How Liverpool FC could deserve a $5 billion price tag


Now is an opportune time for US billionaire John Henry to try to cash in on his 2010 investment in Liverpool Football Club. But is there a financial justification for buying what he might be willing to sell?

Henry’s Fenway Sports Group Holdings LLC is open to a deal and said last week it would consider accepting new shareholders. The £2.5 billion ($3 billion) purchase of London rivals Chelsea FC in May shows there is an appetite for buying football clubs. The overall price understates the overall cost, with US buyers Todd Boehly and Clearlake Capital Group agreeing to invest £1.8bn in the club as part of the deal. While that money will stay with Chelsea, it will still need to generate a return on investment.

The share price of publicly traded Manchester United Plc gives an enterprise value of £2.4 billion. Again, this reflects little on what it would cost to buy it in full. The shares work under a governance discount as minority shareholders are subject to the whims of the controlling Glazer family. And Man Utd’s value is depressed by a recent trophy drought; the valuation at which the Glazers could cede control of the franchise would almost certainly be much higher.

Against this backdrop, consultancy firm GlobalData claim that Liverpool could fetch at least $5 billion.

There are two drivers for the increase in valuation from Henry’s original £300million purchase price. Firstly, Liverpool have been well managed with relatively tight cost controls. After being rescued from a near-collapse, it made a small profit in 2013-14 and then posted losses for only one more year before the pandemic. Manager Juergen Klopp’s appointment in 2015 was shrewd, leading to six major trophies even though performances have wavered this season.

Second, investing in European football has arguably become less risky over the past decade. Regulators have introduced spending constraints designed to prevent clubs from going bankrupt.

Nonetheless, multi-billion dollar valuations do not sit well with current levels of profitability. In the three years before the pandemic, Liverpool’s annual operating profit plus earnings from player sales averaged just £74m.

There will always be buyers who want to own a football club for non-financial reasons. Still, Clearlake and the other private equity investors who had been vying for Chelsea are drawn to this sector because they see the opportunity for decent returns. They will need to take a 10-year view and have a buyer in mind who will pay even more when it comes time to exit. The business case is based on achieving three goals: increasing revenue, making revenue more reliable, and controlling costs.

A tailwind from the past decade is likely to continue – the push to make football more financially viable. It comes from governments, regulators and owners. Hence the continued effort, despite the antipathy of supporters, to resurrect the Super League, a closed-circuit European competition where the best clubs would play without risk of relegation.

What if the Super League never happened? The influence of the United States in the English Premier League has become significantly stronger, with around half of the teams under at least partial United States ownership. The American sports model is based on closed competitions and salary caps. Support for measures that would help maximize profits could therefore increase, according to Rob Wilson of Sheffield Hallam University. Major changes to the EPL require the support of at least 14 of the 20 clubs in the competition.

Then there is the question of whether Liverpool could be run with more commercial aggression. Football club revenue comes from broadcast rights, matchday ticket sales and commercial activities including sponsorship, fan memberships and merchandise. Liverpool have a stadium expansion plan underway to increase capacity by around 15%. But the biggest opportunity is to leverage more of its global brand.

As a sales engine, Liverpool follow Man Utd in a way. Sponsorship revenue stands at $162 million, around half of what its rival earns and puts Liverpool in fifth place among British clubs, according to estimates by GlobalData. Premier League title holders Manchester City have around twice as many sponsors as Liverpool. Dropping Anfield from the stadium’s name in exchange for a sportswear brand or airline moniker would likely be anathema to the club’s fans given its iconic status. But there is undoubtedly more Liverpool can do.

Admittedly, Liverpool’s fan base outside the UK is not as strong as Man Utd’s. He has 101 million followers on major social media platforms, compared to his arch-rival’s 169 million, according to the GlobalData tally. Yet for a financially conscious owner, the business objective will be to generate recurring income from commercial activities, even if the trophies do not return regularly, just as there are lucrative American football teams that have no not won the Super Bowl in years. This should go hand in hand with a mechanism to prevent revenue gains from being fully absorbed by player salaries.

There is considerable uncertainty over this next leg of football’s journey, and further investment will be required. Even if he doesn’t sell completely, Henry would be wise to bring in a fellow traveler.

More from Bloomberg Opinion:

• Qatar World Cup a victory for globalisation: Adrian Wooldridge

• The World Cup will be great football but a lousy game: Martin Ivens

• Liverpool on sale shows football’s fickleness financially: Alex Webb

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering the deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.

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