Manchester Utd & Glazer: An Epic Swindle?

[txj]

With England's bruising disappointments in the European Championship still raw, the Premier League's big news is that Manchester United are to be floated on the New York stock exchange. A pillar of English football is being re-routed to New York, via a holding company in the Cayman Islands, in order to reduce the £423m debt mountain which the American Glazer family loaded on to United to buy the famous old club in the first place.

Against heartfelt protests from thousands of United supporters who saw the Glazers' leveraged buyout for what it was, the American speculators borrowed £525m to buy the Old Trafford club in 2005 when United were debt-free, and had gathered the money for the expansion of their stadium to a formidable 76,000 seats without borrowing a penny. When their hostile takeover was done, the Glazers saddled the club with their own borrowings, and neither the Football Association nor the Premier League has ever expressed a murmur of disapproval about it.

Seven years on, the cost of servicing that debt and of two refinancings which have involved enormous bankers' fees, has been more than £500m. Yet as the latest financial figures declare, United's debt, the legacy only of paying for the Glazers' takeover itself, remains £423m. Sir Alex Ferguson has repeatedly described the Glazers as "excellent owners" to the dismay of clear-sighted supporters. The club's chief executive, David Gill, has insisted the debt and interest burden has not damaged the club's ability to invest in Ferguson's team, or its sense of itself as the grandest of clubs.

Those blandishments have worn thin. Last season United were pipped to the Premier League title by Sheikh Mansour's lavishly funded Manchester City, knocked out of the Champions League in the group stage, and dispatched by Athletic Bilbao in the Europa League. Hauling the 37-year-old Paul Scholes out of retirement to anchor the midfield was not the sign of a club in its confident prime with a large war chest at its disposal.

Now, after a proposed float in Singapore was pulled last year, the Glazers have revealed the preferred scheme their army of bankers have orchestrated: find other people prepared to pay off some of the debt while the family retains complete control. The $100m figure widely cited as all they intend to raise is not correct; in fact the Glazers will try to get investors to cover as much of their £423m debt as possible.

The 231-page registration document filed with the New York stock exchange in preparation for the United float is the latest Glazer candidate for the most depressing document ever produced containing the word football. It features a "reorganisation" map, so investors can navigate themselves through the tax havens within which Manchester United is to be harboured.

The Glazer family will retain control, via their company Red Football, registered in the low-tax US State of Delaware: "Red Football will remain our [Manchester United's] principal shareholder and will continue to be owned and controlled by the six lineal descendants of Mr Malcolm Glazer."

That strange and cold-blooded phrase means Malcolm Glazer's five sons and one daughter; United will be registered in the Cayman Islands and traded in New York, but will remain controlled by one US family. Investors will be invited to buy A shares in the Cayman Islands holding company. They will carry 10 times less the voting rights of the B shares the Glazers will issue to themselves. Also there is no plan to pay dividends to the investors. They are asked to buy shares to trade, perhaps on a daily basis, in the expectation their value will increase as Manchester United, described as "one of the world's leading brands," further exploits its commercial potential.

This stock market move is intended to reduce the debt and put United in a healthier position, which may provide Ferguson with more money to spend on building a side to compete with the cash-rich likes of City and Chelsea. Supporters, savvy from the start, see the financial interests of the Glazers serving themselves at the heart of it.

After an England team of triers – outshone by more sophisticated football cultures – tumbled out of the Euros, there followed the now regular two-year call for a revolution in how we run the game in England. The Premier League clubs, the Football Association and the whole game down to the grass roots, the argument runs, must pull together for the common good.

Days later, Manchester United – English football's most famous name – is to be flogged off in New York via the Cayman Islands, boasting to investors of its "brand". This hocking of legendary clubs has always seemed at odds with a coherent approach to building a great sport, a waste of the great opportunities the modern era has served up.


http://www.guardian.co.uk/football/2012 ... sfeed=true

[txj]

Thursday, 12 July 2012

Why have the Glazers changed their strategy on the debt? A theory....

