tag:blogger.com,1999:blog-65250883794369995552024-02-16T19:56:57.338+00:00the andersred blogtrying to make sense of the Glazers, debt and football financeandersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comBlogger145125tag:blogger.com,1999:blog-6525088379436999555.post-25714669692211362012015-06-01T15:25:00.000+01:002015-06-01T15:25:26.413+01:00Good housekeeping at Manchester United – explaining the May 2015 refinancing<div class="separator" style="clear: both; text-align: center;">
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In the decade since the purchase of Manchester United by the
Glazer family, the debt placed on the club has been “refinanced” four times.
This week marked the latest of these refinancings.<o:p></o:p></div>
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A refinancing is where old debts are swapped for new debts.
They are the corporate equivalent of switching mortgages or consolidating
credit card debts into a single loan. The aim is usually to make the debt more
affordable, sometimes by locking into a cheaper interest rate, sometimes by
extending the life of the loan, sometimes both.<o:p></o:p></div>
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This post explains what United have done on this occasion.
It is intended to explain what’s going on in layman’s terms.<o:p></o:p></div>
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<b><br /></b></div>
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<b>The previous
situation<o:p></o:p></b></div>
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Before this latest change,
Manchester United plc (acting through two of its subsisidiary companies) had a $315.7m
(£206m) “Secured Term Facility” (a bank loan) with Bank of America Merrill
Lynch International Limited and $269.2m (£176m) of US dollar bonds called “8
3/8% Senior Secured Notes due 2017”. There was also a “Revolving Credit
Facility” (essentially an overdraft) with a group of banks. The Revolving
Credit Facility has never been used.<o:p></o:p></div>
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The Secured Term Facility paid an interest linked to
LIBOR (a benchmark interest rate) plus a “margin” (markup) based on the level
of United’s debt compared to its profits. The maximum margin was 2.75% if net
debt was more than 4x EBITDA (cash profits) and the minimum margin was 1.5% if
net debt was less than 2x EBITDA. This financial year net debt will be around
3x EBITDA meaning the total interest rate (using 3 month LIBOR of 0.29% and a
margin of 2.25%) will be c. 2.54% per annum. The interest cost is therefore c. $8.0m or £5.2m. The Term
Facility is repayable in one amount in 2019.</div>
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The Senior Secured Notes are the remaining bonds that were originally issued in
2010. They pay a fixed interest rate of 8.375% per annum and therefore cost $22.5m or £14.7m. The notes are repayable in one amount in 2017.<o:p></o:p></div>
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The total debt today is $585m or £382m. The annual interest
cost is c. $30m or £20m.<o:p></o:p></div>
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<b>After the refinancing<o:p></o:p></b></div>
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United are changing both elements of the debt and increasing the size of the Revolving Credit Facility.<o:p></o:p></div>
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The Secured Term Facility, still with Bank of America
Merrill Lynch, is being reduced from $315.7m to $225.0m. The repayment date is
being extended from 2019 to 2025. The interest rate margin range is reduced
from 1.5% - 2.75% to 1.25% - 1.75%.<o:p></o:p></div>
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The $269.2m of Senior Secured Notes are being redeemed (paid
off) and $425m of new Secured Notes are being issued. The new notes are
repayable in 2027 not 2017. Crucially, the interest rate on the new notes is
3.79% rather than 8.375%.<o:p></o:p></div>
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The total amount of debt is increasing from $585m (£382m) to
$650m (£425m). The extra £43m will be available for the club to use. None of this debt requires repayment or
refinancing for another 10 -12 years. Following the refinancing, the
interest bill will fall from around $30m/£20m per annum to around $20m/£13m.<o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhL6zIVIDu72t6b_W6uifJqI4FhR_Q-aCI6cRzw6UWapbmxmFl91Sg_QrdWXh266rWNSM1iF-C0MISj0z-wgRNjEv41yPiuvLwWRhKsXlCWuskBkPR39snzUa8Bmck_Jlustbx4mFG0wfPv/s1600/2015+refi+table+2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhL6zIVIDu72t6b_W6uifJqI4FhR_Q-aCI6cRzw6UWapbmxmFl91Sg_QrdWXh266rWNSM1iF-C0MISj0z-wgRNjEv41yPiuvLwWRhKsXlCWuskBkPR39snzUa8Bmck_Jlustbx4mFG0wfPv/s1600/2015+refi+table+2.png" /></a></div>
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<b>Thoughts</b></div>
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This refinancing is an unequivocally good thing for Manchester
United. <o:p></o:p></div>
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The amount of debt has increased slightly but the increase
provides more cash for the club. <o:p></o:p></div>
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Crucially, the interest cost is now very low for a club of
United’s profitablity. Even in this season of no Champions League football the club
will make over £100m of EBITDA. An interest bill of £13m is therefore covered over 7x. Back in 2008 over 70% of EBITDA went on interest, next year it is unlikely to be 10%.</div>
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Around 75% of the interest is at a fixed rate for the next
twelve years. Even if rates rise (as they must do at some point), United will
be protected from much of the impact.</div>
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<o:p></o:p></div>
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The financial story of Manchester United is no longer about
the debt. It is about how effectively and wisely United spends its money.</div>
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<o:p></o:p></div>
andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-61190490383540825612015-02-18T15:06:00.000+00:002015-02-18T22:19:37.665+00:00United - buying players on the never-never<div class="MsoNormal" style="text-align: justify;">
Work and family commitments have prevented me from blogging
for almost a year for which apologies.<o:p></o:p></div>
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I haven’t given up and intend to post the occasional blog as
and when there is time.<o:p></o:p></div>
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Thanks for your patience!<o:p></o:p></div>
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Andy<o:p></o:p></div>
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_________________________________________________________________________________</div>
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We all know that the summer 2014 transfer splurge was
unprecedented for Manchester United, reflecting the parlous state of the squad
after years of under investment and the car crash season with David Moyes at the
helm.<o:p></o:p></div>
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The accounts for the six months to 31<sup>st</sup> December
2014 show £120.8m of purchases occurred after 1<sup>st</sup> July 2014. This is
in addition to the £60.7m spent in the three months up to 30<sup>th</sup> June
2014. In total we now know that Herrera, Shaw, Rojo, Di Maria, Blind and Falcao
(well the fees associated with his loan) cost Manchester United £181,511,000
last summer.<o:p></o:p></div>
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There were sales as well of course. Danny Welbeck, Kagawa, Vidic, Evra and
Buttner were all sold and many others sent out on the loan. The accounts show
the sales brought in £22.2m in cash. That still leaves an extraordinary net spend of
£159.3m.<o:p></o:p><span style="background-color: rgba(255, 255, 255, 0);"> [Note: an earlier version of this blog incorrectly stated receipts of £75.4m, which was the original book cost of the players sold. Apologies].</span></div>
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Except United didn’t have £159.3m to spend. At 30<sup>th</sup>
June 2014, United’s cash balance was £66.4m. And the club didn’t spend all that
money in any case. <o:p></o:p></div>
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The last few sets of accounts show Manchester United are
increasingly buying players on credit, from the clubs that sell them. Transfer fees are agreed but payments are staggered over time, with the vast majority due within a year or 18 months.</div>
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Whilst other
clubs have frequently “funded” transfer with these deferred payments, this is a new
practice for United. Less than five years ago, United only had £11m of
outstanding transfer fees due to other clubs. Things really began to change in
the 2013/14 season when the figure leapt from £33m to £82m. In this latest spending splurge it has risen again from £82m to £126m at the end of September 2014, before falling back to £116m by the end of 2014.<o:p></o:p></div>
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It’s important to understand that these huge figures owed to
other clubs don’t include extra payments based on player appearances or other
targets. These “contingent payments” are set-out elsewhere in the accounts and
would add another £29.7m to the amount owed if all the payments became due,
taking the total to £146m.</div>
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United is owed transfer money by other clubs of course, but this
only amounts to £13.7m. The fact of the matter is that Manchester United owe over
£100m in transfer fees to other clubs, more than a whole year’s
cash profits.<o:p></o:p></div>
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Does any of this matter or is it just another financial “innovation”
from ex-investment banker Ed Woodward? </div>
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Accepting credit from the people you buy
from is as old as the hills and a sensible way to fund any business. But the £100m+
owed has to be paid over the next one to two years. That’s going
to put pressure on the club’s cash flow, making it even more imperative to get
back into the Champions League and even more problematic if we don’t. Future
transfers won’t be affected if selling clubs continue to accept stage payments
on this scale, but that can never be guaranteed.<o:p></o:p></div>
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The new Premier League and Champions League deals promise
ever higher revenue in the years to come, which for a Manchester United with
debts of £380.5m, which owes other football clubs over £100m and only had cash in the bank of £37m at the end of 2014 is just as well…..<br />
<br />
Edit at 19:32<br />
A few people on Twitter have queried whether there is anything noteworthy about this sudden expansion of football creditors. For me the key thing of interest is that it's a new approach.<br />
<br />
Take 2012/13 when we signed RVP, Kagawa, Buttner, Powell and Zaha. The accounts show spend of £51.2m and how much did we owe other clubs? £33.6m, up from £28.9m the year before.<br />
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<span style="background-color: white; color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 24px; font-weight: bold; line-height: 16px;">LUHG</span></div>
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<o:p></o:p></div>
andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-48109580595172830342014-03-13T21:32:00.002+00:002014-03-13T21:32:26.864+00:00Baron Capital's stake in Manchester United - getting the numbers rightThis post is a brief apology for bad maths.<br />
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Earlier this week I noticed Manchester United had made a "13G filing". This is an American regulatory declaration required when an investor has taken a significant stake in a quoted company.</div>
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The filing said that Baron Capital Group Inc and various related companies and funds now own 9,581,636 "A" shares in Manchester United, 24.07% of the total number of "A" shares in issue.</div>
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I didn't bother looking up how many "A" shares there were in issue (something I had <a href="http://andersred.blogspot.co.uk/2012/08/manchester-uniteds-shares-in-issue.html" target="_blank">written about on this blog</a>), but remembering that 10% of the total shares in United were available on the stock market, I assumed that these were all the "A" shares. I therefore tweeted:
</div>
<blockquote class="twitter-tweet" lang="en">
For those asking, Glazers own 90% of <a href="https://twitter.com/ManUtd">@ManUtd</a>, 10% available on stock market. News today is one investment firm has 24% of that 10%.<br />
— Andy Green (@andersred) <a href="https://twitter.com/andersred/statuses/443147773001887744">March 10, 2014</a></blockquote>
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Well I should have looked up the figures, because that isn't right.</div>
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<br /></div>
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There are actually 39,807,000 "A" shares in issue of which 16,666,667 were floated on the NYSE and the balance are owned by the Glazers. The "A" shares are themselves c. 24% of the total number of "A" and "B" shares in the company.</div>
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<br /></div>
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So Baron Capital owns 24% of "A" shares and therefore owns more than 5.5% of the club. What's more noteworthy perhaps is that the firm has hoovered up over 57% of the shares available on the NYSE, which goes a long way to explaining the strength of the share price in recent weeks.</div>
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Before anyone gets too excited, Baron Capital aren't looking to takeover United, they just think the shares are cheap. Are they right? I don't think so, but stock markets are always about matters of opinion.</div>
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<br /></div>
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Anyway, apologies from me for not looking things up properly. Apologies too to Bloomberg and the Associated Press who both quoted my incorrect calculation.</div>
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We should all be extra embarrassed for reporting that a 13G filing showed an investor had 2.4% of a company. Why? Because 13G filings are only used when an investor has bought more than 5% of a company. Ooops.</div>
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<span style="background-color: white; color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 24px; font-weight: bold; line-height: 16px;">LUHG</span></div>
<script async="" charset="utf-8" src="//platform.twitter.com/widgets.js"></script>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-58200689843130203962014-01-21T20:44:00.002+00:002014-01-22T13:19:20.078+00:00Manchester United – the potential financial cost of failure<div style="text-align: justify;">
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<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif;"><br /></span>
<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif;">It’s crystal clear that a Champions League place, that sad modern non-trophy victory we’ve watched Arsenal "win" in recent years, is the most Manchester United will achieve in the league this season.</span></div>
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<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif;"><br /></span></div>
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<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif;">But what if even a top four finish or, whisper it, the Europa League, prove out of reach? How much would United’s profitability be harmed?</span></div>
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<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif;">This post looks at how much the club earned last year from the Champions League, how much a Europa League spot would provide instead and the implications of no European football at Old Trafford for the first time since the Berlin Wall came down.</span></div>
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<span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif;"><br /></span></div>
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<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b>The lessons from LFC</b><u><o:p></o:p></u></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b><br /></b></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">In the long-term, repeated failure
to qualify for the Champions League would damage the club’s ability to
negotiate the sort of commercial contracts that have been so important to
United’s finances in recent years. In the short-term I do not see significant
risk to commercial revenue from one (or even two) seasons on the sidelines. If
this seems blasé, the evidence from Liverpool is that such damage takes a very,
very long time to have an impact.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">In 2011/12, the last season for which we have figures, Liverpool
FC had the 6<sup>th</sup> highest commercial revenue in European club football (of
course City, with the fifth highest, have the benefit of a suspicious number of
Abu Dhabi companies queuing to give them money). Liverpool, who haven’t played
in the Champions League since 2009/10, had higher commercial income than
Arsenal that season. Furthermore the club’s decline hasn’t prevented more deals
being signed since 2012, with companies like Chevrolet and
Garuda.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Where United may be vulnerable if
the current slump persists, is the very fact that the club has pushed the
boundaries when it comes to sponsorship. Manchester United have identified
numerous industry “verticals” where football clubs have never attempted to find
commercial sponsors, hence the official “office equipment supplier”, “medical
systems partner”, “savoury snack partner”, “motorcycle partner in Thailand”.
