Wednesday, May 18, 2005

The Manchester United Fracas

I was hoping a United Fan would discuss his or her takeover fears, but since no one’s done it, I guess I’ll have to provide my outsider’s point of view.

If you haven’t been paying attention to any of the news of the last week, then let me bring you up to speed: Malcom Glazer (American Palm Beach Billionaire and owner of the Tampa Bay Buccaneers American Football franchise) has been buying up shares in Manchester United and he’s finally become the major owner of the club. Starting off with a 3.17% ownership in United in March 2003, Glazer (through his “Red Football” vehicle) slowly started buying up whatever shares he could get his little leprechaun (he kinda looks like one) hands on, reaching 28.1% till about last week. His only obstacle were the Irish Tycoons JP McManus and John Magnier, who through their company “Cubic Expression” owned a 28.7% share in United. The fans have not taken too lightly to Glazers attempted takeover and have demonstrated hoping to brew up a shit-storm. With the help of the Manchester United supporters’ trust “Shareholders United” the fans bought up around 2% of the club, but it did them no good, the damage had already been done – Glazer was in charge.

So what is the big deal exactly? Last week, Glazer, with the backing of a couple of banks made an offer to buy up Cubic Expression’s shares (Total money used for this purchase: £790m – Glazer is putting up £267m of his own cash – He has assumed £ 265m of debt along with £ 275m of preference shares)… All it took was one phone call and an offer of 300 pence per share to secure their majority stake and that was it, Glazer made his way to the 75% and growing ownership stake needed to take the company private.

Manchester United became a publicly limited company in 1991, giving its greedy directors a chance to make some cash off the club. For the most part, the company did well as a PLC, being one of the first premier clubs to float their shares on the London Stock Exchange, giving them more money that the other clubs. When Cubic Expression came along, their money was seen as a long-term investment and that the fans had nothing to fear, and for the longest time the fans didn’t. Now that Glazer owns the major stake in the club, he plans to take the club private, dump all the money he borrowed from the banks onto the Club’s debt free balance sheet and then “Maximise the club’s profits.”

I would just like to take a moment and point out the real winners of this whole fracas: JP McManus and John Magnier: who are enjoying between £ 80-90 million pounds in profit from this deal… Since they started buying up United shares in 2001, the weighted average of their purchased shares is around 190 pence, and with an offer of 300 pence from Glazer, you can’t really blame them for selling… After all, Manchester United is a publicly quoted company, and people can buy and sell their shares as they please. Just to put everything in perspective for you, without the Leprauchaun’s meddling the normal price per share would have been somewhere between 200 and 220 pence per share.

Now that we’ve established who the winners are, lets bring to light the scariest part of this whole deal: Why the hell is an American, with no interest in football buying a club. To put it simply: Manchester United is the number one selling sports brand in the world, they have topped the wealthiest clubs list for many years, sold out stadiums, a 75 million strong global fan base, a chain of merchandising superstores all over the world, ohh, and his son Joel is a huge “soccer” fan.

Here are the fans’ fears: Glazer is putting at least £ 300m of debt onto United’s balance sheet – this is bringing back memories of Leeds United’s overly ambitious plans and the debt that crippled them. With that much money owed from this takeover not forgetting getting Glazer’s stake up to 28.1% - United is looking at interest payments of £ 25-30 million a year, and you don’t need me to tell you that’s a pretty serious amount of cash to cough up in interest.

So how’s Glazer going to get MUFC back on track? Well you can be sure ticket prices are going to rise, prawn sandwiches and other snacks will cost a lot more, and I wouldn’t be that surprised to see some more in your face merchandising to hit the racks as well. But the Glazer’s aren’t looking to hit the English fans for that much; there are other options to make money. The club is looking to secure more lucrative sponsorships, hopefully negotiate their own TV rights and break into the North American and Asian Markets.

