Glazers on Manchester United: A Double Edged Sword

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Manchester United directors Joel and Avram Glazer at Old Trafford in Manchester. Photo - Andrew Yates/AFP

The owners of Manchester United (MUFC) are looking into opportunities to raise $1 bn by floating a substantial stake of the top-flight club on the Singapore Stock Exchange. Sources close to the club say Credit Suisse has been appointed as the coordinator of the deal.

THE GLAZERS PLAN

The Glazer family gradually bought the club between 2003 and 2005 in a deal that was worth around $1.47 bn. Many of MUFC fans severely opposed the takeover and insisted the purchase will lead to MUFC incurring large debts.

Despite financial difficulties off the field, the club has witnessed unprecedented success on the field.

Sources also suggest the owning Glazer family intends to reduce the club’s huge debt pile by using some of the funds raised from the offering. The Americans owners are deeply unpopular with many hardcore Manchester United fans.

Given the allure of the Manchester United brand in Asia, and successful attempts to drive global commercial revenues, analysts believe that the move could allow the establishment of a true market value for the club, and enabling the club reduce its spiralling debt. If the family decides to float a stake of between 25 30%, any IPO could raise up to $1 bn, reports from Asia suggest.

MISMANAGEMENT

MUFC 2010 full-year results reflected its poor financial position as the club of 522 million pounds ($865 million), posted a net loss of 84 million pounds. This is in addition to the500m in bond debt acquired by the Premier League champions in 2010 when the Glazers launched a bond issue to pay off existing loans taken out to facilitate the leveraged buyout. The volatile financial status of the club has drawn huge protests from many supporters. The Glazers have funded the interest payments from the club’s cashflow and built in the ability to draw dividends in future.

The owners paid off the 225m last year for high-interest, payment-in-kind hedge fund loans they took out in an earlier refinancing round, which did not sit on the club’s balance sheet but were housed by their parent company and accrued interest at 16.25% a year. It was never revealed where they obtained this money to do so.

With this money they could also pay down some of the bond debt, plough some proceeds back into the club or take cash out for use elsewhere in their businesses.

THE SINGAPORE ADVANTAGE

The Glazers also own the Tampa Bay Buccaneers long with several shopping centres in the US.

The plans for the business is also a significant blow to the once-healthy IPO markets of the U.S. and Europe. Once listing in New York or London was a badge of honor but today overregulation in the West has made it a handicap.

MUFC enjoys a huge fan base in Asia and a Singapore IPO would help monetize that following. Much of Singapore’s investor base is retail, which indicates that a lot of the people supporting the footballers are more likely to buy the club’s stocks.

Wall Street financiers have been eyeing plans about a possible IPO in Hong Kong. But their attention switched to the Singapore Exchange which has been competing with Hong Kong for international listings and would see Manchester United name as a major coup.

FANS OBJECT

Fans may already be skeptical about this weeks decision. Supporters in Britain were irked when the Glazers stepped in saying they felt their beloved team was in the wrong hands.

The “Red Knights”, a group of wealthy supporters angry about the Glazers’ business model, are unlikely to be interested in a minority stake. They withdrew from it although they were preparing a 1bn takeover bid, insisting that the Glazers were overvaluing the club.

“The key question is: where does the money end up? It doesn’t benefit the fans if it all ends up in Florida,” said Andy Green, a fan and fund manager. He claimed the Glazers lack a vision for future. The people who should be offered the chance to buy a stake in the club are the fans. It shows a total lack of imagination not to even consider engaging with them, he continued. The owners insist that the club is not for sale, even after rumors about the interest of the Qatari sovereign wealth fund.

But David Gill, the club’s chief executive, insisted that it can easily absorb the 45m-a-year interest payments attached to the bond while competing on the pitch with European rivals. He believes that trophies and a more active position in the transfer market have helped to cool down the anger of their fans.

OVERSEAS MARKET

The London-based branch launched by the Glazers is headed by chief of staff Edward Woodward and has succeeded in substantially growing overseas sponsorship revenues. It is also aiming another steep rise in shirt sponsorship income which is worth 20m a season from Aon, when the current deal expires in 2014.

Over three years, the market for overseas broadcast rights is valued at 1.3 billion. It could thus, outstrip that of domestic rights, valued at about 2.1bn when the next round of collective Premier League deals are negotiated next year.

A Forbes survey this year namedManchester United as the most valuable sports franchise in the world, claiming the club is worth 1.13bn. Despite the prestige, Manchester United last year posted an annual pre-tax loss of 109m, much of that attributed to one-off costs associated with the 500m bond issue. The club cashes on its popularity in the English Premier League and registers huge commercial growth.

THE GLAZERS NOT THAT BAD

Since the Glazers completed the takeover in 2005, annual turnover has doubled to 300m. Its most recent quarterly results showed that while match-day and media income have remained largely flat, the teams annual commercial income had topped 100m for the first time.

On 31 March 2011, the results show that the club had 113m in the bank. The money was on the course to rise to more than 170m after season ticket income had been banked, notwithstanding more than 50m spent on summer transfers.

The club is expected to clarify its future plans to bondholders after its results come out in October.

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