Aston Villa - This House Is A Circus

There seems to be no end to the misery that Aston Villa put their supporters through. The famous Midlands club, one of a select few to have won the European Cup, is stuck at the bottom of the Premier League table and look destined for a seemingly inevitable relegation, which would be the first time they had dropped from the top flight since 1987.

Manager Rémi Garde described securing safety as “an impossible mission that we have to make possible”, though it would not be a major shock if the Frenchman were to be given his marching orders any time soon, given their impotent form. In truth, it always seemed a strange decision to entrust Villa's fate to a man with no management experience in the Premier League.

Villa’s plight should not be overly surprising since they have struggled to avoid relegation in the last four seasons, culminating in finishing 17th in 2014/15, the club’s worst performance since the creation of the Premier League in 1992. Hopes of a better season had previously flickered during Villa’s run to the FA Cup Final, but a harsh dose of reality was administered by Arsenal during a 4-0 defeat at Wembley.

"I've been driving in my car, it's better than a Jaguar"

It seems like ages ago that Martin O’Neill guided Villa to three successive sixth places between 2008 and 2010, though crucially he failed to break into the lucrative Champions League. Since those heady days, Villa have staggered from one crisis to another, not helped by significant managerial upheaval, as noted by new chairman Steve Hollis, “five different managers in five seasons.”

Gérard Houllier lasted less than a year due to health problems, and was replaced by Alex McLeish, unbelievably brought in from bitter rivals Birmingham City. Paul Lambert managed to survive for nearly three years, but his uninspiring brand of football eventually led to his dismissal. Then came the arrival of “tactics” Tim Sherwood, who did at least manage to save Villa from relegation, but his eight-month reign ended on a sour note with six consecutive losses.

This was particularly unimpressive, as the club had splashed out more than £50 million on new players in the summer, though it’s fair to say that the recruitment campaign has been utterly calamitous.

"Do you believe in the Westwood?"

Much of the blame for Villa’s woes has been laid at the feet of owner Randy Lerner. Fundamentally, the American appears to be a good man, pumping vast sums of money into the club, but he seemingly has little idea how to run a football club.

His strategy has swung from one extreme to another since he bought the club in September 2006. Initially, he poured in money to support O’Neill’s hefty spending, though this resulted in an unsustainable wage bill. Then, he engaged reverse gear, turning off the financial taps and looking to cut the wage bill with a focus on youth development. This was no more successful, so he is now once again pushing the boat out; only he’s doing it very badly.

Lerner’s reputation has not been helped by his lack of visibility at the club. He has effectively acted like an absentee landlord, letting his house fall into disrepair. Worse, he has chosen appallingly when hiring people to run the club for him.

As he recently admitted, “That Aston Villa can and should operate in a far more stable and on a far more successful level, both in terms of football as well as commercially, is plainly clear. It is similarly clear that this great club has not been on a stable footing for at least five years.”

"Idrissa Gueye, it shouldn't ever have to end this way"

His latest move to stop the downward spiral is to bring in Steve Hollis as chairman. The former Midlands chairman of financial services firm KPMG, Hollis has wasted little time in cleaning house with chief executive Tom Fox and sporting director Hendrik Almstadt both exiting stage left.

The not-so-fantastic Mr. Fox was a good speaker, albeit often employing tiresome business clichés while frequently promising “jam tomorrow”, but his period in charge can only be considered as dreadful. As Hollis wryly observed when describing Villa’s performance, “You can’t say it’s gone right.”

The board has been strengthened with the appointments of David Bernstein, former chairman of the Football Association and Manchester City, and Mervyn King, the old governor of the Bank of England, plus ex-Villa manager (and forward) Brian Little as an advisor. Hollis was maybe stretching a bit when he described these additions as “football gurus”, but they could hardly do worse than their less than illustrious predecessors.

Villa’s results off the pitch have been every bit as terrible as those achieved on the pitch, as seen in the 2014/15 figures. The loss before tax shot up from £4 million to £28 million, primarily due to the wage bill increasing by £14 million (21%) to £84 million and another £3 million termination payment following a change in manager, this time Paul Lambert.

Other expenses were £2 million higher, while player amortisation rose £1 million to £20 million. Profit on player sales dropped £1 million to just £375,000.

Revenue fell slightly by £1.2 million to £116 million, mainly due to a £3.2 million reduction in player loans from £5.7 million to £3.2 million and a £1.3 million decrease in broadcasting revenue to £71 million, as the extra FA Cup money was more than offset by the smaller Premier League distribution following a lower league place.

This was partly compensated by commercial income rising by £2.2 million (9%) to £27.9 million and gate receipts increasing by £1million (8%) to £13.8 million, due to more home games from the cup run.

Villa’s £28 million loss is the largest reported to date in the Premier League for 2014/15, just ahead of Chelsea’s £23 million. So what, you might say, don’t all football clubs lose money?

Not any more. Although football clubs have traditionally made losses, the increasing TV deals allied with Financial Fair Play (FFP) mean that the Premier League these days is a largely profitable environment. In fact, ten clubs have so far reported profits in 2014/15 with just four clubs losing money and two of those (Manchester United and Everton) only lost £4 million.

In stark contrast to Villa, their Midlands neighbours Leicester City registered a £26 million profit, while even Stoke City made £6 million. It really is some kind of a special “achievement” for Villa to lose so much money in today’s Premier League.

One obvious reason is Villa’s inability to make money from player sales, as their profit of £0.4 million was one of the lowest in the Premier League. To place that into context, Liverpool’s profit from this activity last season was £56 million, while Southampton made £44 million.

Of course, this is somewhat of a double-edged sword, as the lack of profitable player sales might be considered as a sign that the club has done well to keep its squad together, but it could also be that they have no players that other clubs would like to buy.

Villa have reported nine successive years of losses in Lerner’s tenure. Since he bought the club, it has accumulated losses before tax of £249 million – near as damn a quarter of a billion pounds, averaging £28 million a year. That’s an awful lot of money to throw at a club that is almost certain to be relegated.

Last year saw a false dawn when the loss was only £4 million. Indeed, Robin Russell, the CFO, announced, “We are very pleased to be able to report improved results after a period of heavy financial losses.” The club added, “By controlling costs, we have been able to take advantage of the new Premier League broadcasting deal to bring the club closer to self-sufficiency”, which has proved to be as reliable a forecast as Michael Fish advising that there wouldn’t be a hurricane in 1987.

