Manchester United and the IPO – the facts are frightening!

It sounds like the title to some horror film and, in many ways, it is just that.

The Glazer family’s debt nightmare is increasingly starting to bite and horrifically affect the ability of United to field a title winning side.

This isn’t a new phenomenon; one need only look to the recent failed pursuits of Wesley Sneijder and Samir Nasri to see that United simply cannot compete in the upper echelons of the transfer market.

The signing of League Two striker Nick Powell seems to perfectly highlight the frailties United face on the balance sheet, their strategy now confined to taking chances on promising youngsters rather than going after the world class alternatives.

I wish the young lad every success but it is hard not to compare his arrival to the multi-million pound signing of Ruud Van Nistelrooy in 2001 and think something might be amiss. It is ironic to hear some fans defend this policy and trumpet the “no value in the market” maxim espoused by the manager when we have pilloried Arsene Wenger’s similar methodology for 7 trophy-less years. 

For those of you who like facts and figures player purchases between 2009-2011 were £124.86m, player sales were £152.87m. The net spend was £-28m. During the same period United paid £244.916m in interest on the debt. Wasn’t it David Gill who once remarked that “debt was the road to ruin”? It’s certainly the road to mediocrity in the Premiership. 

I’m no financial expert, I’ll leave the bulk of that to those in the relevant fields (if you are not a regular reader of Andersred blog then you need to seriously question your outlook) but there is an irresistible flood drowning our great club and it threatens to cripple it for the foreseeable future. Not crippled in the Glasgow Rangers sense, but certainly enough to ensure our “noisy neighbours” at the Etihad consistently enjoy more scenes like they did last May. 

Even the Glazers recognise the debt has become unmanageable, which brings me onto the Initial Public Offering (IPO) of Manchester United. I’ve only recently discovered this particular financial mechanism and I doubt I’m alone in that regard. Over the last year Facebook’s IPO spectacularly flopped and Manchester United have been threatening an IPO in the Far East since late 2010. Initially Hong Kong and Singapore were considered but the Glazers have opted for a ‘home ground’ flotation on the New York Stock Exchange. 

As part of this flotation the club has issued a standard registration document similar to the prospectus that helped sell the bonds in January 2010. That bond booklet helped kick-start a mass visual protest for the rest of the season that caused widespread public embarrassment to the Glazer family. Ultimately the protest was as futile as the resistance back in 2005, but an indelible mark has been left on those in Old Trafford’s boardroom. Don’t expect anywhere near the same reaction to this particular plan. 

So what does this document reveal? There is one horrific section that really underlines the whole sorry saga and I am grateful to the Guardian’s David Conn for putting it more succinctly than I ever could: 

“The Glazer family will retain control, via their company, Red Football LLC, registered in the low-tax US State of Delaware: “Upon completion of this offering, Red Football LLC will remain our [Manchester United's] principal shareholder and will continue to be owned and controlled by the six lineal descendants [five sons and one daughter] of Mr Malcolm Glazer.” 

The Manchester United company to be floated has been registered in the Cayman Islands. Investors will be invited to buy class A shares in that company, which will carry 10 times less the voting rights of the B shares the Glazers will issue to themselves. Nor is there a plan to pay dividends to the investors. They are asked to buy shares in the expectation their value will increase as Manchester United, described in the document as “one of the world’s leading brands”, further exploits its commercial potential. 

If this goes through as planned then a Delaware Company will own a Cayman Islands’ registered entity known as Manchester United. Somehow I doubt this is what the founders of Newton Heath LYR F.C. had in mind when they formed the club 134 years ago. The Manchester City chants of “you don’t come from Manchester” have never rung more true. 

The other glaring fact in this debacle is that, despite offering a large chunk (the actual size could change as the $100 million dollar offering is a placeholder) of the club in the IPO, the Glazers will still retain almost complete control. Their shares will carry 10 times the voting rights of those issued and they will also be able to block potential dividends to investors. A layman may naturally ask at this stage what are the benefits to any potential investors? On the surface there doesn’t appear to be many but this has not hampered Google’s similar share scheme. So despite pillaging the club for over £500 million since 2005 they will potentially be in a stronger and financially more secure position than ever before. 

The problem for supporters is that the prestige and ‘brand’ of United may carry them through this IPO despite the financial misgivings, however it is worth noting that The Economist and The Financial Times have been scathing in their review of this particular IPO. Its actual take up will be closely monitored. 

The registration document provides some startling revelations regarding the finances of Manchester United. The Glazers have notoriously guarded the keys to the safe and have only released information when they’ve needed to get the begging bowl out. One paragraph tucked away in the dividend section reveals that the Glazers paid themselves a £10 million dividend, conveniently cancelling out an earlier interest-free loan for a similar figure. Simply breathtaking. Equally galling is the open admission that the debt hampers United’s ability to compete, although this surprise has been lessened somewhat by common sense and a similar risk analysis in the bond prospectus. 

Also it has been pointed out elsewhere that the cash balance of the club has taken a dramatic hit over the last 9 months: 

“There was a net cash drain of £124m during the nine months ending March 31 2012 in comparison to a £50m drain the previous nine months ending March 31 2011. The total cash as of March 31 2012 on United’s books was £26m – compared to £150m on June 30th 2011. During the nine month period in question the club have paid £43m in interest expenses, £55m purchasing new players and £28m buying back outstanding debt. The club has always told the fans that the money is there in the bank to spend on players, but now we know that this is not the case.” 

The information for the above is located on page 63 of the registration document. 

The crucial issue for this particular IPO is the timing. The Glazers have offered investors an IPO that attempts to sell United against the backdrop of accounts from the 2010-2011 season. This was a very successful year for a United side that regained the league title and made it to the final of the European Cup. It doesn’t take an Andersred to recognise that last season’s results will be far less forgiving as United finished runners up and were unceremoniously dumped out of the European Cup at the group stage. If they fail to make United an attractive investment proposition on the earlier figures then they will have no chance with the substantially lessened and more recent ones. 

It all makes for thoroughly depressing reading and this is all too often the case when it comes to Manchester United. It is sad to note that most of the media ignores the inconvenient truth surrounding United and their precarious finances. It is even more unfortunate that the vast majority of supporters dismiss legitimate concerns with a cursory nod towards the trophy cabinet. As ever I hope for a Manchester United Football Club free from the burdens of Glazer and the debt, although I won’t be holding my breath. 

Regular readers of my blog will note that I took issue with Sir Alex Ferguson’s reign in my last post. It seems I’m not alone in that regard as this Patrick Collins article in The Daily Mail shows. 

Dan Pain (@disaffectedsoul) 


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