Thread by @MoChatra

With the new season upon us, Liverpool fans' attention is turning with growing anxiety on the club's ability to strengthen its squad. Is there really no money available? Does the club have to sell to buy? Why can other clubs spend freely? This thread should shed some light.

To provide context, you first need to understand the club's financial incomings and outgoings. Looking at the last published accounts, the three main sources of revenue classed as turnover in its profit and loss (P&L) account were as follows:

Media (mostly TV prize money but also including LFC TV and Youtube) £261m
Commercial (i.e. sponsorship, kit deal, etc.) £188m
Matchday £84m
TOTAL TURNOVER: £533m

Proceeds from sale of player registrations are not included in the above figures (more on this later).

The P&L account then shows expenditure under two key headings:
Cost of sales: £48m
Administrative expenses: £484m
TOTAL EXPENDITURE: £532m

The accounts show an operating profit of only £572,000 before player trading and interest are factored in.

When player trading and interest are then taken into account, the profit before tax figure was £42m and was slightly over £33m after tax. This follows a post-tax profit of £106m, meaning the net profit between 2017-19 was £139m. So the club's swimming in money, right? Not quite.

The accounts incorporate items which involve monies coming into the club's bank account(s) in addition to 'accounting' entries such as depreciation, amortisation and impairments. This is where the cashflow statement is most useful.

The cashflow shows that the net cash from operating activities for 2018/19 was £129m (amongst the biggest such figures in the Premier League). What this does is strip out the accounting entries to reflect the cash position before 'investing activities' (largely, player trading).

The net effect of this was a cost of £82m, leaving a cash surplus of £47m (which is the net cash from operating activities less cash used in investing activities).

Of that £47m, the club put £20m of it towards reducing the long-term debt (mostly relating to the Main Stand expansion) in addition to another £6.6m (which were likely part of the £484m 'administrative expenses) to reduce these amounts owing down to £129m.

This figure was £183m in 2017 so the club had reduced this debt by 30% in only two years. This then left £27m for the club to add to its cash reserves.

A couple of other points to note. The cost of sales figure of £48m referenced earlier largely relates to running costs for Anfield, Melwood, Kirkby, offices and retail spaces as well as matchday staff, production and distribution costs of in-house merch, business rates, etc.

The larger £484m administrative expenses include the £310m wage bill and the following items (and as noted earlier, the bulk of the costs below are accounting entries and don't represent cash movements):

What's interesting to note is that the club only partially discloses administrative expenses. The above figures amount to £126m, which when added to the wage bill of £310m total £436m. This means £49m of admin expenses are undisclosed.

The bulk of this is likely to have been agents fees, which for the 2018/19 season was in the region of £44m. That figure was, by far, the highest in the Premier League and 63% higher than second placed Chelsea.

This means either Liverpool are really poor negotiators and are regularly fleeced by intermediaries or other rival clubs are frankly not as transparent with the FA around such transactions as Liverpool (the subject of payments to agents will require a separate thread).

In summary, then, record revenues left the club in a strong position from a cash perspective- so much so that it was able to reduce long-term debts by £26m, stick £27m in the bank and significantly overpay towards intermediaries.

This is in stark contrast to a former BBC and current Athletic journalist who claimed at the time, in a BBC 5 Live interview only two weeks before LFC's financial year-end (31st May 2019; the interview was on 15th May), that the club had "not a lot of money left".

Turning attention to the recently completed 2019/20 season, the financial situation has been the subject of much discussion. The first thing to note is that the season ultimately took two months longer to complete- the club normally accounts to 31st May each year.

Let's take a look at income. Overall, the headline is that income for the season - albeit over an additional two months - will have been broadly in line with the record-breaking 18/19 revenues.

