Manchester United share sale
causes controversy among fans and investors
31 July 2012
Manchester United fans aren't
happy. And looking at the terms of the proposed share sale in New York
announced last night, it's not hard to see why.
The Glazer family, the club's US
owners, want to raise up to $330m (£210m) on Wall Street, having shelved plans
to raise $1bn in Singapore.
The problems lie with the terms
of the sale, and what the Glazers intend to do with the money raised.
Only part of the proceeds will go
towards paying down the club's $680m debt, with a significant chunk going
directly to the Glazers themselves. And the structure of the sale means the
Glazers' Class B shares will have 10 times the voting power of the Class A
shares sold to the public.
"Supporters are going to be
very angry about this," says Duncan Drasdo, chief executive of the
Manchester United Supporters Trust.
"The Glazers have already
cost United more than £550m in debt-related fees and now we have another slap in
the face as they help themselves to half of the proposed [sale] proceeds.
'No value'
But it's not just the fans that
are unhappy.
More worrying perhaps for the
Glazers, given their need to raise cash fast, some investors appear equally
sceptical.
"Shareholders are getting a
shoddy deal," says Michael Jarman, chief equity strategist at H2O Markets,
an ex-professional footballer and a United fan himself.
"Investors are not idiots
and there is simply no value in the company. The Glazers want to have their
cake and eat it - the share structure shows they want to retain complete and
utter control."
He says there are plenty of other
more attractive investments, where shareholders get a dividend and the chance
for capital growth.
While conceding that, "debt
free, Manchester United is a good business", Mr Jarman sees no such value
at Old Trafford given its current debt position. In fact, he argues the club is
massively overvalued.
At the upper range, the upcoming
share flotation values Man Utd at more than $3bn. This is almost 50% more than
the value placed upon it by Forbes magazine, which recently pronounced United,
at $2.2bn, the most valuable club in world sport.
But many analysts believe even
this figures is vastly inflated.
Less than two years ago, a group
of investors led by the respected chairman of Goldman Sachs Asset Management,
Jim O'Neill, valued the club at about $1.5bn. With two years of global economic
stagnation since then, the club's value will not have risen significantly, if
at all.
Factor in operating profits -
minus transfer activity - of $150m, and Mr Jarman argues investors are better
off buying shares in Tesco.
Strong brand
But there are many others who
believe United's financial woes have been overplayed.
While acknowledging that
"it's disappointing investors won't be able to vote and won't get a
dividend", Roy Kaitcer, divisional director at stockbroker Brewin Dolphin,
says the club's finances are not as bad as some suggest.
Also a keen United supporter, he
points to the fact that the club's debts are already being paid down, and the
upcoming share sale, if successful, will reduce them further by more than
$100m.
He also points out that the
Glazers are able to change the debt profile of their various holding companies
by moving debt off the books of one and on to another.
Perhaps most importantly, he says
the club's strong brand name and loyal support from more than 650 million
supporters - according to United's own figures - across the world makes the
club an extremely attractive commercial partner for global companies.
Further evidence for this came on
Monday with the announcement that Chevrolet, owned by General Motors, one of
the biggest carmakers in the world, will be the club's new shirt sponsor from
the 2014-15 season.
And fanatical fans, driven by
emotion rather than dispassionate financial analysis, may well ensure the
upcoming New York share sale proves hugely successful.
Stronger competition
But there is no denying the
club's heavy debts are impacting on the club's ability to maintain its
pre-eminent position in the Premier League.
They have, for example, been
blamed by many for the club's restrained activity in the transfer market in
recent seasons, certainly when compared with free-spending rivals such as
Chelsea and Manchester City.
Manchester United is bound by
commercial realities that do not, for now, appear to affect its two biggest
domestic rivals.
As Mr Jarman argues, running a
successful football club and running a sustainable business are no longer
compatible.
You just need to look at the
recent success of Manchester City and the spending power of clubs such as Paris
St Germain and Anzhi Makhachkala to see how the landscape is changing, despite
UEFA's financial fair play rules.
"Football has become a rich
man's paradise," says Mr Jarman. And in today's market, it would appear
the Glazer's pockets simply aren't deep enough.
|
Top 10 Premier League clubs by revenue
|
|||
|
Club
|
Revenue
(£000s)
|
Wage
costs (£000s)
|
Operating
profit/(loss)(£000s)
|
|
SOURCE:
DELOITTE. FIGURES FOR 2011
|
|||
|
Manchester United
|
331,441
|
152,915
|
100,687
|
|
Chelsea
|
228,574
|
191,214
|
(48,679)
|
|
Arsenal
|
226,825
|
124,401
|
34,150
|
|
Liverpool
|
183,690
|
134,768
|
(2,795)
|
|
Tottenham Hotspur
|
153,486
|
91,255
|
32,294
|
|
Manchester City
|
153,185
|
173,977
|
(81,636)
|
|
Aston Villa
|
92,028
|
94,795
|
(34,241)
|
|
Newcastle
|
88,464
|
53,584
|
13,287
|
|
Everton
|
82,021
|
58,026
|
(529)
|
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