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Explainer: Liverpool in legal limbo

By Simon Hooper, CNN
Liverpool's boardroom turmoil has prompted angry protests by supporters.
Liverpool's boardroom turmoil has prompted angry protests by supporters.
STORY HIGHLIGHTS
  • Liverpool FC returns to High Court in London on Thursday
  • Texas court has blocked proposed sale of club to Red Sox oweners NESV
  • Agreed deal includes repayment of Liverpool's longterm debts
  • Co-owners George Gillett Jr., Tom Hicks say deal is "massive swindle"

(CNN) -- The future ownership of Liverpool Football Club, one of the most famous and successful names in world sport, remains unclear as a power struggle involving the club board, its co-owners, its financial backers and prospective buyers plays out in courtrooms in London and Texas.

Liverpool back to court as owners block sale

Why are Liverpool up for sale?

Liverpool's American co-owners, George Gillett Jr. and Tom Hicks, announced plans to sell the club in April amid concerns over the club's mounting debt, much of it dating from the pair's purchase of Liverpool for $338 million in 2007. Accounts released last year by Kop Football (Holdings) Limited, the company which owns Liverpool, revealed net debt of $462 million. The report also showed that $54 million of interest payments had been required to service this debt during the financial year that ended in 2008.

An independent chairman, Martin Broughton, was appointed in April to oversee the sale of the club and to neutralize the co-owners' majority control of the board. Liverpool's board and its advisers, Barclays Capital, have maintained that any sale agreement must include repayment of the club's RBS debts in full.

On October 6 Broughton announced the board had agreed to sell the club to New England Sports Ventures, the owner of baseball's Boston Red Sox, in a deal valued at £300 million ($477 million) despite opposition from Gillett and Hicks.

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"By removing the burden of acquisition debt, this offer allows us to focus on investment in the team," Broughton said.

Why hasn't the deal been completed?

In a statement issued on October 6, Broughton said Hicks and Gillett had "tried everything to prevent the deal from happening," including a failed attempt to regain control of the board by replacing two members with their own allies. Broughton also confirmed that legal proceedings were necessary to complete the deal.

A ruling in the High Court in London on Wednesday October 13 rejecting the co-owners' right to veto sale and refusing their right to appeal appeared to clear the way for Liverpool and NESV to complete the sale of the club on Wednesday night. But Hicks and Gillett then obtained a temporary restraining order in a Texas court preventing the deal from going ahead.

In a statement on the club website, Liverpool called Hicks and Gillett's action "unwarranted and damaging" and said it would seek to have the order removed "as swiftly as possible." The club returns to the High Court in London on Wednesday.

What is Hicks' and Gillett's position?

Hicks and Gillett said last week they remained committed to finding a buyer for Liverpool. But they maintain the NESV deal significantly undervalues the club and have said they will "resist any attempt to sell the club without due process or agreement by the owners."

On Wednesday, the pair described the proposed sale as a "massive swindle." In the lawsuit filed in Texas, the pair are also seeking $1.6 billion in damages from RBS, NESV and the three Liverpool board members who back the sale.

They say they have invested more than $270 million in the club, while doubling revenues and turning Liverpool into one of the most profitable in the English Premier League. They say they stand to lose $130 million if the NESV deal goes through.

What happens next?

Technically, the legal processes which have delayed Liverpool's sale could see the club forced into administration by RBS on Friday when the bank's loan is due to be repaid. In footballing terms, that would see Liverpool hit by a nine-point penalty by the Premier League. But, realistically, it seems unlikely that RBS would jeopardize the club's likely sale while legal action is ongoing.

The Texas injunction could have an impact on NESV and RBS which both have business dealings in the U.S., as well as Broughton who also serves as chairman of British Airways. The court there has scheduled a full hearing for October 25. But Liverpool will hope to overturn the injunction in the High Court in London.

Who are the likely new owners?

