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How Will The Glazers Leave United?

 How Will The Glazers Leave United?

Today Liverpool FC went through a complicated court procedure to resolve their ownership. Their biggest rivals, Manchester United, have not had the problems that have engulfed the beleaguered Anfield club but nevertheless have issues with their ownership. The Glazer takeover of Manchester United has created friction between the club’s support who deride the Glazers and want them out (Love United, Hate Glazer) and the owners themselves.

Liverpool’s current (for now) owners were desperate to sell the club on their terms, for their own financial benefit and not the benefit of Liverpool Football Club. In Manchester and Florida the Glazers will be looking on in interest at how their national compatriots have floundered in the business of football ownership. Let me be clear, the Glazers like Hicks and Gilette have entered football for one purpose, profit. How they will achieve that profit though is important, having already turned down a 1.5 billion pound offer from a Middle East Consortium, just how will the Glazers leave United?

NB: A lot of the financial numbers etc contained below are garnered from the always excellent Swiss Ramble and his article on Manchester United’s recent results.

First and foremost we must understand how the Glazers got involved in Manchester United and what they hope to achieve through football ownership. Prior to the Glazer Ownership Manchester United was a publicly limited company trading on the LSE. Over the course of several years the Glazers bought Manchester United shares with the intention of one day buying the lot. They achieved this particular aim in June 2005, however to buy a company the size of Manchester United this particular transaction required a lot of money. More than the Glazers had, they put up 250m of their own money and 540m of loans, in what is technically described as a Leveraged Buy-Out (an LBO). The purpose of an LBO is to take a company you think is not being run well or has more value in it than is represented in the share price so that you can run it, trim it and then resell it later at a vast profit as you have made the company more valuable through actions which, if unpopular, could’ve been prevented by the shareholders.

True to LBO form this is precisely what the Glazers started to do. With the grim spectre of debt hanging over their ownership they set about trimming where necessary and increasing revenues where possible. It has not gone unnoticed that United’s ticket prices have sky rocketed since the takeover. In having a captive audience the Glazer’s realised they could increase match day revenues in the most base of ways. It is no surprise that having the biggest stadium would lead to Manchester United having the largest matchday turnover in the Premier League, it is surprising to see that they outstrip (considerably) the revenues of Barcelona and Inter Milan.

Though it is not only at the turnstile that the Glazer’s have turned the screws, a look at their profit trend on SwissRamble shows an increase in other areas that include Commercial Income and Media Income. Though the Premier League have helped with their increasingly profitable TV deals, United have struck out on their own with MUTV and according to SwissRamble:

“increased their stake in MUTV Limited to 66.7% “in order to have greater influence over the future strategy of the channel.” The ability to use technology to distribute live matches is definitely one of the attractions for overseas investors.”

The Glazers have helped United become a “veritable cash machine” but the problem with an LBO is what you are waiting for me to get to, the debt.

The debt loaded onto Manchester United dwarfs that which is crippling Liverpool and forcing the court case we see today, however United have continued to function properly and have not (yet) exhibited the decline which fell on Liverpool as the credit crunch hit. The story of their recent results though are the massive loss attributed to United’s ongoing debt concerns. Whilst the Club still retains large cash in it’s bank account (£164 Mil) the analysis at SwissRamble seems to indicate that when you include Red Football Joint Ventures PIK debt payments, which is secured against the clubs assets, the loss before tax was closer to £108m for Manchester United. For an excellent breakdown of United’s debt situation see SwissRambles article don’t be put off by the length or technical language it is as accessible as any blog post.

So to the question, how will the Glazers leave United? The strong revenues created are desirable but any purchase of United will have to clear up to £1.1 Billion of debt which seemingly the Middle East bid would have done but only would leave the Glazers personally receiving 400 million which whilst a profit would not make up for their default on their Malls or their ridiculously under budget Buccaneers. No, the Glazers would want more bang for their buck when leaving United and as far as I can tell there are only three ways to do so. They could sell to a mega-rich western consortium, who will probably be loaded with debt to be able to afford the club, they sell to a mega-rich eastern consortium who won’t need the debt but whose  or they return the club to the market. Of these I think this is the best for Manchester United.

