LFC… To Liverpudlians
Supposed you owned, oh, let’s say a baseball card—it’s a Jesus Christ rookie card—and it’s worth a butt load of cash, like about $822M.
But due to some less than brilliant decisions, you also owed a bank some money. Okay, you owed the bank a lot of money, somewhere around $378M. Worse, you don’t just owe the money, but you are about to default on the loan. And that Jesus rookie card was your collateral.
But the bank really doesn’t want to own a Jesus card because they don’t know anything about sports or maybe Christianity or something. So the bank hires someone to sell that Jesus card for you.
That person finds a buyer and accepts a deal for the card. And when that deal is done, you, the original owner of the $822M card, you get nothing for it. Zero.
Actually, it’s worse than that, because taking care of a Jesus card, that costs a bit of money. That money, around $100M came out of your pocket. So if the transaction goes through, you’ve gone from having a baseball card worth $822M to having negative $100M or so.
That sounds kind of crappy.
What’s crazy is that there are people (allegedly) who are willing to pay much more for the card—and really, the card is in mint condition, plus, it’s a rookie card, so it’s from before the stigmata killed the Son of Man’s OPS—but either the bank or the person the bank hired to sell the card, they ignored those—and quite possibly did it intentionally out of spite or something—and took the one offer that pretty much made sure you got nothing.
You’d probably think that wasn’t really altogether fair.
Okay, substitute “Liverpool” for “Jesus” (or rather “the Jesus card”) and that’s kind what’s going on here.
Possibly.
Much of this is based on claims made by Hicks and Gillett and their lawyers yesterday, and those claims could be completely or even largely false. But, what if they are true or even kind of true?
After the court ruling in England saying that the board acted legitimately and could be reconstituted in order to approve the sale of Liverpool to NESV, Hicks filed for and was granted a temporary restraining order in Texas to block the sale.
“Grotesque parody, preposterous, unfair, unjust. They are incorrigible.”
Well, wouldn’t you do the same?
Hicks’ team floated a couple of tidbits yesterday that, if true, really give some credence to their possibly having a legitimate beef (not a legitimate case necessarily, as I’m not a lawyer and don’t want to get bogged down in the specifics of procedure and the like).
First, they claimed that there was another offer made in August that was somewhere in the range of £350-£400M, and that Martin Broughton never responded to the offer (Hicks claims to have a letter supporting this assertion*).
If there was indeed one (or more than one) completely legit offer on the table for significantly more than the NESV offer; and the Board willfully ignored those offers, then they weren’t acting in the best interests of shareholders (ostensibly H&G).
And that’s the kind of action that often gets people removed from Boards (which is what Hicks tried to do at the eleventh hour).
Second as part of their “grand conspiracy” claim Hicks et al say they obtained a letter where RBS informed investors it would only approve a deal if there is “no economic return to equity” for Hicks & Gillett. That means that RBS wouldn’t take any deal where H&G actually got some money back on it (and remember that H&G have actually put some of their own money into the club (I think around £144M combined), but I’m too lazy to source that right now). That’s pretty outrageous.
If either of those are true (and my source for both is the Guardian’s liveblog of the events yesterday), it’s a lot easier to be sympathetic toward Hicks’ trying to block the sale (again he’d like to not have nothing for his Jesus rookie card—a k a Liverpool FC). Okay, it’s easier as a non-Scouser. I think the Red Scouse will hate him no matter what. I guess because he didn’t build a stadium and kept Rafa, who was a s***y manager for winning a Champions League title and making a second Champions League final or something (seriously, the PR crucifixion of H&G on Merseyside by Scousers is pretty ridiculous, but that’s another post).
But just take everything specific out of this case and think about this for a second in general economic terms.
Suppose that Forbes is correct and that Liverpool FC is worth $822M. Now, suppose it becomes available for purchase. You’re telling me that an asset worth over $800M only generates a bid for about half that amount?
No, if you told billionaires that there was an asset worth $800M that could be had for half price, there ought to be a truckload of billionaires lining up to buy that asset. Purchasing undervalued assets is how an awful lot of them probably made their billion dollars to begin with. And getting 100% return on your investment, that’s pretty attractive to any investor, net worth not withstanding.
You don’t even have to believe in strong form market efficiency for that to seem a little off.
Even for a troubled asset, it’s not as if it’s available for a song and available to only one person. Even if buyers were sitting on the sidelines for a while waiting for things to get bad so the club would become “cheap” there would still be multiple buyers coming into the process eventually, and they should bid up the price to something close to market value.
