A Yank’s Take on Glazer’s Dynasty of Debt
Forbes Magazine has estimated the worth of the Manchester United to be about £1.8 billion, the most valuable Football Club in the world for a consecutive 6th year.
So how could a club so wealthy and so famous possibly be facing any financial strain?
Financial analyst Andy Green has been researching the perceived increasingly grim pecuniary situation at Old Trafford for a BBC Panorama expose set to broadcast Tuesday night and estimates the Glazer’s debt now totals upwards of £1.1 billion (700 million of which are tied to Manchester United).
According to Green, “They (the Glazers) borrowed more money at inflated valuations right at the top of the cycle. These are people who tell us not to worry about Manchester United debt because they are great businessmen. In their core business in the US they got it absolutely wrong. At the time when they had to present a huge amount of cash over here in the UK they borrowed a huge amount of extra money in the US and publicly they didn’t buy anything else that year.”
I slept through my finance course at university but a little bit of research into the subject has helped provide a bit of clarity:
In 2005, when Malcolm Glazer took over the club, he used both high interest loans which were secured against assets of MUFC and Payment In Kind (PIK) Loans, which he sold to hedge funds to finance the takeover of the club after acquiring shares from Magnier and McManus. The PIK loans were held by Red Football Joint Venture Ltd secured on owned shares in Red Football Ltd (and therefore placing the onus of debt liability indirectly on to Manchester United FC and not on the Glazer family which did not bode well with United Faithful).
The interest rate due to the hedge funds is a pricey reported 14.25%-16.25% per year, and during their 5 year ownership, the Glazers have yet to pay down any of the PIK loans. This essentially leaves a 600 million debt by 2017 if interest continues to accrue.
And although the American family claim net worth of over £2 billion, Andy Green says there is no way funds will not be drained from the club to take care of these increasing debts. In fact, in January 2010, circumnavigating disapproval of bank loans, the Glazers were able to take £500 million out of Old Trafford’s coffers using United bond. Causing further upset, the terms of this bond included a clause allowing the Glazers to pay themselves 50% of the Consolidated Net Income of MUFC annually.
According to the Glazer-optimistic views of David Gill, Manchester United’s chief executive, “We have an element of the debt that is very easily serviced by the cashflows of Manchester United, we are in a sport that is getting bigger all the time and as one of the leading clubs we should benefit from that growth. We believe we have a much more appropriate and flexible financial structure in place.”
But when considering the total reported debt, Gill’s sentiments are just that- highly optimistic:
-Gross debt : £520 million with £45 million interested annually
-PIK debt: £220 million
Other Glazer Debt:
-£388 million First Allied shopping mall endeavors in the USA
-£66 million Tampa Bay Buccaneers NFL Franchise
Are the Glazers to blame or are we just facing rough financial times? United are certainly not the only club in the Premiership with a cloud of debt looming over the ground. The fiscal situation at Anfield has been described as dire, and relegated Pompey have come within a hair of liquidation. Are more and more prospective clubs owners going to adopt the Glazers method of PIK loan financing to purchase shares or will this be a deterrent to place such risk on the shoulders of the club itself? Arsenal are said to be facing an impending takeover much in the same vein.
And what about Club Loyalty and the supporters disgruntlement with “absentee owners?” The Glazers certainly appear not to have the Manchester United’s best interest at heart when ensuring no personal liability for financial failure and when giving themselves a hefty pay day through bond term addendum. The Green and Gold campaign is comprised of United fans who are determined to see the Glazers out. But who can replace them? Emerging as front-running saviors, The Red Knights have stated United Supporters would have a say in the club’s affairs and to hold enough shares to guarantee a takeover of Glazer proportions could never be repeated. Many believe this sort of ownership would serve to safeguard the wellbeing of the Premiership and English Football. However, the Red Knights are not willing to meet a 1.5 billion price reportedly necessary to purchase the club out from under the Glazers; and as previously discussed by Rob on his look into the Consortium, have the Red Knights already let us down?
Malcolm Glazer has said the club is not fair sale regardless. But given his track record, I would bet that there is certainly a price which will get Glazer to make moves as I’m fairly convinced his heart is not bleeding United Red.
What can be done to stop the potential hemorrhaging of money from Old Trafford’s coffers at doing of the Glazers Dynasty of Debt?
And should guidelines be put into place to ensure the use of PIK loans can no longer be used to finance club takeovers?
And what can we, the Faithful, as individuals and die-hards do to see our beloved club come through to better times?