.9 million profit before tax.

Despite a £5.2 million (19%) rise in revenue from £27.4 million to £32.7 million following promotion to the Championship, the profit before tax fell by £1.2 million, as the wage bill grew £2.8 million (20%) and profit on player sales fell by £3.9 million.

Note that these figures relate to the football club (Leeds United Football Club Limited), but there’s not much difference in the holding company (Leeds City Holdings Limited), which reported revenue of £34.5 million and profit before tax of £0.3 million in 2011. In essence, revenue is slightly higher, but profits are lower (by £0.6 million in each of the last two seasons).

In addition to the football club, the holding company owns Yorkshire Radio Limited, Leeds United Media Limited and Leeds United Centenary Pavilion Limited. The latter two companies were only created last year “to allow separate… investment into these particular areas of our business in the future.”

Since coming out of administration, Leeds have been profitable for four consecutive years, a rare feat in the ultra-competitive world of modern football. The combined profits before tax are £7.5 million (2008 £4.6 million, 2009 £0.015 million, 2010 £2.1 million and 2011 £0.9 million), while profits after tax are worth £10.1 million.

In fact, just three out of 24 clubs in the Championship managed to make money in 2011 with Leeds’ £0.9 million only surpassed by Watford £9.6 million and Scunthorpe United £1.5 million. Nine clubs lost more than £10 million, including QPR £25.4 million, Hull City £20.5 million, Middlesbrough £18.7 million and Leicester City £15.2 million.

This is partly a result of low TV money in England’s second tier, but also due to many clubs over-spending in order to reach the promised land of the Premier League. Leeds are very much an exception to this rule. In fact, they are the only club in the Championship to have made profits in both of the last two seasons.

However, the impact of player sales on these results should not be ignored. Excluding the £11.5 million profit made from this activity between 2008 and 2010, the club would have registered losses in each of those three years. As well as normal player sales, the first year after administration benefited from compensation paid by Chelsea for two academy players, Tom Taiwo and Michael Woods. In 2010, the sale of Fabien Delph to Aston Villa transformed a £1.7 million loss into a £2.1 million profit.

The good news is that last season’s profit was entirely due to normal business, as there was no once-off profit on player sales. That was the first year since administration that Leeds made an operating profit (£0.9 million), which represented a £2.6 million turnaround from the previous year’s operating loss of £1.7 million. Next year will be business as usual, as the figures will benefit from the sales of Howson, Gradel and Schmeichel amongst others.

In many ways, it is not that surprising that Leeds are profitable, as their revenue is exceptionally high for a Championship club. At £32.7 million, it is not only the largest in the division, but it is £5-6 million more than the next three clubs in the revenue league (Burnley, Middlesbrough and Hull City), all of whom were boosted by £15 million of parachute payments following relegation from the Premier League.

Excluding that factor, it is clear that Leeds United’s revenue is the highest by some distance with the closest contender being Norwich City, whose £23 million is almost £10 million lower. Incidentally, the other clubs promoted to the top tier in 2011 have even lower turnover: QPR £16.2 million and Swansea City £11.7 million. One conclusion is that Leeds are punching well below their weight.

Revenue has risen over 40% since 2008 from £23.2 million to £32.7 million. Much of that is due to the better TV deals in the Championship compared to League One, but the majority comes from gate receipts and merchandising. Put another way, the club is very reliant on the loyalty of its supporter base for its high turnover.

Last season the fans contributed at least £19 million (gate receipts £12.7 million plus merchandising £6.1 million), which represents around 60% of the club’s total revenue of £33 million. If other activities such as catering were broken out of Other Commercial revenue, the proportion would be even higher.

Of course, the high gate receipts represent something of a double-edged sword, as it its partly due to the very high prices that Chairman Ken charges his fans. Not only are they the highest in the Championship, but, according to a survey conducted by the award-winning Leeds fanzine, The Square Ball, only four clubs in the Premier League have higher priced entry-level season tickets (Arsenal, Chelsea, Liverpool and Tottenham Hotspur).

However, this attempt to squeeze the orange until the pips speak could be counter-productive, as average attendances have fallen by 4,000 (15%) to 23,300 this season, when overall Championship crowds rose 2%. This is still the fourth best in the division, only beaten by one promoted club (Southampton), West Ham and Derby County, but it’s a measure of how much Bates has tested the supporters’ patience.

The previous season Leeds had the highest crowds in the Championship with 27,300 (more than eight Premier League clubs), while they averaged nearly 25,000 in League One. As an indication of the potential at Leeds, average crowds were just under 40,000 at their height in the Premier League.

The decline in attendances this season will cause something like a £2 million hole in the 2011/12 accounts. That will reduce the reported revenue, but the actual cash available to the club is also going to be impacted by an agreement made post balance sheet, whereby the club sold season tickets for both the 2012/13 and 2013/14 season for £5 million in order to finance further development of Elland Road.

Leeds’ total commercial income of £14.5 million is also impressive. To place that into context, it is only just below the money generated from this revenue stream by Aston Villa £16.7 million and Newcastle United £15.8 million, while it is actually higher than many Premier League clubs, including the likes of Everton £11.7 million and Fulham £14.1 million.

However, while merchandising revenue has grown 77% (£2.6 million) in the last three years to £6.1 million, other commercial income has actually fallen 8% (£0.7 million) to £8.4 million in the same period. Leeds recently extended their shirt sponsorship deal with Enterprise Insurance for two years until the end of the 2013/14 season, while the club signed a lengthy six-year kit deal with Macron in 2010. Financial details of both deals were undisclosed.

The influence of television on a football club’s finances is undeniable and Leeds United are no exception. Relegation from the Premier League in 2003/04 led to an immediate £9.4 million decrease with TV revenue falling from £16.9 million to £7.5 million, even though the fall was cushioned by annual parachute payments of £6.6 million for the next two seasons. When these stopped in 2006/07, the club’s finances were dramatically affected with TV money crashing to £1.2 million, which was exacerbated by the relegation into League One giving TV income of just £0.7 million.