So, just from a common sense economic perspective, it seems like there are a couple of safe inferences here. One is that LFC isn’t really worth $822; or, two is that the bidding (or sale) process didn’t really work to get the maximum value for the club.
If the latter is the case, then Hicks and Gillett (or whoever controls Gillett’s interest) should try to intervene to protect what they own, or used to own.
[* Somewhat interestingly, when John Henry bought the Red Sox, he wasn't the highest bidder then either. But MLB through the owners, selected his ownership group. That's a bit of a curious coincidence if NESV also takes over LFC without having been the highest bidder.]
“Kicking Scousers When They Are Down”
/favorite UF tag ever
First, I’m sure LFC is worth at least $822. Maybe even a cool $1,000. :P
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But on a more serious note, it’s hard to believe that they’re just making everything up (as far as their claims go). If they were, why would they claim to have evidence to support their allegations? I feel like we’re about to go down the rabbithole of the sordid world of football business on this one, since H&G have nothing to lose at this point.
(Also, FWIW, Jesus rookie card = awesome analogy.)
Oops. There should be an ‘M’ on that last $822… it’s on every other one I think.
Fine, be anal. Can I even say anal on my own blog anymore?
I have a Mohammed rookie card, but it’s blank on the front.
Where does this leave Liverpool in terms of administration and the docking of the points and the gnashing of the teeth?
“obtained a letter where RBS informed investors it would only approve a deal if there is “no economic return to equity” for Hicks & Gillett”
I find this very hard to believe. Banks as a rule are interested in getting their money back, plus interest. They generally could care less about equity returns, even in work out or distressed asset situations. The opposite typically happens – there’s not enough money available to pay down all the debt and have something left over for equity, so equity raises hell to try to get something of the restructured company. And to me that’s exactly what’s going on here. There is no economic motive for RBS to limit the sale price. None. And banks don’t operate on spite.
Is it fair for them to be pilloried as they are? Probably not. But they’re the dumb asses that put themselves in the situation of being unable to pay the debt. Shame on them. Plain and simple.
This also isn’t some backwoods deal – this is f*cking Liverpool. I guarantee Broughton and the rest of the board covered their asses every step of the way, especially knowing how squirrely these two could be.
ef: Administration? Don’t know. Theoretically they don’t have to take over the club on the deadline date. Technically, without knowing what’s in the contract, we have no idea what they are obligated to do tomorrow. Nor do we have much of an idea what court ruling in which jurisdiction might or might not impact what happens tomorrow.
Teeth Gnashing: Plenty.
Tom Hicks’s aggression and refusal to go quietly shock ‘Liverpool Three’. That’s the headline on a story that begins:
Grauniad Fail.
@LE-It’s blank so you can draw your own version of him. Trust me, it’s fine.
You’re welcome, Pups.
@Jacob: I’ll never mock you for linkfailing in Backpasses again.
Ta.
Another lawyer can correct me if I’m wrong, but I don’t think it matters that there may have been higher offers out there. The board members have a fiduciary responsibility to the club, and not its owners. If they opted to go with the NESV bid even though it was lower, it may well have been because they considered Hicks and company better for the long term health of LFC since NESV has experience owning sports teams.
This is going to silly-town:
Since when can one court dissolve the injunction of another court totally outside the first court’s jx?
DDM: Think you mean Henry and not Hicks there. And in the US, the primary responsibility of the board of directors is to protect the shareholders and ensure they receive a decent return on their investment. H&G are the shareholders, right? Or they are until the bank takes over.
Caveat: Board responsibilities could be different in England.
@DDM: Generally you’re right. But in America, we have the so-called “Revlon Duties”. This kicks in when a business is about to undergo a change of control, i.e., a sale. At that point the board of directors sole fiduciary duty is to maximize the value to its shareholders by securing the highest price available. This means they have to sell to the highest bidder, or even auction the company to make sure the shareholders are getting the highest return. But I have no idea if this applies in England.
DDM – technically, if the company is insolvent their fiduciary obligation is to the debt.
Isn’t the deadline for the default approaching? If so and the ownership issues is still locked up in courts in either TX or the UK, are H&G back on the hook for those? Has possible administration and a 9 point deduct become more in play now than before?/asking b/c I have no clue
So, um, how many saves did Jesus record in his rookie season?
@ BG: Nah, he was the power-hitting 1st baseman. Of course, his stats were perfect, but since they’ve been scrubbed out of the record books b/c he placed in a juiced-ball era.
@BG: At least one.
and BG for the win!
*played*
I see what you did there BG. Well done.
BTW, I put in a request at Prawfsblawg for a civ. pro. prawf to give their opinion about what’s what. They were sort of half-covering it anyway, so maybe we’ll see.
