Tag Debt

Tag Debt

Six years on, same old story

Ed May 14, 2011 Tags: , , Opinion 25 comments

It is now six years since the Glazer family waltzed into Manchester United, encumbering the club with hundreds of millions in debt and incurring the wrath of a legion fans. In the intervening period the family has priced thousands of supporters out of the club, while many more have walked away in disgust. Yet, with the Premier League almost in the bag and a third Champions League final in four years to come, the protests of 18 months ago have died down and fans – at least those still attending Old Trafford – seem content with success on the pitch.

Ffan talk of finances has seemingly been refocused in recent months. After all, Premier League titles from 2007-9, and another heading towards Old Trafford in 2011, together with the 2008 Champions League, is a level of success equal to any other era in the club’s history.

Yet, six years after the Glazers’ extracted control of United their impact is felt more than ever. With £500 million worth of bonds piled on the club and a Payment in Kind (PIK) loan refinanced somewhere in the depths of Delaware, damage has undoubtedly been done to a 133-year-old institution. Not least the £300 million that has been lost to the club in interest and other fees during the Americans’ reign. With the Glazer family seemingly now entrenched at the club, United will continue to haemorrhage money up to and likely beyond the 2017 date on which the bonds mature.

The strained finances have necessitated massive ticket price rises, which on aggregate have increased 55 per cent since 2005. Meanwhile, United’s well-staffed London-based commercial department has sought exploit global sponsorship markets to the fullest extent in response. The club, as always over the past six years, is running just to keep still.

This much has been widely debated of course, with fans now conversant in the language of business that had rarely been witnessed at Old Trafford prior to the 2005 leveraged buyout. Indeed, the ‘green and gold’ protests were provoked by the January 2010 bond prospectus, which laid bare for the first time the extent of United’s debt burden. Short of exchange-rate fluctuations, little has changed in the total debt owed by the club in the intervening 18 months.

Yet, the anger felt by United’s supporters has quelled since its height last season. In part success on the pitch, with short-termism always likely to override long-term concerns, has distracted fans’ focus on money. Moreover, the failure of the so-called Red Knights to mount a realistic bid left many protesters feeling disillusioned, with the palpable inability of organised supporters’ clubs to maintain a protest movement a factor.

In this sense the club has won a public relations war. The dual mantra that the ‘Ronaldo money remains in the bank’ and ‘there’s no value in the market’ is now repeatedly aped by supporters. David Gill’s disingenuous appearance in front of a Parliamentary select committee merely one in a rash of repeatedly contradictory statements issued by the club that has seemingly been swallowed by those willing to listen.

It is the symbol of a fragmented support where many traditional supporters have been priced out of Old Trafford and replaced by the affluent, casual and transient. Perhaps the most distressing element of a sorry epoch in United’s history. The road from here to financial probity and a mutually respectful relationship between club and fans is almost certainly lost forever.

This summer promises more of the same, with another heavy marketing campaign expected while season ticket renewals are a stake. Inflation-rate price rises were predictably met with anger from supporters groups, although in truth the failure of MUST or IMUSA to arrange a widespread boycott during the past six years has negated their power to influence. It is unspoken, but both club and fan groups recognise that enough supporters will renew to prop up the regime.

In all of this the family has not been forced into heavy transfer spending, even in the wake of Wayne Rooney’s October revolution. With the Glazers’ position now set for the foreseeable future, it seems unlikely that the club’s strategy spending strategy will alter either. After all, Gill’s oft-repeated promise that ‘the Ronaldo money’ is still available for Sir Alex Ferguson to spend has not yet been fulfilled.

By contrast the policy to buy young, buy often and buy cheap, is seemingly still in place. It is yet to materially affect United’s chances, although the clubs has now slipped significantly behind rivals at home and abroad in terms of wages paid. While Ferguson, the ace in the family’s sleeve, remains in good health the Scot will surely continue to extract just enough from his charges to remain successful.

Competition is set to increase though. Cross town rivals Manchester City plans another summer of huge spending. City’s failure to sign Rooney last January still rankles in the boardroom. Meanwhile, Roman Abramovich’s lust for football has returned and Liverpool is once again resurgent under Kenny Dalglish’s management. Even Arsène Wenger has spoken of bringing experience into his spineless squad.

Arguably rivals’ failings this season will not be repeated. Six years on from the Glazers’ takeover we cannot be sure that the club has the financial muscle or boardroom will to meet yet another challenge.

Glazers could reignite fan battle

Ed April 21, 2011 Tags: , , , Opinion 41 comments

It is now almost 18 months since Old Trafford was first bathed in the green and gold of protest. The Glazer family’s decision to borrow more than £500 million on the international bond market sparked a new wave of supporter protest, and a level of anger not seen in Manchester since the reclusive Americans first appeared in the city. Yet that protest has achieved very little bar a thousand headlines and last summer’s season ticket prize freeze. Small fry compared to the regime change that became supporter groups stated aim.

But with next year’s ticket prices shortly announced, will Manchester United’s executive management stick or twist; fending off protest for the summer or provoking another wave of anger?

Indeed, the decision to raise prices (or not) at Old Trafford – rises have been announced by both Arsenal and Chelsea recently – will have already been taken, despite disingenuous claims by the club that it has not. The imminent announcement on ticket prices will be the first salvo in another summer-long battle of wills between supporters and United’s ownership.