The rise in 2010 to £ 1.6 million was partly due to higher payments from the Football League (central distributions £0.64 million, solidarity payments £0.1 million), but also owed a lot to a splendid FA Cup run, featuring four ties against Premier League opposition (Liverpool, Tottenham and Manchester United).

Promotion saw a big increase in TV money, as the Football League distribution to Championship clubs is worth £2.5 million (increased from £1 million in 2010/11) with a £2.2 million solidarity payment from the Premier League (up from £1.3 million). In addition, each club was given an additional £0.5 million as their share of the parachute payments for Newcastle and WBA, because they went straight back up to the top tier.

"Elland Road - I could build you a tower"

Although there is never a good time for a football club to be relegated, it is fair to say that Leeds’ timing was particularly unfortunate, as they missed out on the significant growth in TV deals, e.g. the three teams relegated from the Premier League last season received an average of £40 million compared to Leeds’ £17 million in 2004. Similarly, while their relegation was eased by £13 million of parachute payments, teams now will receive £48 million (£16 million in each of the first two years, and £8 million in years three and four).

The other cloud on the horizon is the new Football League Sky TV three-year deal that kicks off in the 2012/13 season, which will be £69 million lower than the current contract at £195 million, a reduction of 26% or £23 million a season. This reflected what Football League chairman Greg Clarke called, “a challenging climate in which to negotiate television rights.” Whatever the reason, it will mean a reduction in the payments distributed to Leeds.

This is another reason why it is a little puzzling that Leeds do not push harder for promotion to the significantly more lucrative top tier, as that would conservatively be worth around £90 million. That doesn’t come in one fell swoop, but it’s still a magnificent prize. Even if a promoted team comes straight back down, it would receive £40 million TV income plus £48 million parachute payments over the next four years. Leeds would also benefit from much higher gate receipts and better commercial deals.

Furthermore, if Leeds were to finish higher in the Premier League, they would receive even more TV money with every season survived adding another £40+ million to the coffers. This explains why many clubs push themselves to the absolute limit to secure promotion, though it’s a dangerous game, as only three clubs go up every year.

One concern is that a promoted club might eat into that higher revenue by increasing wages and other costs, but the net effect is still likely to be positive. If we look at the three teams that were promoted to the Premier League in 2009/10, we can see that Newcastle United, WBA and Blackpool all dramatically improved their operating profitability, even though wages increased.

Leeds’ wage bill has long been a bone of contention among the fans, as it is very low compared to the club’s turnover. Despite a 20% (£2.8 million) increase from £13.7 million to £16.5 million in 2010/11, the wages to turnover ratio is only 51%, which is not only the lowest in the Championship, but is also lower than all but two clubs in the Premier League (Blackpool 48% and Manchester United 46% - though United benefit from enormous revenue of £331 million). Since exiting administration in 2007, wages have grown by just £3.8 million, while revenue has increased by £9.4 million.

This is the football club’s total wage bill, comprising £14.9 million salaries and £1.6 million social security. It is higher in the holding company, but only by £0.5 million, at £17.0 million. Directors’ emoluments are also up, rising from £174k to £299k, presumably largely for Shaun Harvey, the chief executive, as Bates “did not receive any benefits.”

According to the club website, “First team squad and management costs were £11.6 million, increasing from £7.7 million in the previous period.” They do not explain why the increase in these costs is higher than the overall growth in the wage bill, but it is probably due to bonus payments (including additional payments for loan players) made in 2009/10 for promotion. After Grayson was fired, Bates claimed that he had allowed his manager to go over his wage budget of £9.5 million in 2011/12 by 23% at £11.7 million, but that will only be confirmed by next year’s accounts.

While Bates has defended his record here (“At 30 players we have one of the largest squads in the Championship”), the figures do not lie and clearly show that Leeds’ wage bill is strictly mid-table in the Championship, coming in at the 12th highest in 2010/11. Leeds’ £16.5 million was around half the £30 million that QPR paid, though part of that will include promotion bonuses.

Although many Championship clubs have over-stretched themselves with nearly half reporting unsustainable wages to turnover ratios over 100%, they do not enjoy Leeds’ revenue advantages. All other things being equal, the Whites could safely increase their spending on player wages without going crazy.

If they targeted the 60% ratio adopted by Football League clubs in Leagues One and Two, that would mean an increase of £3.1 million to £19.6 million; if they opted for UEFA’s recommended upper limit of 70%, that would mean an increase of £6.4 million to £22.9 million. Either of those options would provide a budget good enough to mount a meaningful promotion challenge, more than the two other clubs that went up in 2010/11: Norwich City £18.4 million and Swansea City £17.4 million.

However, another factor needs to be considered at Leeds, namely the high amounts spent on Other Costs. Excluding salaries and amortisation, these stand at £13 million, which is very high for a club outside the Premier League. If we compare that with other Championship clubs with high revenue (not benefiting from parachute payments), we can see that Leeds have the highest Other Costs, e.g. twice as much as Norwich and Reading, with the highest proportion of total costs, though, in fairness, it does not look too high as a proportion of revenue,

Unfortunately, the club does not provide much detail for these costs, but one of the significant items is the rent paid for the stadium and training ground, after their sale and leaseback, which is around £2 million (increasing by 3% every year), a major financial burden. Nothing was identified for legal fees in 2011, but these have also been on the high sides in recent years: between 2008 and 2010 a total of £1.5 million was paid to a company controlled by RM Taylor, a director of the holding company.

Where Leeds have not spent big is in the transfer market, at least since the Ridsdale era. His unwise spending culminated in £69 million in the two years up to 2002, followed by a massive fire sale that produced £101 million of net proceeds in the next three years. Since then, the club has continued to make money from player trading with net proceeds of £15 million: £4 million in the four years up to 2009 and £11 million in the last three years.