These deals are unproven for the “partners” and may be more vulnerable if the football
club isn’t on the top stage for several seasons.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<u><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></u>
<u><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></u></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b>TV cash</b><u><o:p></o:p></u></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b><br /></b></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">The most obvious impact of not
finishing in the top 4 (or implausibly winning the Champions League to ensure
qualification, hello Chelsea), is the loss of TV income.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">In 2012/13, United earned £31.3m in
CL broadcasting revenue, which accounted for 8.6% of the club’s income (the
third most important source after PL TV money and the Nike contract).<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">The bloated Europa League is the financial
poor relation of the Champions League. A club getting from the group stage all
the way to the semi-finals in 2012/13 would have earned €4.7m (around £3.8m)
before payments from the competition's market pool. For a club from a large nation like
Italy, Germany or England, the market pool payment could add €3-4m more. The
most United could earn from actually winning the Europa League (hardly a
certainty obviously) would be around €14m (about £11m), a loss of £20m compared to
2012/13. A more plausible run to the quarter finals would bring in around £7m,
a loss of £24m.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="color: red; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Europa League (to the quarter-finals): £24m lost income<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="color: red;">No European football: £31m lost income</span><o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></b></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b><br /></b></span>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b>Matchday</b><u><o:p></o:p></u></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b><br /></b></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">At United, Champions League matches command
premium prices for season ticket holders and members. Cup games, including
European matches are however included in seasonal hospitality packages. What
would happen to hospitality prices if there was no European football for a season
is one of the great uncertainties in analysing the financial impact on United.
I find it hard to believe the club could hold the prices of executive seats and
boxes whilst the number of home games falls from a “normal” 29-30 per season to
as potentially few as 19 or 20 (the exact number in a season with no European football
obviously depends on the draws for the domestic cups).<o:p></o:p></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">The Europa League clearly lacks
the appeal of the Champions League, and another factor to consider in the event
that United ended up in the second tier competition, would be whether the EL
would be included in the daft “Automatic Cup Scheme” that compels season ticket
holders to buy their ticket for cup games even if they don’t want to/can’t
attend. When the club ended up playing in the competition in 2011/12, the games
were excluded from the ACS, to much relief from many fans. Would the management
be so generous if the Europa League was the only European football on offer?<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">There is also a possible impact
on summer tour revenue if United had to play in July Europa League qualifiers (although there would be home gate receipts to compensate). All these
uncertainties make it very hard to predict accurately the impact on Matchday
revenue of either time in the Europa League or no European football at all.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">One useful way to consider the
sums involved is to look at how Matchday revenue has changed in recent years in
response to the changes in the number of home games. A home game generates around £3.8-3.9m of revenue.<o:p></o:p></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyK1MbVJqld_kIWRUk9greDwcguf-fGSCK1g8Wi2AoNX-3TFYnsoQTZhKrtOCdM0tNWH7Oy1v1GLjedZpKecxcIE9O_tNZT-D1plJzn2wQVSe4Azfxx2O0xUMBXehf63hpETLc9MOvrxGT/s1600/average+matchday+income.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyK1MbVJqld_kIWRUk9greDwcguf-fGSCK1g8Wi2AoNX-3TFYnsoQTZhKrtOCdM0tNWH7Oy1v1GLjedZpKecxcIE9O_tNZT-D1plJzn2wQVSe4Azfxx2O0xUMBXehf63hpETLc9MOvrxGT/s1600/average+matchday+income.jpg" /></a></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"></span><br />
<div style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Assuming a season with no European football at all and two home cup games, to make a total of 21 home games, the impact would be around £20-25m of lost income. In my view a season in the Europa League might be expected to cost around half that figure from lower attendances.</span></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">
</span>
<br />
<div style="text-align: center;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="color: red;"><br /></span></span></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">
</span>
<div class="MsoNormal" style="text-align: center;">
<div style="text-align: center;">
<b><span style="color: red; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Europa League (to the quarter-finals): c. £10m lost income<o:p></o:p></span></b></div>
</div>
<div class="MsoNormal" style="text-align: center;">
<div style="text-align: center;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="color: red;">No European football: c. £20-25m lost income</span><o:p></o:p></span></b></div>
</div>
<div class="MsoNormal" style="text-align: justify;">
<u><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></u>
<u><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></u></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b>Cost savings</b><u><o:p></o:p></u></span><br />
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b><br /></b></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">The current terrible season means of
course no substantial bonuses for the playing squad, which could save the club
around £7m compared to the title winning year of 2012/13.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Fewer cup games saves the club
money on match day staff, policing and other related costs. In total, a season
with no European football could see cost savings of £2-3m from a locked up Old
Trafford.<o:p></o:p></span></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></b></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><span style="color: red;">No European football: c. £2-3m cost savings</span><o:p></o:p></span></b></div>
<div class="MsoNormal">
<u><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></u>
<u><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></u></div>
<div class="MsoNormal">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><b>The Glazers, the share price and investment</b><u><o:p></o:p></u></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Manchester United’s owners and
the club’s board are not stupid and the possibility of one or more
years out of the Champions League has no doubt crossed their minds.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">The SEC filings the club has had to publish
since the IPO show that the scenario is part of the club’s planning. The club
can actually be released, twice (in non-consecutive years), from the covenants built
into its “Revolving Credit Facility” (think of these as the financial rules governing United's emergency
overdraft) if it fails to qualify for the Champions League. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">One season, or even two, of
failure to qualify for the Champions League doesn’t destroy the Glazers’
business model which envisages ever more commercial relationships and ever
greater TV deals. What it definitely does do is make the already expensive shares look
very expensive. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">A fifth place league finish this
season means the club will make EBITDA (cash profits) of around £120m
(depending on what happens in the Champions League knock-out stages). At the
current share price that values the club at 15x EV/EBITDA ("EV" is "enterprise value" which is market capitalisation plus net debt). No Champions League football,
even allowing for more commercial growth (such as the Chevrolet contract and a
new kit deal) pushes that multiple up to around 19x. For a company where profitability
is failing and which needs to invest more cash to remain competitive that is
very expensive.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><o:p></o:p></span></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></b></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="color: red; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">Europa League (to the quarter-finals): EBITDA down c. £30m in 2014/15<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="color: red; font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">No European football: EBITDA down c. £45m in 2014/15<o:p></o:p></span></b></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">The big question the owners and Ed Woodward
face if things continue poorly on the pitch, is whether they will properly back
David Moyes and invest in the squad. The club proudly stated in the IPO
prospectus that average annual net transfer spend over the last 15 years (from
1997/98) had been £14.3m (or £20.1m excluding Ronaldo, which one shouldn’t).
That level of spending is far too low for any major club, let alone one that
has let its engine room decline over years, a decline masked by the genius of
the manager.<o:p></o:p></span></div>
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<br />
<div class="MsoNormal" style="text-align: justify;">
<b><span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif;">There is no shortage of cash to strengthen the playing side. At 30th September the club had over £80m in the bank. This season the club will generate at least the same amount again. </span><span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif;">Debt is down to a manageable level.</span><span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif;"> </span><span style="font-family: 'Helvetica Neue', Arial, Helvetica, sans-serif;">There really are no excuses.</span></b></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span>
<span style="background-color: white; color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 24px; font-weight: bold; line-height: 16px;">LUHG</span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<o:p></o:p></div>
</div>
andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-87942260296372825682013-11-18T11:56:00.000+00:002013-11-18T11:56:44.617+00:00Debt down, fan communications restored - where next for MUFC?<div class="MsoNormal" style="text-align: justify;">
Apologies for the lack of regular posts. Work and family
have to take priority over football finance….<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<b>The beginning of a new phase?</b><o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
In some ways this week marks something of a watershed in the
saga of the Glazer family’s ownership of Manchester United. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
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 <a href="http://www.theguardian.com/football/blog/2013/nov/16/manchester-fc-united-different-world" target="_blank">Danny Taylor’s piece on FCUM</a> published in today’s Observer).<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Two hundred miles south, the week saw the <a href="http://action.joinmust.org/index.php/blog/entry/must-executive-team-meet-with-uniteds-ed-woodward/" target="_blank">first formal meeting</a>
since 2005 between the management of Manchester United and the Manchester
United Supporters Trust. The club’s meeting with MUST follows <a href="http://www.imusa.org/newsarticle.php?id=437" target="_blank">one with IMUSA</a> and
an interview by Edward Woodward with UWS.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
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.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
The financial background to all this is radically different
from 2005 too. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<b>The decline of the financial importance of the match going
fan</b><o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
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%. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
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).<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhapbfaesH8EQ3dBOQVZHGOwo1jnf6_bYCDR25OzjaQRR50AlHUtfk3cKvGhzClB64TTKMSRkwm57DS8s12nHNNJ4rIJJGC5Ok9oWvlRZNaCiu0xv928O_DJ74q7vghhgmIRdpRmjzE7NYq/s1600/decline+of+matchday+revenue.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhapbfaesH8EQ3dBOQVZHGOwo1jnf6_bYCDR25OzjaQRR50AlHUtfk3cKvGhzClB64TTKMSRkwm57DS8s12nHNNJ4rIJJGC5Ok9oWvlRZNaCiu0xv928O_DJ74q7vghhgmIRdpRmjzE7NYq/s1600/decline+of+matchday+revenue.png" /></a></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="MsoNormal" style="text-align: justify;">
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.</div>
<div class="MsoNormal" style="text-align: justify;">
<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<b>The financial state of the club after the debt gamble</b><o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
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.<o:p></o:p></div>
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<br /></div>
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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.<o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiypjwo4qhBk8qQi8cBobxggJE4ai44fSHDqaTO0U2wXXawnsdN_4ey5SgWUvhhhKexvUU-o95n34XSBMyWl3DcG5WOaMI1hIu0Rh9vd6AiNPLA9vSYDtv_fio1HXTyFVUUQGYXvwrSwRT7/s1600/decline+of+debt+burden.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiypjwo4qhBk8qQi8cBobxggJE4ai44fSHDqaTO0U2wXXawnsdN_4ey5SgWUvhhhKexvUU-o95n34XSBMyWl3DcG5WOaMI1hIu0Rh9vd6AiNPLA9vSYDtv_fio1HXTyFVUUQGYXvwrSwRT7/s1600/decline+of+debt+burden.png" /></a></div>
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<b>Where next?</b></div>
<div class="MsoNormal" style="text-align: justify;">
<o:p></o:p></div>
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<br /></div>
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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.<o:p></o:p></div>