Last summer’s price freeze bought the regime few friends, with thousands of fans still walking away from season ticket ownership, but the relative absence of green and gold at Old Trafford this season has marked a lull is supporter protest. The Glazer’s decision to raise, lower or freeze prices for next season could add new verve to the protest. Or perhaps kill it stone dead. Another freeze will buy the regime more time; price rises could spark yet more anger and another call to boycott season ticket renewals.

And although the regime has not once lowered prices in six seasons in charge at United, there is precedent at the Glazer’s NFL franchise. In fact, with attendances at the Tampa Bay Buccaneers falling so steeply that the team’s TV coverage was blacked out by the league, the Glazer family chose to cut ticket prices by up to 30 per cent. It was a move born of financial necessity – blackouts, designed to keep attendances high, are costly to franchise owners, and the regime had been forced to buy its own tickets for many matches last season.

The family made the most of its decision though, claiming the owners to be supporter-centric in a time of financial hardship in the United States.

“Our organization has spent a lot of time listening to our fans at this time when our team is thriving and our economy is not,” Joel Glazer recently said recently.

“As a result, we are now offering several pricing changes in response to our community’s needs.”

The move has raised hopes that the Glazer family will similarly reduce costs at Old Trafford, which have increased by 50 per cent in aggregate since the Americans took control. Unsurprisingly, the Manchester United Supporters Trust (MUST) has called for fans in Manchester to be afforded the same treatment as their counterparts in Florida.

“Joel Glazer said he’s listened to the Tampa fans. Well it’s about time he listened to Manchester United fans and responded by cutting our ticket prices too,” MUST Vice Chair Sean Bones said in a statement.

“Manchester United supporters should not feel they are subsidising the Glazers’ American Football Franchise as well as their debt. After the huge price rises our fans have endured while the Glazers have been taking out millions of pounds from our club if anything we deserve bigger price cuts than the Tampa fans.

“Anything other than an equivalent cut in prices at Manchester United will be seen as a slap in the face for United fans.”

There are, however, key differences between the financial model at Old Trafford and that in Tampa. First, and certainly most important, there is no TV blackout system in the Premier League. There is, therefore, no chance United’s TV revenue will fall sharply under the current rights contracts, unless the club fails to make the Champions League. With that possibility remote, Old Trafford bean counters are under no financial pressure to act on ticket prices.

There is also little pressure on attendances in Manchester. While thousands of supporters have given up season tickets, the scale of United’s support is such that matches are mostly sold out or as close to it to make very little financial difference. The family’s decision to increase individual non-member match ticket prices this season, and retain the despised automatic cup match ticket scheme, underlined the Glazer’s confidence is continuing to sell in volume.

Indeed, the evidence supports a rise in prices at Old Trafford this summer, backed by another aggressive marketing campaign aimed at selling season tickets. Already, the club has marketed its non-existence ‘season ticket waiting list’. While the list is nothing more than an email marketing database – offering no priority tickets to supporters who sign up – there is also no shame within the regime about using every available tactic to sell tickets. After all, how can there be a waiting list when United failed to sell all available season tickets last summer?

Still, the question for the regime is whether it feels the need to pacify United’s supporters with price cuts and star names, or not. History points to another summer of promises over money available for transfer spend spending; and misleading statements that United is a club built on ‘making stars, not buying them.’

If the close season also includes a price hike, green and gold may also return next season.

When it comes to money, it’s all spin

Ed March 23, 2011 Tags: , , , Opinion 52 comments

Manchester United has £165 million in the bank and is bent on spending all of it strengthening Sir Alex Ferguson’s squad this summer. At least that’s the conclusion reached by the Manchester Evening News and 1,000 blogs today after director Joel Glazer broke a five-year silence to claim that the club has “sufficient cash reserves…for investment in the playing squad.”

The proclamation came just 24 hours after the club’s holding company posted £109 million losses at Companies House. Not that supporters should worry, despite the huge losses and near £600 million debt on the books, the Payment in Kind (PIK) loans “have been paid off.” It is the near universally repeated line in media coverage of Red Football Joint Venture’s finances this week. Proving once again that when it comes to United’s finances there’s lies, damn lies and the Glazers.

The massive losses included a £64.7 million charge to set up the bond last January and £30.2 million paid in interest on the PIK debt, which has since been mysteriously financed to the tune of £242 million. Indeed, the figures are in stark contrast to those of a year ago, which included income from Cristiano Ronaldo’s £80 million sale to Real Madrid.

Yet key questions remain unanswered before supporters believe the Glazer family is to invest heavily in Ferguson’s squad. Not least the bizarre fashion in which the PIK debt was “paid off,” although it is almost certain that the family refinanced the debt through an American holding company and then subsequently moved the company to super-secretive Delaware to hide the transaction from the British media. Whatever the source of funds, the family retains the right to take dividends from the club; £125 million and counting if the Tampa-based clan chooses to do so.

Then there is the question of spending, with the club investing far less under the Glazers than the previous PLC regime in both absolute terms and as a percentage of EBITDA. The much reported, yet never actually promised, £100 million plus summer transfer fund would break a five-year habit set by the family. Not least the club’s strategy of investing in young players with a high resale value.

The third strand conspicuously missed by MEN, whose contacts within the club are near non-existent according to those in the know, is UEFA’s financial fair play regulations that effectively come into play this summer. With United’s EBITDA revenues tempered by £45 million per season in bond interest payments it is inconceivable that the club will spend a hundred million or more on summer transfers. Unless there is a departure or two of course.

