[Archived] Glazer Set For Utd

[philipl]

A very good analysis by the ever-excellent Will hutton in The Guardian

[philipl]

This is good news for Rovers!

If Glazer is planning to steal TV revenue from the other Premiership clubs, he is going to get no help from the EU Commission to do it.

[philipl]

There has been a distinct shift in sentiment about the Glazers on this side of the Atlantic in the last few days.

The BBC World Service finance editor has shifted his position from believing the Glazers would make a success of the deal to now expecting they will fail.

There is a very interesting article in The Independent here.

The nub is:

The Glazers have borrowed every penny of the £812m they are paying for Man U

The interest payments are at huge rates including a bridging loan they have taken out to buy out McManus and Magnier

The banks have taken out security over all the Glazer assets except the Buccaneers. The NFL rules prevent their franchises being used as bank security but even so the NFL has launched an enquiry into the Glazer take over of Man U. Therefore the banks will hold Man U and the fish oil company when Man U sinks under the debt.

Interestingly, the share holding Man U supprters are being very sensible. Rather than be heroic holders of worthless pieces of paper, it looks like they are all going to sell out and take Glazer's £3 per share (perhaps a few token shares will stay in to obtain information) and transfer their £50m into a fund ready to pick up the pieces once Glazer fails.

For Glazer to succeed he needs:

Berlusconi to come on board with him to set up a franchised European Super League.

Premiership and UEFA bosses to be stupid even by their own standards of ineptitude.

Somehow, make interest payments of at least twice the level of the Mancs' profits for him even to make it to 2007 to have a one in 20 voice in the renegotiation of the Sky deal.

I think there could be a realistic possibility of the Premiership expelling Man U at some point in the future- a simple device of adopting the rules on indebtedness proposed by UEFA would achieve the expulsion without resorting to bringing the battle onto TV rights but it would be Man U being greedy over TV rights which would precipitate the vote.

Lets see what the reaction of the other 19 clubs is when Glazer finally isues his delayed offer to buy the 24% of the shares he does not already hold. The delay in making the offer must be painful as it is extending the period over which the bridging loan is running.

Here's hoping the Mancs lose the FA Cup and are thereby denied the winner's £1m prize money.

It would be nice to see the Mancs exit the Premiership into the Coca Cola Championship League rather than the European Championship League.

[Paul]

The Glazers have borrowed every penny of the £812m they are paying for Man U

I think there could be a realistic possibility of the Premiership expelling Man U at some point in the future- a simple device of adopting the rules on indebtedness proposed by UEFA would achieve the expulsion without resorting to bringing the battle onto TV rights but it would be Man U being greedy over TV rights which would precipitate the vote.

philip,

A couple of questions for you. It is widely reported Glazer has borrowed £812m to fund his Utd purchase. Roughly speaking £270m to purchase his initial shares (do we know if this money was borrowed?), £265m to buy out the Irish and £275m in Preference Shares.

The first two sources of funds are obviously interest bearing but why do Preference Shares count as debt? Does the company have to pay interest on Preference Shares - surely these simply earn dividend?

While I agree Glazer will damage Utd enormously, I don't understand why you think the PL could expel Utd. What would be the point? Utd cannot make their own TV deal without 14 turkeys voting for Christmas. If Utd were expelled the commercial value of the collective TV deal would reduce - Sky are paying for Arsenal, Chelsea, Utd plus the rest. A deal which excluded Utd is hardly going to sell on the back of Wigan v PNE (potentially).

[Paul]

Another thought occurs to me regarding Glazer. From the little we know of this man, and the image that comes through from the media, I feel his ultimate purchase of Utd may be little more than vanity. Having been rebuffed by Utd at every stage, pilloried in the press, I feel he simply became determined to have his own way. To put it simply, you're going to try and stop me? Just watch, if I want something I get it.

[philipl]

Paul,

I am repeating the Independent's assertion about £812m of borrowings which presumably has passed through the libel lawyer's office before being published.

