In October 2012, the management of Liverpool FC decided to not build a new stadium. They believe that renovating Anfield would be enough. The previous owners had promised to build a new stadium but never made progress on that. While it might look like renovating Anfield might be the easy step taken by the club, it makes financial sense to do so. The club could have easily gone in for a new stadium at Stanley Park, and given the financial prowess of Mr. Henry, the loans wouldn’t have been difficult to procure.
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Why is it financially viable to build a new stadium? First question that comes to my mind is what will happen to Anfield, the place where we won many a trophies? Take the place out of the equation, out of the picture and now think what will happen to Anfield if we move out of it. Who will buy the stadium? I won’t dwell on the prospects of selling the stadium to Everton simply because the Kop won’t let that happen. So we have a stadium that we can lease out sporadically in a year, and which is an ideal asset. It is also important to note that the stadium is going to cost a lot so we will hardly have any buyers. Unlike in London, where a lot of teams exist and there’s a derby in every direction, we can’t find a buyer.
Would a renovated stadium be enough? What’s the logic in moving to another stadium? Simply put, the club wants to generate higher match day revenues. With the now inevitable implementation of Mr. Platini’s idea of Financial Fair play, the match day revenues are going to be very important. The larger the amount a club can generate on a match day, the better will be its financial positioning. Anfield currently has a capacity of 42,800-odd. The capacity of the renovated stadium is believed to be around 60,000. Renovation of a stadium doesn’t necessarily mean just increasing the number of seats available in the stadium. It also means giving the visitors to Anfield a better experience. This means that we are likely to see improved service being offered at the stadium. This will inevitably lead to higher costs but would ultimately lead to higher revenues.
While we could have built a new stadium with 90,000 seats and still had it full for every match, it’s important to note the opportunity cost involved. If we are going to build a new stadium, it is obviously going to cost us a lot. It could be anywhere between 500-700 million USD. With that kind of investment in a stadium, we would be asked to part with a huge amount of our revenues for the sake of meeting the debt requirements. Importantly, this would mean lesser funds to spend on players and staff. The advent of Financial Fair play doesn’t mean that the players are going to cost any less. It only means that Mr. Platini wants the football clubs to become innovative in matters of generating revenues. The opportunity cost involved would be very high as we can invest the amount in the squad. The payback period of a new stadium is going to be long, making it a risky investment. With renovation being planned and lesser amounts being invested, the payback period reduces drastically and also the element of risk involved is reduced.
Football is a vicious circle, as said by Mr. Stefan Szymanski in the book Soccernomics. If you don’t spend enough on the players, you are not going to play good. This means that you are not going to win matches too, though two examples at each end exist. While QPR has been spending loads of money on their players’ wage bill, Stoke have survived in the premiership for quite some time now without raking up a huge wage bill. Coming back to the point, it’s important for every club to generate as much revenue as they can on match day or else they will have to generate revenues out of other sources, like having sponsors for training jerseys, selling the naming rights of the stadiums every few years etc. These are serious revenue generating activities that a club can undertake and I guess they are going to be the norm some time soon.
Moving out of Anfield also has another serious implication. The ticket prices will shoot up. The cost of a new stadium is going to be huge and that will force the management into charging higher ticket prices which just might deter the crowds. Renovating the stadium means that the club will lose out certain number of seats in a season as work is in progress, but the cost benefit is going to be big in the long run. If the club wanted a capacity of 90,000-odd they could have gone in for a new stadium as expanding the seats by twice would a tedious task. There are still problems with the issue of acquiring land for the purpose of reconstruction. A total capacity of 60,000 odd would be good.
While we are debating the decision of FSG to renovate Anfield and not build a new one at Stanley park, the club’s officials are finalising their plans to start the work of renovation. Unlike last time around, this isn’t a false promise and I believe the group will keep their word. Mr. Henry and his team have acted very sensibly by not going in for a popular demand as this option reaps better rewards. The club would be in better position as it need not incur such a huge debt and struggle every year to finance it.
