May 06
The Glazer Debt — Dark Truth or Mere Paranoia?
Ever since the Glazers took over Manchester United Football Club, plunging it into severe debt — on a scale as large as they come — there was hardly much to cheer about if you were a United fan; at least in the early days. The first full ‘Glazer year’ in charge was the unfolding of, what many fans thought to be, the end of the world for United; a Carling Cup win and a limp Champions’ League campaign that saw us knocked out of the group stages was just too hard to bear. Not to mention the departure of a certain Roy Keane and a pasting at the hands of Middlesbrough.
The Guardian ran a piece today, revealing that the club has suffered losses despite the rosy pictures painted earlier, on the club’s financial position.
The success from 2006, till date, has gone some distance papering over possible cracks in the Glazer business model. My stance on the Glazer situation is one of ambivalence. Initially I was horrified when I heard of the amount of debts that the Glazers planned to drown our club in. It really felt unnecessary given the club were actually among the few clubs that made a healthy profit out of football. There really was no need for this, I thought.
Of course, what we fans think these days matters for little and I had to accept that the Glazers were going to be running the show, whether I liked it or not. But somethings never change and I continued to stay faithful to the club I loved. Last season’s title win and a semi final finish in the Champions’ League brought renewed cheer and belief back in the club. But at the back of my head there was this constant thought that now, more than ever before, this success is absolutely necessary for the club. Note the difference here: as a fan I crave for the success of my club, but now, it is necessary that my club remains successful. This point was also raised and addressed by Scott on his blog.
Of course there are things about the Glazers that I like which makes me conclude that surely there has got to be some sound business sense that went into buying the club and drowning it in debt, in the first place: at least they [the Glazers] are not Abramovich who meddled in team selection and forced certain players on the manager; at least they are not Gillett and Hicks who, after an initial PR offensive, moved to undermine the manager’s authority and just fought among themselves like school children; at least they are not Thaksin Shinawatra, who thinks Sven is shite even though he’s turned Man City around almost overnight. The Glazers trusted Gill and SAF fit enough to handle footballing matters and stayed out of the spotlight — credit to them.
If you are one for the numbers, though, let me quote some lines from the Guardian article:
David Gill, United’s chief executive, announced the headline results back in January, stressing that United’s phenomenal money-making power, with 76,000 crowding into Old Trafford and the Premier League’s huge TV rights deals, had produced record income of £210m and operating profits of £75m. The full accounts show, however, that even though United made a further £11m profit from buying and selling players, the interest and other accounting provisions pushed United into recording an overall loss of £58m.
Now there is no source really to back this up, and United is a private organisation that does not need to reveal its accounts. So there is really no way to judge the veracity of this article’s claim. But let us assume that this was wrong, and that our financial standing is healthy. Let me now quote some excerpts from a Glazer family spokesperson:
“The family continue to run United as a business. Their model is to encourage success on the pitch by backing Sir Alex Ferguson, and to grow revenues off it. The interest payments are more than covered by the cash generated.”
[Update: From the comments, it appears that reports, of there being a report, are true. Here are links to them in case you are interested: Link1 Link2 Link3 and Link4. Cheers Penguin]
I have no issues with the ‘family continue to run United as a business’ part. What worries me is that the business is run based on trusting Sir Alex’s judgement. Now this is certainly a noble thought. Backing a manager is good. But then a manager of SAF’s calibre has earned it over years of success. With the Glazer debt likely to be written off by the year 2016, at best, they would have to run the best part of their debt paying years in the club trusting the judgement of a new manager as it won’t be too long before the gaffer decides to call it a day.
What if, the new manager struggles to fill the shoes of his illustrious predecessor — which is of course certainly possible? What if the new manager endures a rough couple of seasons. Wouldn’t this drain in success hurt the club’s ability to pay off debts in time? The worldwide credit crunch has certainly dented many markets, particularly the American market which has forced the Glazers to put off any refinancing packages. But businessmen should have contingency plans in place to tackle such situations.
