Manchester United Financial Situation - David Conn

[Macmoish]

Crazy - Given how big they are/what crowds they get, etc...

Guardian/David Conn

Glazers fail to pay mortgage on four shopping malls• United owners hit by more difficulties
• Investigation reveals 'delinquent' malls

Manchester United's owners, the Glazer family, have suffered further embarrassing financial difficulties after four more of its US shopping malls recently fell into default on their mortgages. With the interest rate charged on United's enormous "payment-in-kind debts" rising from 14.25% to 16.25% this month, the news could hardly come at a worse time.

An investigation by the Guardian in conjunction with the BBC's Panorama programme and the investment analyst Andy Green in June found that of the 68 shopping malls owned by the Glazers' US-based First Allied Corporation, four had gone bust and one more had defaulted on its mortgage. An analysis of the malls' most recent financial disclosures has revealed that four more have since failed to pay their mortgages and become classified as "delinquent", with two falling into default this month.

The four malls are in Houston, Texas; Denver, Colorado and two in Ohio. That means nine, or 13%, of the Glazers' malls are now "delinquent" or insolvent, and a further 29 centres, 43%, have so many units empty the rental income does not cover the mortgage payments. First Allied is the only significant business the Florida-based family runs besides Manchester United and the Tampa Bay Buccaneers NFL franchise, and the bank disclosures show it making income above the malls' running costs of only US$9m a year.

These disclosures come at a particularly sensitive time considering United's own debts. The interest rate increase took effect this month, according to the most recent accounts filed by one of the Glazers' United companies.

According to Red Football Joint Venture Limited, the accounts for the year to 30 June 2009 recorded that United's total bank and other borrowings had swollen to £716m, all of it derived from the Glazers' original personal borrowings to buy the club in the first place in 2005. Of that, around £500m was owed to banks and refinanced in January with the issue of bonds at an average around 8.5% interest "yield" annually – £42.5m this year.

The payments in kind, originally owed to three hedge funds, had risen to £202m by 30 June last year, so at 14.25% have accrued a further £34m interest since. That interest is not paid but accumulates, so the Glazers' United companies now owe £236m to the hedge funds. The increased interest rate to 16.25% means that over the next year a further £38m will be added, swelling the total to £274m, unless a proportion of the hedge fund debt is paid off.

No public United documents explain why the interest rate has increased, but it has been reported that United were hit with it as a penalty clause because their debts have risen to more than five times the basic profit they make.

The club's chief executive, David Gill, has maintained that the payment-in-kind debts at these credit-card rates of interest are not the club's responsibility, but fall on the family to repay. However, it is not at all clear the Glazers have the resources from First Allied or elsewhere to meet these liabilities, and the bond document issued by United provides the right to take almost £130m out of the club. That can be used to pay towards the payment-in-kind debt if necessary.

Gill and the Glazers argue the club is unaffected by these debts, by far the largest external borrowings ever owed by an English football club, and that funds are available for the manager Sir Alex Ferguson to spend. The manager has said the transfer market is over-priced and it is his own choice this summer to have signed only Chris Smalling from Fulham, Javier Hernández from Guadalajara and the deal which has stunned football, the 20 year old Portuguese striker, Bébé, for £7.4m.

Yet Green – an investment analyst and United supporter who writes about the club's finances in his blog www.andersred.blogspot.com – said the latest disclosures from First Allied were a cause for further concern. "They show that the Glazer family's only significant other business is making almost no money, and certainly not generating the cash to reduce United's massive debts," he said. "The family's shopping malls are afflicted by low occupancy rates, more have fallen into default, and whatever David Gill says, there appears no doubt that Manchester United itself will be made to service these useless debts and pay huge interest payments, all money which could have been spent signing players."

Neither the spokesman for Manchester United nor the Glazer family were available for comment yesterday.

www.guardian.co.uk/football/2010/aug/24/manchester-united-glazers-mortgage-malls

[ingham]

Seems like a classic bubble scenario. The question is 'are they now too far down this road to save themselves?'

The received wisdom of football is that a Club like United doesn't squander on mundane realities like interest payments money it could spend more usefully on players.

Still less does it bother paying off any of the capital. It just borrows more. On the basis, I suppose, that there are lways plenty of willing lenders, and very few pressing creditors.

