Liverpool is a rich team. Liverpool is ranked in the top 10 in the world in revenue, top 10 in profit, top 10 in valuation, and really by just about any measure. Except for one very important one: the Liverpool owner, John Henry, is poor.
This is not to say that John Henry is poor by normal standards. He’s a billionaire, whether you’re counting in dollars or pounds. But by comparison to his football club owning peers, he is poor. In fact, he isn’t even in the top half of owner wealth in the EPL.
John Henry ranks number 12 in the EPL for personal wealth at £2.1B as per Forbes 2020 assessment. And unsurprisingly, Liverpool rank 13th in total transfer spend in the last 5 years … seems like quite a coincidence, but it’s not. Henry’s wealth puts him right behind the Newcastle owners. Now that’s not a poor man, but when it comes to the football club, it puts LFC at a disadvantage to other owners, and that’s even with the benefit of UEFA Financial Fair Play Regulations. Top of the list of richest EPL owners of course is Sheikh Mansour, owner of Man City, worth more than 10 times what John Henry is worth.
There has of course been a lot made recently of Man City and their owner breaking FFP rules to put extra money into the club, and while many clubs who do not have such rich owners are celebrating this development as it provides them the ability to compete on an even footing, there is actually a lot of area that FPP doesn’t cover and it gives teams with wealthy owners an advantage.
Financial Fair Play Regulations
FFP is meant to even the playing field and not allow super wealthy owners funnel money directly into their clubs at will. FPP requires, at the most basic level, to match your football revenue (matchday, broadcast and commercial) with football related expenses (wages and transfers).
But those are not all related expenses for a football club, and there is where Liverpool are put at a disadvantage. The items that are not covered under FFP and where teams and use wealthy owner money without recourse are stadiums, training facilities, youth development and community projects.
As such, teams with rich owners can set up youth academies that are the envy of other teams without taking a penny from team operations. Likewise they can build stadiums and training facilities without taking a penny from team operations. But alas Liverpool with owner John Henry is not one of those teams.
Limited Funds
What not having the unlimited piggy bank of a wealthy owner means for teams is that any improvements they wish to make off the field, will have to come from team revenue. This means that in effect there will be a siphoning off money for non-team related expenses due to owner John Henry lack of funds that a team like Man City or Man U could otherwise spend on peripheral items like youth teams or facilities. And to see this significance, you need look no further than another of the big 6 EPL teams, Tottenham.
The Tottenham owner, Joe Lewis, is worth almost twice what John Henry is. And yet while Tottenham Hotspur stadium was being built, there was a lack of significant spend in the transfer market or in wages simply because revenue from the team operation was needed for construction. Construction began in 2015 and the first Hotspur game was played in 2019. It is not a coincidence that in the 4 years of transfer windows during the construction, Tottenham had a net spend on transfers of £23M total. That’s less than £6 per year. Also not coincidentally, once the spend on the construction ended in time for the 2019-20 season, Tottenham spent £78M.
Such is the reality of teams who cannot simply rely on a wealthy owner to finance the club but need to rely on internally generate funds.
Liverpool Funds
And unfortunately Liverpool with owner John Henry can count themselves among those teams. While Liverpool have invested in the team and in operations, it is important to realize that the funds for that growth came out of the team income, which in turn prevents LFC from spending on transfers and wages. Management for the club have done exceptionally well to keep salaries in check and spend well in transfer windows, but money that may have been spent on players was spent on infrastructure.
In 2016, Liverpool undertook an expansion of the main stand worth about £114M. Matchday revenue in the year following the completion was up about £12M meaning that in future, every year LFC can count on additional revenue which is of course a good thing. However the actual cost of the stand came out of Liverpool operations where for a team like Man City, the owner covers those types of expenses and the full team revenue can go to players. And the same will be the case with the new Anfield Road stand expansion which is estimated to cost £60M which will probably bring in roughly £9M in additional matchday revenue.
Likewise the new training ground at Kirkby. The benefits of the new facility are unquestioned, not just in creating a new state of the art facility that will benefit current and future players, but also in bringing the youth squad and senior squad closer together and in creating pitches that more closely resemble the Anfield pitch. However it should be remembered that the £50M cost is an amount that did not go into players, it went into facilities.
That is also the case with the development of the Club Superstore build-out and the Fan Zone. These are also expenses that needed to be incurred to help in future financial success, but they came at the expense of the current squad.
And these infrastructure expenses push the team to look at alternative revenue streams as well. It is why Liverpool are looking at hosting concerts now, to help use those funds (which cannot be used for players) on infrastructure like the Anfield expansions.
Another example is the deal that Liverpool signed with Nike. The amount Liverpool is to be paid is not as high as it could have been, with Liverpool sacrificing some money in order to build the brand with an eye on the future. While this is a good long term strategy, the reported £30M annual fee is less than half of Man City’s new deal showing just how much Liverpool left on the table in guaranteed money.
And that is the point, some teams like Liverpool need to choose between spending money on the current squad and investing in facilities and the future, while other squads like Man City (who has approximately the same revenue) can spend entirely on players. And this is why in the last 5 years Man City have spent 5.5 times on transfers as Liverpool and why their total player salaries are about 30% higher.
Extra thanks to Klopp
There is no way to sugar coat it, Liverpool is at a disadvantage to other teams with wealthier owners. Which is where wunderbar manager Jurgen Klopp (and sporting director Michael Edwards) has saved the day without many people realizing. The current manager is hailed for putting together a world class team at a fantastic transfer value, however what is more important is how Liverpool will benefit from this period for decades to come.
The money that is currently not being saved by fielding a world class team on a relatively low budget is being seen in infrastructure that will pay back in future. The original capacity of Anfield when FSG purchased the team was 46,242. The Main Stand expansion added 8,500 seats and the Anfield Road expansion will add another 7,000, bringing the grand total to just a shade under 61,000. While Anfield attendance is still well below the nearly 100,000 that Barcelona can bring in at Camp Nou, the money spent on expansion of the stadium (and not players) can help close the gap.
So while all Kopites revel in the greatness (and relative affordability) of the current squad there should be an awareness that this team is doing more than just winning. They are allowing LFC to compensate for an owner who does not have the resources to simply pour unlimited money into the club at will. They are allowing the club to spend on non-player expenses that don’t actually help the current team but help the club for many years in the future.
Amazingly, Liverpool are in the unique position of turning the saying “short-term pain for long-term gain” on it’s head. For Liverpool that saying has become “short-term gain for long-term gain”. It’s a good time to be a Liverpool fan.
Daniel is a professionally designated accountant who has spent 20 years in the finance and data analytics field which has skewed his view of the sporting world. Instead of seeing simply an athletic competition, he sees a financial exercise waiting to be unlocked by data analysis. He enjoys reading professional publications such as the annual deloitte football report and team financials as well as spending hours putting together and analyzing football data, which saves his readers from having to do it themselves.