Moreover, reliance on success on the pitch demands either of two things: (1) identifying cheap world class talent, ala Fabregas, and build a world class team; or, (2) buying big to keep pace with the other big spending clubs, which would mean a reduction in profit margins for the club.
The former option would, on first glance, appear to be the best business idea, but the toughest to achieve because it is very hit and miss. The second is a much more assured plan but, again, cuts into margins. To their credit, SAF and Queiroz with their scouts have hit upon a middle ground by snapping up good young players rather than the more expensive ‘finished product’ with a reasonable degree of success — which is all good, as far as there is trust in the scouting structure in place.
At the end of the day a change in manager, and a prolonged dip in success, would really show up the kind of business model the club is run on.
But till then, we should come to terms with the stark reality that we need United to be more successful than we want them to.
I may have painted a very grim picture on the club, but it is something that has been eating away in my head and hence I had to address it. So I’ll hand this over to you to draw your own conclusions and throw some more light on what you think to be the Glazer model.
Related items from Red Rants:
- United’s debt situation explained
- Media Avalanche of Glazer-Debt Stories Gathers Pace
- No Smoke Without Fire at Old Trafford?
- The Glazer Financial Breakdown
- David Gill’s “Out of Context” Cop-Out
Tags: Manchester United News
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RR
Good article, and I agree with the majority of what you say, especially about Fergie and Queiroz having found the middle ground as regards spending. I’ll go away and pore over the article in more detail later.
However, a couple of points of fact:
1) in the UK, private companies are also legally required to publish their accounts. You or I can download them whenever we choose for a few quid from the UK Companies House website. I’m not actually going to do that, but I think it’s safe to say that the 2007 accounts do in fact say what the Guardian claims they do.
2) the accounts (as shown on the website) are for the year ending 30 June 2007. That is standard practice, and means that nothing that has occurred in the last 12 months is reflected, including the improved TV rights package that we are benefiting from, any initial outlay on players, the revenue from our run in Europe, etc.
3) accounting standards (ie the rules which govern what you have to put into your accounts) compel you to to deduct certain “reserves” from your overall profit to allow for liabilities that “are more likely than not to become payable”. Therefore much of the accounting provisions which push Red Football Limited into an accounting loss are likely to be payments which we have not yet made but are going to or may have to make. Can’t tell you more without downloading the accounts, which I don’t care to do. If anyone does, though, stick them on something like megaupload, and I’d enjoy scrutinising them myself.
Bearing these things in mind, I would suggest that the Guardian have made a mountain out of a molehill – don’t know if that’s any comfort.
(Summary for those not into legal detail – accounts are public, but are a year out of date and legally have to be pessimistic, so it’s not as bad as it looks.)
(Summary of summary (!) – mere paranoia)
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Everytime i see this unconfirmed reports my heart sinks,Are things really that bad?Surely if they were that bad the glazers should have run helter skelter by now,selling it off to dubai capital or some rich russian oligrach?.Or we would be selling our best players ala Leeds,Surely Real’s alleged 100m pound Bid for Ronaldo would not have been scoffed at if we were in such dire straits??? Hmmm i wonder if we don’t have the complete picture??
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Addendum:
Good article from the Telegraph website a few months back explaining in more detail why the numbers aren’t as bad as they sound and are moving in the right direction.
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Further addendum – someone has already uploaded the accounts onto the net for the four companies in the Glazer group. The top company is Red Football Limited, which includes all the data from other other companies, so best to look at that one alone if you’re going to. You’ve got to have a real interest in the detail to go into the others, but I’ll post them anyway.
Red Football Limited accounts
Red Football Shareholder Limited accounts
Red Football Joint Venture Limited accounts
Red Football Junior Limited accounts
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Further addendum (sorry for flooding the topic slightly!) and you’re all going to love this.
One of the four key strategies in the Glazers’ business model as stated in the accounts is “treating fans as customers”.
The others are “maintaining playing success”, “leveraging the global brand” and “developing club media rights”.
