Tag Debt

Tag Debt

Family debt: the Glazers not yet moved to invest

November 17, 2013 Tags: , , Opinion 15 comments
featured image

It has taken, by any reasonable assessment, just shy of £700 million in interest, repayments and fees, three refinancing rounds, and countless intrigue, but Manchester United’s huge corporate debt is finally under a modicum control. There have been times, many of them, when the day seemed unlikely.

Not that United is debt free – far from it, in fact, with more than £360 million still on the club’s books. But with annual debt interest now down to £20 million per year, the club is heamorrhaging the equivalent of just the one international-class signing per season, rather than four.

It poses an interesting scenario. With United’s corporate imperative no longer financial survival, there is the theoretical possibility that the Glazer family could finally unleash United’s revenue generating potential, investing in the club both on and off the pitch. After all, United’s cash-generation has never been stronger, while there is plenty of equity still to be released should the family issue more shares, as is believed likely.

History, of course, says supporters should throw that logic to the wind. After all, the family has a record of placing its own financial requirements first; United’s a distant question. The club’s August 2011 IPO in New York is a case in point, with the family backtracking on an initial promise to retain the proceeds within the club.

Yet, the question of investment is now on executive vice chairman Ed Woodward’s desk. The 40-year-old is juggling debt, the club’s rampant commercial drive, and the inexorable rise of wage inflation, as the Reds ponder moves in the January transfer window.

Still, United’s Q1 figures issued this week demonstrate strong revenue growth – up 29.1 per cent to £98 million for the first quarter of the financial year. Commercial income rose 62.6 per cent on the back of a dozen new sponsorship deals, while record Premier League broadcast rights income, and the summer season-ticket influx contributed to a surge in turnover. United reported operating cash flow of £32.3 million in Q1 and cash profits before transfers up 36 per cent to £22.2 million.

The Premier League’s £3 billion deal for domestic rights, which represents a 70 per cent increase on the previous contract, has significantly bolstered United’s coffers. And this is a bubble not yet ready to burst: BT Sport’s victory in outbidding Sky for Champions League rights is likely to ensure English clubs earn an extra £10-£15 million each annually from 2015. BT will pay £900 million for Champions and Europa League matches over three years.

“Sport is the ‘must-have’ content, its value has grown dramatically,” said Woodward, speaking to investors on Thursday.

“We are excited by the continuing rise in the value of sports content, evidenced, amongst other things, by the recently announced BT deal for the UK rights to broadcast the Champions League and Europa League matches. This deal represents a meaningful increase over the current arrangement.”

Players continue to be the principle winners of the rights inflation though, with United’s staff costs rising by 31 per cent to £52.9 million in Q1. UEFA’s financial fair play rules are yet to bring deflationary pressure on salaries it seems, although Woodward argued that “a fall in the acceleration around player wage growth” is now being felt in the Premier League. Just not at Old Trafford.

Yet, it is debt not wages that has most afflicted United since the Glazer takeover. Obligations still run to £361 million, although debt service costs have fallen on yet another round of refinancing. United owes around £200 million in bank debt, at a rate fixed between three and four per cent interest, with the rest in bonds at almost nine per cent.

By the time United is free from arrears, if ever, the club will have wasted more than £1 billion on the Americans’ debt.

Still, with more than £80 million in cash sitting in the club’s bank account at the end of the quarter, supporters may ponder not only transfer market muscle finally being flexed, but investment in a stadium that has remained largely unchanged since the family took control in 2005, notwithstanding commitments made prior the family’s arrival in Manchester.

Indeed, the argument for new spending on the pitch is strong given the club’s rocky start to the new season under manager David Moyes. The Scot presumably still hankers for a new left-back and high-quality central midfielder.

Whether Woodward has the will or means to secure new acquisitions is a question that will only be answered at the end of January. Certainly, supporters expect a far more professional approach to the market, whether substantial cash is spent, or not.

Meanwhile, the Manchester United Supporters Trust (MUST) is actively pressing the club to invest in new infrastructure. Woodward’s arrival has re-opened lines of communication between principal supporters’ groups and the club, with MUST and the Independent Manchester United Supporters Association (IMUSA) previously ostracised by Sir Alex Ferguson and David Gill.

While MUST chief executive Duncan Drasdo’s recent meeting with Woodward remains off-the-record, the group is believed to have pressed for the introduction of German-style rail seats, potentially – and controversially – part-funded by supporter investment in new shares.

“We’re interested in exploring ways to progress introducing a section of these seats,” Drasdo told the Independent this week.

“We can see potential for fans who wish to, to invest in shares in the club, with the funds ring-fenced for specific purposes such as rail seats or stadium expansion. It would be an excellent demonstration of the value which can be derived from fans investing in and sharing ownership in their club.”

“The cooperation and the participation of fans in the ownership of the club brings an improvement to the atmosphere as well a financial benefits to the club.”

In MUST’s call there is some wry humour. While Old Trafford’s bean counters posted record financials, just eight miles to the north east, FC United of Manchester broke ground on a new stadium at Moston this month. Set to open August 2014, the community-funded 5,000 capacity venue will be FC’s first permanent home, nine years after the club was formed in the wake of the Glazers’ arrival.

Moston Community Stadium will cost £5.5 million to construct, with £2.5 raised by supporters, and the rest granted by Sport England, the Football Foundation, Manchester City Council and Manchester College. It is the kind of kind of community effort actively shunned by big brother to the south.

The irony in big United turning a financial corner, after eight years and £680 million wasted, is surely not lost on those in Moston. Whether security now pushes United to invest in team and stadium is open to question. After all this time, few supporters will bank on it.