The Glazers undoubtedly have some cash- buying seven mansions etc. but The Independent is probably correct in concluding they didn't have the £272m lying around with which they built up their initial Man U stake before they took the bridging loan to buy out Cubic. So that is probably privately borrowed money as well. If the Glazers are worth £700m as reported, then assets such as the Buccaneers, the fish oil factory, the air bag factory, the trailer parks (if they have any left) and the mansions are no doubt counted in the ownership total but those are asset values and largely not cash.

Even if the Glazers had a cash mountain, it is highly improbable they used/risked their own cash to any great extent.

In trying to rationalise what Glazer is up to, some commerntators are guessing he leveraged (used little of his own cash backed by masses of other people's money) to make a quick return. In other words, lets say only £50m of Glazers' own money were involved and they sell Man U on for £900m, then they stand to take the difference between the buying and selling price less costs as their own profit- and would take it in cash after tax. That way £50m turns into £100m for the Glazers very quickly.

The problem with this idea is that the transaction costs- bankers, lawyers, borrowing fees and interest must already be enormous- Glazer has been stalking Man U for a long time and had to change advisers so I would guess he is already over £10m out of pocket on those sorts of costs at the very least- probably more like £30m.

The second difficulty is that he has already paid a huge price for Man U. If recent half year results continue into the future, it would take Man U 24 years of profits to generate income to cover the £800m purchase price before allowing for interest etc. so it is hard to see who would pay more than the Glazers for Man U in the short term.

The reason why everybody (including, eventually all the fans) is selling at £3 per share is that price is more than anyone can reasonably foresee getting back from holding Man U shares in any other circumstances.

Returning to the question about the preference shares, the exact nature of those shares will be revealed in the offer document expected later this week. It is highly probable that they will carry a fixed premium (ie an interest payment) and will be secured over assets. In other words, they will have all the characteristics of being debt but not technically termed as such. In corporate finance, this sort of paper is often referred to as "mezzanine finance"- half way between debt and equity. If things go well, it becomes regarded as equity, badly and it is often more painful than ordinary debt because the holders already own a chunk of the enterprise as well as being able to call in the security.

Finally, the point about expulsion from the Premiership- I probably did not explain this well enough.

In my opinion, the Premier League members have plenty of means with which to fight the Glazers if they try to make a grab for moneys which at present are going into the other 19 clubs. Make no bones- a redistribution of TV income is robbing Rovers to pay Glazer United.

Quite apart from a straightforward 19-1 vote against the idea (or even 7-13 in favour and it still fails), the Premiership has a number of other options to keep Glazer under control:

- there will at some point be an Inspectors' report into Leeds United. Even without the Glazers running around, the FA and Premiership would no doubt come under political pressure to tighten up the rules of governance and debt finance in football. On any basis, the Glazers dumping their debt onto Man U would put Man U in trouble when the Leeds report is finally issued.

- UEFA have already issued a consultative document which will make the level of club indebtedness a licensing issue from 2007/8. In other words, clubs with more than a rather restricted level of debt would not be granted a license to participate in any UEFA competition. UEFA has looked at Leeds, Lazio, Borussia (even Real and Barca) and been alarmed at the way irresponsible management can borrow on the never never and create successful football clubs against the interests of more responsibly run clubs. Surely it is in the Premiership's interest to adopt those proposals itself to avoid any of its clubs being barred from European competition and potentially losing a place for Premiership clubs?

- The Premiership is no doubt intrigued by the NFL's behaviour which the Glazer involvement has brought to their attention. The NFL is a collective of franchise owners far more socialistic and controlling than anything yet envisaged in Europe (but could be a model for a European Super League). In order to participate in the closed collective, the franchise owners are clearly interested in the other franchise holders abiding by the rules which is why the NFL is a relatively strictly governed members' club. Hence, the Glazers are being investigated by the NFL over the Man U purchase to see if:

1) The Buccaneers have exceded the borrowing limits for a franchise ($100m).

2) They have contravened NFL rules against pledging a franchise as security in borrowings.

