Dave Powell assesses the outlook after Real Madrid has reportedly jumped ahead of Liverpool in the race for Jude Bellingham.
This summer will likely see the conclusion of one of the most talked about transfers in recent years.
Jude Bellingham, for so long a Liverpool target and the player seen to be the centerpiece of a required Anfield rebuild, is set to decide on where he plays his football from 2023/24 onwards, with several options on the table.
Liverpool has been the team most strongly linked with the 19-year-old England international, who has shone in the Bundesliga for Borussia Dortmund following his move to Germany from Birmingham City in 2020 in a £25m deal.
But they have not been alone in their interest in Bellingham, with Real Madrid expected to make a play for the central midfielder, as well as Manchester City and Manchester United mulling their options over a move.
On Monday it was reported in the Athletic that Liverpool was becoming ‘increasingly unlikely’ to land Bellingham this summer. While the report stated that the club remained in the race, the suggestion over the Reds falling away in the pursuit of the Dortmund ace stemmed from a lack of desire to get involved in a bidding war that could escalate, and one that Bellingham’s current employers would dearly love to see – and could spark – given they have their asset tied down to a contract until 2025.
Estimates of between £120m and £150m have done the rounds when determining just how much it would cost to snare the midfielder, although it has been suggested by numerous outlets in recent months that Bellingham has a preference for Liverpool. But given the potentially mammoth price tag, and that the Reds have no guarantee of Champions League football to offer him next season, it could be a decision that ends up being made for him.
Liverpool can afford to make a major play for Bellingham. One of the driving factors behind Fenway Sports Group’s seeking investment into the club and recapitalizing the business is that they can free up some funds to aid a transfer push this summer to avoid significantly impacting cash flow.
Liverpool’s amortization charges (the accounting of a transfer fee over the life of the player’s contract) in their 2021/22 accounts for the year ending May 2022 show a figure of £104m. That is a figure down some £4m on the previous year’s figures and one that places them fifth in the Premier League table. The difference between the Reds and Manchester City (third) whose amortization costs stood at £141m for 2021/22 is £38m. That £38m equates to a value of transfer fee of £190m over a five-year contract, as an example.
Liverpool’s model under FSG is to compete at the top level while at least breaking even. A record £594m in revenues for 2021/22 yielded a pre-tax profit of just £7.5m, showing the challenge football clubs face in generating profits and why it is the increasing valuation of the teams year on year is where the true value exists for owners, realized when they sell all of part of their stake in the club.
FSG are seeking to sell part of its stake in the club, and according to principal owner John W. Henry, in an exclusive interview with the ECHO earlier this month, they have identified potential investors who could aid that.
But this summer requires more than just Bellingham at Liverpool. In reality, they need at least two midfielders and a center-back – and without the luxury of having saleable assets that will draw a large fee, likely saying farewell to the likes of Naby Keita and Alex Oxlade-Chamberlain on free transfers, it will be a rebuild of significant expense.
Liverpool will have to have an upper limit on where they will go when it comes to landing Bellingham, given that they have other needs that need to be met. The issue is that, for Real Madrid certainly, without the need to have to spread themselves so thinly this coming summer, and with the almost enshrined requirement from supporters that they land a world-class talent, they will be more willing to bend to what Dortmund want, and that could prove the difference in the end.
Real can do so, too. In their most recent published accounts for the 2021/22 financial year, the Spanish giants delivered revenues of €721.5m (£631m), posting a pre-tax profit of €12.9m (£11.3m). This financial year (2022/23) Real budget revenues of €769.6m (£673.2m) of revenues.
It is the stack of capital that the club is sitting on that could make a difference, and they can rely on certainty on Champions League football next season to aid not only their financial performance but also the competitive pitch that they may make to Bellingham.
The club’s cash reserves leaped from €122m (£106.7m) in 2021 to €425m (£371.7m) in 2022. That was largely down to the striking of a deal with US investment fund Sixth Street in May of last year, inked at a value of around €360m (£314.9m) that was linked to the financing of the continued regeneration of the club’s Santiago Bernabeu home.
Real also has an undrawn credit facility of €354m (£309.6m). The improved outlook for Madrid after a bleak picture that was being painted at the start of the pandemic has arrived from them being able to pull on some ‘economic levers’, which have seen them sell off parts of the business to third parties and sell some future rights related to the Bernabeu to wipe some debt obligations wiped off the balance sheet.
The La Liga side has access to a lot of capital, something that will be key when it comes to stumping up the cash for a new addition and getting more of the payment over to the selling club in a more timely manner than their rivals will be a sweetener in any deal.
If Liverpool can generate a large chunk of capital through an equity sale then they will have room to maneuver in the market this summer, although a bidding war at any price is still something they are unlikely to become embroiled in.
If they can get in the frame with a close offer and get the chance to pitch to Bellingham then they will have more wriggle room when it comes to wages than the current accounts might suggest.
The Reds’ payroll obligations shot up by £54m year on year to £366m for 2021/22. However, a lot of that rise is related to contract extensions that were put in place with a significant number of first-team players, as well as associated bonuses that would have arrived last season for winning two cups and going so well in both the Champions League and Premier League.
While a new Mohamed Salah deal will be included in the next set of accounts, for the year ending May 2023, major bonus payments will be absent. There will also be some significant wage space vacated by the departures of Roberto Firmino and the likely exits of Alex Oxlade-Chamberlain and Naby Keita.
But going toe to toe with Real may be even tougher than doing so with Manchester City this summer, with Real very much in the market to make one significant splash. Liverpool needs to make several, and the cost burden of that will be significant.