Glazer SEC filing exposes cloak and dagger strategy

July 5, 2012 Tags: , , Opinion 85 comments

One thing can be said for the Glazer family: they’re happy to go a long way to keep a secret. More than four and a half thousand miles from Manchester United’s base at Old Trafford, to the corporate tax haven on Grand Cayman in the Caribbean Sea, to be precise. But while the Americans seek to minimise future tax burdens and public scrutiny, in a corporate reorganisation prompted by a US-based stock market float this summer, the Glazers have also revealed more of their dubious business model, including, for the first time an admission that the club’s “indebtedness” is a burden.

United’s official announcement, Tuesday, that the club is seeking to float on the New York Stock Exchange (NYSE) came as the company filed statutory Initial Public Offering (IPO) papers in the US. These papers, which form a legally binding contact with potential investors, offer some insight both into the club’s financial model, and the extent to which United’s £443 million debt has finally triggered the Glazer family into action after six years in which the club has haemorrhaged more than £500 million on interest, debt repayments and other costs.

While the number of shares to be offered and the “price range for the proposed offering” have not yet been determined, the family is potentially seeking hundreds of millions of dollars for a minority stake in the club. Indeed, while the club had been seeking up to $1 billion in the now abandoned Singapore float, a $100 million figure widely quoted in the media is little more than a placeholder for a much larger NYSE offering that must take place within the next 90 days.

Bookrunners for the proposed IPO include medium-sized investment bank Jefferies, who will lead an offering far larger than any it has previously underwritten. Credit Suisse Securities, JP Morgan, Bank of America Merrill Lynch, and Deutsche Bank Securities are also in on the float. And it is these banks that will lead marketing for the float over the next three months, drumming up support for an IPO that will reorganise the Glazers’ myriad of holding companies, and split United’s ownership structure for the first time since 2005.

The family will move United’s ultimate base to the super-secretive tax haven Cayman Islands, while as has been previously mooted, the Glazers intend to offer only class A shares to the market, with Malcolm Glazer and “his six lineal descendants” retaining a majority stake of class B shares that hold 10 times the voting power.

The filing with the US Securities and Exchange Commission (SEC) makes clear that investors in United’s IPO with neither get significant voting rights nor any future dividends from the offering. Investors can hope only to gain through future capital gains if United’s operating profit grows in the coming years.

Underpinning the listing is the family’s belief that United’s global appeal will reap financial rewards. The IPO prospectus makes much of the recent ‘study’ that United is “followed” by 659 million people globally, with, says the filing, a popular Facebook page that boasts more than 26 million connections.

Future growth is likely to be based on a triumvirate of financial streams: broadcasting revenues, commercial income and matchday sales.

United’s revenues have grown under the Glazer family’s ownership, with the club listing sponsorship income as rising from £37.2 million in 2009 to almost £55 million in the year ending 30 June 2011. Meanwhile, the club’s very long-term deal with Nike, which is set to be renegotiated by 2015, has grown incrementally from £23.3 million in 2009 to more than £31 million last year.

Similarly new media and mobile revenue has increased, while commercial revenue from sponsors such as Nike, Aon, DHL, Epson, Turkish Airlines and Singha has increased from £66 million three years ago to more than £100 million in 2011.

Together with increasing revenues from domestic and overseas broadcast rights, which the family has little direct control over, United intends to expand its “global retail footprint”, says the club’s SEC document, investing in a “portfolio of product licenses” that will bring United’s brand to an ever great audience.

Whatever the grand plans for financial growth the club also faces challenges in the coming years, underlined in more than 20 pages of sobering – and legally required – risk assessment. Not least the club’s debt, which the Glazer family, chief executive David Gill and Sir Alex Ferguson have routinely claimed has no effect on the business.

No longer, with the SEC document concluding that debt could “adversely affect” the company’s “financial health and competitive position.”

“As of March 31, 2012, we had total indebtedness of £423.3 million,” continues the SEC filing. “Our indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. It could also have effects on our business.”

These effects, concludes the document, may include an impact on the playing team’s competitiveness, especially with some clubs – particularly Chelsea and Manchester City – spending “substantial sums” on transfer fees and salaries. This increased competition, says United, could result in team finishing lower in Premier League than in the past, jeopardising qualification for the Champions League, which would “result in a material reduction in revenue.”

Indeed, United admits that the “ability to attract and retain talented players and coaching staff,” could negatively affect brand and reputation and that “our business is dependent upon our ability to attract and retain key personnel, including players.”

This may go some way to explain United’s acquisition of Japanese international Shinji Kagawa for £17 million this summer, with Ferguson’s side desperately requiring creativity from midfield after a season in which the club finished trophyless, and the Glazers’ business model hinged on global reach. Indeed, United’s “popularity in certain countries or regions may depend, at least in part, on fielding certain players from those countries/regions,” admits the SEC document.

But while many of the risk factors drawn up by the IPO prospectus are unlikely – terrorism, natural disaster, or a downturn in football’s popularity, for example – it is the financials that will concern United fans most. Indeed, the IPO filing demonstrates, not for the first time, just how frequently the club leaks cash due to the Glazer family’s business model, including “£4.8 million in professional advisor fees in connection with the proposed public offering of shares.”

Moreover, the filing also gives some insight into the mysterious repayment of the family’s Payment-in-Kind hedge fund loans, concluding that “£111.1 million of interest payments were made in 2011 in connection with the repayment of our payment in kind loan.”

By contrast the £7.2 million United paid in ‘consultancy fees’, in the fiscal year to 30 June 2011, to Red Football LLC – the Glazers’ holding company – is a drop in the debt ocean. The Glazers also took consultancy fees of £2.9 million in 2009, and £3.1 million in 2010.