The big news in United's "preliminary prospectus" (the Form F-1 SEC filing) was 1) that the proceeds from the IPO will be used to repay some of the club's enormous debt and 2) that no dividends will be paid "in the foreseeable future".


The big question that stems from this, is "why?". Why after seven years of running a highly leveraged balance sheet and only two and a half years after the bond issue have the Glazers executed a huge u-turn? Why suddenly decide to reduce the club's debt?


I believe it is highly unlikely that the change is due to a sudden realisation that cash wasted on interest should be available for investment, although that may be a positive knock-on effect, but because of the financial pressures the family is under.


What follows is only my theory (and apologies if you don't like speculative articles like this), but one that I think is near the truth....


The amazing disappearing PIKs
Followers of the United financial story will know that out of the blue in November 2010, the Glazer family found £249.1m (around $400m) which they injected into the club as equity and used to repay the infamous "payment in kind securities" (PIKs). These short-term debt instruments had festered on the balance sheet of Red Football Joint Venture Limited for more than four years and had accrued £111m of rolled up interest on top of the original £138m loan.


In August 2010, the PIKs had become even more expensive as the Red Football companies breached a key debt covenant (section 8.2 of this document). The covenant stipulated that total debt in the group (from Red Football Shareholder Limited downwards) should not be more than 5x EBITDA (essentially cash profits before transfers). If debt exceeded this limit (set when the PIKs were issued in 2006), the PIK interest rate would rise from 14.25% pa to 16.25% pa. With debts in August 2010 totalling £773m and EBITDA of £102m the rate duely rose, making the PIKs even more toxic and in need of repayment.


The bond issue of February 2010 had created a "carve out" which allowed the Glazers to take £95m of the club's cash out and it was widely assumed (and mentioned in the bond prospectus as a possibility) that this money would be used to pay off a chunk of the PIKs. But the Glazers didn't use the carve out to repay them in November 2010. The exact source of funds is unknown.


What I do know, from impeccable sources, is that the money was borrowed by the Glazer family. They didn't have £249m in cash, few people do (and the other bits of the family empire are leveraged up already). The money was borrowed by one of their US companies from a single US financial firm.


Throughout the summer of 2010, the family and their advisers were hawking the deal around the market. Amusingly an old college friend working for a private "intelligence company" was retained by an American debt investor (I won't embarrass him by naming the investor) to look at the deal and initially asked me for help. The invitation to meet the potential investor was quickly dropped after they did some due diligence on who I was.


So that's what we know. Since November 2010, the club has been carrying the bond debt, and the Glazers have been stuck with what you might call "PIK2", expensive personal debt secured on their equity in United, presumably costing less than the eye watering 16.25% of the PIKs, but more than the senior bond debt's c. 8.7%.


Could there be another total debt covenant attached to "PIK2"?
Stories about a potential IPO (in Asia) first started to circulate in mid 2011 as the first anniversary of the PIK repayment approached. As we now know, nothing came of the attempts to list in either Hong Kong or Singapore, but the Glazers kept going. Despite terrible market conditions, a moribund IPO market, weak results due to the Champions League etc, they have persisted.


The explanation for this burning desire to IPO the club must be to do with their personal circumstaces, and yet they are not seeking to cash out but to repay debt. I believe that it is highly likely that the PIK2 debt has "total debt to EBITDA" covenants attached to it of a similar sort to those in the original PIKs. Such covenants would be very common for quasi-equity financing of this sort. Breaching these covenants could be very costly for the Glazer family and the existence of such would go a long way in explaining their apparent change of heart on the debt. Under such a scenario there would be a very strong incentive to try to reduce the debt across the Red Football group of companies, and the easiest method is an IPO.