Analysts have already started to draw up possibilities: There’s talk of selling rights to Old Trafford or part of it to a corporate sponsor (Ahmed – remember how you were laughing at me about the Emirates Stadium? Payback amigo, payback). There’s also talk of selling Old Trafford and then leasing it back, and they’ve even considered a Securitisation deal, allowing them to borrow against future gate revenues. Selling the “Old Trafford” name is the easiest and least painful to swallow, selling the stadium isn’t the right way to go about this by keeping the fans pleased, while borrowing against future gate revenues is risky considering threats from the fans to boycott games. Another viable solution is for Glazer and United to break into the North American and Asian Markets. Football has tried to storm the American shores for many years starting off with Pele, the Kaiser, and George Best with the NASL, but there’s been no “real” support since then and you can expect the gringos to stick to their own sports. You’d hope that Glazer with his knowledge of the American sports market, could do something, but we’ll have to wait and see. Merchandising in the Asian market seems like a hopeless cause, how are you going to convince someone to pay £ 35 for a jersey, when he can buy a fake for one-tenth that amount? And even more importantly, how are you going to regulate it?

I believe Glazer’s eyes are set firmly on TV rights. Currently, the premiership TV rights have another 2 years to run its contract with every team getting a slice of the pie. If Glazer could negotiate his own rights, there’s a whole lot more money to be made there, of if he could negotiate his TV rights in Asia and North America, that could be the solution to his debt worries. But breaking away from the premier league’s “group TV rights” could pose a problem and could lead to the formation of the European Super League that keeps on coming up every season… Who knows what’ll happen, we need to wait and see what MUFC’s new owners have in store.

Currently: the Glazers have already announced their first mistake – keeping David Gill onboard. I don’t like him (I don’t need to like him since I’m not a United fan), he doesn’t have that same cunning attitude that Kenyon had, and he just doesn’t respond to the media as well as his money hungry predecessor. I feel as though Manchester United look like they could possibly go through a period of mismanagement and failure like Barcelona did from 2000 – 2003 when Gaspart was at the helm. Glazer has also announced that his son Joel will be involved in the running of the club, good luck with trying to get a word in with 75 thousand fans at the stadium calling for your head.

What is their track record? Glazer took the Tampa Bay Buccaneers from laughing stocks to super bowl champions in 2003, and then what? Tampa look deflated right now and everyone’s pointing the finger at someone else… United’s already had the winning track record, what could Glazer possibly bring to the table? Think about this 36% (approx £ 61.2m) of United’s total revenue comes from Match-day revenue, what will happen when the fans boycott the stadium and gate receipts seriously start dipping? 37% (approx £ 62.5m) of revenues come from media revenues – can Glazer get more? The remaining 27% (approx £ 45.3m) of revenues come from commercial sources, like the Vodafone sponsorship, financial services (you can buy a man u credit card), etc. Now consider this: Employee expenses represented 45% (£ 76.9m) of total revenue, that’s more than any one of the “business lines” of the club. What’s going to happen when you’ve got cases like Rio Ferdinand right now demanding (through his money hungry bastard agent) that £70,000 a week isn’t enough and he needs £ 120,000 a week… How’s that going to affect United’s take on restructuring their financial position? This does not bode well for MUFC…

Let’s wait and see what does happen, this could the evolution of professional football unfolding right in front of us. Either way, I agree with United fans, Glazer is killing the spirit of the game by giving off a feeling that his intentions are focused mainly on squeezing more money out of the club than winning trophies. At the same token, he’s invested a ton of money into this project and it’s hard to believe that he’s not interested in winning trophies, after all, more trophies mean more money. Being a fan involves spending nights dreaming of championships, sweating over a player’s fitness, lamenting the team’s losses and celebrating their victories, but most importantly it means playing the football you love to see. How can team play the football you love when it’s being taken over by money hungry villains? The beautiful game is loosing its lustre…

Tell us what you think about this? Let’s hear what the United Fans have to say, what the other fans have to say…


NOTE: numbers and information have been taken from the Guardian, SkySports, ESPN Soccernet, CNNFI, and the wealth of useless knowledge I keep stored in my head.

8 Comments:

Blogger Q said...

Spoken like a true football fan, and a true accountant!

