Benjamin Franklin, American history’s equivalent of the utility player, once said he would rather go to bed without dinner than rise in debt.
It is not a philosophy the Glazer family would appear to share — they have been tucking in on credit at Old Trafford since 2005.
For some, the debt they placed on Manchester United when they bought the club is, like Franklin, old news — a figure from another age, an irrelevance.
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For others, it is an insult, the reason they walked out on the club and why United lag behind Liverpool’s six Champions League titles and go into Saturday’s derby against Manchester City as underdogs.
Can both of these views be right? Yes… no… maybe. The safest answer is probably to say it depends on who is asking, as football has long since moved into the realms of big business, where one man’s fortune is another’s rounding error.
But safe is boring, so here is an attempt to explain why the best-supported and highest-earning football club in the country has half a billion pounds of debt sitting on its balance sheet, what that does to their overall finances and whether it really matters.
First, some history: how did United get into so much debt?
Three letters: LBO.
LB-what? Leveraged buyout. Nothing to do with cricket.
Big in corporate America in the 1980s, LBOs gatecrashed English football’s cosy ownership party in 2003, when US entrepreneur Malcolm Glazer started buying shares in United. In many ways, the surprise here is it took this long for an aggressive investor to make this move, as the club listed on the London stock market in 1991 so was, by definition, for sale.
Buyouts are leveraged when the purchaser uses a significant amount of borrowed money to fund the acquisition. Nothing particularly unusual about that — it is how most of us buy our homes — but the controversial aspect of an LBO is the borrowing is usually secured on the purchased company’s assets (again, a bit like your home) and the purchased company pays the interest (not like your home, unless you live in a house of ill repute).
When Glazer bought his first wedge of United shares in March 2003, spending about £9 million on a 2.9 per cent stake, the club was on its way to an eighth Premier League title in 11 seasons and had cash in the bank without debt.
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By the time he completed his hostile takeover, just over two years later, the club was £660 million in debt, with half of that borrowing placed on the club itself and the other half on his takeover vehicle, Red Football. The split was pretty academic, though, as Manchester United were paying the interest and that bill was enormous.
In 2006, the club’s interest payments totalled £113 million, against annual revenue of £168 million. Over the next four years, United paid an average of £95 million a year in interest, which meant more than a third of the club’s total earnings were being taken to service the debt Glazer and his children had used to buy the club.
This was clearly alarming and some fans voted with their feet to form a new club, FC United of Manchester, as they wanted no part in an exercise in financial engineering that profited one family in Florida. But the vast majority stayed.
In fact, Old Trafford was expanded by 8,000 seats in the immediate aftermath of the takeover and record attendances settled in to watch Sir Alex Ferguson’s side win the 2008 Champions League, the 2009 Club World Cup, three League Cups and five more league titles.
In 2010, the Glazers were finally able to take the sting out of those debt repayments, too.
Malcolm Glazer had needed some eye-wateringly expensive loans to get over the hump in 2005, and these payment-in-kind (PIK) loans ended up in the hands of three hedge funds: Citadel, Och-Ziff Capital Management and Perry Capital. The interest on these loans ramped up from 14.25 per cent to 16.25 per cent, and United’s total debts were now over £700 million.
But five years after the takeover, the Glazers were able to refinance via a £500 million issue of bonds — debt securities that banks, individual investors or pension funds buy at an agreed interest rate and an agreed term. In United’s case, this interest was about 8.5 per cent, cutting the bill in half, and the term was seven years.
So, the team was winning and the debt was under control: furore over?
No, far from it.
The arrival of Roman Abramovich at Chelsea and Sheikh Mansour on the other side of Manchester had changed the game in terms of transfer spending and wage bills. United, for so long England’s biggest gun, were now in an arms race and many fans thought it was doing so with one arm tied behind its back.
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Ferguson’s genius as a team-builder, and loyalty as a company man, kept the lid from coming off but discontent simmered while the Glazers refinanced the debt with the bond issue.
The first significant challenge to their ownership emerged in the shape of the Red Knights, a loose consortium of wealthy United fans who wanted to team up with the wider fanbase and buy the Americans out.
By March 2010, the Manchester United Supporters Trust had reached 125,000 members and United fans had turned a popular commemorative kit — green and gold, the same colours worn by the club when it was founded as Newton Heath in 1878 — into the uniform of a revolution.