The Glazers also drew loans from the club of £10 million between December 2008 and November 2010 at a nominal 5.5 per cent interest, although that is somewhat moot given that the club also paid the family a £10 million dividend in 2012.

Despite the relative transparency of United’s IPO filing, these small morsels of financial information may remain rare, although the club will be required to make quarterly filings with the SEC post-offering. After all “following the offering, we will be a “controlled company” within the meaning of the New York Stock Exchange rules,” states the filing, “and we intend to take advantage of exemptions from certain corporate governance requirements.”

But many eyes will remain on United in the coming weeks as the family gears up for a listing in a tetchy post-Facebook IPO market. And it is the market that will eventually determine whether the Glazer family has struck the right chord with an IPO that offers investors a very limited, and admittedly risky deal.

Should the market buy into the pitch, then United should enter a new far less indebted world in the coming months. After all, the Glazers filing promises to “use all of our net proceeds from this offering to reduce our indebtedness” by exercising options to redeem in aggregate principal senior secured bond notes that are due to mature in 2017.

Whether that leaves United better able to compete remains an open question. After all, while the club may become – if the IPO is successful – far less indebted, it will still be owned and completely controlled by the Glazer family. A family that has taken seven years to conclude that its debt-fuelled takeover was damaging to the club.

Key Takeaways

  • United will offer an as yet undetermined number of shares at an unspecified price on the New York Stock Exchange within the next 90 days
  • The total value is likely to far exceed the $100 million ‘placeholder’ noted in the club’s SEC filing
  • The club “intends” to use all proceeds to pay down debt, which currently stands at £423 million
  • The club will offer only Class A shares that have much reduced voting rights; no dividend will be offered to investors
  • United’s ultimate holding company will be based in the tax haven of Grand Cayman, Cayman Islands
  • United, through a myriad of holding companies, paid more than £111 million in payment-in-kind loan interest in recent years
  • It is estimated by various analysts that the club has spent more than £500 million on debt, interests and other costs associated with the Glazer family’s business model over the past seven years
  • United has finally admitted that “indebtedness” is a risk to the club’s business model and competitiveness, on and off the pitch
  • Despite this, Glazer family took a £10 million loan from the club in 2008-2010, and paid itself a £10 million dividend in 2012.

The Ronaldo Money

February 21, 2012 Tags: , , Opinion 72 comments

Look behind the headlines – you know, the spin-driven articles pronouncing yet another quarter of glorious revenue growth – and Manchester United’s Q2/H1 financial statement once again paints a gaudy picture of the Glazer family’s ownership. It is a picture of a still heavily indebted club spending its profits buying back debt at an inflated prices, while struggling to compete in an increasingly hostile market.

United’s is a story of unfettered waste – millions lost on financing costs, interest and debt repayments; money that could otherwise have been spent in the transfer market, or on reducing ticket prices. It is an account of a club sprinting to stand still; an institution squeezing every last dime out of the market simply to keep the wolves at bay.

The good, the only news United releases and far too many media outlets lap up without question, is that revenues continue to rise – up to £175 million for the past six months, from £156.5 million a year ago – driven largely by increasing in media and commercial income, including the new training kit deal with DHL.

Elsewhere the picture is far from rosy. Operating costs rose to £110 million for the six months, from £96.9 million, as the club struggles to keep wages under control despite multiple summer departures. Wages increased by 17.3 per cent year-on-year, to £38 million during the final quarter of 2011.

Then there is the huge reduction in available cash, down from £150.6 million to £50.9 million, after a net £47 million spend on transfers last summer and further bond buy back.

Indeed, United has now spent more than £90 million on buying back bond debt since launching the £500 million notes in January 2010. That’s the infamous ‘Ronaldo Money’ and more. Season ticket sales this summer will bolster Old Trafford’s coffers, but history says that income may well be used to buy back bonds on the market.

The absurdity of the Glazers’ financial engineering is only truly understood when viewed in the full context of the Glazer family’s time in charge. Bought with debt, the family first loaded millions on to the clubs accounts, only to swap bank debt for – significantly more expensive – bonds in 2010. Now the family is embarking on a campaign to reduce bond debt, buying them back at a premium over the issue price using cash in the club’s bank account.

“Manchester United revenues continue to grow strongly although costs are increasing just as quickly so pretty much negating that growth,” said the Manchester United Supporters’ Trust.

“However the key figures of interest to supporters show the Glazers have now spent every penny of the money received from the sale of Ronaldo, and more. That’s now £92.8 million spent on buying back their own bond debt that they loaded onto our club. So statements at the time that all of the Ronaldo money would be made available for reinvestment were clearly just spin.

“Since the sale of Ronaldo net transfers have totalled just £90 million while they have taken out of the club £225 million to cover their debt payments and interest. What could the club have done with that extra £225m? Cheaper tickets for loyal fans, investing massively in the squad and stadium, developing and retaining the best youth players, competing on an equal basis with the very best teams in Europe. This is the true cost to Manchester United of the Glazers ownership.”

Yet, anger among the United fan base has waned, with too many happy to bury their collective heads in the sand and deny that any of the fundamentals underpinning United are in ill health. After all, Sir Alex Ferguson continues to work miracles even with his hands firmly tied behind his back. Almost inconceivably, United is still in the Premier League title race despite Manchester City’s vast sovereign wealth.

There is no talk about the ‘Ronaldo Money’ now of course – not with it having been spent largely on debt buy-back. Meanwhile, the new signings offer varying degrees of Sir Alex’ favourite quality: value.

But fans should be angry about the close to £500 million squandered by the Glazer regime since 2005, let alone the two hundred million since Cristiano Ronaldo was sold to Real Madrid in summer 2009.

