Oh Yes, Even Liverpool Can Be Victims of Sub-prime Loans

By: Inara | April 20th, 2008

In the latest twist to the ongoing soap opera at Liverpool Football Club, it turns out that the mounting debts brought on by Tom Hicks and George Gillett may force two of their star players out of the club.

Last summer, Liverpool borrowed £31.5m to purchase Fernando Torres and Ryan Babel, and then they refinanced that debt in January while also obtaining a refinancing package of £350 million. A letter of credit was signed, and it stipulated that the club must repay that debt within 18 months. If Liverpool cannot repay or refinance their loan, the banks could force the club to sell the players they purchased with that money.

Most Premier League clubs fund transfers with the huge amount of revenue brought in by broadcasting revenue, so Liverpool resorting to a bank loan to buy Torres and Babel is rather unusual. However, Liverpool are already paying £30m per year on the interest payments for the £350m loan that Hicks and Gillet took out to purchase the club. So not only do Liverpool not have any cash to spare, but another spending spree required for a serious title challenge isn’t likely either.

However, it should be made clear that Liverpool aren’t staring into a financial abyss at the moment, and the club are not yet in the position of having to consider selling Torres and Babel. They still have a little less than a year left in their agreement, and even if they default on their loans and allow the banks to take control, it’s a given that a buyer will be found to rescue the club. With so many foreign billionaires sniffing around the profitable Premier League, there will always be someone around who would be willing to invest in Liverpool, one of the world’s most valuable and well known football brands.

Even right now, Dubai International Capital is lurking in the shadows as they hope to pounce on the wreckage of the “unworkable relationship” between Hicks and Gillet. The continuous public disagreements between the two American owners, over everything from buying out each other’s shares to the role of chief executive Rick Parry, have made it difficult for any forward financial planning to take place.

At least there is some good news. Despite all the turmoil, Rafa Benitez has managed to keep the drama out of the locker rooms by leading his players to their third Champions League semifinal in four years. Let’s hope the financial mess doesn’t get too out of hand, or else we might start seeing more unpaid players.