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<br /></div>
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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.<o:p></o:p></div>
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<br /></div>
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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.</div>
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<br />
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….</div>
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<o:p></o:p></div>
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<o:p><span style="background-color: white; color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 24px; font-weight: bold; line-height: 16px;">LUHG</span></o:p></div>
andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-62382265744403811902013-05-24T16:37:00.001+01:002013-05-24T16:47:25.096+01:00The history of Manchester United's debt<div style="text-align: justify;">
Last night United announced to the New York Stock Exchange that it was repaying around half of its outstanding bonds using a new bank loan from Bank of America. This will reduce the club's interest bill from around £31m per year (pro-forma post the IPO) to around £21m per year.</div>
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<br /></div>
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This blog sets out how United's debt has risen and fallen since the 2005 takeover and how much it now costs.</div>
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<br /></div>
<div style="text-align: justify;">
<u><b>The history</b></u></div>
<div style="text-align: justify;">
For completeness, the table below shows flow of borrowings and repayments from the original takeover up to the most recent (March 2013) accounts. Initially the debt sat in either a subsidiary of Red Football Limited or Red Football Joint Venture Limited. Following the pre-IPO reorganisation, MU Finance Limited holds the debt for the new parent, Manchester United plc.<br />
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The table above can be more easily summarised in this graph, which shows the total gross debt at each stage.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEUgelUKTeg2d729MnWrtfITh6-ewkmHE1f14Pp2W84WKQCyvMje9w5arMtMXKw_iNwscz4CgGonN8czNPStaDogqyLcvdBg5KKAIO3F3AbPW3lkv3WBpjDdEAutL2qQ1Egcem3SC-CCQY/s1600/gross+debt+graph+to+Mar+13.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEUgelUKTeg2d729MnWrtfITh6-ewkmHE1f14Pp2W84WKQCyvMje9w5arMtMXKw_iNwscz4CgGonN8czNPStaDogqyLcvdBg5KKAIO3F3AbPW3lkv3WBpjDdEAutL2qQ1Egcem3SC-CCQY/s1600/gross+debt+graph+to+Mar+13.jpg" /></a></div>
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<br /></div>
<div style="text-align: justify;">
The story is one of rising debt after the takeover as the preference shares accumulated rolled up interest. These were repaid in the 2006 refinancing, adding to the debt on the club itself and bringing in the famous PIKs. By June 2010 after the bond issue, total debt including the PIKs had spiralled to a terrifying £753m. </div>
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<br /></div>
<div style="text-align: justify;">
The story thereafter is well known. The PIKs were mysteriously repaid (at a cost of £249m) in late 2010. The club spent around £90m (the Ronaldo cash) buying back the bonds it had just issued. Last year another £63m of bonds were repaid from the element of the IPO proceeds that the Glazers didn't keep.</div>
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<br /></div>
<div style="text-align: justify;">
By the end of March this year, the debt (made up overwhelmingly of the remaining bonds plus a small MUTV loan and the mortgage on the freight terminal) was down to £367.6m. The figure oscillates with the movement between £ and $.</div>
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<br /></div>
<div style="text-align: justify;">
<b><u>The costs</u></b></div>
<div style="text-align: justify;">
As I have frequently pointed out, the interest bill from all this debt has totalled c. £350m since the takeover and the total cost (including fees, derivative losses and debt repayments) is almost £600m. Paying interest has taken far more of the club's cash than has been spent on transfers.</div>
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<br /></div>
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<br /></div>
<div style="text-align: justify;">
The annual interest cost is falling however, both in absolute terms and as a proportion of profits. From over 80% of EBITDA (cash profits) going on interest in 2006, next year the figure will be around 12%.</div>
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<br />
<b><u>The future</u></b><br />
I have predicted before that the club would refinance as quickly as possible (there are penalties on repaying bonds early but these expire over time).<br />
<b><br /></b>
<b>Over the next three to five years the club should generate enough cash to pay the remaining sum off. </b><b>It is tax efficient to keep some debt, and future dividends may take priority over further repayment.</b><br />
<br /></div>
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The reduction in the amount and cost of United's debts is an unequivocal good thing.</div>
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<br /></div>
<div style="text-align: justify;">
The question for supporters is who benefits? Will David Moyes be given significant funds? Will ticket prices continue to be frozen (or indeed will the club contemplate reversing some of the 50% plus hikes they implemented after the takeover)? Or will the extra cash from TV deals, commercial income and a lower interest bill flow out of the club in dividends.</div>
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<br /></div>
<div style="text-align: justify;">
Most major football clubs reinvest the bulk of their money back into fans and football. In England at clubs like Arsenal, Liverpool and United, profit still remains the focus. On the weekend the German model is on display at Wembley, that's too often the English way of football.</div>
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<span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 24px; font-weight: bold; line-height: 16px;">LUHG</span></div>
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<br /></div>
andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-80801873727784177642013-02-08T10:55:00.001+00:002013-02-08T10:55:49.066+00:00£500m of costs later, could we see a debt free Manchester United again?<span style="text-align: justify;">For almost eight years, Manchester
United has been subject to a financial experiment to see whether a highly
leveraged buyout could “work” on a football club. The only other experiment, at
Liverpool, ended in a failure that continues to hurt that club to this day. At
United, the Glazers’ purchase of the football club with borrowed money has been
hugely costly both financially and emotionally, driving a schism between the club
and its core support, sometimes even setting fans against each other.</span><br />
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<o:p></o:p></div>
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<br /></div>
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In the last six to twelve months,
there have been major developments which
mean that the eight year experiment is probably nearing its end. A combination
of unexpectedly high growth in TV deals, new commercial revenues (especially new shirt and
kit deals), the impact of new regulation on the behaviour of
other clubs and the pay down of significant bond debt means we are entering a
new phase in United’s finances where it very possible that debt is virtually eliminated in the next few years.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Although undeniably a good thing,
supporters should not become too excited about the prospects of a debt free
Manchester United. The club has made it clear on its IPO roadshow that it doesn’t
expect to spend more on transfers than it has historically. There is no sign
whatsoever that the ticket price hikes that followed the Glazer takeover will
be reversed. The club continues to refuse (against the advice of government and
Parliament) to engage with supporters’ groups. The listing on the New York
stock exchange means the owners will continue to prize profits over football.
But financially, a big change is underway. This post explains that change.<o:p></o:p></div>
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<u>The story so far: stacking up debt 2005-2010, paying down debt 2010-2012.....</u></div>
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As this blog has described in detail over the last few years, huge debts were loaded onto Manchester United when the Glazers bought the club. By June 2010 these had escalated to over £784m.</div>
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<br /></div>
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The infamous PIK loans were mysteriously repaid in late 2010. At roughly the same time the Glazers started using the cash earned from selling Ronaldo and signing the Aon shirt deal to repay a significant amount of the bonds that had been issued in February 2010. Finally, in August last year, half of the IPO proceeds were used for debt reduction (the other half going to the Glazer family of course). In total, the bond debt has fallen from £509m in June 2010 to £360m at 30th September 2012.</div>
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<u>The next chapter..... rapid revenue growth AND
higher profit margins<o:p></o:p></u></div>
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There can be no doubt that United’s
media and commercial income is going to rise very significantly in the next three
to four years. Unusually in football finance, I believe the club will
capture more of this extra income than usual, in other words profit margins
will rise above their historic level. This will generate significant cash,
allowing debt to be largely eliminated.<o:p></o:p></div>
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<u>Three sources of highly certain revenue growth</u><u><o:p></o:p></u></div>
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There are a number of factors
which mean the club’s revenue growth is highly likely to accelerate in the next
three years:<span style="font-size: 7pt; text-indent: -18pt;"> </span></div>
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</div>
<ul>
<li style="text-align: justify;"><span style="text-indent: -18pt;">Chevrolet. The new shirt deal adds £11.6m pa for
the next two years (on top of what Aon pay) and then a further £11.9m pa (for a
total of £43.5m pa) from the 2014/15 season.</span></li>
</ul>
<ul>
<li style="text-align: justify;"><span style="text-indent: -18pt;">Premier League rights. We have already seen the
value of domestic live PL rights rise 70% in the next three year cycle. Total
domestic rights (including highlights, online etc) will probably increase
around 60% and we are awaiting the outcome of the international sales
processes. Taken together, a rise of at least 50% in PL TV income is virtually
guaranteed in 2014. Assuming only low growth from the CL and owned rights
(MUTV), that would still drive media revenue up 35%.</span></li>
</ul>
<ul>
<li style="text-align: justify;"><span style="text-indent: -18pt;">Nike renewal. The long running Nike contract is
beginning to pay out back ended profit share AND is up for renegotiation.
Looking at other kit deals, an increase of £25m on the current £35-38m pa looks
very achievable. Some analysts think the deal will double in value and they
could easily be correct.</span></li>
</ul>
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<o:p></o:p></div>
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<b>These three areas alone will add
almost £110m to revenue by 2015 (35% of the 2011/12 figure). To put that in
context, that’s the equivalent of doubling matchday income.<o:p></o:p></b></div>
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<u>Other, less certain, sources of growth<i><o:p></o:p></i></u></div>
<div class="MsoNormal" style="text-align: justify;">
Whoever thought of it, the
commercial strategy of targeting diverse product categories and geographies has
been revolutionary. There remains considerable potential to add new
“partnerships” in a number of industry “verticals”. The club have identified 40
industry sectors where it is believed it can sign a global partner, compared to
13 such contracts currently. Add regional partnerships and I see no reason why
such sponsorship income should not double again over the next four years,
adding another 12% to 2011/12 revenue.<o:p></o:p></div>
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<br /></div>
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The same argument applies to the
new media and mobile segment. Emerging market telecom companies appear to value
the “content” link with United and there are plenty more territories to go for.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
My forecast is that revenue will
increase by over £150m (c. 50%) over the next three years (assuming top 4 PL finishes
and CL quarter finals each year), and that of this increase, over £110m (35%
growth) is virtually certain, with and the balance is very likely to occur.<o:p></o:p></div>
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<i><u><br /></u></i></div>
<div class="MsoNormal" style="text-align: justify;">
<u>Rising margins<i><o:p></o:p></i></u></div>
<div class="MsoNormal" style="text-align: justify;">
If a huge increase in revenue can
be forecast with some confidence, there remains more uncertainty over costs.
Since the beginning of the PL era, United have reported stable EBITDA* margins
in a tight range, throughout the plc and Glazer eras. In other words, costs have
tended to rise in line with revenues.<o:p></o:p></div>
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<br /></div>
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[*EBITDA – “earnings before
interest, tax, depreciation and amortisation” – is effectively cash profits
before transfers. It is calculated by deducting cash costs from revenue. In 2011/12
cash costs totalled £228.7m and comprised wages and salaries (£161.7m or 71%)
and other operating costs (£67m or 29%).]<o:p></o:p></div>
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I believe this pattern of stable
margins will change in the future, and that margins will rise sharply above 40%.