Indeed, buried inside Old Trafford’s second quarter report, under the headline “Further development of the playing squad,” is the telling line: “New contract signed with Ryan Giggs and Paul Scholes re-joins the playing staff.” Much as those two legends remain a joy to watch, how Sir Alex must look with envious eyes at the midfield riches across town.

Yet, there is little sense in which United is still competing, as MUST might put it, on a equal basis with the continent’s finest. Financial Fair Play is yet to fully bite, but few expect the Reds to play at the top of the market come the summer. Indeed, word on the street suggests quite the opposite, especially with the Glazers’ long mooted IPO on permanent hiatus.

Moreover, with United out of the Champions League, and knocked out early in both FA and Carling Cups, headline revenue growth is likely to stall. Football remains a lumpy business no matter the club’s urgent efforts to drive income away from the staple of playing matches and selling television rights. United may lose, or rather, not profit, to the tune of £3 million per round in prize money alone from competing in the Europa League. Extra games are unlikely to make up the shortfall.

There is little cushion now either, with the stockpile of cash gained from Ronaldo’s sale and AON’s pre-payment on a four year shirt sponsorship deal, back to historical levels. This alone may indicate Ferguson’s priorities in the coming summer – a break in which ‘value’ is unlikely to be seen and Ronaldo may well star at Euro 2012.

Reds’ boom goes on but the Glazer drain continues

November 15, 2011 Tags: , , Opinion 11 comments

“There is only one Manchester United,” said Richard Arnold, the Reds’ Commercial Director last month. Indeed, the club’s first quarter results, published Tuesday, once again demonstrated the cash generating monster it has become, with yet another quarter of increased turnover posted. Thanks in part to an aggressive regionalised commercial strategy, the club is generating more income than ever before. Yet amid the Old Trafford back-slapping the truly eye-watering waste enforced on United by the Glazer regime is once again revealed.

United’s financial year Q1 results showed a 17 per cent year-on-year (YoY) increase in revenues to £73.8 million in the quarter, with matchday income up nine per cent, largely thanks to the bigger US tour conducted this past summer. Meanwhile, higher Champions League pool payments led to a 17 per cent YoY increase in media income, with a 22 per cent increase in commercial income over the same period. The latter is largely thanks to the continued aggressive commercialisation of the United brand, including a £40 million four-year deal struck with DHL to sponsor the Reds’ training kit.

Amid the positive news, there are also plenty of negatives for the Glazers’ bean counters to ponder. Staff costs grew by 12.2 per cent YoY, with player remuneration increasing despite several senior squad members leaving in the summer. New contracts awarded to Park Ji-Sung, Javier Hernández, Antonio Valencia, Chris Smalling and Tom Cleverley demonstrate that wage inflation is continuing unabated in football no matter the financial chaos in the wider economy.

All this adds up to a strong EBITDA (earnings before interest, tax, deductions and amortisation) of £19.2 million for the quarter, increasing 30 per cent on the previous year, with a margin of more than 26 per cent.

Meanwhile, United’s cash position, which is typically very cyclical, was down significantly from £151 million at the end of the last financial year in June, to £65 million in Q1. United’s cash balance is always highest during the summer, while heavy spending on transfers and debt reduced the pile. The club spent £47.1 million on player transfers during the last window, £21 million on interest and £8.2 million buying properties around Old Trafford. The latter increases the amount of land the club now owns around the stadiumd, with no genuine explanation of the strategy forthcoming. They’re certainly very expensive car parks.

Although bond debt is almost £100 million less than at its peak, net debt is actually £3 million higher YoY – something not widely reported. In fact in the three months to 30 September, the club posted a £6.9 million accounting loss, in part due to increased financing costs and forex changes. The cash cow continues to be profitable until debt is factored into the equation.

Leaving all the dry accounting speak aside, United is a very strong business, with a balance sheet ruined by debt. Although the Glazer family continues to spend United’s cash buying back bonds, and paying themselves ‘management fees’ (more than £16 million in the final quarter of the last financial year), the hyper-commercialisation of the club continues unabated. United’s appeal is global in scope, with brands keen to leverage United’s reach to the reported 330 million fans worldwide. That DHL is spending so much to sponsor the club’s training kit underlines the transformation of the club’s commercial strategy under the Glazer regime.

Yet, the cost to the club of having the Glazers as owners continues to rise. Including interest spent, management fees paid, and debt repayments made, the family has now cost the club around £580 million in aggregate over six years, according to blogger Andersred. It’s a story of staggering waste – paid for, in large part, by the fans through higher ticket prices. And it is a picture unlikely to change in the near future, with the mooted Asian IPO on hold while global financial markets remain in turmoil.

And while the Glazer family draws praise for the aggressive and largely successful commercial strategy, criticism is certainly due elsewhere. The logic of swapping bank debt, at great cost, for bond debt that earns a higher yield has never been explained Unless, of course, the plan was to take a very large dividend, before the Glazers were spooked by the ‘Green & Gold’ movement. Securing seven-year bond debt, and buying large chunks back within two years, is equally inexplicable as a coherent financial strategy.

It will come as no surprise then that the Manchester United Supporters Trust (MUST) reacted with anger to the latest set of results.

“Revenue continues to grow building on the platform laid down by Sir Alex Ferguson over 25 years of unparalleled success,” MUST ceo Duncan Drasdo told the Mirror.