The change of strategy actually dates back to Q4 2010 and PIK repayment
It is worth noting that although the prospectus sets the new strategy down in black and white for the first time, the Glazers have been pursuing deleveraging for a while, using bond buy backs, and that this new approach began as soon as the PIKs were repaid.


The club first bought back bonds in the final quarter of 2010 (when £24m were repurchased) and has now spent a total of £92.3m. No less than two-thirds of the cash the club had at the time of the bond issue (all that Ronaldo and Aon windfall) has been used on bond buy backs. The peculiarity of holding almost £150m of cash when issuing £520m of bonds and then, just a few months later, using that cash to buy back those bonds is striking.


Something has definitely changed...
So since the repayment of the PIKs and their replacement with "PIK2" we have seen a completely new financial strategy. The best part of £100m has been whipped to buy bonds and now we have an IPO being launched into terrible markets to reduce the debt further. None of this proves they are under pressure from debt covenants in PIK2, but it all fits with the theory.


Even fellow "lineal descendants" can fall out
The other chat coming out of the US about the Glazers is that Darcie, Edward and Kevin don't like having wealth tied up in this pesky soccer club that Joel, Avram and Bryan are so fixated with. If the six of them are personally on the hook for $400m of "PIK2" and covenants are in danger of being breached, you can sort of see their point.


Theories and facts
Apologies again for such a speculative post. My theory may ring true to you or may sound like laughable rubbish. It would be lovely to think the Glazers have had a damascene conversion to prudent financial management and eschewed the crippling debts of the last seven years, but you'll forgive me for seeking a baser motive.


Perhaps there are multiple reasons for the change in tack, including fears that becoming uncompetitive on the pitch will hurt the club's value, as well as the sort of direct pressure on the family I have described above, and perhaps the reasons are less important than the fact the burden on the club is being reduced. That won't stop this blog trying to identify the "whys" not just the "whats" of the whole sorry saga.

http://andersred.blogspot.com.es/2012/0 ... ategy.html

[txj]

[juventuss]

The guy is a raider (mitt romney) he will milk as much as he can and dump them.

[paj]

Prepare for life in the Shampionship

[soma]

Any other club would buckle under the debt Man Utd has been saddled with. That takeover should never have been allowed to go on by the premier league and FA.

[txj]

Manchester United's U.S. IPO seen being a tough sell


Reuters, Saturday July 14 2012



* Investors lukewarm on Manchester United offering

* Cite high debt and business model

* Stocks of listed teams in U.S. haven't fared well

* Dual class structure seen as a red flag (Updates to add debt figure in third paragraph)

By Olivia Oran

July 14 (Reuters) - Manchester United may be one of the most supported sports teams in the world but that doesn't mean the soccer club is going to find many investors with an appetite for its planned initial public offering in the United States.

Fund managers who have looked at its preliminary prospectus have been either negative or lukewarm on the prospect of buying shares in the club, which is controlled by the Florida-based Glazer family.

They say Manchester United faces significant financial risks given its 423 million pounds of debt ($658 million), and the very structure of the business puts its customers, the fans, at odds with shareholders.

Some are concerned that the U.S. stock market hasn't had many sports team listings, let alone any European soccer clubs, so there isn't much to compare Manchester United against

"With a sports franchise, it's a constant tug of war between player salaries cost and the rest of the operation," said Wallace Weitz, president and portfolio manager at Weitz Funds in Omaha, Nebraska, which holds stakes in Liberty Media Corp , Walt Disney Corp and Comcast Corp.

Manchester United declined to comment and representatives for the Glazers could not be immediately reached.

Like many sports franchises, the team's success on the pitch is largely contingent on its ability to spend cash on players - through both transfer fees and high wages.

While there have been some signs in the past year that transfer spending by top English clubs is being reined in, the pressure on a leading club like Manchester United to spend heavily in an attempt to stay a top team remains. That spending can eat up profits rapidly and lead to volatile financial results.