The spin is in marked contrast the strict ‘no value’ line oft-repeated by Ferguson last summer when the club invested in promising youngsters and not established stars. Indeed, the Scot has been fulsome in his praise of United’s scouts who picked up striker Javier Hernández for around £7 million up-front and further performance-based bonuses. It has been a brilliant piece of business. The less said about the £8.3 million spent on Bébé, the better.

Yet, invest United surely must, with domestic rivals Manchester City and Chelsea likely to spend heavily in pursuit of glory. And even if Ferguson’s reserve team is packed with promising talent, the squad will be at least a quartet short come the summer. With Edwin van der Sar retiring, Gary Neville already picking up his pension, Owen Hargreaves likely to be released and Michael Owen out of contract, a wealth of experience will be lost to Ferguson’s cause. Paul Scholes’ future is as yet undecided, with the 35-year-old mulling retirement.

Moreover, a second defensive injury crisis in as many seasons says much for the fragile nature of too many United stars. Rio Ferdinand’s injuries now fall into the chronic camp, Nemanja Vidic has an unfortunate fragility, Jonny Evans’ ankles seem unable to keep up with the Premier League’s rigours and Wes Brown has troubled the physio more often than the opposition in a decade at the club. Then there’s the immensely talented da Silva brothers, who have each suffered multiple injuries in the past two seasons.

The question of quality – one that Ferguson strongly rejects – is one that many supporters have asked too. It is, after all, hard not to conclude that this United squad suffers poor comparison with others during the Scot’s time in Manchester. Indeed, while Ferguson’s squad has performed admirably at home this season the greatest challenges now lie ahead. Recent defeats away to Liverpool and Chelsea surmised the Reds’ performances away from Old Trafford, with United’s record of four wins joint seventh best in the Premier League.

Not that United supporters should be concerned. After all, the Glazer family is about to lavish £165 million on the transfer market. MEN has said so!

PIK debt: 10 unanswered questions

Ed November 16, 2010 Tags: , Opinion 34 comments

The Glazer family is to pay off £243.7 million Payment in Kind (PIK) debt, which is owed by Manchester United’s parent company Red Football Joint Venture (RFJV). The move, which will reportedly involved “money from outside the club”, will eliminate the PIK debt that carries a punitive interest rate of 16.25 per cent annually.

However, the repayment poses almost more questions than answers, with the family’s record on financial transparency shody to say the least. Here’s 10 that Rant wants answers to…

Why pay down the PIKs now?
The high interest rate on the notes made redemption necessary, with the debt rolling up to more than £600 million by maturity in 2017. Redemption removes RFJV’s risk of default on the PIKs and will – presumably – lessen the interest rate burden on the company. The Glazers previously refinanced United’s senior bank debt with a £500 million bond in January, which offered greater flexibility for the family to withdraw United’s cash reserves. But why wait so long to pay the PIKs down if, as blogger Andy Green suggests, no restrictions on redemption have been in place since 2008? Business sense, it does not make.

Where is the money coming from?
Although Bloomberg yesterday reported that the money for PIK repayment will not come from club sources no further details have emerged about how the family intends to afford the £243.7 million redemption costs. Today a Glazer family spokesperson told the BBC that the family has not sold any equity in the club to repay the debt, leaving refinancing by far the most likely option given the perilous state of the Americans’ US business empire.

If this involves refinancing, how much debt is now owed by RFJV?
Assuming that the Glazer family has sought additional funding from the credit markets, how much has been taken and against what assets is it secured? If the family has refinanced the 85 per cent of the PIK notes it did not already own, RFJV will be indebted to the tune of more than £200 million. Moreover, the PIK notes are secured against RFJV’s shares in United; presumably this will also be the case with any new financing the Glazers have taken out.

How will debt that be repaid?
If the PIK debt is refinanced how will any new credit facility and the associated interest be repaid? The PIK notes represented some of the most expensive finance in commercial credit but the Glazer family continued to roll up interest into the ongoing debt. As a minimum, any new creditor will seek repayment of annual interest, if not the capital sum, which may mature at a later date. Will the Glazer family repay this from their own pockets or use dividends from United to finance the facility?

Will the Glazer family still take dividends?
The terms of the January bond enable the Glazer family to remove £70 million immediately and a further 50 per cent of EBITDA after bond interest payments – around £25 million – each financial year. Although the family has reportedly been spooked by supporter unrest into changing its strategy the facility is still available. After all, somebody will have to repay the new credit facility.

How much money has the Glazer family personally made from this?
The Glazer family bought around 15 per cent of the PIK notes back in 2008 at a heavily discounted rate. Reports suggest the family paid around £12 million for the stake. This came not longer after it borrowed £10 million from United – a sum that is yet to be repaid. However, the Glazers stake, at today’s redemption rate, is worth about £36 million, leaving suggestions that the family has personally profited from the PIK redemption.

What of United’s assets?
Old Trafford could still be sold and and United’s training base at Carrington transfered to a Glazer holding company under the terms of the January bond. Sale- and lease-back arrangements could net the family more than £400 million but forever burden the club with punitive rental costs. Nothing in today’s PIK refinancing suggests an asset-lock is – or ever will be – in place.

What about the Bond debt?
The £500 million bond issued in January, which is costing the club £45 million per season in interest payments, matures in 2017. What will the Glazer family do:repay the debt or refinance yet again? As yet the family has shown no inclination to de-leverage the club, leaving a £500 million bill in six years time. The bond actually increased interest payable on the bulk of United’s debt but increased the flexibility the Glazer family has over United’s finances. But if the specific intention was to enable greater dividend streams to flow the family’s way, why did they not take them? It seems that supporter anger and poor season-ticket sales may have had an effect on the Glazer family’s strategy.