For this to occur, United’s wages to income ratio will have to fall. United
will have to hold onto more of its revenue gains than has historically been the
case.<o:p></o:p></div>
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<u>Why margins will rise</u></div>
<div class="MsoNormal" style="text-align: justify;">
The suggestion that a company
that has consistently earned margins within a tight range is about to make a
step change in profitability should always be treated with great scepticism. This
is true even if new revenue sources are supposedly “high margin” (as
sponsorship deals are), as such margin can easily leak away to other
stakeholders – in this case players and agents.<o:p></o:p></div>
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<br /></div>
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On this occasion, however, I
believe there are new factors that mean United will not have to pass on as much
of every extra pound earned in income to the playing squad as it has in the
past, in other words that margins can rise sharply.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
There are two primary reasons behind
this, firstly that much of United’s revenue growth is unusual to the club and
not something competitors can replicate, and secondly that Financial Fair Play
will effectively work to slowdown wage growth, forcing other clubs to “bank”
rather than “spend” their own incremental revenue.<o:p></o:p></div>
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<br /></div>
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<u>Factor 1: "United only” vs. collective revenues<i><o:p></o:p></i></u></div>
<div class="MsoNormal" style="text-align: justify;">
The first point is very
straightforward, if United can grow its income faster than other clubs, it can
hang on to more of it. There is an important distinction to be made between collective revenue increases (such as bigger TV deals) and “United only” revenue gains (such
as the DHL training kit deal). It is the former that tend to “leak” into player
wages because by definition all clubs (or in the case of the Champions League, all major competitors) receive
the same income boost. The last PL international rights deal gave every clubs c. £7m extra
pa and pretty much without fail they all went and spent it on transfers and
salaries. By contrast, if United sign a unique £7m sponsorship deal, the club
has far more chance of retaining the cash. Much of the club’s expected revenue
growth is going to come from “uncommon” sources; the new Nike deal, the Chevvy
deal, the mobile partnerships etc, etc.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
At United, the strength of the
relationship between wages and (mainly collective) media income since 2000 can be seen in
the chart below. The r-squared is 0.69.<o:p></o:p></div>
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By contrast there is not a very
strong relationship between total revenue growth, (which includes
the expansion of Old Trafford, commercial growth, ticket price rises etc) and
wage growth as can be seen below (the r-squared is only 0.26).</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2xygTWmDfRGPMMDH-eUr7YZlsBUapvERp8EBbdDui5r_U84YXQUVG4FY2KBoeiWQQ_fJiPCObx0DUUDEmOm_CdZ6cqaNVEWbkoPgW92ikLljQtgIsjQWvetobpepFXq81z-CUAnd3kVrb/s1600/wages+vs+all+income.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2xygTWmDfRGPMMDH-eUr7YZlsBUapvERp8EBbdDui5r_U84YXQUVG4FY2KBoeiWQQ_fJiPCObx0DUUDEmOm_CdZ6cqaNVEWbkoPgW92ikLljQtgIsjQWvetobpepFXq81z-CUAnd3kVrb/s1600/wages+vs+all+income.png" /></a></div>
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<u>Factor 2: FFP and Premier League regulation will change behaviour<i><o:p></o:p></i></u></div>
<div class="MsoNormal" style="text-align: justify;">
Second and more importantly, both FFP and the new Premier League rules are coming and will inevitably change behaviour. The new regulations do not have to
work perfectly to have an impact, rather they just have to alter the way other
clubs operate. The main impact will be that clubs that risk breaching the rules
will “bank” rather than spend additional revenues they earn. Thus the new PL
deal will see a large number of clubs not thinking “let’s use this to boost the
squad”, but rather “let’s hang on to this money to improve our UEFA breakeven
result”. Both City and Chelsea need the £30-40m pa in extra PL revenue to have
a hope of complying with FFP. If they spend the windfall, they will fail the
test. The Premier League rules are specifically designed to dampen down wage inflation by limiting the amount of additional TV money that can be spent on player salaries.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
This is a totally new dynamic in English and European football where previously every extra penny earned (and more) was
spent on players. In the longer term, both sets of regulation makes the
next Oligarch/oil sheikh takeover less likely too. If a loss of only €45m is
permitted each year, it becomes impossible to repeat a Chelsea/City/PSG and
initially run up €150m+ losses. In the last fifteen years a new big spending
club has come along every few years. This is likely to end and as in any other
market, the lack of disruptive new competitors should boost margins.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<i><u><br /></u></i></div>
<div class="MsoNormal" style="text-align: justify;">
<u>Wages are still going up, just less quickly than revenue<i><o:p></o:p></i></u></div>
<div class="MsoNormal" style="text-align: justify;">
Despite the dampening effects of
regulation, it would be naïve to believe that football wages will stop rising. I would
expect United’s wage bill to continue to grow substantially over the next few
years (in my forecast I have assumed 24% up to 2015, only slightly slower than
the 31% seen in the last three years). <b>The
key thing to note is that this wage growth is far slower than forecast revenue
growth.</b> With income rising c. 50% as described above and costs by only half
this, EBITDA would rise 112%, taking margins from 29% last year to over 40% by
2014/15. <o:p></o:p></div>
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<u>Margins over 40% would generate over £100m of surplus cash per year</u></div>
<div class="MsoNormal" style="text-align: justify;">
EBITDA and margins are just a
means to an end when looking at a company. Cash is king. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
For United, many of the main cash
outflows below the EBITDA line are quite certain. Interest this year (post the
IPO debt reduction) will be c. £33m. Tax paid will rise as tax losses are used
up and profits rise, but in a predictable way. The big uncertainty is transfer
spending, and I have assumed £40m net this year and £30m thereafter. Add in
£10m per annum of capex and the huge turnaround in “free” cash flow driven by
the higher EBITDA becomes clear.<o:p></o:p></div>
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<br /></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<b>On these forecasts, United will
be generating £80-100m of free cash flow in two to three years, and thus there
is the opportunity for substantial debt repayment and/or dividends.</b> </div>
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<br /></div>
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I have
assumed a 50/50 debt pay down and dividend split from 2014 onwards. This leads
to a sharp fall in the club’s net debt position. Net debt would fall from c.
£344m at the end of the last financial year (pro-forma for the IPO) to under £200m in three years. If no
dividends were paid, the figure would be near £100m.</div>
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<o:p></o:p></div>
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When measured against the size
and profitability of the company, debt at this level is of no material
consequence. The remaining bonds will be easy to refinance well before they are due to be repaid in 2017 at
a significantly lower rate than the current 8.75%.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<u>Even if margins don’t break-out, cash flow will rise sharply<i><o:p></o:p></i></u></div>
<div class="MsoNormal" style="text-align: justify;">
Even if margins don’t expand from
the historic range, United will generate very significant cash flow in the
years to come. If we apply a flat margin of 33% (the average in the last five
years) to consensus revenue forecasts, free cash flow in 2015 is still £67m,
allowing £25-30m of annual dividends to paid and net debt to fall to 1.1x
EBITDA by 2016.<o:p></o:p></div>
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<b><u><br /></u></b></div>
<div class="MsoNormal" style="text-align: justify;">
<b><u>Summary and thoughts<o:p></o:p></u></b></div>
<div class="MsoNormal" style="text-align: justify;">
If United continue to qualify for
the Champions League and make it out of the group stages, we can say with a
high degree of confidence that revenue will rise by at least 35% over the next
three years, and is likely to rise by 50% or more.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
It is also likely in my view that
EBITDA margins will break out from their historic range and could exceed 40%.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
If this occurs, United would
generate £80-100m of surplus cash each year from 2014/15 and be able to pay material
dividends (a yield of almost 2%) AND repay most of the club’s debts. Even if EBITDA margins are only
maintained at the average level of the last five years (c.33%), free cash flow
generation would still be around £50-70m per annum, allowing substantial debt
pay downs.</div>
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<br /></div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
Many people, including me, have
been highly sceptical of the United business model. It appears however that
through a combination of luck (the TV boom) and judgement (the commercial
strategy), the management have managed to deleverage the balance sheet and keep
the club (reasonably) competitive on the pitch. With the net debt down to under
£300m, FFP coming in and continued strong commercial growth, we are now facing
a radically improving financial position.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
None of this make the Glazers good owners for Manchester United. It will take many years before the club makes enough in profits to compensate for the huge costs incurred. If it wasn't for Fergie's miracle work United could have followed Liverpool or even Leeds down the slippery financial slope. However, in light of the rapidly improving finances, the terms of
the debate on ownership will inevitably change. The costs will have been
incurred (I estimate total costs from the Glazer structure will top £1bn by
2016) but they will start to become an unpleasant historical footnote</div>
<br />
<div class="MsoNormal" style="text-align: justify;">
As the eight year LBO experiment
comes to an end and the financial risk to United ebbs away, the club and its
supporters surely need to re-connect. On issues like away allocations, ticket
prices and engagement with supporters’ groups the club needs climb out of it
bunker. For fans, the financial experiment is thankfully coming to an end, but much remains to be done; on supporter ownership and having a voice in our club and in making sure the cash flows into the football club itself and not the pockets of owners who still show no evidence of caring one jot for supporters.<o:p></o:p></div>
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<span style="background-color: white; color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 24px; font-weight: bold; line-height: 16px;">LUHG</span></div>
andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-86664855105811514052012-12-18T08:54:00.003+00:002012-12-27T15:59:00.869+00:00MCFC's financial results - waiting for BT to ride to the rescue<div style="text-align: justify;">
City's 2011/12 annual report and accounts contains the usual mix of giddy blueness (apparently more people choose to be City than United when playing EA Sports FIFA 2012 - wow), photos of blue Santas and lashings and lashings of red ink.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
For a club like Manchester City of course, losses don't really matter whilst the owners are prepared to carry on writing cheques. In the last four financial years, the club has made pre-tax losses of £510.9m, all of which have been funded (through equity) by Abu Dhabi United Group Investment & Development Limited.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
What is interesting in the City figures is how the club is getting on with meeting the new UEFA Financial Fair Play ("FFP") regulations and how this will change the way the club is run. The first FFP hurdle is the 2013-14 "monitoring period" which looks at profits/losses (on UEFA's definition) in the prior two seasons (2011/12 and 2012/13). Over these years, losses should not exceed €45m (c. £36.5m at today's exchange rate).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
So how are City doing?</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
A quick glance at the profit and loss account suggests a long way to go, with a pre-tax loss of £97.9m. This is however a massive improvement on the £197.5m loss in 2010/11 (albeit this included £35m of "exceptional" costs).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<u>Revenue - massive</u></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The huge reduction in losses is driven by a 59% increase in income at the club. In the table below I have changed the way the club present Commercial income to bring it into line with most other clubs by including hospitality income in "Matchday".</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCCgxalrHbQv6DFO-vbcDLLst2qRfTeupBQaXCsDvbNcWi741uDNiAwJ6G_Hgs-WJr2CP24yQDXv-f91-qafYrOkUH7T-7iQKYz1z9WJooJeZYeLD-HGvKEC4Gh4_Ed3roI0SJZ9WsONzT/s1600/MCFC+revenue+2011-12.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjCCgxalrHbQv6DFO-vbcDLLst2qRfTeupBQaXCsDvbNcWi741uDNiAwJ6G_Hgs-WJr2CP24yQDXv-f91-qafYrOkUH7T-7iQKYz1z9WJooJeZYeLD-HGvKEC4Gh4_Ed3roI0SJZ9WsONzT/s1600/MCFC+revenue+2011-12.png" /></a></div>
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The increase in Matchday was driven by higher average attendances (league gates averaged 47,031 vs 45,885 in 2010/11), one extra cup game and higher cup attendances from being in the Champions League.</div>
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The growth in TV income reflects the impact of the club's short lived Champions League campaign which added £18m in extra UEFA TV money.</div>
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The eye-catching growth comes of course from Commercial revenue and in particular "partnerships". Commercial income rose 102% to £109.4m in 2011/12 with 89% of this coming from the club's commercial partners. To put these numbers into context, United's total Commercial income in 2011/12 was only £8m higher than City's and (whilst definitions vary slightly) it looks to me that City's non-kit partner revenue was higher than United's.</div>
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I will leave it to readers to decide for themselves whether City would have managed to get to almost £100m of partnership revenues if they hadn't been owned by a member of the Abu Dhabi royal family. Perhaps Etihad, TCA Abu Dhabi, aabar and Etisalat would have all signed up as City's sponsors if Thaksin Shinawatra or even Franny Lee was the owner..... Such debates are pretty superfluous, other clubs have established the benchmark for commercial income at £100m or more per annum and a legally well advised MCFC will no doubt meet that benchmark as long as the club is owned by ADUG.</div>
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<u>Costs - some signs of control</u></div>
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Whilst City's income rose 60% last season, cost control was actually quite good. Total staff expenses rose 16% to an English record £202m (by comparison Arsenal spent £143m and United £162m) but there were obviously significant bonus payments for winning the league meaning underlying growth in the wage bill was probably no more than 5-7%.</div>
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The key profit measure of EBITDA (essentially cash profits/losses before investment) was greatly improved with the loss before player sales down to £14.5m (a negative margin of 5.9%). This profit performance is still a long way off that of the major clubs with sustainable models (see chart below), but for the first time since the ADUG takeover, City are only making a small operating loss before investment spending.</div>