A valiant attempt, but the law in the US affords broad discretion to business related decisions by boards. Call me cynical, but I’m sure that other offer was not serious or going nowhere fast, like that recent Singapore bid.
Also, business is shark eat dogshark eat killer whale shark, so I don’t feel bad for them getting the raw deal. Basing a purchase or valuation on Forbes magazine, a publication by journalists, as opposed to professional accountants, attorneys,and CEOs is a joke.
Did anyone else start humming the “Rock Me Sexy Jesus” tune when reading this?
Maybe I’m missing something here, but this seems like simple math. Team value = ~$822M. Debt owed to RBS = ~$375M. 822M – 375M = $447M. Purchase price = 300M pounds, or $479M. Give or take a few million here or there (due to estimated team value and levels of debt) and NESV is offering just about exactly what the club is currently worth.
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Why would John Henry want to pay $800M for an asset that requires him to be saddled with $300M in debt that is the result of someone else’s incompetence? From a business perspective that would be a terrible decision in every way.
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I understand that Hicks are Gillett are pissed that they spent over $100M that they will never get back, but that’s how business works. Had they done a better job running the club, this never would have happened.
@ Wag: You are a unique woman.
@MW: And by “unique” he means “bizarre.” Never change.
@OM – thanks, but you must not have seen Hamlet 2 yet. Do so, immediately.
@Anon – I’ll consider your request.
Hamlet 2? Didn’t everyone die at the end of Hamlet 1?
Indeed, that’s why Hamlet 2 is so entertaining.
Yeah Elliot: We’re not citing that number like it’s gospel. It’s there to give the notion that the club is probably worth a lot more than NESV’s offer. And it probably is. Figure that Liverpool has a shirt sponsor deal on par with United’s and it’s pretty clear that shark-eat-whale businesses think it’s a pretty popular club, meaning it’s likely also worth a lot of money (depending on how well LFC can generate revenue from that popularity).
Ultimately the club, like anything, is only worth what someone is willing to pay for it (assuming there is something close to a functioning market).
/p.s. spoiler alert – it’s not like watching the Thriller video either…
“Rock Me Sexy Jesus” video here: http://www.youtube.com/watch?v=0LyKxzw6cjg&feature=related but you’ll really need to see the whole film to grasp it’s fabulousness.
MP: The point isn’t that John Henry is paying what he thinks is fair value, it’s that the board and/or the bank mightn’t have actually done a competent job getting the best sale price possible. If Henry was willing to pay, say, £1B but there was someone else willing to pay £2B (all things being equal), then the board should probably take the latter offer.
PR: That’s fine, but they also need to take into account things other than money, like the new management team. The two options that were available (as we know it) were a 320M pound offer from a Singaporean billionaire with no sports ownership experience, and a $300M pound bid from a group with a track record of success in that area. Obviously the Premier League is not the same as Major League Baseball, but maybe the board felt that NESV’s ownership experience is worth more than $20M pounds.
MP: A) Hence the “All things being equal” comment. B) All things aren’t equal and yes, sports ownership might count for something in the decision. But remember at one point Henry was just a rich guy with no sports ownership experience as well. So, it’s should be a pre-requisite. Also, if the offer is significantly higher (like the £100M more offer mentioned by Hicks’ lawyer yesterday, which they say they have proof of) then it’s hard to explain turning down that difference to “Hey, they own the Red Sox and some NASCAR stuff so they get it anyway.”
@ Wag: How on earth is there a Hamlet 2 when all the characters died and Billy Shakespeare vowed to do no more sequels after all those King Henry pieces?
Wouldn’t H&G been better off just filing some type of damages petition rather than an injunction to halt the sale? I’m not in law, so I don’t know if there’s a difference there, but it seems like they could have allowed the sale to proceed, filed a grievance against the transaction and claim damages for the money they lost on their Jesus card.
This has to be one of the better concepts for a post in a while.
@ TNO: Find me some boots with a Jesus image on them, STAT!
This is interesting in regard to the Forbes valuation (granted, from an LFC forum)
http://www.redandwhitekop.com/forum/index.php?topic=264621.0
@ JT: Off topic, Terriers was very good last night
PR: Agreed. I was just disagreeing with the suggestion that Henry’s bid is an undervaluation the club. As a Yankees fan I just threw up in my mouth at the thought of defending John Henry’s position on anything. So basically I’m saying that the second of your inferences is the msot likely case – that the bidding process has certainly been flawed, especially if a £400M offer exists.