3) To get assurance that the Man U dalliance will in no way harm the management of the Buccaneers or the interests of the NFL- the idea of setting up a Man U team to compete in the American Soccer League might be seen as inimicable to obligations as a franchise holder.

Some of those ideas could well find their way into the Premiership's thinking in deciding how to deal with the Glazer threat.

I would imagine the Premiership and their lawyers are actively considering giving notice of intended rule change on indebtedness being put to a vote of the Premier League clubs before the Glazers dump their debt onto Man U.

At some point, the Glazers and the Premier League will inevitably clash. Expulsion of Man U from the Premiership would be a last step but it is undoubtedly an option and it would be better the Glazers go out on the League's terms than on their own. Was the FA Cup that devalued being without Man U for a season?

[philipl]

These two concluding paragraphs taken from "The Economist" article on the Glazer take over of Man U spell out what a menace this man is to Blackburn Rovers and the game we know today:

"True, United fans may have some reason to worry about the debt that Mr Glazer is piling on to the club's hitherto healthy balance sheet. Exactly how much of a purchase price that values United at £790m ($1.5 billion) will be paid by borrowing is unclear. His use of a high-risk financing technique known as a “PIK” (pay in kind) loan that is now worryingly popular in private-equity deals is not encouraging. Nor is the example of Leeds United, a team that only a few years ago was briefly among the best in Europe but has since been relegated amid a financial crisis brought on by excessive debt and whizzy financing techniques such as making asset-backed securities of its top players. The trigger for this disaster was the failure of Leeds to qualify for the hugely lucrative annual Europe-wide Champions League—a fate that Mr Glazer must ensure never befalls his new team.

"To boost revenues, Mr Glazer is expected to try to end joint negotiation of television rights by the top English teams that play in the Premiership, instead negotiating separately the right to screen United games. That sort of rampant individualism, after all, is what American capitalists are famous for. In fact, American team owners tend to profit by suppressing, to some extent, their individualism, points out Stefan Szymanski, co-author of “National Pastime”, a superb new book that compares the economics of the sport business in different countries. American sports leagues—above all the National Football League, in which the Bucs play—tend to be cartels, with fewer teams than there would be in a free market, protected by the absence of relegation, and often using socialistic practices such as salary limits for players and a centralised sharing out of young players to stop any team becoming too hopeless. As the Premiership evolves, and, above all, as Europe's top soccer teams, with United to the fore, debate how to take Europe-wide competition to the next even more profitable level, Mr Glazer's knowledge of American sport's anti-competitive collectivism may prove priceless."

[philipl]

Glazer faces stinging interest rates

Paul Murphy

Tuesday May 24, 2005

The Guardian

Malcolm Glazer has a window of three years between May 2007 and the summer of 2010 during which he will be forced to refinance Manchester United, his official takeover document reveals.

The group of three hedge-fund investors who put up £275m of the £790m required by Glazer to seize full control of the club have imposed special terms whereby the owner of the Tampa Bay Buccaneers will have to pay a special penalty charge if he buys the hedge funds out within two years. Similarly, these investors will win special rights over Glazer's shareholding in Manchester United unless he has paid them back in full - and with interest - by August 2010.

Red Football, Glazer's acquisition vehicle, published a formal bid document yesterday which highlights the burden Glazer is taking on, with £265m of core debt, a £19m bridging loan due to be repaid in less than a year, a £50m loan for working capital and then a £50m facility earmarked for "capital expenditure".

Much of the debt carries an annual interest bill of 8% - compared with a typical mortgage rate of 6.5% in Britain - and £85m of the money raised by Glazer will cost him a stinging 11.5% a year. The interest rates revealed are higher than had been suggested.

In other words, the 2007 broadcasting rights negotiation will be a battle to the death.

Glazer's or football's

[neekoy]

I just don't get it

If it was such a bad purchase why would he have made it?

Is it he doesn't understand the rules behind the FA? How does he think he is going to come out on top of this? He is obviously very business astute.

