Report on Financial Analysis of Liverpool Football Club
I. Executive Summary
The report is prepared to decide for the Acquisition of Liverpool Football Club (LFC), a Premier League Club. It evaluates the club’s performance in terms of financial performance, positioning, and the company’s liquidity. The report uses the financial statements and trends in the company the club for the year 2018/2019 season. The club performed incredibly well during the season with 97 points coming second to Manchester City with 98 points in the premier league and winning Champions League Trophy after beating Barcelona FC in the Semi-Finals and Tottenham FC in the finals. The report analyses the financial statements and activities that supported the company’s performance during the period.
The revenue in the period 2018/2019 was lucrative, with the company posting an increase of 17% revenue, from $455 million in 2018 to $533 million in 2019 (The Liverpool Football Club and Athletic Grounds Limited, 2019). It made the club to be the first European Champion to break the $500 million barriers. In the same year, the commercial income rose from $154.3 million in 2018 to £188 million in 2018. It shows that the financial turnover rose by £78 million (17%), including commercial income, which increased by £34 million (21%) (The Liverpool Football Club and Athletic Grounds Limited, 2019). The company raises revenue from sponsorship, retail, licensing, and merchandising for its business income. Also, Broadcast income was £261 million in 2016 in 2019 against £220.1 million in 2018. Furthermore, the company income from match days rose from £ 80.7 million in 2018 to £84 million in 2019, an increase of £3.5 million (4%).
Liverpool FC is the real deal at the moment when they have won 27 of their premier league matches in the 2019/2020 season. It has a vast portfolio of partners, with nine more partners added after the 2018/2019 period. The existing partners renewed their partnerships for another five years to make the club more competitive. Liverpool FC is the most profitable club at the moment, at least in the English Premier League with other clubs such as Manchester City, Chelsea, Manchester United, and Arsenal making a lesser profit or losses. Liverpool remains the most competitive club in Europe with the increasing portfolio of sponsors, increased sales, and international expansion. With the right financial performance and the aggressiveness of the company, the acquisition of the club would be the best. Don't use plagiarised sources.Get your custom essay just from $11/page
II. Introduction
Liverpool FC has been in existence since 1892 and prides itself on making exceptional history to date. John Houlding started the club after breaking from the board of Everton in March 1892. The club is currently owned by Fenway Sports Group (FSG), and the current chairman and manager of the club are Tom Werner and Jürgen Klopp, respectively. The principal stockholder of FSG is John W. Henry with, Michael Gordon and 40% (Corporate Information, 2020). FSG acquired Liverpool FC in 2010 from George Gillett and Tom Hicks for £300 million. The club has since done incredibly well as Forbes listed Liverpool FC at £ 1.7 billion in May 2019.
The club is now regarded as the “world’s most successful football club.” It has won European Cups for six times with the most recent being won in 2019 under Jürgen Klopp. The club has many other titles, including 18 times League Championships, 2019 FIFA Club World Cup, seven times FA cup Champions, 8 League Cups, 3 UEFA Cups, 3 UEFA Super Cups, and 15 Community Shields Trophies. Besides the competitive men’s football team (the Reds), they have also won FA Youth Cub four times, while the women team is two times English Champions (Corporate Information, 2020). The company has done well in recent years under Jürgen Klopp, who has seen the club being the best club beating the new Champions like Barcelona and Real Madrid in Spain.
The club goes by the slogan, “You’ll Never Walk Alone,” and the lowest moment for the club was on 15th April 1989 when 96 people lost their lives at Hillsborough Stadium when Liverpool and Nottingham Forest played the semi-final of FA cup (Heuguet, 2016). Its Football stadium is Anfield, a beautiful visiting place, a place for holding concerts and events, and has room for meetings and events and a boot room sports café, among other attributes. The stadium has a capacity of 53,354, and it is the seventh-largest stadium in England. The company is has maintained its successful spree in the season 2019/2019 by winning 26 of 27 of Premier League Matches, and It is expected to carry the league after 30 years.
