I've held off long enough. It's an emotional wrench to suggest that the football club you support is going to go bust. But that, I believe, could be the fate that lies in store for Manchester United.
Why? The carnage we are witnessing in Western financial markets is the destructive consequence of colossal de-leveraging. This means that banks, which lent with criminal abandon in the boom years, are now desperately hoarding resources, sucking credit out of the economy on a scale not seen since the Wall Street Crash.
The last years of the boom witnessed a succession of "leveraged buyouts" by private equity companies. These locusts mounted hostile takeovers of listed companies using vast sums borrowed from the banks which they used to pay off shareholders. They then loaded all the debt they had incurred in the purchase (usually at massively inflated prices) on to the newly-acquired, and newly de-listed, company. Private equity chiefs then supposedly made the company more efficient, usually by cutting a few costs, before selling it on again for a fat profit. They made their pile. The company was left with the debt.
As a business model it was wholly reliant on an abundance of cheap credit and booming markets. But now those conditions have been reversed. And one of the consequences is likely to be that companies acquired in leveraged buyouts might find it difficult to cope with their debts. Manchester United was bought out by an American businessman called Malcolm Glazer in one of these deals in May 2005.When he bought it, the club was debt free. Now it is in hoc to the banks for some £666m, according to the club's most recently released accounts (page 16). When those loans come to be renegotiated, the banks are likely to impose a much higher interest rate. Will Glazer, who still controls the club, be able to afford it?
Hence why the Arsenal business model will pay dividends in the coming years
Posted by: James | Friday, 26 September 2008 at 11:19 AM
Man U will be OK. Their earnings will carry them through, and I'd hate to be a Director of the Banks that put them on the skids. It's one of the advantages of being a world-wide brand. Even if Man.U's creditors do pull the plug, there's all that Oil money with no place to go.
Our Cricket, Rugby Union and Rugby League clubs, and the lesser Soccer teams and leagues are in a far worse state financially and will suffer accordingly.
No one will suffer as much as those who got mortgages on ridiculous borrowing criteria, property values and artificially low interest rates. Elsewhere in the media I picked up that preferential mortgage interest rates will only be granted to those householders who own more than 60% of equity. That indicates to me just how far property values are expected to fall in the forseeable future.
Posted by: Atropos | Friday, 26 September 2008 at 12:43 PM
Arsenal win bugger all - no comparison.
Posted by: Tim | Friday, 26 September 2008 at 11:37 PM
I believe that Liverpool are in the same boat.
Interestingly, Arsenal are now by a great margin, the richest "stand alone" club in England. Even though Man U's revenue is greater their large debt means that revenue after interest (ie revenue available to spend) is greater at Arsenal. Man U's net assets are also smaller than Arsenal's.
Most fans do not care about these issues. However, they may find that, like at Man City and Newcastle, clubs like Man U and Liverpool will change wealthy owners regularly to compensate for having had their financial resources sucked out of them and new owners getting fed up with subsidising them.
Posted by: Marek | Saturday, 27 September 2008 at 02:50 PM
Gillett and Hicks have to renegotiate their loan in January and the bank may pull the plug which will lead it to being taken over by Dubai.
Posted by: Stephen | Sunday, 28 September 2008 at 02:25 AM
Glazer made it possible for Man U to owe £666m..666 combined with Man U's Devil, you get the ante-christ!
Go bust Man U...Manchester City is here!
Posted by: ali | Sunday, 28 September 2008 at 06:55 AM
Simplistic analysis which ignores the glaring fact that a club like Manchester United's revenues and commercial draw will always ensure that it will find suitors to buy the club should Glazer (or the Banks) wish to sell. Also the assets of the club in terms of players make it an attractive proposition along with the so-called 'brand name'. As long as success continues on the field, Glazer and his creditors have no reason whatsoever to rock the boat. Arsenal may indeed be on more solid ground but they haven't been able to attract the players or afford the transfer fees that United have which I think tells you alot. Manchester United are in no danger whatsoever from this credit cisis.
Posted by: Paul Retsuna | Sunday, 28 September 2008 at 05:36 PM
Blogs are good for every one where we get lots of information for any topics... nice job keep it up !!!
Posted by: Manchester United | Thursday, 09 July 2009 at 06:37 AM