The next best result since 2009 was the £18 million loss in 2011/12, but this was boosted by £20 million of exceptional items and £27 million profits from player sales, so the underlying figures were just as abysmal as the previous years.

The £20 million exceptional item refers to the once-off waiver of interest on loans provided by Lerner. Although the club had been booking around £6 million of interest payable under the terms of the loan agreement, he never actually took a cash payment, another example of the owner’s generosity.

On the other hand, Villa have also booked £30 million of exceptional costs since 2011, including £12 million in 2012 alone. These could justifiably be described as the costs of mis-management, as these include termination payments made to sacked coaching staff and the accounting cost of reducing the value of poor player purchases. Of course, next year’s accounts will again include such a payment, this time to Sherwood (and possibly also Garde).

This is part of the price that the club has paid for constantly changing manager, though this has also influenced player spend, as each incoming manager wants to recruit his own players, while getting rid of many of those accumulated by the previous regime.

That said, hardly any money has been made from player sales in the last three seasons. Villa have earned less than £2 million in this period, including a small loss in 2013.

Before then, this activity had been quite profitable for Villa, earning them £79 million in the five years up to 2012. The 2011/12 season alone brought in £27 million profit on player sales, largely due to the big money moves of Stewart Downing to Liverpool for £20 million and Ashley Young to Manchester United for £17 million.

Last year Lerner noted the importance of player sales to the mid-tier: “For clubs like Southampton and Swansea, their ability to sell players at premium prices wisely has been, to my mind, a key part of their ascent and their increasingly established position in the top half.

It was therefore no great surprise that Villa made some big sales last summer, notably Christian Benteke to Liverpool and Fabian Delph to Manchester City. According to a note in the accounts, this will deliver £40.5 million of net income “taking into account the applicable levies and sell-on clauses”, a reference to the 15% of profit that Villa had to pay Genk, Benteke’s previous club. These deals could be enough to turn Villa profitable in this season’s accounts.

Given that it can have such a major impact on reported profits, it is worth exploring how football clubs account for transfers. The fundamental point is that when a club purchases a player the costs are spread over a few years, but any profit made from selling players is immediately booked to the accounts.

So, when a club buys a player, it does not show the full transfer fee in the accounts in that year, but writes-down the cost (evenly) over the length of the player’s contract. To illustrate how this works, if Villa paid £15 million for a new player with a five-year contract, the annual expense would only be £3 million (£15 million divided by 5 years) in player amortisation (on top of wages).

However, when that player is sold, the club reports the profit as sales proceeds less any remaining value in the accounts. In our example, if the player were to be sold three years later for £18 million, the cash profit would be £3 million (£18 million less £15 million), but the accounting profit would be much higher at £12 million, as the club would have already booked £9 million of amortisation (3 years at £3 million).

Notwithstanding the accounting treatment, basically the more that a club spends on buying players, the higher its player amortisation. Thus, Villa’s player amortisation fell from a peak of £32 million in 2011 to £18 million in 2014, reflecting the slowdown in activity in the transfer market, before rebounding slightly to £20 million in 2015. It should be even higher next year, as this figure does not reflect last summer’s spending spree.

Despite the 2015 increase, Villa’s player amortisation of £20 million is still relatively low. Of course, it is way behind the really big spenders like Manchester United, whose massive outlay under Moyes and van Gaal has driven their annual expense up to £100 million, Manchester City £70 million and Chelsea £69 million, but it is also lower than the likes of Southampton £30 million and Sunderland £27 million.

The other side of the player trading coin is player values, which have been steadily falling. In fact, the 2015 “assets” of £31 million are less than half the £68 million high in 2010, though this figure will rise significantly next year.

As a result of all this accounting fancy footwork, clubs often look at EBITDA (Earnings Before Interest, Depreciation and Amortisation) for a better idea of underlying profitability. Indeed, Hollis obliquely referenced this, “When you look at the financials of a football club, the big part of the loss comes through the depreciation of the players. It’s a big difference between the reported loss and the cash leakage. In cash terms the club is in a strong position.”

However, the figures don’t really back up the new chairman, as Villa’s EBITDA (cash profit) fell from £19 million to just £1 million in 2015. Admittedly, this is still better than the many negative previous years, but it is really nothing to shout about.

In fact, Villa’s EBITDA is the lowest of all the Premier League clubs that have so far reported in 2014/15. To place it into perspective, Manchester United’s EBITDA is a mighty £120 million, as an example of a club that is in a genuinely strong cash position. Only one other Premier League club has not generated double-digit EBITDA, namely Swansea City.

Villa’s revenue has grown by £35 million (44%) since 2012, almost entirely down to the centrally negotiated Premier League TV deal, with broadcasting increasing by £28 million (64%) in this period. Commercial has only grown by £4 million (16%) in the last three years, even though it has been an area of specific focus, as Fox noted, “the plan is to maximise the revenue potential of the Aston Villa football club brand on a global basis.”

The impression of a club running to stand still was even more starkly illustrated between 2009 and 2013 when there was zero revenue growth. Revenue had risen from £84 million in 2009 to £92 million in 2011, but there was a reduction in revenue in 2012, largely thanks to worse performance on the pitch (dropping from 9th to 16th place in the Premier League and early exits from the cup competitions).

It should be noted that Villa changed the way they split their revenue among the various streams in 2013, so they restated the 2012 comparative, but not prior years. This means that the apparent reduction in match day income and consequent increase in commercial income since 2011 is misleading.

The lack of revenue growth is important, giving the lie to another Fox pearler: “I look at Villa and see a club that should be seventh, eighth or ninth in the Premier League on a perennial basis.” That may be, but their revenue of £116 million is now only the 10th highest in the top tier, behind Newcastle United £129 million, Everton £126 million and West Ham £121 million.

On the one hand, Villa will obviously struggle to compete at the highest level, as there is a financial chasm between them and the top six clubs: Manchester United £395 million, Manchester City £352 million, Arsenal £329 million, Chelsea £314 million, Liverpool £298 million and Tottenham £196 million. On the other hand, Villa earn more than clubs like Southampton, Swansea City, Leicester City and Stoke City, so really should be performing better than them.

In fact, Villa have the 23rd highest revenue in world football, according to the Deloitte Money League, generating more revenue than famous clubs like (deep breath) Napoli, Valencia, Seville, Hamburg, Stuttgart, Lazio, Fiorentina, Marseille, Lyon, Ajax, PSV Eindhoven, Porto, Benfica and Celtic.

That’s obviously a fine accomplishment, but it does not really help Villa domestically, as no fewer than 17 Premier League clubs feature in the top 30 clubs worldwide by revenue.

