John Henry Gets `Steal' as $476 Million in Liverpool May Double

John W. Henry’s New England Sports Ventures may double its investment in Liverpool Football Club in five years, according to bankers who work with English Premier League teams.

Henry, 61, purchased England’s most successful soccer team for 300 million pounds ($476 million), 81 million pounds more than Tom Hicks and George Gillett paid for it in February 2007. Hicks and Gillett were forced to sell to repay 200 million pounds of the club’s 351 million pounds of debt.

Henry, who owns Major League Baseball’s Boston Red Sox, isn’t buying a broken business, said bankers who requested anonymity because they didn’t want to lose other teams in the league as clients. Hicks, 64, and Gillett, 72, raised revenue and operating profit at the 118-year-old club before being felled by debt and a credit crisis that made banks less willing to lend.

“This is a steal,” said Marc Ganis, a Chicago-based consultant who was a principle in a Chinese group negotiating to buy the club. “There is a reason John Henry was so eager to close this deal -- he got himself the bargain of the century.”

Two bankers who requested anonymity say that, under ordinary circumstances, the team would have been worth an additional 100 million to 150 million pounds. In five years, it may be worth twice as much, they said. Ganis agreed.

Photographer: Clive Brunskill/Getty Images

Liverpool owner John Henry. Close

Liverpool owner John Henry.

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Photographer: Clive Brunskill/Getty Images

Liverpool owner John Henry.

Forbes Magazine estimated Liverpool’s value at 533 million pounds in its April 21 edition.

Never Walk Alone

Liverpool, which has fan clubs in cities from New York to Bangkok, dominated European soccer for two decades, winning 11 of its 18 English championships and four of its five European Cups between 1972 and 1990, with players such as Kenny Dalglish, Ian Rush and John Barnes. The team logo bears the words “You’ll Never Walk Alone,” and fans sing the Richard Rodgers and Oscar Hammerstein song before every home match.

Fans protested Hicks and Gillett’s ownership because of the debt loaded onto the team, holding marches and burning the U.S. flag. In the Kop, a section of the stadium that holds some of the team’s most fervent fans, supporters held banners that said “Thanks, but no Yanks.” During the hearing that cleared the sale to Henry at the High Court in London, scores of red-clad Liverpool supporters cheered and sang when Hicks and Gillett were ordered to sell.

Henry’s purchase came at one of the darkest times in Liverpool’s history: The club was off to its worst start in 57 seasons, and it has been two decades since it won an English championship.

Red Sox Success

Liverpool fans may take solace in Henry’s record with the Red Sox: The club has won two championships since his purchase in 2002; its most recent title before then was in 1918.

The sale slashed Liverpool’s annual debt payment to between 2 million and 3 million pounds from between 25 million and 30 million pounds, Henry’s investment group said in a news release last month. It didn’t say how it financed the agreement, and Henry didn’t return messages left at his office.

Hicks and Gillett increased sales 46 percent to 195.5 million pounds in three years through July 31 and raised operating profit -- which doesn’t include interest on debt or player acquisition costs -- more than threefold to 32 million pounds.

Liverpool may surpass 200 million pounds in revenue for the first time at the end of the current season, though audited financial reports for fiscal 2010 won’t be available until April.

Hicks declined to be interviewed, while Gillett wouldn’t comment on the potential value of the team under Henry’s group. Hicks, in a press release, called that sale to Henry’s group an “epic swindle” and tried to stop the sale in court.

‘Made Them Winners’

British Airways Plc Chairman Martin Broughton, who became Liverpool chairman in April at the request of creditor Royal Bank of Scotland Group Plc, said the board favored Henry because of his success with the Red Sox.

“They came in and made them winners,” he said in an interview last month. “That’s what we want to see.”

Liverpool today announced it has hired recruitment company Spencer Stuart to find a replacement for a chief executive officer following Managing Director Christian Purslow’s exit last month. Henry’s business partner Tom Werner was named chairman last week.

Broughton said the team’s problems were caused by a reliance on debt by Hicks and Gillett, not lack of operational acumen.

“The commercial revenue was way higher than what it was before,” Broughton said. “They’ve done some pretty good things. Without the leverage they could have been successful.”

Expansion Plans

With revenue up and debt down, the new owners are in a position to invest in the club.

Hicks and Gillett planned to spend 350 million pounds on a new 60,000-seat stadium, which would have added about 75 more hospitality suites and about 8,000 premium seats. Henry’s group hasn’t decided whether to adopt the plan or consider other possibilities, Liverpool spokesman Paul Tyrrell said.

Anfield, the team’s 126-year-old home, has 45,000 seats and 25 hospitality suites that generated 42.5 million pounds in fiscal 2009.

By comparison, game-day revenue at London team Arsenal more than doubled in a year to 93.9 million pounds after it moved to a new 60,000-seat stadium in July 2006, according to the team.

Revenue Trails

Liverpool’s match-day revenue ranks eighth in England and compares with 108.8 million pounds at Manchester United, 100.1 million pounds at Arsenal and 74.5 million pounds at Chelsea, Deloitte LLP said in its Football Money League report in March.

However, Liverpool’s revenue from sponsorships and merchandise for fiscal 2009 was the second highest in the Premier League at 67.7 million pounds, trailing only Manchester United (70 million pounds), Deloitte said.

As the business side stabilizes, the team is showing signs of recovery on the field. The Reds, who play at Wigan tonight, have lost once in five games since the takeover and they beat league leader and defending champion Chelsea 2-0 on Nov. 7.

“We’ve won four games in a row,” said striker Fernando Torres, who scored both goals against Chelsea, his first two- goal game of the season. “This is what we have to be doing more regularly because this is what Liverpool is all about. We are now moving in the right direction.”

To contact the reporters on this story: Curtis Eichelberger in Washington at ceichelberge@bloomberg.net; or Tariq Panja in London at tpanja@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net

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