Manchester United are a cash cow, they sit on vast revenues and cash. It seems that under the Glazer regime they have optimized their revenue streams and are now stuck clearing debt. An IPO of Manchester United would return ownership to the public and the sheer value of the business and hostility to private owners would worry potential investors. The club would be free of debt and with such a large cash position they could offer investable dividends. Whilst this is all dependent on future success the likelihood of United dropping out of the top 4 is so remote as to be negligible, especially given UEFA’s fair business guidelines. Something Manchester United would comfortably fall under. LBO’s often result in a return to market of the trimmed down spruced up company. The financial results prior to United’s takeover indicate that turnover was £169m (which is £192m adjusted for inflation) boosted by the sale of David Beckham, the most recent results indicate £286m boosted by the sale of Ben Foster. This is an increase of 49% in 5 years. 49%. Even if we roughly apply this to price the Glazer’s paid (adjusted for inflation) this would be £1.3Bn of course this doesn’t take into account the improved revenue streams, the increased length of commercial contracts, the youth available through the Glazers transfer policy and the continued expansion of the Global brand. The market will always value future money streams as well as those available now so I don’t think that this is a reflection on what United would get if floated on the market.

There are already several clubs which are publicly listed and with anyprospective market action it is appropriate to take account of your competitors already listed, so in that regard we would look at Arsenal Holdings. Arsenal are currently the poster child of good football financial management, they have debt but it’s interest does not cripple the balance sheet and most recently they announced profits before tax of £45m. If we take into account Arsenal’s current ‘value’ and apply the difference in the EBITDA between the two companies Manchester United are currently 40% ahead of their London rivals. If the Glazers were to IPO Manchester United, it would create a large influx of money as the shares are sold, this money would be put to use to clear the ridiculously high interest PIK debt thus scrubbing a significant amount of Interest payments off the books. They could also relieve some of the other debt to leave United with a manageable amount which would be Arsenal-esque . The Glazer’s would not have to give up 100% of the company to make this happen they could do a partial IPO where only 49.9% of the equity is available to the market allowing Red Football to maintain control of the company and reap the rewards of the dividends and cash value of their stake. The problem with this is that with only 49% trading the stock would not trade frequently which leaves the price vulnerable to large increases or decreases caused by trades when they do happen. Whilst an IPO would be best for Manchester United it doesn’t seem the best for the Glazers at this time.

Unfortunately given prevailing market conditions and the sheer size of Manchester United the Glazers cannot cash out now without either transferring the company to another debt loaded consortium or not getting the profits they crave for in a return to market. As long as Manchester United stay in the Glazer’s hands fans will continue to see large losses on the balance sheets and interesting coincidences in transfer policy to quote, once more, SwissRamble:

“It will not have escaped those observers who are good with figures that the annual interest payment of £42 million plus the once-off £41 million paid for the bond issue add up to a sum that is horribly similar to the £81 million received last year when Cristiano Ronaldo was sold to Real Madrid. Fancy footwork on the wing replaced by fancy footwork on the balance sheet – how do you like them apples?”

They may not be in court but the Glazers are playing a dangerous game in how long they are holding on to Manchester United – their goal get’s increasingly further away the longer they allow debts to increase whilst the match day revenues (the largest revenues on the books) peak. With another protest lined up for the Tottenham game on the 30th of October the pressure will continue on the owners to leave.

With the choice between another debt heavy private sale or a beneficial but not very profitable IPO, How will the Glazer’s leave United? Not well.

Finally on a personal note, if you enjoy my writing which has included the articles hotlinked to these words and you have the disposable time then could you vote for me on part 5 at the Not 100% Football Blogger Awards. You can also follow me @kipp9 on twitter.

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19 Responses to How Will The Glazers Leave United?

  1. Chunky says:

    My God!
    O know I knew it but it didn’t take the world of hacks to get onto ManU now that their bread and butter ( namely LFC) has solved its problems.
    Like bloody vultures indeed!

    • Chris McQuade says:

      Could do with the fact United released their financial results last week and american owners are in the news because of debt.

  2. Paul says:

    They won’t be leaving, they’re running it well, if they weren’t Fergie would have said there was a prob, the team is packed with talent, and lots of money has been spent, the ground fills week in week out, it might have been bought with borrowed money but thats the owners problem, the team isn’t affected, if anything we’ll see whether Fergies as good a manager as the likes of Wenger or whether he needs bags of money to build a championship winning side, he’s always been given a fortune to spend (Rooney, Ferdinand, Veron, Hargreves, Nani, Anderson, Hernandez) the list goes on, right back to breaking transfer record of £3.75m for Roy Keane

    • Chris McQuade says:

      I think making losses doesn’t count as ‘running it well’. It certainly isn’t a disaster nor a Real Madrid but I think they will leave, at some point to make their profit. They don’t make much sitting on their hands and enjoying the football.

    • japaneseink says:

      The owner’s debt definitely has an effect on the club. If they are out to make money solely they will definitely alienate the fan base at some point just like the liverpool ownership did. You cannot raise prices and cut players in an effort to make money. I live in a city Baltimore in the USA that has a baseball team the Orioles whose owner managed to take a once proud baseball franchise and turned it into a worthless club. When money becomes the bottom line then the business of competing is secondary to the financial well being of the holding company.