“However a key concern for supporters is that on top of the hundreds of millions lost in interest and fees resulting from the Glazers’ ownership we are now seeing huge amounts of additional money being paid out of the club’s cash reserves being spent on buying the bond debt incurred by the Glazers. That is the Glazers’ debt, that they dumped on our debt-free club and they are now using club funds to pay for it. A sum exceeding ‘The Ronaldo money’ they claimed would remain available for transfers has now been spent and this is on top of the £100s of millions in interest and fees already wasted.”

Even taking into account the approximate £100 million in Corportation Tax saved during the Glazer era, the damaging effect of debt is clear. That United is financially strong enough to survive more than half-a-billion pounds wasted is one thing. The moral, financial and strategic legitimacy of the waste is quite another.

Moreover, in the post-Sir Alex Ferguson era, when United will no longer be able to draw on the Scot’s brilliance, the club will face a plethora of challenges on and off the pitch. Rival clubs will mirror the Glazers’ commercial strategy, potentially eating into United’s market share, while the Reds cannot compete with the external wealth brought to Manchester City and Chelsea, let alone the TV revenue secure by European rivals Real Madrid and Barcelona.

This is a truism that many supporters will have to face in the years ahead.

Glazers’ dual track IPO gets green light

September 16, 2011 Tags: , , , Opinion 30 comments

The Glazer family will list Manchester United on the Singapore Stock Exchange (SGX) this autumn after local authorities gave the American family a green light for the partial IPO. The family will sell off around a third of United’s shares in a much-discussed dual track listing that will raise money but ensure the Glazers remain in Old Trafford control. Amid speculation over pricing, with the family seeking around £600 million for a 25 – 35 per cent listing, United could float by mid-October if the Glazers drum up enough local interest.

Yet, with controversy surrounding the dual track nature of the shares being offered – investors will be required to purchase non-voting preference shares in addition to ordinary stock – many questions remain about the IPO’s potential success. Not least just how attractive the Glazer family will make preference share dividends for investors who will have little influence on the club’s future strategic direction.

“They have received approval but the timetable is not fixed,” a ‘source’ close to the IPO told newswire AFP on Friday.

“The company is not in need of funds so they are not in a hurry to list. Basically, they are keeping a watching brief on market conditions. Now that there is approval, they can roll out any time.”

The SGX go ahead will allow United to open formal talks with potential anchor investors, while a prospectus and tour are likely in the coming weeks. The club is believed to have already held informal discussions with investment company Temasek Holdings, which is owned by the Government of Singapore.

SGX’s go-ahead comes amid fresh speculation in the Mirror that the Qatari Royal family is prepared to offer £1.6 billion for total acquisition of the club. In reality United may approach the Qatari’s to take a significant, if minority, shareholding on flotation, with the Glazers now convinced IPO will maximise the family’s profits. Full sale is surely likely only if the IPO gravy-train fails in the coming weeks. After all, with the eurozone debt crisis showing no signs of abating, markets globally have become twitchy about new listings.

However, Qatar is making significant noises in the football market, having won the right to host the 2022 World Cup finals, while members of the Royal family has invested in Malaga and French Paris St Germain. The Qatari Foundation struck a record-breaking shirt sponsorship with Barcelona last season.

“The Mirror understands that a delegation from the Qatari royal family, headed by Sheikh Hamad bin Khalifa Al Thani, will be in Manchester on Monday in a bid to conclude the deal,” said the paper on Friday.

“Top Middle East sources revealed last night that an official approach to the Glazer family is being made and a deal could even be clinched by next week. The super-rich Qataris think United is a good deal – even at the profit it would make for the current rulers.”

Doubts remain about the IPO’s potential for success, with the family seeking to retain around 90 per cent control on flotation. The dual track listing means each ordinary share will be sold with a preference share. While preference shares hold no voting rights they will attract higher dividends and first option of repayment in the unlikely event that United is made insolvent. In practice this means that post-IPO United is likely to pay out higher annual dividends than if the Glazer family went for a standard listing.

“Football clubs around the world are mostly quite closely held and not very transparent,” Pearlyn Wong at Bank Julius Baer & Co., told Bloomberg on Friday.

“They don’t like to give up voting rights so they can make faster decisions over things like players and management. Usually preference shares come as a follow-up offering, rather than at the IPO stage. Whether people will receive the share structure well depends on how much dividends they can get and whether the company has the cashflows to support it.”

United recently reported annual pre-tax and interest (EBITDA) earnings of £110.9 million for the year to the end of June 2011, with a pre-tax headline profit of £29.7 million. However, the club currently pays around £45 million per season in interest on bond debt, although it spent more than £60 million in the past financial year buying back some of the notes. United has spent more than £470 million on interest, debt repayment and related fees during the course of the Glazer family’s six-year tenure at Old Trafford.

Another senior analyst told Bloomberg that “institutional investors are unlikely to be interested [because] the lack of voting rights is just a kick in the teeth,” raising the spectre that the Glazers will sell United’s brand to retail investors. It is not a community that traditionally has a strong voice in the Singapore market.

The doubts place into question the IPO timescale, which could now happen at any point but is likely to go ahead – if at all – when the Glazer family believes the market is most receptive. Moreover, the family’s oft-reported $4 billion asking price – a significant premium by any measure – will be tested by a genuine market valuation for the first time.

Then there is the question about just how much debt the IPO will enable United to repay. After all, the dual listing has a significant impact on this process, with ordinary share sales diluting the family’s holding and raising money for the Glazers directly, and preference shares raising money for the club.

Photo credit: Flickr/NickD58

MUST evokes memories of Best … and Kitchener in new campaign

August 22, 2011 Tags: , , , Shorts 4 comments

The Manchester United Supporters Trust (MUST) needs you… to don the Green & Gold of protest and force the Glazer family to use autumn IPO proceeds to rid the club of debt. At least that’s the message of MUST’s new poster campaign, which was launched today. Staring George Best in Lord Kitchener mode, the new MUST poster urges United supporters to revive the spirit of Green & Gold and put new pressure on the ruling Glazer family.