III. Financial Performance
The financial period of “The Liverpool Football Club and the Athletic Ground Limited” ends on 31st May. The company has amended to include financial information about all the subsidiaries of the company. Its financial statements were audited by Earnest & Young (E&Y) Corporation. The income for the company comes from three primary activities: broadcast, commercial businesses, and Match Day, with operations in three major Geographical regions: “The United Kingdom, EU and other parts of the World” (Tan, 2017). The club’s expenses include administrative expenses, Staff numbers and costs, remuneration of directors, interest expense, and tax expenses (The Liverpool Football Club and Athletic Grounds Limited, 2019). The club is financially promising as they expect to win the premier league title after 30 years. However, it will also depend on the performance in the Champions League.
1. Turnover
a. Broadcasting Activities
Broadcasting is the largest income source for Liverpool FC. The season 2018/2019, the club earned up to £ 261 million in broadcasting from £220.1 million in 2018. Broadcasting income has almost tripled from the time the new ownership took over the company in 2010/2011 (Corporate Information, 2020). The higher broadcasting revenue was achieved because, currently, Premier leagues are the most followed and popular football in Europe and worldwide. Being the best club in England, it is arguably the best club in Europe in terms of income and popularity. Broadcasting reported £154.4 million in 2017. Excellent performance in broadcasting activities is due to the superb performance in the UEFA champions’ league for two years, respectively: In 2017/2018, Liverpool played in finals and lost to Real Madrid. In 2018/2019, the club won the league after beating Barcelona FC and Tottenham FC in Semi-Finals and finals, respectively. The company achieved a 26% increase in social media followers on social media platforms, including YouTube and Twitter. This great achievement happened after the club failed to qualify for the competition in the season 206/2017.
b. Commercial Activities
Income from commercial activities includes income from events such as sponsorship, licensing, retail, and merchandising (Montagnat-Rentier, 2019). The club recorded £188 million, £154.3 million, and £136.6 million for the years 2019, 2018, and 2017 respectively. According to the club’s financial statements, Commercial income rose by £34 million (21.8%), according to the 2018/2019 period. The increase in commercial activities for two periods was because of the rise in the broadcasting activities. During the 2018/2019 period, the club recruited new retail partners, including insurance company AXA, FH Foods, Mitel, NordVPN, Tgerwit, Levi’s, and Verbier. The company also extended deals with Carlsberg MG China for the next five years. The sponsors of the company include Standard Chartered, New Balance, Western Union, and AXA. The retail operations for the company surpassed a million fans buying from the LFC stores (Corporate Information, 2020). The club expanded international businesses with new retail services in Malaysia, Thailand, United States, Germany, and Canada. The company has taken advantage of the E-Commerce platform to reach more than 190 countries globally. The income from commercial activities is recorded for the period where the operations occurred.
c. Match Day Activities
Matchday income is earned when the club participates in games and when the club sells tickets during match day. The club’s revenue from match days rose from £ 80.7 million in 2018 to £84 million in 2019, an increase of £3.5 million (4%). The matchday revenue in 2017 was £73.5 million. The income received is recorded after the payment to the Football Association, visiting team and League organizers have been paid. The Matchday income for a period includes the revenue earned with thin the time the team played in the period (Kotakorpi and Matikka, 2017). Receipts facility usage, for example, for the use of Anfield Stadium, coverage during a match, participation in European competitions are apportioned appropriately to as match day income and Broadcasting Income.
Revenue Analysis
| https://www.statista.com/statistics/251158/revenue-of-liverpool-fc-by-stream/ |
| https://financialfootballnews.com/liverpool-fcs-2019-finances-six-times/ |
2. Expenses
The club saw an increase in costs and fees in 2019 by 19% from £453 million to £437 million. The costs were slightly higher than the income. The fall of transfer sales caused the profits of the club to fall. The plans to expand the operations of the company, including the expansion of the Anfield stadium to 61,000 capacities, international retail activities would mean that the costs will increase (The Liverpool Football Club and Athletic Grounds Limited, 2019). However, the club is not expected to sign during the transfer window hence keeping the growth of costs to be minimal. The chart below shows the trend of Liverpool FC costs for eight years.