OM: They did. In addition to the TRO, the also filed suit against RBS in Texas yesterday (I believe, if I’m missing some technical legal nuance someone jump in and help me out).
Market is what someone will pay at that moment for an asset.
What is being missed here is ability to close. Anyone who is prequalified (assuming they did that) can throw in a bid. We have no idea of all the contingencies.
Lim may be thinking he’ll bid higher, but the contigencies in his bid will actually cause the bid to be less.
No one really knows.
JT: That article is spot on. Hicks and Gillett can argue that the NESV bid isn’t the highest, but they certainly can’t suggest that it is unfair.
Speaking of Terriers, this is Donal Logue’s best work. “It’s like meeting the girl of your dreams and finding out she’s five.”
MP, that’s exactly what I was thinking. Just because the assets of an organization are worth X dollars (or pounds) means that the organization is worth that. Especially when the liabilities are astronomical. To assume that Liverpool is even worth what NESV is willing to pay may be a reach.
@Outside Mid
Indeed it was. Another strong ep.
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@Jacob
Nah, it just proves Donal Logue’s always been a good actor. Even in the Tao of Steve.
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@MP
I’m no finance whiz, but yeah, that article makes sense to me. Plus, does anyone honestly believe that one bid is lowballing the fuck out of the club while the other is totally overbidding? Gaps between “bids” wasn’t enormous. Gap between Hicks’ perceived valuation and all bids was though.
WSR: Right, and that’s where I don’t give Hicks and Gillett any sympathy. Their suggestions that
…the NESV is a “gross undervaluation” are completely out of line.
@ PR: Thanks for that–wasn’t sure if the TRO and damages could be handled separately.
@ TNO: Where’s the Jesus boot?
WSR: United fan, right? Funny to hear you say that because all of the fictitious bids for MUFC in the last year were well in excess of any valuation (like £1,5B or whatever) even though their debts are FAR MORE MASSIVE than LFC’s. Not saying it makes you inconsistent or anything, just made me chuckle.
@OM: Pretty sure he wore sandals.
@OM: The Templar Knights have the Jesus boot. It’s stored next to the Holy Grail and slivers of the True Cross, I think.
@ LE: I was hoping the resident shoe diva could find some super fantasico boots that had an airbrushed image of Heysoos on the side
PR, correct. But as of right now the bank isn’t knocking on the Glazer’s door. So realistically, the only way to pry the club out of their greasy weasel paws is to pay a premium. Because as long as they’re not basically sitting in collections like Liverpool is, the Glazers can continue to pull money out due to “consulting fees” and other bullshit excuses with little to no repercussion other than the sales of Green and Gold scarves going up. (And one thing: how brilliant and disgusting would it be if the Glazers were getting a cut from the manufacturing/sale of the green and gold scarves?)
@BG: Best license plate frame ever — “Jesus Saves. Gretzky with the rebound… He shoots, he scores!”
@ Anon: So that’s what all this is about? Statler and Waldorf found the secret Templar treasures and Broughton doesn’t want them to have it? Now I understand this grand conspiracy…
And one thing: how brilliant and disgusting would it be if the Glazers were getting a cut from the manufacturing/sale of the green and gold scarves?
I think I said in a comment the week those scarves went up that I totally bet the Glazers would be sourcing and selling the scarves themselves in a matter of days around Old Trafford.
@OM – you’ll just have to see the movie to find out.
@TSE: That reminds me of a t-shirt I have, which has a smiley face with a napkin by its mouth and the text: “God was my co-pilot. Then we crashed in the mountains and I had to eat him.”
@OM: Yes, but the Illuminati may be displeased that we’re airing their ancient laundry. Good thing this is a third-rate blog that no one reads!
Assuming someone has covered this but just because an offer was more than NESV does not make it legitimate.
@TSE – that’s why it was so awesome when Miroslav Šatan was still in the league. (Is he still in the league now? No idea.)
That’s an excellent point too, Georger. Who’s to say these other bids actually have the ability to pay instead of just being another H&G and toss more debt into the club?
Georger: “If there was indeed one (or more than one) completely legit offer on the table for significantly more than the NESV offer…”
Made it explicit the offer had to be legit (i.e. my offer didn’t count as it was backed with a stash of magic sand).
Gotcha. Well considering your defense of them is based on hypotheticals that all the evidence suggests are the opposite in reality, and a ludicrous evaluation by Forbes (nevermind the fact that Hicks and Gillet valued the club at a hundred million pounds less than what NESV offered, THREE YEARS AGO), it’s pretty hard to defend these guys. But a valiant attempt.
