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Volume 20 No. 42


Thirteen months ago, when New England Sports Ventures acquired Liverpool FC, the team’s owners, George Gillett and Tom Hicks, charged that a runaway board had sold the fabled franchise without their consent and ignored higher offers.

Those charges are now winding their way though a case in New York Supreme Court, but there’s a twist: The case is brought by one of Gillett’s lenders, Mill Financial, which is owned by Washington Redskins minority investor Dwight Schar. In the lawsuit, Mill said it would have paid as much as 64 percent more for the club than the offer agreed to by the Liverpool board.

Mill sued Gillett a year ago for repayment of a Liverpool loan. In September, it added lender Royal Bank of Scotland as a defendant, contending RBS conspired to game the sale and prevented the team from being sold at a far higher price.

While Mill is not seeking to upend the acquisition — it seeks $120 million for the loan and interest — the case does provide a closer look at one of the more contentious team sales in recent memory. It also could draft many of

Tom Hicks (top, left) and George Gillett protested the sale last year of Liverpool FC to John Henry (above, center) of NESV.
the principals into court, from Hicks and Gillett to John Henry, principal owner of NESV, which earlier this year was rebranded as Fenway Sports Group.

No court dates have been set.

“Mill Financial’s disappointment in being outbid for the purchase of the Club … has resulted in Mill Financial turning its sights to RBS, the secured lender to the Club,” RBS said in recent reply brief.

Mill, however, contends that it was ignored when it notified the board and RBS of its intention to bid for the club during the summer of 2010 and that RBS’s only goal was to get its money out.

RBS, Wells Fargo and Mill had signed a tri-party lender agreement in April 2008 promising one another of keeping the others informed of all developments as it became clear that the Liverpool owners, Hicks and Gillett, would have a tough time making debt payments. Mill contends it was kept in the dark during the summer of 2010 and that its superior offer for one of sport’s hallowed properties was ignored.

These are the same allegations Gillett and Hicks made at the time of the sale, but they were largely dismissed because of their indebtedness and difficulties in management of the club.

Mill called the 235 million-pound purchase seriously below market value and contends in the lawsuit that it would have paid as much as 385 million pounds and had notified the board as such.

Hicks and Gillett attempted to block the sale in a United States court, but a U.K. court at the time overruled that effort and brought it back to London. As a result, the Mill Financial effort is the only U.S. lawsuit related to the transaction, which ignominiously ended the three-year tenure of Hicks and Gillett at significant loss.

News Corp. is changing the way it accounts for potential losses that stem from future payments on the rights to broadcast U.S. sports. The owner of Fox Sports will no longer estimate potential future losses, a move that could minimize the type of large write-off that might spook investors.

The change comes as the NFL is starting talks to renew broadcast deals with CBS, Fox and NBC. The league is expected to fetch significant increases.

“Are they doing this in anticipation of the NFL rights, so they don’t have to worry about overbidding?” asked John Lieberman, a certified public accountant who is a member of the New York State Society of CPA’s entertainment and sports committee. “Will it play into their negotiations?”

Lieberman contended that the answer to those questions is yes, and that the move allows News Corp. to bid as high as it wants for the NFL without worrying about a massive write-off.

A News Corp. spokesman declined to comment. The company disclosed the change in its quarterly report with the Securities and Exchange Commission earlier this month. In that document, the company said it was making the change to bring its accounting practices in line with peer companies.

David Bank, an analyst with RBC Capital Markets who covers News Corp., said that is true, adding that what News Corp. is doing is saying that if there is a loss, it will reduce earnings incrementally instead of all at once.

In the past, when broadcasters wrote down the value of sports contracts, the write-offs were largely based on estimated future losses. Now, News Corp. is saying, at least in the United States, it will report actual losses or profits, and internal projections will not be reflected in earnings reports.

“Estimated future losses will no longer be recognized,” the News Corp. regulatory filing said.

Bank disagreed with Lieberman and said he does not think News Corp. is adopting the change in anticipation of a big NFL bid. In fact, he contended News Corp. had been better off with the old accounting, so a loss could be taken all at once and quickly forgotten by what he described as Wall Street’s short attention span.