Post by QPR Report on Mar 25, 2009 6:29:34 GMT
David Conn/The Guardian
Premier League to bring in test for clubs overloaded with debt• League plans to introduce 'going concern' test
• FA to submit separate response to culture secretary
The Premier League is planning to introduce a "going concern" test aimed at ensuring its clubs are not laden with dangerous levels of debt. The test, according to Premier League sources, will work out if debts are manageable by assessing a club's financial health, including its turnover and cashflow.
The test is being planned as a response to the culture secretary, Andy Burnham, who called last October for "football to reassess its relationship with money" and posed seven challenges to the game. One was for "greater transparency and scrutiny of clubs' ownership", including the level of debt used to finance a takeover and whether that debt is "sustainable and in the wider interests of the game".
The Premier League plans to publish its reply next month, including the "going concern" test to address the debt question. The league is understood to be keen to avoid a discussion about how debt was taken on – whether to fund investment such as a new stadium, or imposed by new owners to finance their takeover, as the Glazer family did in 2005, giving Manchester United, previously debt-free, £667m in borrowings.
Although Burnham explicitly asked for scrutiny of "debt used to finance a takeover", the Premier League is likely to argue it is not important how debt was incurred, but whether it is sustainable.
The FA is preparing a separate response which is expected to go further; the governing body's chairman, Lord Triesman, is understood to stand by his warning last October, that football clubs' debts are too high.
Triesman includes in his concerns "soft loans" made by owners because, he argues, clubs are vulnerable to the owner's circumstances changing. The Premier League's response is also likely to propose strengthening the "fit and proper person test" for club directors and 30% shareholders, in the light of Thaksin Shinawatra's 2007 Manchester City takeover. The former Thai prime minister was labelled "a human rights abuser of the worst kind" by Human Rights Watch after 2,500 people were allegedly killed by Thai police in 2003. Thaksin denies ordering extrajudicial killings.
www.guardian.co.uk/football/2009/mar/25/premier-league-football-debt
David Conn/The Guardian
United's massive debts now at mercy of the marketHopes for greater financial transparency in football take another hit as the champions' loans are traded around the City
How are we to make sense of the news that Manchester United's enormous debts – £667m as of last year's accounts – are being sold at a loss by crisis-stricken financial institutions in the City of London? Banks, hedge funds and private equity speculators, all wrestling with the economy's general collapse, are, according to the financial data company Markit, flogging off United's steepling loans at 70% of their value.
One well-informed City source said that is the price only of United's "senior" debt, the £425m secured on Old Trafford, the Carrington training ground, the gilded players, season tickets, commercial contracts, on the lock, stock and corporate barrel of English football's most glittering club. A further £90m of loans, which are not secured, are being sold for 50p in the pound, while the rest of the £667m – £152m "payment in kind" debt, loaned originally by hedge funds at a swingeing 14.25% interest – is said to be available for buyers who can name their price.
Yet stark as it looks, this does not, apparently, mean United are in trouble, struggling to bear the massive borrowings taken out by the Glazer family to buy the club in 2005, then loaded on to United to pay off. Given United's level of success, the TV fortunes made from winning last season's Premier and Champions Leagues, the 75,000 bums on Old Trafford seats, and all the club's industrial moneymaking, their 2007–08 accounts, shortly to be announced, are certain to declare the highest turnover and profit ever made by an English football club. In 2006–07, the club's profit was wiped out by the eye-watering interest, £81m, payable on the Glazers' loans; this time the interest will certainly be higher, but there may even be a little profit left over.
The selling of the debt at a discount speaks more of the global economic crisis than a crumbling of the Old Trafford ramparts. Banks and other financial institutions are starved of the ready cash and wholesale credit that serviced the bubble, so are selling their loans, even at a loss, to get money in now.
There are, nevertheless, specific problems with being traded like this on the "secondary debt" market. First, United's debts are up for sale to any financial outfit, including the merciless and ruthless, who would leap punitively on United if the club were to breach any covenant, however minor.
