Rafa Benitez and Liverpool about to part company

The final chapter of one of Liverpool FC’s worst seasons in recent memory is about to written as manager Rafael Benitez accepts a payoff of to leave the club by “mutual consent”. The terminology masks an unusual sacking. In the end it came down to a lack of money for players. New chairman Martin Broughton told Benitez this week there was no money to sign new players during the summer break. In truth, Benitez deserves to go but the terms of his contract made getting rid of him a difficult and expensive challenge. For a club with Liverpool’s current financial difficulties (a debt of £351m) it had to be handled with care.

Not that care is a word often associated with Liverpool’s owners Thomas Ollis Hicks and George N Gillett Jr. Both are billionaires with extensive interests in US sporting franchises. The pair came together to buy Liverpool for £218.9m in 2007. The pair claimed that silverware and a new stadium were their highest priorities but they failed with both of these objectives instead saddling the club with increased debt. Fans that initially supported their bid ahead of a Dubai alternative quickly lost faith in them sparking protests against their continued ownership. Hicks and Gillett have finally agreed to sell up but Hicks did little to endear himself when he said he expects to make four times the money he paid for the club when it is sold.

The convenience of having “the yanks” as the bad guys took the heat off Benitez despite the club not winning any silverware during the last three years of his regime. Brought in from Valencia with great fanfare, Benitez quickly gained hero status after the 2005 Champions League win followed by success in the 2006 FA Cup. But man management issues and Benitez’s notorious aloofness forced several key players out of the club. The low point came this season with the club finishing seventh and exiting the Champions League at the group stage. The 50-year-old manager signed a renewed five-year contract in March 2009 which entitles him to a £16m severance fee (likely to be bargained down to £3m in the current negotiations).

Benitez’s contract is one of the club’s many major financial failures of recent years. The club’s recently published 2008-2009 annual financial report shows the extent to which the club has fallen on hard times during the GFC. The report shows the club posted a before tax loss of £52.8m despite finishing second in the league last season and reaching the Champions League quarter-final stage. The club paid £40m on interest payments alone with creditors owed £472.5m. The club is no nearer to building its badly needed 60,000 seater replacement for Anfield despite spending £45.5m on the project in the last two years.

The accounts also showed the club paid £4m in severance fees to former chief executive Rick Parry when he left at the end of the 2008-2009 season – easily the largest such fee in British football history. The sum was negotiated with previous chairman David Moores around the time Hicks and Gillett entered the bidding to buy Liverpool in 2007. Parry and Benitez never got on and the pair argued over responsibility for the club’s transfer budget.

If Liverpool’s finances look bad in the annual report, matters are only likely to get worse once this season’s efforts are taken into account. The lack of Champions League football will be a massive blow both in TV rights and the hook to attract top players. It is likely that Benitez’s departure will be followed by the club’s major on field stars. Fellow Spaniard 26-year-old Fernando Torres is easily the juiciest attraction. Benitez bought him from Atletico Madrid in the summer of 2007 for £25 million but his performances for Liverpool and Spain in the 2008 Euros have sent his value soaring to £60-70 million. A good world cup could add another ten million to his asking price. Given his injury record (he has missed half of the last two seasons), Liverpool may feel it is good value to cash in, though the club supporters who idolise “Nando” would not be impressed.

Club captain Steven Gerrard could also be on his way out. Gerrard has never made any secret of his desire to achieve high honours in the game and given the significance of his recent birthday (he turned 30 on Sunday), he may have come to the conclusion he is never going to win a championship medal with Liverpool. A big money move to Chelsea or Jose Mourinho’s Real Madrid may also be looked on favourably by Liverpool’s management given Gerrard’s age and waning influence last season. Spanish goalkeeper Pepe Reina may also see his future lying elsewhere once his mentor moves on.

While selling such high profile players will bring big money into the club, most of it would be spent servicing debt rather than buying replacement players. Attracting new talent, both on and off the field will be difficult as the club’s cachet starts to wane. It is likely that like neighbours Everton, Liverpool are heading towards a period of steep decline as the game’s wealth becomes entrenched in London and Manchester.