At the same time, if a club like Manchester United cuts costs and doesn't go into the market for expensive new players, the value of its brand can be at risk. That may not happen to a top club overnight - with just one weak season - but over a few years the value of everything from TV rights to sales of club merchandise can be hit.

Manchester United had a weak season by its own standards in 2011-12, failing to win any silverware, though it missed out on the English title by a hair's breadth.

"The deal is a strong vanity play in terms of being part of a winning franchise but whether or not that mystique around the team translates to money for shareholders I doubt it," said Jeff Sica, president and chief investment officer of Sica Wealth Management in Morristown, New Jersey, which manages over $1 billion in assets. "The chances of shareholders making money on this is very little."

To be sure, many investors will not make a final decision until they know how many shares the company will sell and at what price. The timing of the IPO is also unclear.



COMPARISONS DIFFICULT

But doing a valuation analysis will not be easy even when the price is known because of the lack of comparable public companies in the U.S. The media, sports and entertainment group Madison Square Garden Co owns the New York Knicks basketball team and Rangers ice hockey team, media and entertainment company Liberty Media owns the Atlanta Braves baseball team and cable giant Comcast Corp owns the Philadelphia Flyers ice hockey team, but none are pure sports plays as they own many other assets.

"There's just not a lot of data out there," said Mark Donovan, a portfolio manager with Boston-based Robeco Investment Management which owns shares of Disney and Comcast. "Sports franchises have been the playgrounds of rich entrepreneurs who want a big expensive toy to play with but I don't really know if they pass the test for return on investment."

Teams that have listed in the U.S. in the past also haven't performed well for investors. The Boston Celtics, which were publicly traded for 16 years beginning in 1986, posted three straight years of losses before swinging to a profit in 2002. Shares were thinly traded and held primarily by individual investors, not institutions.

The Cleveland Indians went public in 1998 at $15 before seeing shares tank to $5.38 within four months.

Both teams have since been taken private.

And unlike these teams, Manchester United doesn't play in the United States - other than for occasional exhibition games in the summer months. It may have a sizable armchair fan base in the United States who watch English games on TV but that isn't comparable to the almost religious nature of the support in the U.K.



RED FLAGS

One particular problem is that some of the legendary English club's millions of fans around the world have shown a rabid dislike for the Glazers, who acquired the 134-year-old team in 2005 through a leveraged buyout. Whether through sizable demonstrations at games or comments on fan websites, they have slammed the Florida-based Glazers for loading the club up with large amounts of debt.

Another red flag is that medium-sized investment bank Jefferies Group Inc got picked to be lead underwriter on the offering only after Morgan Stanley bowed out due to concerns over the team's proposed valuation, according to sources familiar with the matter. Morgan Stanley had been set to participate in the underwriting earlier this year, when the Glazer family sought to list the team in Singapore, raising $1 billion. That plan was initially slated for 2011 but got pushed back due to market conditions.

The team also toyed with the idea of listing in Hong Kong, Reuters previously reported, but investors in the U.S. are largely seen as more accepting of the dual share structure that the Glazers wanted for the offering - a structure that allows them to retain almost complete control even after selling a large stake.

Jefferies and Morgan Stanley declined comment.

There are still a number of big banks helping to underwrite the deal, including JPMorgan Chase & Co. and Credit Suisse AG.

One concern among investors is that the team's cash balance - which it dips into to attract top players - stood at just 26 million pounds as of March 2012, down from 151 million pounds last June. The lack of plans for a dividend is another.

Its revenue rose 6 percent to 245.8 million pounds in the nine months ended in March, while its after-tax profit climbed to 38.2 million pounds from 13.3 million pounds in the year-earlier period.

However, despite the improved figures there are signs of strain. Its net finance costs in the latest nine-month period were 35 million pounds, swallowing up more than two thirds of its operating profit of 50.7 million pounds. Much of its net profit was due to a 22.5 million pounds tax credit, which is unlikely to be sustainable in the long run.



