Monday, 18 November 2013

Debt down, fan communications restored - where next for MUFC?

Apologies for the lack of regular posts. Work and family have to take priority over football finance….

The beginning of a new phase?

In some ways this week marks something of a watershed in the saga of the Glazer family’s ownership of Manchester United.

In Moston, FC United of Manchester are beginning the building of their own ground, more than eight years after their formation in the wake of the Glazer takeover of MUFC (I heartily recommend Danny Taylor’s piece on FCUM published in today’s Observer).

Two hundred miles south, the week saw the first formal meeting since 2005 between the management of Manchester United and the Manchester United Supporters Trust. The club’s meeting with MUST follows one with IMUSA and an interview by Edward Woodward with UWS.

Woodward himself has apparently told the club’s Fans Forum that he would consider the introduction of safe standing. There are early signs the end of the Ferguson/Gill era may herald a new approach by the club to its core domestic support.

The financial background to all this is radically different from 2005 too.

The decline of the financial importance of the match going fan

In the year of the takeover, United generated revenue of £157m of which Matchday income was the largest element at 42% of the total. This year (2013/14), revenue will be around £425m and Matchday will be the smallest element at barely over 25%.

Total gate receipts in 2012/13 were £54.2m, 15% of the club’s revenue. Although ticket prices have risen on average 55% since the takeover, the importance of normal season ticket holders and members has declined at the expense of the execs, corporate box holders and other hospitality clients. It is unlikely that ticket income from the c. 60,000 non-exec supporters contributes more than 10% of the club’s revenue these days. This dramatic reduction in the financial importance of normal match going fans should put to bed once and for all any ideas of boycotts or similar actions against the owners (the idea of which I have entertained in the past).

The change in the club’s revenue should also be an opportunity. There is now absolutely no need for, and little financial merit in, the sort of price increases the club put through after the takeover. The expansion of executive facilities, the building of the quadrants and the price hikes added c. £40m per annum to United’s revenue between 2005 and 2009, around 25% of the 2005 total and roughly the annual interest bill in those years. Season ticket prices haven’t moved up for several years, and there is no need for them to do so. The daft ACS could also comfortably be abolished. The extra revenue from those who are forced against their will to buy certain cup tickets is absolutely irrelevant to the club’s finances.

The financial state of the club after the debt gamble

The Glazer family took a huge gamble when they conducted a leveraged buyout of MUFC. A quick look down the East Lancs Road shows how far a major club can be set back by excessive debt. Three years after the takeover, the financial crisis hit and the PIKs began to run out of control. Only the genius of Alex Ferguson and the sale of Ronaldo to Real Madrid allowed the whole rickety show to remain on the road.

But now that phase is over. The club has over £83m of cash in the bank and net debt is down to £277m. That latter figure is roughly 2x EBITDA, down from almost 6x (including the PIKs) in 2010. The annual cost of the debt burden has fallen from £72m (including the PIKs) or £42m (excluding the PIKs) in 2010 to around £20m this year. The £600m of interest costs, fees etc will never be recovered but the risk of damage to the club a la Liverpool FC is effectively over. Because of the exploding value of TV rights, a smart commercial strategy and a once in a life time manager the gamble has paid off for the Glazers.

Where next?

The departure of Fergie and the reduction in debt means Edward Woodward faces a very different set of challenges and opportunities to those David Gill faced during most of the post 2005 period. The club can genuinely afford to compete with the likes of Barcelona, Bayern, PSG and City in the transfer market if it wishes, but showed little ability to make its financial muscle work for it in the summer window.

For match going fans the signs of early promise must be followed up with concrete action. As the financial importance of the season ticket revenue falls, the importance of the Old Trafford “brand” increases. Whilst that has a tacky sound to it, it provides the opportunity for supporters to be aligned with the club. Proper singing sections of German style rail seats behind the Stretford End and Scoreboard goals, an end to the ACS, and at the very least a continued freeze in prices are all comfortably affordable by the club and would boost the atmosphere for the benefit of everyone. No subsidy by supporters is necessary for rail seating, it is a win-win.

In the next two to three years, it is very likely the club will start paying dividends to shareholders again. There is an inevitability about this after the IPO in New York. However unwelcome for fans, dividend payments didn't hamper the club in the plc days and don't have to this time.

Looking further into the future, the irony of a football club trying to build brand loyalty whilst at war with some of its most loyal fans is laughable. Supporter engagement through fan groups and yes, an element of ownership, helps bind fans to their club, even one the size of United. Perhaps David Gill had spent too long in the trenches of United fan politics to realise this. Over to Ed….



Anonymous said...

Wasn't there a mystery around how the PIKs got paid off? Was that resolved or is it still a mystery? If so, is it possible they could resurface again at some point in the future?

Dave said...

