Tag Glazers

Tag Glazers

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.

Glazers’ US IPO barely credible, let alone realistic

June 14, 2012 Tags: , Opinion 36 comments

Manchester United owner, the Glazer family, is exploring options to float the club in the United States, reports Reuters this week, after abandoning a mooted Asian IPO for the second time. Seeking up to £600 million in a partial floatation, the Glazers have now binned attempts to list the club in both Hong Kong and Singapore, with a New York IPO now proposed by the Tampa-based family. But just as Asian plans foundered on the Glazers’ ambitious over-valuation of the club, so presumably will any US float.

Plans to float in the States is one of a long line of proposed solutions to United’s £423 million debt, which has dogged the club since the Glazer family’s 2005 leveraged buyout. Two subsequent refinancing rounds have converted debt secured to buy the club into a long-term bond, while the family also paid down hundreds of millions in now infamous payment-in-kind hedge fund loans, presumably through a further US-based loan. The last published accounts showed gross debt at around £423 million, with net debt at £397 million.

The latest plan, claims Reuters, is to position United as a global “media business,” rather than appealing to the retail-centric institutional investors in Singapore, who failed to express the kind of interest the Glazers had sought. The Americans are also said to be pressing ahead with a dual-track listing in New York, offering only a small percentage of shares to the market with full voting rights, enabling the family to retain full control over the club.

“The U.S. listing would come either on the New York Stock Exchange or its electronic rival Nasdaq,” the Reuters article claimed, citing unnamed sources.

“A person familiar with the New York Stock Exchange, owned by NYSE Euronext, said an exchange decision is expected soon. U.S. One of the sources said Manchester United had always planned to position itself as a global media business rather than a sports franchise, suggesting that a U.S. listing would make more sense. Investors are familiar with the dual-class share structure that was under discussion for Manchester United’s Singapore listing, having seen it used by household names such as Google and Facebook.”

However, the family pulled the plug on Asia in part due to ‘volatile market conditions’, say analysts familiar with the situation – a less-than-subtle euphemism for the failure to attract interest at the price sought: a valuation in excess of $4 billion (£2.4 billion). Meanwhile, in a down-turned economy other sports and retail listings have failed in Asia, including the now postponed Formula One float, and the underwhelming Prada and Samsonite IPOs.

The mooted float in the US may suffer the same lack of investor intention though, unless the family lowers its proposed asking price, or promises the market a huge premium on future dividends – a logistic and legally impossibility.

Glazers’ Dilemma

Indeed, simple back-of-an-envelope calculations illustrate the Glazers’ dilemma in listing on any market, let alone in the US where there is no history of sports franchise flotation.

On takeover in 2005 the Glazer family paid 300p per share for 70 per cent, or thereabouts, of the club it did not already own, valuing United at £795.76 million on a price-to-earnings (P/E) ratio of around 19. Seven years on, and although the volume of shares to be listed is unknown – ceteris parabis – United might be reasonably be valued at more than £2.215 billion on the same multiplier. This is a reflection of the steep rise in earnings before tax and deductions under the Glazers’ stewardship.

The line drawn by the Glazer family between the price paid in 2005 and a 2012 paper valuation in excess of £2.5 billion is conveniently transparent. But all things are, of course, not equal and revisiting the takeover is illustrative, predominantly, of the steep premium paid by the Glazer family in 2005. It was a deal front-loaded with significant ‘goodwill’ – that is, the value place on intangible assets such as United’s ‘brand’.

In the intervening years the global financial outlook has deteriorated markedly, while sharply rising staff costs and uncertainly surrounding UEFA’s Financial Fair Play (FFP) regulations adds more than a little fog to any valuation even on the most generous projections of United’s future income.

US-based magazine Forbes uses a more pragmatic P/E multiplier of 12 in it’s 2012 list of “Soccer Team Valuations,” placing an approximate value on United of £1.39 billion. Even this may be generous. Forbes applies a multiplier of 8.7 to the structurally-unacquirable – and more profitable – Real Madrid, 13.6 on Barcelona, 13.1 on Arsenal and 10 on Chelsea. Perhaps a better guide still is the 10.3 multiplier at which an ailing Liverpool was sold to Fenway Sports Group in 2011.

Calculation of an IPO pricing is, as ever, part art as well as science. Elsewhere in New York the world’s most valuable company Apple is trading at P/E 14, and Google at 17.

There is almost no comparable sports franchise listed in New York, which ought to say something. However, stretching the ‘sports’ term to World Wrestling Entertainment, Inc. (WWE) yields an interesting comparison. In the same period as United’s last reported accounts WWE, on very similar earnings, yielded a market cap of around $1.39 billion (£894 million). The market considered the price a bubble, and WWE is today trading at less than half its previous share price.