TV RIGHTS

The revenue from the sale of TV rights to its games, which comprised roughly a third of Manchester United's overall revenue in 2011, is based on contracts with the Premier League and Champions League, and are at least partially based on its players' success on the field.

Its match day revenue, meanwhile, is generated from the number of games Manchester United plays.



http://www.guardian.co.uk/football/feedarticle/10336569

[deanotito]

Though it reads kinda sad, I must say, the strategy of the Glazer family so far is very common in the business world. As Juventuss rightly put it, guys like Romney have been doing this for decades....even more well known companies do the same.

For supporters, it seems kinda wrong, I admit....and one can conceive a situation where ManU buckles under its debt, but these debt/IPO things happen all the time in business. I for one prolly wouldn't buy any ManU stock...and for those that do, you should rush to the exits as soon as Alex Ferguson retires.

[anikulapo]

I have no love for United but I have been following this stunt the Glazers pulled for years and it is sickening. Tufiakwa, if only these crooked lawmakers were not bought and paid for by these freaks then we would have some kind of restriction on this kind of activity.

Pathetic

[realtrouble]

If care is not taken Manu might any up like Glasgow Rangers

[cchinukw]

This is pathetic. How the FA could have allowed this farce to continue is beyond me.

[Tunisian Gooner]

YIKES!!!!!!!!!!

Scary to think how much quid Man Utd's would have at their disposal if the Glazers had not "bought" the club.

[cchinukw]

If care is not taken Manu might any up like Glasgow Rangers

Hen!! Hen!!

[Tunisian Gooner]

If care is not taken Manu might any up like Glasgow Rangers

Would not go that far as Man Utd even bankrupt would have Billionaire suitors lining up around the globe to acquire the club.

That said when SAF does retire times could get rough for Man Utd.

[felarey]

Why do people like talking about things they know nothing about. Utd used to be a PLC and that very reason was why the Glazers were able to take it over. They are floating their asset in New York, it's left to you to decide with your money if it's worth buying or not. I would do a Glazer if I had the clout and money to make it happen. Yeah the conservative Englishman may not like it but really, the 4 million supporters in England do not make the club. This is not 1960.

Sir Alex will leave, and Utd will be alright. No different from other clubs. Atleast we have the trophies to cherish forever. You guys need to stick to your household accounts and not comment on dealings in international business. I'm not sure you know where the monies being spent on the projects you work on at work comes from. The company's bank account?? In big business, if you have amass too much cash, you risk being bought out. That's what happened to Utd and many others. You need money to make money, better still other peoples money if your brand is attractive.

[femibyte]

Why do people like talking about things they know nothing about. Utd used to be a PLC and that very reason was why the Glazers were able to take it over. They are floating their asset in New York, it's left to you to decide with your money if it's worth buying or not. I would do a Glazer if I had the clout and money to make it happen. Yeah the conservative Englishman may not like it but really, the 4 million supporters in England do not make the club. This is not 1960.

Sir Alex will leave, and Utd will be alright. No different from other clubs. Atleast we have the trophies to cherish forever. You guys need to stick to your household accounts and not comment on dealings in international business. I'm not sure you know where the monies being spent on the projects you work on at work comes from. The company's bank account?? In big business, if you have amass too much cash, you risk being bought out. That's what happened to Utd and many others. You need money to make money, better still other peoples money if your brand is attractive.

Ok, we go remember and bookmark this oh...

[txj]

Why do people like talking about things they know nothing about. Utd used to be a PLC and that very reason was why the Glazers were able to take it over. They are floating their asset in New York, it's left to you to decide with your money if it's worth buying or not. I would do a Glazer if I had the clout and money to make it happen. Yeah the conservative Englishman may not like it but really, the 4 million supporters in England do not make the club. This is not 1960.