But Ferguson kept winning and the Glazers kept their nerve. And by the summer of 2012, the owners pulled off their second great refinancing trick, floating a chunk of the club’s shares on the New York Stock Exchange. This raised about £150 million, half of which the Glazers banked, half of which they used to take the takeover debt down to under £400 million.
And that, bar fluctuations in the dollar/pound exchange rate and some recent short-term borrowing to cover COVID-19 costs, is where the Glazer debt, that great millstone, has remained, gradually becoming less and less significant in financial terms, while losing none of its symbolic power.
If it is so insignificant, why don’t they pay it off?
Well, the Glazers would flip that on its head and say it is because it is so insignificant that they do not need to pay it off.
They and their financial advisors — the most famous of whom is Ed Woodward, who went from advising Malcolm Glazer on the takeover in his role at JP Morgan to running the club for Glazer’s children — would point out that when you earn more than £600 million in a good year, who cares if you are paying out less than £30 million in interest?
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They would also say the reason United are earning that much money these days is that the Glazers brought with them a more commercial approach to running a professional sports outfit since Malcolm had bought the NFL’s Tampa Bay Buccaneers in 1995 and, well, Americans are just better at this kind of thing anyway.
Is this true? Maybe. United have always been a good sandwich board and the Glazers’ predecessors were doing a pretty decent job at turning them into a superstore, but the club’s business model has changed under their ownership. It is a model every club not owned by an oligarch or Gulf state wants to emulate.
In 2005, United’s annual turnover was just under £159 million, with the largest slice (£66 million) coming on match days. Commercial revenue was £45 million.
In 2019, the year the club earned a record £627 million, match-day receipts had nearly doubled to £111 million, but commercial revenue had grown by 600 per cent to £275 million. That figure alone is over £100 million more than any club outside the Premier League’s “big six” earns in total.
“An LBO is a great way to make money if the value of the business goes up,” explains Kieran Maguire, a lecturer on football finance at the University of Liverpool and the man behind the popular Price of Football podcast.
“United had £6 million in the bank and no debt when the original deal took place. The lenders provided about £600 million of the cost of the acquisition. The club is now worth, in my opinion, at least £2.6 billion and the debt is still £500 million, which leaves more than £2 billion for the shareholders and a 2,000 per cent return on investment.
“Initially, the interest rates were high, peaking at 16.25 per cent, which reflected the risk in the eyes of the bank. But as the revenues have increased, so the risk level has fallen and the debt now is a non-issue. The banks get a guaranteed £20 million in interest every year and the Glazers can kick the can down the road in terms of the capital payments.”
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Roger Bell of financial analysis firm Vysyble agrees.
“According to the last set of annual accounts (the year ending June 30, 2021), Manchester United’s cost base was £538 million,” says Bell.
“If they were to knock five per cent off that by repaying the debt, it’s peanuts in the overall scheme of things. I’m not excusing them but it’s just not going to move the needle.”
This is the same argument the Glazers’ supporters — OK, people on the payroll — make when questions are asked about the biannual dividends they have been paying themselves since 2016, and the reaction to them from fans is similar to the anger the interest payments still elicit.
As Dr Dan Plumley, a sports finance expert at Sheffield Hallam University, puts it: “The latest £23 million dividends has been defended by the owners as it is a very small percentage of overall revenue and therefore doesn’t hurt the business model of the club or the ability to spend.
“This is true but it still riles the fans, as they see that as £23 million that should be reinvested into their football club. United are also the only club in the Premier League to pay dividends to their shareholders, so the anger grows as it is not the ‘norm’ in English football.
“That said, United have still spent big on players in recent years and the brand has gone from strength to strength.”
So, the Glazers are right, then?
They are certainly right that it has been right for them!
They have taken out more than £120 million in dividends over the last five years, on top of consultancy fees and soft loans in the early years, and now the siblings are starting to sell significant chunks of their shares.
In March, Avram Glazer sold £70 million of shares, and last month his brothers Kevin and Edward sold similar stakes, bringing in almost £140 million… for them, not United. And the family still owns nearly 70 per cent of the total shares and all of the all-important class B shares, which are worth 10 votes for every class A share. The club is a private cashpoint for the Glazers at this point.