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Things can’t be as bad as that financial report says. Forbes said ManU is the richest football club, rite?
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i dont think anything will go rong but if it does, we can always support FC United of Manchester!
just joking…
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A few points:
1.As Penguin says, the accounts mentioned are for a year ago.
2. The article doesn’t mention what the accounting provisions are that have contributed to the loss
3. Interest payments offer tax shields – could be that the Glazers are massaging the accounts for tax purposes.
There is always room for ambiguity in a statement of accounts – so, I would not hit the panic button just yet.
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Neil – point 3 is a good one, which I missed.
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Dun think we need to worry on this ….even if we sinks…there will eb some consortiums to chip in adn buy the club(LIke dubai..iranium)…After all Who wouldnt want to buy Man united..the rcihest club in the world ????? as fans and club we are always safe..so no worries
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penguin – sent you an email, if you don’t get it (the email) or have any problem in downloading the report then hit me up here.
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Wigan are going out for their annual booze-up tonight…hope they have a great time!
http://www.wiganlatics.premiumtv.co.uk/page/ClubNews/0,,10429~1306428,00.html
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Is there someone interested on buying a ticket for UEFA Champions League Final in Moscow. I’ve one of Category 2, for the UEFA lottery assigment. The prize is 600 euros. And my e-mail is mandres1@xtec.cat
Is your last opportunity!!
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whoops – sorry penguin, that comment with the links was in moderation so didnt see it till now.
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in other news… nani has apologised to one and all, except the headbutted neil for his actions… he states he was provoked…
anyway hopefuly he follows all the other man utd players who have had to face adversity and turns in a great season next year….
i forgive easy…….
hahaha also the issue man utd is facing, with debt and credit crunch caused by the subprime issue is actually an assignment i am working on…
i can agree and support the previous statements about our situation being healthy… its just paranoia, companys are more complex than just profits and losses….
we should be fine
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this hatred and paranoia about the glazers has been a little over done. Before I start my rant I am going to make a disclaimer. I am an American who has never been to a match(or Manchester for that matter) I have only been a fan for a little under a year. I say this cause I realize that I dont have as much invested in the club as others on this board both emotionally and economically.
It really annoys me to hear the constant bashing of the glazers. Yes they aren’t true fans and yes they are all about money. But from my point that is a plus for us. Because they dont know football they dont get involved with that aspect. One of the marks of a smart person is when they know they are out of their depth. Iike they said earlier they have faith in ferguson and will back him. I think all concerns about money should have been erased when fergie bought carrick, Hargreaves, nani, Anderson and soon to be tevez without the sign of a struggle from the board.
I have noticed from the British press and peoples rants, that there is a perception that Americans who buy these clubs dont truly understand the cost of the players, this is absurd. Look at our 3 top sports American football, basketball and baseball. The money spent on players Is unbelievable. Take my beloved trail blazers they are paying raef lafrentz more per year than ronaldinho, and he is lucky to play more than 5 minutes a game.
I would rent longer but I’m sure you all have better things to do do let me wrap it up.
The glazers are not perfect and they dont know all, but if you look at their wealth its pretty safe go assume they know about money. They bought this club as a way to make more money, and I dont think they bought it on impulse. I’m sure they ran the numbers over and again an saw they could make money off it. They knew about salaries, player transfers and the much dreaded interest payments before they bought it.
Sorry for ranting, and l hope we crush Chelsea in Moscow.
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Hey Grog, do you except Nani’s apology or do you still think we should ship him out. Just messing with you man.
You’ll all be happy to know I had dream last night that we won the final 2-0. And from what I remember the Ginger Prince scores the second. So here’s to my dreams coming true!!!
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These anomalies are going to keep showing up in the United books for a number of years until the Glazer’s pay off their debt. In America they have a track record of doing the very same thing with other purchases like the Tampa Bay Buccaneers of the NFL and that debt was eventually paid off. They operate by the very sound business practice that counts rule number 1 as simply “use other people’s money, and never your own”. If push comes to shove they do have the wealth to bail themselves out so unlike the morons in Liverpool, I think this family does have a clue on how to operate successfully with the occasional loss. They are probably also taking advantage of tax loopholes by reporting a loss. With that said, I think our transfer kitty is going to be very small this year and we can all forget about buying Huntelaar or any other high priced striker this year. No wonder the name Dean Ashton has come up.