[Grabbi Graeme]

Glazier now under investigation from the NFL over a casino, he was grassed up by shareholders Utd apparently

[American]

Also consider that back in '99 the club was worth over 900 million pounds, he bought it for 700. Plus factor in the declining dollar and you could see a good return on his investment by 2008 or so.

Philip is starting to sound like Jan in his tunnel vision. Laugable he wanted United to lose (lose, not loose) the final and Liverpool to win the champs league because of Glazer. If he was as smart as he thinks he is, he'd want them to win, since this isn't Glazer's club. If they win anything next year, especially the prem, he brings them back from one of their most unsuccessful seasons in the 00s (oughts?).

[USABlue]

Laugable he wanted United to lose (lose, not loose)

318718[/snapback]

Well done American, perhaps it will catch on.

Grabbi, to elaborate a little. It seems NFL rules prevent owners from having any connections with any Casinos and/or gambling establishments. Even gambling by pro sports players over here is frowned upon (Pete Rose)

[philipl]

My issues with the Glazer takeover of the mancs has nothing to do with his nationality or my 40 years' abiding dislike for that particular football club, but everything to do with the threat to competitive football and the well-being of the football club I love- Blackburn Rovers.

Glazer now has the Board recommendation he sought from the Manc Chairman- with a barb in the tail: rather disingenuously the outgoing Chairman sought legal assurances on a range of issues pertaining to the future operation and conduct of the club from Glazer and received none whatsoever. At least Sir Roy must hope that will prevent unwanted pizza deliveries to his home and office courtesy of disaffected Manc supporters.

An American news service perhaps puts this thing into perspective for American readers.

If Glazer is so utterly uncaring of Manc supporters, there is no hope for the rest of football being spared from his rapacious behaviour.

Glazer's existing sporting interest is in a cosy rich man's collective where there is no relegation or promotion. I am sure he does not expect Man U failing to qualify for the Champs League Group stages, let alone countenance relegation from the top division which is what happened seven years after their first European Cup triumph.

As joey big nose has commented on another thread, six English Premiership Clubs (Chelsea, Arsenal, Mancs, Everton, Liverpool, and Spurs) are geared up with the quality of management as well as the transfer budgets to target the top four places- two will inevitably fail. Not forgetting that, at a guess, nine other Prem clubs are working on their own versions of "doing an Everton" and a tenth, Newcastle, probably shares Glazer's belief they should be in the Champs League by rights because they are "massive".

I doubt Glazer's business plan countenances such a failure and he will seek to remove that massive downside sporting competitive risk of his Manc business as rapidly as possible. It could be that UEFA will be even more at risk from Glazer than the Premiership in the near future.

It will be interesting to see what Abramovich will do but I wouldn't be surprised to see him put an unfriendly impediment or two in the Mancs' way whilst Glazer is trying to absorb his acquisition of Man U and restructure his debt away from the high cost vehicles he had to use to achieve the open market purchase. Perhaps a cheeky bid for Rio Ferdinand and more Obi- style raids on Manc transfer targets?

Edited May 26, 2005 by philipl

[philipl]

Also consider that back in '99 the club was worth over 900 million pounds, he bought it for 700. Plus factor in the declining dollar and you could see a good return on his investment by 2008 or so.

Philip is starting to sound like Jan in his tunnel vision. Laugable he wanted United to lose (lose, not loose) the final and Liverpool to win the champs league because of Glazer. If he was as smart as he thinks he is, he'd want them to win, since this isn't Glazer's club. If they win anything next year, especially the prem, he brings them back from one of their most unsuccessful seasons in the 00s (oughts?).

318718[/snapback]

1) Back in '99 hundreds of companies were worth very much more than they are today

2) Glazer is spending £812m to buy Manc shares

3) The weakness in the dollar makes buying non-dollar assets more expensive in dollar terms.

4) I am not looking at this in sporting terms but financial and political ones. Man U not winning the FA Cup weakens them financially. Liverpool winning the European Cup means that Man U have relatively less clout within the English game or in speaking for English club interests in Europe. Arsenal were only rivals to Man U over the past decade whereas for the two decades before then Liverpool were unambiguously the leading club in England. With Chelsea financially now massively ahead of Man U following Glazer's appearance and Liverpool European Champions, Man U's leadership of the English game has slipped away which will make any Glazer grab of the football pie for himself even more selfish.

