Red Sox buy Reds

by
October 19, 2010

John Henry, Tom Werner and the rest of New England Sports Ventures, the owners of the Boston Red Sox, have bought the Reds for about $480 million. No, not the Reds from Ohio, but rather the English Premier League soccer team, Liverpool. The principal seller was another American baseball grandee, Tom Hicks – past owner of the Texas Rangers.

The sale itself was contentious, with Hicks trying to retain control of the team while much of the rest of the board voted to sell to NESV. Hicks was probably trying to hold out for a higher bidder, seeing as he stood to lose over $200 million by selling to NESV. But the team had a large payment on its debt due by the end of the day and Hicks did not have the cash to pay it. With the chief debt holder, Royal Bank of Scotland, refusing to discuss terms with other bidders unless they were first approved by Liverpool’s board, NESV seemed to be in the driver’s seat. Still, Hicks made one last attempt to stall by petitioning and temporarily getting an injunction declared in a Texas court. The move only bought Hicks a night, however, as by daybreak it seemed that he was in danger of being held in contempt by the English court that had been previously dealing with the matter.

The early consensus is that the purchase should not deprive the Red Sox of any of the funds necessary to compete with the Yankees on the free agent market. However, my understanding of the EPL is that it is more cash driven than Major League Baseball; so in times of trouble more liquid funds may be diverted to Old Europe. Indeed, it was cash flow problems that forced Hicks to sell the team (not unlike his problems with the Rangers). Unlike in MLB, there are serious repercussions for a team that gets into, or just close to, bankruptcy in the EPL. Just last season, Portsmouth was docked points in the standings for going into administration – enough points to ensure that they would be relegated to the second division of English Football. Imagine if that happened to the Dodgers, the Rangers or the Cubs!

Moreover, unlike most professional baseball stadiums, EPL teams finance their own stadiums. Building stadiums cost teams lots of money, obviously, which means teams take on lots of debt. Liverpool is reportedly in need of a new stadium – in fact Hicks was disliked by fans of the Reds for, among other things, dithering over building a new facility despite promising to build one when he bought the team. NESV has been slightly more circumspect about building a stadium, but expectations are still high.

Meanwhile, Liverpool has gotten off to a poor start this season. While most expect that the new owners will spend as much money as necessary to avoid a bottom of the league tables finish—and the resulting relegation and loss of millions in revenue—Red Sox fans may be wondering if that means fewer goodies under their Christmas tree.


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Jason S.
13 years ago

The Red Sox are clearly a model organization in baseball.  They built a strong front office, hired the best GM in baseball in Theo Epstein, hired Bill James at a time when his work was still widely ridiculed by the “baseball establishment” (and some teams still don’t get it), spent competitively on free agents and won 2 World Series in the decade.  The truth is that the Red Sox haven’t really been willing to outbid the Yankees for some years now (Teixeira, etc.) so that won’t change.  However, I don’t see why their model can’t be successfully exported to the EPL.  Build a strong organization and hire smart people to run it.  Spend for free agent talent to fill holes.  All should be good in Liverpool.

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Bobo
13 years ago

@James—not sure where/why you think Little Theo is the best GM in baseball.  Maybe it was the Cameron signing, or the Lackey signing, or trading for Hermedia.  All of those have worked out GREAT so far.  Just like every other GM he has some winners and some clunkers.  The biggest difference is he has a $160mm payroll to reload when his other players age or start to suck.

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Mark
13 years ago

Should be interesting to see where this leaves the Sox both short and long term.  You’d think that an expenditure of 400M leaves ownership a bit short in the short term, but the Reds are a cash cow internationally which only strengthens the Red Sox ownership group long term.

Nice to have a true counterweight to the Yankees, although I can’t imagine being a Ray, Blue Jay or Oriole fan.

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Jonathan
13 years ago

I think the Sox are run well, which is not to say that every decision they make comes out roses. But they seem to have a process whereby they learn from their mistakes or at least try to. 
As for the Anti-american-ownerism here in England – I think fans got a bad taste from Hicks and Malcolm Glazer (who owns Manchester United) – since their business model was to leverage and extract equity. Of course, the banks were the idiots here, giving away money – the owners had every incentive to take bankruptcy risks. Still, can’t blame the fans for being angry that owners too those risks with their teams.

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John Beamer
13 years ago

A few things:

1/ The headline is slightly misleading! The Red Sox haven’t bought Liverpool but as you say in the article NESV, the holding company for the Red Sox, and some other sport franchises as it happens, have bought Liverpool!

2/ I have followed Liverpool for over 25 years, since I was 6—lived and breathed football (soccer!)—and this deal is (probably) a good thing. Hicks raped the club. He came in promised to build a new stadium and not load the club up with debt. He broke both promises and his attempt to hold on to the club in the last few weeks has, quite frankly, being laughable.

