Thursday, 17 June 2010

David Gill sticks to his guns - so where's the money coming from?

David Gill has replied to my open letter of 8th June.  This is his reply:

So on the subject of repaying the PIKS, he is sticking to what he said on BBC Radio 5Live back in January:
“We [the senior executives of Manchester United] don’t wake up worrying about the PIK interest,we don’t worry about the PIK repayment. That is something that the family, the owners, have put in place and they will ensure is repaid or is part of their overall financial planning in due course, but that is nothing to do with the club. You’d have to speak to the owners and get their views as to their plans etc in respect to that. This notion that Manchester United is £716m in debt is just a total misconception frankly.”

I'm not surprised that David is maintaining his stance on this issue, although I'd have liked the scoop if he'd written to say "fair cop Anders".

But this official denial that the repayment of the PIKS (currently around £220m and rising) is "nothing to do with the club" raises the question of how on earth they CAN be repaid.  Let's consider the options:

Borrow against Glazer family assets
In the aftermath of the revelations about First Allied, the Bucs spokesman confirmed (by saying "Companies they [the Glazers] own generate revenues in excess of $800 million each year.") that the family only own three major businesses, United, the Bucs and First Allied.  All three are already borrowed up to the maximum possible.  So the option of borrowing to repay the PIKS can be ruled out.

Sell assets
My work on First Allied shows that there is not sufficient value in that business to repay the PIKS.  If the family did sell United, this would of course eliminate the issue, but they have publicly denied they will.  The option of selling the Bucs is always there of course.  Forbes magazine thinks the value of the franchise is falling, but even at a price of $900m and deducting debt, the sale of the Bucs would easily provide enough to repay the PIKS.  A Tampa Bay journalist told me he thought such a sale unthinkable as NFL franchises are long-term licences to print money, but the option is definitely there. 

Use United's cash anyway
Could it be that David Gill believes that his comments are consistent with using the club's cash to pay the PIKS? He talks about not "worrying about the PIK interest" and that management don't "worry about the PIK repayment", but "worry" is not the issue here.  When he says "That [the PIKS] nothing to do with the club." does he just mean the fact that they are not secured on the club's assets but rather its equity?  I think someone who thought such apparently reassuring statements were consistent with taking a quarter of a billion pounds out of Manchester United to repay the Glazers' debt would be guilty of dissembling. 

So I can't think of any other viable way to repay the PIKS and I know that senior United staff have given non-attributable briefings to journalists in which they concede it is the probable course of action.

How has it come to this? Why are we left trying to deconstruct 88 words spoken in January?  Why won't the club engage with concerned supporters? If people like me are scaremongering, why not explain why?  Instead we have the pathetic spectacle of a football club anonymously claiming "victory" over its own supporters in the pages of the Daily Mail.

This is the sad state of Manchester United Football Club in 2010; silent, aggressive and resentful of its own supporters.  And that is a great, great shame.



Anonymous said...

Are these PIKS not simply a tax dodge that allow the whole United group to offset any taxable profits against the PIKS interest cost? Therefore, although the interest is accruing, this is only on paper and has no "real" impact on cash flows and never would do. If needs be the Glazers could simply write off a portion of their debt. Obviously doesn't help in a buyout situation but would explain why David Gill doesn't lose sleep over it. What do you think?

andersred said...

Hi there,

No the PIKS are owed to various hedge funds by the Glazers.

Either the Glazers find money to pay them off by 2017 or they lose the club. They won't let that happen (amusing though it would be) so they need to find money.

The only realistic source is the club itself. At least £250m....


Marcelo Falcon said...

I fail how to see how Gill would be guilty of dissembling, even if United's cash is used to pay off the PIK debt. He's not employed by RFJV, he is employed by Manchester United Football Club as CEO, and his goal is to see that the Club generate the largest long-term cash flow possible.

What the Glazers do with the cash that is rightfully theirs after that is not Gill's business.

Do you not think that ours and the Glazer's interests are aligned in the following years? The Glazers need United to be successful on the pitch and generate enough cash so that they can pay-off, or refinance the PIK debt.

If they can't, then we are owned by NY Hedge Funds. From there I imagine we'd be floated on the market again.

I'm sure you'll disagree, I'm just curious to know how.


DRDI said...

Gill has done his deal with the Devil, and will tow the party line until Kingdom Come in return for his silver.

Handily for those of us with half a brain, leaks aplenty from OT, increasingly-desperate emails and some diligent journalism together are keeping a more realistic picture of United in the public eye.

If Tosic has gone to CSKA for GBP8m, that makes this summer's net spend GBP10m. Given the club's attitude to quantum of season tickets sold, surely that big-money signing to alleviate all doubts - and start to replace the 'Peter Pan' element of the playing squad - is imminent??!

drewski said...

I guess, from a business perspective, there's no real worry on Gill's part because the Glazer's are entirely to distributions of cash as owners, directors and board members, whether that be in the form of fees, dividends or share buybacks.

Gill's dissembling a little if he suggests no United cash will be spent on the PIK, because it won't be - the cash will be spent on "special dividends" and other disbursements to ownership. Who'll then use it to pay off the PIKs.

It's just typical management doublespeak but it's hardly surprising.

Bootsie said...

@ Marcelo Falcon

"Do you not think that ours and the Glazer's interests are aligned in the following years? The Glazers need United to be successful on the pitch and generate enough cash so that they can pay-off, or refinance the PIK debt."

