Why Liverpool FC Furloughing Staff Makes Sense On Many Levels

Why Liverpool FC Furloughing Staff Makes Sense On Many Levels
April 5, 2020 Paul Tomkins

 

Update: since this article was published the club have reversed its decision, which seemed inevitable after the public outcry. But my points in this article stand, as echoed by John Barnes in a video interview he gave: football clubs are not as rich as people seem to think. If Liverpool reversing their decision shows that they are prepared to listen, and aren’t above backing down, it doesn’t alter the issues that I raise in this article. Equally, I never insisted that I was right about everything in the article – but just tried to provide a less-emotional response as to why I think the decision was made, and the financial quandaries facing most clubs right now.  

I don’t quite understand the furore surrounding the news that Liverpool are furloughing staff, but I don’t spend much time on social media, where the currency is instant responses, gut reactions, immediate outrage (which makes it easy to fake news), and no one takes any time to think things through. It’s all about optics, how it looks, pissing competitions. Hysteria passes from influencer to influencer, because panic and hysteria are both highly contagious.

None of which is to say that this isn’t bad PR for the club, because any backlash is bad PR. And this isn’t fake news. But just because something looks bad it doesn’t mean it is bad (example: Dirk Kuyt – a lovely bloke, but not a “looker”).

And the timing may not be ideal, but we can assume that the club knows more about its own finances than the fans (company accounts are always available a year after the fact), and I sense that the club knows that, at the earliest, football will be returning in July; possibly a lot later. That’s a lot of time to continue losing money. And even when football does return, if it’s behind closed doors – as seems likely – then that still means a big drop in revenue.

Anyone who thinks things will be back to normal in a month or two – that the end of April is when life resumes as it was – is living in cloud cuckoo land, and in truth, it could take years for football to get back to normal, as with all other economies. This will almost certainly financially harm football for many years to come, not least as it will financially harm most people for many years to come.

(On a personal level, I’ve been more concerned with staying well, and reading as many reputable news sources and scientific digests as possible, and avoiding things that people read on Facebook. Regular readers will know that I have been warning this could happen since January, months before even the leaders of the free world were taking it seriously, as I understood the basic concepts of illness, living with one for 20 years, and of exponential growth and how viruses spread. As well as valuing data, I also listened to the experiences of people on the frontline, which is in effect how I write about football: a magpie, collecting bits of info from different types of sources, from empirical evidence to analytics. The main worry now is that as people stay healthy as possible, as, with asthma and M.E. I have been shielding myself in total isolation for over three weeks now, and football is a secondary concern, by some distance. I want as many other people to stay healthy as is possible. But it’s still my job to provide my perspective on football.)

A football club is part of a complex business model, in an industry that is propped up by promissory notes. I tweeted last night (in one of my brief forays onto social media) that it’s not a Ponzi scheme, but it’s definitely built on the illusion of what’s to come.

Football fans often display all the signs of Dunning-Kruger in thinking that they know more than they actually do about a topic that is complex. And just as many ecosystems can be thrown off by even minor changes, football has been blown apart by some major changes. This is a global catastrophe, and decisions need to be made. (As this is a football site, I shall stick mostly to football and assume everyone is reading up on more important issues.)

The TV companies agree to pay, years in advance, a set (astronomical) fee to broadcast games that haven’t happened yet. Clubs commit to paying players contracts often up to five years in advance, when only some of those years are covered by what was until recently assumed to be guaranteed TV income; the money may be paid at the time the season rolls round, but it is promised years in advance. None of this “product” has actually been created yet; it’s all an advance – an illusion until the games actually happen. As such, it is a house of cards waiting to tumble, should something unthinkable happen.

And the unthinkable just happened.

Here’s what we know, or can reasonably assume:

– Clubs are haemorrhaging, on a weekly basis, millions of pounds that they had budgeted on receiving, due to loss of match-day revenue, merchandise sales, TV subscriptions, and all the other revenue streams that big clubs rely on in order to be competitive, and to be competitive that means paying big transfer fees and big wages;

– Football is a business. It always has been, ever since fans were charged to watch in the late 1800s and players were transferred for money, with record fees being around £100! (If only someone would create a transfer inflation index…). It’s more than a business to us as fans, and we don’t consider ourselves consumers, but all clubs have to have consumers to be competitive (and they also need true fans for the soul of its club, but this soul does not necessarily monetise in a way that pays the bills, particularly if those fans aren’t currently attending games as there are no games to attend. There are lots of soulful clubs in the fourth tier, where only genuinely, loyal, local hardcore fans go to watch);

