Family debt: the Glazers not yet moved to invest
It has taken, by any reasonable assessment, just shy of £700 million in interest, repayments and fees, three refinancing rounds, and countless intrigue, but Manchester United’s huge corporate debt is finally under a modicum control. There have been times, many of them, when the day seemed unlikely.
Not that United is debt free – far from it, in fact, with more than £360 million still on the club’s books. But with annual debt interest now down to £20 million per year, the club is heamorrhaging the equivalent of just the one international-class signing per season, rather than four.
It poses an interesting scenario. With United’s corporate imperative no longer financial survival, there is the theoretical possibility that the Glazer family could finally unleash United’s revenue generating potential, investing in the club both on and off the pitch. After all, United’s cash-generation has never been stronger, while there is plenty of equity still to be released should the family issue more shares, as is believed likely.
History, of course, says supporters should throw that logic to the wind. After all, the family has a record of placing its own financial requirements first; United’s a distant question. The club’s August 2011 IPO in New York is a case in point, with the family backtracking on an initial promise to retain the proceeds within the club.
Yet, the question of investment is now on executive vice chairman Ed Woodward’s desk. The 40-year-old is juggling debt, the club’s rampant commercial drive, and the inexorable rise of wage inflation, as the Reds ponder moves in the January transfer window.
Still, United’s Q1 figures issued this week demonstrate strong revenue growth – up 29.1 per cent to £98 million for the first quarter of the financial year. Commercial income rose 62.6 per cent on the back of a dozen new sponsorship deals, while record Premier League broadcast rights income, and the summer season-ticket influx contributed to a surge in turnover. United reported operating cash flow of £32.3 million in Q1 and cash profits before transfers up 36 per cent to £22.2 million.
The Premier League’s £3 billion deal for domestic rights, which represents a 70 per cent increase on the previous contract, has significantly bolstered United’s coffers. And this is a bubble not yet ready to burst: BT Sport’s victory in outbidding Sky for Champions League rights is likely to ensure English clubs earn an extra £10-£15 million each annually from 2015. BT will pay £900 million for Champions and Europa League matches over three years.
“Sport is the ‘must-have’ content, its value has grown dramatically,” said Woodward, speaking to investors on Thursday.
“We are excited by the continuing rise in the value of sports content, evidenced, amongst other things, by the recently announced BT deal for the UK rights to broadcast the Champions League and Europa League matches. This deal represents a meaningful increase over the current arrangement.”
Players continue to be the principle winners of the rights inflation though, with United’s staff costs rising by 31 per cent to £52.9 million in Q1. UEFA’s financial fair play rules are yet to bring deflationary pressure on salaries it seems, although Woodward argued that “a fall in the acceleration around player wage growth” is now being felt in the Premier League. Just not at Old Trafford.
Yet, it is debt not wages that has most afflicted United since the Glazer takeover. Obligations still run to £361 million, although debt service costs have fallen on yet another round of refinancing. United owes around £200 million in bank debt, at a rate fixed between three and four per cent interest, with the rest in bonds at almost nine per cent.
By the time United is free from arrears, if ever, the club will have wasted more than £1 billion on the Americans’ debt.
Still, with more than £80 million in cash sitting in the club’s bank account at the end of the quarter, supporters may ponder not only transfer market muscle finally being flexed, but investment in a stadium that has remained largely unchanged since the family took control in 2005, notwithstanding commitments made prior the family’s arrival in Manchester.
Indeed, the argument for new spending on the pitch is strong given the club’s rocky start to the new season under manager David Moyes. The Scot presumably still hankers for a new left-back and high-quality central midfielder.
Whether Woodward has the will or means to secure new acquisitions is a question that will only be answered at the end of January. Certainly, supporters expect a far more professional approach to the market, whether substantial cash is spent, or not.
Meanwhile, the Manchester United Supporters Trust (MUST) is actively pressing the club to invest in new infrastructure. Woodward’s arrival has re-opened lines of communication between principal supporters’ groups and the club, with MUST and the Independent Manchester United Supporters Association (IMUSA) previously ostracised by Sir Alex Ferguson and David Gill.
While MUST chief executive Duncan Drasdo’s recent meeting with Woodward remains off-the-record, the group is believed to have pressed for the introduction of German-style rail seats, potentially – and controversially – part-funded by supporter investment in new shares.
“We’re interested in exploring ways to progress introducing a section of these seats,” Drasdo told the Independent this week.
“We can see potential for fans who wish to, to invest in shares in the club, with the funds ring-fenced for specific purposes such as rail seats or stadium expansion. It would be an excellent demonstration of the value which can be derived from fans investing in and sharing ownership in their club.”
“The cooperation and the participation of fans in the ownership of the club brings an improvement to the atmosphere as well a financial benefits to the club.”
In MUST’s call there is some wry humour. While Old Trafford’s bean counters posted record financials, just eight miles to the north east, FC United of Manchester broke ground on a new stadium at Moston this month. Set to open August 2014, the community-funded 5,000 capacity venue will be FC’s first permanent home, nine years after the club was formed in the wake of the Glazers’ arrival.
Moston Community Stadium will cost £5.5 million to construct, with £2.5 raised by supporters, and the rest granted by Sport England, the Football Foundation, Manchester City Council and Manchester College. It is the kind of kind of community effort actively shunned by big brother to the south.
The irony in big United turning a financial corner, after eight years and £680 million wasted, is surely not lost on those in Moston. Whether security now pushes United to invest in team and stadium is open to question. After all this time, few supporters will bank on it.