Claiming that the upcoming IPO in Singapore later this year is “victory for the Green & Gold campaign,” MUST wants fans to build a second wave of protest, aimed at pressuring the Glazer family into removing debt from United before it is “locked in” post-IPO.

“Green & Gold was a global phenomenon fought in the areas of media and politics as well as on the terraces. It was an uprising like nothing seen before at OT or perhaps anywhere in English football,” said the group in a statement.

“The bonds actually created more expensive debt and more of it than the club’s previous bank financing, however crucially they allowed the Glazers to take up to £95m in a cash “carve out” from MUFC’s coffers with much more to come over subsequent years.

“So while the bonds were more expensive the Glazers desperately needed the money – their PIK debt was rolling up at an alarming rate and threatening to get out of control and there was no other spare cash in the empire. Such was impact of Green & Gold throughout 2010 however, that the Glazers feared an outright rebellion and had to withdraw their plans to take the carve out money.”

The Glazer family removed the catalyst for protest – the PIK debt – in November 2010 at a cost of £249 million. But with personal debts mounting, and no bidder willing to meet the family’s excessive valuation of the club, Plan B is to enact a partial-IPO of the club in Singapore this autumn.

Yet the IPO is likely to ‘lock-in’ any remaining debt, according to MUST, ensuring the the Glazers – as private owners giving way to a PLC board – will not pay down bond debt from anything other than club sources.

“Effectively at that point they will have taken that money from Manchester United meaning our club (and fans) will have to pay their debt off,” adds the Trust.

“It is the duty of every fan to stand up to protect our club from further un-necessary fees and interest payments.”

MUST campaign poster

Glazers to pay down debt? Believe it when you see it

August 19, 2011 Tags: , , , Opinion 22 comments

There is something rotten in the republic of mancunia when national journalists buy, with seemingly little attempt at corroboration, the Glazer family’s ample spin on the upcoming Manchester United IPO in Singapore. Indeed, the Times and Telegraph each published heart-warming tales of the family seeking to pay down the club’s £500 million corporate debt and invest heavily in the transfer market post IPO. Finally, claimed Mark Ogden in the Telegraph, the Glazers have come to understand the fans’ concerns. It’s a touching story of the Tampa-based family reaching across the water towards hither to embattled supporters.

Believe not a word of it. History and good sense educates that the family’s intentions are likely far less benevolent, with the Glazers almost certain to use proceeds from the Asian flotation to shore up their own precarious financial position. After all, with a £250 million loan almost certainly taken from a US-based hedge fund last year and a financially unstable US property business to reinforce, the Glazer family could use every penny going.

The overnight spin came, presumably, from London-based Chief of Staff Ed Woodward, who has become a familiar if anonymous source to Fleet Street’s finest in recent years. The briefings followed United’s submission to the Singaporean Stock Exchange (SGX) of preliminary listing papers. That submission, reports conclude, appends a promise to cut net debt at Old Trafford; something that is directly tied into a ‘fair’ valuation for the club on listing.

True, if the club is to attract the premium price early noises have suggested – anything from £400 to £600 million according to the BBC – then United’s finances are of direct concern. After all, Asian investors will be offered no more than a third of the Glazers’ equity in United, if that. The promise of long-term profits, capital gains on shareholdings and a healthy dividend are, therefore, preeminent to minority investors with no control over United’s business plan.

Yet, as the Manchester United Supporters Trust (MUST) warned on Thursday, any supporter, institution or interested third-party investor should take the family’s spin with a large pinch of salt. Lest we forget, it was the Americans’ leveraged buyout six years ago that placed so much debt on the club in the first place.

“While on the surface, fans should welcome any reduction in the unsustainable debt burden on the club, if this Eastern promise from the Glazers seems too good to be true, it’s because it probably is,” concluded MUST in a statement on Thursday.

“The share sale will be in the Glazers’ interests – to pay down their debt – not the club’s. What we wish to see is a full sale to progressive owners who are interested in investing in the club’s future so we can compete with Europe’s finest, currently Barcelona. Ultimately, our ambition is for shared fan ownership of a better United.

“The danger is that a partial flotation will provide a poisoned pill to any such progressive potential owners. And by reducing the Glazers’ personal debt we will continue to be saddled with these absentee landlords. To any United fans considering buying shares at the Glazers’ initial offer price – buyer beware.”

That Glazer-held debt, gained when refinancing the exorbitant Payment in Kind (PIK) loans last year, is of course the primary driver for the upcoming flotation, which the family hopes will take place some time before the turn of the year. Within the bounds of whatever promises the family has made to SGX, supporters should expect the minimum possible bond buyback. The Glazer family is a long-term proponent of running their businesses with debt and leopards rarely change their financial spots.

It begs the question: what then the true cost to United of relisting? After all United will almost certainly issue dividends to both the Glazer family and minority shareholders post-IPO. In the worse case scenario, with less than half of United’s £500 million bond bought back from IPO proceeds and a dividend payable to shareholders, the annual cost to the club may conceivably exceed the £45 million currently paid in bond interest.

Lower debt also raises the spectre of Corporation Tax, which the Glazer family has studiously avoided over the past six years, with the club reporting repeated annual losses. This, of course, was not the case pre-2005, with the old PLC regime reporting profits and paying dividends that in aggregate totaled £61.74 million between 1991 and 2005.

