Thursday, 19 January 2012

Why England's richest club doesn't have any money...

I wrote this article for the latest edition of the famous fanzine United We Stand and it is reproduced here with the very kind permission of the editor, Andy Mitten.

If you don't buy it at the match I'd heartily recommend United fans subscribe to UWS here (ten editions for only £28).

Whenever things go wrong on the pitch or when injury ravages the team, I get asked whether United “have got any money” to buy new players. The last few weeks have definitely been one of those times and regardless of the footballing wisdom of January signings, the question is being asked with great urgency. Can United afford to strengthen?

I believe there are actually two answers and both are important. The first is purely factual, how much cash does United have in the bank, and the second is more subtle, what is the cash earmarked for and what are the real restrictions on transfer spending? 

When it comes to cash in the bank, United has been very, very rich since 2009 (when the club received the £80m for Ronaldo from Real Madrid and Aon paid £35.9m of their four year sponsorship up front). At the end of June 2009, the club had a cash balance of £150m, a year later it was up to £164m and at the end of June 2011 was still £151m. To put that number into context, it is more than twice the club’s £67m net transfer spend in the six seasons from 2005/6 to 2010/11. 

Since last summer the cash balance has fallen very sharply, by September 2011 the figure was down to £65m. A big chunk of this fall (£47m) is down to the signings of Jones, De Gea and Young (less the cash received from the sales to our Wearside retirement home). The club also spent £5m on corporate box upgrades and £8m on more land purchases around Old Trafford. 

The remaining £26m fall in club’s cash pile is where “Glazernomics” kicks in. The club generated around £22m in profits during those three months, but the interest bill was £21m (interest is paid twice a year in August and February). On top of the interest paid, the Glazers decided to spend £23m buying back bonds in the market. This is not the first time the club’s money has been used in this way; since the bonds were issued in 2010 £88m has been spent repurchasing them from investors (see graph below).

These bond purchases go to the heart of how the Glazers run Manchester United and how horribly different it is from other “normal” clubs. At almost every other football club, any profits are reinvested. Real Madrid made a handsome pre-tax profit of €50m in 2010/11 and spent every penny of it on transfers. That is not the way United is managed. Over the last two years the club chose to spend that £88m on buying back bonds rather than on strengthening the squad. Just to be clear, there was no obligation to buy these bonds, it was a judgement made by the Glazers and their management team. 

The financial return on these bond buybacks is pretty good, with cash in the bank earning 1.5% being used to buy bonds that cost the club 8.7% in interest. But good financial sense is not always good sporting sense if money is diverted from the football club. Which brings us to the subject of wages. 

When Sneijder turned down United’s offer last summer (and again when Nasri chose City over us), the sticking point was wages. Now no football club should be held hostage by greedy players, but there is something distinctly odd about a club like Manchester United being unable to “compete” for the best talent. So what is the reason we can’t compete? As with transfer spending (or the lack of it), it is a conscious choice by the owners. 

United is run not only to make a profit, that is just commonsense, but is run to maximise value for its owners. That means maximising profits and thus operating on a far lower budget than a club of United’s scale can actually afford. In 2010/11, United made so much money that the club could have paid three new players the same wages as Rooney (around £140k a week) and still make EBITDA (cash profits) of £89m. But making £89m instead of the £111m reported by club would inevitably reduce the price that could be achieved in a listing on the Singapore Stock Exchange, or the value of any future sale to a Sheikh or Oligarch. So the Glazers chose to restrict the wage bill to a level they were happy with and thus chose to make Sneijder unaffordable. 

Older reds will no doubt point out that this dance with financial devil began when Edwards floated the club back in 1991, and there is much truth in that. The difference however is in the scale of impact on Manchester United. Across all the plc years, the total dividends paid were only £59m. The total cost in interest, fees and debt repayment in the six and a half years of the Glazers is £480m. 

So it doesn’t really matter if we have about £60m in the bank (we do). It’s that unfortunately for us the club is run to make money for a distant family from Florida and they’ll do what they want....



Anonymous said...

Great read Anders, I have a question for you and it's not to do with this. Is there any recent evidence that United receive £25.4m from Nike, because in 2006 the docs where based on the US dollar and exchange rates from back then. Is there any docs from 2011 to prove that we receive £25.4m and not £23.3m like the papers are suggesting? Thanks


andersred said...

That's easy Mark, the Nike contract is denominated in sterling so there isn't an issue. In the bond prospectus the club say:

"we have modest transactional currency exposure against the US dollar relating to commercial
revenue from certain sponsors"


Anonymous said...

Hi Anders,

I am a LFC fan, but greatly enjoy your blogs & financial insights (not necessarily your footballing ones.. :)) God knows we had to deal with probably much worse isses during the G & H era. However, what do Utd fans think of Ferguson not standing up to the Glazers? I know he is still successful and winning trophies, but he has never said one bad word against the Glazers. Is it a case of protecting his legacy, or that Ferguson is thinking better the devil you know. If it was not for Rafa, I doubt G & H would have been flushed out that easily, or that early into their reign. Cheers.

Anonymous said...

Makes my heart bleed to say it but maybe we should hire some of our 'friends' from L4 0TH to kick start the Fuck Off Glazers movement. Duncan and the rest of MUST mean so well, but have succeeded in the square root of fuck all.

