Leveraged buyouts of football clubs

One More Solo · 22 Aug 2011 at 18:19

Today I have received a couple of emails from MUST (the Manchester United Supporters Trust) regarding the imminent IPO of United on the Singapore stock exchange, and it made me realise that my thoughts on the Glazer takeover of United have changed significantly over the years. While I am certainly not a supporter of it, my concerns over its impact on the club have diminished to the point that they are a non-issue. The increasingly desperate scaremongering by MUST, which it must be said is largely based on rumour and hearsay, seems to reflect an opinion shift.

Yes, ticket prices have risen, but no faster than during the PLC years and still represent good value in comparison to other PL clubs and similar events e.g. other sports, concert tickets and so on. Only the addition of the ACS (making the purchase of home cup tickets compulsory) has been massively unpopular. Our spending has continued at identical levels to the PLC days and the success on the pitch has reflected that.

While supporters organisations point to ownership models like Barcelona's, those same models are propped up by banks and seem to suffer massive cash flow issues. They talk about running the club responsibly and living within our means but the notion that there is a benefactor out there with £2bn burning a hole in their pocket that is willing to hand over their £2bn asset to the fans is frankly ridiculous. Similarly, selling up the club to the Qataris or a similar group would see any notion of fiscal responsibility fly out the window. What would then happen if they upped and left? We'd be ****ed, just like Chelsea, Man City, PSG or the many other sugar daddy owned clubs. Peter Kenyon, of course, claimed Chelsea would be self-sufficient by 2009: they still posted an operating loss of £68.6m in their most recent accounts and the results for next year will be even worse given their huge recent investment in players. If the Glazers sold up tomorrow, business would continue as usual at United.

The point I'm ultimately making is that leveraged takeovers force clubs to be run responsibly and within their means, and being subject to one is generally a good indication that your business is in good shape (unfortunately this can be said for very few clubs). Trimming the wage bill, reducing expenditure and maximising income is something that all clubs should aspire to, and it is forced upon clubs subject to LBOs. At the moment we are seeing with Everton what happens to a club that has failed to do these things and wasted money they didn't have trying to achieve an impossible level of success. Now they are left with a club that makes no money, an owner that has no money and zero interest from buyers. Had they stuck to basic business principles none of this would have happened.

So, are the Glazers really the bad guys of football?

I'd be interested to hear people's views on ownership of clubs throughout the world so please don't limit discussion to United, that's not my intention.

BaZ87 · 22 Aug 2011 at 18:38

So you're basically saying that Utd's current position is safer than say Chelsea or City, where if their sugar-daddy ****s off, they'd be up **** creek? No ****.

There shouldn't be a comparison between a leveraged takeover and a sugar-daddy as they're both equally wrong. The comparison should be between Utd's position pre-Glazers and under the Glazers. Utd were already run responsibly and lived within their means so nothing has changed there and in real terms, Utd have far from spent identically to what they done pre-Glazers too.

The only difference I see between Utd pre-Glazers and now is that £100m's has been spent on interest and bank fees now and if worst comes to the worst, Utd have ~£500m worth of debt hanging over their head.

Weebull · 22 Aug 2011 at 18:42

I like how your thinking is: All leveraged takeovers = What the Glazers have done at Man Utd. Despite the fact that there's a club not too far from yours that quite recently showed the downsides of the whole business.

The Glazers have been better for Man Utd than the doom-mongerers would like to admit, but that doesn't make the system good. It's still loading a club with completely unnecessary debt, and I don't see how that's ever a good thing.

One More Solo · 22 Aug 2011 at 18:51

Weebull said:
I like how your thinking is: All leveraged takeovers = What the Glazers have done at Man Utd. Despite the fact that there's a club not too far from yours that quite recently showed the downsides of the whole business.

