Manchester United’s bond issue is falling apart almost as quickly as it began, with institutional investors ditching the notes and forcing prices to fall. The bond issued by the club, which raised £504 million last week, fell to a low of 93.4 pence in the pound at one stage today as investors sold on fears of United’s financial standing.
The United bond has a coupon rate of around nine per cent, significantly above current inter-bank LIBOR but fears expressed by key City insiders have sent prices tumbling, with one prominent United-supporting investor calling the club “over leveraged.”
That Jim O’Neil, of Goldman Sachs, works for one of the principal under-writers is highly embarrassing for the Glazer regime.
“I value my long-term support for Manchester United better than anything else,” O’Neil told The Daily Telegraph, before criticising the level of debt at the club.
United is now leveraged 200 per cent over turnover and 500 per cent over underlying profits with the bond issue alone – a rate normally associated with “junk” bonds. Factor in the £200 million in Payment-In-Kind loans being paid down from United’s cash reserves and there is little room for maneuver in the business model, argues O’Neil.
So desperate is the situation that another United-supporting hedge fund trader, Paul Marshall of Marshall Wace, urged fans to combine forces and return the club to the Manchester United community and out of the Glazers’ grip. Marshall co-founded Marshall Wace LLP, one of Europe’s largest hedge fund groups, in 1997 and is widely regarded as one of the leading equity strategists.
“Debt has acted like a leech on the club, sucking money out of the football budget to feed the Glazers and their bankers,” Marshall wrote in The Daily Telegraph today.
“It has been estimated that between 2005-9 Red Football Joint Venture Limited has spent at least £260m servicing its debt. Manchester United Plc has debt service costs of over £40m per annum – money that could otherwise be available for players.”
This much the fans are now painfully aware. Marshall, though, is deeply worried for the long-term future of the club with, he says, 45 people now employed to manage the club’s finances alone. £35 million has been lost in derivative positions in the past year, notes Marshall, and an estimated £140 million more will be sucked out of the club in the next.
“Leaving aside the apparent incompetence behind these losses, such hedging is only necessary because of the scale of the debt,” he says.
“Manchester United’s future is deeply worrying. United will never realistically be able to pay off the debt. And with the imminent retirement of Sir Alex Ferguson, we are close to a tipping point where declining fortunes on the field could lead to a loss of revenue which could cause the debt burden to spiral out of control.”
The solution, says Marshall, is a fan-led takeover, leveraging – in the best possible way – more than 300 million supporters worldwide to build a sustainable community project. He cites the fan-owned principles of Europe’s largest and most successful clubs as a model for the future.
“Football clubs are communities. Manchester United’s community famously extends well beyond Manchester, although Manchester is at its heart and core,” he concludes.
“The best form of ownership for a football club, as Barcelona has proven, is its community, not a single tycoon. It is time Manchester United’s global community came together to create a structure of common debt-free ownership.”
Meanwhile, in the City investors already have cold feet over the bond issue, which “was bought by investors who aren’t specialists in valuing high-yield bond investments,” according to one leading analyst today.
I agree completely with Marshall. The best way to secure our clubs long term economic safety is by buying a meaningfull stake in it. It seems impossible to do, but please remember that there are many wealthy United fans around the world. Perhaps none that could/would buy the club by themselves, but they could probably raise a lot of money. The only problem we have is people who keep saying it is impossible and therefore won’t do anything to save the club. The only reason it is impossible is because you won’t lift a finger. Me, I’d suggest people to join MUST. They have a free e-membership now so you don’t even have to spend your money if you’re not sure you can afford it. You’d just be adding a voice to the cause then, but that’s a start. If people could only get it into their heads that if they do something then they make a difference.
I second that motion. If anyone wants to support the Anti-Glazer cause I am staging a protest in the car park of KFC off Chester Road tomorrow at 9.30am. This will be published in Nuts magazine a week on Tuesday. The idea is to turn up with some models dressed as air stewardesses and a huge one-way flight ticket to America for the ginger toad and his family. If you’re free, come along to vent your fury.