Although Simon Grayson spent very little, having to mainly make do with free transfers and loans (an incredible 33 in his 37 months reign), he put a brave face on this, “Money isn’t the answer. It’s a help. It’s good management and scouting.”

It is undoubtedly true that money is no guarantee of success, as can be seen over the last three years with the likes of Leicester City and Nottingham Forest under-performing despite being among the highest spenders. Nevertheless, only four clubs have spent less than Leeds in this period – though admittedly one of those is Reading, who have just secured promotion to the Premier League.

It will be interesting to see if Bates continues his tight hold on the purse strings after the arrival of Warnock, who argued, “We’ll have to invest. The chairman knows what I’m looking at and what I think. The job requires major surgery in all departments.”

Net debt (in the holding company) is just £0.5 million, comprising a loan from Outro Limited (Bates’ company) of £975k, which has since been repaid, £149k of finance leases less £600k of cash. This is very respectable, though not as good as the previous year when the club held nearly £4 million of cash. Of course, the low debt levels are perhaps not that surprising after writing-off so much as a result of the administration.

However they got there, this is a better position than the vast majority of other clubs, as can be seen by the concerns of the Football League chairman, Greg Clarke, “Debt's the biggest problem. If I had to list the 10 things about football that keep me awake at night, it would be debt one to 10. The level of debt is absolutely unsustainable. We are heading for the precipice and we will get there quicker than people think.”

That said, Leeds do have other important potential liabilities: (a) if they are promoted to the Premier League before the 2017/18 season, they have to pay £4.75 million to the liquidator; (b) £875k may be payable on transfer fees depending on player appearances and/or Premier League promotion. Note: Leeds owe £133k transfer fees, but have transfer debtors of £988k.

"Adam Clayton - losing his edge?"

In addition, a total of £3.2 million has been raised via preference shares, which is a hybrid form of financing somewhere between equity and debt. These are worth £4 million when redeemed, guaranteeing a profit of £0.8 million for persons unknown. There is no fixed date for repayment, but they may be redeemed if the club is sold, liquidated or the majority shareholder (that would be Bates via Outro) decides to buy the shares.

Finally, there are the future receipts owed via the pledging of season ticket money (portion unspecified) to part fund the development of the Elland Road East Stand.

The football club’s balance sheet looks fairly strong with net assets of £10.6 million (up from £7.1 million), especially considering that the value of players in the books is only £1.5 million, compared to a real world valuation of £12.2 million (“based on the average opinions of seven members of senior football management”). Working capital is negative, but has been improving (from £5.7 million in 2009 to £1.2 million in 2011) and includes £8.1 million of prepayments of tickets and sponsorship revenue.

It also includes £4.6 million owed to other group companies (up from £0.4 million the previous year), which means that money from the football club is flowing to other companies, as opposed to being invested in the squad. The holding company notes that £2.1 million has gone to Yorkshire Radio.

The cash flow statement shows that Leeds generates money at an operating level (£9.1 million since administration), which is boosted by £5.4 million cash from player sales, but £16.6 million has been spent on capital projects, such as new executive boxes and lounges. This is consistent with Bates’ claim that “approximately £20 million” has been spent on “the clapped out, decaying stadium that I inherited”, but it gives the lie to his assertion that “all the money we have received has gone back into the squad.”

Clearly, improving stadium facilities is no bad thing, but it may be a case of putting the cart before the horse, if the club is prioritising property development before promotion. Bates has recently stated in his programme notes that the rebuilding, refurbishment and improvements of Elland Road are nearing completion, which would theoretically increase the money available to bolster the team, though, as we have seen, millions are still being invested into the East Stand.

This focus on property development should come as no surprise, as Bates once said, “In my view a football club is a property business that hosts a football match 25 days a year and is shut for the other 340 days.” While it does make sense “to increase the income generating potential of the club on non-match days”, this strategy has not always proved successful, as Bates himself should appreciate after Chelsea Village was on the brink of financial collapse before Roman Abramovich flew to the rescue.

"Tom Lees - searching for the young soul rebels"

Leaving aside reservations over whether the proposed hotel, superstore, retail arcade and casino are mere vanity projects that will not generate much revenue, the burning question is why the club should invest millions in properties that it does not own?

Stop me if you’ve heard this one before, but it is not clear who owns the stadium  beyond Teak Commercial Limited, an offshore company registered in the British Virgin Islands in January 2005 (coincidentally the same month that Bates became Leeds United chairman). The uncertainty about ownership has already contributed to the local council rejecting an application from Leeds for a development loan, though this decision was also partly due to the failure of England’s 2018 World Cup bid.

Either way, what might be of interest to a potential investor is that the club has the opportunity to purchase Elland Road for £14.85 million, which was valued at £54.72 million according to the accounts, while Bates has confirmed that they could also buy back the training ground for £5 million.

Furthermore, Leeds should be a beneficiary of the new Financial Fair Play (FFP) framework, which was approved by the Championship clubs in February. This will see the introduction of a breakeven model, requiring clubs to stay within pre-defined limits on losses (falling from £4 million in 2011/12 to £2 million in 2015/16) and shareholder equity investment (falling from £8 million in 2011/12 to £3 million in 2015/16).

If clubs are promoted to the Premier League with losses above these limits, any excess will be taxed with any proceeds distributed among the clubs that comply with the FFP regulations, while offending clubs that fail to achieve promotion will be punished with a transfer embargo. However, no sanctions will be implemented during the first two seasons in order to give clubs a sensible period of transition, so it will be a while before this helps Leeds.

On the other hand, Leeds voted against the introduction of the Elite Player Performance Plan (EPPP), as this is likely to hurt their ability to sell young stars to top clubs for large sums. This has resulted in the club “reviewing our Academy structure to ensure we are best placed to benefit from its provisions.”

