Manchester United’s owners, Malcolm Glazer and sons, are struggling to refinance part of the club’s huge debt, according to a report in The Times today. The family, who bought the club in a leveraged deal during summer 2005, has twice failed to refinance £175m so-called Payment in Kind (PIK) loans over the past two years.
The principal area of concern for the family, according to the report, is not the £518.7 million of loans leveraged against the club but the PIK finance that the family secured as part of the buyout four and a half years ago. Unless the family is able to secure refinancing they will be responsible for a £580 million repayment on the debt, which attracts a punitive annual interest rate of 14.25 per cent, when it matures in 2017.
United’s recent austerity in the transfer market is often attributed to the club’s debt, with a net transfer spending averaging just £6.48 million per season since the Glazers’ takeover. The club spent a net £8.1 million on transfers in the year ending June 2006, followed by £1.2 million in 2007 and £44.9 million in 2008 before making a profit of £38.7 million in 2009 after the sale of Cristiano Ronaldo, according to figures published by The Telegraph.
The figures are in stark contrast to the net £25 million per season promised when the Glazer family bought the club.
Since June, United have spent a net £16.9 million on Antonio Valencia and Gabiel Obertan while Frazier Campbell left the club for Sunderland. But the club failed to take up the €10 million option on Adem Ljajić this week, while £25.5 million was left unspent on Carlos Tevez in the summer. The club also backed down from a bid for Karim Benzema in summer, with Sir Alex Ferguson claiming that there is “no value” in the transfer market.
“Whatever the reason for the Ljajić deal falling through, the fact is, with the revenues flowing into the club, Manchester United should be competing with Real Madrid and Barcelona for players of the calibre of Lionel Messi and Kaka. But instead, we have to carry the deadweight of the Glazers’ ownership on our backs,” said Duncan Drasdo, chief executive of the Manchester United Supporters’ Trust.
“The true picture will not be clear until after the January transfer window, but with the £80 million Ronaldo transfer fee, plus the supposed £25-30 million annual transfer kitty, a spend of £100 million would effectively be break-even.
“Supporters will rightly be asking where the money has gone when they’ve been forced to pay more and more through the huge ticket-price rises in recent years.”
Mike Phelan denied that the Ljajić deal collapsed due to financial reasons, although the player’s club – Partizan Belgrade – claimed that United is in a “financial crisis” on Friday.
United must meet certain spending and revenue targets under the terms of the principal loan, secured against the Glazer family’s club shares. Although revenue has steadily grown under the American’s ownership – a record-breaking shirt sponsorship deal with AON kicks in next season – many fans are locked out of Old Trafford because of season ticket price rises over the past four seasons.
Personally, I’d like to see United fans force the issue with the Glazers by staging a strike of sorts on the club by staying away from games at Old Trafford. The Glazers’ financial package would soon collapse, the club would be put into temporary crisis, and one of the many suiters waiting in the sidelines could step in and hopefully take the club back to where it should be financially. Unlike Chelsea, United has the kind of support base, venue, and revenue stream to sustain the kind of purchases clubs like Real Madrid make every year (though in Madrid’s case they do it on the back of government bailouts) so it wouldn’t need the kind of periodic infusion of funds Chelsea requires from Abromovich. Some Saudi or Russian with the kind of money to buy United at a discounted price outright could sit back on the investment, watch United fund a powerhouse team with revenues freed up from debt-servicing, and laugh all the way to the bank as United’s value sores up into the stratosphere in the coming years. United have managed to keep on winning despite the Glazers, not because of them. Almost all of the key personnel who’ve helped the team win the last three titles, and the European championship, were in place before they came on board. With the likes of Ronaldo being sold off, with champions like Scholes and Giggs on the verge of retirement, and with United trying to stock up on European and Sth. American youth on the cheap as an alternative to pricey contracts for established players, the chances are that the true ramifications of the Glazer purchase will soon come home to roost. All that can save United as things stand is the hope that there’s a handful of diamonds in amongst the likes of Morrison, King et al and that they don’t all turn out to be lemons.
The only thing I would say is if the choice was to sell off all the players to service the debt or the club go in to liquidation I would choose to sell off the players.
In truth this was the risk when United floated on the stock exchange. Although that gave us the ability to raise funds for the club it always left us open to a takeover.
There are a few other options to club ownership.
In Germany the law is that the club is owned 50% by a German investor and 50% by anyone else. That ensures that the clubs remain in German control.
The Barcelona model is also extremely good. Only Barcelona fans own the club. Season ticket holders own the club. Supporters pay money to own a bit of the club and that gives them a right to elect presidents and the running of the football club.
The Glazers sold off their best players at Tampa Bay to finance the deal to buy United.
When they have had enough of United they will do the same to us. This is the time to fear.