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Below the EBITDA line comes the cost of transfer spending - the amortisation charge. Whilst net cash transfer spending in the season fell to £95.2m from £143.4m, the amortisation charge only fell 1% to £83.0m. Amortisation lags transfer spending and only reflects purchases not sales. To make a major dent in the amortisation charge (which is included in the FFP calculation), the club will have to rely far more on home grown talent than currently is the case. It is a key characteristic of the FFP rules that spending on youth development is not included in the profit/loss calculation whilst transfer spending is. Across in M16, United's amortisation charge has never exceed £41m in any season as the club has had a constant stream of players coming through the youth system.</div>
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<u>The FFP "breakeven" calculation</u></div>
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Although UEFA are not going to publish individual clubs' FFP figures it is quite easy to calculate a decent estimate. The items included in the calculation are set out in Annex 10 of <a href="http://www.uefa.com/MultimediaFiles/Download/Tech/uefaorg/General/01/50/09/12/1500912_DOWNLOAD.pdf" target="_blank">the regulations</a>. There are two main items which are not readily identifiable from most clubs' accounts; the total spending on dis-allowable items such as youth development and community programmes, and wages and salaries relating to contracts signed before the regulations were published in June 2010. </div>
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Although not in City's accounts, the club have briefed journalists that there are £15m of dis-allowable expenses relating to youth development so I have used this figure.</div>
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I have shown calculations both including and excluding the sale of intellectual property rights to ADUG for £12.8m. There is no detail on this transaction, but it looks like a one-off.</div>
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The bottom line is that City reported an FFP loss of £79-92m last season. At first glance this looks like a pretty poor result vs. the target of £36.5m over two seasons, but some journalists are reporting that around £80m relates to player contracts signed before June 2010. This looks very high to me given the number of contract renewals that have taken place (the major players still on pre-June 2010 contracts are Tevez, Kolo Toure, Lescott and Barry), and I wonder whether journos have misunderstood and that the £80m is a projection over both last season and this one. In any event there will be a substantial amount that UEFA will ignore in making their calculations.</div>
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The key point however is that breaches of FFP in the first monitoring period are very, very unlikely to result in severe punishment, especially if losses are reducing (they are) and the club can show strong evidence that it is moving towards compliance, and here they have BT to thank.....</div>
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<u>BT - the football club owner's best friend</u></div>
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The recent domestic PL rights auction transforms the outlook for clubs like City who are struggling to comply with FFP. The entry of BT into the market caused the value of domestic rights in the next three year cycle to rise by 70% (compared to a 3% rise in the previous three years period). BT's Ian Livingston is taking a huge gamble that he can break BSkyB's vice like grip on the UK sports pay TV market. He is betting £246m per annum that BT will succeed where Setenta, ITV Digital and (arguably) ESPN have failed.</div>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="http://i.telegraph.co.uk/multimedia/archive/01644/liing_1644767c.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="195" src="http://i.telegraph.co.uk/multimedia/archive/01644/liing_1644767c.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Livingstone: Visionary or sucker?</td></tr>
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The exact impact on clubs' finances from the new three year cycle will depend on the eventual uplift achieved from international rights. Assuming a 50% uplift, the amount going to the league champions will rise from c. £60m to c. £100m (see Sporting Intelligence's <a href="http://www.sportingintelligence.com/2012/06/19/premier-league-tv-rights-qa-including-where-the-money-goes-and-what-next-190601/" target="_blank">excellent article</a> for a full analysis). The uplift for a relegated club will be around £25m.</div>
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<u>Closing City's FFP gap</u></div>
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Manchester City are very lucky that Ian Livingstone decided to barge into the market when he did. The £40-50m extra will alone more than halve the club's FFP deficit when the new cycle starts in 2013-14.</div>
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Even before this new bonanza, however, the FFP gap will close somewhat. The club's share of the CL "market pool" will rise significantly this season because they are English Champions, adding c. £7-8m. City will also benefit modestly from the general 20% uplift in the amount clubs receive from the Champions League. The Nike kit deal signed in May 2012 will add another £9-10m per annum vs. the current Umbro deal. There will no doubt be further second tier sponsors announced in the coming months as well.</div>
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As described above, the amortisation charge lags behind transfer spending, but with net cash transfer spending year to date down to £39m, the total charge should begin to fall from this year onwards (down by about £10m on my estimates).</div>
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Taking these items together and assuming a top two finish, this season will see £30m+ improvement and by next season the gap will have closed by £70m+. Further trimming of the squad, especially high wage/non-playing players looks very likely. The club no doubt expects to begin to reap rewards from its youth development spending, whether through reduced transfer spending or increased player sales income. Also further out, there is potential for the developments around the stadium and the new Etihad campus to yield profits too.</div>
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Finally, if City can start to work out the Champions League, there is a further £25m+ to be earned from getting into the late knock-out stages.</div>
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<u>A calmer future?</u></div>
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City will no doubt miss the first break-even result test, despite the exclusion of pre-2010 contracts. Crucially however, there is decent visibility on a very substantial improvement in the club's FFP position over this season and even more next season as the PL TV bonanza rolls in.</div>
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The club has been very, very lucky that TV income is continuing to rise so fast. There is no possibility that City would have been able to reconcile £200m of staff costs with the FFP rules without the enormous rise in TV money coming in the next 18 months. </div>
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City still have much to do however. The "buy success" model needs to be replaced with a proper youth set-up that delivers high quality players. In the current first team squad, Micah Richards is the only player to have come through the ranks. Net transfer spending will have to fall and stay lower to keep the amortisation charge at a reasonable level. An £80m charge and a £200m wage bill are not compatible with a club generating £33m in matchday income (although the ticket price policy is to be applauded). Manchester City need to "bank" every penny of extra revenue they receive in the next two to three years.</div>
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For competing clubs, it doesn't look as if FFP is going to lead to major cutbacks at City, BT have seen to that. For those clubs who don't have sugar daddies, the outlook is still good. City can live with FFP, but they are going to be have to calm down to do so, and that has to be good for everyone else.....</div>
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andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-83819476610718003142012-08-21T12:02:00.001+01:002012-08-21T12:02:24.524+01:00Manchester United's shares in issue: a quick guide<div style="text-align: justify;">
The news that George and Robert Soros own 3,114,588 shares in Manchester United has led to some confusion about the number of shares the club has and hence the relative size of this stake. This is a quick guide.</div>
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<u>Pre-IPO</u><br />
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Before the IPO on 9th August, the club's share structure was reorganised to create two classes of shares, "A" Shares and "B" Shares. </div>
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Red Football LLC, the Glazers' Delaware company owned 100% of each class of share.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjjVTEVuvvANvPuDb4FnHIupfMdzhxl7JZu0IZHzCX1EfaKI0GjX8DaPYBvLfr6yH9QVhc29g2sbRKbtu8_WNpp3pqEoZVR2owRwo_-vdFEYoKTPM1Vu17RScSPDGi3RycSllmNASh33bV/s1600/preIPO+share+structure.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjjVTEVuvvANvPuDb4FnHIupfMdzhxl7JZu0IZHzCX1EfaKI0GjX8DaPYBvLfr6yH9QVhc29g2sbRKbtu8_WNpp3pqEoZVR2owRwo_-vdFEYoKTPM1Vu17RScSPDGi3RycSllmNASh33bV/s1600/preIPO+share+structure.png" /></a></div>
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<u>The IPO - two elements</u><br />
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The IPO was an offer of a total of 16,666,667 "A" Shares at $14 per share. No "B" Shares were offered. </div>
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This total offer had two separate elements, the issue of 8,333,334 <b>new </b>"A" Shares by the company and the sale of 8,333,333 <b>existing</b> "A" Shares by the Glazers. The first element had the effect of increasing the total number of "A" Shares from the 31,352,366 before the offer to 39,685,700 afterwards. The number of "B" Shares remained unchanged.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3SfeIFUGVP2Olz0whfOM-eJmcXPWwMJfPzDsUt54QRJsljXUFsoregn7EFSF9oQjt4MoNB5C-gribi8TFOGzWniHULjvCab_u-wrfl_2DT_4CQddGxaTC3K-RpSwKfZqPgonqG3nKHFC9/s1600/postIPO+share+structure.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3SfeIFUGVP2Olz0whfOM-eJmcXPWwMJfPzDsUt54QRJsljXUFsoregn7EFSF9oQjt4MoNB5C-gribi8TFOGzWniHULjvCab_u-wrfl_2DT_4CQddGxaTC3K-RpSwKfZqPgonqG3nKHFC9/s1600/postIPO+share+structure.png" /></a></div>
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The Glazers therefore ended up owning 58% of the "A" Shares and 100% of the "B" Shares, so 90% of all the shares in issue. Third party investors own 42% of the "A" Shares and none of the "B" Shares, so 10% of all the shares in issue.</div>
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<u>Votes or lack of them</u></div>
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Each "B" Share has 10 votes, and each "A" Share has 1 vote. Because of this structure the 10% of total shares owned by third parties only command 1.3% of the company's votes. In aggregate all the "A" Shares representing 24% of the company, only command 3.1% of the votes.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEib_nQ6ZLS1u6hMMfGGhbMtU5jSAFNdjwD6hDTgOgtULNM1SrPfvVsCSvN2eAokf1ObYU-gWF56LJEGUYxmmy8yiBobV8eWJv9BbrOwmKxqKXJXHzQ7bHuQFV0I1wYKDmcQ2p3iuJhtimsz/s1600/postIPO+votes.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEib_nQ6ZLS1u6hMMfGGhbMtU5jSAFNdjwD6hDTgOgtULNM1SrPfvVsCSvN2eAokf1ObYU-gWF56LJEGUYxmmy8yiBobV8eWJv9BbrOwmKxqKXJXHzQ7bHuQFV0I1wYKDmcQ2p3iuJhtimsz/s1600/postIPO+votes.png" /></a></div>
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<u>The Soros position</u></div>
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The Soros family bought 3,114,588 "A" Shares in the IPO. That is a pretty significant 18.7% of the shares sold in the IPO, but only 7.85% of the total number of "A" Shares and 1.9% of the whole company. Being "A" Shares this stake only has 0.24% of the votes.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiStyBkqLoE1JlCsjv5hEu2t9Fqb5yG3ChQZpIgPRO-zIPw9xL4g1rEZW10S_Xo8KUkECuUet3sgZzuAeslSqaDQ7Zuoh2uYTPJp7CJ-V8yTfQbvs9UCRxzzSHKDgcGYRyB6Q7QWlyYB6nm/s1600/Soros+holding.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiStyBkqLoE1JlCsjv5hEu2t9Fqb5yG3ChQZpIgPRO-zIPw9xL4g1rEZW10S_Xo8KUkECuUet3sgZzuAeslSqaDQ7Zuoh2uYTPJp7CJ-V8yTfQbvs9UCRxzzSHKDgcGYRyB6Q7QWlyYB6nm/s1600/Soros+holding.png" /></a></div>
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At a price of $14 per share, the Soros family paid $43.6m for this stake. At yesterday's closing price of $13.06, the stake is now worth c. $40.7m.</div>
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andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-70089986348442898962012-08-10T18:29:00.001+01:002012-08-10T18:29:23.989+01:00The MUFC IPO - why the club won't benefit for over two years...<div style="text-align: justify;">
So the Manchester United IPO has finally happened. Having failed in Hong Kong and Singapore, the Glazers and their increasingly desperate bankers ditched their own ludicrous $16-20 per share price range and the shares have limped on to the NYSE at a still very, very aggressive price of $14 per share.</div>
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The whole saga has been a grubby and unedifying spectacle in our club's history that does very, very little indeed to improve the club's finances. The whole exercise has only been undertaken to help the Glazer family with their cash flow problems.</div>
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From <a href="http://www.sec.gov/Archives/edgar/data/1549107/000110465912056698/a12-11113_23fwp.htm" target="_blank">the latest SEC filing</a> we have confirmation that at the lower issue price, the club will receive net proceeds (after underwriters' discounts and commissions) of c. $110.3m (around £70.7m).</div>
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The club will use all this $110.3m to repay $101.7m face value (£63.6m) of the 2017 US$ notes at a price of 108.375% of nominal value.</div>
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These US$ notes pay 8.375% interest so the annual saving before tax will be:</div>
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£63.6m x 8.375% = £5.3m per year</div>
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Because interest is tax deductible, this reduction in interest paid will increase taxable profits. As a consequence of the IPO, United will pay US Federal Income Taxes at a rate of 35%. The <b>net</b> interest saving after tax will therefore be:</div>
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£5.3m x (1 - 0.35) = £3.46m per year</div>
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This net saving is the equivalent of the matchday income from one game at Old Trafford. It is just over 1% of the club's annual revenue and around 3-4% of EBITDA.</div>
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Before any United fans begin celebrating this tiny saving, there is a further sting in the tail.</div>
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The prospectus informs us that the club, and not the family, will bear the expenses of the IPO. From page 151 we can see that these expenses total $12.3m (c. £7.9m).</div>
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<b>With so little debt repaid and United bearing the £7.9m of expenses, it will take until the end of 2014 for the club to even break-even from the IPO, let alone benefit </b><b>financially</b><b>.</b></div>
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And the Glazer family? They receive their $110m straight away.<br />
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That's "Glazernomics" folks.....!<br />
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<br />andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-5949877829886011302012-08-03T10:21:00.000+01:002012-12-27T15:58:55.274+00:00An apology to Sir Alex and a restatement of the fundamental issues<br />
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<u>Sir Alex Ferguson</u></div>