"Warnock points the way forward"

In conclusion, Leeds United are the proverbial sleeping giant, a club with a fine history and bags of potential, but it can only be realised with promotion to the Premier League. Love him or loathe him, Neil Warnock has a proven track record in getting teams promoted, but he will need financial backing to do the same with Leeds.

To date, Ken Bates has not provided his managers with an adequate budget, his attitude encapsulated by his comment after dismissing Simon Grayson, “We are building a club first and a team second and we are making progress when so many people are having financial difficulties.” Fair enough, but it could also be a false economy to not spend more and miss out on the riches available in the top flight.

More encouragingly, Bates suggested that this might be about to change, “We want to be in the Premier League and we will support Neil in the quest to get us there.” Leeds fans might be forgiven for taking this with a pinch of salt, but there is little doubt that the club could afford to be more aggressive with its spending on the pitch – without entering dangerous territory. Or will it be another chapter of broken dreams?

Liverpool - Keep The Car Running

This has been a strange season for Liverpool. On the one hand, they have won their first trophy since 2006 by beating Cardiff City to secure the Carling Cup, which guarantees them European football next season, and have the chance of more silverware, having reached the FA Cup final. On the other hand, their form in the Premier League has been disappointing to say the least and they currently lie in eighth place, which is far below the expectations of their fans.

It is therefore difficult to work out whether the club is moving in the right direction, though there is little doubt that their new owners would have expected more from the Reds. Before the season commenced, John W Henry spoke about their objectives, “It’s too early for us to talk about winning the league. Our main goal is to qualify for the Champions League. If we don’t, it would be a major disappointment.”

That’s a pretty clear statement of intent, which was re-iterated by managing director Tom Werner, who described the Carling Cup success as “a big day for us”, but immediately emphasised that “our goal is still to reach the Champions League.” In other words, winning a domestic cup is fine, but success is defined by “finishing in the top four.” Of course, the focus on the league should be nothing new to Liverpool fans, as this was a mantra of the legendary Bill Shankly, “The league is a marathon not a sprint. It is where you find out if you are entitled to believe in how good you are.”

"John W Henry & Tom Werner - Magic Moments"

It was not meant to be this way. The returning Kenny Dalglish had worked wonders last season, bringing back the feel good factor and more importantly delivering results on the pitch. Hopes were high that Liverpool’s combination of old managerial skills and new money would produce a return to former glories, but the project is still very much a work in progress.

Dalglish has done himself few favours with some combative media interviews, though an irascible Scottish manager has not exactly hurt Manchester United. More importantly, Liverpool’s season has been de-railed by injuries to key players, such as Steven Gerrard, Daniel Agger and (crucially) the previously unheralded Lucas Leiva, plus the absence through disciplinary reasons of Luis Suarez. Even so, the Reds would have been higher in the table if they could have finished the numerous chances they created, thus converting draws into wins and avoiding so many one-goal defeats.

Of course, most teams could make the same excuses, but it is compounded in Liverpool’s case by the large amount of money they have spent on bringing in new players, which should have addressed some of the obvious weaknesses in the squad, such as finding someone able to consistently put the ball in the net. The policy of buying British has not exactly been a glittering success to date, exacerbated by the high fees spent on the likes of Andy Carroll, Stewart Downing, Jordan Henderson and Charlie Adam.

"Stevie wonders"

Although the side has under-performed, at least the owners’ willingness to back the manager in the transfer market should be applauded (“a significant commitment”, according to managing director Ian Ayre), especially as this is in stark contrast to the parsimonious approach adopted by their reviled predecessors, Tom Hicks and George Gillett. There seems to be an element here of proving to the fans that the new boss is not like the old boss, as Henry observed, “There was a fear we wouldn’t spend.” More positively, Billy Hogan, managing director of Fenway Sports Marketing, outlined the group’s philosophy, “You’re seeing the desire to win and the desire to compete in the transfer market.”

It’s worth pausing to reflect on how different this is from the unpopular former owners, who saddled Liverpool with a mountain of debt when they bought the club in March 2007, then took them to the brink of administration. The desperate situation was crisply summarised by UEFA’s William Gaillard: “The club has been rescued, thank God, but it was a close call. They suddenly found themselves being owned by two failed banks that had been taken over by governments.”

Liverpool’s debt had reached shocking levels under the previous unwanted regime. Although there was “only” £123 million net debt in the football club, the full picture was revealed in the holding company where borrowings had grown to around £400 million. The good news is that this debt was largely eliminated after the change in ownership, though there is still £65m net debt, comprising £38 million bank loans and £30 million owed to UKSV Holdings less £3 million cash.

This is enormously significant to the club’s finances, as the prohibitively expensive annual interest payments of £18 million (£40 million including the holding company) have been drastically reduced to just £3 million, which Ayre said meant that Liverpool are “in a much stronger position to utilise our revenues more effectively on the team.”

However difficult this season is proving, there is no doubt that it is preferable to the depths of despair suffered under the previous “gang of four”: Hicks and Gillett, a couple of charmless chancers; Christian Purslow, a smug, superficial excuse of a chief executive, who delivered little beyond infamously nominating himself as “the Fernando Torres of finance”; and poor Roy Hodgson, an experienced manager who was the archetypal square peg in a round hole (though apparently good enough to lead his country).

The arrival of Fenway Sports Group (FSG) has dramatically improved the club’s finances, as noted by Dalglish, “Off the pitch, especially, the club is a lot stronger than it was… see how much money we are getting through sponsorship and kit deals.” This comment was widely ridiculed, but he does have a point: the use of the money may be open to question, but at least it’s now available.

Some may wish that the owners would provide even more financing, but this is infinitely better than recent years when top class players were sold and replaced by inferior “talents” – Christian Poulsen and Joe Cole for Xabi Alonso and Javier Mascherano, anyone?

