Will Dubai International Capital save Liverpool?
Liverpool fans, in their protest against American owners Tom Hicks and George Gillett yesterday, signalled an SOS to Dubai International Capital (the investment arm of Dubai Holdings) to come in and rescue them by purchasing the club. DIC were originally in the running to buy Liverpool last year, but eventually lost out in the bidding to the Americans. A poll last week showed 85% of Liverpool fans wanted DIC to come in as owners.
The essential problem with the Americans’ takeover was that, like that of the Glazers at Manchester United, it was funded by hundreds of millions of borrowed pounds and not by the capital of the new owners.
This puts a massive burden on the club to pay off the interest (running into tens of millions a year) by squeezing as much revenue as possible out of the club (hence United fans are still protesting against the Glazers’ debt-financed takeover, despite success on the field), with the debt hanging over it like an executioner’s blade. Should the club ever stumble on the pitch, with a huge portion of revenue dependent on Champions League qualification, a Leeds-style tumble is not inconceivable.
At best, transfer spending is cut and supporters are charged ever more to pay the debt. And with the global credit crunch hitting when Hicks and Gillett were looking to refinance their debt recently, conflict with manager Rafa Benitz and supporters over the availability of transfer funds ensued and plans to build a new stadium were massively downgraded.
The debt also signals that the owners are not in it for the long-haul — they’re there make a quick buck, banking on the rising value of the elite Premier League teams for a sale a couple of years down the road. A healthier business model is that of Randy Lerner at Villa, who did not borrow heavily and has won over fans who know he plans to stick around. The same can even be said, for all that he’s hardly a good thing for football in general, about Roman Abramovich at Chelsea.
The question is, are Dubai International Capital in the Glazer-mode or the Lerner-mode? Writing in The Times, Siobhan Kennedy argues that as DIC’s boss Sameer Al Ansari is a long-time Liverpool fan, he “is leading from the heart, not the head.” Yet he also reports that DIC’s investment model is essentially the same as the Glazers or Hicks/Gilletts, based on debt financing and a quick sale:
The investment arm of DIC is the same as any other private equity firm, such as Blackstone, KKR, or Permira, which ran into trouble last year over its acquisition of the AA. Private equity firms acquire companies using small amounts of their own cash and lots of debt. They then push through a restructuring or refocusing of the company and pay themselves a dividend once the company’s fortunes have turned around. After an investment period of about three to five years, private equity firms then sell or float the company if it is private.
Even if Al Ansari is the biggest Liverpool fan in the world, it wouldn’t matter if the purchase is debt-financed: they’ll still have the interest payments to deal with, and they’ll still be looking to turn it around and sell it in a few years to turn a profit. That is not good for the club’s long-term stability.
Kennedy then goes on to make what he seems to think is a positive comparison of Al Ansari to Joel Glazer, apparently unaware all the Glazers are despised by an increasingly vocal and unhappy portion of the Man Utd fanbase.
Having been educated at Liverpool University School of Law, Al Ansari is a big Liverpool fan and goes to Anfield several times a season, in the same way that Malcolm Glazer’s son, Joel, had a passion for Manchester United. How better to satisfy that passion than buying the club? It worked for Glazer and Al Ansari thinks it can work for him, too.
Like Glazer, Al Ansari knows the marketing power of Liverpool is huge and he wants to find a way to turn that appeal into profits. George Gillett Jr, the Liverpool co-owner, said in February 2007 that the Liverpool “brand” needed to be promoted in the Far East. “Liverpool is the No 1 brand in Europe. If you go to the Far East, Man Utd has historically been the No 1 brand, Chelsea has recently become popular,” he said.
DIC was established in 2004, and already has a record of buying a famous British brand and selling it on. In 2005, they purchased the Tussauds Group, selling it on two years later — though they’ve retained a 20% share in the new ownership. One imagines this is the kind of plan Al Ansari has in mind for Liverpool.
The change in the media and fans’ perspective on DIC, as if they are some sort of philanthropic saviours, is remarkable. When they were first mooted as interested in Liverpool in 2006, a banker close to DIC said that “These guys are not after trophy assets. They buy and sell businesses for pure commercial reasons. They have proper investment objectives.” Is that likely to have changed, especially given the asking price has apparently doubled?