Liverpool on the brink after accountants warning

Liverpool fans were warned Friday that they should be “very worried” after auditors warned that the club’s parent company is in danger of being forced out of business by unsustainable debt.

The Reds’ American owners, Tom Hicks and George Gillett, face a July 24 deadline to refinance 350 million pounds of debt which they have been servicing at punitive rates of interest, according to company accounts published this week.

The accounts revealed that the club’s parent company, Kop Football (holdings) Ltd., made losses of 42.6 million pounds in the year to July 2008, largely due to 36.5 million of interest payments on the debt incurred by Hicks and Gillett to fund their February 2007 acquisition of the club.

In a note attached to the financial report, accountants KPMG warned that there was no guarantee that the creditor banks, RBS and Wachovia, would agree to renew their financing.

It said: “The group has credit facilities amounting to 350 million pounds which expire on 24 July 2009. The directors have initiated negotiations to secure the replacement finance required by the group and these negotiations are ongoing.

“These conditions… indicate the existence of a material uncertainty which may cast significant doubt on the group’s and parent company’s ability to continue as a going concern.”

Football finance expert Tom Cannon said the accountants were sounding an alarm that everyone connected with Liverpool should heed.

“Accountants like KPMG don’t use the language they used lightly,” said the Liverpool Business School professor.

“They are worried about the ability to continue on the present basis. I have not heard accountants talk about a top club in a way like that before. Fans should be very concerned.”

Liverpool’s underlying financial performance remains healthy with the club reporting an operating profit of 10.2 million pounds in 2007-08 on turnover which was up nearly 20 percent to 159.1 million pounds.

That trend will have continued in 2008-09 following another successful season but Cannon believes the costs of servicing the debt will continue to drag the club down.

“Turnover is going up, trading profit is going up but they are still making a loss,” he said. “With debts of 300 million pounds plus it is costing them 35 million – they are paying an awful lot of money on their debt.

“They seem to be paying rates of 10 percent – that shows how difficult it has been to refinance their debt.”

Cannon went on to argue that Hicks and Gillett would have to sell other assets to reduce the debt or bring in new investors.

“They can’t really seriously think in terms of another six-month extension – they need long-term secure financing,” he said.

Rogan Taylor, who has been attempting to organise a buyout of the club by fans who would then run it on the Barcelona model, said the latest figures showed how Hicks and Gillett had transformed Liverpool from a club with sound finances into a “debt-laden creature,” to the anger of most of the club’s fans.

“It is an opportunity though,” Taylor added. “Let’s get rid of these American no-marks and get on with life.”

Liverpool’s ability to generate match-day revenue would be significantly increased by a move to a bigger stadium but plans to construct a new 60,000-seat arena close to Anfield have had to be shelved indefinitely because of the owners’ financial problems.