Someone in the finance industry needs to spearhead the fan revolt. Unless we have a prominent and credible figure leading the charge, the whole concept is doomed from the get-go.
I’d give 100.00 right now to help get the Glazers out.
Unfortunately, Mr dtgreen, there are 55,000 people who – despite protesting to the contrary – are giving £1,000 a year EACH to keep the Glazers IN.
It’s called a Season Ticket.
Anybody who has one has contributed to the Glazers’ leeching of MUFC and should hang their head in shame.
We need to get organised. People like Jim O’Neil are fans but they are also professionals. They won’t risk their business reputations fronting a fan takeover that never materialises. We, the support, need to show we’re serious about getting a pot of money together to oust Glazer. Considering how many people in this country claim to be United fans we should be able to raise a enough especially if we get celeb backing. Lets do it and put the pressure on for a hostile takeover.
Fan Owning the Club….
There would be a lot of problems with that, if the fans own the club there would be a lot of fans wanting different players so we would end up bidding for everyone. Aswell as that we need fans to donate every year.
We need to pay wages, transport and pay groundsmen ect.
I would donate as much as i could.
Problem is some owners would want to make money of owning United.
If we could get the club on the open market and everyone could buy shares.
It works (just about) at Real Madrid, Barcelona and Bayern Munich… fan owned clubs are societies, run from their own revenues. United is financially successful and there’s no reason for this to change. There would be a board of directors to manage the club prudently. I don’t think anybody is suggesting an Ebbsfleet-style vote on each major decision!
Real do not play by the same rules as the rest. Neither do Barca. That’s why it “works” as you put it. See this link for an explanation. http://blog.foreignpolicy.com/posts/2009/06/11/how_the_recession_helps_real_madrid
It basically says that they have more or less the same amount of debt as we have but they don’t have to pay interest.
As for the German clubs it’s the German law that states that they have to be partly owned by fans. The clubs in Germany want this law to be removed because, according to them, it’s what keeps them from being competitive with the rest of Europe.
Since we cannot get interest-free loans, like Real, is that really the way we want to go?
This has been blown out of proportion. But I do think that a serious discussion on what the alternatives are is needed. I don’t think people in general realise what the consequences are if the club were to be owned by the fans.
This would be a nice article Ed.
Well, as a former season ticket holder, I certainly wouldn’t be handing back my season ticket right now; it i one of the least helpful strategies.
As has been said elsewhere on UR, for every season ticket not renewed, there will be hundreds if not thousands of potential buyers lining up to get it.
The only solution is a buyer, whether that buyer is another third party or a one representing the fan base.
A finance firm called Deloitte, do a ranking system every year of world football clubs. It will probably be no surprise to anyone that we have been valued the second riches club, behind Real Madrid for the last two years. At last count 2007-2008 season the club had a revenue of £324.8 Million. Bear in mind that Ronaldo was sold and apart from Valencia, I can’t think of any significant signings. Where on earth has all that money gone, I know the answer is obvious. It’s gone to things like paying a member of the Glazer family millions for ‘consultancy’ fees. What would the Glazer family be able to tell our club about football and for that matter business matters. It hurts all the more as many of us had feelings that this type of thing would / could happen when they got involved.
The Glazers call all the shots, as they own the club. Why on earth does anyone think that they would be prepared to sell the biggest cash cow in the world.
Until the Glazers are ready to leave, all United fans will have to put up with this level of uncomfortableness (??) about the clubs debt.
Agreed, by handing in your season ticket, you are cutting off your nose to spite your face, because chances are you will never get another one.
Why allow the glazers to dictate your life this way, just because they have not got a clue what they are doing. We are still die-hard manchester united fans, and although we deeply care for the club, discussing the politics will change nothing.
Cathy
We need to stick together and get behind a united front. My worry is that the Glazers are the sole owners and ultimately i cant see them selling unless they get a fabulous offer. They are probably thinking we can sell, when the world economy turns and get top dollar. with the pound plummeting against the dollar has this affected the clubs debt i.e. is the debt owed in dollars or in pounds