Tag Glazers

Tag Glazers

Three strikes and you’re out for Glazer IPO

July 26, 2012 Tags: , Reads 68 comments

The Glazer family’s very long mooted Manchester United flotation may be off for a third time after the Financial Times confirmed that an initial public offering (IPO) planned for New York this summer is on “pause” for an undetermined period. Citing volatile market conditions, the FT says that the IPO may now not take place before the new football season kicks off in August. The Manchester United Supporters Trust (MUST) and blogger Andy Green claim the IPO is now ‘dead in the water’.

But after failing to get the listing away in both Hong Kong and Singapore, there is suspicion an age-old problem has risen its head: Glazer family greed, and an over-valuation of the club.

United executives had planned to hit the road this week, meeting investors in Europe and Asia, before heading to the States to sell the listing amid a rash of negative articles in the financial press on both sides of the pond. But referencing insider sources, the FT claims that the Glazers have been spooked by a downturn in market conditions and increased volatility this week.

“The pause comes as US markets have been unsettled by further concerns over debt and economic growth in the eurozone, with the S&P 500 index falling 2 per cent since the start of the week,” said the paper’s editorial on Wednesday.

“People familiar with United’s IPO plans suggested the current delay had to do with market conditions. The Vix index, a widely monitored measure of implied volatility on the US market, has risen by more than 23 per cent since Monday. Bankers consider a sudden rise in the Vix as a sign of potential risk aversion from investors, making them less likely to participate in new offerings.”

The delay means a valuation is unlikely to be set until mid-August at the earliest; the smart money suggests the listing is to be pulled in its current form.

This comes just days after reports emerged that the Glazer family was keen to list before the new football season begins, with Sir Alex Ferguson repeatedly wheeled out to the defend the Americans in the past week. The owners’ enthusiasm to avoid another round of ‘Green and Gold’ style protests at Old Trafford ahead of listing, and a seeming desperation to get the listing away, were perhaps behind the media blitzkrieg.

Yet, volatility and poor market conditions are excuses that will fool few, with the two per cent S&P index fall barely a blip in historical terms. Meanwhile, the Vix has been running at around 20 this week – far lower than in previous months this year. Indeed, the Vix – an aggregated market nervousness score amusingly dubbed the “fear index” – has jogged between 15 and 20 this month, but up to 48 in the past year, and at 80 during the widespread market panic in October 2008.

The pandemonium, if there is any, resides in the United boardroom, not the NYSE floor.

But if market conditions are not genuinely to blame for delay – temporary or permanent – then lack of institutional interest in the sale is almost certainly a factor. The family’s dual-class share structure, determination to pay no dividends, a market unfamiliar with UK sports ‘franchises’ and the aggressive valuation consistently demanded by the Glazers are all in play.

In fact, a consistent pattern has emerged in the past 18 months, with the family willing to sell at least part of the club, but unwilling to lower a £2 billion plus valuation that neither the Qatari Royal family, Red Knights, nor institutional investors in two continents are willing to match.

Whether the family reinvigorates the IPO in the coming weeks is the real question, of course, with the FT casting doubt that the process can be completed in the current market window if the club is not priced by August. After all, if the market has spoken, the Glazers cannot return to New York without amending the structure and value of the listing. As the Wall Street Journal argued on Wednesday, while the fans love United whatever the financial outlook, US investors most certainly do not.

What next? Time for a full listing, with single class share structure that could bring partial ownership to the United fanbase, says MUST.

“The Glazers have been forced to pull the New York flotation of Manchester United due to lack of interest at the valuation they were placing on the club,” said ceo Duncan Drasdo on Wednesday.

“We now call on the Glazers to come back with a full flotation of Manchester United with a single class of full voting shares. Should they choose to do this, with no strings attached, we would support such a flotation wholeheartedly and encourage the global fan base of Manchester United to seize such an historic opportunity to secure a meaningful fan ownership stake where the priorities of the club are the same as the fans – not absentee owners.”

In the short-term United’s failure, once again, to list means that the club will continue haemorrhage money in interest and bond buy-backs – around £71 million in the first three quarters of the financial year. In the longer term the Glazers may be forced to re-value the club before sale, or flotation.

Much, of course, depends on just how much the family borrowed to refinance the Payment in Kind (PIK) loans last year, and whether the financial strain has become significant. In other words, not what motivated the Glazer family to change track and seek an IPO in the first place, but how big the financial need has become.

Sir Alex’ guide to being a “real fan”

July 22, 2012 Tags: , Reads 137 comments

“Real fans,” said Sir Alex Ferguson on Saturday, will look at the Glazer family’s debt-fueled ownership of Manchester United over the past seven years and conclude that it “has not affected the team.” It was an assertion made by the 70-year-old manager that sparked a furious debate across social media, with Ferguson, not first the first time, accused of insulting supporters.

It was also news to United Rant, having previously failed to realise that the key tenet of being a Manchester United fan is not, as many believe, supporting the team – home, away, in good times and bad – but obsequious sycophancy towards carpetbagging, tax-dodging, profiteers.