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well grogy
We might even need to offer a couple of million alongwith him to offload him!) he is useless and always in the sickbay (are there any hot nurses there in the ward by any chance?)
the one striker signing this year could most probably be permanent deal for tevez sometime during the season (as he is only on loan at the moment and has done enough to impress fergie). At 20m he is gonna be the big signing of the season. The other signing I can visualise is experienced left back (cover for Evra) Brown deal and Neville’s return means probably right back is covered well. I agree we might not see much of transfer activity (and people shud forget about benzema/huntelaar. there is no money for that to happen!) given the debts, spening 40-50m every season is not at all feasible for us!
I still believe we’ll have Saha next season as well (as we cant offload him
On the other hand not spending much could be a boon for some of the home grown youngsters as they might get chance to show how good they are.
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grognard what planet are you on serious get into the real world, hunteleer is vastly overated and benzama has done nothing to think he is a world class player plus he has just signed a new contract with lyon. who are you going to drop rooney tevez I dont think so, you have to mix it up between certain starters and forwards who can come in and do a job, you cant have three top forwards who all first 11 players. I hate the glazers with a passion but I see fergie making two signings plus the team is alrady there. I would rather tevez in my 11 then hunteler and benzama.
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mark my words, if fergie feels he needs a player the money will be there.
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At first, we should understand that there will never be the next Sir Alex Ferguson as there will never be the New Maradona or Henry etc.
Well, the success of this club -the last 20 years- is due to its manager deep knoledge of football , football market and players mentallity.He has proved himself as the best.The best in buying, managing, game preparation , scouting and all these things mourinho and wenger do (combined of course). That’s why we are the best football club in England.
If he retires there are many choicies buth whic is the best? He should be a british international footballer who loves the club and knows the current market or a very good trainer,who is “very professional” , knows the tactics very well and can add these elements to our play.Keegan? No. Rennee Mulensteen ? No,unproven. With a few words the next manager should be Queiroz or Keane.
Maybe if we combine them it should be the best for the club. Have you ever seen Keano sitting on the bench? The same look that SAF has. Have you ever seen Queiroz training the team. (neither did I) . So combine them (i don’t care who will be the manager and who the assistant ) Just combine them.
And then who cares for the debt. Keano is the only one who knows what Manchester-as-a-TEAM means and Queiroz is the only one in the world that is Manchester quality proven. Plus he can get us those Andersons and Nanis more often.
So, we have a very good combination of Head coaches buth the only problem is that we don’t who can afford being the second. Keano or Queiroz? Even if Queiroz leaves , SAF will be there for Keano and recommend him another assistant such as Renee.
Who else thinks that these two coaches can keep the reddevs 1st in England – top in Europe?
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Was a little bored, so I surfed in the net a little. Found this, its long but awsome! http://www.youtube.com/watch?v=at-QeQLN4xQ
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interesting names on that vid. im a bit worried if the future of football is in denilson and milner…
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Something just sprung to my mind! Fergie always says that 1-0 results win the league, butif we win the Prem this season it will be because of our 4-0s and 3-0s.
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Nikos; You stole my idea about using Carlos Queiroz and Roy Keane as a team, using Roy Keane’s ability to command respect and motivate players and Carlos Queiroz’s formidable connections with Portuguese football and his great tactical knowledge, I think they would be a great team. As I feel that Carlos as a manager on his own could quite easily lose the dressing room if times get rough as he doesn’t have SAF’s ability to motivate players when they really need it.
