A Warning For John Henry

Boston Red Sox Owner May Live to Regret Investment in Liverpool FC

By Michael Jones

I fear for John Henry and his New England Sports Ventures. Assuming the high court approves the Boston Red Sox owner's takeover of Liverpool FC this week, he's about to embark on a journey that could quite possibly be the undoing of his fabled sports empire.

I know, the man is very wealthy and has a pretty impressive track record when it comes to investing in professional sports teams. But I worry that anyone whose view of the sports business is shaped by ownership of US teams is in for a rude awakening when it comes to owning a team in the English Premier League.

I would even go as far to express a small amount of sympathy (though not much) for Mr. Henry's predecessors, Tom Hicks and George Gillett whose own previous experience in sports had been within the relatively safe confines of the North American model, and who clearly didn't realize before they got involved what a crazy business model the EPL is.

The problem with the EPL business model is that there is no ceiling and there is no floor. And for business owners looking for certainty (or as much certainty as you can reasonably have in business) that's a huge problem.

Let me explain what I mean.

In the EPL, there is no ceiling to the costs you can incur. Unlike most American sports, there is no salary cap and no collective bargaining agreement so your largest single expense can quickly spiral out of control. Even players who are under contract routinely lobby to tear up those contracts and insist on more money as soon as they either show improved form or another club shows even a modicum of interest in them.

Add to this the whacky transfer fees, a relatively unknown concept in American sports and your player costs (payroll and acquisition costs) can quickly eat up your budget long before you even think about issues like stadium construction.

Moreover, you can't really control your costs in the way you can in American sports. If an ambitious Russian billionaire takes over a team 250 miles away, transfer fees and salaries for the top players will skyrocket, and you'll be powerless to stop it. Pretty soon you're paying $10 million for mediocre players, even if you don't think they're worth it.

Now it's fair to say that this is not a million miles away from the Major League Baseball model, and Mr. Henry is certainly no stranger to paying top dollar for players. But the really dangerous thing about investing in an EPL team is the lack of a floor.

At least in baseball, you have the option of not participating in crazy bidding wars over star players, and many teams do. A modest payroll and a good farm system aren't likely to win you a World Series, but at least you can stay in business and stay in the league.

In soccer, if you decide you don't want to play the crazy salary/transfer fee games (or even if you do and you turn out not to be very good at it) you run the risk of being tossed out of the league entirely.

From a competitive point of view, of course, relegation is one of the things that makes the EPL so compelling, but from a business stand point it basically puts a gun to an owner's head and tells him, pay up or else.

And in case Mr. Henry thinks relegation couldn't happen to such a storied club as Liverpool FC, I can name a dozen teams who were considered "too good to go down" who nevertheless found themselves in the second division, including Chelsea, Leeds, Notts Forest, Spurs, and even the mighty Manchester United, a mere six years after winning the European Cup. And that.coincidentaly, is exactly the same length of time since Liverpool last won the Champions League?

I'm not as old as, John Henry, yet I can remember when Luton Town was in the top division of English Soccer. Luton Town! Ever heard of them, Mr. Henry?

And don't even start me on the fans. If Henry thinks Boston Red Sox fans are rabid, he ain't seen nothing yet. English soccer fans expect their owners not only to treat their beloved teams as prized business assets, but also to operate them as a fan would. In short, they want them to rule them with their heads as well as with their hearts.

And while Red Sox fans had their expectations tempered by 86 years of heartache, World domination is a recent enough memory on Merseyside that their fans expect results fast, and will consider Henry a flop if his regime can't deliver them.

So hold on to your hat, Mr. Henry, it's likely to be a bumpy ride. Owning a team in the EPL is a high wire act where the wire keeps getting raised each season and where the floor is somewhere around the level of the Evo-Stik Northen Premier League where you rub shoulders with the likes of Frickley Athletic and North Ferriby United.

Enjoy the ride.