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You'll never walk alone

By Richard J Hunter, Hargreaves Lansdown

Liverpool FC is the latest in the line of UK companies (let alone football clubs) falling into foreign hands. Such is the open manner of our economy and market that this is perfectly legitimate and indeed positive in that it encourages overseas investment.
Unlike certain other countries, protectionism does not rear its head here in such matters.

For investors abroad, it seems that football clubs are back in vogue. Malcolm Glazer seems to have ploughed a furrow with his takeover of Manchester United last year in two respects.

Firstly, he alerted other investors to the cash generative nature of these clubs, as well as their potential for brand exploitation and merchandising. The US market in particular has been a difficult nut to crack for European clubs and Glazer's local knowledge will be tested to the full as the Manchester United merchandising machine looks to move ahead. This model has been replicated with the Hicks/Gillett acquisition of Liverpool and, to a lesser extent, Randy Lerner's takeover of Aston Villa.

One development which will certainly help this cause was last month's announcement that David Beckham would be moving to LA Galaxy in a 5 year deal worth a reported £128 million. This has already captured the imagination of the US public and, if his time is successful there in raising the profile of "soccer" in the US, the national sports of baseball and American Football could yet have another sport for company as national interests. This in turn, of course, would bring a whole new marketing opportunity for the world's biggest clubs to sell their merchandising wares which, for the likes of Manchester United - already established there via Glazer's purchase - and now Liverpool, could increase their revenues exponentially.

This is without considering the other parts of the world, especially Asia, whose obsession with football is taking hold, but where the marketing opportunities have not yet been fulfilled.

Secondly, Glazer (unwittingly) tested the water as to the reaction of the fans. Compare the burning Glazer effigies outside Old Trafford with the relatively calm reaction of West Ham fans recently and Liverpool fans this week.

In mid-January, the Premier League announced that it had negotiated a new £625 million deal for overseas television rights. Added to the £1.7 billion deal which was agreed domestically last year for the rights, payable by BSkyB and Setanta, and the estimated further £400 million from the sale of mobile and internet rights, the new total becomes over £2.7 billion, or £900 million per year over the next three years.

Apparently the largest increase in payments for overseas rights came from the Middle East and Asia, in particular, Hong Kong, and one of the results of this is that this season's champions are likely to pocket £50 million, made up of "prize money" and a share of the rights. Even relegated clubs are likely to receive around £30 million, which is approximately the amount Chelsea received last year for winning the title.

In terms of the deal itself, it is required for Liverpool to move on to the next stage of their development. The reported £420 million deal is said to comprise Liverpool's own worth of £175m, £45m of debt and the balancing £200m being put aside for a new stadium in nearby Stanley Park.

As the requirement for free capital continues to rise in line with players' costs and the transfer market, so the strong are likely to become stronger.

If and when this happens, the investors who have paid millions of pounds for UK FC may yet see some returns.

Speculation will no doubt now move towards the last of the big 4 English clubs to retain its independence - Arsenal.

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