Sir Alex will leave, and Utd will be alright. No different from other clubs. Atleast we have the trophies to cherish forever. You guys need to stick to your household accounts and not comment on dealings in international business. I'm not sure you know where the monies being spent on the projects you work on at work comes from. The company's bank account?? In big business, if you have amass too much cash, you risk being bought out. That's what happened to Utd and many others. You need money to make money, better still other peoples money if your brand is attractive.

Only a fake United supporter would say that...
I bet u couldn't say that out loud at OT! But then u probabaly never ever went there!

[felarey]

UPDATE:

Manchester United 'is world's most valuable sport club'

Manchester United is the most valuable club in sport, according to Forbes magazine, which values the Premier League club at $2.23bn (£1.43bn).

United is rated top thanks to lucrative global sponsorship deals, including with AIG, Turkish Airlines, and DHL.

Second is Real Madrid at $1.88bn, with baseball team the New York Yankees and American Football club the Dallas Cowboys joint third on $1.85bn.

Fifth placed is American Football team the Washington Redskins at $1.56bn.

Earlier this month Manchester United applied to list on the US stock market in a share sale aimed at raising a minimum $100m (£64m).

In documents filed with the Securities and Exchange Commission, the Premier League giant said it was listing on the New York Stock Exchange.

The club had earlier explored the possibility of a $1bn flotation on the Singapore stock market.

United, among the best-supported clubs in the world, said it would use money from the listing to repay debt.

The club has been controlled since 2005 by the Glazer family, the billionaire US sports investors who also own the Tampa Bay Buccaneers American football franchise.


http://www.bbc.co.uk/news/business-18868223

[YemiBrazil]

Every year same gloomy story but United keeps waxing stronger! As Tunisian Gooner aptly put it, even the unlikely event of total bankruptcy will only result in even more Billionaires queuing to buy the club .

[wanaj0]

Every year same gloomy story but United keeps waxing stronger! As Tunisian Gooner aptly put it, even the unlikely event of total bankruptcy will only result in even more Billionaires queuing to buy the club .

Fans don't OWN the club. Fans are customers. While they are stakeholders, it is the owners of the look that need to look after their investment.

Glazer did not stop anyone from buying the club. Not sure why people are complaining about how he is running his business empire. If the club crumbles, he will lose his investment.Glazer

With the debt, United has won more trophies than Pool and Arsenal combined. So the fans pf those clubs should be worried about their own clubs lol.

[YemiBrazil]

Every year same gloomy story but United keeps waxing stronger! As Tunisian Gooner aptly put it, even the unlikely event of total bankruptcy will only result in even more Billionaires queuing to buy the club .

Fans don't OWN the club. Fans are customers. While they are stakeholders, it is the owners of the look that need to look after their investment.

Glazer did not stop anyone from buying the club. Not sure why people are complaining about how he is running his business empire. If the club crumbles, he will lose his investment.Glazer

With the debt, United has won more trophies than Pool and Arsenal combined. So the fans pf those clubs should be worried about their own clubs lol.

Simple as A-B-C

[wanaj0]

See wise people at Pool that bought Carrol for 35m now trying to offload same player. Bad people at Newcastle are pricing the correct value. Pool is an example of how not to run a club.

[txj]

Every year same gloomy story but United keeps waxing stronger! As Tunisian Gooner aptly put it, even the unlikely event of total bankruptcy will only result in even more Billionaires queuing to buy the club .

Fans don't OWN the club. Fans are customers. While they are stakeholders, it is the owners of the look that need to look after their investment.

Glazer did not stop anyone from buying the club. Not sure why people are complaining about how he is running his business empire. If the club crumbles, he will lose his investment.Glazer

With the debt, United has won more trophies than Pool and Arsenal combined. So the fans pf those clubs should be worried about their own clubs lol.

The post shows how daft and clueless u can be....

In football, esp in England fans are not just customers. Neither is it simply about Glazer losing his investment...

2nd, and maybe its a lame attempt at humour, but MnU hasn't 'won more titles than Arsenal & LFC combined.