Note that the Deloitte Money League excludes revenue from player loans, so they have reduced Villa’s revenue of £115.7 million by £2.5 million to £113.2 million in their classification.

Despite the reduction in broadcasting revenue in 2015, this still accounts for 63% of total revenue (excluding player loans). Commercial income has increased from 23% to 25%, while match day is unchanged at 12%.

Villa’s share of the Premier League television money fell by £4 million from £73 million to £69 million in 2014/15, partly due to smaller merit payments for finishing two places lower in the league, and partly due to only being shown live on TV 11 times (compared to 16 the previous season), which reduced the facility fee.

Even though the Premier League deal is the most equitable in Europe with all other elements distributed equally (the remaining 50% of the domestic deal, 100% of the overseas deals and central commercial revenue), this highlights the impact of Villa’s slump on their revenue.

For example, if Villa had maintained their run of 6th place finishes in the five seasons since 2009/10, they would have pocketed an additional £66 million. This highlights the tricky balance between sustainable spending and investing for success. Spending money is obviously not a guarantee, but a safety first approach can end up leaving money on the table.

Of course, there will be a substantial increase from the mega Premier League TV deal starting in 2016/17. My estimates suggest that Villa’s 17th place would be worth an additional £30 million under the new contract, taking their annual payment up to an incredible £99 million. This is based on the contracted 70% increase in the domestic deal and an assumed 30% increase in the overseas deals (though this might be a bit conservative, given some of the deals announced to date).

This is why relegation would be such a big deal for Villa – described by the club as its “key risk”. If they were to drop down, they would get around £38 million in the Championship, including a £35 million parachute payment and £2 million distribution from the Football League, compared to the estimated £99 million in the Premier League, i.e. a £61 million difference.

Obviously, this would be considerably higher than those Championship clubs without parachute payments, who receive only £5 million, leading Hollis to say, “We would have one of the strongest balance sheets in the Championship”

That said, it’s still a considerable reduction in revenue that would require major cuts in the cost base. Hollis confirmed that the club would “be able to take the measures needed to address the drop in income”, not least because the players’ contracts include significant relegation clauses, but they would likely still have to sell the club’s better players.

Another point worth noting is that from 2016/17 clubs will only receive parachute payments for three seasons after relegation, although the amounts will be higher. My estimate is £75 million, based on the percentages advised by the Premier League (year 1 – £35 million, year 2 – £28 million and year 3 – £11 million). Up to now, these have been worth £65 million over four years: year 1 – £25 million, year 2 – £20 million and £10 million in each of years 3 and 4.

Gate receipts climbed by 8% (£1 million) from £12.8 million to £13.8 million in 2014/15, thanks mainly to the FA cup run which included four home ties. This is still only 12th highest in the Premier League, just behind Sunderland, and significantly lower than the elite clubs, e.g. Arsenal earn £100 million from match day income (or eight times as much as Villa).

This is partly due to Villa’s ticket prices being among the lowest in the top flight, even after an average 3% increase in 2014/15. Prices are unchanged this season, with Fox explaining, “We have decided to freeze season ticket prices, as we know it has been a challenging period”, which is one way of putting it.

Villa’s average league attendance of 34,133 was the 11th highest in the Premier League, which is an impressive achievement considering their problems on the pitch, but it is nearly 2,000 lower than the previous season and only 80% of the 43,000 capacity at Villa Park.

Villa’s attendance has steadily declined from the 40,000 peak in 2007/08 to around 34,000, representing a 15% fall and 6,000 fewer fans (or customers), which has clearly hurt the club’s finances. Incredibly, the fans showed their support with attendances actually rising in the previous two seasons, but they would appear to have had enough now.

Commercial revenue rose by 9% (£2.2 million) from £25.7 million to £27.9 million, comprising £10.9 million sponsorship and £17.0 commercial income. That means that commercial revenue has increased by £5 million (22%) in the last two seasons, which is reasonably encouraging.

In fact, this is effectively “the best of the rest”, being better than all Premier League clubs with the exception of the top six, who are miles ahead. For example, Manchester United’s commercial revenue is just shy of £200 million, almost exactly seven times as much as Villa, followed by Manchester City £173 million, Liverpool £116 million, Chelsea £108 million, Arsenal £103 million and Tottenham £59 million.

The disparity is most evident when comparing the shirt sponsorship deals. Villa have a two-year deal with Intuit QuickBooks, an accounting software for small businesses, worth £5 million a year that started in the 2015/16 season. This replaced a similar sized deal with Dafabet (though is lower than the previous £8m Genting agreement).

This looks very low compared to the major clubs, who continue to increase their deals, e.g. Manchester United £47 million with Chevrolet and Chelsea £40 million with Yokohama Rubber.

It’s a similar story with Villa’s kit supplier. The current four-year deal with Macron is worth £15 million (£3.75 million a year), running until the end of the 2015/16 season, when it will be replaced by Under Armour. The new contract is reportedly worth more, though it is understood to include significant financial reductions in the event of relegation.

"End of the road I'm traveling, I will see Jordan beckoning"

That’s not too bad, but it pales into significance next to match Manchester United’s “largest kit manufacture sponsorship deal in sport” with Adidas, which is worth £750 million over 10 years or an average of £75 million a year from the 2015/16 season.

In fairness, most clubs outside the absolute elite have struggled to secure such massive deals and Villa would have to enjoy a sustained run of success to substantially improve their commercial deals – though Fox reckoned that Villa could increase this revenue stream by £8-10 million a year.

Amazingly, given their rotten displays, Villa’s wage bill rocketed up by 21% (£14.4 million) from £69.3 million to £83.8 million, not just due to new signings, but new contracts for some players and Paul Lambert.

In addition, there has been a steep rise in headcount. Players, football management and coaches rose from 173 to 185, but there was an even bigger increase in commercial, merchandising and ops from 232 to 261. There’s not exactly been a great return on investment from that yet.

After three years of keeping the lid on this expense by “rationalising the playing squad” and exercising “tight control of players’ wages”, there has been a total change in policy. In fact, this is the record high for Villa’s wages, just above the previous peak in 2011. God knows what the wage bill will be after this summer’s influx of new players.

This increased Villa’s wages to turnover ratio from 59% to 72%. Although this is nowhere near as bad as the 91% in 2011, it’s still the second highest (worst) in the Premier League, only “beaten” by West Brom’s 75%. As a contrast, high-flying Leicester’s ratio is 55%.