Little wonder sceptics doubt the Glazers’ ability to list on NYSE at the price seemingly desired. The market is likely to reject the listing by under-subscribing the IPO, or much like the recent Facebook listing, the share price will tumble on open trading.

However, it is unlikely the Glazer family will get that far according to some observers. Independent United blogger and analyst Andy Green called the proposals “desperation” on the Glazers’ part in an interview with Reuters, Thursday.

“First it was Hong Kong, then Singapore and now New York,” said Green.

“The Glazers assumed they would get a high price in Asia and they haven’t – I’m not sure they will in the US either given there’s no tradition of listed sports clubs.”

Television Rights

That said the Glazer family will certainly cheer the Premier League’s new television rights deal struck with BSkyB and BT this week that will yield more than £3 billion between 2013 and 2016. It is a 70 per cent uplift in domestic media income, which alongside international rights still to be negotiated, could net United £20 to £30 million more annually in Premier League media rights.

Sky paid £2.28 billion for the rights to five of the seven available packages, which secured 116 live matches a season. BT acquired two packages for a total of £738 million, with the telco able to broadcast 38 matches per season.

The additional income, claims Premier League chief executive Richard Scudamore, will enable United and other English clubs to compete more effectively with Real Madrid and Barcelona who sell their broadcast rights individually.

“This will take our clubs up a notch closer to those clubs who benefit from the individual selling model, say in Spain,” Scudamore said.

“I hope this will keep our league as competitive as it can be, under a collective selling model, with the other leagues. We have just come off the back of a fantastic season and, yes, it has been good for us that we are in the market and selling something at the time when what we are displaying on the field, and therefore able to broadcast, is an attractive proposition.”

Attractive though the proposition may be, more than 20 years of Premier League history has taught that the symbiotic relationship between television income and players’ wages is almost perfectly correlatory. The television income bubble has not burst, but neither has players’ desire for ever more lucrative contracts been satiated.

Manhcester United wages and TV income

Source: Andy Green, andersred.blogspot.co.uk

Perhaps, then, the real question with the IPO is not whether the Glazer family can get this one away, at the price they want, and with associated bond buy-back so heavily promised last time around, but what the strategy is post failure. It’s a scenario that, unlike the Premier League rights process, will bring little cheer to the American family.

Nor to United supporters concerned that the club should become competitive in the transfer market once again. After seven years of parsimony, it need not take a cynic to spot that dose of realism.

Fergie loses sight of financial reality… and title

May 7, 2012 Tags: , , , Opinion 285 comments

There has been a certain sense of inevitability about Manchester City’s rise over the past four years. After all, while football has its own financial peculiarities, a market is a market is a market. Money talks in football just as in any other industry, and City’s money is singing from the rooftops this season. On the brink of a first domestic title in 44 years, City can thank Abu Dhabi’s sovereign wealth for the club’s recent success.

It was odd though that Sir Alex Ferguson should choose the week in which City effectively secured a first title since 1968 to complain about the Blues’ spending. Here, a manager who has spent quite literally hundreds of millions in the market over the years, can hardly have cause to complain.

Moreover, the Scot’s complaint would have far more legitimacy – any legitimacy some might add – had the 70-year-old not spent the past seven years supporting a Glazer regime that has sucked more than £500 million out of Manchester United in debt related costs.

No wonder there has been renewed talk by supporters of the Glazers’ affect on United’s competitiveness in the week since City disposed of Ferguson’s side. The sight of Sir Alex’ team meekly surrendering the Premier League title at Eastlands, without managing a single shot on target, while Ferguson left some of his most effective players on the sidelines, was genuinely bewildering.

In truth United played scared; Ferguson running for the sanctuary of a scoreless draw that never appeared. United’s manager, much like the fans, is fearful not only of City’s superiority on the pitch, but seemingly the looming change in hegemony – as Roberto Mancini put it so eloquently this week – in Manchester and England.

Yet, Ferguson is unable to move on from the now tiresomely clichéd excuse that there is no value in the market. Only the foolish now buy into that line given the dozens of examples of ‘value’, let alone bone fide quality, which United has missed over the past six years.

“It’s been an ­insane transfer market for a long time and I think clubs like City create that,” said Ferguson.

“They can buy all the players and put a marker on all the ­players and that makes it ­difficult for clubs then to be ­reasonable. There’s no chance of that calming down and I don’t see how the financial fair play can work. No-one can match City’s financial power – ­no-one.

“It’s not just about the top line transfer fees, it’s about the amount of money clubs can offer in wages. Players are being offered stupid money, the type of sums that are hard to turn down. We can make a player a very good offer, but unless he wants to come to United for football reasons he is not going to say no to stupid money from somewhere else.

“We have to accept that, so we do it a different way. We’ll try to look at young ­players with the potential to develop in the club, which we’re good at, so we’ll stay with that.”