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Between the Devils and the Deep Blue Sea…
Although we were plunged in to debt when the take over was completed, I am glad to hear that Manchester United are making money, in this era that is what all football has become. Not for the fans or the playing staff but the owners and sponsers that seem to leak in to the smallest of places. I am sure if Nike could they’d advertise their brand on shirt buttons and I am also certain that the Glazers are only in this to make themselves money.
However, I am grateful this is the case. The Glazers for all of the concern surrounding them have been in this business for a long time. I would feel totally different about the take over had Manchester United gone down the same road as Chelsea, Liverpool and more recently Man City.
Abromovich, Hicks/Gillett, Shinawatra… they are names that make me despise the clubs I hate even more but in a way feel sorry for them. Sven, Sven, Sven has just taken his club on their best ever season and Jose won back to back titles as well as plenty of domestic cups at Chelsea and Liverpool (YSB) who started the season quite well have seen an unnecessary amount of pressure built up on their manager by who? Their owners, people who know nothing about the game coming in with their money and as soon as they get bored with their new toys they are on the scrap heap waithing to be replaced by something else with a shelf life no longer than the previous victims.
I think the way the Glazers have stayed out of the way and let the club deal with certain things is respectable to a certain level but any one else would believe it’s the least they could do after buying our club and putting it is such difficult circumstances.
The positive things are the way our club is fighting on all fronts once more, the players at this club are here for the long run and we have the quality to become bigger and better as the years go on, the money being invested in new players keeps our club exciting from a fans point of view.
especially in the short run..
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Just a thought but do you guys think that McLeish is a good manager? I feel that just like Fergie he is a motivator and can do a lot for a team’s confidence. I believe that if he or Roy Keane took over at United with Quieroz running the tactics we could be great.
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Great Article RR, I remember in the British Element comments section we started discussing the Glazer deal. I have to say that the debt is the most frustrating aspect of allowing those Florida Fucks to get our club. Prior to their takeover ManUtd was an exemplary model of Football Managment spearhead by Fergie until the Glazers decided to take United over in ludacriously leveraged deal. However I do have to say that should Man Utd needed to raise funds in case of a need to service the debt they can always put the Club back on the market and issue stock.
The PLC model that existed before was great because it provided a steady stream of cash through stock proceeds and the profit margins generated maintained a healthy current ratio. So while it was fucked up that Glazer bought Man Utd essentially with its own money, its not a dire situation as it seems.
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As a banker, I can say that the financials are not as bad as the press have said they are. As a couple of you have correctly pointed out, these are historical numbers detailing last season’s performance. It’s more than 10 months since and things have certainly improved since then. Here are a few points for everyone to take note:
1) Revenue is certainly going to increase for 2007/2008 because of better TV rights deals. I was involved in the negotiations in one of these Premier League rights deals in Asia where there were record contracts signed for this season and the next two. In addition, match day revenue would also increase due to higher ticket prices this season. Finally, prize money for the EPL / CL should also increase if we were to win.
2) Operating expenses actually declined despite a 21% increase in revenue, which means that the club has kept costs low. This was due partly to lower wages and salaries. However, this could increase this season because of our 4 new players (partly offset by the departures of Alan Smith, Ole, etc).
3) EBITDA (an approximation of cash inflow) actually doubled from the previous season to 75m. Given a reported bank debt of 515m, the Debt to EBITDA is about 6.9x, which is typical in leveraged finance loans involving acquisitions. Do note that the total debt figure of 600m being thrown around includes trade debt incurred as part of day-to-day business.
4) The value of the club remains significantly intact – at least according to the balance sheet. The club’s fixed assets (which includes Old Trafford and Carrington) have a book value of 250m, while the book value of our players are worth another 123m. Do note that these are book value figures, and as someone pointed out, do not reflect the actual market value of the players we actually own. I’ll let you figure out how much Ronaldo and co are worth in the market.
5) Finally, the equity base of the club is almost 480m, translating to a Debt to Equity ratio of 1.1x. This is slightly high but again reasonable in typical leveraged finance transactions. What this also means is that for every dollar the Glazers have invested in the club, they are borrowing about 1.1 dollars to own the club.