– Clubs are presumably terrified of having to pay back the TV money (£750m) if the season cannot be completed, as they have already essentially promised this money to players, managers and coaches in contracts that could expire as late as 2024. (Liverpool have eight players, worth a rough collective estimate £300m, whose contracts expire in 2024, well beyond the current TV deal.) Clubs have taken season ticket money in advance, but that money has already gone to players, in the hand-over-fist way that football works;

– Owners of most clubs will be losing money in all other areas of their financial lives, from investments, or the very businesses that created their wealth, and other sports clubs they own. While many of us struggle with small businesses, and others are made unemployed, this is not to pity any owners. But they will be in a whole world of uncertainty as to their own assets;

– Players are the main financial drain on a club, and cannot be furloughed – that really would put a strain on the taxpayer – and as such, clubs are still committed to paying them fortunes (which they have earned via the marketplace, but the marketplace has suddenly been hit by a tornado);

– Players who are not paid could theoretically leave a club for free (even if it’s not clear where they could go, unless other countries like Italy, Spain and Germany emerge more quickly from this pandemic, while England, which fucked around with the batshit crazy herd immunity ideas – which included allowing 3,000 Atletico Madrid fans to fly to Liverpool – and which avoided a lockdown early on, and where individuals still refuse to stay away from places like parks, may find this goes on for much longer; plus, no one knows when football will resume, how it will resume, and if it will resume everywhere at the same time).

– This would cost clubs up to £150m per player – and many players could leave – for the elite stars. That would financially cripple clubs and lead to massive losses and as such, you could assume, widespread layoffs, and perhaps collapse. (While it’s unlikely, what if Liverpool’s four best players walked on a free to Barcelona?) So many businesses are suffering right now, but football, like the massive airlines, have a product that they can neither do anything with, nor stock that they can cash in on. Who wants to buy a fleet of planes right now? Those planes are worth billions, but in the current reality, are white elephants in overcrowded hangars.

– While Premier League players remain on 100% pay, on which they have so far refused to compromise (but may do so as negotiations continue) they are paying a lot of tax to the government, which helps the economy, in part financing the furlough (so LFC, like other English clubs, are in essence indirectly funding their own furlough), and helps the welfare system – but clubs cannot afford to pay 100% of their wages if income remains stunted and TV money remains a massive issue. Players at other major clubs in countries where Covid-19 struck earlier – and where politicians were not in denial – seem to have realised that, and taken the lead, as clubs cannot do it for them without breaching their contracts;

– Clubs do not in general have large cash reserves, as they spend what they earn on wages and transfers, lest fans protest. As I have noted a few times this weekend, the notion that a club would have hundreds of millions in the bank – or even just tens of millions – would “sicken” fans, so there seems to be little contingency money for a disaster that few seemed to see coming before January, and in some cases, people still didn’t see coming in March. I asked around in January to see what the league’s plans were in the event of a shutdown, and I was ignored as there was never going to be a shutdown, I was being the voice of doom, etc. If you think I have no right to an opinion on this, at least I was apparently one of the first people who saw it coming;

– Liverpool’s furloughed staff, at the bottom of the pyramid, are now guaranteed 100% of their wages and have not been made unemployed, in contrast to millions of workers around the world, while the club itself pays many millions in tax, and its players continue to pay many millions in tax. While I get that the optics look bad, if you think that a football club is a rich entity, the reality is that clubs are cash-poor, and these workers will now be taken care of, which is surely the priority (a socialist principle!), at a time when others are losing their jobs;

– While the PFA moaning about players taking wage cuts hurting the economy is correct (if also self-serving and convenient), if they do not (at a time when income has stiffed) then it’s hard to see how clubs survive without building up massive debts, or just going broke, or making loads of staff lower down the pyramid redundant;

– Equally, players are indeed helping the economy by staying on full wages, but it cannot continue. That said, I find it odd why footballers are always targeted by politicians, rather than the ire being directed at billionaire business people, especially those – like Amazon, ventilator manufacturers, pharmaceutical companies, etc – who will be profiting massively during this time of financial implosion, and in some cases, pay no UK tax. The only “people” helped by players taking a 30% wage cut will be the clubs, but the clubs may need that money to survive;

– Football clubs are not socialist enterprises. Let’s get that fact straight now, and work in reality, not ideology. It is a competitive environment, with survival of the fittest part of competitive sport, and it is a market-driven economy. Socialism (speaking as someone who considers himself a socialist) only really works if everything is socialistic; it’s not easy to be a socialist in a capitalist economy. (As such, someone should build up a non-league club on such principles of community, if they want it to be about just those values, with results irrelevant. Once results have to count, then it falls apart.)