All the Club needs to do is to go into administration, offer 1p in the £, or nothing, and it can start again.

The TV money is a safety net, they assume. But, If I'm not mistaken, the TV money was itself borrowed until comparatively recently. So that the Sky operation has only recently become profitable.

This suggests that the two are interdependent. The Clubs' spending power is only what it is because of the promise of ever-increasing sums from TV.

But the TV money is only there in the first place because the Clubs' projected spending power is supposedly enormous.

But surely that is based on projected earnings. In the case of earnings, the gulf between what the Clubs are capable of bringing in, and what they're spending in the hope of bringing it on, is widening alarmingly.

Contracting for ever increasing TV money doesn't mean that money will be there, come what may. You can't get blood out of a stone, and what the Clubs have contracted for won't mean anything if the investors behind the TV companies can't - or won't - provide it, contracts or not.

The game is still pitching to two different audiences. The supporters, who will watch the games whether the Club is big, rich and successful or not.

And the TV audience, which won't.

[The Scooter]

I think BSkyB have been profitable for a fair while now Ingham.

My fear here is that in order to service their debts and seek to gain a bigger slice of the TV revenue pie, Man Utd will lead a handful of clubs into pressing the PL for the end of collective bargaining and allowing clubs to go their own way for TV and multimedia deals. If they do, the PL need to stand firm and point to the experience of Serie A with individual bargaining experiments (now thankfully returned to collective bargaining).

I'm sure the Glazers will see individual bargaining and a bigger slice of media rights as the fall back argument for servicing the debt.

[ingham]

A moot point, nodge. What reasons - or mechanisms - are usually given for the change - and change back - on collective negotiation in Serie A? In a slightly different context, it is easy enough to see objections to outright elitism where a European Super League is concerned, say.

It would reduce the status of most of the competing Clubs. In the sense that most of them are Top Four sides now, whereas in a Super League, most would become long term or permanent mid-table or even 'relegation-zone' outfits. Rather in the way Spurs and Everton (the former 'moneybags' Clubs and members of the 'Big Five') found themselves out of the title winning and Europe-qualifying elite in the Premier League.

While Ferguson galvanized United, and Abramovich ensured that what little room there was at the top would be far more expensive, much harder to squeeze into, and far more important than it once had been.

Every Club seems to be struggling in one way or another these days. The biggest ones are either struggling to put together a winning team, and finding it harder and harder to do so, or finding harder and more complicated to fund a losing one.

Leaving the football aspect to one side for a moment, isn't this how it was always intended to work?

That the Clubs' money could be used for any purposes the 'owners' decided. Football was now no longer about football. Being 'all about money' it was as 'up for grabs' as money itself is.

Failing American shopping malls, the pockets of directors - Glazer's predecessors a prime example - property deals, other sports franchises - MK Dons, Wasps, whatever.

This might make it easier to explain why QPR hasn't 'done a Chelsea' - or even a 'Blackburn' for those who remember that far back - outspending every other Club on the block. If what is being spent is the Club's own money, there is a limit, irrespective of how many billionaires have their names on the letterhead.

And that limit might be expressed equally in terms of the Club's projected earning power, or its share price.

Is this why there is so little realistic self-appraisal? Because the Club's dimensions and capabilities aren't of much importance now. If the Club can be used to move money, what matters is where it's going, and who will own it in the future.

Because if it IS the Clubs' capabilities and prospects of success, in any realistic sense, we should expect Clubs to become progressively less attractive, since the demand for borrowed money is as great, if not greater, at Clubs which are struggling.

And these must be, by and large, the least attractive to invest in.

Fine, if the investment breaks the mould and brings more Clubs into the Champions League, say Spurs or Man City. But the huge losses at the present elite are predicated on the basis that they will continue to EXCLUDE rivals from the Champions League.

If they cannot do that, then don't they become less attractive?

Was that what was happening in Serie A? The big Clubs can't go it alone simply because they are not in the driving seat. They may no longer be 'Clubs', but they are not businesses either. They are a merely a resource, like an oil well, or a quarry.

On other matters, I came across that observation about Sky's profitability quite recently, if my memory serves me well, although I took it to be about their English football operation, not the wider business. On that basis, it didn't seem all that improbable, given the sums they've been disbursing. But I don't recall the source or even the context.