Again, from a banker’s perspective, the only issue appears to be interest / debt service coverage – how much cash the club can generate to service its interest and principal repayments. The good thing is that loan repayments amount to only 12-13m till June 2009, which the club should be able to support. By then, hopefully, the sub-prime crisis will be well over and the Glazers would be able to refinance the debt at lower interest costs.
Bottomline – don’t worry!
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A side note: Forbes said we were the most valuable club in the world, not the richest. They do mean slightly different things. The value of a club takes into account the physical / tangible assets as well as the intangibles including the branding. Riches or wealth implies the cash / investments / assets the club has, less the amount of debt taken to accumulate those assets. In that respect, we may not be as well off.
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RR, you talk of the risk of the Glazer’s providing the same level of support to Fergie’s replacement as they give Fergie – isn’t this a good thing? We can’t criticize Abramovich and co. for meddling with footballing matters and then fret over the Glazers NOT doing so.
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To add to the above post, what I’m trying to say is that once you do pick a manager, you have to back him to the hilt – and as far as him potentially not being successful, well, that’s a leap of faith we have no choice but to take
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[Neil]
What I am saying is that the Glazers’, for all their reputation as ruthless businessmen, are essentially basing their business plan on the judgement of one man — i.e., the manager. Their intent is for ‘success on the pitch based on the manager’s judgement’. Now for footballing purposes it is perfect. But not for a business. No business is meant to run based on one man’s judgement. SAF’s stellar record and excellent judgement is not something that can be easily replaced. It’s not just being able to buy great players. It’s also his ability to manage the egos. The Glazers have been lucky in a way because they (and we) are blessed with the greatest British manager the club has had.
Take the case of Arsenal. Wenger has the full support of their board. But their debt being a more manageable £ 250m odd is serviceable (with the more expensive Emirates stadium) even with moderate success. They don’t have to win the League every year or reach the later stages of the Champions’ League to stay without fear of going tits up from a business point of view.
We, on the other hand, absolutely need sustained success to be on track to pay off our debts by the proposed date. It’s fine now, but it would be more instructive to see how they remain patient if a new manager were to come in and take time to settle. Would they necessarily show the same patience as they could with Fergie?
Note, I am not spelling doom and gloom. Far from it. Take the article as more of a cautionary tale at worst.
To conclude, from a purely business point of view, there is far too much at stake in terms of debts to base ones’ business plan purely on the word of a manager. It is counterintuitive if you see it from football as such, but the amount of debt taken to buy the club still doesn’t make sense to me till date.
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RR,
Point taken – I guess we will see what the Glazers really are in the way they behave with the new manager, as we can expect a difficult season or two in the aftermath of Fergies’s departure
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Really good post, Redd75 – thanks.
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http://www.youtube.com/watch?v=qafb6AP3hS0&watch_response
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To clarify and continue on what the banker said you cannot see the 600m as Glazier debt only. A good part of it is trade debt, which means that this figure includes invoices from vendors that are not yet paid. From a financial pov it is good to have a lot of this since this type of debt does not bear interest and means that you have good working capital management
Furthermore, I’m not entirely sure the debt will be paid in full as debt is a good way to spread the financial risk. As the banker pointed out, the solidity of Utd is rather close to 50% which is pretty high for a leveraged take-over/buy-out. Look at it this way, stockholders (Glaziers) generally want a higher rate of return than the banks, and both loan their money to Utd, so it is actually cheaper to use bank debt than stockholder money.
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Conor, I’m happy we agree. Nobody stole yoor idea , cause I don’t really have an acount for that site.Anyway,what we say is very logical. We can’t have Mark Hughes or Steve Bruce cause they are already proved managers. But , we can have Keano cause his heart still belongs to the red devils and he can leave Sunderland for Manchester. Then he will be the assistant manager and will have to create his own atmosphere in the dressing room. Well, “his atmosphere” seems to be like SAF’s mentality.
That’s why SAF let him take some half time talk few years ago.
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Johnsom33: do you live in the rose city?
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