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Readers will no doubt have seen Sir Alex Ferguson's statement that he will not benefit financially from the IPO. <b>As one of the people suggesting he was likely to participate in the $288m "2012 Equity Incentive Reward Plan" the club are putting in place, I'd like to apologise to Sir Alex for the suggestion that personal gain was a motivation in his support for the owners.</b> I think it was a valid question to ask in the light of his comments about "real fans" last week, but I was wrong about my assertions. I have frequently stressed on this blog the miracles Sir Alex has achieved at United and was proud to promote the SAF25 fans' book last year. I'm extremely glad he is not caught up in the murky finances of our club.</div>
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<br /></div>
<div style="text-align: justify;">
<u>The real issue</u></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The key issue with the IPO is not however the share options that will be granted, but the continuing financial costs to the club of the Glazers' ownership. I thought it might be helpful to set out the costs and savings that stem from the financial structure that has been in place since 2005. There have been a few comments on this blog questioning the financial costs of ownership so I wanted to set them out again in full with full sources.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The costs divide into several categories. Firstly "cash costs" of £402m, money paid out of the club's coffers. The most important element of this is interest (£295m). Second are the limited repayments of debt since 2005, these comprise £37m of the original bank debt and £93m of repurchased bonds. Please note I have not included the repayment of the PIKs as the club did not pay for this. Adding these together we get costs of £531m, <u>around two thirds of United's total wage bill over the last seven years to put the figure in context.</u></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
For information I have also set out various costs paid by the taking on of additional debt rather than paid out of cash flow. I have not added this £79m to the £531m as there would be an element of double counting (I include repayments in the cash costs so can't include debt additions too).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
There are two key savings from the financial structure totalling £180m, firstly the dividends which the plc used to pay and secondly corporation tax saved because interest payments are tax deductible.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
I have assumed dividends would have increased 8% per year from 2006-2012. This compares to 7.6% per year growth in the seven years up to the takeover and is faster than the 7% growth in EBITDA seen since the last full year of the plc (2003/4).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Corporation tax is as set out in the Manchester United Limited accounts (but not paid because of deductible interest higher up the corporate structure).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b>The net cost: £531m - £180m = £351m is a vast number. It is the <u>gross</u> transfer spend of the club in the ten years from 2001/2 to 2010/11. It could alternatively have funded a 60% ticket price cut in every year since the takeover. It could have been used to build out Old Trafford to be a 100,000 seat stadium. It was used for none of these things. It is the cost in cold hard cash of the Glazers' ownership.</b></div>
<div style="text-align: justify;">
<b><br /></b></div>
<div style="text-align: justify;">
<b>Crucially, this figure ignores the fact that even after all this waste of money, the club still has £437m of debt on the balance sheet and that this will still be around £360m <u>after</u> the IPO.</b></div>
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<u>The IPO</u><br />
<br />
<div style="text-align: justify;">
The IPO is a huge wasted opportunity to stop this enormous outflow of money from Manchester United. The SEC F-1 prospectus confirms that the IPO will only reduce the club's debt by around £78m, saving (after tax) only around £5m per year. Longer term, the IPO will cost the club more each year in higher US taxes (the corporate tax rate is 35% vs. 24% in the UK).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The real beneficiaries of the IPO will be the Glazer family who will receive around $150m from their sale of 8,333,333 shares and the unnamed senior executives (but not Sir Alex) who will be entitled to 16,000,000 shares under the "2012 Equity Incentive Reward Plan". All these people will make money and the club will be left with the vast bulk of its debts.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The IPO gives no opportunity for supporters to take a meaningful stake in their club. The shares on offer represent 10% of the club but with under 2% of the votes.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
It has been mentioned by some people that the club is constrained by the bond terms as to the amount of debt it can repay. It is true that until 2013, the club can only repay 35% of the bonds. <b>That figure is £182m compared to the £78m the IPO will repay</b>. It is in any event only five months until this restriction falls away. If this IPO was about paying down debt, the vast majority of the $300m (£193m) proceeds could be applied to debt repayment today, with the balance being applied in January.</div>
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<u>Agendas</u></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
People have queried my "agenda". My agenda remains the same. I want Manchester United run for the glory of Manchester United, not to make money for owners who do not care about it. I want the money United makes to be ploughed back into the club, invested in players, stadium and cheaper tickets, not wasted on financing costs. I want debts taken on only to expand the facilities of the club. This is not a pipe dream. It is how almost every European football club is managed, for the glory of the club. It is how the other financial titans; Barca, Real and Bayern are run.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
As part of the IPO roadshow, the senior management team at United (Woodward, Arnold and Bolingbroke) have done a video presentation. For the next few days you can view it here: </div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<a href="http://www.retailroadshow.com/custom/mu/muroadshow.asp">http://www.retailroadshow.com/custom/mu/muroadshow.asp</a></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
In the video presentation they confirm that the club's transfer budget in the future will usually be a net £20-25m, the average spend over the last fifteen years. That is a choice being made by the Glazers, more concerned with maximising profits. A debt free United run like a normal football club could afford to compete with biggest clubs in Europe, we aren't even trying.</div>
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<b style="background-color: white; color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b>
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andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-8605225784557870962012-07-30T22:22:00.001+01:002012-07-30T22:22:43.760+01:00The Red Issue Forum letter to Sir Alex Ferguson<div class="tr_bq" style="text-align: justify;">
<span style="background-color: white; color: #333333; font-size: 13px; line-height: 18px; text-align: left;"><span style="font-family: Verdana, sans-serif;">This letter was written by long standing United fans who post on the Red Issue Main Forum, I didn't have any part in writing it but would be happy to sign it.</span></span></div>
<div style="text-align: justify;">
<span style="font-family: Verdana, sans-serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: Verdana, sans-serif;">I post it here in the hope that it receives a wider audience, especially today of all days when the Glazers again show their true colours with an IPO that enriches themselves and leaves the club in debt.</span></div>
<span style="font-family: Georgia, 'Times New Roman', serif;"><blockquote>
Dear Sir Alex, </blockquote>
<blockquote>
As lifelong Manchester United fans, we are disappointed and concerned by quotes attributed to you in a recent interview. Many of us are the same fans who protested to denounce Cubic Expression back in 2005. These are the same fans who had previously offered you their unwavering support during your private dispute over Rock of Gibraltar's breeding rights, despite Cubic Expression raising some very pertinent questions. In the spirit of fairness, we would like to invite you to clarify these comments by responding to a brief summary of our concerns:</blockquote>
<blockquote>
1. You suggested that ‘the majority of real fans will look at it [Glazer ownership] and see that it’s not affecting the team’. Can you clarify what constitutes a real fan? </blockquote>
<blockquote>
2. With thousands of fans leaving the club in protest over the Glazer regime, do you consider these time-served reds to be less than real fans? </blockquote>
<blockquote>
3. Have you personally met with any of the dissenters to determine how deep their commitment and affection for United may be?</blockquote>
<blockquote>
4. What are your thoughts on an atmosphere which gets markedly worse each season as more and more local, traditional fans are marginalised and alienated from the club? </blockquote>
<blockquote>
5. You are also quoted in the interview as claiming ‘I’m absolutely comfortable with the Glazers situation. They’ve been great’. You are clearly aware of the opposition from the United fan base - does that not make you uncomfortable in any way?</blockquote>
<blockquote>
6. What, in your view, would constitute poor owners?</blockquote>
<blockquote>
7. You have repeatedly claimed to have been backed financially whenever you have requested transfer funds. Is this your only consideration when determining what represents great ownership?</blockquote>
<blockquote>
8. You continued the interview by saying that, ‘the salaries, agent fees – is just getting ridiculous now’. Whilst we agree in tone, it does represent a sea change in attitude from pre Glazer transfers. Agent fees in both the Ferdinand and Rooney transfers were criticised at the time for being excessive, so why does the club now refuse to meet market conditions for the top players? </blockquote>
<blockquote>
9. Do you believe Jorge Mendes’s £2.6m cut of the Bébé transfer, a full 35% of the total fee paid, represented good value?</blockquote>
<blockquote>
10. With more than £250k leaving the club each day to service the Glazer debt, totalling over £500m since the takeover, is it so reprehensible for us to question your constant references to ‘value’?</blockquote>
<blockquote>
Given your personal background and previous support for fan involvement we hope you take the trouble to respond to our deep concerns about both the club’s situation and the wording of the interview quoted. </blockquote>
<blockquote>
Signed<br />Concerned Manchester United Fans</blockquote>
</span>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-65261237581620342602012-07-12T12:10:00.001+01:002012-07-12T13:59:10.095+01:00Why have the Glazers changed their strategy on the debt? A theory....<div><div style="text-align: justify;">
<span style="background-color: white;">The big news in United's "preliminary prospectus" (the Form F-1 SEC filing) was 1) that the proceeds from the IPO will be used to repay some of the club's enormous debt and 2) that no dividends will be paid "in the foreseeable future".</span></div>
<br />
<div style="text-align: justify;">
<span style="background-color: white;">The big question that stems from this, is "why?". Why after seven years of running a highly leveraged balance sheet and only two and a half years after the bond issue have the Glazers executed a huge u-turn? Why suddenly decide to reduce the club's debt?</span></div>
<br />
<div style="text-align: justify;">
I believe it is highly unlikely that the change is due to a sudden realisation that cash wasted on interest should be available for investment, although that may be a positive knock-on effect, but because of the financial pressures the family is under.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="background-color: white;">What follows is only my theory (and apologies if you don't like speculative articles like this), but one that I think is near the truth....</span></div>
<br />
<div style="text-align: justify;">
<b>The amazing disappearing PIKs</b></div>
<div style="text-align: justify;">
<span style="background-color: white;">Followers of the United financial story will know that out of the blue in November 2010, the Glazer family found £249.1m (around $400m) which they injected into the club as equity and used to repay the infamous "payment in kind securities" (PIKs). These short-term debt instruments had festered on the balance sheet of Red Football Joint Venture Limited for more than four years and had accrued £111m of rolled up interest on top of the original £138m loan.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="background-color: white;">In August 2010, the PIKs had become even more expensive as the Red Football companies breached a key debt covenant (section 8.2 of <a href="https://docs.google.com/file/d/0B2k6HQD5WemzNTQ5MDk4OWItNDA2My00YzYzLWIxMDgtNWY3ZWE2ZGU3NTU2/edit?hl=en&pli=1" target="_blank">this document</a>). The covenant stipulated that total debt in the group (from Red Football Shareholder Limited downwards) should not be more than 5x EBITDA (essentially cash profits before transfers). If debt exceeded this limit (set when the PIKs were issued in 2006), the PIK interest rate would rise from 14.25% pa to 16.25% pa. With debts in August 2010 totalling £773m and EBITDA of £102m the rate duely rose, making the PIKs even more toxic and in need of repayment.</span></div>
<br />
<div style="text-align: justify;">
<span style="background-color: white;">The bond issue of February 2010 had created a "carve out" which allowed the Glazers to take £95m of the club's cash out and it was widely assumed (and mentioned in the bond prospectus as a possibility) that this money would be used to pay off a chunk of the PIKs. But the Glazers didn't use the carve out to repay them in November 2010. The exact source of funds is unknown.</span></div>
<br />
<div>
<div style="text-align: justify;">
<span style="background-color: white;">What I do know, from impeccable sources, is that the money was borrowed by the Glazer family. They didn't have £249m in cash, few people do (and the other bits of the family empire are leveraged up already). The money was borrowed by one of their US companies from a single US financial firm.</span></div>
<div style="text-align: justify;">
<span style="background-color: white;"><br /></span></div>
<div style="text-align: justify;">
<span style="background-color: white;">Throughout the summer of 2010, the family and their advisers were hawking the deal around the market. Amusingly an old college friend working for a private "intelligence company" was retained by an American debt investor (I won't embarrass him by naming the investor) to look at the deal and initially asked me for help. The invitation to meet the potential investor was quickly dropped after they did some due diligence on who I was.</span></div>
<div style="text-align: justify;">
<span style="background-color: white;"><br /></span></div>
<div style="text-align: justify;">
<span style="background-color: white;">So that's what we know. Since November 2010, the club has been carrying the bond debt, and the Glazers have been stuck with what you might call "PIK2", expensive personal debt secured on their equity in United, presumably costing less than the eye watering 16.25% of the PIKs, but more than the senior bond debt's c. 8.7%.</span></div>
<div style="text-align: justify;">
<span style="background-color: white;"><br /></span></div>
</div>
<div style="text-align: justify;">
<b style="background-color: white;">Could there be another total debt covenant attached to "PIK2"?</b></div>
<div style="text-align: justify;">
<span style="background-color: white;">Stories about a potential IPO (in Asia) first started to circulate in mid 2011 as the first anniversary of the PIK repayment approached. As we now know, nothing came of the attempts to list in either Hong Kong or Singapore, but the Glazers kept going. Despite terrible market conditions, a moribund IPO market, weak results due to the Champions League etc, they have persisted.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="background-color: white;">The explanation for this burning desire to IPO the club must be to do with their personal circumstaces, and yet they are not seeking to cash out but to repay debt. </span><u style="background-color: white;">I believe that it is highly likely that the PIK2 debt has "total debt to EBITDA" covenants attached to it of a similar sort to those in the original PIKs</u><span style="background-color: white;">. Such covenants would be very common for quasi-equity financing of this sort. Breaching these covenants could be very costly for the Glazer family and the existence of such would go a long way in explaining their apparent change of heart on the debt. Under such a scenario there would be a very strong incentive to try to reduce the debt across the Red Football group of companies, and the easiest method is an IPO.</span></div>