Villa’s wage bill is the 7th highest in the Premier League, once again far below the usual suspects: Chelsea £216 million, Manchester United £203 million, Manchester City £194 million, Arsenal £192 million, Liverpool £166 million and Tottenham £100 million (2013/14). However, they are ahead of the others, so are spectacularly punching below their weight.

The wage bills of the mid-term clubs seem to be converging around the £70 million level, e.g. West Ham £73 million, Southampton £72 million, Swansea £71 million, Stoke City £67 million, so Villa have not really made the best use of their extra funds.

It has also not gone unnoticed that the remuneration of the highest paid director has exploded from £266k to £1.25 million, marking the change in chief executive from Paul Faulkner to Tom Fox. Given that Fox was hired in August 2014 and only formerly appointed as a director in November 2014, his annual salary was presumably even higher, as the accounts ran until 31 May 2015, which is frankly almost unbelievable. How's that for a "false narrative", Tom?

Even though there was a slowdown following the excesses of the Martin O’Neill era, it is not true that Lerner stopped spending in the transfer market. In fact, his average annual gross spend over the last five years of £25 million is not much different from the £30 million average in the preceding five years.

This season’s net spend of £7 million masks gross spend of £53 million, as the club brought in Idrissa Gueye (£9 million), Jordan Amavi (£9 million), Jordan Ayew (£8.5 million), Rudy Gestede (£7 million), Jordan Veretout (£7 million), Adama Traore (£7 million), Scott Sinclair (£2.5 million), Joleon Lescott (£2 million) and Micah Richards (free transfer). That’s a lengthy shopping list, but the focus seems to be more on quantity, rather than quality.

As Sherwood explained, “We have sold a lot of players and we brought in a lot of money. The owner has not put that back in his pocket, he has reinvested it in the squad.”

Unfortunately, Villa did not manage to make a signing in the January transfer window, but it must have been difficult to attract talent with the threat of relegation (and lower wages) looming. Moreover, you could not have blamed the club for not throwing good money after bad, as maybe implied by Hollis: “You have got to look at the facts – this club spent £60 million in the summer. That’s a lot of money.”

That said, Villa’s recent net spend still lags behind other clubs, e.g. only four Premier League clubs had a lower net outlay than their £33 million over the last three seasons: Stoke City, Southampton, Swansea City and Tottenham (due to Gareth Bale’s huge sale to Real Madrid).

In one piece of good news, Villa’s gross debt has been further cut from £104 million to £31 million, mainly due to Lerner converting £85 million of loan notes into share capital. This followed a similar debt conversion to equity of £90 million the previous year. As a result, Villa’s debt has come down from a peak of £190 million in 2013.

Gross debt now comprises bank loans and overdraft of £20.4 million and owner debt of just £10.4 million. The bank loan charges interest on margins above the Bank of England base rate, while Lerner’s loans are unsecured and interest-free.

In addition to the financial debt, the net cost of the summer transfers after these accounts closed is given as £57 million.

Potential additional transfer fee payments (based on contractual conditions such as number of appearances and retention of Premier League status) remain around the £4 million level, though there are now also contingent liabilities of £3.3 million payable upon the change of ownership of the football club.

Villa’s debt of £31 million is now one of the smallest in the Premier League, much less than Manchester United, who still have £444 million of borrowings even after all the Glazers’ various re-financings, and Arsenal, whose £232 million debt effectively comprises the “mortgage” on the Emirates stadium.

As a result, Villa’s net interest payable is down to £1.2 million. As a comparison of what might have been with a different kind of American owner, Manchester United incurred £35 million of interest costs last season as the price of their leveraged buy-out.

Villa still clearly require the owner’s support, as seen by the 2014/15 cash flow. They made a small £2 million cash loss from operating activities after adding back non-cash items (player amortisation and depreciation), but then spent a net £15 million on players, £3 million on infrastructure investment and £1 million on interest payments. This was largely funded by £16 million of additional financing.

On top of the initial £66 million Lerner paid to acquire the club in 2006, he has put in over £300 million, split between £170 million of loans and £133 million of share capital. In addition, he has cancelled repayment of £182 million of loans, which is money he would only get back if he sold the club (and for a decent price).

Basically, all of the spare cash that Villa has had available since 2006 has come from Lerner’s resources. This has been used as follows: player purchases £135 million, funding operating losses £49 million, capital expenditure £42 million, interest payments £13 million and repayment of external loans £5 million.

Unlike some other American owners, Lerner also cannot be accused of hoarding cash, as Villa only have around £100k in their bank account. In stark contrast, Arsenal had £228 million and Manchester United £156 million.

According to the club, Villa should have no problems with Financial Fair Play: “From a regulatory perspective the club’s aggregated player service costs and image contract payments for the year ended 30 June 2015 are expected to comply with the Premier League’s short-term cost control rules and forecast earnings before tax for the three years ending 31 May 2017 are expected to comply with its profitability and sustainability rules.”

Lerner put the club up for sale almost two years ago in May 2014, lamenting that “the last several seasons have been a week-in, week-out battle”, but he has yet to find a buyer at his purported asking price of £150 million. Villa’s strategic report stated, “the Group remains for sale, but at the time of writing no active discussions were taking place.”

Little wonder, given Hollis’ description of the current state of play: “In football terms, this is a crisis. This is the worst position this club has been in for many a decade.” That’s pretty damning, but the new chairman’s not wrong.

"Don't look down"

The latest figures are simply awful: the largest loss in the Premier League, a decline in revenue, a wage bill that’s out of control, falling attendances, smallest cash balance in top flight, the list goes on and on.

Ironically, given that the club has effectively been supported by Lerner financially over the last few years, it feels like it really needs a change in ownership. Fox got it right when he said that “Villa is a proud and storied club which deserves to be among the elite in Europe”, but it is likely to have to start again in the Championship.

Hollis said that the new board is “going to do the things we need to do to get this club back to where it needs to be”, but there are plenty of examples of clubs with a great history (e.g. Nottingham Forest, Leeds United) that have struggled to gain promotion, while others have continued their fall from grace into League One (e.g. Wigan Athletic, Wolverhampton Wanderers).

Relegation might be the shock to the system that Villa need, but if they do go down, there are no guarantees that they will quickly bounce back.

Liverpool - Over The Wall

It’s been a bit of a mixed bag for Liverpool supporters in recent times. Last season the Reds finished sixth in the Premier League, while they also reached the semi-finals of both domestic cup competitions, before being eliminated by Aston Villa in the FA Cup and Chelsea in the Capital One Cup.