What about the Glazers’ other business interests?
Green previously demonstrated the dire state of the family’s property empire, which has not expanded in four years and seen a number of malls default on their mortgages. Analysis done by Green, the Guardian and BBC Panorama in February predicted that further foreclosures are likely within the Glazer property business portfolio, which made just $9 million pre-tax profits last year. The Glazer family has also sold personal property and other business interests as the recession bit hard into their fortune. Meanwhile, the Tampa Bay Bucaneer’s franchise has lost a third of its value according to Forbes magazine, with the Florida based club also heavily indebted and rapidly losing supporters.

Will United now spend in the transfer market?
Today’s quarterly Red Football Ltd accounts showed £151.7 million burning a hole in United’s bank account but will a previously parsimonious regime allow Sir Alex Ferguson to spend next summer? With up to four players due to retire and two others out of contract, the Old Trafford exit door could be busy. Shortly after Wayne Rooney signed a new contract in October a rash of media stories suggested Ferguson will have substantial funds to spend next summer. Indeed, the Glazer family once promised £25 million net spend per season. During their regime it is substantially less. Will they finally loosen the purse strings?

Glazers pay off £243.7m PIK debt but where did they get the money?

Ed November 16, 2010 Tags: , Opinion 46 comments

The Glazer family is to pay off the £243.7 million Payment in Kind (PIK) debt held by Red Football Joint Venture (RFJV) Ltd with “their own money” according to media reports today. The PIK notes, part of a 2006 refinancing round, incur 16.25% annual interest and will be repaid on 22 November according to a documents filed yesterday.

The move to repay the PIK debt, held by Manchester United’s parent company, was widely expected, with the eye-watering interest compounding rapidly. That the Glazer family has apparently not used club cash to do so is more surprising, with many analysts expecting the Americans to do so.

However, the move leaves several questions unanswered, particularly the source of finance used to repay the PIK debt and the timing of the move.

Indeed, documents released today by blogger Andy Green show that no restrictions on repayment of the PIK debt have existed since 2008. The Glazer family has been able, as widely suspected, to repay the PIK debt at their own discretion for the past two years. That the family has not done so has cost millions, leading to the assumption that the Americans simply could not afford to do so. Until now.

Bloomberg reported last night that the family has not removed up to £95 million in dividends from the club to pay down the PIK debt, confirmed by United in a statement today. The move had been widely expected as part of the bond refinancing last January, which released £70 million as a one-time dividend and up to 50 per cent of EBITDA on an ongoing basis.

The dichotomy of the Glazers not paying down PIK debt until now leads to a series of as yet unanswered questions about the family’s finances. Namely how can the Americans, whose US property business is in serious financial trouble, afford £243.7 million at this time?

The Glazer family moved to buy back around 15 per cent of the PIK debt in 2008 at a heavily discounted rate. The family’s stake, bought at a cost of £12.6 million is now worth £36.6 million, according to Green’s analysis today.

Yet the family has still found more than £200 million in new money, with the source highly likely a new round of refinancing by RFJV, secured on the company’s assets: MUFC. The new finance, should it now be in place, will presumably run at a substantially lower interest rate than the 16.25 per cent now charged by the small group of PIK holders. Any refinancing will leave United or its parent company with total ongoing debt of around £720 million.

Alternatively, the family may have sold a stake in United to finance the debt repayment. Although this is a potential scenario, the Glazers have previously shown no inclination to sell part or all the club despite widespread supporter unrest and interest in a purchase by the so-called Red Knights consortium. A new investor is the best possible scenario for Sir Alex Ferguson, leaving the club less financially hamstrung, although still highly geared with £520 million corporate debt, but in reasonable shape to invest in the transfer market next summer.

Possible, although less likely still, is that the Glazer family has sold other assets in the US. The family owns the Tampa Bay Buccaneers NFL franchise, although a sale of the Florida club would presumably have taken months and been widely covered in the media. The Glazers may also have sold part of their strip-mall business, although Green’s analysis earlier this year demonstrated the severely distressed state of their property empire.

The Manchester United Supporters Trust (MUST) called for greater clarity from the family today, amid more confusion about the state of the club’s finances. The Glazer family has kept financial issues largely secret during its five-year tenure at Old Trafford, with the January bond revealing more details than ever before.

“Now is the time for the Glazers to finally come clean and tell the truth about what is going on at Manchester United and what their plans are,” read a MUST statement today.

“What have they got to hide? No more secrecy. No more spin. Just tell the fans the truth.”

This seems unlikely though, with few further details released by the club as it announced its 2010/11 Q1 results today. Indeed, the club issued a terse 19-word statement confirming that “there has been no dividend of club cash”. The statement was very much in keeping with the club’s long-held view that supporters are owed no financial transparency.

The results, which follow a 2009/10 end of year loss of more than £83 million, show year on year quarterly revenue growth of 9.7 per cent to £63.3 million and £22.7 million paid out in interest over the quarter. The accounts showed a cash surplus of just over £150 million, although the highly cyclical nature of United’s reserves means that figure will deplete through the season.

