Monday, 1 February 2010

"Over £140m in the bank” (when I checked on Friday)

Now I know I promised a “full analysis” of David Gill’s interview on BBC Radio 5Live (download here).  Unfortunately a combination of United’s amazing demolition of Arsenal and the BBC’s choice of Garry Richardson as their highly trained attack dog interviewer (he tittered in agreement when Gill said “you’re not an accountant Garry” which was a bad start given the subject matter) meant that there’s not a lot of analysis to post tonight, so let’s focus on one thing.  The big pile of cash.

Don’t worry about the debit says David Gill, because when he went to the cash machine on Friday with his United debt card, it said the club had “over £140m in the bank”.

Well that was Friday.

Until the bank debt is repaid this week, none of the possible outflows of money to the Glazers described in great detail on this site can take place.  So by definition the money is there.  Plus we know there are banking fees and derivatives losses to pay.  What's more important is whether it's our football club's or may be needed by other people whose US shopping center (sic) empire isn't generating any cash.

But first, where did it come from?  Well we all know about the £80m for Ronaldo.  But another £36m came from our new sponsors Aon.  This followed the weird stipulation by United that any successful bidder to take over from AIG had to pay a big percentage (in this case 45%) upfront, more than a year before the shirts change.  So this is just money brought forward and means future cashflow will be £8.6m less than profits each year for the next four years.

Why would they be so desperate to bring cash in early which must have reduced the total value of the sponsorship deal?  I can’t imagine (but then I haven’t seen the PIK net debt / EBITDA covenants).

Now I don’t doubt that we will buy players of greater stature than the relatively unknown Chris Smalling in the next year or two.  The squad has an ageing element to it which needs work and even the most aggressive asset stripping owner would try to paper over a few cracks.  But I’m certain that we will operate at the “value” end of the market.

And here’s a weird thing: 
  1. Gill says all the money is available.
  2. We have £140m in the bank (true on Friday).
  3. He says we make a cash profit of around £90m each year (true).
  4. He says this comfortably covers the £45m bond interest each year (if 2x is comfortable then yes that is also true).
  5. He says that leaves £45m in cash coming in each year (true until someone lifts it).

So why, whilst doing the bond issue has the club put in place a £75m additional debt facility and said this about it (page 60 of the prospectus my emphasis):

Although we have not historically drawn on our revolving credit facilities during the summer transfer window, if we seek to acquire players with values substantially in excess of the values of players we seek to sell, we may be required to draw from our revolving credit facilities to meet our cash needs.

Hang on, we may need to borrow from the £75m facility to buy players……?

The ground is fully built out so doesn’t need much investment, we’ve got £45m in profits a year after interest (and Gill thinks that will grow).

We don’t overpay in frothy transfer markets.  Has a new age of plenty arrived?  Double Verons all round?

This is how much we have spent on transfers in the last 12 years (page 52 of the prospectus my emphasis):

From the 1997/98 season to the 2008/09 season, average net player capital expenditure was a cash outflow of £13.1 million per season (excluding the sale of a significant player in the 2008/09 season, average net player capital expenditure over the same period would have been a cash outflow of £19.8 million per season). For the 2006/07 season, net player capital expenditure was a cash outflow of £10.6 million, for the 2007/08 season, net player capital expenditure was a cash outflow of £26.4 million, and for the 2008/09 season, net player capital expenditure was a cash inflow of £44.0 million.

So having spent an net average of £20m per year on transfers in the last 12 years (excluding Ronnie’s sale), and a maximum of £26.4m in the biggest year of the last four and despite having Gill’s reassurance that we are generating enormous amounts of cash, we need a £75m back up debt facility.  That's odd.

It really is going to be fantasy football when Fergie gets his hands on all this cash.  I suggest Villa and Torres to go up front with Rooney and buyback Tevez and then play him in the reserves…

You’d almost think the profits were needed elsewhere.

A better interviewer than Garry would have put points like this to Gill, but until that happens we’ll just have to make up our own minds.

More tomorrow on Carrington and Gill's innocuous mention of “peppercorn rent”….