<br />
<div style="text-align: justify;">
<b style="background-color: white;">The change of strategy actually dates back to Q4 2010 and PIK repayment</b></div>
<div style="text-align: justify;">
<span style="background-color: white;">It is worth noting that although the prospectus sets the new strategy down in black and white for the first time, the Glazers have been pursuing deleveraging for a while, using bond buy backs, and that this new approach began as soon as the PIKs were repaid.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="background-color: white;">The club first bought back bonds in the final quarter of 2010 (when £24m were repurchased) and has now spent a total of £92.3m. No less than two-thirds of the cash the club had at the time of the bond issue (all that Ronaldo and Aon windfall) has been used on bond buy backs. The peculiarity of holding almost £150m of cash when issuing £520m of bonds and then, just a few months later, using that cash to buy back those bonds is striking.</span></div>
<br />
<div style="text-align: justify;">
<b style="background-color: white;">Something has definitely changed...</b></div>
<div style="text-align: justify;">
<span style="background-color: white;">So since the repayment of the PIKs and their replacement with "PIK2" we have seen a completely new financial strategy. The best part of £100m has been whipped to buy bonds and now we have an IPO being launched into terrible markets to reduce the debt further. None of this proves they are under pressure from debt covenants in PIK2, but it all fits with the theory.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b style="background-color: white;">Even fellow "lineal descendants" can fall out</b></div>
<div style="text-align: justify;">
<span style="background-color: white;">The other chat coming out of the US about the Glazers is that Darcie, Edward and Kevin don't like having wealth tied up in this pesky soccer club that Joel, Avram and Bryan are so fixated with. If the six of them are personally on the hook for $400m of "PIK2" and covenants are in danger of being breached, you can sort of see their point.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b style="background-color: white;">Theories and facts</b></div>
<div style="text-align: justify;">
<span style="background-color: white;">Apologies again for such a speculative post. My theory may ring true to you or may sound like laughable rubbish. It would be lovely to think the Glazers have had a damascene conversion to prudent financial management and eschewed the crippling debts of the last seven years, but you'll forgive me for seeking a baser motive.</span></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<span style="background-color: white;">Perhaps there are multiple reasons for the change in tack, including fears that becoming uncompetitive on the pitch will hurt the club's value, as well as the sort of direct pressure on the family I have described above, and perhaps the reasons are less important than the fact the burden on the club is being reduced. That won't stop this blog trying to identify the "whys" not just the "whats" of the whole sorry saga.</span></div>
<br />
<b style="color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px; text-align: justify;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b></div>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-2404115552121146442012-07-05T15:42:00.000+01:002012-07-05T16:06:46.926+01:00The Manchester United IPO some initial observations<br />
<div class="MsoNormal" style="text-align: justify;">
There’s been a lot written about
Manchester United’s proposed listing on the New York Stock Exchange (“NYSE”) since it
was announced on Tuesday night by the filing of an SEC Form F-1 (<a href="http://www.sec.gov/Archives/edgar/data/1549107/000104746912007026/a2210109zf-1.htm" target="_blank">the document is available here</a>), this post is
designed as a brief summary of my thoughts on the subject.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<u><br /></u></div>
<div class="MsoNormal" style="text-align: justify;">
<b>This is a massive change in
strategy by the Glazers and a positive one financially</b><u><o:p></o:p></u></div>
<div class="MsoNormal" style="text-align: justify;">
Since the takeover, the club have
insisted that the debt loaded onto United is not in any way a problem. As
recently as last March, David Gill was reiterating this to the House of Commons
Culture Media and Sport Select Committee.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Suddenly, the attitude to debt
has changed. The SEC filing clearly states:<o:p></o:p></div>
<blockquote class="tr_bq">
<span style="font-size: large;">“<span style="background-color: white; font-family: Arial, sans-serif;">We intend to use all of our net proceeds from
this offering to reduce our indebtedness</span>”</span></blockquote>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: large;"><o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;">The
Glazers do not need to take this approach, they could float United and retain
the proceeds themselves. </span><b>The fact they
have chosen not to do so is very telling and has the potential to transform the
financial position of the club</b><span style="background-color: white;">. As I have mentioned again and again on this
blog, over £500m has been spent on interest, debt repayments, fees and
derivative costs since 2005. In the first nine months of the 2011/12 financial
year alone the club spent £71m on interest and bond buybacks. The elimination
or significant reduction of these costs is huge news.</span><br />
<span style="background-color: white;"><br /></span><br />
The other key aspect of this debt reduction is that the prospectus makes it clear that there is no intention to pay dividends in the forseeable future. Interest payments will not simply be replaced with dividend payments.</div>
<div class="MsoNormal" style="text-align: justify;">
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<span style="background-color: white;">The 2010 bond
issue was supposed to lock in long-term (seven year) funding, and yet only two
years later, that entire costly structure is being ripped up.</span><span style="background-color: white;"> </span><span style="background-color: white;">A major change of heart has taken place.</span></div>
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<span style="background-color: white;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<b>The family can still cash in some shares under the "over allotment" mechanism</b></div>
<div class="MsoNormal" style="text-align: justify;">
Although the prospectus says all the net proceeds will be used to reduce debt, the family can still sell some of <u>their shares</u> (as opposed to the new shares in the main offer) under the "over allotment" option. This is a feature of many IPOs, whereby the owners make additional shares available for sale if demand is higher than expected. Over allotment is not normally for more than 10-15% of the shares being offered.</div>
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<u><span style="background-color: white;"><br /></span></u></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;"><b>At this
early stage we are missing some very key details</b><u><o:p></o:p></u></span></div>
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<span style="background-color: white;">The SEC
filing is a “preliminary prospectus”. It contains no details on the number of
shares being issued or the price of these shares. It is subject to revision.</span></div>
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<span style="background-color: white;"><br /></span></div>
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<span style="background-color: white;">The
success or failure of the offer will have a lot to do with the valuation the
offer puts on United. In the past, the Glazers have appeared to have placed a
higher value on the club than most analysts or potential buyers. The FT recently
reported that Morgan Stanley had left the IPO syndicate (of underwriters)
because of disagreement over the valuation.<o:p></o:p></span></div>
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<span style="background-color: white;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;">It is not
too late for this offer to collapse spectacularly if the Glazers attempt to sell
shares on too high a valuation or if financial markets weaken further. This is
not a “done deal”.<o:p></o:p></span></div>
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<u><span style="background-color: white;"><br /></span></u></div>
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<span style="background-color: white;"><b>The share
offer will be significantly greater than $100m</b><u><o:p></o:p></u></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;">The much
quoted “$100m” issue is a red herring. There is a requirement in a preliminary
prospectus to estimate the cost of registration fees and as these are dependent
on the size of the share offer, a “placeholding” assumption has to be made.
That is where the $100m figure comes from. It is </span><u>not</u><span style="background-color: white;"> a guide to the size
of the eventual offer. There is little or no point raising $100m (£64m). The
exact amount raised will depend on the valuation placed on the company and the
state of the markets in the next few weeks but I would expect at least $300m.</span></div>
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<u><span style="background-color: white;"><br /></span></u></div>
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<span style="background-color: white;"><b>This is
not a change of ownership</b><u><o:p></o:p></u></span></div>
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<span style="background-color: white;">Sadly for
those of us who want supporters to have a meaningful stake in Manchester
United, this IPO is of virtually no use at all. The “A shares” on offer will
only have very limited voting rights. Even if the Glazers sold 90% of the club
in the IPO (which they won’t), the “B shares” the family will hold would still
have a majority of the votes as each B share has 10x the votes of an A share.<o:p></o:p></span></div>
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<span style="background-color: white;"><br /></span></div>
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<span style="background-color: white;">Non-Glazer
shareholders will therefore have virtually no influence over the club.<o:p></o:p></span></div>
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<span style="background-color: white;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;">This
remains a very short-sighted and depressing approach to governance. The
experience from Spain and Germany shows that supporter participation in
ownership is a huge plus for football clubs. United’s unwillingness to engage
with supporters as anything other than potential customers remains an enormous
problem that can probably only be solved by intervention by government.<o:p></o:p></span></div>
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<u><span style="background-color: white;"><br /></span></u></div>
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<span style="background-color: white;"><b>They’ve
chosen New York rather than London because they want to maintain control</b><u><o:p></o:p></u></span></div>
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<span style="background-color: white;">The
principal advantage to the Glazers from listing in New York rather than London
is that the A/B dual share structure is acceptable in the US and not in the UK.
Well known companies such as Google, Ford, Facebook and (infamously) News Corporation all have dual voting structures. It would be very hard to float a
company with such diminished voting rights for outside shareholders in London.<o:p></o:p></span></div>
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<span style="background-color: white;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;">The
downside of US listing is the higher tax that the club will have to pay. United
has been UK tax registered for all of its existence but will now be subject to
US Federal Income tax on profits at the high rate of 35% (the UK rate is 28%).
The fact that the Glazers are happy for the club to pay a higher tax rate tells
us a lot about the importance of the A/B share structure to them.<o:p></o:p></span></div>
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<u><span style="background-color: white;"><br /></span></u></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;"><b>Is this
all about a post Fergie world?</b><u><o:p></o:p></u></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;">Why is
this all happening now? We can only speculate, but it seems to me that the
Glazers are preparing for a Manchester United without Sir Alex Ferguson. As we
know, the club has achieved great success on the pitch on a pretty low transfer
spending since 2005. Would another “big name” manager come on board with this
limited budget, especially as City, Chelsea, Real Madrid and Barcelona continue
to flex their financial muscles?<o:p></o:p></span></div>
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<u><span style="background-color: white;"><br /></span></u></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;"><b>What
happens next?</b><u><o:p></o:p></u></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;">The
underwriting banks and the company will now undertake a road show for potential
investors. United have ninety days from the date of the preliminary prospectus to
file their “final prospectus”, which includes the price and number of shares
being offered. The IPO can still be cancelled at any time prior to this….<o:p></o:p></span></div>
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<span style="background-color: white;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;">Watch
this space.<o:p></o:p></span></div>
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<span style="background-color: white;"><br /></span></div>
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<b style="color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b>
</div>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-8130588009612431432012-05-18T10:53:00.000+01:002012-05-18T16:31:14.673+01:00Manchester United Q3 2012 results: getting hard to square the circle<div style="text-align: justify;">
Since United had its bond issue in early 2010, the club has reported increased year-on-year revenues every single quarter. This revenue growth has more than offset rampant wage inflation. Meanwhile of course the club has clocked up Champions League finals and Championships. This season the performance on and off the pitch has stalled somewhat. The numbers for the next quarter (which runs from April to June) will be worse again.<br />
<br />
For the Glazers, the clever trick of football success on a limited budget with high and seemingly ever increasing profits may well coming to an end. Will they spend at the expense of those profits? If they don't, will the success and hence the profits still be achievable?<br />
<br />
It's getting harder to square the circle.<br />
<br />
<b><u>Revenue and EBITDA - both down a little</u></b><br />
The poor performances in Europe and the domestic cups can be seen in these quarterly figures. Matchday income fell 13% compared to last year as the club played seven home games compared to last season's nine. Of the seven played, two were in the Europa League in front of smaller gates paying lower prices.<br />
<br />
Media income fell 19% compared to 2010/11 despite the higher share of the UEFA CL "market pool" this year. The explanation is simply the exit from the Champions League. The impact will be far more severe in the current quarter of course when there will be no CL media income at all compared to the previous year's run to the final.<br />
<br />
Commercial income was again the star, with the new contracts signed since last year; DHL, Epson etc and a step up in Nike income and income recognition boosting revenue by 15% compared to 2010/11.<br />
<br />
In total, revenue fell 5.8% year-on-year in the quarter and revenue growth for the nine month period was 6.1% (down from 11.9% in the first half of the year). United may be a commercial powerhouse, but old fashioned football success and failure can still have a major impact.<br />