John W. Henry, the man behind New England Sports Ventures, has built an impressive second career as a sports mogul after making his fortune in hedge funds. Most notably, Henry's ownership of the iconic Boston Red Sox has coincided with the team's most successful era in more than a century and the breaking of the so-called "curse of the Bambino." After winning the World Series in 1918, the Red Sox sold star player Babe Ruth to the New York Yankees -- and had to wait until 2004 for their next championship.

The Red Sox followed this up with another World Series win in 2007, but Henry is credited with restoring the team's fortunes without selling out its heritage; while other clubs have moved to new stadiums, the Red Sox continue to play at Fenway Park, baseball's oldest ballpark, in the heart of Boston. Ironically, one of the issues which has prompted antagonism between Liverpool's co-owners and fans has been the club's failure to move forward with plans to move from its legendary Anfield home to a new stadium.

"They really revamped the entire operation from top to bottom, " Nick Cafardo of the Boston Globe newspaper told CNN. "They spend money and they're not afraid to go after players."

Has the boardroom situation affected Liverpool's performances?

Liverpool have never been further from their glory days of the 1970s and 1980s when the club was dominant in England and in Europe.

History of Liverpool in images

Between 1973 and 1990 the club won 11 league titles and four European Cups, and many more domestic and European honors. In 2005, supporters enjoyed a flashback to former glories with an improbable win over AC Milan in the Champions League final in Turkey -- a match known by supporters as the "miracle of Istanbul" after Liverpool rallied from three goals down to win the match on penalties.

But Liverpool fans' long wait to add to their record 18 league titles has been made worse by watching archrivals Manchester United creep up to join them on that figure, with 11 titles since Liverpool were last champions. Despite optimism when Hicks and Gillett bought the club, fueled by the signing of Spanish star Fernando Torres, Liverpool haven't won a trophy since lifting the FA Cup in 2006.

The recent uncertainty and financial burden loaded on the club has coincided with a slump in form which saw Liverpool finishing seventh last season, missing out on a place in the lucrative Champions League, lose their manager, Rafa Benitez, and fail to compete in the transfer market.

This season has been even worse. Under new boss Roy Hodgson, one win and three defeats in seven league matches has left the club in the Premier League's relegation zone. The current turmoil also comes just days ahead one of the club's most important games of the season: Sunday's "Merseyside derby" against city rivals Everton.

As CNN's Pedro Pinto writes, regardless of the resolution of Liverpool's boardroom issues and the presence of star players such as Torres and Steven Gerrard, the club faces a long climb back to the top.

Liverpool low: Can the once mighty Reds rebuild?

What do supporters make of the proposed sale?

Many Liverpool fans have welcomed the severing of ties with Hicks and Gillett that any sale will bring. As one supporter from India stated on the team's Facebook page: "It is excellent news after a lot of problems ... this new buyer can help us get back the glory after two decades!" Another wrote on Twitter: "Dear Mr. @John_W_Henry: We love our club so much, if you buy #LFC please take care with your heart and passions and not just capital..."

But, as CNN's Ben Wyatt writes, the replacement of one set of American owners with another American, begs the question of whether Liverpool's board is swapping the frying pan for the fire.

Will Liverpool sale be jumping from the frying pan into the fire?

The sale of the club would also appear to bring to an end efforts by supporters groups to buy the club collectively themselves. In a statement last week, Spirit of Shankly, the Liverpool supporters union which spearheaded those efforts, cautiously welcomed NESV's interest, saying that new owners could expect "one gently outstretched hand of welcome while the other hand contains a list of questions that will need honest and open answers before any welcome becomes more warm."

Supporter concerns include "how they propose to purchase the club, how their business model is different to the current owners, their measurable ambitions for the club, the investment they intend to make on the playing side, what their stadium solution is likely to be and also their attitude in relation to allowing supporters to invest and be represented within the club."

Spirit of Shankly spokesman James McKenna told CNN: "It's a step in the right direction providing it happens and the owners are the right ones."