Given nothing objectively has changed, the fact that the Glazers don't mind Woodward talking and didn't mind Gill not talking suggests that they don't give a toss either way.

Anonymous said...

Do your projected earnings going forward until 2016 still stand Andy? As informative as ever, keep up the good work

andersred said...

@Anonymous at 13.09
The mystery has never been solved but the issue has effectively gone away following the IPO on the New York Stock Exchange. If the family need money to repay whoever financed the PIK payment they will have to sell more shares. Other than dividends, their ability to personally pillage the club is much reduced now the shares are listed.

I think the Glazers leave the football club to Gill and now Woodward. I'd say the big change is that from 2005-2010 what the owners wanted and what fans wanted were completely opposite. They needed cash, fast and fans suffered on the back of it. Fans didn't want debt or higher prices. The situation has changed as I set out. The need to service/repay the debt is far, far lower, the importance of ticket revenue has greatly declined and the importance to the "brand" of restoring the atmosphere at OT has increased.
The Glazers don't care I'm sure, but there is more common ground between supporters and management.

@Anonymous at 13.53
I'm happy with my revenue forecasts but (as ever in football) my assumptions on wage inflation are proving too optimistic. That makes my margin estimates too high - or perhaps too early, I still think United can break out of the historic margin range. Despite being too bullish, the cash interest cost is coming down faster than I expected so I still think "free cash flow" this year will be around £60m...

Anonymous said...

The finances really do look very healthy indeed. Add the Chevrolet and new kit deal into the pot and I see no reason why, with an EBITDA of £200m in the near future, we can't plough £80m a season net on players if required, pay a £50m dividend and cover the £20m interest payments and some tax and still have a considerable cash surplus. All this at a time when (hopefully) FFP legislation works and other clubs (City, Chelsea, PSG, Monaco etc.) will struggle to compete with that for top players.

If we can throw into the mix a much better relationship between fans and the club, and between fans themselves now that the Glazer issue now finally being resolved, it gives us a very solid base to work with moving forward.
Future success looks probable with this in mind.

Anders, in the spirit of better club/fan relations, is it not now time to dispense with the LUHG tag? Your main reason for hating them to me seemed to be that they were leading the club into a precarious financial situation. It's clear that with your last few blogs on the topic that you now don't agree with that analysis. So why is it still there, and if you still can't rid your pieces of it, what will it take for you to do so?

LULG (Love United, Like the Galazers)

Anonymous said...

I can confirm that within the next 18 month's 80% of the debt will be gone. The owners will float more shares and they will be using most of the proceeds to reduce the debt significantly. Yes dividends will be taken and that is their entitlement, but thankfully the debt will be gone. Well 80% of it, some debt is good debt of course.

Paul Belbin said...

Anders, I read this with a mixture of admiration and despair.

The admiration is for your - as ever - cool, detached analysis, which I've always appreciated. While you were railing against the burdens the Glazers imposed on MUFC, many called you one-eyed. This piece shows that you have a balanced view. I admire your optimism too, seeing a future of fan involvement / ownership, the end of ACS and unnecessary price hikes. Well done and thank you.

But... the despair stems from your acknowledgement that effectively the Glazers have 'won'. They have reduced MUFC's dependence on the match-going supporter to the point where they feel they can reach a compromise. The season ticket holder is now truly a paying customer only. The real money is in TV rights, sponsorship, product. This is 'franchise football', made for global exploitation.

And for me, it's remote, sanitised and over-hyped. It CANNOT ignite passion in me. As far as I'm concerned, the Glazers have still robbed me of something I loved deeply (and SAF helped them do it).

To all the MUFC fans who stay with it, and try and get the club into fan ownership, I wish you luck. If you achieve it, it will be your club. But I'm convinced that what will actually happen is that MUFC (the franchise) will pay you lip service while doing what's right for the owners (and now shareholders) rather than for MUFC (the football club).

To be absolutely clear for any MCFC, LFC or Chelski fans gloating... your models of ownership are repulsive too.

And so... rather than wait for favours, I finally let my membership of MUST / IMUSA lapse. I've spent enough time and cash brown-nosing. Punk football only for me from here on...



Anonymous said...

@Paul Belbin

"The admiration is for your - as ever - cool, detached analysis, which I've always appreciated."

Hang on a minute here. Anders was predicting a very bleak future just a year or two ago, and was almost frothing at the mouth to make as many Utd fans see it the same way as him. Thankfully his predictions were way off and others, especially on the Redcafe forum, battled against his 'predictions of doom'. The only reason his analysis looks cool and detached now is because he has no wiggle room left for tales of implosion. Now even a year 11 student can see that our finances are rosy.

"But... the despair stems from your acknowledgement that effectively the Glazers have 'won'. "

No. The f*ckwits, idiots and whingers lost, as did the predictors of doom. Now they would appear to be disappointed that their predictions look very silly right about now.