The scousers had Hicks And Gillett fucked off in no time.


Anonymous said...

The Scousers had nothing to do with it, it was RBS and the British courts that seized control of Liverpool.


Hmm said...

SAF said that we have never talked to Sneider, why is he important. Who said that we couldnnn't afford him?

And, he is not worth it, he had only ONE world class season and that's it.

Nasri, as far as I know our bid was never accepted, so we never talked to him. And that's good, he actually had only HALF of a WORLD CLASS season, and that's it.

He isn't even playing well for City.

I do understand some of the arguments, but some are just there to make your point look stronger, espeacaly the way you "play" with the numbers.

Do not understand me wrong. Your knowledge is huge, and most of the things you say are correct, but very often you are not objective on the matter and you only concentrate on the bad things, without write of possible good things that can come out of this situation.

Sorry for my bad english.

Anonymous said...


Nasri was all set to come to Utd and had a longstanding verbal agreement with Fergie which he reneged on last minute when city offered a bigger wage- he tried to use it as a bargaining tool to up his wage, and it backfired- he broke his word (never good) and we weren't prepared to pay so much to- as you highlight, a good if not outstanding player

Hmm said...

But Arsenal did not accept our bit, because City offered more and one thing should be clear, even without the Glazers and with this commercial succes, we would not be able to compete with City.

Yes, Nasri is a good player, but nothing special. He is not worth the money.

tkearns said...

Agreed. And I think if cleverley had not been injured we would not even be having this discussion as a cost benefit analysis in my book and probably in the owners and SAF's opinions would be cleverley is a much better value for money spent than WS.

Ryan said...

Possibly a dumb question - but my experience with LBOs is that there is always an exit strategy - and it's normally not more than 10 years from purchase time. Do you have any sense from the actions of the Glazers if there is anything to that?

For example, if they keep buying back bonds, eventually our interest payments should be quite manageable, and we'd still be a very profitable, cash-generating business. At that stage we could afford to not only line the Floridian Leprechaun's pockets, but also compete on wages and transfer fees again. Essentially, they'd create a sustainable model, rather than milking United for 10 years and then selling it to the highest bidder.

I just can't tell which road they're going down really. Coupled with the recent sacking of majority of the Buc's staff, I do wonder if they even have long term plans...

Anonymous said...

Hey Hmmm, Anders said that United would have £470m without the Glazers, and the "commercial success" they've been responsible for has been exaggerated. We probably would actually be able to spend more than City, that's how much the Glazers have taken out of the club.

Hmm said...

As far as I know, even he admitet that the number is to high.

As far as I know it is closser to 270mio (which is HUGE, no question about that), but it's not almost 500mio.

Also some of the commercial success has nothing to do with the Glazers, i do agree, but some actually has (they have a different aproach to it and it's working really well.

And no, we would not be able to spend more thatn City, because the people who are spending are multibillioners, there is no way of us competing with them under current rules.

Anonymous said...

Fine article, anders.

But should we be surprised? We are merely looking at classic LBO behaviour.
Ignoring cash retained, the club has paid out 63% of surplus cash on interest and debt repayments since the takeover; equivalent to 73% of the total pre-exceptional EBITDA made since the buy-out.
In contrast the PLC Paid out 73% of its cash profits (EBITDA) on inward investment (players and stadium) from 1992 to close; an amount equivalent to 34% of cash profits was paid out in dividends and corp. tax- this latter percentage is slightly lower for the last 6 yr plc period).

Different priorities.

The plan to withdraw 95m in carveouts to deal with the piks has been replaced with a plan to withdraw an equivalent amount(90+m) to deal with the bond. In the context of am impending IPO, the bond issue was an expensive waste of money.
Manchester United have the option to relax the 50% wages/turnover ratio; it is a self imposed restriction and the ratio is the best around (with the one-time exception of Real). The argument against doing so is that inflating wages for some will mean inflating wages for all. This isn't always the case; replacing two modest earners with higher (and better) earners leads to a rebasing of salaries- it doen't follow that all existing players will suddenly demand more. Paying a current high earner such as Rooney even more could have an inflationary impact.

The Glazers are trying to sell to market the idea that a 50% ratio isn't a restriction, that we can remain competitive under such an imposition; and that the EBITDA mutipliers underpinning their valuation (and hence the IPO strike price) is fair. If FFP bites it might be true but it's not a certainty.
What impact would a rebased 10% rise in salary have on valuation? On 2010-2011 figures, the wages/turnover ratio would go slghtly north of 50% (to 51%), the EBITDA (assuming no immediate positive impact) would drop by 14% to around 95m from 110m and firm valuation (assuming an unchanged mutiplier of 14) would drop by about 200m. In an IPO situation, considerably more equity would need to be sold to bring in the desired amount of proceeds.
Pre-IPO, The glazers will be keeping that wages/turnover ratio south of 50%.

Anonymous said...

So if the club is so skint, why are they moving SAF salary to the highest in britain. Surely not required.

Also, 60m for 7years of PLC vs club earnings at the time. Vs 450 vs current earnings. Seems like we need a number adjusted to inflation to have a clue.

Not a Glazer fan, but entire scale of footballing costs has skyrocketed since PLC days. I don't recall anyone being in love with that ownership model either.