– Clubs have to engage in the market in order to challenge for major honours; to buy major players and meet wage demands (footballers are not socialists who all agree to play for the same amount; they are individuals with different pay levels, based on unique talents, which are not always easily replaced).

– Fans should be okay with that, if it’s all about the community, and supporting others, but fans also demand that transfer kitties be spent and not kept back, and that their club challenges for trophies –especially if it’s a club like Liverpool, whose very existence and history is suddenly gravely offended if the club isn’t hugely competitive.

– No one wants to pay each week to watch their team be mid-table fare or worse, but that’s the reality for most clubs. The league table cannot have all 20 clubs on 50 points, with an equal goal difference, sharing in all the rewards; twenty captains jointly lifting the trophy, twenty open-top parades. (Just to add here, I try to keep party politics to a minimum, but there are times when politics and football are more closely intertwined. I just don’t see football and socialism as automatic bedfellows with no contradictions. I am also deeply opposed to politicians who revel in ignorance.);

– Competitive sport is not socialism. I love Bill Shankly’s quote about the socialism he believed in being where everyone shares in the rewards, but he wanted his Liverpool teams to crush the opposition. So it’s not really that appropriate a metaphor for sport. Sport is about defeating another team or individual, as we unite behind one of them, often to the point where we lose all perspective. Yes, sport can be about other things too, but sport has to be competitive to get us off our seats. It’s lovely to see things like hugs exchanged by two boxers who have just beat the living shit out of each other for 12 rounds, or fans of one team applaud another off the pitch, but sport is in essence a dog-eat-dog world, and we demand that from our own side. We’d rather they be nice people, if possible, but we demand that they are winners. We don’t want them being nice to Manchester United at 4pm on a Sunday afternoon. There is a certain fetishisation of Liverpool FC and socialism that doesn’t fully compute, because football has to have winners and losers;

– Fans tend to hate it when the club cashes in and commercialises its success or its “brand”, but also hated it when, such as in 2005, the club shop wasn’t even open the day after Istanbul. There are aspects to the marketing the club does that I really don’t like, such as “This means more”, but if it helps pay Mo Salah’s wages, I can live with that;

– It is not the fault of football clubs, their owners, their managers and their players that the health system in the UK has been abused for decades by cut after cut, to the point where there are now far fewer hospital beds but a bigger population. For some personal context, in the 1980s I watched both my maternal grandparents die neglected in hospital, with my granddad left to suffer gangrene due to no physiotherapy after a severe stroke, which led to a leg amputation; and my nan, who was in hospital for a broken hip after she fell trying to lift my granddad (who had been sent home without the ability to speak, walk or move, except now with only one leg), from which point she was dropped twice in hospital due to nurses lacking sufficient support to move her, resulting in a dislocated hip, and another broken hip, before she died soon after, and my granddad followed without ever fully recovering. This stuck with me, spending all that time in terrifyingly spartan understaffed hospitals as a teenager, and reinforced by belief in supporting the welfare state, which has also at times protected me, in the years before I set up this website and finally made a living as a writer, having had to give up my previous career due to ill health. People need to wake up to importance of healthcare, and the majority of people need to vote for political parties who prioritise healthcare, otherwise we end up with just 2.6 beds per 1,000 people, a quarter of the number in Germany. (Which isn’t to say that strong economic policies can’t also help the country, but we have to protect the weakest in society and not give billions to bankers. If you still want to vote Conservative, that’s your right, but put pressure on them to do more to help the vulnerable.)

– Unlike the awful Gillett and Hicks, who bought the club with borrowed money that they paid back via the club’s own income, FSG have not taken money out of LFC. Indeed, they’ve put some money in, to stabilise the club initially, then including in an interest-free loan to rebuild the Main Stand, albeit they never promised to be sugar daddies (they are rich, but not Abramovich or Sheikh Mansour-rich). Their promise was to run the club sensibly, which they have done, to the point where Liverpool have risen to the 4th-highest ranked team in history on the Elo rankings, with the aid of Jürgen Klopp’s brilliant humanity, and the wisdom of the coaches and analytical staff. But it’s been done by spending what has been earned; not by spending more, not by spending less. But right now, the club appears committed to spending more than it earns due to the entire football world collapsing;