"And for me, it's remote, sanitised and over-hyped. It CANNOT ignite passion in me. As far as I'm concerned, the Glazers have still robbed me of something I loved deeply (and SAF helped them do it)."

I can understand part of that but laying the blame at the Glazers feet is utter nonsense. How are they responsible for football, especially premiership football, being a commodity in demand all over the world. All they did is see it sooner than others and invest. Other than the way that they took over the club, they have been excellent owners in comparison to other clubs. The comment about Fergie is utter bollocks - he helped them by winning trophies - is that what you mean? If so then you need to look at yourself long and hard.

"To all the MUFC fans who stay with it, and try and get the club into fan ownership, I wish you luck."

Why is fan ownership always considered the most desirable state of affairs? All we need is owners that run the club profitably, invest in the squad and facilities, and stay away from football matters. The Glazers have proven to be better owners than most others in this regard.

"And so... rather than wait for favours, I finally let my membership of MUST / IMUSA lapse. I've spent enough time and cash brown-nosing. Punk football only for me from here on..."

Good thing if you ask me. Perhaps your opinions on this matter have been influenced by the bullshit and lies spouted by MUST over the last few years?

I get that some fans are losing touch and don't feel part of a family club anymore and that is a shame. But, the way some are going on it sounds as if they are bitter for being on the wrong side of the Glazer debate - almost as if they are disappointed that their predictions didn't come true, and now they blame the Glazers for the globalisation and commercial success of the Premier League and top football in general.

Punk football will suit you if you are one of them.

Jennifer said...

Your blog is great. Thanks for showing up the great insight...

Anonymous said...

'Over to Ed', now there's a statement! I don't get the sudden Anders stance on fan unity apparently now that the finances are back on track..really? Let's see how that stands up post Fergie now they know that major player investment is required to keep their investment where it should be.

The glazers should be grateful that they have had loyal fans at all, any other club? And now you're saying that the club wants to introduce enticements to keep the fans there even though they don't really need them! All of a sudden the glazers love the fans really and the bad blood was Gill's fault?

The loyal fans who were aligned to the club are now aligned to another,it's clear all the glazers need is any old arse on seat, but that's not what football and United are about is it. What's the point in singing sections when nobody knows the songs? Or an atmosphere from a half empty stadium because the team is useless.

The damage has already been done, both on and off the pitch, and another home defeat with the likelihood of no top four and no trophy is going to put the 'special relationship' to the test. It's becoming clear that Fergie was the glue. Interesting times.

einberger said...

Manchester United shirt sales are not good, it should be able to offset some of the debt.

Anonymous said...

Andersred, great article as always. Love your work, and thanks for your service.

Could you please give your opinion on the following, since the most important issue facing the club is is the lack of quality and of investment in the first team.

Is it possible for the Glazers to take the profit out of the club for themselves (I guess in the form of dividends for the Class of equity that only they hold. I believe they said that no dividends would be paid on the class A which were floated.)

Otherwise, could they otherwise restructure the finances so that they can easily take a lot of money out of the profits of the club.

I ask this in the context of some of the great players who have signed for our rivals in recent years and we've been very reluctant to pay transfer or salary - e.g. Gotze, Thiago, Ander, Shaqiri, Gareth Bale, Fernandinho, Navas, Di Maria etc... even if it would have meant over-paying, it would be worth maintaining the brand and not missing Champions League football.

Anonymous said...

Great blog. Thanks for all detailed info and analysis.

@andersred what kind of economic impact would have missing Champions League next season and not winning league title this year? Would it also affect sponsor revenue? Could the austerity of the owners end up costing them more than they saved?

From the outside, the whole Glazer saga looks like someone borrowed too much money to buy a somewhat healthy club and then made the club pay the borrowed money back. Is this simplistic approximation correct?

I know they improved the commercial revenue, but so did all other big clubs while keeping up with top transfers and not increasing ticket prices.

Anonymous said...

Failing to qualify for Champions League and not winning a trophy will be a disaster that will destroy United. This is how Leeds went down.

Paul said...

Anonymous perhaps you would like to expand on your comments and say exactly why?

Manchester United firstly isn't Leeds and secondly has much stronger foundations. It's always interesting to see people using Anonymous accounts to make ridiculous statements with zero fact or evidence.

But, of course please do surprise with a response with a level of detail which can be discussed.

Good to have you back Anders and thanks as always for the article. Great insight as ever and for someone that is neither pro or anti Glazer, good to read a balanced article.

Anonymous said...

tonight Stoke City Vs Manchester United - Crawley Town Vs Bristol Rovers - Spurs v west ham live for free with good chat banter

Back2Credit said...
This comment has been removed by the author.
total12 said...

The Ferguson/Gill era may herald a new approach by the club to its core domestic support.Uni-source

Lily Khan said...
This comment has been removed by the author.
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