Tag Financial results

Tag Financial results

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.

Gill lashes out at fans as sales dept make threats

May 28, 2010 Tags: , , Opinion 5 comments

David Gill has launched another scathing attack on Manchester United’s green and gold protest campaign, dismissing the scarf wearing supporters as a minority while predicting its demise. Speaking to the Independent newspaper, Gill argues that fans do not understand the protest and are never happy despite success.

Gill’s interview comes as United’s commercial department warns executive seat holders not to delay renewing, with the deadline looming on 31 May. Published today, it is not the first time United’s chief has hit out at the green and gold campaign but the strength of the Surrey-born ceo’s attack may take supporters by surprise.

“I think that [the green and gold] minority will go away. I see people from Asia walking out of the megastore with a red and white scarf on and they just assume they [green and gold] are official scarves and go and buy one,” Gill told the Independent, presumably from the safety of his Old Trafford office and not the forecourt.

“I think there is an element of that. A lot of people understand what it means but a lot of them don’t.”

Gill’s tactic to dismiss the protests, claim the club’s finances are sound and suggest that Sir Alex Ferguson has money to spend in the transfer market is not new. Indeed, the ceo’s interview comes a week after chief of staff Edward Woodward invited leading national journalists to meet at United’s commercial offices in Pall Mall, London.

“They are not going to change their opinion even if we win three Champions League titles in a row,” adds Gill of the 160,000 fans that have joined the Manchester United Supporters Trust (MUST) this season.

“We couldn’t have been much more successful in the last three years: we won the league, we were Champions League winners and runners-up and we won the Carling Cup, but they are never going to be happy.”

United finished second to Chelsea this season, while losing in the Champions League quarter-finals – for which Gill took a public dressing down by his American paymasters – and third division Leeds United dumped the reds out of the FA Cup.

With the season ticket and executive renewal deadline in the next fortnight, box holders yesterday received a letter boasting of a significant hospitality waiting list. Stating that the letter “is a warning not a threat” United’s Head of Client Relations claims that hospitality facilities “will be released to the waiting list on 1 June.”

Aside from the unfortunately threatening tone, it is odd that the bond prospectus released in January notes significant unoccupied executive facilities at Old Trafford last season, with the worldwide recession hitting the club hard.

“For the 2009/10 season, reduced demand for executive and box seats has resulted in approximately 16% of those facilities (by value) remaining unsold as at 30 September 2009, compared with just over 12% unsold at the same stage in the 2008/09 season,” the club told potential investors.

This comes as the club released its Q3 financial results through Manchester United Finance plc, showing cash reserves of more than £95 million on a sharp increase in year-on-year Champions League media revenues.

While many feared the Glazer family would exercise its option to pay down Payment in Kind (PiK) debt most analysts now expect this to come after the end of the financial year on 30 June, meaning the results will not be released until August 2010. Well after the 13 June season ticket renewal deadline.

The results showed year-on-year gross debt down at £520.9 million, although the quarter-on-quarter debt was up, reflecting conversion of bank to bond debt. This does not include the PiK debt, which totals more than £200 million and will be paid down from club cash reserves.

The results also coincide with another reiteration in the Glazers’ stance that the club is not for sale.

“The Board notes recent press speculation regarding a possible bid for Manchester United. The owners remain fully committed to their long-term ownership of the club. Manchester United is not for sale and the owners will not entertain any offers,” said a club statement.

With United’s effective debt now at more than £720 million supporters can only hope the family changes its mind, perhaps by the time the BBC’s Panorama programme on the club’s spiralling debt goes live on 7 June.

Otherwise fans may need to wait for UEFA’s financial fair play regulations to kick in for the 2015-16 season, which include the provision to exclude from competition any club with net debt greater than revenues. Net debt is gross minus liquid assets, including cash.

United’s net debt is more than £425 million with revenues at £278 million for the last reported full financial year.