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Business lessons from Merseyside...

As a private equity investor, I have been amazed by the transformation that Fenway Sports Group (FSG) has achieved at Liverpool Football Club. From near bankruptcy in 2010 to their status today as one of the most profitable and financially stable football clubs in Europe…not to mention English Premier League champions!

How has this been achieved, and from a business perspective, can we learn anything from them?

Here are some of what I believe to be the key reasons:

  

Choose your investment partners

In 2007, the then owners of LFC sold the club to Hicks and Gillett in what came to be seen as a disastrous choice. The vendors could and should have ascertained that the purchasers had little knowledge or understanding of football in general, and Liverpool and its devoted fan base in particular. The level of debt used in the purchase meant that there was nothing left for further investment in the senior management or the football team. There followed three years of general and financial mismanagement which left the club facing an uncertain future.

But when the club was again sold in 2010, the Board of LFC made a more astute alliance. From the ranks of many potential buyers, they chose FSG, owners of the Boston Red Sox, which had a strong record of sporting success and history of delivering on their promises. Under FSG’s custodianship, the Red Sox had won their sixth world series in 2014, after an 86 year wait! Nevertheless, the Liverpool club and fans were understandably nervous: they needed proof.

Recruitment policy

FSG’s stated objective was to “return the club to greatness on and off the field for the long term”

This is interesting, because FSG knew that achieving financial stability and recruiting the best people to deliver that return to greatness would not happen overnight. This was communicated to the club and made clear to the fan base. No false promises. Full disclosure. The entire LFC senior management was upskilled and refined, with the focus on increasing revenues and investing in the playing infrastructure and staff. And this process culminated in the recruitment of Jurgen Klopp in October 2015.

Attention to detail

No-one doubted Klopp’s passion for football, and he had had considerable success in Germany. He is known to enjoy life and to understand his customer/fan base. What was less well known, but has become abundantly clear in his five years at Anfield, is his attention to detail. The fine tuning of tactics to compete successfully in the Premier League. The hiring of specialist coaches. The use of blogs and the media to address the fans (and the competition!). A quiet rebranding.

Working as a team

Klopp understands what motivates and drives the talent that he has at his disposal, and when it is time to add or exit a player. As a result, LFC has evolved from relying on a few star players for success, to playing as a team. This has resulted in the players delivering a high level of consistency on the football field, which has been key in turning the long-suffering fans from doubters into believers! For Klopp, and LFC, this was crucial: the customers needed to believe in the product again.

In addition, he has ensured that his football/management philosophy is adopted by the whole playing staff, no matter their seniority. Junior and senior talent know what is expected of them, and the standards they must attain to be successful and deliver the consistency required to win trophies. This in turn drives ‘off field’ commercial success.

Investing in the future

Two key ‘off field’ investments have been made. First is an impressive new main stand, opened as promised in 2016 and boasting 21st century amenities. This has increased capacity at Anfield, bringing more supporters and a substantial uplift in match day income. Second, FSG has sanctioned the building of a new £50m ‘state of the art’ training ground which is due to open later this year. The new training ground was Klopp’s project. It has been built to attract and keep the best footballing talent in the world. It is expected to save the Club many times more than it cost. In other words, why pay mega millions for a new player when you can attract, recruit and develop young home-grown talent, and teach them the LFC way?

Building a best in class business

Putting all these measures in place in any business requires time, patience and, to some degree, luck!

It has taken FSG 10 years to get the business the way they want it. There have been false starts, and some errors made, but they have been quick to put these right, and have a proven record of supporting their customers. The outcome is that their investment in 2010 of £300m is now valued at £1.7bn. A five times return to date; any shareholder would be pleased with that outcome.

Regardless of sector, these key success factors will improve the performance of any business.

And as for choosing the right investment partner, well, what can I say? KCP has been a leading investor and partner to SME businesses in the UK for over a decade. We have the ability to not only provide the cash you require to fund your plans, but we can help you identify where there are gaps in your strategy and help put things in place to make the business work more cohesively, give you the stability to be more forward looking and help put the right people in the right roles.

Feel free to get in touch with me or any of my colleagues to discuss how we can help your business win and replicate Liverpool’s success!!

  

Mike Fell, Investment Partner

Posted in All, Blog on Aug 12, 2020