Excellent analysis and details on the issue! I have been reading up but I have to say that the information I got from your article is more than everything else I read combined!

I think it will be interesting to watch what will happen, and I am very glad its not happening to Arsenal!

Think about it, 5 yrs from now, Abrahimovich might have gotten bored from his Chelski, United's turmoil is just starting, so who knows what will happen from now till then!?

On the other hand, you have Arsenal, who have a very young team and (so far) excellent managent (financial and footballing)!

As for ManU's brand worldwide, do you believe in overexposure? Will the ManU brand become the starbucks of football?? Successfull yet viewed by many as the evil capitalist empire?

Anyway, great article Edu! I hope this gets the exposure it deserves!

9:15 AM  
Blogger forzaq8 said...

i think what would happen is man u going down the tupe , you can't run a club like a company , you need to spend and spend , you can say " oh i'm going to do some cutbacks and fire some players " that doesn't happen in football , you can't say " why have 29 players in the team ? i can do the same with 14 "
and if you don't do good your fan base become smaller , and its not something you feel right now , its something long range , why isn't there much liverpool fans in the middle east as man u ? because man u wins , liverpool didn't

i know liverpool was a great team in the 1980's , but those people started to follow at the 90's not 80's , they didn't see liverpool win , they saw him lose , and lose bad

pre 1997 , i only knew 1 arsenal fan , after they got the two cups suddenly there was a boom and i knew over 300 arsenal fans , you started to see aresenal stickers on cars

so if he doesn't spend on his team he isn't going to win , and if he doesn't win , his revenue run lower , and revenue run lower mean his chance to win become lower , and you become leeds :(

3:05 AM  
Blogger Mo said...

Good, balanced analysis.. couldn't have done it better myself. Soccernet's a great source for figures and statistics, eh?

Well, you've pretty much covered the ins and outs of it, as a Man U fan all I can offer beyond what you wrote is an extremely hateful and anxious post. No one knows where the club is headed at this point, we're just hoping that he'll lay low for a while and reconsider his next move. A Leeds-style meltdown is something I shudder to even think about. There's been so much written about it, so much speculation as to what'll happen to the club, that its detracted from the importance of this Saturday's game. Until that's over and we've secured a trophy for the season, then we'll know where the manager stands on the issue.

If Ferguson stays on, then things should go on more or less as expected on the pitch with the improvement of a young and promising squad. If he leaves? There go Ruud, Rooney, Cristiano and Keane out the door (to name a few). The financial aspects of it? Too much for financial analysts to speculate on accurately, let alone the fans. We'll let thing run their due course and just hope for the best. Not much else we can do really.

Oh and by the by, I got a very thoughtful birthday present this year. Ownership of one Manchester United share. I'm glad I got to be part of that before it ended. You're not getting this one off of me, Mr. Glazer.

7:28 AM  
Blogger Seroo said...

This comment has been removed by a blog administrator.

2:55 PM  
Blogger Seroo said...

From someone who claims himself & his family are "big" United fans, he has never seen a game in Old Trafford - neither has his chichi son Joel.

The Galzer takeover of United is a threat to football: it defeats all the British government's attempts towards working with sports regulatory bodies... This goes against the Independent Football Commission which was created to deal with the complaints of fans and supporters which are not adequately dealt with through various customer care groups - As well as the Supporters' Direct, which promotes supporters' trusts to help people who "wish to play a responsible part in the life of the football club they support"... Hasn't Glazer's new ownership demolished those rights?

Wouldn't you think the FA, the Premier League and the Football League would be working on the involvement of their clubs' supporters in ownership at least? They all contain rules which state that only "fit and proper" persons can become directors of clubs - would you call someone whom a judge described as a "snake in sheep's clothing" as "fit and proper"? Someone who is probably looking to profit from this takeover by transfering debts to the club... Note that the FA and the leagues did nothing to prevent this from happening...

I am not a United supporter, but I am truly sorry for the club's fans - no one's team should be taken over by a slime ball like Glazer...

2:56 PM  
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