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But what about the other shareholders? How have they got on? And what do they think about the debt?
Bell points out that United’s share price in December 2014, almost seven years ago, was $15.90 (£11.77) and, as I write this sentence, it is $15.93. Three cents better, an improvement of 0.02 per cent. If you had invested in a fund that tracked the entire S&P 500 index, you would be 130 per cent better off now.
“That means the combined wisdom of millions of investors, who do this every day, have looked at Manchester United and decided they just don’t fancy it,” says Bell.
“Now, this is either because they think United’s management team has a poor strategy and they’re not on the right track, or they think football is a bad place to generate a decent return.
“My personal view is it is more of the latter than the former. But when you look at what has happened since Ferguson left, see Phil Jones still there on a big contract, Paul Pogba potentially leaving for nothing and £200 million of talent sitting on the bench against Atalanta, well, you can sympathise with the former, too.”
The real problem for United, or any other listed football club, however, is not debt. It is costs.
“The Glazers will always point to the debt not being an issue as long as it is serviceable and the share sales continue to be attractive,” says Plumley.
“I have always expected them, and still do, to sell at some point and exit almost as quickly as they arrived. The question remains as to what value they want to sell at. I’ve seen rumours of the marker being $10 billion, or £7 billion, but with a current market capitalisation of just over £3 billion, that’s a long way off.
“With the domestic broadcasting rights fixed for another three years and no immediate plans to grow Old Trafford, a lot of that growth would again have to come commercially, or through the creation of — dare I say? — a European Super League (ESL).
“We will see that come back around but the clubs have been appeased to some extent with the revamped Champions League and the promise of more say in how the commercial rights of that competition are packaged. That, of course, is also all well and good if you qualify for the competition.”
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Well, quite, but the point about the ESL is relevant.
Most fans and pundits were outraged by that proposal — and protests by United fans led to the postponement of a league game against Liverpool in May — but most of the anger was focused on the huge sums of money the founding clubs wanted to lock in for themselves and not what was in the small print: a ceasefire to that arms race for talent.
The Glazers, Liverpool’s owners Fenway Sports Group and Arsenal owner Stanley Kroenke also run professional sports teams in North America, where it is not considered a result to only share 60 per cent of your revenue with the playing talent. That way lies puny profits.
Whether the ESL has been defeated by fan power or just postponed is debatable, but what is certain is that the Glazers, and their like-minded friends in boardrooms elsewhere, are determined to keep sweating their assets while driving down costs.
What about the debt?
Oh, yeah, that. No, they do not care about that at all.
Not while interest rates are at historic lows, they can offset the debt against profits to reduce tax liabilities and people are still buying tickets, special-edition shirts and pay-TV subscriptions.
If anything, the debt could get substantially bigger.
One of the by-products of the outpouring of anger caused by the ESL is that the Glazers have been forced to admit that Old Trafford is, to put it politely, at the tired end of its investment cycle. Or, to put it less politely, is a shabby stadium with holes in the roof, flat beer, awful wi-fi, stains in the carpet and a mediocre kitchen.
Now, they are very unlikely to sign off on the type of “knock it down and start again” approach taken by Tottenham recently or Everton right now. There is also nobody queuing up to build them a new home, a stroke of fortune Manchester City and West Ham have enjoyed.
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What is far more likely is United will copy the example set by their fierce rivals (but corporate soulmates) Liverpool: incremental improvement, one stand at a time. In United’s case, that means the Sir Bobby Charlton Stand.
For a long time, the argument against upgrading that stand was that it was simply too difficult — and therefore expensive — because of the railway line that runs along Old Trafford’s southern boundary. But stadium engineering has come on a long way in recent years and that line is no longer the obstacle to 6,000 more seats and nicer boxes it once was.
Broadly speaking, there are two ways to pay for things like football clubs or new stands: debt or equity. And we know which of those the Glazers prefer.
So, it is entirely possible that in the not too distant future, United’s debt and interest payments will start to swell again.
Whether that leads to the creation of another phoenix club, a boom in the sale of green and gold scarves or more postponed matches will probably hinge on old-fashioned things like beating City in the derby this weekend.
After all, no Tampa Bay Buccaneer fans are moaning about the Glazers being distracted by their silly soccer investment at the moment.
(Top photo: Dario Cantatore/Getty Images via NYSE Euronext)