This season looks like it might be another case of Liverpool being the nearly men, having been narrowly beaten by Manchester City in the Capital One Cup on penalties, while they currently lie just outside the European places in the Premier League. They still have hopes of success in the Europa League, having just put bitter rivals Manchester United to the sword at Anfield, but there’s still a long way to go in that competition.

Performances have been inconsistent, the best example being the spanking they administered to City just three days after the Wembley defeat, which is a sure sign of a club in transition. That is indeed the case, as Liverpool changed managers mid-season, replacing Brendan Rodgers with the charismatic Jürgen Klopp in October.

That change came almost exactly five years after Fenway Sports Group (FSG), the American investment company run by John W. Henry, purchased the club in 2010. There is no doubt that the owners have brought financial stability with the club “operating in a sustainable manner despite the cost of football continuing to rise.”

"Boy from Brazil"

Revenue has risen every year since the FSG takeover, while the enormous debt that the reviled former owners, Tom Hicks and George Gillett, had placed on the club through their leveraged buy-out has been largely eliminated. Indeed, last season FSG converted £69 million of debt into equity and invested a further £49 million into the initial stadium expansion costs.

So the club is in far better shape financially, though admittedly it would have been difficult to do worse than the previous hierarchy, whose mismanagement resulted in Liverpool’s future being decided in the High Court six years ago. That said, the club has come a long way, from the brink of administration with the unloved Roy Hodgson as manager, to a profitable operation with the popular Klopp at the helm.

However, FSG put their foot in it recently with the ticket pricing fiasco. Ultimately, they backed down in the face of a major fan backlash, so they were at least big enough to admit that they had made a mistake, but they should never have allowed the situation to get so far that it caused a mass walkout at one home match.

Chief executive Ian Ayre was keen to emphasise that the owners “commitment is unwavering”, noting that they keep pumping money in and have never taken anything out, which is a fair point, but they got it badly wrong over the ticket prices.

"Tattooed Love Boy"

Chairman Tom Werner claimed, “We have strengthened the club both on and off the pitch”, but in all honesty the playing record is nothing to write home about for a club of Liverpool’s glorious history. One League Cup (under King Kenny) and a single qualification for the Champions League is not great, though it would have been a different story if Brendan Rodgers' side had not fallen at the last hurdle in the 2013/14 Premier League, finishing in an agonising second place.

Indeed, Rodgers put his finger on the challenge at Liverpool: “The club needs to decide whether they want a business model or a winning model. Some will think it is about buying a player, developing and improving them and then selling them for a much greater fee; as opposed to getting the best possible player, irrelevant of his age, in order to win.”

To be fair, Liverpool have spent significant sums on bringing players in, but the recruits have often been of dubious quality. Some of this has been attributed to the FSG model, featuring a transfer committee, but it is unclear whether this “Moneyball” approach still holds sway.

Even if the club is not performing too well on the pitch, it is tearing it up off the pitch, as evidenced by the recently published 2014/15 accounts, which featured a massive £60 million profit before tax, up £59 million from the previous year’s £1 million profit.

Ian Ayre said that this was “mainly a result of the sale of Luis Suarez in July 2014”, which increased the profit on player sales by £57 million, though the revenue growth was also impressive, up £42 million (17%) from £256 million to a record £298 million.

Broadcasting revenue was £22 million (22%) higher at £123 million, mainly due to Champions League participation and the domestic cup runs. The additional home games also helped drive an £8 million (16%) increase in match day revenue to £59 million.

Commercial income rose £13 million (12%) to £116 million, due to additional sponsorship from 12 new partnerships and renewals and higher merchandising sales following the opening of 180 new retail outlets around the world including one standalone store in Malaysia.

These improvements were offset by significant increases in player costs: the wage bill surged £22 million (16%) from £144 million to £166 million, while player amortisation was up £20 million (48%) from £41 million to £61 million.

On the other hand, a small credit for stadium development costs meant that exceptional items were £2 million lower, while net interest payable fell £1 million to £4 million.

As Ayre observed, “the club is in rude health financially”, which is confirmed by Liverpool’s £60 million being by far the highest profit of the 14 clubs that have to date published their 2014/15 accounts. The next most profitable clubs are Leicester City £26 million, Arsenal £25 million and Southampton £15 million.

Although football clubs have traditionally lost money, the increasing TV deals allied with Financial Fair Play (FFP) mean that the Premier League these days is a largely profitable environment with only four clubs losing money so far in 2014/15, the largest losses coming from Aston Villa £28 million and Chelsea £23 million.

That said, it is far from unusual for Premier League clubs to report lower profits in the second year of the television deal’s three-year cycle, as there are limited possibilities for revenue growth, while wage bills continue to grow apace. In fact, half of the clubs that have announced 2014/15 figures have reported lower profits, which makes Liverpool’s £59 million growth all the more impressive.

However, it is clear that once-off profits from player sales can have a major influence on a football club’s bottom line, especially at Liverpool, whose numbers were boosted by £56 million from this activity in 2014/15, compared to a £1 million loss the previous year.

The lion’s share of this profit was obviously from Suarez’s sale to Barcelona, but the club also earned money from the transfers of Oussama Assaidi to Al-Ahli Dubai, Daniel Agger to Brøndby and Martin Kelly to Crystal Palace.

This is the second year in succession that Liverpool have reported a profit, following five years of losses that amounted to a hefty £176 million, including an average of £47 million for the three seasons between 2011 and 2013.

In fairness, many of these losses were caused by FSG having to spend substantial sums on player recruitment in order to repair the damage caused by the previous owners’ lack of investment in the squad. It should also be noted that the 2011/12 accounts only included 10 months after the club moved the accounting date to 31 May.

The other factor that has had a strong influence on Liverpool’s losses is the amount booked for so-called exceptional items, which adds up to nearly £100 million over the last nine years, mainly due to writing-off £61 million spent on unsuccessful stadium developments and £31 million paid-out as a result of changes in coaching staff (e.g. the departures of Roy Hodgson and Kenny Dalglish). There were also £5 million of legal and professional fees incurred as a result of FSG’s purchase of the club.

In fact, Liverpool would have made a profit of £10 million in 2011 without such exceptionals. These have been steadily reducing and actually produced a £0.3 million credit in 2014/15 against costs previously booked for the stadium development in Stanley Park, though next year’s accounts should include a sizeable payout to former manager Brendan Rodgers, who had three years remaining on his deal when he was sacked.