While City’s wealth will buy the club trophies, closer to home Ferguson has continued to deny that the Glazer family’s tight-fisted budget has made any impact on United’s competitiveness. This despite the family allowing Ferguson to spend less than half of the net amount per season invested in the six years prior to the 2005 Glazer takeover.

What’s more, the Glazers regime has impacted United’s budget not against a backdrop of Ferguson’s protest, but with his vocal support. United’s squad quality has eroded, while Ferguson’s ability to recover from transfer market misses.

Yet, the excuses come thick from those proffering an alternate line. United’s loss to Wigan Athletic last month, and the disastrous late capitulation against Everton, is little more than a ‘temporary changing of the guard’; a short-term ‘loss of form’ at the worst possibly time. Blame the players, blame the referee, blame injuries. Blame anybody bar manager and his paymasters.

The wider context of United’s cataclysmic European campaigns is relevant though, especially when taken together with the Reds’ performances against Manchester’s other team. When viewed in the prism of matches against City this season, or those with Europe’s second-tier clubs, United’s regression is stark. This is true despite the 86 Premier League points garnered in a relatively poor quality league.

Defeat to City has a way of clarifying the collective consciousness though. And while there is nothing United, Ferguson, or the supporters can do about another club’s financial model, the cumulative effect of £7.5 million net spent per season under the Glazer regime, while rival clubs pump investment into the team, could do little but reduce the club’s competitiveness.

It is a truism that not only City, but Tottenham Hotspur, Liverpool, Sunderland, Aston Villa and even Stoke City have each spent more, net, than United since 2005.

And in the week that Cristiano Ronaldo secured the La Liga title, United supporters were given a taste of what has been lost – and not replaced – during the Glazers’ tenure. The Real Madrid forward has scored 45 goals in 37 La Liga games this season. Interesting, then, that Ferguson should believe Ronaldo still represents ‘value’ at £80, £160 or even £800 million.

“You can only assess value on success,” added Ferguson, who sold Ronaldo to Madrid in summer 2009.

“Like Real Madrid with ­Ronaldo. They’ll be saying ‘we’d have paid £160m for him with all he’s done’. At more than a goal a game he’s been a fantastic buy for them. At the time we thought £80m was not bad. Now I’m saying to myself it should have been a lot more. He’s been such a fantastic buy for them, maybe we should have asked for £800m.”

United didn’t genuinely replace Ronaldo, although there was once much talk of the ‘Ronaldo money’ being available for Ferguson to spend. Yet, mindful of working under the PLC regime that required layers of sign-off on every deal, Ferguson now enjoys working with a single paymaster, whatever the budget. His aggressive support for the American family may never fully be explained.

Increasingly, Ferguson has insisted, with no concern for historically accuracy, that United does not spend large sums on players, while promoting ‘youth’ as a method of bucking a market that offers no value. It’s hogwash of course, as those who completed the analysis presented in Soccernomics and Pay as you Play will attest. Money spent on transfers and wages counts for much: between 72 per cent and 89 per cent of success, in fact.

Record transfer signings, of one form or another, Roy Keane, Paul Ince, Gary Pallister, Rio Ferdinand, juan Veron, Dimitar Berbatov and Wayne Rooney might disagree too. Fergie has always spent money – some good, some bad. According to some he offers the best ‘value’ of any manager around. Who could disagree?

Which brings us back, not only to the Glazers parsimony over the past six years, but Abu Dhabi’s dizzying ability to outspend all others. ‘Tick tock’ mocked City’s supporters over recent years, suggesting that success was only a matter of time. Indeed, bar Queens Park Rangers pulling off a miraculous result at Eastlands in a week, United’s hegemony will have been broken.

Worse, those supporters hoping for a response by United in the market will be disappointed at early indicators of Ferguson’s likely transfer strategy this summer. While City may spend “insane” money, United will invest in youth. It may be some time before City’s superiority is matched.

Spending under the Glazer regime

United’s net spend 2005 – 2012 (in relevant financial year):

  • 20005/06 – £1m
  • 2006/07 – £4.1m
  • 2007/08 – £26.55m
  • 2008/09 – £33.75m
  • 2009/10 – (-)£64.5m
  • 2010/11 – £13.55m
  • 2010/12 – £38.15m

Net spend under Glazer regime 2005 – 2012 = £52.6m
Net spend per season under Glazer regime = £7.51m

Net spend 1998 – 2005 (in relevant financial year):

  • 1998/99 – £25.95m
  • 1999/00 – £16.05m
  • 2000/01 – (-)£8.3m
  • 2001/02 – £29.3m
  • 2002/03 – £27.05m
  • 2003/04 – £13.35m
  • 2004/05 – £21.35m

Net spend under PLC regime 1998-2005 = £124.93m
Net spend per season under PLC = £17.85m

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.