The quarterly accounts also demonstrate the cost pressures on the club, with player salaries – pre Wayne Rooney’s new contract – up 14.8 per cent year on year. Other costs increased 4.8 per cent, with all costs up 11.7 per cent. Indeed, cost pressures have restricted EBITDA growth to just 4.8 year on year, placing doubt on the Glazer family’s claims that United is a ‘growth business’.

However, doubts still exist about the club’s ability to compete in the transfer market over the long-term, although Ferguson is widely expected to embark on the largest rebuilding programme at the club for years next summer. Whether the Scot will invest heavily in established internationals or continue to buy promising youngsters with a ‘resale value’ is as yet undetermined. The latter is effectively club policy.

Not in doubt, however, is the Glazer family’s record both on investment, price rises and attitude to fans.

The Americans promised a net spend of £25 million per season on takeover in 2005. To date net spend hovers just under £2 million per season, while aggregate ticket prices are around 50 per cent higher than in 2005, and the family continues to ignore supporter calls for greater transparency.

The latest move is unlikely to wash with United fans though. After all, no PIK debt repayment will compensate for chronic under-investment in the transfer market allied with ticket price rises – effectively a poorer quality product for a higher price.

Rooney’s uncomfortable truth

Ed October 21, 2010 Tags: , , , Opinion 54 comments

Wayne Rooney’s claim that Manchester United is stagnating under the Glazer regime masks an essential greed on the player’s part but it also strikes at the heart of the club’s financial problems. The striker says that he will not sign a new contract because David Gill will not assure him over the club’s ability to attract the world’s top players.

It’s a claim United can have only one answer to.

It is now likely Rooney will be sold in the January transfer window, with United keen to realise whatever value is left in a player with just 20 months left on his £90,000 per week deal. Rooney, believed to be considering a £260,000 a week offer from Manchester City, can leave for free in June 2012 if United has not sold the striker before then.

In another extraordinary twist in the ongoing saga over the past week, Rooney’s camp released a statement just two hours before United’s match with Bursaspor last night. Timed to have maximum impact ahead of a key Champions League clash, Rooney directly challenged the Glazer family’s ownership of the club. The 24-year-old claimed that failure to attract the world’s best players lay at the heart of his decision.

“I met with David Gill last week and he did not give me any of the assurances I was seeking about the future squad,” said Rooney.

“I have had a number of meetings with the club about a new contract. During those meetings in August I asked for assurances about the continued ability of the club to attract the top players in the world.

“For me its all about winning trophies – as the club has always done under Sir Alex. Because of that I think the questions I was asking were justified.”

Despite the high degree of unprofessionalism demonstrated by Rooney’s camp in the past week, the statement touches on concerns about the club’s investment in the transfer market.

The uncomfortable truth about the Glazer family’s willingness to invest in marquee players, while paying down the clubs huge debt burden, is yet to be answered.

Since reaching the Champions League final in May 2009, Carlos Tevez and Cristiano Ronaldo have left the club, while Ferguson has invested largely in younger, unproven replacements. Ferguson last night reiterated the club’s policy of buying younger players.

Supporters groups are concerned that United’s £720 million debt is impacting the club’s ability to compete in the transfer market, with more than £80 million in interest and refinance charges haemorrhaged in the last financial year. In the past two years the club has spent around £55 million on new players but received more than £94 million in sales, while pocketing money once earmarked for Tevez’ signature.

The subtext, of course, is that Rooney also believes United is in danger of slipping behind Chelsea and City domestically, while falling further back in Europe. United sits behind both Chelsea and cross-town rivals City in the Premier League and has fallen to third in the domestic wages table. It is perhaps instructive that no team has ever won the Premier League while not one of the leading payers.

Ferguson reacted to with anger to Rooney’s challenge last night, warning the striker that the grass is not always greener. The United manager said that the club will invest in players when the time is right but said that the club’s policy is to bring in younger players.

“We will invest for signature players when the time is ready, and this summer was not right for me,” claimed Ferguson, who has repeatedly said that there is no value in the transfer market.

“Our policy is to bring in young players and it is the right policy.

“We have a good structure, the right staff, the right manager, the right chief executive. There’s not a thing wrong with Manchester United.”

Except for £720 million debt, critics might add.

In any increasingly bitter war-of-words, Ferguson said he was to meet with chief executive David Gill today to discuss whether Rooney will be sold in the upcoming window. Ferguson also appealed to supporters, most of whom assume that Rooney’s motives are based on the desire for untold wealth on offer at City. Banners at Old Trafford last night proclaimed the striker a ‘whore’.

“Some players like to think there’s a better world somewhere else but it never really works,” said Ferguson.

“They look in a field and see a cow and they think it’s a better cow than the one in their own field, and it never really works out that way.”

United’s financial dilemma over Rooney is underscored by the player’s rapidly depreciating value. Cup-tied in Europe, and reportedly demanding wages in excess of £200,000 per week, Rooney is attractive only to a very small group of clubs. Should United delay a sale until next summer, the club may only realise a third of the player’s true value. Perhaps as low as £20 million.

While supporters can expect any money from Rooney’s sale to be reinvested into the playing squad, Bloomberg today revealed that the Glazer family has delayed repaying the Payment-in-Kind (PIK) notes amid fears of a supporter backlash.

The Glazer family is allowed to take up to £95 million in dividends immediately, followed by up to 50 per cent of United’s EBITDA profits – earnings before interest, tax and other deductions – after bond interest payments. On current earnings the Glazer family could take another £28 million this season plus various management and consulting fees.
However, United’s recent accounts showed that these dividends had not yet been taken, with Bloomberg’s sources claiming the family failed to do so following a high-profile campaign by supporter groups last season.