Frank said...

Anders, your colourful chart showing cash movements is stated to be from June 2010 until Sept 2012.

Surely, you meant until Sept 2011?

That said, you should give credit to the Glazers for the way they have succeeded in ramping up commercial revenues in the last few years - and have continued to do in the first quarter of the present year's set of accounts.

At this rate of progress, we are on the verge of overtaking Bayern Munich, Real Madrid and Barcelona in the next few years!

Anonymous said...

Why do you continue to spread the myth that the Glazers have affected us on the pitch? Were we paying the highest wages before they came? No. Were we bending over when Roy Keane wanted a pay rise putting him in line with some of the best players elsewhere? No. Were we buying Zidane, Ronaldinho, Figo etc before the Glazers? No. Before the Glazers, were we implementing a wage structure under what other clubs of our stature were implementing? Yes. Before the Glazers, were we having to rely on creating our own world class players by buying youth and producing from our youth and reserves? Yes. Before the Glazers, when it came to purchasing the best players in the world, were we almost entirely limited to British players as either we couldn't afford those not from "The Isles" or they just didn't want to come? Yes.

The funniest thing is you act like missing out on a guy who has a pretty poor injury record and has only been fit for 3 more games than Cleverley all season can not even remotely be seen as a positive. At the end of the day this club has been run as a business long before the Glazers and will almost certainly continue to be long after they go. Its not great, its not fun but its reality, and trying to act like anything has changed from a footballing point of view due to them is silly.

I for one am at least thankful that the club is being run by proper businessmen who understand the complete picture, unlike Arsenal's shareholders who conned the fans into thinking they were doing anything other than simply building value in their shares, or L'pool's owners who think football works entirely on statistics, or City who just think throwing money at it is the answer.

I wonder when the realisation will hit, that the clubs that seem to have the best balance between ambition and business acumen are Manchester United, Spurs and seemingly Newcastle United, all clubs run by incredibly successful businessmen.

andersred said...

To Anonymous at 22.45

You raise some important issues which I will respond to in full tomorrow, but there is one simple point worth making. You may think Ashley is an incredibly successful businessman, but he differs in one big way from the Glazers. He has invested £140m in cash into the club he owns (that excludes the purchase price, that figure is pure investment). The Glazers have invested zero in United...

I suspect if you don't know that you don't understand much about football finance.


Anonymous said...

You invest when investment is needed. Ashley invested with the intention of making money, which is the ultimate goal for everyone else. The Glazers have been able to do so without investing their own and unlike Ashley, without crippling the club based on bad decisions.

And to be fair there's really no such thing as football finance any more. We like to con ourselves that football is somehow different from any other business, but unless you're City and have no fans, success breeds success (winning = money = more TV revenue = more fans = more merchandise sold = more money = more profit. Imagine how many on the fence fans jumped onto Swansea at the weekend, and how many more of their games Sky will look to show live now?). Just like any other business, to become successful you have to invest the right amounts at the right times in the right ways to realise potential opportunities. Just replace typical business opportunities for something like weaker rival teams chasing CL spots for example and you've got your football based "business opportunity". Just like any investment there is a lot of risk, but no more so than normal, especially because you can easily analyse your rivals, view all of their moves and plan an approach so to speak.

As fans with little understanding of business we have created this new rule that if someone isn't investing their own money then they don't know football and are bleeding the club dry. This just simply isn't the case as the Glazers have shown and as is seen in the business world day in, day out. As long as its legal, where the money comes from is never the problem, its always the people managing it. Again as a United fan I go back to the fact that before the Glazers we never bought the best or paid the best and this remains the case. Fergie said its easier for him to buy players now and from a purely logistical and business stand point we know that that part is correct, as it is just a simply phone call. The question is only ever regarding whether he has the money he wants. Well we can simply go back to a former chief executive for his views on Fergie with money, so putting him on a leash isn't new and seemingly isn't wrong.

People then look to use our midfield as an example of our lack of money and completely ignore the fact that the midfield was replaced between 2006-2008 with Carrick, Hargreaves and Anderson. All 3 were vital in our last CL win, two have been key to multiple PL title wins and were it not for injuries, we would've seen at least two of them as regular starters throughout the last 5-6 years. Our best midfielders this season have been Cleverley, Anderson and Carrick, so two of the 3. People say we're still reliant on Giggs and Scholes, but we started the season with Cleverley and Anderson and will hopefully progress with Carrick, Cleverley and Anderson as the season continues, with Jones fitting in as a midfielder (I've never seen him as a defender) and then Scholes, Giggs, Pogba etc bringing up the rear. There is no immediate need for a midfielder, we just need our current midfielders players to become available.

Anonymous said...

Hi Anders - on a slightly leftfield note, have United paid any corporation tax since 2005, or has it been completely offset against debt?

Physician average salary said...
This comment has been removed by a blog administrator.
Salford Red said...

Hi Anders, a few questions / points:

1. Should you not analyse cash positions y-o-y rather than a 15 month period - where was cash June 11 - apples with apples? £151m? Or perhaps look at Sept 2010 to Sept 2011 to iron out quarterly variances in income or transfer spend.

