Memo to the Red Sox on Their Acquisition of Liverpool F.C.
Dear New England Sports Ventures, the new owners of Liverpool F.C., and the current owners of the Boston Red Sox:
Congratulations on your purchase of this historic football club! You are now the proud owners of one of the biggest brands in the international sports franchise business. Assuming your transaction survives the seemingly inevitable litigation promised by the old owners, Tom Hicks and George Gillett, you will be in need of some good advice on how to handle this venerable brand, its sponsors, and most importantly its fans. Frankly, it won't be easy. So here goes ...
- Approach with caution: As Americans, you should know that Hicks and Gillett have triggered a high level of anti-American feeling on the terraces of Anfield, Liverpool's aging stadium. Fans regard this team as a distinct entity from its owners. Even though you have liberated the club from its roundly hated former management, your actions will be scrutinized in microscopic detail. You should probably take a long, long time to study the club, its traditions and its market before announcing any grand new plans.
You're already branded as the debt-free alternative: As far as Liverpool's fans are concerned, the most important part of your acquisition was your announcement that the club will move on debt-free. Hicks and Gillett made the same statement when they bought the club a couple of years ago, and that turned out not to be true. Money that could have been invested in a new stadium or new players went instead to service interest payments and penalties. If you also break your promise, your likely fate will be similar to Hicks and Gillett (see below).- Your sponsors are feeling battered: Liverpool's financial fate is highly dependent on your relationship with three sponsors: Standard Chartered (STAN.L), which pays £20 million a year to sponsor the team's shirts; Adidas (ADS.F), which reportedly pays £15 million a year to design and sell the shirts; and whoever you select as the sponsor of the new stadium the club intends to build. A naming deal for the proposed new Anfield in Stanley Park could fetch £20 million a year. This is StanChart's first year, and it's seen its massive investment attached to a club that can barely win a game due to the civil war raging inside it. That sponsor likely has the investor equivalent of post-traumatic stress disorder and that relationship will need to be nursed back to health.
It's a lousy business: In soccer, revenues are relatively fixed. Your guaranteed revenue comes from sponsorships, shirt sales and ticket sales, but those are somewhat capped. Only a handful of giant clubs can grow millions of new fans in Asia or the U.S., and Liverpool -- currently 17th in the Premier League -- might not be one of them. The stadium seats only 45,000, so until you build a new one, that's it in terms of gate receipts. Your expenses, however, will only grow. Players can demand whatever they want in salaries. Clubs can demand whatever they want in transaction fees. (Those costs can be as much as 70 percent of your entire revenue.)The pressure on your costs is only upward. Although baseball does not have a salary cap, soccer does not even have the minimal downward incentive of baseball's luxury tax.- Don't sell your biggest brands: You could probably get £60 million if you sold striker Fernando Torres to another club. On paper, that would make a lot of sense -- you could pick up six uninjured younger players for that money, and the club could sure use the extra bodies. But Torres is a talisman at Liverpool, and you do not want to start your tenure as the men who did to Torres what the Red Sox once did to Babe Ruth.
- Liverpool fans tend to get their way: It is not a coincidence that Hicks and Gillett have been ousted just as the fans' campaign to get rid of them has reached its peak. One reason the pair couldn't refinance their loans was because investment banks such as Deutsche Bank and JP Morgan Chase were inundated with letters from Liverpool fans intended to scare them from supplying more debt. They even harassed the men on the street in New York when they visited their financiers. Similarly, Fox Soccer Channel presenter Steven Cohen lost his contract following a campaign by Liverpool fans to persuade Fox's sponsors not to advertise on his shows. (Cohen had spent the previous year antagonizing them over the death of 96 Liverpool fans in a stadium crush.) This is a constituency that does not respond well to provocation.
Build the new stadium, but get the branding right: God only knows where you'll get the money from. It's not as if the club generates any compared to the money you'll spend acquiring and running it. When you visit Anfield you'll be amazed at the noise and the atmosphere. It's one of the most intimidating venues for opposing teams to play. But you'll also note that, compared to modern stadia, it's a scruffy shed with hard wooden seats. Everyone knows that to grow revenues you'll need to grow a new stadium. Luckily, as noted above, there's an opportunity to have its costs offset by selling the naming rights. This will be a deceptively tricky transaction. Some fans will want the new building to be named "New Anfield." Some will be happy with "Stanley Park," the historic location of both the new and old grounds. Getting that name right will be crucial. Combining either of those monikers with a sponsor name -- "Prudential Field in Stanley Park," for instance -- could be disastrous. What you absolutely must avoid is the situation at Newcastle United F.C., which spent some recent months playing at a thing called "sportsdirect.com @ St James' Park Stadium."
Yours sincerely, Jim Edwards (b. Liverpool, 1969).
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