While United’s finances continue to dominate supporter groups thinking, Rooney’s probable January departure means a third leading player leaving the club inside 18 months. Despite Ferguson’s assertions, it is hard to argue the team has not regressed in that period.

Aside from the departures Anderson shows few signs of progress, Michael Carrick’s slump continues and Park Ji-Sung makes a weekly case for permanent exclusion. Paul Scholes, Ryan Giggs and Edwin van der Sar is each one day closer to retirement.

Indeed, last night Ferguson argued strongly that United is now at the end of a cycle of success. Whether and when United rise again is a matter of youth development and investment in the market.

The former is a matter of three years,  Ferguson said. The later is seemingly now a factor of the Glazer family’s bravery.

Arrogant Gill playing fans for fools

Ed October 10, 2010 Tags: , , Opinion 53 comments

Manchester United chief David Gill has dismissed supporters’ fears over the club’s finances and reiterated his stance that Sir Alex Ferguson has money to spend in the transfer market. It’s an increasingly tired line, coming in a week when the club posted record losses as the Glazer family’s leveraged takeover bites on United’s ability to compete.

Gill conceded that the club’s huge debt reduces the amount of money available but again denied that the £45 million per season interest payments effect United’s ability to compete in the transfer market.

It begs the question: just how foolish does the 53-year-old executive believe United’s supporters to be?

“I cannot disagree that, without the debt, we would have more money within the club, but the interest payments do no impact on the club’s ability to attract players,” he said.

“We have more than £160 million earning interest in the bank and the Ronaldo money remains largely unspent. The money is definitely there, if Alex requires it.”

It is precisely this kind of statement from Gill that the doormat tendency at Old Trafford is all too willing to follow, with some misguided – read deceived – supporters believing a challenge to the Glazer regime is akin to an attack on the club. It’s not.

It is those same fans, who slavishly follow the pronouncements from Gill and Ferguson, that the Glazer family is exploiting to prop up an ailing regime. Don’t believe the headlines, they say; it’s the anti-United media faction making the most of accounting rules to talk down the club.

Others know that Gill is telling at best half-truths.

True, remove the non-cash adjustments to United’s audited annual accounts and the club would have made a £25 million cash profit. That is, in a season where United achieved a record turnover on the back of increased ticket prices and a new television rights deal, United could afford to spend about one-third of a Cristiano Ronaldo in the market and break even.

With no growth in television or gate revenue likely in the current year, and United’s over-exploitation in the commercial market gathering pace, there is a good argument to say 2009/10 may represent the peak of the club’s financial might.

This is the rub, while United retains about £160 million in the bank, £28 million is already effectively spent on the disastrous debt-swap and £70 – £95 million will be carved off by United’s parent company Red Football Joint Venture (RFJV) to pay down the so-called Payment in Kind (PIK) debt.

Moreover, in this financial year the Glazers can also take up to another 50 per cent of United’s profits in further dividends. The family almost certainly borrowed money from the club in 2008 to buy up 20 per cent of the PIK debt and they will again. It makes no financial sense for the Americans to not draw from United’s funds once again.

Despite all the evidence to the contrary, Gill says that money is there for Sir Alex to compete in the transfer market. Fans know he’ll need it, with up to four players retiring in the coming summer, while Owen Hargreaves and Michael Owen are out of contract. It’s going to take a lot more than £25 million to revitalised the Scot’s squad.

Don’t worry, says Gill, the benevolent Glazers have retained money in the business for this purpose.

“They have retained that money in the bank and it’s there for Sir Alex if he needs it for players, and for investing in the training ground and the stadium,” said Gill, who labelled debt the ‘road to ruin’ before accepting £1.7 million per season to play turncoat.

“United fans should not be concerned, we have a long-term financing structure in place, excellent revenues that are growing, we are controlling our costs – total wages are 46% of turnover – and we can afford the interest on our long-term finance.

“There is zero pressure at all to sell any star player whether it is Wayne Rooney or X, Y or Z. I can categorically say that. The philosophy is to retain and attract the best players.”

United’s ability to pay off interest is the bean-counters’ concern, of course, not the supporters’. Meanwhile, double-negative talk of United not selling star players is little more than a red herring.

United isn’t struggling to pay debt interest, as Liverpool has done in recent times. Neither is the club under financial pressure to sell Rooney or others.

However, United fans are genuinely worried about the ticket prices at Old Trafford and whether the team can remain competitive on the pitch with no significant net investment in the player squad over the past two summers.

With no plan to de-leverage in the next six years the Glazers will continue to use the Reds as a vehicle to pay interest and PIK debt. After all, RFJV owns no other asset than the club.

Supporters of a less ostrich-like ilk understand that unless the club’s ownership changes, debt will continue to play a significant role up to and including 2017. At that point the club will need to find at least £502.5 million to pay down the bond or refinance yet again. Debt in perpetuity.

If the PIK debt is no longer a factor by then it will surely mean United has been drained of a further £200 million.

This much supporters understand. At least those who have given up listening to Gill that is.

United posts £83.6 million loss

Ed October 8, 2010 Tags: , , Opinion 45 comments

Manchester United’s annual accounts to 31 June 2010 shows the club made a huge loss of £83.6 million despite rapidly increasing operating profits. The huge losses, associated with refinancing, debt interest payments and a decline in the squad’s value, will further fuel the anti-Glazer protest movement at Old Trafford.