2. Not sure it is fair to compare plc years with current financial structure. As you know the cost of equity and debt are massively different not directly comparable and also you do not account for the tax shield or indeed the lack of one in the place years so a higher tax charge would have been paid? The club was also valued differently through those periods. If we are realistic and swapped out debt for equity, how much would it cost in equity return / dividends adding in more corporate tax for a more accurate view?

3. Bond buy backs make sense and reduce debt which is what fans want too, and in the long run puts the club on a better financial footing to use cash flow for players later; however the question remains as to what team will we have left by this time given the model is predicated on CL and top 3-4 in the league every year - more importantly we would like trophies please!

4. I dont think Sneidjer was right for us anyway, we need to be patient, the summer will bring a different view... listen to the manager rather than doubting his relationship with the board.

5. Where is net leverage now? And if required can the club not re-issue bonds if they need more cash for players? I think players are more equity type risk vs. debt to buy the club, so the gnomes should be forking out but they won't.


Atutupoyoyo said...

Great read as ever Anders. Many thanks

andersred said...

Just on this Ashley point, he may have turned Newcastle around (thanks to finally finding a good manager) but he's attempted to sell the club several times and told the Sunday Times in 2010:

"It has been catastrophic for everybody. I've lost my money and I've made terrible decisions. Now I want to sell it as soon as I can ... advisers will be appointed shortly."


andersred said...

Thanks for all the comments.

I'd like to make it clear that this piece is not some kind of winge about Nasri or Sneijder or any other player. Fergie clearly wanted one of those two over the summer (see the Bob Cass controversy) and it is also clear that money was the reason nothing happened. I wanted to explain a bit about how the club is managed and that essentially means on a very unusual value maximising strategy not seen at other clubs.

I'd encourage everyone to read the comment by Jim at 19.53 on 19th Jan. Jim explains why to maximise value before an IPO the club is being held at wages/turnover level way below our main competitors, including other profitable ones....

On the Plc dividend the person who considered the comparison out of date should consider what dividends the Plc would have gone on paying if there had been no takeover. At a 10% growth rate since 2005 the dividend would almost have tripled and the total cost over the last six years? £63m. The comparison is perfectly valid.

To the person who asked about SAF's salary, of course they'll pay him whatever he asks. He's the thing that makes the budget work (just). Thank God we have him...

The chart should have said Sep 2011 NOT 2012, now corrected. I used that 15 month period to show the post bond issue movement in cash, to do that properly I need to add the March to June 2010 cash flow which I'll do when I get the chance..

I don't dispute the club's commercial success, but a) that success is required to pay thei interest etc b) the Plc were pretty good at it too (the Nike deal signed in 2000 is still bigger than Liverpool's new kit deal) and c) what's the point if the money is not available? We should be a football club not advertising hoardings..

Can I just reiterate to the Mike Ashley fan that where Newcastle, Spurs, Real, Barca Milan, Cardiff, Arbroath, etc, etc differ from United is that profits are reinvested in those clubs. It is ONLY at United where artificial restrictions are placed on the use of club funds. It is ONLY at United that more is spent on bond buy backs than transfers. We are uniquely fucked over by our owners.

Football is NOT a normal business. It has leagues and associations that impose rules, it restricts the number of branches (i.e. stadiums) to one per team and it doesn't allow takeovers! Almost every professional football club in Europe operates de jure or de facto as a non profit organisation. As I say, Real make €50m profit and spend it. The only club trying to be a business, maximising value for shareholders not just sporting glory is United, at a cost of higher ticket prices AND under investment.


Anonymous said...

Hi Andy. Yet another cracking report.
Two things, Now that the club holds approx £88m worth of notes where is the dividend going for these? Back into club or is it on on a first class flight to Forida?

We haven't heard much about the First Allied company for awhile, do you know how that is holding up in the current climate, and the strains of the financial implictions which were due to kick in with the mortgage terms set to expire last year?

(another) Andy

Anonymous said...


Do you know how the Glazer's businesses are doing? Last I read United was the only profitable one they had as the finance collapse was wrecking their Mall business through various things (no one wants to spend money, no one has money, they can't get money). This was leading them to snatch money from United to do other stuff because it's the only consistent cashflow they have?

Be thankful we're not Bucks fans though. They're having a worse time of it than we are *and* they suck and will keep sucking.

Anonymous said...

"The Glazers have invested zero in United..."

I don't think that this is true. If memory serves, didn't they put £272 million of equity into the initial transaction? And, more recently, put another £249 million in to allow the PIKs to be paid off? That seems to add up to a £521 million equity investment. I know you have a theory about where they got the funds for more recent investment but, whatever the source, the equity investment was made.

Anonymous said...

"At a 10% growth rate since 2005 the dividend would almost have tripled and the total cost over the last six years? £63m. The comparison is perfectly valid."

This is disingenuous in the extreme. You know enough about United's financials to know that, pre the equity sale by Edwards (and pre FRS 10) United paid a dividend of about 22% of PAT. From 2000 onwards the total dividend tracked very closely to 35% of PAT (98.4% correlation). The "ordinary" component of the dividend tracked "sustainable" PAT - calculated from prior experience of "Profit from player sales" (about £2.2 million). When profit from player sales exceeded that expectation - in 2002 and 2003 - a "special" dividend was paid. Over the two years the special dividends amounted to 34% of the "excess" profit. To blandly claim the dividends grew at 10% per annum flies in the face of what we observe. (And, of course, starting your growth from the incomplete dividend of 2005 just amplifies the effect.) I know that those awkward green and gold glasses you wear must make it difficult to see what is in front of you at times, but this is rather ridiculous.

