Monday, 18 January 2010

Manchester United 0 - £1 Billion The Shysters

Manchester United are £700 million in debt, all of which was incurred when the Glazer family "bought" they club using leveraged finance, meaning they loaded the club up with the debt they had to raise to buy the club from the previous shareholders.  This has left the Glazer family debt free and owning the richest football club in the World.  They were then free to appoint themselves as directors, and pay themselves handsomely for sitting on board and occasionally attending matches on expenses.  They also reportedly charged the club £3 million for management consultation last year, on top of an estimated £28 million pounds spent on financial advisors, bankers and hedge fund managers who organised the deal. Theoretically the club will pay off it's debt in ten years time, at which point the Glazer family will have paid themselves somewhere in the region of £50 Million in management fees, and own a debt free asset worth approximately £1Billion, which is not bad for organising a few loans amongst your friends in the banking and hedge fund community and taking no personal risk yourself.

Of course it's not all good.  it appears that the club will now have to repay this debt (I know, who would have thought it?), and that as the Glazer family were borrowing money that they would not be personally liable for, it also turns out that the banks and hedge funds that funded the deal wanted rather higher interest rates than would normally have been available on a loan of this size, with reports that several hundred million pounds of the loan were lent at rates of 15%.  On £200 Million that is £30 Million a year, or in other words, all the money that manchester United earn from getting to the latter stages of the Champions League.

So now Manchester United are in trouble.  Ticket prices have raised every year since the Glazer familiy took control (11% last year alone), but that is not raising enough money.  They are trying to issues a bond and refinance the debt, the prospectus offers a number of money making schemes to ring more money out of the club: there are reports that the training ground (or even Old Trafford) could be sold and rented back, or the naming rights to the stadium could be sold.   They may need to sell more assets to finance the debt, and the after the training ground and Old Trafford the only assets they have left are the players.  If they start selling people like Rooney then the club is finished, and a Leeds United style plummet and bankruptcy beckons. Ronaldo was sold for £80 million, but Man. U. have no more Ronaldos to sell.

This type of takeover has been happening across all levels of business and commerce over the past ten years, and it's plain old fashioned shyster-ism, rampant speculation leaching of the hard work of the majority.  Each time it happens, it benefits only a tiny cabal of the super rich, but impacts on thousands of ordinary people who either work for the company in question, or have a pension fund with holdings in the company that can no longer reap dividends.

There is a positive side to this story:  the fact that this has happened to Manchester United  means that it is happening in the full spotlight of the media.  Now hundreds of thousands of people now know what a "leveraged buyout" is, and what a negative impact it can have on a previously extremely well run company.  It's clear that the only winners in the boardroom manouverings at Old Trafford are the Glazer family.  The club, the players, the manager, the staff and the supporters have all been royally buggered.  But since this is happenening all over the stock exchange, the more people that understand it, the more likely we are to force the govenment to do something about it.

This sort of rampant risk free speculation should be outlawed immediately.  Manchester United were probably the best run football club in the World before the Glazer family took over, now they are crippled by debt that should be encumbent on the Glazer family, not the club.

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