Cost Analysis
| https://financialfootballnews.com/liverpool-fcs-2019-finances-six-times/ |
a. Amortization
He amortization cost for the company rose by 44% “from £77 million to £111 million”. The expenses increased due to the strategy t attain maximum the player performance. Amortization costs increased due to the company’s investment in players, and the expansion of facilities aimed at improving the efficiency and performance of the club (Smith, 2018). According to the projection of the company, amortization costs will remain flat in the period 2019/2020 because the club has budgeted limited resources for amortization.
b. Net Interest Expense
The club recorded a decrease in the net interest expense by 33% from £6 million in2018 to £ 4 million in the period ended May 2019. Perhaps it is because the company has repaid most of the loans they borrowed to support the company operations.
c. Taxation
Taxation is an obligation of a company to remit part of its profits to the government. Liverpool FC is one of the successful football clubs and has a duty of paying taxes. The club remitted £ 8.5 million tax to the UK’s government using a 22% effective tax rate and applying a 19% UK tax rate.
Wages
Liverpool made incredible changes in the type of players to realize the impressive performance. The management acquired the best players to help the team play well in its games. As a result, the company wage bill increased by 17% from £264 million in 2017/2018 to £310 in the period 2018/2019. It was the first time that the com the £300 wage barrier in the wage bill ensure that they had the best squad. In the two periods, the club maintained high earning players, including Mohamed Salah, Roberto Firmino, Andy Robertson, and Harry Wilson. The new contracts signed by the club increased weekly wage bill by £653, making the wage to revenue ratio to be 58%, which is considered by analysts as health for the company. Even though the company has not had a new signing in 2019/2020, the wage bill will still be higher because of the extension of contracts of Jürgen Klopp, Milner, Divock Origi, and Oxlade-Chamberlain (Corporate Information, 2020). Also, the club raised the pay of the key executives in the club from £6.3 million in 2018 to £6.7 million in 2009.
Transfer Analysis
| https://financialfootballnews.com/liverpool-fcs-2019-finances-six-times/ |
The company made expenditures during the 2018/2019 transfer window, which the analysts commented on being the most necessary strategies by the club. The company used the transfer window to fill the gap in the squad and make the team competitive (Xiang and Cao, 2018). During the period, Liverpool FC spends a total of £164 million to bring new players into the club comprising of the goalkeeper Alisson Ramses at £ 56 million, Naby Keita at £ 54 million Fabinho at £41 million and Xherdan Shaqiri bought at £ 13 million. The club earned £37 million by releasing six players leading the club to have the highest net transfer expenditure of £ 127 million. Although the spending was high, the company realized the value of its money through the new players such as the goalkeeper Alisson and midfielder Fabinho who became in their respective positions (Gulland, 2011). Shaqiri also had an impact on the two goals win against Manchester United, while analysts argued that Keita did not perform as was expected. Profit from play sales was £45 after million compared to £124 million from the sale of Coutinho. The clubs do not expect many changes in the advantage in the 2020 transfer window.
During the transfer 2018/2019 transfer window, the club reported a transfer expense of £174 million cash. On the other hand, the financial statements indicated a receipt of £115 million money, which were installment proceeds of the sale of players like Coutinho (Kotakorpi and Matikka, 2017). Therefore, the net cash outlay was £59, which analysts say it is not a “huge sum” for a “big club” like Liverpool. The company also recorded net transfer fees payables of £120 million against transfer fees receivable of £185 million, leaving the club with a net transfer fee receivable of £65 million. Again, analysts argued that this is not a significant amount for the next transfer period. However, Liverpool FC has not participated in the 2020 transfer period and could carry forward the credit to the 2020/2021 transfer window.
IV. Financial Position
The fiscal period that ended May 2019 made the club to move a significant step forward in the history of the club. The accounts financial accounts reported by the company included the sixth UEFA Champions League win that enabled the company to reinvest £223 million on players (Brand and Niemann, 2019). The club signed four new players, extended the contract of the other eleven players, and “signed official training partner for the first time.” Furthermore, the company signed “nine new commercial partnerships.” Also, “the company moved to the seventh position in Deloitte Football Money League” and allocated £50 million to service training ground, which was opened in July of 2019.
Liverpool FC financial and club reports for the year ended 31st May 2019 indicated the signing Alisson, Keita, Fabinho, and Shaqiri while releasing Danny Ward, Solanke, Markovic Ragnar, and Danny Ings. The management also renewed the contracts of 11 players, including Captain Jordan Henerson, Salar, Robertson, Sadio Mane, Firmino, and Alexander Arnold. Analysts comment that this significant investment on the players and infrastructure was possible because of “the strengthening financial stability of the club.” It is argued that it is mainly a successful business strategy leading to increased revenues that have boosted the club to reinvest £220 million in expanding transfer markets. Fortunately, the club’s financial performance is growing to make it manage its business needs.