For the record, dividend growth rates from 1997 to 2004 were: 19.23%, 9.68%, 5.88%, 5.56%, 5.26%, 55.0%, 29.03% and -33.75%.

Anonymous said...

Technically yes but neither equity injection provided funds for the club's own use.
272m was used (along with the proceeds from debt issuance) to pay plc shareholders £3 a share. No money was retained in the club for investment, growth or expansion purposes.
£249m was invested in RFJV to repay the PIK- their own debt. Again money in was matched by money out, nought was retained.

andersred said...

Anonymous @ 23.27

Calculating "what if" dividends clearly involves assumptions. I took 10% CAGR because that was a) the long run growth rate in ordinary dividends from 92-05 AND also b) the unlevered (i.e. EBITDA) profit growth since 2004 (note not 2005 as that was very depressed year). For the 2005 base I did NOT use the interim only, I calculated a "what if" final based on the interim growth rate vs. 04!

I ignored the special dividends because by their nature they are highly variable. They total a poxy £6.5m over the whole life of the plc and only 20% of the total dividend payments from 02-05 when the club started paying them. Even if we assume an ongoing 20% uplift from "specials" since 05, that would only add £12m to the dividend bill.

You can see all the figures including the projections in this spreadsheet:


LSD_eindhoven said...

To the last, I would also add that 2002 and 2003 saw a tax adjustment(reduction) of 7m- this was as a result of the club not utilising its full capital allowance in previous years. The club specifically mentions this as factoring into the special dividend award.
The total special dividend was 2.5p per share (1p in 2002 and 1.5p in 2003). The combined cost was approx .025*263m or 6.6m. Less than the tax rebate.
Worth mentioning that tax and dividends are not independent; both will be impacted by reinvestment plans- the more the club reinvests, the smaller the tax
and dividend bill. And both are contingent on operating performance: a bad year is not punished by excessive dividend and tax payments. Those in receipt of interest under an LBO situation aren't so accommodating. Pay up your dues regardless.


Anonymous said...

LSD_eindhoven and Andersred

"The Board has reviewed its dividend policy to ensure that shareholders benefit directly from the team’s success on the pitch in any season and disposal profits from players..."

"Also, as a result of the high level of profit from player disposals and a lower tax charge, the Board is proposing a special
dividend of 1.00 pence per share."

The two quotations from the 2002 Annual are pretty unambiguous about the Board's intention to change their dividend policy going forward and, in particular, to distribute part of the profit from player disposals. Any model that doesn't reflect this is going to be flawed.

andersred said...

OK. I'll play along. There were two special dividends in 02 and 03 totaling £6.5m. In those two years the profit on player sales was £30.3m so 21% was distributed in special dividends.

If we make the heroic assumption that 21% of ALL profits on player sales from 2005-2011 had been paid out in special dividends (and I think that is very aggressive as cash requirements for investment always ranked first, see LSD's comments re: tax above), £30.4m of the £144.6m of cumulative profits would have been paid.

Add that £30.4m to the £62.7m (10% CAGR from 2005 inc a final dividend) and you get £93.1m in "what if" dividends.

That is still derisory (19% in fact)compared to the actual interest, debt repayment, fees etc that the Glazers have cost the club.

And as I say, that's taking an unrealistic formulaic payout ratio on player sale profits ignoring the historic pattern of real payments.


LSD_Eindhoven said...


And in the following year (Annual Report 2003, page 4) the board stated:
"....As a result the Board recommends a special dividend of 1.5p per share based on the excellent operating result and the tax provision release.....No part of this dividend is dependent on this year's player trading profits, since the Board intends that cash generated from these sales will be reinvested in the playing squad, to help maintain the playing success."

Pretty definitive, I would have thought.

Only 2 special dividends were paid in two years were the club received tax reductions greater than the combined cost of the special dividends.

It is not remiss to also note that the club published an adjusted EPS figure where they removed player trading (amortisation and player profit) so that shareholders could get a better look at the underlying performance of the business.

If you can construct an alternate dividend profile (predicated on prior trends) from 2006 onwards then go ahead. Put forth your methodology and your assumptions and I'll be happy to take a look.


Anonymous said...


My underlying concern with your analysis is that you seem to want your cake and ha'penny.

Commercial revenue under the PLC showed no growth from 1999 (or 2001 if it makes you happier) through 2004. Given that the commercial office consisted of two men and a dog (without the dog) located in Manchester, that's not really unexpected. The Chairman's statement in the 2004 annual makes it clear that leveraging the Nike and Vodaphone contracts was effectively the limit of their commercial ambitions. If those revenues remain flat other than the Nike step-ups and, ultimately, a renegotiated Vodaphone (or substitute) contract, it's likely that Commercial revenues from 2006 on would have been in aggregate between £120 and £130 million below the level we have seen.

If the company continued in it's plodding way, I suspect that your estimate of total dividends in the low £60 millions would be correct. However, if they achieved growth in revenues commensurate with what we have seen, an estimate of a little shy of £100 million would be closer to the mark.