– It may be that FSG want to sell the club for 300 gazillion quid in 2025 or 2030, but right now, the club’s value has crashed, just as player values have crashed (because the market has crashed), just as future TV money will crash (as it did after ITV Digital went bust in 2002 and after the recession of 2008). And no one could make an easy profit selling a club right now, just as no one would want to buy a fleet of 787s or Airbuses right now. Things will improve, but it could take years to get back to the levels of 2019, and the clubs themselves will be the most aware of what they can and cannot afford;

– Fans went ballistic when the Philippe Coutinho money was not spent immediately (as well as when the Virgil Van Dijk money wasn’t spent on another defender when Southampton initially said no), and as a result the club made a massive profit that season. But much of the Coutinho money was essentially spent the next season. I think it’s true to say that Liverpool did not keep that money in the bank (apart from holding onto it for a short period of time until they found the correct transfer targets), nor was it used to make the owners wealthier. They did what we want: they reinvested it in the team;

– Liverpool have been paying increasingly large wages to players in keeping with the increasingly large income; what comes in almost immediately goes out. To note that Liverpool made a world record profit in 2017/18 is to ignore that it was spent the next season; just as any profit made last season will have been allocated to pay-rises and bonuses to players, and perhaps infrastructure too (how is the new training ground being funded?). Why do football fans still think that you can calculate the money a club has by net spend, and not work out all the other escalating costs? If Liverpool cannot afford to pay all its workers for the foreseeable future with a steep downturn in income and the prospect of possibly having to pay back up to £100m to broadcasters (and that’s before the question of whether or not next season can actually ever start), then why was the government scheme – itself a kind of socialistic enterprise – in place? Massive global airlines will be doing the same, as will all businesses that don’t have a large contingency fund;

– While many clubs will recover, plenty more may not. The same is true for many businesses, and many people in hospital, and many more set to be hospitalised. This is a time of great uncertainty, and that is understandably driving people slightly insane; uncertainty is one of the toughest mental states to experience. Clubs don’t know how much income they will have. Players, currently on 100% of their wages but under pressure to cut that, don’t know how much income they will have. The staff furloughed by Liverpool FC are amongst a small group of people who actually do know how much income they will have, for the next few months at least;

– Could Liverpool have waited to make this decision? A lot of fans seem to think so. But presumably it was made now for a reason, with players still on 100% of their wages. If the players had already taken a 30% cut and the club had still done this then it would have seemed a lot more odd to me, as there would have been less immediate financial pressure on the club (ditto for all the other clubs who have done this and those who will surely swiftly follow). But the news yesterday was one of fighting talk from the PFA, which suggested a compromise (and right now, we all need to compromise, on so many things) was not imminent;

– I may be wrong about all this. You have a right to disagree. I’m just giving what I feel is a logical opinion, having not been triggered by constantly hitting refresh on my outrage-drip. As noted, I consider myself a socialist but I don’t necessarily know what that means in 2020, other than I believe in helping the little guy (and in this case, the little guys have been helped). The complex balance between the players’ earnings and the rest of the club is, to my mind, at the heart of this, and again, this is not to demonise the players;

– In terms of my biases, I have met Liverpool’s owners in the past, but not for many years, although I may still be biased; but we are all more biased towards people we know, and can humanise, than cartoon characters and strangers, who we can more easily dismiss. I feel that the owners have honoured the “promises” they made to me years ago, in terms of where they wanted to take the club, so I’m prepared to cut them a little slack, even if I don’t take anyone’s promises as a blood pact. But maybe I’m not the best judge of character. (I like to think that I am, but everyone thinks that about themselves.)

Ultimately, I don’t see the dastardly actions here that others are so offended by, once I stripped away the illusion that football clubs themselves are rich and gluttonous enterprises. They may be worth a lot of money, but that’s tied up in players and stadia, rather than cash.

In a sport overflowing with money, most of it goes from fans on to clubs and broadcasters, and that then all goes through to players and agents. That doesn’t make players the bad guys, but they are the commodity of football. They are bought and sold for crazy sums, albeit crazy sums that are directly correlated with TV deals (average prices of players goes up with the TV money goes up and goes down when the TV money goes down).

They are paid the mega-wages, and many of them do great things with that money, such as build hospitals or create foundations, and help local communities and the people from where they grew up.

But while clubs are committed to paying them in full at a time of great financial collapse, clubs will have little option than to cut costs in other areas. That just seems like a logical conclusion.

Beyond that, stay safe, and don’t be a douchebag and risk infecting other people because you can’t spend a few months without doing all the fun things you like to do, assuming that anyone, anywhere, can still afford to live such a life.

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