Credit Crisis Claims Club's Construction Plans

From ESPN, August 29, 2008:

Liverpool fans furious over latest stadium delay

Liverpool fans' groups have launched a savage attack on the club's American owners after yet another delay to the building of their new stadium in Stanley Park. Co-owners Tom Hicks and George Gillett have announced that the £400 million arena will be delayed because of the global cash crisis.... A club statement read: "Our commitment to building a new world-class Liverpool Football Club stadium is undiminished. Like many other major development projects in the UK and overseas we are affected by global market conditions and, as such, work on the project will be delayed in the short term."...Click here for full article.

I had previously posted on the effects of the global credit crisis a little more than two months ago. (Click here.) When Tom Hicks and George Gillett purchased Liverpool in 2007, they financed the entire purchase with a loan of approximately £270 million. Servicing that debt must be a huge task within itself. With the credit crisis taking its toll on interest rates, it is not inconceivable that the club could be having problems meeting its repayment obligations. Add to this the financially arduous task of securing and servicing new debt to finance an ambitious £400 million stadium, and it's no wonder that Liverpool has been forced to re-evaluate and delay its construction plans. But herein lies the real problem for Liverpool: without a new stadium and its consequent additional revenues, the club's revenues will remain somewhat stagnant. Yet, player wages continue to skyrocket in the English Premier League. So Liverpool is left with a problem: higher costs but stagnant revenues (or at least revenues not growing at the same rate). A new stadium would help remedy this situation, provided that the increased revenues from the stadium could cover servicing the debt used to finance the stadium with some left over to cover rising costs. This is model is fairly common in the United States, and is a justification for such projects as the new Yankee Stadium. That is, new stadium equals more revenues, which can cover the cost of construction in the long run plus rising current liabilities such as player wages, while still leaving excess revenues from which a profit is generated. Of course, this only works if the stadium is built in the first place, and Liverpool can't seem to get that far. It seems that the credit crisis has found antoher victim.

(Originally written 09/06/2008)