Thai-based investors will bid £1 billion for Manchester United according to reports in the News of the World today. The unnamed consortium, composed of unknown “billionaires”, will make the record-breaking bid with the Glazer family struggling to pay down personal and club debt, according to the newspaper.
“The group of six billionaires have spent three months on a deal they hope is too good for Malcolm Glazer to reject,” claims the Rupert Murdoch owned newspaper.
“Two consortium members are keen United fans who have twice visited Old Trafford this year to watch Sir Alex Ferguson and his players in Premier League action. Based in Bangkok, the consortium wants to buy out the Glazer family and put an end to the financial balancing act which has engulfed the world’s biggest football club.”
The unattributed source quoted by the red-top goes on to claim that the proposed investment made by the consortium would “far outstrip” that of Roman Abramovich in Chelsea in what would amount to the biggest football deal in history.
The Glazer family secured Manchester United Plc in a leveraged deal more than four years ago. But the terms of the deal have loaded the club with £600 million in debt secured on the club that accrues around £60 million in interest payments annually. Additionally, the family took out a ‘Payment in Kind’ (PIK) loan that attracts a punitive 14.75 per cent interest annually on a debt that has now reached more than £175 million.
On the revenues side of the business, United first attracted doomed US insurance group AIG and then risk management corporation AON as principal shirt sponsors. A range of other firms have taken up tiered sponsorships in travel, drinks and financial services and the new BSkyB-led television deal ensures more media cash than ever before is reaching the club’s coffers.
But ticket prices have increased sharply, locking out many fans and potentially alienating a whole generation of fans. The club has also struggled to sell-out Champions League and Carling Cup matches and a number of corporate tickets remain on the table.
Yet supporters of the Glazer family’s time at United can point to the three Premier League titles and European Cup win during their ownership. But as Rant reported earlier this month success on the pitch has come at the cost of just £ 6 million net spent per season on the team. Moreover, the family has struggled to refinance the PIK loans with the equity market frozen during the global economic downturn.
In that scenario United may well be ripe for a takeover but hardly the most attractive financial proposition. Although the £1 billion headline sounds like a substantial increase on the 2005 purchase price, the figure necessarily includes both the value of the club and debt, which stands at well over £700 million, and a profit margin that the Glazer family would undoubtedly demand. The mooted Thai consortium will need very deep pockets indeed.
Moreover, it’s questionable whether £1 billion represents good value for money in the current market. The reported ‘offer’ equates to a 400 per cent multiple on United’s annual turnover for a start. In the fickle world of football success, that’s a substantial premium.
Any new investor would also be faced with a football reality in which Real Madrid, Chelsea and Manchester City are free to spend without limits. Sir Alex Ferguson has bemoaned the lack of value in the transfer market – it is unlikely to correct itself in the near future.
United really need someone with bucket loads of cash, who genuinely loves the club enough to make a loss. There is absolutely no potential for profit here, as it would take so many years for such a substancial investment to be recovered. Beariing in mind revenues will undoubtedly be slashed in the coming years, any investor would have to be united-mad rather than a business man. And we all know there aren’t many guys in the world with this amount of money, who don’t have business as their priority.
if the glazers can’t refinance the debt then they will HAVE to sell. The world’s money is currently in china which is the only country to continue to expand recently. So it makes sense so far but think need more concrete evidence before get to hopefull of gettin rid of those parasite glazers
Given the financial uncertainty we currently have I just want the debt to go so we can be fully secure. At the moment I do worry about this debt because we’ve had a very successful time recently, what if the trophies dry up for a couple of years or so, would it effect how the club copes with the debt? I’d also like something done about ticket prices and with new owners we’d have a chance of something being done.
Ed, do you think the buyout will go ahead or do you think it’s paper talk?
It doesn’t make a lot of financial sense for anybody to buy the club and if it did there are plenty of hedge funds and investment groups that would have done so by now. And even if somebody did, who says they’ll be any more stable than the current owners?
The thing is, the Glazers didn’t have the money required to buy the club, hence their reliance on the banks funding it. This consortium appears to have all the required funds so at least if does happen (and that is the case) we’d not have to put a big chunk of our profits into paying off all this interest. The only thing the Glazer family can be praised for is allowing Fergie to get on with his job, on that front there doesn’t appear to be any interference. However, according to one article I did read yesterday (NOTW again I think) it’s not exactly running smoothly within the club with people jumping ship for various reasons and others less than satisfied with how the club is being run after the cut backs and so forth. The worry with this takeover is that with 6 people running things we could have a Hicks and Gillet scenario.
We don’t need owners to put money into the club. It makes £50m+ a year profit which would allow us to compete with anyone in the transfer market if the club was allowed to keep the money. We just want owners who don’t take money out. Or failing that owners who don’t take much out. The Glazers need to take out £60m a year just to pay the interest on their debts.
The Glazers will ride out the financial storm and look to refinance when the economy recovers. If they refinance the PIK loans and can shift that onto the club’s books they will and then the risk to the family itself is minimal and the club will bare all the cost of ‘buying itself’. Sad but true. The FA should never have allowed this to happen – one of its oldest and greatest institutions raped.
Wazza 2003 you are spot on when you say that if the Glazers can refinance the PIK loans and stick this on the club’s balance sheet they most certainly will and then they will have a free option on the club going forward. The problem for us fans is that we know success is never guaranteed in football and as such, we the club could suffer under more debt than previously.
A new buyer I doubt it.
This really is what most of us feared from the outset. This institution that is Manchester United has been placed in financial risk that previousy it did not have.