      I think the massive debt the team is carrying because of the LBO will definitely in the end affect their ability to buy players and will eventually trickle down to the pitch if not kept in check. How could it not? That is exactly what happened with liverpool no? When a club starts to find areas to trim spending how long before that trickles down to the team on the pitch? I mean if you have raised ticket prices and tapped every available revenue stream what else can you cut? Most business start cutting employees first and if the Glazers are running MUFC like a business then logic would dictate this is what they will eventually due if that debt becomes a big enough burden. One only need look at the Tampa Bay Buccaneers to see what their ownership has done. They took a super bowl winning club and turned it into one of the worst clubs over the last several years. Look at their record this year in the NFL. I hope Manchester United doesn’t suffer I real do because its a shame when proud teams are ruined by the avarice of people in suits.

    • Robert says:

      The only thing longer than this run-on sentence is United’s debt sheet.

  3. Jerry says:

    “the likelihood of United dropping out of the top 4 is so remote as to be negligible”

    Really? That’s a bold statement given Fergie won’t be around forever.

    Hubris is a dangerous thing.

    • Chris McQuade says:

      It has been 20 years since United finished lower than 3rd. I’d say that it’s a reasonable assumption to make.

      • Jerry says:

        And it was 26 years before that, that they last won a league title.

        Past performance is no guarantee of future results.

      • Jerry says:

        And it was 26 years before that, that United previously won a league title.

        Past performance is no indication of future resuts.

  4. TG says:

    Utd are a sinking ship who will do well the finish top 4, the Scousers are sorted but what happens to Utd???????

  5. Maw4bc says:

    Doesn’t every owner by a club to make money?h these people are rich fora reason they aren’t going to buy a team and try to lose money. Every owner buys the team to make a profit.

    • Chris McQuade says:

      Sheikh Mansour, Roman Abrahmovic, Flavio Briatore – Need I go on?

      • maw4bc says:

        With the first two you are talking about one of the top 30 wealthiest people in the world. Both of those owners know by spending a ton of money they will end up making money when they sell the team in the next 10-15 years. Value of teams will be worth way more by then.

        Abrahmovic is not wasting money, he made Chelsea one of the most recognizable teams on the planet now. He will absolutely make money whenever he sells the team. These people don’t just throw away money.

  6. Tony Butterworth says:

    Listen to the latest Times The Game podcast for info on how Ferguson is complicit in the Glazers take over. He’s not an innocent bystander, nor is he “happy with them”. He was responsible for their takeover, due to his dispute with McManus and he firmly aligned himself with them. He chose not to use his position to make a stand and cannot be given a pass on all this.

  7. nc says:

    Haven’t gotten through this whole thing yet, so maybe it was already stated. The concept is simple. As a seller of a business the purchase price is based on the Net Present Value of Future Cash Flows. The large drivers of course being revenues and Operating costs. The models which determine are based on current performance in small part but rely heavily on projections. The debt is a non factor really for the Glazers. If they can put together sound models which show a NPV of Future cash flows in excess of their debt, then they aren’t in trouble from the standpoint of their investment. The trick will be to find a buyer with the cash needed. Clearly ManU fans are frigthened by the debt/equity ratio of the Company, but any new owner may approach a purchase in a similar manner.

  8. Charles says:

    United will be fine, because if their financial position gets worse the Glazers will have to sell, and as the most valuable franchise in all of sport, there won’t be a shortage of well-heeled buyers to buy them.

    Anyone who thinks they are in decline needs to look at the standings — third on the table — and that with Valencia out and Rooney playing like a third-rate piker all year. Lesser clubs would not have a Berbatov or a Hernandez to help fill Rooney’s gap, not to mention the likes of a Ryan Giggs. When Rooney returns to form, they’ll still have all of those aforementioned weapons as well as one of the most fearless and dynamic players in the Premiership.

  9. Lyle says:

    They ain’t going to be leaving.

  10. Smokey Bacon says:

    United ARE in decline. When the money you get for selling your best player is used exclusively to service debt then the game is up. There are no more Ronaldo’s left to sell to keep the ship afloat. If the global recession continues, the Glazers financial position means they will likely be forced to sell more assets. Its a question of which one goes first, the Bucs or United. There are buyers out there but who is going to want to pay $1.5B for a debt laden operation. The smart money will wait for the inevitable fire sale. Unfortunately, I suspect United will be mid-table and Fergie in retirement by then.

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