Second is the question of accountability. The public, including United fans, cannot know who holds the debt in United. When the Glazers bought the club for £831m, the family itself paid £272m cash, £284m was loaned by their bank, JP Morgan, and "syndicated" to other banks, and the other £275m, which the family could not borrow at standard rates, was advanced at very high interest by three hedge funds, Citadel, Och-Ziff and Perry Capital. In 2006 the Glazers managed to refinance those original loans, but there has been no public disclosure of who holds the £425m, the other £90m, orthe high-interest £152m "payment in kind" loans.
The discovery that this debt in Manchester United is now a commodity on the screens of City traders drives home the still-staggering facts of the takeover. Here was a great, pre-eminent football club that prided itself on being well-run, owed not a penny to anybody, financed Sir Alex Ferguson's awesome achievements and rebuilt Old Trafford entirely with cash, yet was loaded up with £667m of debt, massively more than any other football club ever, solely to pay for the Glazer family, whom nobody wanted, to take over the club.
When asked about the legitimacy of this, or the value of allowing it to happen, the Premier League has always shrugged its shoulders and pointed out – with some justification – that such things are legal. "Leveraged buyouts" were what passed for unquestionable financial wizardry until the very recent discovery that not everything the City devises is quite so clever after all.
"We understand that the sale of United's debt does not mean the club is struggling," acknowledged Nick Towle, chair of the Manchester United Supporters Trust. "But there are dangers, and it highlights that the club's money, paid by hard-pressed fans, is being taken out to pay the huge interest on these loans introduced by the Glazers."
United's spokesman, Phil Townsend, pointed out that United still have money remaining after servicing the debts to assemble their squad, including August's £30m signing of Dimitar Berbatov: "With our turnover, we can meet the obligations on our loans and debts, and still buy world‑class footballers and provide first-class facilities at Old Trafford and Carrington," Townsend said.
Yet the revelation that Manchester United's debts are now a discounted, traded commodity feeds the concerns expressed last November by Andy Burnham, the culture secretary, when he called for football to "wholly reassess its relationship with money". One of the seven questions asked of the football authorities was whether unhealthy levels of debt were being ladled on to clubs when they were taken over.
The Premier League and the Football Association are understood to be preparing separate responses to Burnham, with the Premier League expected to announce theirs first, early next month. The league is understood to be addressing worries about debt by proposing a "going concern" test, in which the size of a club's debt is measured against its turnover, cash flow and general financial position, to assess whether it is too onerous.
It is difficult, though, to believe that any such test will be drafted to restrict United or any other current club, who, after all, pay the £1.3m salary of Richard Scudamore, the chief executive framing the response to Burnham. The Premier League is understood to be preparing to reject the argument that there are different kinds of debt – that United's, loaded on by new owners just to have the club pay for their takeover, might be viewed as a useless drain, compared, say, to that of Arsenal, who borrowed £260m to move to the Emirates Stadium, a visionary investment made to generate more money.
Lord Triesman, the FA chairman, is understood to stand by the comments that provoked Premier League fury last October, that now is not a good time for football clubs to be loaded with debt. The FA is expected to present proposals for clubs to carry less debt, including "soft" loans from sugar daddies such as Roman Abramovich, Mohamed Al Fayed and Dave Whelan, which Triesman believes also leave clubs potentially vulnerable. With Burnham stressing that the government has no plans to legislate, it remains to be seen whether this process will bring about any meaningful change.
Certainly the Premier League will argue there is nothing at all wrong with what the Glazers did to United, a club built by generations of working-class supporters, and by players paid a maximum wage, many of whom auctioned off their medals in later life as the only way to finance a decent retirement.