If the PLC didn't raise ticket prices to the extent that the Glazers have, match day revenues would be substantially lower. The issue (which I haven't seen you address) is how much lower?

The Board made it clear in 2004 that they would continue to closely monitor the club's transfer activities and that a wage bill below 50% of revenues was their target. Given the reduction in Commercial and Matchday revenues that we seem to be assuming, that would impose a stricter limit on transfer spending than we have seen. In turn that could well have limited Fergie's ability to recover from the failed team building of 2001-2004 (We got the three R's - even including them, the average tenure at United for that group was just over 4 years - without them it is substantially lower. Compare that to the 2005-2008 group whose average tenure is already close to 5 years and of whom 11 out of 18 are still with us.) Without a team rebuild, there is no reason to suppose that, for example, we would have reached 3 CL finals or won 4 Premierships in the next six years. And that, of course, would have reduced Media revenues significantly and Matchday to a lesser extent, further restricting transfer spending.

So the question becomes, do you have a convincing model whereby the PLC would be able to achieve the same level of revenue growth as we have observed? And a secondary question is, could it be done without what you describe as "Glazer costs". Without this model it seems pointless to discuss how much of the EBITDA is being eaten up by interest payments, etc. and how much more would be available if we were a PLC.

For what it's worth my estimate of the extra cash available if we were still a PLC is in the £0 to £25 million range if the company had kept plodding. Unfortunately I get there by assuming the same transfers and staff costs as actually happened - which for most of the period would breach the 50% rule. So, in reality we would probably be worse off.

At the other end of the scale would be the PLC achieving the same revenues as the Glazers. In that case the extra cash seems to be in the order of £100 million.

All this ignores the overhang of future debt paydown - although a partial IPO would remove this and transfer the extra costs embedded in the debt directly to the Glazers (through the extra dilution that would result). All in all that would seem to be a happy ending.

Anonymous said...

Equity injection

You're quite right that none of the equity funding was used within the club. The difference between our case and the Ashley/Newcastle case is that Newcastle's ambition exceeds their reach - without equity funding for operations they would be unable to achieve their objectives (even with it it's problematical). United have exhibited no need for a similar boost in operating cash. On the pitch we've had what is arguably the best six year period in our history - while still throwing off substantial excess cash. Our current team, despite the epidemic of injuries, is performing admirably. (I don't take the loss in Basel, starting without our first four choices in central midfield and losing our best defender as the match progressed, as a sign of squad decline. Few teams would have been competitive under those circumstances.) We're still in the FA Cup, the Europa League is upcoming, and in our domestic league you have to go back to 1907/08 to find a United team that had scored more goals at this point in the season (makes you wonder what we would do with a little more creativity). (In the Premier League era, only two United teams have had more points after 22 games and only three have had better goal differences.)

I suppose the point I'm trying to make is that we simply didn't need a cash injection and it's absence says nothing about the magnitude of the Glazers' investment. It is what it is.

Anonymous said...


"My underlying concern with your analysis is that" it is more than slightly retarded.
The plc tops the football money league for 8 years prior to the GLazers, is recognised widely as the best run club around, creates the greatest brand in football, has plans to leverage the global brand, monetise the fan base, recognises that sponsorship is high margin and high growth and the way forward, recognises-by actually conducting research- that the club has huge name recognition in asia etc, implements plans to increase name recognition still further, and the value of the brand still further... and then decides to sit on its arse and pet its dog instead. Fuck sake, get a grip.

The PLC produced 16% pa growth in revenue and EBITDA since inception. But somehow you think that with the arrival of the sugar daddied clubs, the plc would sit back and not repond. Fuck sake, get a grip.
The only one assuming 0% growth in commercial revenue is you. Only you.
If the club wanted to retain its wages/turnover ratio at 50% (and it would) then it would need to be as agressive commercially as the Glazers. Are you suggesting that only the Glazers could produce a commerical plan involving geographic and sector spreading? That somehow the Glazers and only the Glazers could raise our commercial income to a level that the alternative plc couldn't reach? That their plan was so exceptional that not even a consultation with leading marketing firms couldn't unlock their secret? Please give me and the few brain cells that constitute your intellect a break.

But, of course you are not quite sure- so you go from one extreme to the other: Under your nonsensical downside scenario, the club might be, what, 20m better off in terms of costs but would have violated the 50% wage/turnover ratio. You do know that short of a sugar daddy or an equity injection, under your scenario the club would have gone into administration! It would be technically incapable of paying its own running costs. Have you really thought this through or are you simply putting to page whatever thought enters your skull without reason? Fuck sake, get a grip.
On the other hand, had the club under the plc produced like revenues, you figure, based no doubt on a wonderful but regretfully undisclosed analysis, that the club might be 100m to the good. How is that then? Ignoring opportunity costs, the RF accounts reveal over 420+m in owner related cash costs to date. You have dividends at 100m (without disclosing your workings) so I can only assume that corporation tax in your model is north of 40%. Strange, as Corporation tax has actually decreased during the Glazer reign. You probably need to have a rethink.

Yours sincerely


Anonymous said...


Many thanks for your kind words. I admire your faith in the ability of an entrenched management to change. Of course a worst case scenario is no more likely to happen than a best case scenario - which makes this about as likely as Andy's model. I'll address a couple of your points.

