Question economy - lifelike I think not

Yeah, so, I have been reading some reports about the debts of the clubs recently and it turns out that clubs like real and liverpool to name two (there are a loooot more) are in massive debt and so on so on. For example Real is technically bankrupt with a debt of something in the range of 500 million euro. So why are these numbers not reflected in the game at all? Real (just an example of many) doesn't even have any debt and is like the second richest club in the game..

I don't demand that the game is just like real life (which it isn't) but still. SI have been talking about the economy of the clubs and telling us that they have (of course altered for better gaming experience) tried to make it pretty lifelike. Feels more like random numbers to me.

Great job on the whole though.

Basically you're not gonna see Real stop spending money any time soon are you? I read a little bit about the Liverpool debt on their website but its not as simple as they're in 500mil debt so they're programmed 500mil in the red. I wish i could remember more from that website story to give more detail.

you see the thing is - its not real debt

the debt is with the owners, who are confident they have enough money streaming in from elsewhere to keep pumping money into the club

obviously, you have to take out a loan to buy a football club, so you are in debt automatically, but the owners know they can pay it back

take the glazers at united for example, they are in massive debt but know they can pay it off

if they were to leave the club, then united would be in trouble

It depends where you look at the debt.

Taking the Liverpool debt as an example:

Sportsbusinessdaily.com: Liverpool debt

Liverpool Echo: Further detail

The media love to report that as "Liverpool are £350M in debt."

However, when you look at it, that simply isn't true. Liverpool - LFC - are £105M in debt.

Kop Football - the holding company which owns LFC - are £245M in debt, and have no assets other than LFC, which they used as the collateral against that debt.

If the current ownership, through Kop Football, are to continue to own LFC, then LFC's profits are likely to be dispersed as dividends to Kop Football, which should then use them to service or pay off the debt.

If LFC cannot disperse dividends, then either the owners fund Kop Football out of their own pockets to service the debt .. or the banks repossess LFC.

In neither sense does LFC owe £350M.

. .

Honestly, this isn't much different from the way a normal person purchases a house. If I buy a house for $300,000, its unlikely that I have that much cash on me. (Certainly not at my current wages!) .. I might be able to scrape up a $50,000 down payment. I'd have to borrow $250,000 from a bank. Then, as long as I can make my payments, I "own" the house .. but if I do not make the payment, then the bank forecloses, and takes ownership of my house.

We would never say "The house is in debt" ..

.. unless we were sensationalist media trying to sell papers by terrifying people with description of debt.

A moment of clarity there, Amaroq. wp

*and relieving to read, too

And as for Real, they are in effect owned by the government (or is it by Madrid) - they ain't ever going bankrupt.

On the game playing as Liverpool, The club has to service a debt of around £325 million. This is split into bank £275m and chairman loan £50m. A monthly figure is paid to both over a 8 year period, however the running of the club depends if it goes into the red or not. Cant comment on Real as I havent played them yet.

And as for Real, they are in effect owned by the government (or is it by Madrid) - they ain't ever going bankrupt.

I hope you aren't suggesting governments can't go bankrupt? *cough*Iceland*cough* :-p

But unlikely, sure.

If the current ownership, through Kop Football, are to continue to own LFC, then LFC's profits are likely to be dispersed as dividends to Kop Football, which should then use them to service or pay off the debt.

If LFC cannot disperse dividends, then either the owners fund Kop Football out of their own pockets to service the debt .. or the banks repossess LFC.

Reading the full article (your second link) does show a pretty grim picture on the matter.

The current owners didn't even buy the club using their own money. They simply obtained a loan, with which they paied the previous owners. And this debt went to Kop Football. It seems the current owners have never invested anything from their own pockets. They just take loans and hope that LFC will pay them. Trouble is, LFC has having difficulty paying them and, as far as I can see, there are only 3 avenues open:

1. They obtain yet more loans; which appears very difficult as they don't have any collateral anymore (current LFC assets are not even enough to cover current debt) and the current economic climate forces banks to ask for more security when loaning money.

2. They sell the club to someone with the finantial means to turn around things. Best solution, it seems but there's the big question mark if there are any interested parties.

3. Banks take charge and try to recover their money. Which could mean selling players, etc. Not exactly the best solution, I would say.