Three years ago I had some LVS stock that was worth under $4 a share… Okay, it was two years ago, but the point is the same (should take about 5 seconds with the Google to see what it’s worth today). Granted, football clubs mightn’t have the same volatility, but if United is worth £1.5B (if that’s what the Red Pricks were really offering) then Liverpool at a little better than half that ain’t so ridiculous.
And yes, I’m pretty clear there are a lot of ifs and conditionals and conjectures and things we don’t know for sure, but if they were denied a better, legitimate, credible sale price, they are acting totally within reason of what anyone else with a Jesus card would.
Haven’t read through all the comments yet, so forgive me if this has been brought up already.
Wouldn’t the most profitable situation for the bank be, for them to own it 100% once H&G defaulted on their loan?
That would allow them to sell the club at a closer to market value price, thus recouping the entire defaulted loan, plus the hefty difference?
The bank wouldn’t care ultimately what the sell price of the team was, so long as the bank recouped the entire defaulted loan value owed to them.
Oh don’t get me wrong I see why they’re doing it and completely understand where they’re coming from.
Is there any projection on what going into administration and the resulting point deduction would do to the value?
In reference to the highest bid concept, RBS is claiming that the NESV bid was the highest at the time. All of the other ones that have since come in are immaterial as they had already agreed a deal with NESV. As far as the hypothetical one from August, other than Hicks, no one has any clue about it. I highly doubt that Broughton would have completely ignored the bid if it was in any way legitimate.
For the mysterious bid, the Guardian’s take is pretty good:
“8.29pm: I’d just like to let you all know that I’ve received an email from a deposed Iraqi King who I am helping remove £25bn worth of gold bullion from the country. Once this has gone through – and I fully expect it will – he is going to split the proceeds down with me 50-50 at which point I will make my own bid for Liverpool. Just thought I’d keep you all in the picture.”
Hey, Captain Planet has spoken. All is well.
the thing is that hicks and gillette never used their own capital in buying the club so why are they entitled to anything? they are grubby little capitalists who can’t understand the soul of anfield can not be corrupted by their devlisih claws. Everyone here in england knows they are onto a losing battle. Leave with grace and dignity you horrible greedy little texans. Walk on.
the thing is that hicks and gillette never used their own capital in buying the club so why are they entitled to anything
While that might offend your sensibilities, that’s not how the world really works. Doesn’t matter they used debt to finance the club, they bought it legitimately (incidentally they are reported to have poured around £140M of their own money into the club).
Also, you better hope any owners you have are capitalists if you want to continue to compete at the highest level. LFC isn’t a non-profit, nor is it a charity to which players donate their services. Glad you love your club, but it’s a business. That’s the reality of it.
PR is both Hipster and Grubby Capitalist. The mind reels.
OK Roy, fair comments. I dispute that they ‘poured’ 140mil of their own money into the club. The money that the club reaps in profit and turnover (around 70mill from TV alone) was put back into the club, most new players were bought on an operating basis of sales-purchase-sales (at a lower price) – some even bought on credit loans – a dangerous business, these two chumps did secure sponsorship from standard charter which was another source of revenue..and the rest of the income from commercial or ticket sales…so..hmm…what did this phantom 140 mill go towards? painting and decorating? i doubt this sum exists at all. I see from american media that Hicks is also adept at running lucrative sports ventures there into the ground..what a total cowboy. Hope he stays away from footbal altogether..
@Anonsters: “Since when can one court dissolve the injunction of another court totally outside the first court’s jx?”
By ordering the party before it, subject to its jurisdiction (Hicks), to drop the case in the other jurisdiction. The UK court cannot directly dissolve the TX court’s order, but it can order Hicks (who has submitted to UK jurisdiction) to drop his suit over there. It’s what has happened in international litigation for a long time – there’s all sorts of precedent on it.
/lawyer, but not professor
Also, I disagree with Precious Roy’s defense. If Hicks (and Gillett) believe they’re getting “epic[ally] swindle[d],” their solution is pretty clear. Sue for damages. Get the money you think you deserve that the sale to NESV isn’t producing. You’ll have plenty of time to prove up your case – regarding the value of the club, the value (and solidity, etc.) of other offers. What you don’t get to do – because this is simply an issue about money, not land (because only land gets special treatment) – is stop the sale.
If he has a problem, his remedy is to sue and collect from the defendants afterward. Period.
@Craig: No, he has a right to attempt to block the sale if he thinks he has grounds to do so, which is what Hicks attempted to do, but the court found he did not have the right to do so. It was an issue about property–real and intangible–including the land that was owned at one point by H&G. So, he continues with his concurrent right to sue for damages in the meantime searching for the insurance company pockets.