Well, Hicks & Gillett had the right idea with Liverpool but unfortunately they were disastrous businessmen and made promises which there was no possible way to fulfil. On top of that, if they'd had some sense they could've sold the club within a very short time for twice what they'd paid but greed got the better of them. I think clubs like Liverpool and Arsenal still have massive untapped commercial potential which would make the latter (new stadium) very popular to potential investors and was obviously a motivating factor behind the FSG takeover of the former.

One More Solo · 22 Aug 2011 at 18:59

BaZ87 said:
There shouldn't be a comparison between a leveraged takeover and a sugar-daddy as they're both equally wrong. The comparison should be between Utd's position pre-Glazers and under the Glazers. Utd were already run responsibly and lived within their means so nothing has changed there and in real terms, Utd have far from spent identically to what they done pre-Glazers too.

Any comparison between pre and post Glazer transfers is always going to include Ronaldo which is an exceptional case. It's difficult to suggest we spent £60m in 07/08 knowing we'd recoup £80m in 09/10.

BaZ87 said:
The only difference I see between Utd pre-Glazers and now is that £100m's has been spent on interest and bank fees now and if worst comes to the worst, Utd have ~£500m worth of debt hanging over their head.

If the worst came to the worst, there would be no shortage of buyers though.

BaZ87 · 22 Aug 2011 at 19:03

One More Solo said:
Any comparison between pre and post Glazer transfers is always going to include Ronaldo which is an exceptional case. It's difficult to suggest we spent £60m in 07/08 knowing we'd recoup £80m in 09/10.

If the worst came to the worst, there would be no shortage of buyers though.

Even if you exclude the Ronaldo money (and you shouldn't), spending £60m in '07 was in real terms was far less than what you spent the year you signed Veron and Van Nistelrooy.

And it's not a case of there being a shortage of buyers but what happens in the time before the club is sold. Look what happened at Liverpool, our owners tried to hang on for as long as they could and done so by not just cutting all investment into the side but by taking money out too.

fez · 22 Aug 2011 at 19:25

Just because united have been successful enough to manage the huge debt, it can never be seen as anything but a bad thing. We have spend 10's of millions a year servicing that debt.

One More Solo · 22 Aug 2011 at 19:32

Moses said:
The H&G thing doesn't tally with what you're saying. The fact they could sell it on for more was just them being glorified middle men, they didn't do anything and the club wasn't transformed into something better, they just got a rare thing at a price low enough that they could sell it on.

As I said, they were terrible businessmen and made promises that similarly are not possible as a result of a leveraged takeover e.g. increasing expenditure and building a new stadium. They basically made promises to inflate the value of the club, attracted bids for the inflated value, tried to inflate the value even further until it became apparent they could actually do none of those things and their position became untenable.

Moses said:
Wasn't the transfer known about a year in advance?

Yeah, but that was two years before.

cheets64 · 22 Aug 2011 at 20:32

They are selling every part of the Club they can, DHL sponsoring training kit, some product placement for crisps in Asia, wtf

The club is like a dead animal and the vultures are swooping in.

BaZ87 · 22 Aug 2011 at 21:05

cheets64 said:
some product placement for crisps in Asia, wtf

Rooney to become the face of Mister Potato

DanH84 · 22 Aug 2011 at 21:11

I think the real cost to united in interest is very low compared to associated costs if we were a debt free plc with this turnover. Still just because we haven't done awfully out of it doesn't mean it doesn't expose other clubs to increased risk.

cheets64 · 22 Aug 2011 at 21:17

Debt is only a problem when you cant pay it and have staff wanting their wages.

FrankJH · 23 Aug 2011 at 05:33

There are only a few clubs around the world who could have such a huge marketing department which is the real reason why ~£50m or so /year in interest payments really isnt that significant (for an instance the new DHL deal, it will be interesting to see if / when and how much any one else tries a similar deal )

It will be very interesting to see what happens in regards to the IPO - what percentage gets released, if there are any huge investors, or if its mostly fans and how much is raised /what happens to these funds ( wouldnt be suprising if a large amount goes to the Glazers' private accounts to pay off other debts they have, but I would seriously hope at least 50% of the present debt is also repaid)