On the face of it, this improvement has not yet been reflected in the figures, as Liverpool announced a £49.3 million loss before tax for 2010/11, £29 million worse than the previous year, though much of this was due to clearing up the mess left by the “cowboys” with the club booking enormous exceptional expenses of £59m, mainly £49.6 million relating to the aborted stadium plans and £8.4 million termination payments to Hodgson (and his backroom staff) plus Purslow.

This is fairly typical of new management coming in and cleaning house. As Ayre said, “It is a big loss and a big write-off, but it means that it’s gone forever now and we can move forward without that around our neck.”

Excluding exceptional expenses, Liverpool would actually have made a profit of around £10 million, but  the worrying thing is that this was only after hefty profits on player sales of £43 million, largely Fernando Torres to Chelsea and Javier Mascherano to Barcelona. If both once-off items are excluded, the underlying loss is around £34 million, similar to the previous year.

Although EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) is positive at £10 million, it has declined for the second year in succession and is on the low side, e.g. Manchester United’s is £111 million. After taking into consideration depreciation and player amortisation (an important part of any football club’s business), Liverpool’s operating loss excluding exceptionals was £31 million.

In fact, Liverpool have consistently been making losses with only one profit reported in the football club in the last six years (2008, boosted by large player sales). Losses were even higher at the holding company level, after including all interest payable, amounting to a shocking £178 million in the four years before Hicks and Gillette exited stage left (2007 £33 million, 2008 £41 million, 2009 £55 million and 2010 £49 million).

The Reds also have to pull their socks up if we consider that many other teams are improving their financial performance. In 2009/10 only four clubs in the Premier League made a profit, but this doubled to eight in 2010/11 with many maintaining solid finances while performing well on the pitch, e.g. Manchester United, Arsenal, Tottenham and Newcastle United. On the other hand, there are still clubs registering large losses in their pursuit of honours, notably Manchester City £197 million and Chelsea £67 million.

Where Liverpool have done well is to hold their revenue at about the same level following the £21 million reduction due to the failure to qualify for the Champions League. They compensated this with a £7 million increase in the Premier League distribution, thanks to the improved central deal, and a striking £15 million increase in commercial income.

Uniquely among leading English clubs, the highest proportion of Liverpool’s revenue comes from their commercial arm with 42%. In fact, this has been the main driver of the club’s revenue growth, contributing £40 million (63%) of the £64 million rise in the last five years.

Even so, the operating loss widened following a £15 million increase in the wage bill, which grew 13% from £114 million to £129 million (excluding termination payments), meaning that the important wages to turnover ratio increased from 62% to 70%. This is much worse than Manchester United 46%, Arsenal 55% and Spurs 56%, but considerably better than Manchester City 114%.

Player amortisation, the annual cost writing-off transfer fees, fell to £36 million, though it is likely to rise after last summer’s acquisitions, although will again be far behind Manchester City’s £84 million.

All in all, Liverpool should really be doing better with the resources at their disposal, both in terms of their revenue and wage bill.

Even with the slight decrease in revenue to £184 million, their revenue is still comfortably the fourth highest in England, £20 million ahead of Tottenham, £30 million more than Manchester City and around twice as much as Aston Villa, Newcastle and Everton. On the other hand, they remain handicapped compare to the top three revenue generators, more than £40 million less than Arsenal and Chelsea (both around £225 million) and an incredible £150 million behind traditional rivals Manchester United (£331 million). That’s a significant competitive disadvantage.

Nevertheless, Liverpool are in a more than respectable ninth place in Deloitte’s European Money League, which is not to be sneezed at, especially as they are the only club in the top ten that did not compete in the Champions League in 2010/11. More gloomily, the Spanish giants continue to surge ahead with Real Madrid and Barcelona earning £433 million and £407 million respectively. That £200-250 million shortfall could either be considered an insurmountable obstacle or something to target, especially the commercial revenue, which is around double Liverpool’s.

It’s a similar story with the wage bill of £129 million, which is the fourth highest in the Premier League, a little higher than Arsenal (£124 million), but a fair way ahead of the next club Tottenham (£91 million) and perhaps more pertinently over twice as much as Newcastle (£54 million). However, it is a lot lower than Manchester United (£153 million), Chelsea (£168 million) and new kids on the block Manchester City (£174 million).

That said, Liverpool have been faced with escalating financial challenges over the last few years, both externally and internally.

On the external side, there has been a clear increase in competition, as the “Big Four” has expanded into the “Sky Six” with the addition of Manchester City and Tottenham, who have both managed to break the glass ceiling of Champions League qualification. City have been backed by Sheikh Mansour’s billions, while Spurs have benefited from the astute business guidance of Daniel Levy.

This can be seen by looking at the revenue trend of those clubs, which shows that Liverpool is the only one to have negative revenue growth since 2009. In the same period, the two Manchester clubs and Tottenham have all grown their revenue by more than £50 million. Arsenal’s revenue was also flat, but they are now £43 million ahead of Liverpool, having been £7 million behind in 2005 (a £50 million turnaround).

Furthermore, some of those clubs have spent big in their pursuit of success, notably Manchester City and Chelsea. As Henry said when asked what surprised him most about football, “The sums of money that are spent on buying and selling players is remarkable.”

Everyone bangs on about Liverpool’s activity in the transfer market since FSG’s arrival, but the splurge since January 2011 has really only been an attempt to compensate for the lack of spending in previous years. This is a difficult problem to quickly address when you only have two transfer windows a year, a new phenomenon for the owners that has been difficult to adapt to, as Werner admitted, “We’re used to American sports, where there’s a draft and trades and some free agency. This is a whole different way of thinking about players.”

In any case, the net spend is still relatively low, as much of the expenditure has been recouped via player sales, especially to Chelsea who paid £50 million for Fernando Torres and £12 million for Raul Meireles. Over the last four years, Liverpool’s net spend of £22 million is much of a muchness with Manchester United and Tottenham, but a long way below the two clubs funded by wealthy benefactors, Manchester City (around £400 million) and Chelsea (over £150 million).