Profits and losses have also been greatly influenced by player trading. In the six seasons up to 2011, player sales boosted profits (or at least reduced losses) by an average of £18 million a year. This was most evident in 2011 when £43 million of profits on player sales, mainly Fernando Torres to Chelsea, reduced the annual loss from a horrific £93 million to “only” £49 million, though, as we have seen, that was also affected by £59 million of exceptional stadium costs.

However, the club’s ineptitude in the transfer market resulted in three consecutive years of losses on player sales between 2012 and 2014, most notably the sale of Andy Carroll to West Ham.

That drag on the club’s financials spectacularly changed in 2015 with the Suarez sale and we already know from a note in the accounts that the 2016 figures will include £41 million of profits from player sales, mainly the lucrative sale of Raheem Sterling to Manchester City plus Fabio Borini’s permanent move to Sunderland.

"Can you feel the beat?"

Ayre is perfectly aware of the influence of player sales: “Our real financial position is closer to break-even and it is the underlying revenue growth that’s important and provides us with the long-term stability.” Indeed, excluding the £56.2 million made from player sales in 2015 would leave only a small £3.8 million profit.

It is worth exploring how football clubs account for transfers, as this can have such a major impact on reported profits. The fundamental point is that when a club purchases a player the costs are spread over a few years, but any profit made from selling players is immediately booked to the accounts.

So, when a club buys a player, it does not show the full transfer fee in the accounts in that year, but writes-down the cost (evenly) over the length of the player’s contract. To illustrate how this works, if Liverpool paid £25 million for a new player with a five-year contract, the annual expense would only be £5 million (£25 million divided by 5 years) in player amortisation (on top of wages).

However, when that player is sold, the club reports the profit as sales proceeds less any remaining value in the accounts. In our example, if the player were to be sold three years later for £32 million, the cash profit would be £7 million (£32 million less £25 million), but the accounting profit would be much higher at £22 million, as the club would have already booked £15 million of amortisation (3 years at £5 million).

This is all horribly technical, but it does help explain how it is possible for clubs like Manchester City to spend so much and still meet UEFA’s FFP targets.

Notwithstanding the accounting treatment, basically the more that a club spends on buying players, the higher its player amortisation. Thus, Liverpool’s player amortisation has shot up from £34 million in 2012 to £61 million in 2015, reflecting renewed activity in the transfer market. It should be even higher next year, as this figure does not reflect last summer’s purchases of Christian Benteke, Roberto Firmino and Nathaniel Clyne.

Liverpool have also booked around £20 million of impairment charges in the last four seasons, though the vast majority was in 2012 and 2013. This happens when the directors assess a player’s achievable sales price as less than the value in the accounts.

Despite rising by nearly 50% in 2015, Liverpool’s player amortisation of £61 million is still surpassed by the really big spenders like Manchester United, whose massive outlay under Moyes and van Gaal has driven their annual expense up to £100 million, Manchester City £70 million and Chelsea £69 million, but it is now ahead of Arsenal £54 million.

The other side of the player trading coin is that player values have also shot up, nearly doubling from £85 million in 2010 to £166 million in 2015.

As a result of all these accounting shenanigans, clubs often look at EBITDA (Earnings Before Interest, Depreciation and Amortisation) for a better idea of underlying profitability. In Liverpool’s case this metric highlights the major improvement in their finances, as it is has steadily risen from £10 million in 2011 to a very healthy £73 million in 2015.

That’s excellent and is only outpaced by the two Manchester clubs, United £120 million and £83 million, but Liverpool are actually ahead of Arsenal, the poster child of profitability in English football, at £63 million.

However, before people get too complacent, United are projecting astonishing EBITDA of £178-188 million for 2015/16, following their return to the Champions League and their new kit deal.

Revenue has grown by 61% (£113 million) since FSG took over in 2010, though most of this (£92 million) has come in the last two seasons with revenue being relatively flat over the previous seasons. As Ayre stated, “growth in our commercial, media and match day revenues…continues to add strength to out financial position.”

The main growth driver has been commercial income, which has increased by 87% (£54 million) over that period, though broadcasting is also up 54% (£43 million), largely due to the new Premier League TV deals. Match day income has, perhaps surprisingly, also risen by 38% (£16 million).

Even after the 2015 revenue growth, Liverpool remain in fifth place in the English revenue league with £298 million, though they have closed the gap to the top four. Nevertheless, they are still almost £100 million behind Manchester United (£395 million) and over £50 million lower than Manchester City (£352 million).

They are also below Arsenal (£329 million) and Chelsea (£314 million), but are a long way ahead of their other Premier League rivals, being £100 million higher than Tottenham (£196 million) and around £170 million higher Newcastle United (£129 million).

This is the reason for many Liverpool fans’ frustration, as they should have enough spending capacity to do better than the likes of Spurs (and Leicester City), even if they might expect to struggle from a financial perspective against the top four.

In fact, Liverpool’s revenue growth of £42 million (17%) was easily the best of the leading six English clubs last season, both in absolute and percentage terms. United actually saw a £38 million (9%) decline, due to their failure to qualify for Europe, while Chelsea’s revenue also dropped £6 million (2%).

Of course, the boot will be on the other foot next year, as United made their return to the Champions league, while Liverpool only qualified for the Europa League.

Liverpool comfortably retained ninth place in the Deloitte Money League, though the gap to Juventus in 10th place increased from £22 million to £52 million, partly due to the strengthening of Sterling against the Euro. However, even excluding currency movements, Liverpool enjoyed the second highest revenue growth in the Money League last season, only beaten by Barcelona.

That’s obviously a fine accomplishment, but the Money League highlights a new challenge for clubs like Liverpool, as no fewer than 17 Premier League clubs feature in the top 30 clubs worldwide by revenue, thanks to the TV deal. This means that the mid-tier clubs have more purchasing power than ever before, so are more competitive as a consequence.

If we compare Liverpool’s revenue with the other clubs in the Deloitte Money League top ten, it is immediately apparent where their main problem lies, namely commercial income. Liverpool’s £116 million might seem pretty good, but it is substantially lower than most of the elite clubs.

Granted, the £110 million shortfall against PSG (£116 million vs. £226 million) is largely due to the French club’s “friendly” agreement with the Qatar Tourist Authority, but there are still major gaps to the other clubs in commercial terms: Bayern Munich £95 million, Manchester United £84 million, Real Madrid £72 million, Barcelona £69 million and Manchester City £57 million.

This makes it all the more perplexing that the owners would focus on match day income and try to “nickel and dime” the community, when the larger opportunity is surely in the commercial arena.

