Monday, 18 November 2013

Debt down, fan communications restored - where next for MUFC?

Apologies for the lack of regular posts. Work and family have to take priority over football finance….

The beginning of a new phase?

In some ways this week marks something of a watershed in the saga of the Glazer family’s ownership of Manchester United.

In Moston, FC United of Manchester are beginning the building of their own ground, more than eight years after their formation in the wake of the Glazer takeover of MUFC (I heartily recommend Danny Taylor’s piece on FCUM published in today’s Observer).

Two hundred miles south, the week saw the first formal meeting since 2005 between the management of Manchester United and the Manchester United Supporters Trust. The club’s meeting with MUST follows one with IMUSA and an interview by Edward Woodward with UWS.

Woodward himself has apparently told the club’s Fans Forum that he would consider the introduction of safe standing. There are early signs the end of the Ferguson/Gill era may herald a new approach by the club to its core domestic support.

The financial background to all this is radically different from 2005 too.

The decline of the financial importance of the match going fan

In the year of the takeover, United generated revenue of £157m of which Matchday income was the largest element at 42% of the total. This year (2013/14), revenue will be around £425m and Matchday will be the smallest element at barely over 25%.

Total gate receipts in 2012/13 were £54.2m, 15% of the club’s revenue. Although ticket prices have risen on average 55% since the takeover, the importance of normal season ticket holders and members has declined at the expense of the execs, corporate box holders and other hospitality clients. It is unlikely that ticket income from the c. 60,000 non-exec supporters contributes more than 10% of the club’s revenue these days. This dramatic reduction in the financial importance of normal match going fans should put to bed once and for all any ideas of boycotts or similar actions against the owners (the idea of which I have entertained in the past).

The change in the club’s revenue should also be an opportunity. There is now absolutely no need for, and little financial merit in, the sort of price increases the club put through after the takeover. The expansion of executive facilities, the building of the quadrants and the price hikes added c. £40m per annum to United’s revenue between 2005 and 2009, around 25% of the 2005 total and roughly the annual interest bill in those years. Season ticket prices haven’t moved up for several years, and there is no need for them to do so. The daft ACS could also comfortably be abolished. The extra revenue from those who are forced against their will to buy certain cup tickets is absolutely irrelevant to the club’s finances.

The financial state of the club after the debt gamble

The Glazer family took a huge gamble when they conducted a leveraged buyout of MUFC. A quick look down the East Lancs Road shows how far a major club can be set back by excessive debt. Three years after the takeover, the financial crisis hit and the PIKs began to run out of control. Only the genius of Alex Ferguson and the sale of Ronaldo to Real Madrid allowed the whole rickety show to remain on the road.

But now that phase is over. The club has over £83m of cash in the bank and net debt is down to £277m. That latter figure is roughly 2x EBITDA, down from almost 6x (including the PIKs) in 2010. The annual cost of the debt burden has fallen from £72m (including the PIKs) or £42m (excluding the PIKs) in 2010 to around £20m this year. The £600m of interest costs, fees etc will never be recovered but the risk of damage to the club a la Liverpool FC is effectively over. Because of the exploding value of TV rights, a smart commercial strategy and a once in a life time manager the gamble has paid off for the Glazers.

Where next?

The departure of Fergie and the reduction in debt means Edward Woodward faces a very different set of challenges and opportunities to those David Gill faced during most of the post 2005 period. The club can genuinely afford to compete with the likes of Barcelona, Bayern, PSG and City in the transfer market if it wishes, but showed little ability to make its financial muscle work for it in the summer window.

For match going fans the signs of early promise must be followed up with concrete action. As the financial importance of the season ticket revenue falls, the importance of the Old Trafford “brand” increases. Whilst that has a tacky sound to it, it provides the opportunity for supporters to be aligned with the club. Proper singing sections of German style rail seats behind the Stretford End and Scoreboard goals, an end to the ACS, and at the very least a continued freeze in prices are all comfortably affordable by the club and would boost the atmosphere for the benefit of everyone. No subsidy by supporters is necessary for rail seating, it is a win-win.

In the next two to three years, it is very likely the club will start paying dividends to shareholders again. There is an inevitability about this after the IPO in New York. However unwelcome for fans, dividend payments didn't hamper the club in the plc days and don't have to this time.

Looking further into the future, the irony of a football club trying to build brand loyalty whilst at war with some of its most loyal fans is laughable. Supporter engagement through fan groups and yes, an element of ownership, helps bind fans to their club, even one the size of United. Perhaps David Gill had spent too long in the trenches of United fan politics to realise this. Over to Ed….