And this new definition of fandom was odd to Rant not solely because United finished trophy-less last season; nor because Stoke City has spent more, net, on acquiring new players over the past five years; nor because the ‘Ronaldo money’ was splurged not on new talent, but on buying back debt; nor because Chelsea has invested around the same amount in Eden Hazard over five years that United spent on debt last season; nor because the Glazer family has wasted more than £500 million on debt-related costs since taking over in 2005; nor, even, because the family has transferred ownership of United to the tax-haven ultra-secretive Cayman Islands.

In fact, this definition is news to Rant for one reason only: we have always believed that it is none of Ferguson’s business, no matter all the silverware and glory he has garnered over the past quarter-century, to define what a ‘fan’ is. Not least because many of the most loyal fans have remained deeply enraged by the Glazer takeover, despite Ferguson’s support of the family these past seven years.

Especially when the former shop-steward, who is paid £6 million-a-year plus bonuses by the Glazers, is so inclined throw insults at whomever disagrees with his assessment that the Americans have been “great” for the club.

“They’ve been great,” said Sir Alex, in a carefully stage-managed attack on the Glazer family’s opponents.

“So if you’re asking me for my views, I don’t have any complaints. I think there are a whole lot of factions at United that think they own the club. They will always be contentious about whoever owns the club, and that’s the way it has always been. There have always been wee pockets of supporters who have their views… but I think the majority of the real fans will look at it realistically and say it’s not affecting the team.”

The real problem with the Glazer family, says Sir Alex, is not the huge drain that debt, which remains at more than £420 million, has bestowed on a once profitable club, but lack of good “publicist.” Rant might conclude that you couldn’t make it up, but Ferguson obviously has.

We have heard much of this before, of course – Sir Alex’ assertion that the family is a “fantastic” owner of a 125-year-old institution, or that there is “no value in the market,” or that fans who don’t like the family should simply ‘f*ck off and support Chelsea,’ or – as in this weekend’s interview with the Mail on Sunday – that it has never been United’s tradition to spend big in the market. That, in fact, the Glazer family is simply holding up a fine United tradition.

On the tenth anniversary of United spending £34 million on Rio Ferdinand, including the £5 million handed to the player’s agent, some fans may have pause for thought on that point. It was a transfer that in today’s terms cost United more than £60 million, according to the excellent Transfer Price Index analysis.

Rant would mention club and British record transfer fees spent on Juan Sebastian Veron, Dimitar Berbatov, Andy Cole, Roy Keane and others during Ferguson’s reign. But that would be too easy.

Yet, while Manchester City is unwilling to countenance fielding young players, Ferguson claims, United is the last bastion of youth – bucking the market to uphold a moral principle dear only to the Scot.

“We buy in the right way and that’s the difference between United and the rest,” Ferguson told his principal cheerleader, Bob Cass.

“We can play 18-year-olds because it’s part of our history. City won’t do it. They definitely won’t play any young players who have come up through the system. Their buys are all 25, 26, 27-year-old established players with a good maturity, experience and good ages.”

It’s an argument that would, of course, have more weight had City’s average player age not been two years lower during the Manchester derby last April. Or if the young United players that started the game – the ones who ‘came through the system’ – weren’t Ryan Giggs, 38, and Paul Scholes, 37.

But all that is a diversion, of course; a deflection from United’s decline, and City’s ascent, in recent years; a red herring, leading the debate away from United’s almost universally criticised Cayman-via-New York IPO. The irony being that hard-nosed US investors will take little notice of Ferguson’s latest Glazer defence – not when the club’s bottom line has been consistently obliterated by debt-related costs since the family’s leveraged buy-out in 2005.

In fact, despite City’s wealth, or the renewed investment by the ‘publicity-shy’ Roman Abramovich at Chelsea, United should remain the biggest fish in the transfer pond given the club’s immense profitability. Only for the profit to be spent almost entirely on debt.

None of that is really the point though. There was time long before the Premier League brought United immense wealth – before all-encompassing commercialisation was even a glint in Peter Kenyon’s eye – that a venerable institution stood on its own feet and competed on a reasonably even playing field. When fans watched football, not bond markets.

Yes, there have been many poor owners in United’s history. As Ferguson asserts, fans complained bitterly about Martin Edwards’ stewardship in the 1980s, and the flotation that took United on to the London Stock Exchange in 1991. This is without mentioning Lou Edwards’ dodgy sausages, or the committees that almost took United into liquidation twice in the 20th century.

None, however, has been so singularly dedicated to extracting ‘value’ for themselves at the club’s expense as the Glazer family. None has ensured United haemorrhaged money in quite the same way.

Nor, Rant suspects, has any manager backed the owners in quite the same way as Ferguson. The world’s greatest living manager, now reduced to attacking supporters who care deeply about the club. It’s no way to maintain a legacy.

But since Rant has never been one to follow Ferguson’s obsequious lead, we’re unlikely to pass the “real fan” test anyway.

Glazer SEC filing exposes cloak and dagger strategy

July 5, 2012 Tags: , , Reads 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: , Reads 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: , , , Reads 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: , , Reads 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: , , Reads 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: , , , Reads 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