On the plus side, Liverpool are very competitive on broadcasting revenue, only really losing out compared to the individual deals negotiated by Real Madrid and Barcelona, and Juventus, who were boosted by particularly high Champions League distributions last season.

Actually, match day only accounts for 20% of Liverpool’s total revenue with broadcasting (41%) and commercial (39%) far more important, following the huge growth in these revenue streams.

Liverpool’s share of the Premier League television money fell £5 million from £98 million to £93 million in 2014/15, largely due to lower merit payments for only finishing in 6th place in the league, as opposed to finishing second the previous season.

The only other variable element in the Premier League distribution is the facility fee (also 25% of the domestic deal), which depends on how many times your team is broadcast live. Liverpool always do well here, due to their box office appeal. All other elements are equally distributed among the 20 Premier League clubs: the remaining 50% of the domestic deal, 100% of the overseas deals and central commercial revenue.

Of course, there will be a substantial increase from the mega Premier League TV deal starting in 2016/17. My estimates suggest that Liverpool’s 6th place would be worth an additional £46 million under the new contract, taking their annual payment up to an incredible £138 million. This is based on the contracted 70% increase in the domestic deal and an assumed 30% increase in the overseas deals (though this might be a bit conservative, given some of the deals announced to date).

The other main element of broadcasting revenue is European competition with Liverpool receiving €33.6 million for Champions League participation plus an additional €0.5 million after dropping down to the Europa League, where they were eliminated by Besiktas.

Here it is worth noting the importance of the TV (Market) pool to the Champions League distributions. Half of the payment depends on how far a club progresses in the Champions League, but also how well the other English clubs do. In this way, Liverpool’s share was smaller than the other English clubs, as they went out at the group stage, while the others reached the last 16.

The other half of the market pool is based on where the club finished in the previous season’s Premier League, so Liverpool did well here, as they finished 2nd in 2013/14, giving them a 30% share (1st 40%, 3rd 20%, 4th 10%).

Incidentally, the reason why Juventus received such an enormous slice of the Italian market pool is that they only had to share it with one other club (AS Roma), while the UK pool was split between four clubs.

Having won the European Cup/Champions League five times, nobody needs to explain its importance to Liverpool, but the club’s failure to qualify for Europe’s premier tournament more than once in the last five years has really hurt their bank balance.

In that period, Liverpool have earned €45 million from Europe, which is around €100 to €180 million less than the top four received – and that does not include revenue from additional fixtures and sponsorship clauses. That’s a huge competitive disadvantage and makes it all the more difficult for Liverpool to break into the Champions League qualifying places.

The financial significance of a top four placing is even more pronounced from this season with the new Champions League TV deal worth an additional 40-50% for participation bonuses and prize money and further significant growth in the market pool thanks to BT Sports paying more than Sky/ITV for live games.

Match day income grew by £8 million (14%) from £51 million to £59 million, mainly due to seven more home games from European competition and domestic cup runs, with the average attendance virtually unchanged at 44,659. This means that match day income has increased by a total of £14 million in the last two seasons.

That’s good news, but Liverpool’s match day income is still miles behind Arsenal (£100 million) and Manchester United (£91 million). In order to address this difference, FSG plan to expand the Main Stand capacity by 8,500 seats taking the overall Anfield capacity to around 54,000, which should be complete for the 2016/17 season. Potentially, there would also be a further increase of 4,800 seats in the Anfield Road stand at a later date.

It is estimated that this would increase revenue by £25 million: £20 million from the extra seats and £5 million for naming rights for the stand, though a partner is still not in place. Importantly, the club would keep the famous Anfield name for the stadium as a whole.

This project will cost well over £100 million, but it is likely to be funded by an interest-free loan from the owners, thus eliminating the need to make steep interest payments. Indeed FSG has already loaned the club £49 million for the initial expenditure.

Ayre stressed the importance of the stadium expansion: “The new Main Stand at Anfield is another significant investment by this ownership which is vital to the health of the club and part of our long-term strategy to ensure we remain competitive and sustainable.”

He added, “It gets us towards the capacity we want, and at a better cost than building a new stadium”, though the 25,000 fans on Liverpool’s season ticket waiting list may have preferred the more expansive option.

"Miss You"

Although this all sounds very promising, especially given the numerous false starts in the past, it does not really excuse the owners not addressing the supporters’ concerns over ticket prices, especially in light of the growing TV riches. This is a great opportunity for football clubs to make prices more affordable and avoid the traditional fan base being priced out.

According to the BBC Price of Football survey, Liverpool have the fourth most expensive cheapest season tickets, only behind the big London clubs (Arsenal, Tottenham and Chelsea), but there is obviously a vast salary gap between those two markets.

While it is understandable that the board would want to narrow the match day income gap, the stadium expansion will go a long way towards that without price gouging the fans. In any case, the owners finally recognised the value of the supporter base and abandoned their plans and froze prices. That said, that gesture has since been effectively trumped by Everton actually reducing ticket prices by 5%.

Commercial revenue rose £12 million (12%) from £104 million to £116 million, mainly due to additional sponsorship and merchandising sales. New sponsor deals included Garuda (training kit), Subway and Dunkin’ Donuts, which is an example of Liverpool’s stated strategy of “leveraging the club’s global following to deliver revenue growth.”

Liverpool’s commercial income has overtaken Chelsea (£108 million), though the Blues will be boosted next season by their new shirt deal with Yokohama Tyres, but it is still a long way below Manchester United £197 million and Manchester City £173 million.

To reinforce this point, Liverpool’s commercial income growth of £36 million over the last three seasons is only better than Tottenham of the leading English clubs. In the same period, Manchester United have increased their commercial income by £79 million – and that’s before United receive the full benefit of their massive new Adidas kit deal. In fact, the gap between Liverpool and United has grown from £10 million in 2009 to £81 million in 2015.

Liverpool have extended their shirt sponsorship deal with Standard Chartered by three years to the end of the 2018/19 season, increasing the annual payment from £20 million to £25 million (though some reports suggest that this might be as high as £30 million). That’s not too bad, but is lower than Manchester United £47 million (Chevrolet), Chelsea (Yokohama) £40 million and Arsenal (Emirates) £30 million.

Liverpool’s “record” New Balance kit deal is basically worth the same amount as the six-year deal signed with Warrior in 2012, namely £25 million a season, with the increase coming from the other part of the deal, i.e. earnings from merchandising sales, due to New Balance’s better distribution network.

