It’s just over four years since the Glazer family took over Manchester United in the most heavily leveraged football buy-out in history. Despite fans’ anger, threats of violence, and a myriad of destroyed season tickets, Malcolm Glazer landed the club and handed it over to his sons Avram, Joel and Bryan to run. In doing so he placed hundreds of millions of debt straight on to the club’s books, at almost no risk to his own personal fortune. United moved from the world’s most profitable sports team, to the most indebted in one easy step. Four years, three Premier League titles and one European Cup later and the anger has subsided but the debt legacy is just as stark.
While common in the world of business, leveraged buy outs are almost non-existent in football. The process, whereby money is borrowed against the asset that is to be bought, means that the acquired company effectively pays for itself through its own profits. And that’s exactly what happened to United – with the vast bulk of the purchase price effectively mortgaged against Old Trafford, Carrington, the players and future season ticket revenue. The Glazers then took out a £152 million payment-in-kind (PIK) loan, on which the club is playing an eye-watering 14.25% interest rate, to cover the rest. In total the debt burden is now more than £667 million.
On the pitch few fans can complain. Investment has been made in new players since 2005 – Dimitar Berbatov, Nani, Anderson, Nemanja Vidic, Patrice Evra and others. United meanwhile has continued to rack up trophies – three Premier League titles, a European Cup, World Club and the Carling Cup, twice.
The big question is – when does the debt start to bite? Because it will bite. According to the most recently published accounts United serviced £69 million of debt interest last year. Almost exactly the same amount as the club’s profits before tax. Perhaps most pertinently, however, none of the total debt burden was paid off. United does have to pay off the debt, whether its by increasing revenues, selling assets or lowering costs.
For the fans the takeover has meant huge increases in match-day ticket prices. With TV income largely known – save for the millions available from a long Champions League run – ticket prices and commercial revenues are the two principal areas where the United board has looked to generate revenue. Tturnover has increased hugely under the Glazer regime, but critics can argue that the club is sprinting just to stand still.
But does trouble lie ahead? With Cristiano Ronaldo sold for £80 million, and the money earmarked for Carlos Tevez not spent, Sir Alex Ferguson was expected to have a transfer kitty of more than £100 million this summer. But the move to bring Michael Owen into the club on a free transfer and pay-as-you-play terms, could be seen as a sign that the chequbook has been put firmly back into the safe for the summer. More worrying still, the United board has being trying to strike a hard bargain in a sellers market – and failing. First with Carlos Tevez’ team over the fee to secure the player’s rights, and then with Olympique Lyonnis over the transfer of Karim Benzema. Each time the club has effectively given up the ghost and been outbid.
Time will tell whether the Glazer family allows the board to spend this summer. And whether they’ll ever pay off that debt. One thing is for sure, love them or hate them, they appear to be here to stay.