One-off costs associated with the £502.5 million bond issued in January, together with an annual interest bill in 2009/10 topping £43 million have swallowed the club’s £100.8 million operating profits, despite the club announcing record turnover of £286.4 million.

The huge losses include a £40.6 million financing charge associated with the bond issue and a £19 million loss on fluctuating exchange rates.

There is now £521.6 million book-value debt owed by the club – excluding so-called Payment in Kind (PIK) debt – most of which matures in 2017. Under the current business plan the club will not pay down the debt before 2017 and is likely to refinance when the bond matures.

The Americans are allowed to take the £70 million dividend under the terms of the bond and many analysts believe that the cash – when finally taken – will be used to buy PIK debt that is running at more than £220 million.

However, the accounts record only the financial position to 30 June 2010 and, as expected, do not show that the Glazer family drew on a £70 million dividend to that date. Indeed, noises coming from the Americans’ camp in the summer signaled as much, with fans likely to find out more when the Q1 2011 figures are published in November.

Neither was a note attached to the accounts reporting a material change in United’s financial position post reporting date, which would have signaled that the dividend had been taken. Accordingly, United’s cash position increased slightly to £163.8 million.

The family bought 20 per cent of the PIK debt in 2008 at a heavy discount, almost certainly with £10 million borrowed from the club in loans. However, the remaining PIK debt now accrues interest at 16.25 per cent annually, which explains why the January bond was specifically designed to enable the Glazers will pay off the debt through club funds. Indeed, there is no business logic behind not paying down the PIK debt immediately.

The family can also take up to 50 per cent of United’s annual post interest profits as dividends on an ongoing basis, together with £6 million in management fees. All for the pleasure of having the Glazers as owners.

The losses provide a stark contrast with the club’s activity in the transfer market over the last season, where United spent about £11 million net this summer in bringing Javier Hernández, Bébé and Chris Smalling to the club. Zoran Tošić and Ben Foster moved on to CSKA Moscow and Birmingham City respectively.

The club can point to strong growth in media and commercial income, which puts United in a comfortable position to pay off debt interest. Indeed, United’s position is nothing like as perilous as Liverpool’s, with the Anfield club unable to cover interest through profits.

United has embarked on a programme of striking territorial deals with new sponsors such as Singha Beer, Concha y Toro wines and PCCW over the past year. It has led to criticism in some quarters that the club is now over-commercialised, with little room for growth in a very competitive sports-sponsorship market.

Supporters though will remain angry that the club continues to post huge losses on the back of the Glazer regime while under-investing in the transfer market. With Edwin van der Sar, Gary Neville, Paul Scholes and Ryan Giggs all retiring within the next 18 months, fans are yet to see any evidence that Sir Alex Ferguson is allowed to invest in established talent despite the departure of Cristiano Ronaldo in June 2009.

Ongoing price rises and controversy over the debt has led, for the first time in a generation, to the club failing to sell all season tickets. 2,200 remained on the shelves as the season began, and this week the club embarked on yet another email and text message marketing campaign, designed to sell the remaining season tickets.

Despite an eroding supporter base Old Trafford has sold out for each of the matches held this season. However, it remains to be seen whether tickets for less attractive upcoming matches against West Bromwich Albion, Wolverhampton Wanderers and Bursaspor go on general sale or even sell out.

Whether the financial results offer any new impetus to a bid for the club remains to be seen. Liverpool’s distressed sale at £300 million may help set a more realistic price for the club, but the Glazer family is under no immediate pressure to sell. United’s income covers debt interest payments and allows for the family to remove any remaining PIK debt exposure.

Whether there’s enough cash left in the kity to strengthen the squad is another matter altogether. United is a well run club, with an awful balance sheet. Yet for the Glazers’ business plan to work United need only qualify for the Champions League.

Fans must ask themselves if it’s an acceptable scenario or not.

Going, going, gone as the Glazers’ property business turns delinquent

Ed August 25, 2010 Tags: , , Opinion 36 comments

Look away now if you still believe that the Glazer family has plans for Manchester United that are anything but malevolent and would rather not know the truth! In an occasional series investment analyst Andy Green – andersred.blogspot.com – publishes further information on the family’s US property business, First Allied Corporation.

The report makes uncomfortable reading for United supporters still harbouring hopes of a late investment in the transfer market this summer, with the Glazers’ US strip-mall businesses failing an alarming rate as predicted by Green earlier this year.

In May Green identified 34 of 64 Glazer-owned shopping malls that were at serious risk of defaulting on their mortgages, with the entire portfolio highly indebted. In fact First Allied is failing so fast that several shopping malls have failed to pay their mortgages in the past quarter alone.

“Mortgages of five of these centres have become “delinquent”, that is to say the centres have started to miss mortgage payments,” explained Green yesterday.

“These five centres, originally valued at over $38m with over $7m of equity, have become delinquent in the last four months.”

Additionally, says, Green, “five new centres, which had previously been covering their mortgages, have now joined the “at risk” list after seeing falls in occupancy.”

Worse still, while occupancy rates remain low across the group some malls reported as fully let by the Glazer family have also fallen into delinquency because they have come out of interest-only periods on their mortgages.

Green estimates that many more of the family’s malls will fail even with full occupancy because the group is so highly leveraged.

“First Allied’s problems are not just a product of a weak US economy struggling to come out of recession, they are in large part due to aggressive financing structures put in place before the credit bubble burst,” explains Green.