Any criticism the Premier League has will be reserved not for the Glazers and their leverage, but for Triesman, if he should dare raise his head above the parapet again, and question whether this really is the ideal way for football to conduct itself.
www.guardian.co.uk/sport/blog/2009/mar/25/manchester-united-debt-glazers-david-conn
Premier League to bring in test for clubs overloaded with debt• League plans to introduce 'going concern' test
• FA to submit separate response to culture secretary
The Premier League is planning to introduce a "going concern" test aimed at ensuring its clubs are not laden with dangerous levels of debt. The test, according to Premier League sources, will work out if debts are manageable by assessing a club's financial health, including its turnover and cashflow.
The test is being planned as a response to the culture secretary, Andy Burnham, who called last October for "football to reassess its relationship with money" and posed seven challenges to the game. One was for "greater transparency and scrutiny of clubs' ownership", including the level of debt used to finance a takeover and whether that debt is "sustainable and in the wider interests of the game".
The Premier League plans to publish its reply next month, including the "going concern" test to address the debt question. The league is understood to be keen to avoid a discussion about how debt was taken on – whether to fund investment such as a new stadium, or imposed by new owners to finance their takeover, as the Glazer family did in 2005, giving Manchester United, previously debt-free, £667m in borrowings.
Although Burnham explicitly asked for scrutiny of "debt used to finance a takeover", the Premier League is likely to argue it is not important how debt was incurred, but whether it is sustainable.
The FA is preparing a separate response which is expected to go further; the governing body's chairman, Lord Triesman, is understood to stand by his warning last October, that football clubs' debts are too high.
Triesman includes in his concerns "soft loans" made by owners because, he argues, clubs are vulnerable to the owner's circumstances changing. The Premier League's response is also likely to propose strengthening the "fit and proper person test" for club directors and 30% shareholders, in the light of Thaksin Shinawatra's 2007 Manchester City takeover. The former Thai prime minister was labelled "a human rights abuser of the worst kind" by Human Rights Watch after 2,500 people were allegedly killed by Thai police in 2003. Thaksin denies ordering extrajudicial killings.
www.guardian.co.uk/football/2009/mar/25/premier-league-football-debt
David Conn/The Guardian
United's massive debts now at mercy of the marketHopes for greater financial transparency in football take another hit as the champions' loans are traded around the City
How are we to make sense of the news that Manchester United's enormous debts – £667m as of last year's accounts – are being sold at a loss by crisis-stricken financial institutions in the City of London? Banks, hedge funds and private equity speculators, all wrestling with the economy's general collapse, are, according to the financial data company Markit, flogging off United's steepling loans at 70% of their value.
One well-informed City source said that is the price only of United's "senior" debt, the £425m secured on Old Trafford, the Carrington training ground, the gilded players, season tickets, commercial contracts, on the lock, stock and corporate barrel of English football's most glittering club. A further £90m of loans, which are not secured, are being sold for 50p in the pound, while the rest of the £667m – £152m "payment in kind" debt, loaned originally by hedge funds at a swingeing 14.25% interest – is said to be available for buyers who can name their price.
Yet stark as it looks, this does not, apparently, mean United are in trouble, struggling to bear the massive borrowings taken out by the Glazer family to buy the club in 2005, then loaded on to United to pay off. Given United's level of success, the TV fortunes made from winning last season's Premier and Champions Leagues, the 75,000 bums on Old Trafford seats, and all the club's industrial moneymaking, their 2007–08 accounts, shortly to be announced, are certain to declare the highest turnover and profit ever made by an English football club. In 2006–07, the club's profit was wiped out by the eye-watering interest, £81m, payable on the Glazers' loans; this time the interest will certainly be higher, but there may even be a little profit left over.
The selling of the debt at a discount speaks more of the global economic crisis than a crumbling of the Old Trafford ramparts. Banks and other financial institutions are starved of the ready cash and wholesale credit that serviced the bubble, so are selling their loans, even at a loss, to get money in now.
There are, nevertheless, specific problems with being traded like this on the "secondary debt" market. First, United's debts are up for sale to any financial outfit, including the merciless and ruthless, who would leap punitively on United if the club were to breach any covenant, however minor.