The club’s impressive performance was also exhibited as the club maintained its “seventh position in the Deloitte Football Money League,” which was achieved in the 2017/2018 period after the club moved two steps forward from position nine(Baptista et al., 2018). It was also an excellent business opportunity for the company to go into commercial partnership contracts with nine new partners comprising of insurance company AXA, FH Foods, Mitel, NordVPN, Tgerwit, Levi’s and Verbier. Moreover, the club expanded international businesses with new retail operations in Malaysia, Thailand, United States, Germany, and Canada. Liverpool FC’s presence in social media puts the club on global limelight with the social media follower increasing in 2018/2019 by 26%. Currently, the company has more than 70 million followers, 2.5 million YouTube Subscriptions, and 59 million Twitter engagements (Parganas and Anagnostopoulos, 2015). Thus Liverpool club activities are followed by fans and business partners internationally.
V. Liquidity of the Club
In determining the liquidity position of Liverpool FC, this report will use financial ratios generated from the balance sheet on 31st May 2019. The balance sheet includes the financial data for 2018 and 2019 for the Liverpool FC (Kennedy, 2019). For the simplicity of this report and understanding by the potential investor, it will consist of computations “the current ratio, Quick ratio, and networking Capital Ratio that will help the potential investors to understand the liquidity position of the company.
(The Liverpool Football Club and Athletic Grounds Limited, 2019)
1. Current Ratio
The current ratio determines the liquidity position of a company by comparing existing assets versus current liabilities. It indicates the ability of a company to use its existing assets to settle existing debts when it is due (Lin, Li and Wu, 2018). To obtain the current Asset, divide existing assets a period by respective current liability.
According to these current ratios, the company is insolvent, meaning the company cannot pay for its financial obligations due in one year using the current assets. In terms of a football club, the assets are amortized into the period that intangible assets are beneficial to the club and impaired to indicate the current market costs of the assets.
2. Quick Ratio
Quick ratio tests the liquidity of a company by focusing on all noncurrent liabilities other than inventory to meet obligations falling due within a financial period. It helps investors and analysts to determine if a company can efficiently meet its business requirements (Lin, Li and Wu, 2018). The importance of this ratio is the fact that the company retains its existing stock to pay for its financial obligations within the period. To determine the quick rate, divide the current Asset, net of stock by respective current liability.
In the Liverpool FC balance sheet, the stock cost is based on the first in first out method with the lower cost and the market value of the stock. The current assets amount indicated in the balance sheet shows the values obtained from the existing assets in the values in the future dates could be discounted to indicate the value of an asset at a present period. The cash figures indicated in the balance sheet indicate the club’s values basing on the current cash at the bank. Similar to the current ratio, the quick ratio indicates the inability of the company to meets its current obligations without using the stock.
3. Net Working Capital
Similar to the Quick and Current ratio, Networking Capital Ratio is obtained by looking at the current assets and the current liabilities. It is obtained by subtracting the current liabilities from the currents Assets. It indicates the amount the company remains with after using the existing assets to settle current obligations. In the case of Liverpool FC, the Networking capital is -£181million (183.2-364.4) in 2019 and -£119.7 (215.0 – 334.7) in 2018. It would mean that the company is insolvent because the company needs to sell its fixed assets to meets its short term financial obligations.
Nevertheless, the insolvency of the club should not be a big worry to any person who would care. The company invested a lot of cash in the transfer window to acquire new players and expansion of the club. The company is currently planning to expand Anfield stadium to a capacity of £61,000. The company has invested a lot of its resources in tangible and intangible assets (Lin, Tian, and Zheng, 2016). In the sports industry, it would be challenging to keep a lot of support in the current assets form, like stock, cash, or debts.
VI. Club Valuation
Liverpool club value has increased over the ten years that FSG took over the ownership. FSG acquired the company at £ 300 million, which, as after that, grew to reach almost £2.0 billion as per the Forbes valuation. The value of the club has gone high because of the club’s increase in Matchday activities, commercial activities, and broadcasting activities (Oh, 2015). The management under Jürgen Klopp has proved to be the most efficient for the club’s chances in the value. The ownership of John Henry and Tom Werner has created a turnaround in the football club in a decade.
