John Henry, Liverpool Finances, And The Red Sox

Earlier today, our newest writer Brendan called out Jon Heyman on going back to the old, tired angle of blaming Liverpool for all of Boston's problems. It's a great piece, so go read it, again if necessary.

Now, Brendan looked at this from the perspective of the Red Sox and their spending, pointing out that Payroll is just as high as ever and the only thing John Henry can be accused of is not matching the Yankees. I'm going to come at this from the other side. Thanks to the enthusiasm of my roommates, I have in the past year (I am ashamed to say?) become a fan of the English Premiere League, in particular Arsenal FC.

While I by no means claim to be an authority on the league or anything like that, this has led me to pay some more attention to the realities of the EPL, and helped me pick up on a bit of what John Henry's doing. And while we've tried to keep Liverpool as far away from this site as possible over the past year-and-a-half, this line of attack doesn't seem to be going away in the media, so here we are.

Let's take a look at how things go on across the Atlantic after the jump.

EPL Finances And You (Or Not)

It must be said, based on the way the Premier League works, there's plenty of reason to have some initial misgivings about John Henry's involvement in with Liverpool. While here in America it's widely acknowledged that sports franchises are businesses which are designed to make money, this actually isn't the norm at the highest level of English football. The fact of the matter is that teams lose money all the time--sometimes a lot of money.

For example, Manchester City. Purchased not too long ago by Sheikh Mansour bin Zayed bin Sultan Al Nahyan--a member of Abu Dabhi's royal family--the team has been absolutely hemorrhaging money over the past few years, with their losses reaching an unthinkable £179 million in 2011. They are an outlier, but only in terms of amounts. In recent history, only Arsenal has consistently found themselves significantly in the black, with a few small clubs occasionally rising above (the Wolverhampton Wanderers did so last year).

A large reason for this is the transfer system. In Baseball, we only think in terms of salary, but European soccer is all about buying and selling. Let's say the Sox were after Felix Hernandez. In the MLB, they have to offer up a big package of young prospects and cost-controlled players, but that's only a loss in terms of potential savings. In Europe, the big clubs don't often trade for their talent, but instead sink millions and millions into purchasing them from other teams. Those numbers Heyman listed are actually transfer fees, not salaries. Then again, he also doesn't list the players Liverpool has sold along the way, which bring them down to a net loss on transfers of about £40 million over the past three years.

Still, losses are losses. So why did John Henry choose to get involved in this crazy, profitless world? Because he's a businessman, and sees potential.

A Chance For Profit

First, just some proof of concept. Last week, after making no moves in the January transfer window (think of it as the mid-season trade deadline), Arsenal manager Arsene Wenger explained to the media that before spending, he needs to ensure some £15-20 million pounds in profit. Arsenal is owned (to the chagrin of its fans) by one Stan Kroenke, an American businessman who also owns the Denver Nuggets and St. Louis Rams. While the actual scenario is a little ridiculous since Arsenal are on the verge of missing out on a £20 million+ payoff based on where they finish in the Premier League this year, it does show that there's an opportunity to make money in this environment.

Now, for what makes John Henry think he can turn a profit. First up is the UEFA Financial Fair Play rules that are just around the corner. The organization that runs the most prestigious of tournaments in football (the UEFA Champions League, featuring the top teams from around Europe), UEFA is essentially telling teams they can't lose outrageous amounts of money if they want to make it to what is essentially the playoffs. Given the massive financial rewards involved in the Champions League (the aforementioned payoff), there's a great deal of incentive to conform.

While there are some loopholes that need closed, generally this should act as a form of salary cap for the biggest teams in Europe. And while Henry will not be looking to turn any losses, if he can run Liverpool better than Manchester United or City are run, then it gives Liverpool a shot to compete even when turning a profit.

Then there's the television rights. For the Red Sox, NESN enables them to keep profits up despite their massive payroll. This is an advantage that EPL teams aren't allowed to take advantage of at the moment, with the league handling the collective rights and splitting the profits amongst the teams in much the same way that MLB teams do merchandise sales. The upshot of this is that big teams like Liverpool with followers all over the world aren't able to effectively leverage their fanbase into more money except in ticket sales.

John Henry, however, is a businessman, and so has wasted little time in having the club press that issue. As much as Soccer and the EPL are still distant fifths in the American sports race, there have been some gains, with ESPN starting to show EPL matches with some regularity in the early morning (Liverpool vs. Manchester United is actually airing on ESPN2 tomorrow, for example), and we've all seen NESN pushing the Liverpool agenda, perhaps hoping to establish a regional fanbase while the country is largely uncolonized.

Of course, America is just one target in a world that is, frankly, obsessed with the game. With Liverpool being one of England's oldest and most storied clubs, and with an executive familiar with taking full advantage of television profits at the helm, the club stands to gain more than almost any other club should they be able to break off.

John Henry, Businessman

Now, by no means am I saying that Henry is going to get what he wants. All this could come apart at the seams if his power play for TV rights fails, or the loopholes in UEFA prove too great. But in the end the likelihood is that will just lead to Henry selling to some new owner who wants to dump his fortune into bringing Liverpool back to prominence. John Henry has never been that guy. He's not a lifelong Liverpool fan, and he's never gone crazy and spent $300 million on the Red Sox for purposes of buying a title.

What he is is a businessman--one who sees the potential for profit in the world's most popular sport as it undergoes financial changes. If he is currently losing money on the club, then that's nothing more than an investment towards future profitability, and given all the money he has, he doesn't need to be taking away from the Boston Red Sox to do that. That's why payroll isn't dropping, and that's why it will continue to stay high regardless of what goes on in England.

So can we please put this poor excuse of an attack to rest?