[American]

1. Hundreds were worth more, but thousands were worth less. The Asian and American markets weren't as strong. The Internet market for live streaming of the Prem wasn't as big.

2. Apologies, I haven't been obsessing about the numbers involved.

3. If the dollar gets weaker (as businessmen, such as Warren Buffett are betting on), then it will make it worth more in dollar terms. Roughly 2-1 now (just for ease of discussion) makes a 800 million pound investment cost 1.6 billion dollars. If the exchange become 2.5-1, the investment is now worth 2.0 billion. 400 million dollars of profit.

4. For a club like United, going trophyless one season will not kill them. If the run continues, it would hurt, but Glazer has already said he would make the investment necessary to make sure the run does not continue. As Heinze, Ronaldo (the daft one) and Rooney have shown, Ferguson does make some correct moves in the transfer market.

There are a ton more opportunities available to make money for United. The Asian and American markets will make this well worth his investment.

I wasn't going to be like some and obsess on the topic, but a bit ago, John Nicholson wrote an excellent column about it you can find here: http://www.football365.com/opinion/john_ni...son/index.shtml

Highlighting the following paragraphs:

Yes, the finances could go belly up and take the club with it but that would take extraordinarily bad business acumen and Glazer, for all his stupid beardedness, hasn't got a big wedge of cash in the bank by being a fool.

The relationship between money and success is simple enough to understand. He needs the club to succeed to make money. So more than anyone else he has a vested interest in making that happen. Securing the loan against the club's assets isn't some evil scheme designed to screw the club over. It's just a typical way a business raises money. You do it yourself when you take out a homeowner loan. Banks like to have something to flog off if you default on your payments.

I think that if it was Bobby Charlton taking over the club fans would be all in favour, no doubt because he's trusted to do the right thing by the club. This doesn't mean he'd be any good, of course. So is having a rich owner like Glazer really a problem? Isn't being a PLC an even worse option because the club's shares are owned by faceless and largely unaccountable financial institutions?

[andy82]

I don't think the big question is really the finance inolved (which clearly is a gamble,but how much of one?), but Glazers understanding of European football, its fans and the media issues suppporting it. If the English red tops are on his side, he will do well.

Does anyone know if any of the Glazers have any kind of business relaitonship (or a personal friendship) with Murdoch? Would have thought they would of done (illuminati or something lol), but if this much bad press is occuring in Britain....

[Jimbo]

Sorry guys, It's all about money - The only thing that matters is, can the debt, Glazer has taken on, be serviced - If it can then United, no doubt will thrive. If not, then what the hell - I'd be more than happy to see them go belly up.

One thing for American is - just because you say it is, doesn't mean it's true, At least Phillipl has given us facts on which to base our assumtions on. And just because Glazer has been sucessful before, doesn't mean he wil be this time. I'm sure Peter Ridsdale was successful once.

[neekoy]

I see a HUGE difference is mentality between American sport and the Premier League

NFL teams can just about chop and change location every year depending on demographic or where there is money to be made

There is no history behind the clubs when comparing to the local argy bargy of soccer. I really think Glazer thinks he is going to run this like an NFL team, which will ultimately fail because of how clubs build their upporter base.

[pg]

Correction.. there is no history behind 'some' clubs...not all.

If the owners of the Green Bay Packers, Chicago Bears or New York Giants (ie the 'old' NFL teams) ever wanted the move, there would be hell to pay.

[neekoy]

Even the "old" clubs are not steeped in history to which English football is. They may have old ties to the area, but Green Bay didn't march to Chicago in some way to settle old feuds or land disputes as in the violent history of our game.

My point was that his game has developed in the streets where Rovers and Dingles stabbed each other for fun. Not teams built for media enterprise and making money.