This is repetition, but worth the emphasis - Commercial had exhibited no growth for a 6 year period, the Chairman's statement clearly indicated the board's view of it's future potential and it was a two man office in Manchester. I actually assumed a low level of growth, incorporated the Nike step-ups and even gave them credit for improving the Vodaphone contract by £5 million a year when it was renegotiated. While you might be right about their getting religion, given their prior performance it would have required a significant paradigm change of a type that is rare without a change in the management team.

It's more relevant to look at growth rates post the implementation of FRS10 - i.e. from 1999 (or 1998 for which adjusted figures are available). From 1999-2005, Revenue growth was 7.7% pa and EBITDA was 1.7% pa. (Adjusting for the 1 month less Commercial revenue in the 2005 figures give 8.0% and 3.1% respectively.) I'm sure that you will agree that 7 years is sufficient to provide a performance baseline.

Abramovich took over Chelsea in June 2003. Up to the time of the United takeover (almost 2 years) there had been no commercial response of the kind you suggest. Perhaps we were just lying in wait?

There would be no danger of administration under this scenario. I believe that aggregate EBITDA would have been about £130 million below the £507 million that has actually been achieved (through 2012Q1) - still quite substantial.

It's not very hard to build a pro-forma set of financials if you assume the same level of revenues that were actually achieved. There is enough information in the accounts to make a pretty good stab at the tax liability (actually using the appropriate statutory rates). Dividends, of course, are always going to be controversial - I continued to use the 35% of PAT that had been the de facto standard for the 5 years prior to the takeover. I'm sure you would want to try something different. (2009 is obviously a problem for dividend estimation. It's unlikely that the full 35% would have been paid. However, if you do the work, you find that there would be considerable need for dividend smoothing in the two subsequent years which would eat up anything held back in 2009.)

Under that scenario, aggregate taxes are around £127 million and aggregate dividends £98 million.

The (approximately) £100 million is the free cash flow that is generated. Essentially it represents the difference in cash flow terms between the two financing strategies. That is between the dividends and taxation on the one hand, and the interest and issue related cash costs on the other. The purchased bonds have not, to this point, been retired and as such don't really affect the asset situation (although they will reduce the net interest paid).

Obviously I don't believe the worst case scenario that I proposed but, equally, I don't believe Andy's best case scenario. As I said in the post you took such exception to, without a convincing model of how the PLC would achieve that level of revenues (particularly given the implicit assumption that ticket prices would be substantially lower) the debate needs to be recast.

RichCole said...

Great blog as always

Still some Luddites out there refusing to believe that the Glazers have not sucked the life force out of club. I struggle to see how people can fail to see them for the financial parasites that they are.

Half a billion pounds has walked out of the club without a single asset or investment in the future of the club. Instead it has simply been paid as part of a debt incurred to line the Glazer pockets. No other club is in our predicament - Arsenal incurred the debt to build a state of the art stadium, Mike Ashley, for good or for ill, has written off NUFC debts until he recoups the money at the point of sale, and Liverpool have wiped their debt from their balance sheet.

Fans have felt the full force of the aggressive ticket price increases whilst seeing the squad gradually weakened since 2008 as the Glazers attempt to maximise profit using the talents of SAF to maintain sufficient revenue until such time as they can issue an IPO in Asia.

Anonymous said...

As ever, the confusion between the obscene financial shenanigans that have been brought into United from the world of spivvery, and how this supposedly restricts Ferguson's ability to build and grow his squad is in full effect in this blog.

Just to be clear, United and player wages has always been an uneasy relationship. If it were true that the only reason United didn't sign Scheijder was because of his wage demands then it wouldn't be particularly remarkable in the context of the club's transfer market history. Hey, if you think the financial shenanigans are obscene then you must surely think that Schneijder's supposed wage demands are too, right?

Let's be clear here, despite some claiming the midfield is weak and dreaming up reasons why it hasn't been strengthened, the reality seems to be that there's a couple of good kids coming through (esp. Cleverley) and there's a few targets that are fairly open secrets as well. A couple of seasons back Fergie bought 3 midfielders to add to Carrick's £18m capture. There is zero evidence that he couldn't do so again - IF HE WANTED TO.

In the summer he bought a keeper, the versatile Jones, and a left winger. Personally I believed (and would argue that the way it's panned out backs me up) he should've bought a full-back as well, but hey ho, I'm not the mnanager.

Anonymous said...

"Fans have felt the full force of the aggressive ticket price increases whilst seeing the squad gradually weakened since 2008 as the Glazers attempt to maximise profit using the talents of SAF to maintain sufficient revenue until such time as they can issue an IPO in Asia."

Below are the cheapest and most expensive season ticket prices for United in particular years. The figures in parentheses are the percentage increases in the prices over the previous 7 years.

1984-85 £75, £88
1990-91 £135, £153 (95.7%, 86.6%)
1997-98 £247, £361 (83.0%, 135.9%)
2004-05 £390, £551 (57.9%, 52.6%)
2011-12 £532, £950 (36.4%, 72.4%)

These time periods are the last 7 years of the Edwards regime, the first 7 years of the PLC, the last 7 years of the PLC, and the first 7 years of the Glazers. (Anders has said that the weighted average price increase under the Glazers has been 55% - I'm not going to doubt him on that.) What the data make clear is that increases under the Glazers have been much less than the last 7 years of the Edwards regime or the first 7 of the PLC, and have been pretty much in line with the increases in the last 7 years of the PLC. (Of note is that the lowest ticket prices have increased far more slowly under the Glazers than in the previous periods.) Of course the hated requirement to buy tickets for Cup games makes a difference here, although the extent of the difference depends on the likelihood of season ticket holders going to those games whether they were forced to pay or not.

