The What?
Having experienced the most successful period in the club’s history including a hat trick of league titles, back to back European Cup finals and the biggest transfer business ever in the history of football, one wouldn’t expect any manager to be stifled with money but as a certain Mr. Murphy once said – “Anything that can go wrong will go wrong”. This is the only explanation you can attribute to the present day situation that Sir Alex Ferguson and Manchester United find themselves confronting.
Till about five years back, Manchester United were a club with absolutely zero debt but today our beloved club has a gorilla on its back that threatens its very existence. Make no mistake – the vultures of Wall Street have been hovering over Sir Matt Busby Way.
United fans protest outside Old Trafford
Every United supporter had a sense of the debt staring in our club’s face – the debt brought upon by the current owners; but being a privately held enterprise, the question was how much and in what shape and form?
Ironically, all this would not have come to light had the wrongdoings of the very same financial czars all over the world not be exposed in the past two years. The United owners were coasting comfortably till the economic climate changed which brought along the need to refinance the debt and in fact emphasized the decision to go via Bonds route. Yes, there was a deadline to refinance the senior debt of £500Mn as well but it could very well have gone a different way, other than bonds which involved the public disclosure of finances, had the situation allowed to do so. The most important aspect of which was the Payment-in-kind (PIK) loans, a throne in the whole refinancing situation.
The Why?
Let us go back a little in time, till the bond issue came into light, which made the whole fan base sit up and take notice. After 2005, United were saddled with £500 mn of Senior debt owed to the commercial banks and roughly £100Mn odd of PIK loans owed to Hedge Funds – which has now accumulated to £200Mn.
The £500Mn of senior debt was on the interest of around 5% YOY whereas the PIKs are owed at around 15% YOY. There was a deadline approaching for senior debt to be paid off this year and it had certain covenants which didn’t allow the owners to pay-off PIKs till now by taking money out of the club’s revenues.
The only way these covenants could have been gotten rid off was if bonds was chosen as a mode of refinancing and not just another round of senior debt from another commercial bank. Due to the huge interest on PIK loans, it had become the priority for Glazers to pay them off the interest of which is roughly 20-30Mn every year.
After the bond issue, £500Mn of senior debt has been replaced by £500Mn of bonds – on 9% interest YOY – which doesn’t place the covenants to restrict Glazers to pay-off PIKs. Effectively, the net interest payments are increased on the club but it has brought freedom to the owners to pay-off PIKs, not to mention the time till 2017, the seven-year length of the bond issue.
Malcolm Glazer – Man under pressure
The simple fact is that with the bond issue, the Glazers have bought time till 2017 in which they envisage the club valuation to go up and an opportunity to make a hefty profit. This should in fact clarify that the owners’ association is not merely out of perpetual love for the club as it is proclaimed, rather the fundamental rule of business valuation. The bond prospectus also highlights the various payments in the name of management fee which have been taken out of club revenue bleeding the club all this while.
Although it’s a fair practice to highlight the risks involved while floating any investment offer, but the risks mentioned in the bond prospectus such as sale of Carrington and Old Trafford have sent the shiver down the spines of United supporters. A quick look at numbers and it suggests that United have a net spend of roughly and most importantly only around £1.2M per season since the Glazers took over vis-à-vis around £10M per season since the Premier League was formed. The whole saga makes Mike Ashley look a great owner.
The How?
In the whole narrative of exploitation, the real victims are the supporters; especially the season ticket holders and the stadium-visiting supporters. These supporters, who have continued to support the club with ever more passion and love despite externalities like an adverse economic climate, had to contend with the ticket prices which have more than doubled in the last five years. But the horror show put forth by the bond issue was too much to take.
After understanding the whole maze of numbers, United supporters who till now had been living in quiet desperation, decided to do something about it. The wave of green and gold, conceptualized in one meeting of the Manchester United Supporters’ Trust (MUST) has started a revolution which saw supporters embracing the old colors and taking every opportunity on a matchday to make their intentions known to the owners.
The membership of MUST went up from 30,000 to more than 150,000 in a matter of hours and this reflects how the supporters all over the globe feel about the situation. Looking back in time, the green and gold represented the working class ethos of this club, back when it was called ‘Newton Heath‘, of which the present day’s reincarnation is Manchester United. This club has always those values entrenched in its roots, represented by the working class heroes such as Sir Matt Busby and Sir Alex.
The Green & Gold out in full force at OT
Along with the organized campaign of MUST and other supporters’ trusts, another revolution has been brewing in. Red Knights, the forty odd United fans that happen to be ultra-rich, have presented themselves as a silver lining in the dark cloud and provided an opportunity for the supporters to own the club. The shining example of such utopian dream is a club like Barcelona where ‘Cules’ have a major say in how the club is run.
Over the past three months, the ‘Red Knights’ – which include some prominent figures of the financial world – have made their intentions known and are focusing their energies to raise enough money to buy back the club from the Glazers. This increased momentum has seen Knights taking some concrete steps like signing investment banks like Nomura to help in the bid process. As per various reports in the media, Knights estimate that a bid of £1.2Bn pounds is likely to make Glazers interested.
Apart from £500 mn of bonds, the Knights are likely to raise around two thirds of £700mn among themselves and rest from the supporters with the eventual aim of complete ownership by fans. Although the Red Knights have announced they would wait till the end of the season before making a bid, especially not to distract matters on-the-field, it remains to be seen how much the green and gold will be supported by the Red Knights.
Doubters are not far behind in any romantic story. The muted response of Sir Alex and apparent backing of Glazers is well highlighted whenever Red Knights are mentioned in the media. One can assume it has to do with Ferguson’s apparent dislike for a larger board to deal with as seen from the PLC days. Of course, it would be naive to expect Sir Alex and David Gill to revolt against their employers in public. The interview given by David Gill in 2004 when Glazers first approached the club for takeover tells you the change in Gill’s stance today, albeit a bit forced you might think as it is.
There are other apprehensions which linger in supporters’ minds. Whether the mystery Red Knights can actually pull it off? Aren’t they the representatives of the same financial world? If they keep the bonds debt status quo, how different would it be from the current structure? Wouldn’t the multiple owners present a conflict of interest? Can one realistically expect any fan to invest millions of pounds just for the sake of club and not looking for returns at any perceivable opportunity? All these questions are unanswered at this stage and one has to wait and watch the true aspirations of Red Knights till the summer. There is a need for caution here as a wise man once said “Be careful what you wish for”. This is the sort of philosophical quandary United supporters find themselves in.
Until then, Manchester United and Sir Alex will live to fight another day till this famous club is back to where it belongs.