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.