Valuation Breakdown
| Revenue sources | Revenue(Million) |
| Match Day | £276 |
| Broadcasting | £759 |
| Commercial | £430 |
| Brand | £151 |
| Operating Income | £95 |
| Total | £1,711 |
The company used the revenue obtained after winning the UEFA Champions League to sign in new players and increase the contract of the existing players who performed well in the club last season. The assets of the club grew in the company. The matchday valuation includes gate collections received during events and hospitality revenue collected by providing hospitality services using the club’s facilities. Broadcasting activities were valued using coverage and distributions of the domestic league and European competitions (Annas, Salim, and Muhaimin, 2019). Further, Commercial valuations assess the commercial activities run by the company, including the merchandising activities, sponsorship retails, and other business activities. The brand valuation values he includes the team’s “valuation other than matchday, broadcasting, and commercial revenue sources.” It may consist of the social media popularity of the club and the club’s goodwill.
The Valuation of the company takes into consideration of the equity and debt in the company operations. It also takes into account the operating income, including the taxes, depreciation, interest income and expense, amortization. The Valuation of £ indicates that the company has gained a lot in terms of the assets and the winnings. The Valuation of Anfield also would make the company earn from the events that take place locally and within the European areas. Within the 2018/2019 season, the company capital contribution reserve increased £ 6.6 million and retained earnings increased by £34.2 million as a result of profit after tax—the club work against the achievement to qualify for champions league competitions. The management has a strategy to increase publicity to achieve higher attendance during events, and force for the plans to increase the capacity of Anfield. The company club also strives to maximize the participation and performance of all the players in the games.
VII. Significant Issues
Liverpool FC’s strategy to achieve better in future seasons is facilitated by an effective strategy that enables the players, management, and employees to work towards achieving goals. The management’s first goal is to take the club’s football performance to a notch higher by investing in competitive players and encouraging the squad to impress positive play. The club uses a transparent and fair process in recruiting players and conducting scouting (Hedlund, 2018). The club emphasizes teamwork and experience with the club members and better interactions among the members of the club. The company has worked using the best practices to change the past performance of the club. The management is striving to increase the performance of the club outside football.
The club works o achieves both financial and not financial performance indicators, which are essential to attain the company’s profitability and value. The company has vital economic and nonfinancial performance indicators, which are critical to achieving the company’s commercial and broadcasting operations. The Nonfinancial performance indicators for the company include; qualification to UEFA Champions League, Attendance Versus Capacity, and achieving maximum productivity of every squad. Financially, the company strives to make higher revenue, Payroll costs, Capital expenditure, Cash flow, player trading, and better value of earnings before deductions.
The management has also identified risk management has a significant area to focus on to achieve the company’s going concerned and better performance. The factors that the company considers to be risk include the transfer market, increasing revenue from broadcasting and commercial activities, football competitions, and wages. The company strategy is to maintain these risks while maintaining as competitive as possible. Compared to other football teams, the risk levels of Liverpool FC is lower because of the better strategies to make the company competitive (The Effect of Financial Risk and Environmental Risk on Mining Company Performance with Good Corporate Governance as Moderating Variables, 2019). The management emphasizes the success in the football activities and encouraging frequent meetings to reduce the risks that may impact on financial or commercial businesses as well as the health and safety of the players.
VIII. Conclusion
Going by the slogan “You’ll Never Work Alone,” Liverpool FC is at a strong trend. The financial statement for the period ending 31st May 2019 indicates that the company broke the £500 billion in terms of profit. The primary revenue sources of the club include the Matchday, Broadcasting activities, and Commercial businesses. The company’s value has been estimated to be £1.7 billion, which is much higher compared to the 2010 acquisition value of £300 million. The new management under Tom Werner has signed competitive players and released the nonperforming players to help the club attain the current competitive position. The club has achieved more fans and followers globally, and winning the UEFA Champions league helped the club to grow even further. Therefore, the Acquisition of Liverpool football club could be an excellent investment opportunity considering the strong trend and competitive status in the Premier League and UEFA Champions League.
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