The breakdown of income is as follows:
PL Prize Money: £175m
CL Prize Money: £74m (estimate)
Other media (i.e. LFC TV, YT, LC/FAC TV money): £14m
Commercial: £200m
Matchday: £74m
TOTAL TURNOVER: £537m (£4m in excess of 18/19)

Some points to note on the projected income:
- commercial revenue is based on £12m increase on 18/19, which is prudent given it is on record that kit sales between 18/19 and 19/20 saw a 59% increase
- matchday revenue is based on a refund to fans who missed out on games

On the expenditure front, 19/20 began with several big wages coming off the books in Sturridge, Mignolet, Moreno and Ings. These plus other players leaving/loaned out would have saved at least £25m (including bonuses).

Much of that saving would have been offset by new contracts for the likes of Origi, Matip and Ox as well new signings Minamino, van den Berg and Elliott (though the latter two would have signed on relatively low wages).

Milner also signed a new contract during the season though that would have likely been for a lesser amount. That is because his original contract built in a substantial signing-on fee (he joined from Man City on a free) and was reported as being worth £150,000 per week in 2015.

The wage bill for fourteen months will ultimately have been higher than 18/19, however, but perhaps in the region of £20m. As for other costs, other administrative expenses that aren't accounting items as well as 'cost of sales' were likely broadly in line with 18/19.

The net cash from operating activities, though likely not quite as high as the £129m from 18/19, likely was not substantially different.

Cash flows from investing activities is the great unknown from 19/20 but it’s highly unlikely to have been in lin with the net cash from operating activities position. This means the club may have had sufficient funds to further reduce its Main Stand debt.

All this means that, despite issues over cashflow with uncertainty for several months about whether a rebate to the Premier League would be owed immediately (it wasn’t), the overall position to date is not bad.

However, the ownership is always focused on the future and they know that matchday revenue will take a substantial hit and the Premier League rebate could be applied from the new season.

In addition, commercial revenues are likely to be slightly affected with some sponsors unable to fulfil contractual obligations (Western Union’s sponsorship ended abruptly, despite claims from the club that it was due to end this summer).

The current financial climate owing to Covid-19 has clearly made the club very jittery about spending big on transfers. Already, it pulled out of a deal for Timo Werner in May when the deal was pretty much agreed by all parties (and he was a player both Klopp and Edwards coveted)

Like I have tweeted about previously, the club absolutely could have made that deal happen (an initial payment of as little as £15m-£20m may have been sufficient to complete it with two or three further instalments to be paid in subsequent years, as is typical on such deals).

At this stage, the issue appears very much that the lack of certainty around the next and subsequent seasons was causing FSG to hit the pause button. In recent weeks, however, the financial situation relating to TV deals has become much clearer and private discussions amongst ...

Premier League clubs will give Liverpool and others a better idea of how much matchday revenues to expect. Sales figures from the new Nike deal will also give the club a better indicator of potential commercial revenues.

Point being, FSG, Mike Gordon and those that control the purse strings at Liverpool will feel far better informed now than they did in May. That said, if it appears the club is taking a ‘sell to buy’ position, it’s not because the club doesn’t have the funds to make deals happen.

It is more likely that the situation with Thiago is more a negotiating tactic and a ‘who blinks first’ situation involving Bayern. That is all well and good, but if another Premier League club were to swoop in for the player then fans would rightly be annoyed at FSG/the club...

for snatching defeat from the jaws of victory for the second time in three months involving a top-level talent. Clearly, the current situation is being responded to differently by other clubs.

Whereas FSG do not invest any of their own money into transfer deals, Chelsea and Man City’s owners clearly do. Other clubs are taking a far more bullish approach. The likes of Leeds are borrowing from funders to finance transfer deals- this is more commonplace than you'd expect

Whether FSG are taking the right approach is something I’ll discuss on my Money Talks podcast on @anfieldindexpro (and I will delve into more detail on other information shared in this thread and I’ll also discuss the approaches of other clubs).

In conclusion, however, the funds are there to be spent- but the owners are, at this stage, too nervous to spend and appear not to want to use funders to finance deals (which many clubs are doing at the moment). It's risk-averse in one sense and potentially risky in another!