Relisting United enables the club to more easily access the capital markets, of course, with future rights issues enabling the Glazer family to extract more value from its shareholdings. Should the Americans remain at Old Trafford post 2017, when the bonds mature, whatever is left of the club’s debt must be redeemed necessitating one assumes a further share issue to the market.

Yet there is no guarantee United’s shares will perform on SGX, assuming the Glazer family successfully IPOs this autumn. Even if the Glazer family, backed by underwriters Credit Suisse and others, achieves the speculated four billion dollar valuation the open market will surely provide a correction. The realistic scenario that United’s shares are overpriced on IPO and fall rapidly on the market will restrict the family’s ability to extract further liquidity when required.

Much of this is of course speculation and further detail is likely only when the club issues a prospectus in the coming weeks. But there is a lesson in history; one that supporters should heed before buying into the debt-repayment fairytale. It is a shame that our nation’s media is not so circumspect.

Poll: will you invest in United IPO?

August 18, 2011 Tags: , , Polls 37 comments

Confirmation that Manchester United has applied to list on the Singapore Stock Exchange (SGX) before the end of 2011 means that ordinary supporters be able to own part of the club for the first time since 2005. The planned partial IPO was confirmed on Thursday when a preliminary application was made to SGX, reports Reuters:

English Premier League soccer champions Manchester United have filed a preliminary application with the Singapore Exchange for a planned listing, a source with direct knowledge of the deal said on Thursday.

The club, which sources have said hopes to raise as much as $1 billion from an initial public offering (IPO) by the end of the year, has appointed Credit Suisse as the global coordinator of the deal, the source said.

A second source said the owning Glazer family plan to use some of the funds raised from the offering to reduce the club’s huge debt pile, a burden which has made the Americans deeply unpopular with many fans.

The club is yet to comment on reports. Indeed, it is not yet known whether the IPO will be restricted solely to institutional investors or whether ordinary fans will be able to invest.

But if fans can access the flotation it presents a huge opportunity for supporter-ownership at Old Trafford. The question is, if the IPO is open to you, will you invest and own part of your club?

Poll: will you invest in United IPO?

View Results

Loading ... Loading ...

Asian IPO back on the agenda

August 16, 2011 Tags: , , , Opinion 57 comments

Belief that the Glazer regime is readying an Initial Public Offering (IPO) in the autumn has once again gained credence following widespread international media coverage today. The Wall Street Journal broke the news Tuesday that the Glazer family has selected the Singapore Stock Exchange (SGX) as the family’s preferred venue for a $1 billion partial-IPO after exploring options over the past few months.

It is, of course, not the first time that news of the Glazer family’s plan has leaked, with the Times and other outlets reporting in June a potential Hong Kong flotation. Proceeds of any IPO could be used to buy back a proportion of United’s £500 million bond and reduce the Glazers’ personal debt exposure. More to the point institutional investors buying into the offering will also expect a dividend return. As, presumably, does the Glazer family.

Plans, now at an advanced stage according to reports this week, involve the family offering a minority share six years after the Glazer family de-listed United from the London Stock Exchange.

“Manchester United plans a $1 billion initial public offering in Singapore, two people familiar with the matter said, as the record 19-time English soccer champion seeks to cut debt that has fueled fan protest,” reports Bloomberg News.

“Credit Suisse Group AG (CSGN) is working on the transaction, which may take place this year, said the people, who declined to be identified because they weren’t authorized to speak publicly. The Premier League team had been considering Hong Kong for the IPO but now favor Singapore, although no final decision has been made, the people added.”

Rules governing loss-making companies may preclude United from flotation in Hong Kong, reports said – denied in some quarters – with the club having lost a record £104.7 million in the past fiscal-year. Much of this related to lower income from player sales and the cost of swapping long-term bank debt for the bond last January.

However, EBITDA – earnings before interest, tax and other deductions – has grown by around 70 per cent over the past six years offering the Glazers hope of a substantial premium on the family’s £800 million ‘investment’ in 2005.

While flotation will enable the Glazer family to cut club debt – depending on the mooted IPO’s success – the family is likely as keen on extracting dividends without drawing supporter ire. Bloomberg reported earlier this year that the Americans’ plans to withdraw extensive dividends of up to £120 million had been shelved on fear of further supporter unrest at the height of the so-called ‘Green and Gold’ campaign.

In the meantime the Glazers have refinanced the £220 million Payment in Kind (PIK) loan in a shroud of secrecy, while moving United’s ultimate parent company to Delaware, USA. The full early redemption cost of £249 million was almost certainly borrowed, with the family keen to pay down that debt through dividend drawing rights granted by the bond last year.

Yet questions remain both about the club’s real value and the Glazers’ long-term ownership plans. The reported a $1 billion partial-IPO of around 25 per cent of the club values United at more than £2.4 billion. That price is – based on any recognised method of enterprise valuation – a huge premium.

Moreover, the choice of SGX appears unusual, on the surface at least, with Hong Kong offering a larger and more liquid market at a time when European retail IPOs in Asia have not been universally successful. That is quite aside from the question of whether Asian institutional investors have any interest in a UK-based sports company.

While the Glazers’ bond offer was hugely over-subscribed, attractive as it was with guaranteed high rates of return and low risk, the family can offer no such assurances with the mooted IPO.

Then there is the question of supporter involvement. Indeed, more than 30,000 small-holding fans eventually bought into United’s London listing, although few into the 1991 IPO. Whether UK-based supporters will be able to access a Singaporean flotation is very much in doubt though; the IPO may in fact only be open to institutional investors. Presumably this a boon to the Glazer family that has no wish to admit large numbers of share-holding fans into an AGM.

The Manchester United Supporters Trust (MUST) offered no immediate response, preferring to wait until the family’s plans are made more concrete.