“For 15 shopping centres, the terms of the mortgages on them make insolvency virtually inevitable.”

In fact the entire property business is now in such a poor state that it made just $9 million before taxes and other costs in the past year. The true group position is worse, with Green’s estimate deliberately ignoring the centres with negative cash flow. Each centre is non-recourse, meaning it can fail without impacting the group position.

Insignificant in a portfolio of 64 centres? Probably not, with the family’s NFL franchise Tampa Bay Buccaneers also heavily in debt, United is and will remain the family’s only cash-cow.

Indeed, given the lack of free cash-flow in its empire and the family’s extreme indebtedness, the Glazers have little choice but to remove hundreds of millions in dividends from the club’s coffers under the terms of the £504 million bond issued last January. This will pay down the so-called Payment-in-Kind (PIK debt), while Sir Alex Ferguson remains short of transfer funds and seeking “value” in the market.

There is, to paraphrase the Scot, no doubt that, although inexplicably some supporters still doubt this is the family’s intention.

The picture is of course similar to that unveiled by Green, the Guardian’s Daniel Taylor and BBC Panorama last May, with the Glazers’ property position deteriorating in the past quarter. It explains almost entirely the family’s motivation for issuing a bond that actually increased United’s interest payments, why Sir Alex Ferguson is suddenly seeking “value” and the reasoning behind both the Bucs and United’s “investment in youth” – read cheap – strategies.

While the Bucs came off disastrous 3-13 losing season on one of the lowest wage budgets in the NFL, United had ‘only’ the Carling Cup to show for a largely disappointing campaign in a mediocre quality Premier League after selling Cristiano Ronaldo last summer.

The response to relative failure?

Tampa Bay has invested in a range of younger free-agent players during the off-season, while the fans have walked away in droves. The franchise sold less than 40,000 season tickets and the club must now black-out TV coverage as games have not sold out for the first time in decades.

Meanwhile, following a remarkably similar strategy United has spent around £10 million net this summer on three youngsters this summer as the club also failed to sell all available season tickets for the first time in recent memory.

The strategy has failed at the Bucs since the franchises’ 2002 Super Bowl win, while the future is still unknown for United. There are, however, few examples in professional sports where a club bucks – no pun intended – the market and reaches greater heights on a negative investment strategy.

Indeed, in context the 1996 double winning side, including a youthful Paul Scholes, Ryan Giggs, Gary Neville, Nicky Butt and David Beckham, is an historical aberration.

With the Glazers’ finances unlikely to improve in the medium term, Ferguson must now repeat the trick.

Interest rate hike confirmed

Ed August 19, 2010 Tags: , Opinion 21 comments

The Glazer family must pay an eye watering 16.25 per cent on the Payment in Kind (PIK) debt it owes as part of the 2005 Manchester United acquisition, Bloomberg confirms today. The anticipated increase will add an extra £5 million annually to the debt that will climb to £270 million by 2011 and £310 million by 2012.

The notes, which are due in 2017, will continue to increase in value unless the family pays it off, culminating in a bill of more than £600 million if no payments are made. The Glazer family took out the notes in 2005 as part of the highly leveraged takeover, with two rounds of refinancing, including the January 2010 £504 million bond, failing to address the PIK debt.

Including the PIK notes – £202 million at last published figures – and bond, United’s total debt is effectively £706 million rising to around £770 next year and in excess of £810 million the year afterwards.

“PIKs can make sense at certain times but given the rate at which interest accumulates they can quickly wipe out equity,” said Jonathan Moore, a high-yield analyst at Evolution Securities, told Bloomberg.

“You’d expect owners to take them out as soon as they’re able to.”

Indeed, January’s bond removed the restrictive covenants placed by banks on the club’s former senior debt and offers United’s management greater flexibility in the way it uses the company’s cash reserves. The Glazers have an option under the terms of the bond to take £70 million out of the club to pay down other debt this year, and 50 per cent of United’s profits in dividends, management fees and loans on an ongoing basis.

The bond substantially increases United’s interest payments, leading most analysts, including underwriters JP Morgan, to conclude that partial PIK debt repayment will take place in the coming months. The family may already have removed the £70 million from United’s coffers but supporters may not find out until the club’s Q1 2010/11 results are published in the autumn.

Although United is not directly liable for the PIK debt – it is owned by a Glazer holding company called Red Football Joint Venture Ltd. – analysis by the blogger Andersred earlier this year demonstrated that the family has no other source from which to pay down the debt or face losing the club in 2017.

It is this very prospect, with Sir Alex Ferguson’s spending limited to a net £6.7 million per season under the Glazer regime, that so inflamed the United support this year, with more than 160,000 supporters joining the Manchester United Supporters Trust (MUST).

Ferguson has spent around £24 million bringing Chris Smalling, Javier Hernández and Bébé to the club this summer, with another £14 million recouped from the sales of Ben Foster, Zoran Tosic and Craig Cathcart.

However, with the Red Knights yet to make a bid for the club, and no other serious bidder yet on the table, United supporters may have to swallow limited net spending by the club in the coming seasons.

The Red Knights group, including Goldman Sachs Group Inc. Chief Economist Jim O’Neill, confirmed this week that it still intends to bid for the club, with reports of new “anchor bidders” from the Middle East injecting cash into the consortium.

Despite this, the group has said it will not bid for United until the Glazer family reduces its £1.5 billion asking price to “a sensible price” of less than £1 billion.