However, much of the damage at Liverpool is self-inflicted, as the fall-out from the Hicks and Gillett era proved very costly to the club’s finances, adding up to around £300 million, which would have bought a lot of good players or even gone a long way towards a new stadium.

This has been the toughest problem facing FSG, as they inherited a club in disarray. The situation was in some ways reminiscent of the old joke whereby a tourist asks for directions and an Irishman replies, “If I were you, I wouldn't start from here.”

Specific areas that have hurt Liverpool include: (a) hefty interest payments; (b) money lost through not qualifying for the Champions League; (c) shortfall from lower Premier League finishes; (d) compensation paid to sacked managers and executives; (e) stadium expenses written-off.

(a) In 2006, the year before Hicks and Gillett bought the club, Liverpool’s net interest payable was less than £2 million, but this rose significantly in subsequent years, peaking at £45 million in 2010 in the holding company. The total interest needlessly incurred to pay the speculators from across the pond thus amounted to a depressing £124 million.

(b) Liverpool’s failure to qualify for the Champions League last season and missing out on Europe completely this season are down to many factors, but arguably the most important was the lack of investment by the previous board, which did not provide Rafa Benitez with the means to build upon his team’s Premier League runners-up spot in 2008/09.

Whatever the reasons, the Reds have missed out on significant sums. Their adventures in last season’s Europa League only generated £5 million, which was significantly lower than the money received by England’s four Champions League representatives: Manchester United £44 million, Chelsea £37 million, Tottenham £26 million and Arsenal £25 million (average £33 million).

Liverpool will obviously receive nothing this season from Europe, compared to an average of £31 million for the English sides – lower than last year, as most did not progress as far. A similar sum will go begging after missing out on qualification for next season’s Champions League, giving a total of £86 million in lost revenue.

(c) Although finishing lower in the Premier League will have hurt Liverpool’s pride, it has not damaged the bank balance too much, thanks to the equitable nature of the distribution of central funds. Half of the domestic money and all of the overseas rights are split evenly among the 20 clubs, meaning that Liverpool have only really been hit by lower merit payments with each place in the league worth around £0.8 million. The other variable is facility fees, based on how often a club is shown live on television, but Liverpool’s box office appeal has ensured that this remains high.

So, Liverpool’s positions of seventh in 2009/10, sixth in 2010/11 and eighth (currently) in 2011/12 only have a minor financial effect, which we can calculate as £7 million (compared to finishing in the top four).

(d) Liverpool have paid out £20 million in compensation to sacked employees in the last three years: 2009 £4.3 million to Rick Parry, the former chief executive, and coaching staff at the Academy; 2010 £7.8 million to Benitez and his backroom staff: 2011 £8.4m to Hodgson’s team plus Purslow.

(e) The £50 million write-off for the Stanley Park scheme this year should come as no surprise, as the 2009/10 accounts had warned, “It is highly likely there will be a significant write-off of the new stadium project costs in the financial year ending 31 July 2011.” These are costs that had previously been capitalised on the balance sheet, but are now booked to the profit and loss account. Added to £10 million of similar impairment costs in 2007, that makes an incredible £60 million squandered on useless stadium designs.

"My name is Lucas"

Some of the assumptions used in this analysis may be debatable, but there is no dispute that Liverpool have thrown away a vast amount of money – more than a quarter of a billion pounds per my calculations. As the late, great Ian Dury said, “What a waste.”

Enough of past sins, let’s look at the major challenges facing Liverpool:

1. New/redeveloped Stadium

Ayre has admitted that the lack of a solution to the stadium issue has set the club back several years, “If we had started building a stadium in 2007, we would be in it by now.”

Although Anfield is a wonderfully atmospheric old ground, its relatively low capacity of just over 45,000 means that Liverpool’s match day revenue of £41 million, while more than most teams, is £68 million below Manchester United’s £109 million and less than half of Arsenal’s £93 million. Liverpool only earn around £1.5 million from each home match, which is significantly less than United (£3.7 million) and Arsenal (£3.3 million), despite significant price increases in each of the last two seasons and having the fifth highest Premier League attendance.

FSG continue to review possibilities with recent reports suggesting that the preferred option is a return to 2003 plans for a 60,000-seat stadium in Stanley Park, which were long ago given planning permission by the local council. However, the feeling persists that they would rather redevelop Anfield in the same way that they refurbished Fenway Park, the iconic home of the Boston Red Sox, as Henry confirmed, “Anfield would certainly be our first choice. But realities may dictate otherwise. So many obstacles.”

This is partly for sentimental reasons, but also for hard commercial motives, which Henry explained, “If a new stadium is constructed with 60,000 seats, you’ve spent an incredible sum of money to add just 15,000 seats. If the cost is £300 million, that doesn’t make any sense at all. Liverpool isn’t London, you can’t charge £1 million for a long-term club seat. And concession revenues per seat aren’t that much different at Emirates from Anfield.”

He added that this is why the club is seeking a naming rights partner. While Werner has categorically stated that they “have no intention of exploring naming rights for Anfield”, there would be no hesitation in following Arsenal’s Emirates model for a new stadium. Ayre again: “The new stadium in the park comes down to economics. How do we pay it back? It needs a big naming partner.”

This is easier said than done, as many clubs have discovered, but it could be a compelling prospect for sponsors, so a £150 million multi-year agreement is feasible. This would finance half of the stadium costs, leaving £150 million to be covered by additional debt, as it is unlikely to be funded by the FSG partners. Again, this could follow the Arsenal path of low interest bonds. Even in the current tough economic climate, this is where FSG’s connections should help.

"Move like Agger"

Henry stated that “from a financial perspective… a ground share (with Everton) would be helpful”, but he accepted that the lack of support from both sets of supporters means that this is effectively a dead issue.

