Furlough Abuse: Top Tier Clubs Not Alone

Let me caveat this. As a Liverpool fan, the above headline is an abysmal defence of certain clubs and their decision to furlough a number of staff and let the taxpayer foot the bill.

At the time of writing (though Supporters Union ‘Spirit of Shankly’ have sought clarification on the announcement), Liverpool FC have taken the decision to furlough staff. It doesn’t sit well and I am not the only one who thinks this.

READ MORE: Liverpool furloughing staff is a kick in the teeth to loyal fans

This means that in light of the Coronavirus Pandemic, the government (and therefore the taxpayer at some point) will pay 80% of any given member of staff’s pay up to £2,500, with the club paying the remaining 20% of their gross salary.

The government’s offer was meant to be used to maximise employee retention, specifically aiding organisations which are in short term cash difficulty and therefore unable to pay staff for a period when they will not be generating revenue. I do not believe this to be true of Liverpool.

The Accounts to 2019

Let me first outline the business case for what has happened. Liverpool’s Accounts to 31 May 2019 are available here.

There are a couple of key things to note from this. The first thing to note is profit for year of £34m (profit and loss, page 10). The second thing to note is a cash balance of £37m (balance sheet, page 11). The third thing to note is a wage bill for the year of £310m (page 23, note 4).

The key things to note here are not the profit of £34m, but the cash balance of £37m and the monthly wage bill of £25m (£310m divided by the 12 months of the year). Assuming the 2020 cash balance is broadly similar, Liverpool effectively only have enough cash to pay the wages of staff for 1.48 months.

Although this assumes that there is no revenue or cash being generated (which isn’t true), it also assumes there are no other costs involved with running the club (again, not true).

It is a simplistic analysis of the annual financial statements but what it does show is that, although profits are high- cash is king (and it isn’t necessarily as high as you would think) and that is what will have driven the decision to furlough staff.

Furlough - Liverpool have placed some of their staff on furlough leave
Liverpool had a great year in 2019, but the cash balance in May was not quite as strong as you would expect.

That is the business case for what has happened at Liverpool (and presumably Spurs). I don’t agree with it, but that is the business case and that is why they will have reached their respective decisions. The business case raises a few questions.

Should more be expected of football clubs than of regular businesses?

This is a difficult question. FSG, Liverpool’s owners would argue that as a company, the main purpose of Liverpool Football Club is the same as any company and that purpose is to maximise shareholder wealth.

There are a couple of problems here. Firstly, I think football clubs are not the same as other businesses. I think football serves a major social function and as a result, each club has deep set roots within the community in which it operates.

You cannot the equate the relationship between Liverpool Football Club and people in the local community to British Airways customers and their association with their chosen airline.

British Airways have pretty much no affinity with you once your return flight is done. After I go to the match, Liverpool is not done with me, nor I with them. As a result, I think it is probably fair to expect slightly more of FSG on this one than you would majority shareholders in a regular business.

I have alluded to FSG’s use of Liverpool fans in their marketing and I am disappointed to see that they have not prioritised this issue and injected cash in the form of a shareholder loan which they will receive back at a later date.

Liverpool fans have long been used in FSG’s marketing campaigns and the fans are not overly happy with the furlough announcement

On the other hand, this idea that corporations must maximise shareholder wealth is something that society has to move away from. There is a sour taste in the mouth when you read that Easyjet paid a £174m dividend before announcing that they require taxpayer support.

On what planet is it fair for Easyjet to pay that and then furlough 498 staff members and pay them only 80% of up to £2,500? At least Liverpool are paying the additional 20% and topping them up!

Saying Liverpool are not as bad as Easyjet is as said, a grim defence but it does show that they are getting a much rougher ride than other companies.

In part that is due to the social responsibility of a football club as alluded to above but the bottom line of this is that we must move away from this idea that corporate bodies exist to maximise shareholder wealth.

Until we do that, I’m not entirely sure that football clubs alone can be referred to by the government as “living in a social vacuum” because quite frankly, that vacuum is the monster that near unregulated capitalism has created.

The current way that businesses work means that if the government offer a hand aimed at helping businesses and the individual’s in them then sadly, this will be used as a vehicle to increase profit and therefore increase shareholder wealth. The decision to furlough staff therefore feels inappropriate.

Easyjet paid a £174m dividend before taking the decision to furlough staff.

What about the players?

What about them? The current discussion with the PFA is a tricky one. Effectively, the players don’t want to take a pay cut because it lets the clubs off.

If Jordan Henderson wanted to donate say 30% of his monthly wage to the NHS (as he has indicated), then a pay cut ultimately impacts the amount that he is able to donate. Although a slightly separate issue, I can understand why the players don’t want to let the clubs off the hook.

The players may want to directly help the frontline but by ensuring that their employers aren’t calling for government assistance to pay staff, they would still be contributing and helping (albeit indirectly).

For me, the players are getting a lot of heat and I can see their side of the argument but I am really struggling to sympathise with them given many are on excess of £100k a week and we are talking about protecting people earning up to £2,500 a month.

Jordan Henderson has spoken about his desire to make a difference- but wouldn’t helping the club still be doing that vicariously?

ConclusionExpect Less of Clubs, or More of Everybody?

Liverpool and Spurs calling on government to help them pay the wages of staff is horrible. There are no two ways about it. I do however think that the current system within which we operate has created businesses whose main motivation is to be profitable.

Liverpool are no different to that and although the decision to furlough staff is a cash issue rather than profit one, I am really struggling to see why the owners would not make use of alternative schemes, such as low interest loans or loans provided by themselves (both of which would easily be repaid by the club).

In fact, the decision not to do either of those things has made me think that Liverpool, like Easyjet is not acting in the spirit of the furloughing scheme provided. This is an opportunity to reduce costs during a period of reduced revenue and like any profit focused organization, the club has pounced.

Perhaps it is finally time for me to separate Liverpool FC from Liverpool Football Club and Athletic Grounds Ltd and expect less of them.

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