Whatever the exact details, it is still lower than Manchester United’s “largest kit manufacture sponsorship deal in sport” with Adidas, which is worth £750 million over 10 years or an average of £75 million a year from the 2015/16 season.

Wages increased by £22 million (16%) from £144 million to £166 million, though the underlying growth is even higher, as the previous season included high bonus payments “as a result of the impact of the 2nd place Premier League finish.” The number of employees rose from 567 to 636, largely in the administration, commercial and other department.

The highest paid director, presumably Ayre, received an inflation-busting 16% pay rise from £1.0 million to £1.2 million, which is nice work if you can get it.

Despite this wages growth, the wages to turnover ratio was maintained at a very respectable 56%, which is around the same level as the likes of Arsenal (58%), Tottenham (56%) and Manchester City (55%).

Liverpool’s £166 million is the 5th highest wage bill in England, exactly in line with revenue. Chelsea once again have the highest wage bill in the top flight at £216 million, which is the first time since 2010, ahead of Manchester United £203 million, Manchester City £194 million and Arsenal £192 million. There is then a big gap to the other Premier League clubs with the nearest challengers being Tottenham (2013/14) £100 million and Aston Villa £84 million.

What is interesting is how the wage bills at the top four clubs have been converging around the £200 million level. Both Manchester clubs actually saw a reduction in wages in 2014/15. United’s decrease was due to their lack of success on the pitch, as bonuses fell, while City’s is partly due to a group restructure, where some staff are now paid by group companies, which then charge the club for services provided.

Liverpool’s gap to Arsenal in 4th place has remained fairly constant over the last there seasons at around £25 million.

The different investment policies of the last two sets of owners can be clearly seen by looking at the net transfer spend: in the five years leading up to the FSG takeover the club averaged net spend of just £10 million, but this has tripled to £30 million in the five years since then, even after a number of big money sales including Torres and Suarez.

It was imperative that Fenway splashed the cash after Hicks and Gillett kept their hands in their pockets and they have done so. In the 2014/15 season alone, Liverpool bought Adam Lallana, Lazar Markovic, Dejan Lovren, Mario Balotelli, Alberto Moreno, Emre Can, Divock Origi and Rickie Lambert.

As Ayre said, “We are very fortunate in that everything we generate goes back into the team”, though many would argue that the proceeds of the Suarez sale have not been wisely reinvested, as there seems to have been a focus on quantity rather than quality. Furthermore, Liverpool spent more last year on agents’ fees (£14.3 million) than any other club in the top flight, which is a fairly damning indictment.

Even with the increased activity in the transfer market, Liverpool have still been significantly outspent by some clubs over the last three seasons, maybe understandably by Manchester City £241 million, Manchester United £199 million and Arsenal £111 million, but also by West Ham £79 million. They have also been nearly matched by Newcastle £71 million, Everton £65 million and Crystal Palace £65 million.

Legendary Liverpool defender Alan Hansen suggested that the club would need to spend £200 million “to have a real go”, but he cautioned, “From what I understand FSG have told the manager it is not a bottomless pit. So the problem Klopp might have is that the owners have invested so much already, will they be reluctant to do it again?”

Gross debt has reduced by £28 million from £127 million to £99 million, comprising bank loans of £50 million (down from £58 million) and £49 million from the owners in order to fund stadium expansion work. Note that the reported net debt excludes £20 million owed to the subsidiary Liverpoolfc.TV Limited.

The previous £69 million owed to FSG has been converted into equity. As Ayre said, “It’s effectively writing-off that debt for the club and putting us in a healthier position. It’s another great example of the commitment that the owners make to the club.” The owners would only get this money back if they were to sell the club.

Maintaining their customary position, Liverpool’s gross debt of £99 million is the 5th highest in the Premier League, though is much less than Manchester United, who still have £444 million of borrowings even after all the Glazers’ various re-financings, and Arsenal, whose £232 million debt effectively comprises the “mortgage” on the Emirates stadium.

It is also worth highlighting that the club’s debt position is stratospherically better than the shocking levels reported under the previous owners. While 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 nearly £400 million. Fortunately, this debt was largely eliminated following the change in ownership.

In addition to this debt, Liverpool have contingent liabilities of £13 million, which represent fees that may be payable depending on contractual clauses such as number of appearances, Champions League qualification, etc. Similarly, Liverpool will potentially receive £4 million from other clubs. The accounts also note that the net amount payable in transfer fees arising from this summer’s transfer is £37 million.

It is worth noting that the net interest payable of £3.6 million has come down significantly since the bad old days of Hicks and Gillett, when it peaked at £17.6 million in 2010. As a comparison of what might have been, Manchester United incurred £35 million of interest costs last season as the price of their leveraged buy-out, while Arsenal have net financing costs of £13 million.

The amount of cash Liverpool generate from operating activities has been increasing, reaching £65 million in 2015, after adding back non-cash expenses like player amortisation and depreciation. Nevertheless, they still required £49 million of funding from FSG to cover their cash outlay, as they spent a net £59 million on players (gross £96 million), £40 million on the stadium development, £9 million on bank loan repayments and £3 million interest payments.

In the five years since FSG bought Liverpool, the club has had available cash of £320 million. Less than half of this (£146 million) has come from operating activities, while £114 million has been provided by the owners in the form of loans and a further £46 million from the bank facility.

Nearly two-thirds of this funding has been seen on the pitch with £211 million spent on net player recruitment, while another £55 million went on infrastructure investment. An outstanding stadium loan of £38 million was repaid, while £16 million of interest payments on external bank loans have been required.

Unlike other American owners, FSG cannot be accused of hoarding cash, as Liverpool only have £4 million in their bank account. In stark contrast, Arsenal had £228 million and Manchester United £156 million.

It is difficult to disagree with Ayre’s view that Liverpool are “making good progress”, but the question remains whether the club can break into the top four, given that it is ranked fifth in just about very category (revenue, attendance, wage bill, debt).

Whether Klopp is given enough funding to successfully overhaul his squad is debatable, but at least Liverpool now have a manager that everybody can get behind. Not to mention the fact that the German has already demonstrated his ability to revive a sleeping giant at Borussia Dortmund.

"I'm in love with a German film star"

The owners are keen to stress that they are ambitious to win trophies: “We have great conviction in our world-class manager and our young, talented squad and know that in time the on-pitch success we all crave will be realised.”

That’s easier said than done, of course, but after a period of stability, Klopp might just be the man to bring the glory nights back to Anfield. Whichever way it goes, it’s sure to be an exciting ride.