Sometimes the discussion about the Glazers' ownership of United can become too focused on what is "right" and what's "wrong" and lose touch with the practical and the real world. I’m as guilty of this as anyone else. So I thought I'd ditch value judgements in favour of some cold hard facts today (proper facts not the Rafa Benitez kind).
In my last post I pointed out that the Glazers' had cost United over quarter of a billion pounds in cash whilst also allowing the PIKs to grow by £62m and counting (which in my view will have to be paid by the club too). Here's the breakdown of the cash costs plus the obligatory references:
Loss on interest rate hedge £35m[2]
Cash interest paid £171m[3]
Management and consultancy fees £13m[4]
Loans to Glazer family members £10m[5]
Total cash costs to United 2005-2010 £286m
So that’s £286m in cash paid out purely because of the financial structure put in place by the Glazer family. All but £50m (the costs of the bond issue and the derivative) have already been spent and lost forever.
How on earth has a football club, even one like United, managed to afford such an enormous outflow of cash?Well firstly, a lot of the professional fees have been rolled into the bank facility, which wasn’t just used to buy the club but was then used to pay the costs of refinancing the initial borrowing. The bankers’ costs from the takeover came out of the club’s carefully accumulated £65m cash pile.
So let’s focus on the other items, the £171m in cash interest and the £23m that’s gone directly into the Glazers’ pockets. View these as a “Glazer tax” on the club of £194m or just under £50m per year since they took over. If that's too emotive, call it a "Glazer fee". Either way, bear in mind that none of these costs would have been incurred if the plc had been in charge. Not a penny.
Who has paid the tax?
Look at the club’s income since the bid. There are three revenue streams:
Matchday: season tickets, members’ tickets, away supporters tickets, exec tickets (including boxes), catering, carparking etc.
Media: TV income, radio income, MUTV etc.
Commercial: sponsorship, merchandising (conducted largely through Nike) etc.Media: TV income, radio income, MUTV etc.
Now media is largely out of the Glazers’ hands as TV deals are struck collectively and depend partly on the performance of the team. Commercial is something the management would hope to make an impact on (although they are tied into the Nike deal until 2015). Matchday is something they can effect by changing ticket prices or the price of a pie, although they can’t control how many games United play at home on top of the 19 league games (and for many years at least 3 Champions League games).
Let’s focus on matchday income.
Clearly the biggest change to the club since the takeover has been the ticket prices. Here is a (pretty accurate, the yellow boxes are estimates) table of season ticket and other prices since 2005. It’s important to remember that the 2005/6 ticket prices were announced by the old plc board in April 2005 whilst they felt themselves under huge pressure from the Glazers, who then implemented the rises in full.
I’ve attempted to estimate how many season tickets / members’ tickets there are in each section of the ground, and the calculations only differ from the published ticket revenue data by 1.3% so they must be pretty accurate.
You can see from the table the enormous increase the Glazers have pushed through both in absolute terms and compared to inflation. On average, ticket prices have risen 48% between 2005 and 2009!
Matchday revenue in the last season of the plc, 2004/5, was £66.3m. In 2008/9 it was £108.8m. That’s a 64% increase. Obviously during that period (at the start of the 2006/07 season), the number of seats at Old Trafford grew by 8,000 (around 12%) with the opening of the new quadrants. If we adjust for that (and the 30 home games in 2008/09 vs. the 29 in 2004/05), we get a like-for-like “revenue per seat per game” increase of around 40%[6].
So the Glazers have driven up matchday revenue by 40%+ through ticket price increase and have also benefited from the quadrants opening (paid for by the plc of course).
So how much extra money has that brought in?
This table shows the extra income each season from ticket price increases and the quadrants opening compared to 2004/05. That’s £109m of extra income generated since the takeover.
So that’s £109m of the Glazer tax right there. Every single pound from the huge ticket price increases of the last few years has gone into the black hole of interest payments and “fees” to the family. Without the tax, we could all have exactly the same seats and be paying 2004/05 prices. Nothing else would need to change at United, the same players, transfer budgets, facilities, the same everything. Of course this is only £109m of the £194m Glazer tax, more about the rest another day.
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[1] £80m split as follows: £41.3m 2005 and initial financing costs (RF Ltd and MU Ltd accounts 2005 and 2006), £23.5m August 2006 refinancing (RFJV Ltd 2006 and 2007 accounts), £15m 2010 bond issue costs (bond prospectus).
[2] From 2010 bond prospectus page 44.
[3] RF Ltd “Interest paid ” 14 mths ending 2006 and 12mths ending 2007, 2008 and 2009. From RF Ltd accounts consolidated cash flow statements.
[4] Bond prospectus page 100 “Related Party Transactions”.