Sean Curtain explains the intricacies of Manchester United’s finances in the last number of years since the club has come under the ownership of the Glazer family.
Here we begin to understand the biggest love/hate relationship in Manchester. No, not City-United. The Glazers and Manchester United of course.
Manchester United have been owned by the Glazer family since 2005. Beginning in 2003, the Glazers began buying large groups of shares under their holding company ‘Red Football’.
It took them two years but by June 2005, the Glazers controlled over 98% of the club. This final valuation of the club after the Glazer takeover came it at just under £790 million.
The Glazer family have managed the club ever since. Malcolm Glazer, head of the family and the man who instigated the takeover died this year. However his Sons Avram, Bryan & Joel continue to hold positions at the club along with other members of the family.
In 2011, rumours began to surface that the Glazers may be looking to raise up to £600 million by selling some of the company on an Asian stock exchange. The rumours were confirmed in September of 2011 when the application to join the Singaporean Stock Exchange was accepted.
However things went quiet and Manchester United was never listed on an Asian exchange. The following June in 2012 rumours again began to surface. This time they linked United to listing on the New York Stock Exchange (NYSE). In July this was confirmed.
The company ‘Manchester United PLC’ began selling shares in August 2012. Manchester United would end up selling around 10% of its shares for a total of around £150 million.
Today, the Glazers still maintain their approximate 90% share in Manchester United. Famous investors such as George Soros and the world’s largest asset management firm; Blackrock are both shareholders also.
Putting United in debt
When the Glazers bought United in 2005, they didn’t actually really spend any money. Confused? Here’s the explanation: Rather than use their own cash, the Glazers borrowed hundreds of millions of dollars.
The investors that lent the money require collateral in exchange for their loans. Collateral is something that has value and can be sold if the Glazers were to stop paying back the loans.
The Collateral the Glazers provided was the club itself. So in effect, the Glazers borrowed hundreds of millions that essentially put the majority of debt in Manchester United’s name. They would use the earnings of the Club to pay back their loans and then take any profit for themselves.
This was the first time the club had been in debt since 1931 and since their takeover, the club has remained in debt. So far United have paid somewhere around the £700 million mark in interest, fees and bank charges.
2010 was a particularly rough year. Interest payments on the loans the Glazers had taken out were around 16% a year, meaning the club was paying back about £62 million a year. This was unsustainable and resulted in a refinancing operation. Yearly repayments were brought down to around £45 million a year as a result.
The good times
It hasn’t all been doom and gloom at United since 2005. Notably, United have lifted five Premier League titles through their tenure along with a Champions League trophy too.
Upon taking over, the family emphasised the importance of keeping Alex Ferguson and Gill at the club. Their decision has certainly paid off.
Unsurprisingly, Manchester United fans didn’t like the idea of being bought out by owners who then immediately put the club into debt. The Glazer family have taken a phenomenal amount of cash out of the club since taking over.
The debt United has been subjected to has seen spending on players diminished hugely until this summer. Marquee signings, bar the odd exception (Robin van Persie) dried up and Ferguson milked the last few ounces out of his title-winning squad.
When it became apparent that the Glazers would direct most of the profits from listing United on the NYSE to themselves rather than paying back loans, there was huge concern. This actually resulted in the share price falling to around $14 from the $16 they had anticipated.
A $2 decrease might not seem that much, but when there are 16 million shares for sale, that loss adds up. Football is a very competitive industry. United have relied very heavily on commercial deals and this is now their primary source of sales.
60% of all sales are coming from commercial deals, particularly in Asia along with sponsorship deals from Chevrolet & DHL.
The biggest threat to United at present is actually their on-field performances. The losses from missing out on Champions League football have yet to be fully realised. These losses won’t appear properly in United’s accounts until next year.
Provided the team can secure a third place finish this year, the club can handle comfortably around £50 million in lost earnings from the Champions League.
A new kit deal with Adidas is a record for an English club. However, an important covenant has been built in. Should Man United still not be in the Champions league within two years, that record breaking figure of £75-a-year gets cut by 30%.
As much as United fans want to complain about the Glazers, things are starting to look up. The stock price is trading higher than it was in January, when a David Moyes’ led United were entering the knock-out stages of the Champions League.
Investors have more faith in United it would appear and commercial revenues remain strong. The number one threat to the club’s financial health would be a prolonged absence from Europe.
On the field there does appear to be a return to form. Louis van Gaal’s start has been rocky but the Glazers have stumped up a lot of cash this summer. For the first time, the club will pay £200 million in wages a year. This big spending must be met with big performances, or the Glazers could once again feel the wrath of supporters.
For now though they appear set to stay. In August the family stated they intended to stay for at least five years. If the squad can begin to compete again, that may extend considerably.
Sean Curtin, Pundit Arena.