In neither sense does LFC owe £350M.

[...]

but if I do not make the payment, then the bank forecloses, and takes ownership of my house.

Maybe LFC doesn't own £350M but, since Kop Football used LFC as collateral for their own loans, LFC ends up being in hot water, no?

And your analogy with a house purchase is not exactly the best. We purchase a house, are unable to pay and just get rid of it and move on. Not exactly the same with a football club, which involves other realities, namely fan's passion, etc. Which means that, if banks were to take charge and had the intention to quickly recover part of their investment, they could do what banks would do with your house: sell it! In this case, since the only readily available assets are player contracts, they would then proceed to sell those. Is this desirable to the fan? Is this as simple as your house purchase analogy?

Unlike other club's owners (Man U, Chelsea, Man City, for example), who have invested or are ready to cover debt with their own money, the problem, with LFC, is that current owners have not invested a penny of their own and don't appear willing or in a position to do it.

I hope you aren't suggesting governments can't go bankrupt? *cough*Iceland*cough* :-p

Sorry, let me try again: West Ham are in effect owned by the government - they ain't ever .... oh

I suggest you log this on the relevant team in the Data Issues forum and discuss it with the relevant researcher who I'm sure would be very knowledgeable on this subject

United have their debts reflected accurately, as do Liverpool. It isn't as simple as the house analogy. :sharpens axe:

If you want to complain about levels of debts, go to specific club threads in Data Issues- though I believe Real don't have a club thread, so you'll have to use the Spain thread.

Mr Pompey beat me to it

Reading the full article (your second link) does show a pretty grim picture on the matter.

The current owners didn't even buy the club using their own money. They simply obtained a loan, with which they paied the previous owners. And this debt went to Kop Football. It seems the current owners have never invested anything from their own pockets. They just take loans and hope that LFC will pay them. Trouble is, LFC has having difficulty paying them and, as far as I can see, there are only 3 avenues open:

1. They obtain yet more loans; which appears very difficult as they don't have any collateral anymore (current LFC assets are not even enough to cover current debt) and the current economic climate forces banks to ask for more security when loaning money.

2. They sell the club to someone with the finantial means to turn around things. Best solution, it seems but there's the big question mark if there are any interested parties.

3. Banks take charge and try to recover their money. Which could mean selling players, etc. Not exactly the best solution, I would say.

4. LFC turns sufficient profit to continue servicing the debt, and there isn't a problem.

Re: 3., we don't actually know what a bank would do if it had to take possession of LFC. Just like any other owner, the bank might:

- Sell the club (LFC) to a new owner for cash received

- Sell off players ("Fire sale")

- Sell off physical assets (such as the stadium)

- Sell both players and physical assets

- Retain the club as a profitable wholly-owned subsidiary

- Invest in the club to increase its future sale value

Again, sensationalist media want to paint as dire a picture as they can to sell papers. As you noted, the "ShareLiverpoolFC" commentary paints a very grim picture - they want to convince the public that there is danger, so that public sentiment compels the current owners to sell the team.

Fear is one of the most powerful psychological levers: look, for example, at the changes which Bush has instituted using "Fear of Terrorists" and "Fear of Economic Collapse" as his primary levers.

Anytime anybody tries to scare you as part of their rhetoric, that is the time to engage your rational, critical thinking to figure out the true situation as best as you can.

Your analogy with a house purchase is not exactly the best. We purchase a house, are unable to pay and just get rid of it and move on. Not exactly the same with a football club, which involves other realities, namely fan's passion, etc. Which means that, if banks were to take charge and had the intention to quickly recover part of their investment, they could do what banks would do with your house: sell it! In this case, since the only readily available assets are player contracts, they would then proceed to sell those. Is this desirable to the fan? Is this as simple as your house purchase analogy?

Again - we don't know what a bank would do if it had to repossess the club.

Certainly, the fan's passions about a football club are a concern, and we especially have reason to fear when we feel like the owner of the club does not understand and value the supporters passion - that the owner may place "profit" ahead of "winning", and the spectres of Leeds United and Wimbledon FC loom large in our psyche.

So, no, it isn't precisely like the house purchase ..

.. but that's the best analogy which I can think of which the average forum-user can readily understand. If you've a better one, feel free!