Wednesday, 2 June 2010

Aon's down payment - an enduring mystery

The razzamatazz surrounding the start of Aon's sponsorship of United was somewhat overshadowed by the spectacle of David Gill somewhat grumpily rowing back on his rather aggressive anti-green and gold comments in the Independent. Perhaps the Aon guys had been explaining risk to him?

For most supporters, changes in sponsor are events of total disinterest. Personally I'm glad to lose the name of one of history's greatest corporate disasters from our shirts, despite the karma of the linking of the world's worse experiment in financial engineering with the Glazers. Aon (a company I had dealings with in a previous job) is a far more normal service business and actually has a decent sized office in Manchester.

The c. £80m four year deal is a good one for United, although not quite as good as that achieved by Bayern Munich (€25m pa from Deutsche Telekom) and is apparently in line with Standard Chartered's deal with Liverpool (the existence of which surely goes to show that the largely Asia based but UK listed Standard Chartered must employ expats in its marketing department who haven't been back to the UK since the 1980s).

The enduring mystery of the Aon deal is the early payment of £35.9m by Aon to United between the deal being signed on 24th May 2009 and Red Football's year end on 30th June that year. Why ask for such a huge prepayment a year before the deal started? It is worth remembering that the prepayment will have the impact of creating a four year negative working capital swing of £8.6m pa starting next season (in layman's terms, United will report £20m of income each year but only get £11.4m in cash - less than the annual AIG payments).

It does seem unlikely that United maximised value by asking for 45% of the four year deal to be paid upfront in this way. No explanation has been given by the club or by Aon as to the rationale behind this strange arrangement.

Rather bizarrely, Aon have chosen to add me to their corporate mailing list ahead of today's launch "in case you and your blog followers are interested in learning more about our firm and why we are so excited about this opportunity", perhaps misunderstanding my motivation in such matters. Anyway, I emailed back in reply to ask the helpful David P. Prosperi (Vice President, Global Public Relations for Aon in Chicago) what the down payment was all about. Here's the email exchange:

Me: "I had one query you may be able to help me on. Why was your sponsorship deal with United structured to include such a large (c. 45%) up front payment more than a year before the sponsorship actually began? I can only imagine the club could have gained more in total by not asking for such a huge prepayment. This is a very non-standard structure and I and many other supporters are somewhat baffled by it!"

David: "Thanks for the feedback. Unfortunately, the finances of the sponsorship are one of the subjects we or Man Utd are not commenting. Let's just say that Aon had a strong balance sheet that allowed us to make the offer that we did."

Me: "Thanks David. Funnily enough it isn't Aon's balance sheet that worries me."

David: "What does worry you about Aon? Or is it something related to the club?"

At that point I decided David probably had more important things to consider than whether United were desperately trying to scrape together enough cash at the last year end to avoid breaching a PIK net debt covenant, so I didn't follow up.

Until my unreliable source delivers on his promise of a PIK document (yes that's you mate) and we can see such covenants, Aon's down payment will sadly remain an enduring mystery.