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Liverpool FC's American owners, faced with insurmountable debt, are looking to sell. It's a familiar story in the high-stakes world of European soccer

By Mark Scott

American billionaires George Gillett and Tom Hicks were in the vanguard of sports investing when they shelled out $310 million in 2007 to buy Liverpool FC, one of England's biggest and richest soccer clubs. Money was easy, so they took on $500 million in debt to build a big new stadium and cover the team's operating costs. The payout looked promising.

Then the global credit crunch hit and the math started to fall apart. The stadium was postponed and the Americans finagled a six-month extension on their loan. But the $500 million comes due in July 2009, and refinancing in the current climate seems implausible. Instead, Gillett and Hicks hope to sell the club for as much as $700 million—still not a bad return on investment—to Middle Eastern buyers.

Investors Back Off "Football"

So it goes these days in the high-stakes world of professional soccer. Despite revenues last year that topped $270 million, Liverpool's financial predicament is becoming an all-too-familiar tale for soccer clubs across Europe, especially in the world's most lucrative domestic championship, the English Premier League (EPL). Spiraling player salaries, uncertainty over future corporate sponsorship deals, and the deteriorating global economy have made many investors wary of owning a piece of the world's most popular sport.

For some, the economic pressure has become too much to bear. Alexandre Gaydamak, the Franco-Russian owner of Portsmouth FC—currently languishing near the bottom of the EPL—wants to sell out for as much as $85 million. Mike Ashley, owner of the similarly beleaguered Newcastle United, tried to find a buyer but eventually took the club off the market when none appeared. Rumors abound that others, including Icelandic businessman Bjorgolfur Gudmundsson, the owner of London-based West Ham United and the largest shareholder of nationalized Icelandic bank Landsbanki, soon could follow.

To quote a famous saying: "The way to make a small fortune is to start with a big one and buy a soccer club."

Winners Take All

That's not to say soccer isn't still a very lucrative business. Indeed, consultants Deloitte reckon revenues in the 2007-2008 season for the world's top 20 clubs—all located in Europe—totaled $4.9 billion, up 6% from the year before and three times the take of a decade ago. According to Dan Jones, a partner in Deloitte's Sports Business Group, club revenues today on average come 41% from broadcasting rights, 33% from commercial deals, and 26% from game-day sales. "At the top end of the market, things are going O.K. But lower down the league tables, clubs are suffering more," he says.

That means the likes of Spain's Real Madrid and England's Manchester United, rated first and second, respectively, in Deloitte's ranking of the world's top money-making franchises, should weather the economic storm without much trouble. They enjoy multibillion-dollar broadcasting deals that help guard against economic ebbs and flows, and their sponsorship deals are with big, rich partners such as Nike (NKE), Adidas (ADSG.DE), BT Group (BT), and Gazprom (GAZP.RTS) who are unlikely to walk away from contracts.

If anything, the bigger clubs are even managing to tighten their grip on the commercial market as they lure secondary sponsors. Liverpool has snagged a multimillion-dollar deal with Danish brewer Carlsberg (CARLB.CO), while No. 6-ranked Arsenal in London has expanded its deals to include sponsors such as French automaker Citroën (PEUP.PA) and Swiss watchmakers Ebel.

Shrinking Sponsorship Deals

Smaller, less economically diversified clubs, including some listed in the top 20 worldwide, are more at risk. They could suffer from a drop in corporate hospitality revenue and commercial sponsorship as companies look to trim costs. "Every investment is being scrutinized," says Steve Bradley, director of sports marketing and sponsorship at media consultants Hill & Knowlton. "What's appropriate now is very different from 12 months ago."

Deloitte's Jones cites jersey sponsorship as a key indicator. After ailing U.S. insurer American International Group (AIG) said on Jan. 21 it wouldn't renew its $80.6 million deal with Manchester United after the 2009-2010 season, most analysts expected a number of blue chip names, particularly from the retail and telecom sectors, to offer top dollar to fill AIG's shoes. Yet after tour operator XL Holidays, the sponsor of English club West Ham, went bankrupt in September 2008, it took the club more than three months to find a replacement. Another English team, West Bromwich Albion, currently at the bottom of the EPL, has yet to find a jersey sponsor for the 2007-2008 season.

"Everyone is looking very hard at their sponsorship deals," says Bob Mitchell, head of sports and sponsorship at London law firm Harbottle & Lewis. "Football remains a strong sports property, but we could see some [sponsorship] nonrenewals."

Record Salaries for Top Players

This pressure on earnings comes just as clubs are spending record amounts to attract the world's best players. According to Deloitte, EPL teams spent $227 million during the January 2009 player transfer window—a month-long period halfway through the domestic season that allows clubs to bring in new talent. That's $14 million above last year's previous record total and a staggering $142 million more than in 2007.

"The level of transfer spending is far in excess of spending by clubs in other European leagues," says Paul Rawnsley, director of Deloitte's Sports Business Group.

Much of the largesse is due to the Abu Dhabi United Group, the new cash-rich owners of Manchester City, who paid a reported $284 million for the northern England club. City's previous owner, former Thai Prime Minister Thaksin Shinawatra, was forced to sell after Thai officials froze more than $2 billion of his assets due to corruption allegations. Abu Dhabi United already has forked out a record-breaking $46.3 million on a four-year contract for Brazilian striker Robinho. The owners plan to spend similar amounts on other global stars in the near future.

Yet for every billionaire willing to bail out a club like Manchester City, there are a number of teams, including many in Europe's top leagues, that may struggle to meet their soaring financial costs in a deteriorating market. Says Deloitte's Jones: "For now, there's a flight to quality where the biggest brands will outperform the less well-known names."

Scott is a reporter in BusinessWeek's London bureau .