So, it is finally over. The wait for Liverpool’s ‘first’ signing in the transfer season. The recruitment of Mohamed Salah has been announced. I say first given the underwhelming response to Dominic Solanke’s impending arrival from Chelsea for a fee that could be only £3 million.
In the latest annual report, the directors at the club stressed on the four key elements of the club’s strategy. The first one is to improve football performance through a positive playing style and strategic player investment. Both signings are steps taken towards achieving that, but it has been a case of “Meh Solanke, Moh Salah” with most fans. Everyone is dreaming about big money signings, and one gets the sense that anyone who comes in for less than £10 million pounds these days will be given the short shrift. Notwithstanding the fact that Liverpool’s best defenders last season, Joel Matip and James Milner, both came in on the free.
I believe that Fenway Sports Group (FSG), the American owners at Liverpool, have done a good job since taking over in 2010 from the previous owners, George Gillett and Tom Hicks. They’ve pulled the club back from the depths it had sunk to and stabilised the ship. In recent years, they have started showing more ambition in the transfer market.
The second key element in the club’s strategy is to improve the scouting and player recruitment process and this is where the owners and a lot of fans seem to differ. There is a perception that FSG run Liverpool more like a business and less as a football club desperate for success. The failure to go for the best players regardless of price and sticking to a policy that is about buying a player young, improving and developing him, and possibly selling him for a higher price isn’t something that has gone down too well at times.
However, the owners do have a point when they pursue that route. Liverpool’s financial position has been closer to break even in recent years and they even registered a loss of £19.8m in the accounts published recently for 2015-16. This was despite a profit of £42.1m on player sales, including the massive amount received for Raheem Sterling. Similarly, while a profit of £60m was announced for the year before, the sale of Luis Suarez helped the numbers look better than they were. Excluding player sales, the club was left with a £3.8m profit.
Despite these numbers, FSG have been investing in players. A comparison with the numbers at other top clubs in England help. It looks like it will be a Big Six as against a Big Four in coming years, and I have included Tottenham to reflect that changing reality.
Until a couple of seasons back, Liverpool’s wage bill used to be in line with revenue, i.e. they had the 5th highest wage bill, since they were 5th in terms of revenue. They also used to maintain wages as a percentage of revenue at around 56%, having done so both in 2013-14 and 2014-15. All the big clubs try and maintain it around this number, which is healthy from a financial standpoint. In fact, in United’s case this number has been below 50%. They have been able to do this given the massive revenues they generate. The only exception has been Chelsea whose wage bill in recent years has been mostly more than 60%, peaking at 82% in 2009-10.
In 2015-16, Liverpool still have only the fifth highest turnover among the big clubs, but the third highest wage bill, behind Manchester United and Chelsea and not by much. Wages as a percentage of revenue increased to 69%, the highest among the top six. Surely, that is an indicator of renewed ambition by FSG in the transfer market.
The third key element of the club’s strategy is to leverage its global following to deliver profitable revenue growth, and this is where they have struggled. The leading clubs have continued to grow their revenue at a faster rate over the last few years, and commercial income especially is where they have stolen a march on Liverpool. Over the last 5 years, Liverpool’s commercial income has grown only 50%, from £77m in 2011 to £116m in 2016, which is the slowest rate of growth of all six clubs. It isn’t any coincidence that Peter Moore has been brought in as the new CEO. He will be expected to use his decades of extensive business dealings around the world to drive commercial operations.
A few Liverpool watchers claim that they should be competing for players at the highest end of the market because they are ninth in the Deloitte Football Money League, but it is also the case that one will find most Premier League clubs in the Top 30. And that is because of the huge amounts of broadcasting income that the Premier League generates. Also, Liverpool still have four English clubs ahead of them in that list.
In this piece, I had argued that Jurgen Klopp has delivered on the football front by getting Liverpool a Champions League qualification spot, and this should see an increase in both match day and broadcasting income next season. FSG has done their bit by expanding seating in the Main Stand at Anfield, and this should reflect in the numbers.
The last key element in the owners’ strategy is to improve the fan experience and interaction with the club. The redevelopment at Anfield and the appointment earlier this year of a Club and Supporter Liaison Head have been steps in the right direction. There was some furore caused by fans at the proposed hike in ticket prices early last year, but the owners backed down quickly, and that plan has been shelved for now.
Overall, FSG have been good for Liverpool Football Club and will hopefully continue to be solid owners. Unlike a lot of other American owners, they have put their own money into the club and have tried to balance the need for a business model and a winning model. It is a delicate balance and so far, they have got it right.
There are those who pine for the crazy money that the Arabs or Chinese might offer as owners, but there is a huge risk associated with courting them, and recent events in Qatar are just a reflection of the volatility that could accompany a change in ownership. Being an indulgent owner’s pet project can go either way, and there are enough examples of how things can go wrong, or right, in football.
For now, FSG and Jurgen Klopp are providing Liverpool with a lot to look forward to. There are genuine signs that the club are about to turn a corner, with the signing of Salah the latest in a string of moves the owners have gotten right. In my next piece, I shall look at Liverpool’s finances more closely and try to understand the rationale behind signings in recent seasons and what they could translate into this year. Until then, here’s to more glorious speculation in this silly season.