Liverpool co-owner Tom Hicks says he held talks with Jurgen Klinsmann in November about taking over as manager in case Rafael Benitez left the club.
Mixed performances and a row with Hicks and co-owner George Gillett on transfer policy put Benitez's position in doubt.
"We attempted to negotiate an option as an insurance policy... if Rafa left for Real Madrid or other clubs rumoured, " Hicks told the Liverpool Echo.
He added: "Or in case our communication spiralled out of control."
Hicks was alluding to the criticism of Hicks and Gillett by Benitez over their transfer policy which angered the American duo and put the Spaniard's position in jeopardy.
"The sooner we are out of the press the better because it's not the Liverpool way"
Klinsmann's services have now been secured by Bayern Munich and he will take over the German club at the end of this season.
The confirmation of talks between Klinsmann and his bosses will come as a blow to Benitez, although Hicks said the negotiations took place in November when the club were in danger of going out of the Champions League at the group stages and suffering indifferent league form.
Liverpool needed a 4-1 win over Marseille in their final group game on 11 December to book their place in the knockout stages.
The American owners and Benitez had clear-the-air talks after the Premier League loss to Manchester United on 16 December and Hicks now insists the Reds manager has their full support.
"After George and I had our long and productive meeting with Rafa following the Manchester United match, we put all of our issues behind us and received Rafa's commitment that he wanted to stay with Liverpool," said Hicks.
"We never reached agreement on an option with Jurgen, and we are both pleased for him that he has a great opportunity to return to Germany and coach a great club team.
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"Rafa has both of our support, and our communication has greatly improved."
But Liverpool's form has not improved and they are currently 12 points off the top of the Premier League table.
They were knocked out of the Carling Cup by Chelsea and have been taken to a replay by struggling Luton in the FA Cup third round.
Liverpool legend Ian Rush said the club were in danger of becoming a "laughing stock".
And defender Jamie Carragher, set to play his 500th game for the Reds on Tuesday, wants the club to stop airing their private business in public.
"The sooner we are out of the press the better because it's not the Liverpool way. The quicker that happens the better," he told BBC Radio 5 Live.
"Maybe it is difficult when you talk about the Liverpool way as it was a lot different 20-30 years ago with the press invasion now, where things get blown out of proportion.
"It is a strange thing to do - you could have spoken to Klinsmann through a third party"
"That's something that we would like to try to get back to and that's not just me but I'm sure everyone involved with the football club is desperate to get back to talking about football.
"I've got a great relationship with the manager but as players you've just got to do your job and not let other things affect you.
"You have got to be strong mentally to play for Liverpool because there is always speculation, not just regarding the manager but your own position too."
Former Liverpool player Mark Lawrenson added: "It is a strange thing to do. You could have spoken to Klinsmann through a third party and said, 'If this happens, would you be interested?' - that is all you need to say.
"It is not dissimilar to what happened to Martin Jol [at Tottenham].
"If you're saying, 'We've looked around to try to find someone to replace you just in case', he might just think, 'I'll look for a little something I can go into just in case.'"
Lawrenson questioned the way the Americans were running the club.
"I think all the things that were promised when they took over seemed fantastic but now there are all sorts of problems.
"The plans for the stadium were revised. Revised to what?
"I've also been told the communication levels between (chief executive) Rick Parry and the Americans have not been great. He had a lot of difficulty before Christmas actually getting hold of them. You can't run your football club that way, it's absolutely crazy.
"When you are 4-5,000 miles away it is very difficult to try to run the business of a football club."
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