Notwithstanding all the difficulties, the absence of a clear stadium strategy after 18 months in charge must be disappointing to Liverpool fans. Most worryingly, an email from Ayre that Tom Hicks produced in court evidence implies that Henry’s purchase agreement included “no actual guarantee of a stadium”, which is bizarre, as this was described as the only non-negotiable element by Martin Broughton, the man brought into Liverpool as chairman to sell the club. Given the broken promises in the past, it is better that the new owners take their time and get it right, but it’s not as if they have too many options.

2. Champions League qualification

Although Ayre has said that the club’s business model does not “fall apart when we don’t have a year playing European football”, it’s still a lot of money to leave on the table, e.g. in 2009/10, the last year Liverpool qualified for the Champions League, they earned £29 million.

This year, of course, they will get nothing from Europe, compared to at least £46 million that Chelsea will receive for reaching the Champions League final, which only emphasises the potential size of the prize. Additional gate receipts and higher payments from success clauses in commercial deals also contribute to what Ayre calls a “significant revenue uplift”.

Gate receipts are important, as Liverpool’s last two seasons both included income from seven additional matches, which was worth around £10 million. This will not be the case in 2011/12 with no European competition, though domestic cup runs will partially offset the shortfall. However, the Europa League will contribute again next season (albeit probably lower attendances at reduced prices).

It is also imperative that Liverpool reclaim their traditional place among Europe’s elite (remember that they have won this prestigious competition no fewer than five times) in order to help attract world-class players to Anfield.

3. Revenue growth

FSG will be looking at revenue growth in terms of both short-term gains and longer-term possibilities.

More immediately, the focus is on commercial income, which rose an impressive 25% last season to £77 million. This is already the seventh highest in Europe, though it is a fair way behind Manchester United £103 million and only around half the amount earned by Bayern Munich, Real Madrid and Barcelona. As Ayre said, “We’ve made great progress but… we still have a long way to go particularly internationally.”

Most of the growth came from the four-year shirt sponsorship deal with Standard Chartered, which is worth around £20 million a year, so £12.5 million higher than the previous deal with Carlsberg. This is in line with Manchester United’s Aon deal and Manchester City’s reported Etihad agreement, but Barcelona’s £25 million contract with the Qatar Foundation has raised the bar.

Future growth is assured by the £25 million kit deal with Warrior Sports, which is not included in the latest results. Starting from the 2012/13 season, this is more than twice the amount received from Adidas, who currently pay £12 million a year, and is about the same level as Manchester United, Real Madrid and Barcelona. This makes sense, as these are the leading clubs in terms of replica shirt sales worldwide.

Interestingly, unlike the Adidas arrangement, Liverpool will be allowed to open their own retail outlets, which some have speculated might mean doubling the value of the deal to £300 million over six years, as Ayre noted, “That area of business currently represents 50% of everything we generate.” Of course, that is revenue, which is not the same as profit, and it is a policy that Manchester United abandoned in the 1990s when they joined forces with Nike, so it might not be the El Dorado many assume.

In addition, the club will surely look to emulate United’s success in attracting secondary sponsors, which will be helped by FSG’s ability to package the Liverpool brand with their other sports holdings to provide an attractive opportunity to advertisers, as they did with Warrior. As Ayre put it, “The more quality and high-level partners we can attract, the more we’ll have to invest.”

There are numerous possibilities to “leverage the club’s global following to deliver revenue growth”, which was emphasised by Werner, “We consider Liverpool to have untapped potential globally.” In particular, they have focused on Asia with plans to open two new offices there, supported by a pre-season tour that attracted huge crowds – a key element in securing the Standard Chartered sponsorship. They will build on this success by again touring the Far East plus the US, including a match at Fenway Park against Roma.

"Suarez - I fought the law"

One unexpected threat to this campaign emerged earlier this season when Standard Chartered expressed their unhappiness with the bad publicity around the Suarez affair, but a bigger danger would be a continued lack of sporting success. As Ayre said, “performance on the pitch definitely affects business.”

In the longer-term, FSG will be pushing to further “monetise” Liverpool’s global appeal, especially in the television space. They were attracted by the explosive growth in overseas TV rights for the Premier League, backed up by top matches attracting huge global audiences.

This is particularly relevant to Liverpool, as FSG have substantial expertise in this sphere, owning 80% of New England Sports Network, a profitable regional cable television network, while Werner is an experienced television producer. This may have been behind Ayre’s unpopular suggestion that leading clubs should receive a larger slice of the money from overseas TV rights, because the average fan in Kuala Lumpur “isn’t subscribing… to watch Bolton.”

New technology will open up a plethora of possibilities for digital rights, which to date have been treated as little more than an afterthought to the main TV deal, but the emergence of fast, broadband networks might just be the catalyst for clubs to interact directly with fans, when revenue could potentially explode. If so, you can expect Liverpool to be at the forefront of any such developments.

"Jordan: the comeback"

4. UEFA’s Financial Fair Play regulations

Another motive for the club to increase revenue is the advent of UEFA’s Financial Fair Play (FFP) rules that aim to make clubs live within their means, rather than operate with big losses bank-rolled by wealthy benefactors.

The first monitoring period is 2013/14, but this will take into account losses made in the two preceding years, namely 2011/12 and 2012/13. In other words, the 2010/11 accounts are not considered, but those from the current season will be, so a rapid improvement is required.

However, they don’t need to be absolutely perfect, as owners will be allowed to absorb aggregate losses of €45 million (around £38 million), initially over two years and then over three years, as long as they cover the deficit by making equity contributions.

Not only is Henry supportive of these regulations, but he said “we wouldn’t have moved forward on Liverpool except for the passage of FFP.” However, he is concerned that others will find ways around the rules, “The question remains as to how serious UEFA is regarding this. It appears that there are a couple of large English clubs that are sending a strong message that they aren’t taking them seriously.” He specifically queried the transparency of Manchester City’s massive Etihad deal, given the owners’ close relationship with the sponsors. Werner supported the party line, hoping that UEFA’s process “would have some teeth.”

