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How The U.S. Housing Slump Became An English Football Club’s Problem

According to The Guardian (UK) yesterday, Liverpool Football Club, an English professional football (soccer) club, “could change hands for the second time in a year as their American owners encounter difficulties in refinancing £350 million of debt incurred in taking over and running the club.” The London-based newspaper attributed the problem to the global credit crunch. On February 6, 2007, Liverpool FC was bought by two American businessmen, George Gillett, Jr., and Tom Hicks. Gillett owns the professional ice hockey team Montreal Canadiens and co-owns the NASCAR auto racing team Gillett Evernham Motorsports. Hicks, a Dallas billionaire, co-founded the investment firm Hicks, Muse, Tate & Furst, and is chairman of Hicks Inc., which owns and operates Southwest Sports Group, the company that owns the Texas Rangers, the Dallas Stars, and Mesquite Championship Rodeo.

Faced with “steeply rising costs” from a new stadium and their manager’s demands for new players, The Guardian reported that the two American co-chairmen “have been attempting to transfer the debt, for which they are personally liable, on to the club itself.” The Americans’ purchase of Liverpool Football Club was funded solely with borrowed money. Their loan from the Royal Bank of Scotland grew to £350 million as it was used to fund several high-profile player acquisitions, development work and architect’s plans for a new 60,000-seat stadium, and to roll up the interest on the debt. The RBS loan is due for repayment next month. The Guardian’s Sunday paper, The Observer, said attempts to restructure the loan have failed so far, and that the two have yet to inject new equity into the refinancing. While RBS have asked Hicks and Gillett to each commit £20 million of their own cash to the deal, sources said “at least one of the pair is not prepared to do so.”

According to The Guardian:

The global credit crunch has made it harder for Hicks and Gillett to raise new revenues elsewhere and also affected the value of their other assets. Should they fail in their efforts to repay the £350m acquisition debt on Liverpool when it comes due in just over six weeks, there would be the possibility of the next owner of the club becoming RBS.

The bank, however, are extremely unlikely to allow the situation to develop that way…

Many believe that the U.S. housing slump served as the catalyst for the global credit crunch in 2007. Last week, the United Nations report “World Economic Situation and Prospects 2008” said:

The ongoing housing downturn in the United States became much more serious in the third quarter of 2007, with the meltdown of sub-prime mortgages triggering a full-scale credit crunch that reverberated throughout the global financial system.

If the Americans are unable to meet the deadline, the British newspaper reported that an Arab investment group, Dubai International Capital, may offer to buy out the pair, probably for about £500 million. This would allow the two businessmen to exit with a profit of £75 million each. DIC were extremely close to buying the legendary football club last February, only to lose out to Gillett and Hicks.