[philipl]

American, your argument about the relative values of companies is wrong- the BBC has an index setting a global representative set of blue chip company values in 2000 at 100 and it is still in the low 90s- many sectors including entertainment have fallen far further. The internet bubble in equity values has not worked its way out of the system yet.

Buying Man U on a p/e of 30+ (Glazer's price on the last six month's results) is over-paying on anybody's basis.

Nicholson makes many valid points in his article.

Where Nicholson completely falls down is in failing to consider the ratio of the rich man's wealth to the extent of his involvement in the target football club.

Abramovich has twenty times as much capital as money ploughed into Chelsea, Whelan at Wigan a ratio of four to one, Jack Walker at Rovers was a similar four to one, the tightest ratio which has been a success is probably Gibson at Boro with a ratio of two to one.

Against that, clubs have run into problem where the rich investor has taken on a proposition which is worth/costing something more equal to their personal wealth as the sometimes rocky finances of Rangers and Celtic and any number of English examples have shown- Wimbledon under the Norwegians, Cardiff under Hamman, Burnley under their guy etc etc.

Glazer probably has a ratio of one and a bit to one at best.

The other issue is that all previous examples have taken the clubs on with a motivation other than simple money-making.

On the current model, Glazer cannot make money out of Man U.

This is a comprehensive report of the retiring Board's (not unexpected) critique of Glazer's plans. Understandably unhappy but equally sufficiently legitimate that a squadron of lawyers and financial advisers will have signed off on this statement.

Glazer has to change the business paradigm and make Man U at least four times more progitable than it was as a PLC (which was itself geared up to make profits and optimise dividend payments). That may or may not be a threat to Man U but my gut feel is that he is gambling big with insufficient resources to ride out failures. Whilst the supporter resistance will be a marginal nuisance, Glazer's calculations might be so tight that they could upset his plan. Obviously Glazer wants to buy continued sporting success but sporting success does not follow money automatically- ask Wolves about an example of a Bahamian-based investor (not that far from Florida) not succeding. Even if Man U spend £20m on transfers this summer (a number he wouldn't even confirm to the board currently running Man U), it looks like he will be outspent by Chelsea, Arsenal, Liverpool, Wigan and possibly Everton, Newcastle and Spurs.

The rates of interest Glazer is paying plus the terms under which he effectively will forfeit his own shares to the hedge funds in five years' time show that his backers are not sharing his risk or have any particular confidence in his secretive plans- their money has entered on sceptical "good luck to you mate but we've made sure you won't lose our money" terms.

However, in trying to change the business paradigm, Glazer is a massive threat to Blackburn Rovers. That is why as a Rovers supporter I hope he fails.

Edited May 27, 2005 by philipl

[philipl]

An interesting explanation in the Tampa Bay Tribune. Note the assumption that Glazer wants to set up an NFL equivalent for soccer in Europe.

A rather less incisive Business Week report

[dave birch]

Given all the information Philipl has provided, one would wonder why a football fan owning shares in United would sell.

Quite simply, Money Talks.

I have a mate who is an avid United fan, owns shares as well. He's taking the money and running.

Is it of a sign of the times? Most certainly.

Will it affect Football in the future? Most certainly.

Quite how, only time will tell.

Football is no longer the game of the plebs. There's too much money in it now.

[colin]

I have a mate who is an avid United fan, owns shares as well. He's taking the money and running.

This may be down to the majority of Man Yoo shares now being owned by Glazer there is no guarantee of ever getting a return on the share in the way of dividend. The shares are also quite useless for voting at the AGMs.

If I'm wrong on that I know who will put me right.

[philipl]

Bob on Colin. Even shareholders' United are advising their people to take Glazer's gold and reinvest it in the SU/Nomura Fighting Fund.

Only problem with the SU/Nomura Fighting Fund is that if Glazer goes under, they will find four American Hedge Funds will have effectively bought Man U for £275m and been paid 8% interest on their money plus fees for watching what was going on whilst they (the Funds) waited to take control.

Now that is a nice deal for the Hedge Funds.

If Glazer gets into trouble, they will be very happy to help push him under once it gets to a point they decide is best for them.