Second is the question of accountability. The public, including United fans, cannot know who holds the debt in United. When the Glazers bought the club for £831m, the family itself paid £272m cash, £284m was loaned by their bank, JP Morgan, and "syndicated" to other banks, and the other £275m, which the family could not borrow at standard rates, was advanced at very high interest by three hedge funds, Citadel, Och-Ziff and Perry Capital. In 2006 the Glazers managed to refinance those original loans, but there has been no public disclosure of who holds the £425m, the other £90m, orthe high-interest £152m "payment in kind" loans.
The discovery that this debt in Manchester United is now a commodity on the screens of City traders drives home the still-staggering facts of the takeover. Here was a great, pre-eminent football club that prided itself on being well-run, owed not a penny to anybody, financed Sir Alex Ferguson's awesome achievements and rebuilt Old Trafford entirely with cash, yet was loaded up with £667m of debt, massively more than any other football club ever, solely to pay for the Glazer family, whom nobody wanted, to take over the club.
When asked about the legitimacy of this, or the value of allowing it to happen, the Premier League has always shrugged its shoulders and pointed out – with some justification – that such things are legal. "Leveraged buyouts" were what passed for unquestionable financial wizardry until the very recent discovery that not everything the City devises is quite so clever after all.
"We understand that the sale of United's debt does not mean the club is struggling," acknowledged Nick Towle, chair of the Manchester United Supporters Trust. "But there are dangers, and it highlights that the club's money, paid by hard-pressed fans, is being taken out to pay the huge interest on these loans introduced by the Glazers."
United's spokesman, Phil Townsend, pointed out that United still have money remaining after servicing the debts to assemble their squad, including August's £30m signing of Dimitar Berbatov: "With our turnover, we can meet the obligations on our loans and debts, and still buy world‑class footballers and provide first-class facilities at Old Trafford and Carrington," Townsend said.
Yet the revelation that Manchester United's debts are now a discounted, traded commodity feeds the concerns expressed last November by Andy Burnham, the culture secretary, when he called for football to "wholly reassess its relationship with money". One of the seven questions asked of the football authorities was whether unhealthy levels of debt were being ladled on to clubs when they were taken over.
The Premier League and the Football Association are understood to be preparing separate responses to Burnham, with the Premier League expected to announce theirs first, early next month. The league is understood to be addressing worries about debt by proposing a "going concern" test, in which the size of a club's debt is measured against its turnover, cash flow and general financial position, to assess whether it is too onerous.
It is difficult, though, to believe that any such test will be drafted to restrict United or any other current club, who, after all, pay the £1.3m salary of Richard Scudamore, the chief executive framing the response to Burnham. The Premier League is understood to be preparing to reject the argument that there are different kinds of debt – that United's, loaded on by new owners just to have the club pay for their takeover, might be viewed as a useless drain, compared, say, to that of Arsenal, who borrowed £260m to move to the Emirates Stadium, a visionary investment made to generate more money.
Lord Triesman, the FA chairman, is understood to stand by the comments that provoked Premier League fury last October, that now is not a good time for football clubs to be loaded with debt. The FA is expected to present proposals for clubs to carry less debt, including "soft" loans from sugar daddies such as Roman Abramovich, Mohamed Al Fayed and Dave Whelan, which Triesman believes also leave clubs potentially vulnerable. With Burnham stressing that the government has no plans to legislate, it remains to be seen whether this process will bring about any meaningful change.
Certainly the Premier League will argue there is nothing at all wrong with what the Glazers did to United, a club built by generations of working-class supporters, and by players paid a maximum wage, many of whom auctioned off their medals in later life as the only way to finance a decent retirement.
Any criticism the Premier League has will be reserved not for the Glazers and their leverage, but for Triesman, if he should dare raise his head above the parapet again, and question whether this really is the ideal way for football to conduct itself.
www.guardian.co.uk/sport/blog/2009/mar/25/manchester-united-debt-glazers-david-conn