One point to note is that the cost of a new stadium would be excluded from UEFA’s break-even calculation, so that should not be a factor in any investment decision.

5. Cut costs

Given the revenue pressures arising from the lack of Champions League, Liverpool will have to cut their cloth accordingly, which means reducing the wage bill. After purchasing the club, Henry complained about “a huge multi-year payroll for a squad that had little depth.”

Action was taken last summer with many bit part players leaving either through sales (including Meireles, Paul Konchesky, Milan Jovanovic, David N’Gog, Sotirios Kyrgiakos, Emiliano Insua and Philipp Degen) or loans (notably Joe Cole and Alberto Aquilani), even if this meant cut-price deals or subsidising loans. Obviously, there have been a fair few arrivals too, so the net impact is unknown, but is likely to be positive in the next accounts.

The danger of this approach is that other clubs continue to grow their wage bill, which traditionally has a high correlation with success on the pitch. That said, Tottenham have outperformed Liverpool recently with a far lower payroll.

"Would you Adam and Eve it?"

While FSG were initially attracted to Liverpool by parallels with the Red Sox, another great club that had fallen on hard times and needed a stadium solution, there were also sound business reasons behind the investment, even though Henry has stated, “I don’t think you go into sport to make a profit.” In particular, if they succeed in driving revenue growth, they will be able to keep all the money they make (apart from some of the TV rights), unlike baseball where their income is taxed by the MLB and shared among other clubs.

Despite the obvious synergies, both clubs have suffered recently in the sporting arena, Liverpool enduring their worst run of results in the league for over 50 years, while the Red Sox spectacularly collapsed to miss out on qualification for the post-season play-offs. This has raised concerns that FSG are being spread too thin, though their template leans heavily on the managers of the franchise, mainly Ayre, Dalglish and (until recently) Damien Comolli, the Director of Football.

In fact, FSG’s mantra has long been one of self-sufficiency for Liverpool. This will be a challenge, as their cash flow has been consistently negative before financing – except when investment in the squad and stadium is restricted like in 2010. The problem is that this is exactly what Liverpool need, hence the dash for cash with new sponsorship deals.

A key element of FSG’s strategy is a focus on youth, as outlined by Henry, “We have been successful through spending and through securing and developing young players.” Werner added, “We certainly feel we can do a better job bringing in more players that are home grown.”

Dalglish has been more than willing to follow this policy, acknowledging the improvements, “You look at the academy and see how much better it is.” Many graduates have been given first team action this season (Jay Spearing, Martin Kelly, John Flanagan and Raheem Sterling), which is testament to the changes implemented by Benitez, as is the high number of Liverpool youngsters involved in England squads.

When FSG first appeared on the scene, much was made of their belief in the application of statistical analysis made famous by Moneyball, Michael Lewis’ bestseller about the innovative methods adopted by Billy Beane at the Oakland Athletics baseball club. However, it was never quite that simple, as Henry acknowledged, “Everyone is fixated on Moneyball or sabermetrics, but football is too dynamic to focus on that. Ultimately you have to rely on your scouting.”

"Carroll - big deal"

It has always been the case that they have used their financial muscle to complement value purchases by also spending big on players that they needed. In fact, the Red Sox have been among the highest spenders in major league baseball. That said, some of the prices paid for Liverpool’s purchases have looked ridiculous, especially considering the good use that Newcastle have made with the money Liverpool paid them for Carroll. Ultimately, that was one of the reasons for Comolli being given his P45. As Werner wryly explained, “We’ve had a strategy that we agreed on. There was some disconnect on the implementation of that.”

The investment in the academy and scouting is all very worthy, but in the meantime the first team has been under-performing, so it is legitimate to ask whether FSG’s strategy is the right one for Liverpool. After all, when Henry bought the club, he confessed to knowing “virtually nothing about Liverpool Football Club nor EPL.” A year later, he said, “We have so much to learn about all aspects of the sport and we are still learning.”

Some fans are crying out for stronger leadership, which often translates into additional investment, both in the playing squad and the stadium. Conversely, FSG might argue that they could have expected a better return on the money they have put in (even though the acquisition was concluded at a “fire sale” price of £300 million). Ayre is firmly supportive, “Money is not an issue. If we need somebody, I think our owners have shown the level of commitment you would expect from a good ownership group.” Mind you, he said that before the late season slump.

"The Kuyt Runner"

It was always a big ask to secure Champions League qualification in the first full season under new ownership, but there’s little doubt that Liverpool’s results have been below par. Although by no means disastrous, it has been a disappointing season, leading to Dalglish’s position being questioned.

Henry has shown that he is not afraid of pulling the trigger, especially when the long-serving Red Sox manager Terry Francona was effectively fired last summer. The removal of Comolli confirmed that FSG could be just as ruthless at Liverpool, with Werner observing, “when it’s time to act, we need to act”, but Henry recognises that the rebuilding process at Anfield will take time, “it could take years to get the club back to where it needs to be.”

Even though the team might be lagging behind expectations, there has been some improvement under FSG, which was recognised by stalwart Jamie Carragher, “people need to remember the club was on its knees.” Years of mismanagement has cost Liverpool hundreds of millions, but Ayre for one is now positive, “The key message is that the new ownership has created stability, a long-term opportunity for Liverpool and some good foundation work that hopefully we’ll all build on.”

"Hope in the Ayre"

Nevertheless, the fans will want to see more progress where it counts, as Ayre acknowledged, “The finances are all well and good – if you don’t have any finances, it makes it more difficult to be successful – but success on the pitch is the biggest factor.”

There may well be changes on the playing side (and even in the manager’s seat) this summer, but to date FSG have backed their man, taking a patient, level-headed view of the club’s prospects, as seen by Werner’s pre-season objective, “We just want to move forward – we want to be better this year than last year and just keep going on the right track.” In other words, keep calm and carry on.