As far as squad strength is concerned, since 2008 we've got to 2 CL finals and won the Premiership twice. In the current season our League record is one of our best ever - after 22 games we had the third most points we've had at that point in the Premiership era, the second best goal difference over the same span, and to find a United team that has scored more goals in their first 22 games you have to go back to the 1907-08 season (well over 100 years). And all this in the face of the worst injury epidemic that I can remember for any team, let alone United.

On the financial side, we've spent almost £165 million on players since 2008 while faced with a payroll that has grown by 98.9% since 2004. (The total payroll was £318 million greater over the Glazers' first 6 years than over the PLC's last 6 years.)

I'm not suggesting that all is rosy in the garden - I'd be a lot happier with the debt gone. But the fact remains that the Glazers have continued to invest in the team, and our on-field performance has been good. (I'm not denying that we've had disappointments this year - the CL was particularly hurtful - but looking at the impact of injuries as we've gone through the season the setbacks have not been outrageous.) Our failure to buy any of the transfer muppets' flavours of the month continues to outrage Anders and his ilk, but SAF seems happy with the squad and the teams performance in general seems to support him.

Anonymous said...

You can't defend the cup ticket scheme, even if it's also true that ST holders probably would've taken up most of their tickets - one way or another - as usual anyway.

Interesting to see those price rises presented in 7 year blocks like that. Just remind me though, wasn't there already a price hike or series of price hikes in the offing before the takeover actually happened? Basically the path was smoothed before the deal was done, and that hike distorts the picture iirc. Haven't got the figures to hand so if anyone can confirm or deny it would be helpful, cheers.

Anonymous said...

I've got ticket prices from 1960 to 2011/12 (some more reliable than others), but I'm missing 2001/02, 2002/03 and 2003/04. So, unfortunately, I don't have the price path for the years immediately before the takeover. If anyone has those prices, I'd be grateful if they would share them.

Anonymous said...

Can somebody settle something for me? A blue of my acquaintance (bl00dy facebook) tells me that United pay rent to City for Carrington as they own the freehold for the land which they bought back in 1998. Utter rubbish from our blue friends?

Anonymous said...

Anons@ 1st Feb
Regarding ticket pricing:
There are 2 key issues:
1) use of ticket monies
2) affordability

In relation to 1 the plc spent an amount equivalent 75% of its cash profits (ebitda) on expansion of facilities and squad investment over its lifetime. For the period 1998 to 2005, the amount is c. 70% of cash profits. Durin the Glazer period, an amount equivalent to 75% of cash profits has been spent on debt interest and debt repayments and funding for the expension in 2006/2007 was in situ- the cash in bank position at YE 2005 was 65m. The Glazers of course purchased this prefunding as part of the takeover yet they still raised ticket prices considerably in the first 3 years post takeover.
During the plc years, ticket pricing hikes tracked periods of expansion and greater internal investment.

2)The plc had a waiting list. Pricing policy was set below an achievable "market price"; prices were therefore more affordable for a greater number of fans. Post takeover, the Glazers burned excess demand and made prices less affordable for fans in general. The move to a market based price (and the assumption that the process was inherently "fair") has been used by Glazerites to justify price increases as though the Glazers were themselves powerless in the face of market supply\demand dynamics. The plc, of course, somehow managed to hold fast against powerful market pressures.
Bring points 1 and 2 together, the glazers priced to maximise the return from current facilities and by implication demonstrated that further expansion of OT (the south stand) was not a part of their medium term plans. To achieve full utilisation following an expansion of the south stand, the Glazers would need to lower prices and\or scrap the ACS. In their model, the net revenue increase wouldn't justify such a capital outlay (100m to 150m) especially when you add on the negative revenue impact during the construction phase.
Such a redevelopment of the south stand could be justified under a pricing policy that had spare capacity on the affordability side and didn't have the dreadful ACS.

Anonymous said...

The point was that plans were in place for a large - larger than usual - price hike in tickets before the takeover actually happened.

People often want to revise the nature of the previous ownership and also to separate it from the current finance industry spivvery model. But the fact is that the previous model was made up of many shareholders who ultimately sold out voluntarily to the Glazers.

It is a fair point to say that the Glazers have "burned excess demand" so that new tickets are taken up these days by mainly oot dickheads rather than local lads. But at the same time it is also a fact that other than splashing the cash around in the transfer market like a bunch of no-mark wannabes - and long-standing south stand expansion plans notwithstanding - there hasn't been that much spending on infrastructure necessary since 2005.

Again, this is the situation from which the previous ownership model both attracted the takeover and facilitated it.

Tacconi said...

Hi Anders, allways nice reading your very informed comments.

I was wondering the £59m in dividend compared to the £480m in glazernomic.

To really compare them, won´t you have to take inflation and the size of turnover into account?

And if so, do you have some calculation for that?

Keep up the good work



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