“You’ve probably seen press reports that the Glazers are to float at least part of their Manchester United shareholding on the Singapore Stock Exchange and that this is a precursor to a full sale,” said a supporter group newsletter on Tuesday.

“Until we have more details we can’t give a full response but what we do know is we want to communicate with as many Manchester United supporters as possible and make sure every Manchester United supporter has the chance to share in ownership when the opportunity arises. It is quite possible that shares will not be available to ordinary supporters and that MUST will have to provide a mechanism for supporters to buy shares.”

Whatever that mechanism may be it seems unlikely that ordinary United supporters will build any significant share holding in the club post flotation – if an IPO happens at all. After all even if all 175,000 MUST members invest £1,000 each the block will represent just over five per cent of the club.

Then the wider question of what effect floating United overseas will have, – institutional investors are unlikely to be more in tune with supporters than the Glazer family –  is as yet unanswered.

Glazer IPO unlikely to offer fans major stake

June 14, 2011 Tags: , , , Opinion 10 comments

The weekend’s Times newspaper report that the Glazer family is considering floating Manchester on the Hong Kong stock exchange raises the possibility, for the first time since 2005, that supporters could claim a stake in the heavily indebted club. It’s a goal that groups such as the Manchester United Supporters Trust (MUST) have been working towards for the past six years.

The family is considering listing on the Hang Seng and not in London, reports the Times, because a potentially higher price could be achieved. Hong Kong has experienced strong growth in the past 12 months, while the recent and upcoming IPOs of Western companies Samsonite and Prada are generally considered a success.

“Bankers have told the Florida-based tycoons that the listing could value the club at £1.7 billion — more than double the £790m the Glazers paid for it in 2005,” claimed the Sunday Times report.

“A recent flurry of floats on the Hong Kong stock exchange by upmarket consumer goods companies such as the luggage firm Samsonite, has prompted the family to consider a listing. Thanks to the international power of United’s brand, and the strength of its following in Asia, advisers believe the club could attract a higher price for its shares in Hong Kong than in London.”

However, if the mooted Asian IPO actually goes ahead it will surely leave United supporters with a tiny minority stake as global financial powers hoover up most of United’s assets. The rumour leaves fans wondering what next for a club that has seen significant financial unrest in recent years.

Indeed, the Glazer family’s decision to refinance existing bank debt with a £500 million bond in January 2010 exposed United’s finances in detail for the first time in five years, sparking a wave of supporter protest that has ultimately proven fruitless in producing regime change.

And while the so-called Red Knights came and went the Glazer family has reorganised the club’s finances away from prying eyes; a £220 million Payment in Kind loan was probably refinanced somewhere in the depths of Delaware last November, while the family has also spent £30 million of club money buying back bond debt in the past two quarters.

Yet to realise a profitable exit the Glazer family must either sell out to a private investor or float. With the Americans reportedly turning away offers from the Red Knights and the Qatari Royal family an IPO could be a viable out.

MUST reacted with circumspection to talk of a floatation, with the opportunity it brings for greater supporter ownership in the club. While ordinary fans owned a tiny percentage of the club on takeover in 2005, there were at least thousands of individual shareholders.

“If this report proves to be well founded the prospect of a flotation of Manchester United is one that many supporters would cautiously welcome because it could be an opportunity for supporters to once again share in ownership of their club,” said the organisation in a statement.

“However three immediate concerns spring to mind. Firstly that this would have to be a full IPO signalling a clean exit for the Glazers. Secondly the valuation would have to be realistic – something closer to £1 billion rather than the £1.5 billion that the Glazers seem to feel is possible. Thirdly shares should be freely available to all MUFC supporters and certainly floated on the UK market to maximise accessibility.

“MUST’s avowed aim is Manchester United FC owned by the fans and run for the fans. Our task is to create the opportunity for all United fans to share in the ownership of their club.”

However, MUST’s conditions seem unlikely to be met, with the price now seemingly much higher than £1 billion. Indeed, at a 12-15 EBITDA multiple that is typically used by the Forbes Magazine’s annual football club valuation list United’s sale price could reach £1.5 billion on the open market. Clearly, the Glazer family believes United’s international profile will equate to hundreds of millions in ‘brand value’.

The high valuation may also negate MUST’s desire for widespread supporter ownership. After all, the organisation’s growth to more than 172,000 members is impressive but is unlikely to create a huge pool of finance from which to carve out a meaningful stake in the club. Should each member, for example, find £1,000 to buy shares in an IPO MUST members would own a little more than 10 per cent of the club. Buying individually, even a 10 per cent holding is probably an unobtainable goal should fans be able to reach a Hong Kong listing at all.

Meanwhile, United’s management continues to look at ways to increase revenues and cut-back costs, according to a Bloomberg report on Monday. Bloomberg quotes an unnamed source close to London-based club COO Edward Woodward, who has been leaving the drive towards global commercialisation over the past two years.

“Woodward, a former banker with J.P. Morgan Chase & Co., has discussed several ways to cut financing costs,” reports the newswire.

“The club isn’t concerned about its finances, but wants to ensure it has the most efficient funding policy. It’s not close to making any definitive decision about changing its current terms.”

Bloomberg says that United will look to invest any savings in the transfer market – a proposition fans will take more seriously if the club makes good on an oft-purported spending spree this summer. After all, the Reds currently spends around £45 million per season in bond interest payments, separate from any costs associated with the refinance PIK loans.

Costs and interest associated with the Glazer regime has sucked more than £300 million out of the club over the past six years. Whether an IPO will cut net debt is as yet undetermined and probably moot. After all, the Glazer regime’s history tells us that value maximisation is the goal.