The problem is our definition of success and the Glazer's definition are not necessarily the same thing. We want trophies, they want profit. Maximising profit means investing just enough in the squad to stay in the top 4 and reach at least the quarter finals of the Champions League, the minimum outlay for the maximum income. Our budget is limited, so Joe Cole on a free is much more likely than Mesut Ozil or David Silva. We'll probably make a decent signing every 2-3 years just to try to keep people believing, but we're gradually going to lose the quality in depth that's needed to mount a proper challenge for the title. And then we get into dangerous territory, a blip in form, a strong challenge from a team below and that 4th place turns into 5th or lower. We lose a place in the Champions League and the whole balancing act collapses.

simpson said...

its very much Under 40000 Season Ticket Have Been Sold.

United Rant said...

Bootsie is absolutely right. When Edward Woodward said recently that "it's a myth you need to win the Champions League to make money" he showed the club's hand.

In truth the income differential between maintain a top four place and staying in the group stages of the Champions League is not enough to justify the transfer market required spending to win trophies.

Fans want silverware, the Glazers just need a top four finish.

BS said...

Simpson where did you get that figure from?



Marcelo Falcon said...

I don't think anyone would know how to put together a squad that's just good enough to ensure top 4, and CL QF every season.

I think, either you spend what your manager deems necessary to guarantee the goals set, and you run the "risk" of winning trophies. If you were to spend less and leave the maanager without the squad he wants you run the risk of not achieving your goals.

Empirically, United have achieved its goals, and won trophies, because SAF has been granted the money to spend on the players he deemeed worthy.

We also know that big spending on big names is not how a team forms a winning squad (e.g. Real Madrid vs. Barcelona), and that a team can hardly win the League more than 3 times in a row.

That's why I think its hard ro affirm that United have spent less, or been less succesful under the Glazers than we would have been otherwise (Market-listed, 100% equity, etc.)

Anonymous said...

To Anders and all those opposed to the Glazers,

On a completely separate note, what is your opinion of our upcoming season schedule?
What do we need to do to ensure 19 and 4?

Bootsie said...

"That's why I think its hard ro affirm that United have spent less, or been less succesful under the Glazers than we would have been otherwise (Market-listed, 100% equity, etc.)"
Well comparing the money spent in the last 5 years against the last 5 years of the PLC I think it's quite obvious we're not seeing the same level of investment, and that doesn't even take into account the inflation in the price of players in that time. And yes, we've been successful, but that success has been built on a foundation of players from the PLC days.

For whatever reason we are no longer investing the same money in the team. I and many others may look at the debt and the interest payments and come to the conclusion the club no longer can afford to spend the money necessary. You may be of the opinion that Owen, Obertan and De Laet are just the sort of players we need to regain the premiership, and would be happy if we signed Joe Cole on a free.

"We also know that big spending on big names is not how a team forms a winning squad (e.g. Real Madrid vs. Barcelona)"
Barcelona may not be spending as much as Madrid (who is?) but they still manage to spend big every year. Ibrahimovic in 2009, Danny Alvez in 2008, Abidal, Toure and Milito in 2007. Not exactly scrimping and saving.

a team can hardly win the League more than 3 times in a row
If you've already won it 3 times in a row it's not any harder to win it a 4th time.

Ole1999 said...

Again with this our interest and the Glazer interest being aligned piece.

Here are official goals from the financial statements:

- Minimum third place finish in the FAPL winners

- Last 16 of the Champions League

- Last 8 of domestic cup

Thus for United to be a success for the Glazers we DON'T need to win ANY trophies in ANY given year EVER.

Now, in a world where winning a trophy is a "nice to have" but not essential, can someone please explain to me how the interests are aligned because I just can't see it ... did I miss a meeting or something??

Percy The Ratcatcher said...

If simpson is right, and under 40,000 season tickeets have been sold, that means over 1/4 of United's most committed supporters have walked because of the Glazers. Can any business afford to disregard 'customers' to that extent?

EastStand375 said...

Please stop the BS Anders.

It was the Daily Mail who added the ''club claims victory over its own supporters'' spin to the article.

You're just a walking talking MUST/RK propaganda man these days.

It's a shame after such a promising start that your blog's mission statement looks more and more ridiculous with each passing day:

''Too often, discussion and information on football finance is poor and ill informed. With a few honourable exceptions, too many sports journalists don't understand finance and too many business journalists don't care about football. This blog aims to help correct the information gap by providing information and commentary on what is going on at United.''

All you've done is take advantage of that information gap to manipulate the club's supporters and to push MUSTs/RKs agenda.


The Red Devil said...

"Thank you for your public letter!" :D

Anonymous said...

Welcome back EastStand, look forward (not) to reading your usual pro-glazer twaddle..........

Another Anonymous said...

Hey EastStand, you also forgot to quote this from Anders too: "If you hadn't guessed I am opposed to the current ownership and financial structure it brings".

Hardly surprising then that he pushes "MUSTs/RKs agenda" as you so eloquently put it.

You can get off David Gills knee now, there's a good lad.

Anonymous said...

You're just a walking talking Glazer propaganda man these days.

I would appreciate it, if you could close the information gap further, by providing us with your financial expertise - what are your reasons for thinking the Glazers are such good owners.

Anonymous said...

East Stand you are a cunt.