3/ I have no idea how NESV has funded the Liverpool transaction. It claims not to have loaded Lpool with debt so I don’t know if NESV has loaded itself up with debt or whether other assets have been mortgaged or whether shareholders have had to pump in more equity. Either was as a Sox fan that has to be a little concerning although Henry/NESV has easily earned enough trust with Sox Nation

4/ Liverpool should be a great investment for NESV. Football clubs throw off more cash that baseball clubs (ignoring interest for a second) and the upside is much higher – much of East Asia, Africa, and to a less extent India are football nuts. Manchester United has exploited that, Liverpool hasn’t. Liverpool is probably in the top 5 brands of world sport (the Yankees are in there too, Red Sox probably not) … that revenue opportunity has been 100% under-baked and is the primary reason Hicks is so upset at losing the club

5/ As a result I don’t think there is too much danger of Red Sox cash being used in Liverpool. The assets will be run separately and should largely be able to fund themsleves—it is very unlikely that there will cash-shift between the two.

6/ Football teams don’t necessarily finance their own stadium. In general the amount of stadium rebuild is much lower. Like for the Red Sox, in the EPL there is a strong culture of history and of fans wanting to stay ‘home’ i.e., in the same stadium. As a result you’ve seen most team decide to develop existing stadia e.g, Man U funding the development of Old Trafford etc. When teams move to a new stadium it tends to be funded from a number of sources that aren’t dissimilar to the US. When Arsenal moved to the Emirates it was funded by (a) selling the existing stadium, (b) Emirates corporate sponsorship, (c) Local authority tax breaks. I suppose the difference is that you don’t have the same circus about moving teams/franchises to different cities. It would never happen … there would be riots

7/ And my final point—Henry should not EVER use the word franchise to describe Liverpool. It is not a franchise, it is an institution.

Should be an interesting few years—but I think owning Liverpool is a very smart investment for Henry.

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Wade
13 years ago

Liverpool fans are up in arms about Americans owning their club.  Especially with the mixed interest/spending capabilities involved.  Everything I’ve read/seen has the Reds fans concerned that the owners won’t have the passion for the “familiy” of Liverpool football.  My first impression would be to guess that they were correct – and that this was just another way of exceptionally wealthy people making huge bank at a very-involved fan bases’ expense.  That, however, remains to be seen…

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Jim C
13 years ago

The model to look at for new stadia in the EPL is Arsenal, as mentioned in John Beamer’s post. Arsenal got corporate sponsors to pay for most of the new one, and, in one of the most creative ideas I’ve ever seen, turned the old stadium into condos, with the pitch now a community garden. Fans lined up for blocks to buy when they went on sale.

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Paul
13 years ago

The reasons why Liverpool are attractive are that football is the most accessible global sport in the world and getting huge in developing countries – commercial potential for revenue growth is huge.

Liverpool is also a world famous brand with a histroy of success (not so much in the last 20 years).

So all in all it’s an attractive deal.

But the fans are rightly a little sceptical as USA owners are not popular in the UK (see Hicks and Glazer), although Lerner at Aston Villa is quite popular.

However the stadium stuff is not quite how it happens.  In the USA, there are ~30ish ‘clubs’ who can move if the current host city doesn’t treat them right.  This is a non-occurance in football in the UK, certainly with a club with the heritage of Liverpool.

The football clubs (especially the most famous ones) are more emotially tied to their stadia.  It is highly unusual for clubs to share stadiums even in the same city (Everton and Liverpool would seem to be perfect partners for a shared home in Stanley Park Liverpool) 

That and the fact that the club pays (or attracts sponsorship/naming rights etc) for the new stadia (and in some cases has to pony up for any required upgrades for the ensuing infrastructure) means that it simply is a lot more difficult and expensive to just build a new stadium.

Arsenal is a successful story – but they are paying their part (the shortfall of the cost minus their attracted investment) on the staidum via a loan over 20 more years.

Remember that Arsenal are a London club, London has its own economy compared to the regions in the UK – for one the land that the old stadium was built was worth lots, while the land in Liverpool would not be anywhere near as valuable (albeit the land cost for the new stadium in London would be more than for Liverpool)

All in all I would be very surprised if NESV built a new stadium

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Jonathan
13 years ago

Few things –
1 – John, I’m very sorry if you were misled into reading this article. I’m not one to commit literacy by false promise.

2 – Not all the apts in the old arsenal stadium went to fans willing to line up. most were sold at what some kind of market price, just like any development – and thank god too, even as an arsenal fan myself, I’d find it insufferable to be living with too many rabid ones.

3 – I have no doubt that Liverpool may and probably will turn out to be a great investment for NESV.  They’re not idiots. But like most investments, there are risks that it may not turn out well and in that case, cash may be needed and more cash than would be required of a similar unfortunate baseball team. Imagine if those desultory Mets teams from the early 90’s meant that they got relegated! What would have happend to finances then?

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kardo
13 years ago

@ Paul

Actually it is not that uncommon for football clubs to share grounds. Examples are San Siro/Guiseppe Meazza for AC Milan and Inter, Stadio Olympico of Lazio and AS Roma Jan Breydel Stadium for Club and Circle Brugge, Luzhniki stadium for Torpedo and Spartak Moscow and the Allianz Arena for Bayern and 1860 Munchen.

Allianze Arena can be lit up either red for Bayern games or blue for 1860 games.

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Paul
13 years ago

@ kardo

thanks for that – but none of them are in the UK.  Assumed that it would clear that we are talking about the EPL here?

form a common sense approach, it is a pity that it is not done, but then did common snese ever share the table with football smile

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