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Staff costs only rose 1% compared to last year, reflecting lower bonuses (presumably linked to qualification for the CL knock-out stages). The wage bill for the year to date is still 10% higher than last season, although the fourth quarter will not see any of last season's bonuses.<br />
<br />
The major fall in operating expenses (down 16.3%) is largely due to the lack of domestic home cup games. The club accounts for the gate sharing for such games as an expense and this season there were no such games.<br />
<br />
With revenue down 5.8% and costs only down 4.7%, EBITDA fell 8.4% and for the first nine months of the year was only up 3.3%. There will be a larger fall in Q4.<br />
<br />
These falls shouldn't be overplayed, with United still making cash profits before transfers of £85m in the first nine months of the season. That is more than any other English club has made over any twelve month period. The worry for the Glazers, is that the profits are stagnating this year at a time when investment is needed to keep up with City and others, and none of that is good if you hope to float your club on a stock exchange.<br />
<br />
<b><u>Below EBITDA - not much of note</u></b><br />
The club made a small £2m profit on player sales during the quarter (Gibson and Ravel Morrison). The amortisation charge (how transfers are "charged" in accounts) was basically unchanged at £9.7m for the three months. To put this in context, the c. £40m annual amortisation charge compares to a figure of £83.8m at free spending City in the last reported season (2010/11).<br />
<br />
There was a £4.3m "exceptional" charge during the quarter which the club says related to "professional advisory fees" and the need to top up the Football League pension fund. I suspect the "fees" element accounts for the great majority of this £4.3m and relates to advice on the mooted IPO.<br />
<br />
The interest charge is spread evenly over each quarter even though bond interest is paid twice a year in February and August. The club recorded a "gain" of £6.5m as the pound rose against the US dollar, reducing the sterling value of the club's dollar denominated bonds.<br />
<br />
Taking all these charges and credits into account, pre-tax profit for the quarter was £2.8m, down from £7.4m last year.<br />
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<b><u>Cash - a lot less money than there used to be</u></b><br />
As I always say in these pieces, I do not consider the profit and loss account described above to be particularly informative when looking at football clubs below the EBITDA figure. The cash flow statement is often more informative. Cash flow includes real spending on transfers which are after all cash transactions (the amortisation charge is a significant simplification by contrast). For United, lumpy bond interest payments and bond buybacks are also a fact of life that constrain what the club can spend.<br />
<br />
Despite their advantages, cash figures come with a warning however. Football is a seasonal business with season ticket revenue collected in the summer, boosting cash balances. The end of the season also see large TV payments from the Premier League and UEFA. Furthermore, prepayments on sponsorship contracts can lead to large positive and negative swings in cash and at United there are large interest payments in the first and third quarters of each financial year. It should be remembered that United are the only football club to publish quarterly figures (a requirement of the bond issue), all other club accounts are struck at the seasonal high point for cash in the summer.<br />
<br />
You can see the volatility in United's quarterly cash flow in the chart below which shows how cash builds up in the fourth quarter and runs down through the rest of the year:<br />
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Manchester United is not like other football clubs of course, because it has £420m of outstanding bonds. Since the bonds were issued in February 2010, the club has periodically gone into the market and repurchased them (usually paying more than the issue price). These buybacks make financial sense (the bonds cost c. 8.5% whilst cash at the bank barely yields 1.5%) but risk depriving the club of cash needed for investment. It is a choice made by the Glazers and their management team. </div>
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There were no buybacks in the third quarter of the 2011/12 financial year, but since 2010, the club has spent over £92m on them. You can see their impact on the "gross" debt which has fallen by the amount bought back (plus currency fluctuations) and on the cash balance below:</div>
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Since June 2011, the club has spent £71m on buybacks and interest payments which together with the other seasonal cash outflows described above has pushed the club's cash reserves down to a low of £25.6m at the 31st March.</div>
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As described above, there will be the usual rebound in the club's cash position in the current quarter, although the precise amount is very hard to estimate. Judging from previous years and taking into account the lower profits caused by the CL exit, I estimate the cash position will improve to c. £75m by the end of June.<br />
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<b><u>Will they spend?</u></b><br />
The big question supporters want answering is not about buybacks or EBITDA, it's about spending to keep the club competitive after a season when the squad was found wanting at home, but especially in Europe. I can't give an answer to whether the club will spend, only the Glazers can, but the very issue raises big questions over their strategy for running the club.<br />
<br />
Since the takeover, Fergie's genius has allowed United to consistently win trophies (with a couple of rebuilding dips on the way) whilst keeping the club's wage spending to turnover ratio very low (45.7% so far in 2011/12 for example) and whilst spending very little on transfers (average net spend of £16m per season). This combination of controlled wages and low transfer spending is vital for two reasons. Firstly it theoretically boosts the value of the club (if you look at valuation based on EBITDA). Secondly, it frees up profits to service the enormous debts taken on to buy the club. Since the takeover, 18% of revenue has gone on interest. This has been "affordable" because the club hasn't ever really had to "pay up" in either wages or transfers.<br />
<br />
Since 2005 the challenge of achieving this financial balancing act has been aided by a number of factors. In the years immediately after the takeover, the 40%+ ticket price rises were crucial. The Ronaldo windfall in 2009 and, to be fair, the rapid growth in Commercial income in the last two years have also been significant pluses. Now however, the trick is becoming more difficult to pull off.<br />
<br />
Bond buybacks and interest have eroded the club's previously huge cash balance. There has been spending (£47m last summer) but not on crucial areas of the pitch (United haven't bought a central midfielder since Ronaldo departed). Major transfers cost money twice over, both driving up wages and demanding immediate cash. Wage inflation and transfer inflation across football remain endemic and the advent of FFP appears not to be having any impact on this.<br />
<br />
If United are to strengthen, money will be needed and that means no more bond buybacks. It probably means lower profitability, in at least the short-term, with negative implications for the valuation achievable at any IPO. The alternative may well be under investment and the club going further backwards relative to its main competitors.<br />
<br />
The Glazers know their structure hampers the club. There was heavy briefing of journalists in the run up to the aborted IPO process last year, suggesting debt would be paid down from the IPO proceeds to make United more "competitive". If the IPO can't be delivered however, the club is stuck with its debt and the owners will have to accept lower profits or further relative decline. Can they square this circle?<br />
<br />
<b style="color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b>
</div>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-65325403117451712962012-05-04T11:43:00.001+01:002012-05-04T15:01:49.665+01:00The scale of Fenway's challenge at Liverpool becomes clear<div style="text-align: justify;">
<i>Normal health warning: if you don't think a United supporter can impartially analyse Liverpool Football Club's finances don't read on.</i></div>
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<br /></div>
<div style="text-align: justify;">
Liverpool are a club in transition on and off the pitch. The financial results published overnight show just how great is the challenge facing Fenway Sports Group ("FSG"). We can now see that the American owners spent £261m acquiring and refinancing Liverpool. Of this figure only £30m has actually flowed into the club, the rest was spent on the purchase itself.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
I think Liverpool will turn the corner financially, the commercial opportunity is still there and there is clearly the scope to occupy a far larger/more profitable ground. The challenge is getting far more sporting success out of a very expensive squad of players, and that isn't really down to money at all....</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<u>FSG's ownership structure</u></div>
<div style="text-align: justify;">
The primary operating company of Liverpool Football Club is "The Liverpool Football Club and Athletic Grounds Limited" which the the main entity I will focus on. Since 15th October 2010, 100% of this operating company has been owned by a new vehicle "UKSV Holdings Company Limited". UKSV is in turn owned by NESV I LLC, a US company also (and commonly) known as "Fenway Sports Group". The accounts of UKSV only run from 1st October when it was established to 31st July 2011. The accounts of the operating business, which I'll refer to as "Liverpool" or "the club" for ease, run for the year to 31st July 2011 (i.e. last season).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<u>Ian Ayre's spin</u></div>
<div style="text-align: justify;">
Before the club's accounts were available at Companies House, Managing Director Ian Ayre gave a lengthy interview to the club's website and to the Liverpool Echo. Without making the accounts available, Ayre threw around various numbers and in particular blamed the £50m pre-tax loss on a write-off of work on the abandoned stadium plans. Whilst the write-off had a big impact, he was being pretty disingenuous by not mentioning a pretty exceptional profit (£43.3m) on the sales of Fernando Torres and Javier Mascherano. This profit largely offset the stadium write-off (£49.2m) and that meant that the underlying results were very poor.</div>
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<br /></div>
<div style="text-align: justify;">
Ayre is not alone in spinning his club's financial figures before they come out (hello Chelsea) or not being straight with his supporters (hello United and many, many others), but it is still pretty poor. The club is in transition and there is surely no need for such spin.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<u>Revenues and costs</u></div>
<div style="text-align: justify;">
Football clubs are simple businesses. There are three revenue streams (matchday receipts, media income and commercial deals) and two main operating costs (wages and the costs of operating the club day to day). The difference between these numbers is "EBITDA" (earnings before interest, tax, depreciation and amortisation), effectively cash profits before any investment or the servicing of debts. After EBITDA come depreciation of the stadium, training ground etc, "amortisation" which is how transfers are accounted for, then interest and (rarely in football) corporation tax.</div>
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<div style="text-align: justify;">
Liverpool's results for 2010/11 show what happens when costs run ahead of revenues; profits collapse. This is of course the curse of football finance. Success brings income so clubs invest in player wages in the pursuit of this success. Fail to do well on the pitch and the costs are still there but not the income.</div>
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<br /></div>
<div style="text-align: justify;">
Liverpool's revenue was effectively flat last season (down 0.5%). Matchday income fell 4.6% despite the same number of home games, reflecting a small fall in average attendances (40,224 vs. 41,940) more than offsetting ticket prices rises and must imply a fall of in corporate hospitality too. Media income was down 18% as the club failed to qualify for the Champions League (losing £25m of income). This was partly offset by £5m of Europa League income and the £7m increase in PL TV money from overseas rights. Commercial revenue was the star area with the Standard Chartered deal driving it up £15m or 25%. The Warrior kit deal will not impact the accounts until 2012/13.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Although revenues were down a fraction, there was significant cost growth as the club spent heavily in an attempt to break back into the top 4. Pre-exceptional staff costs rose a very punchy 12.7% year-on-year. This wage growth is more down to contract increases than transfers in my opinion. Although the club signed Cole, Poulsen, Konchesky, Meireles etc, Mascherano, Riera and Benayoun all departed and the January flurry of transfers will not have impacted the full year numbers significantly.</div>
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<br /></div>
<div style="text-align: justify;">
Total operating costs (pre-exceptionals) rose 9.3%, driving EBITDA before players sales down by 63% to only £9.8m, a margin of 5.3%. The graph below shows how the club's EBITDA has fallen very sharply since 2009 revenue despite growing slightly. Liverpool are overspending.</div>
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<br /></div>
<div style="text-align: justify;">
The issue of rampant wage inflation is not of course unique to Liverpool. The graph below shows that Arsenal, Everton, United and City all saw wages rise faster than turnover last season. The problem for Liverpool is however more acute than at other clubs, fundamentally because Liverpool are operating a squad with a Champions League cost base without Champions League income.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhP5_r1d25Yci11NlPEcgK9jIHfkDMYSIzhcvgByqd3V6WStpPgYTIfuey7uNRbuy0uvpDdyNJiS2JeAmw4SCd0lBht9Hl4k_MX15Cl3A_tbMajBRXUgUoqecE-3jTFKm_tK4gEEor5wo95/s1600/wage+and+revenue+growth+top+8+ex-NUFC+2011.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhP5_r1d25Yci11NlPEcgK9jIHfkDMYSIzhcvgByqd3V6WStpPgYTIfuey7uNRbuy0uvpDdyNJiS2JeAmw4SCd0lBht9Hl4k_MX15Cl3A_tbMajBRXUgUoqecE-3jTFKm_tK4gEEor5wo95/s1600/wage+and+revenue+growth+top+8+ex-NUFC+2011.png" /></a></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Liverpool's wage bill is quite competitive in Premier League terms, fourth behind City, Chelsea and United but the dreaded wages/turnover ratio is rising sharply (up to 70% from 62%). That puts Liverpool much closer to Chelsea (76%) than Arsenal or Everton (55% and 56% respectively).</div>
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<div class="separator" style="clear: both; text-align: center;">
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<div style="text-align: justify;">
<u>Amortisation and depreciation</u></div>
<div style="text-align: justify;">
Amortisation is the method by which transfer spending is recognised in the profit and loss account. It reflects the level of transfer spending a club does, spread out over the life of player contracts. Importantly it forms part of the UEFA's FFP calculation. At Liverpool the amortisation charge has been quite high, reflecting steady transfer spending under Benitez and Hodgson. The charge fell from £40m to £36m in 2010/11.</div>
<div style="text-align: justify;">
<br />
Depreciation (on Anfield and Melwood) was up slightly at £2.9m (vs. £2.1m).</div>
<div style="text-align: justify;">
<u><br /></u></div>
<div style="text-align: justify;">
<u>Exceptionals, player sales and interest </u></div>
<div style="text-align: justify;">
Exceptional costs totaled £58.99m in 2010/11. Of this, £49.2m was a write-off of capitalised costs relating to the abandoned stadium project. It is important to stress that this is not a cash cost in 2010/11, the money had already been spent in previous years. Most of the balance of the exceptional charges relate to getting rid of Roy Hodgson. The club spent £8.4m changing managers last season compared to £7.8m getting rid of Benitez the year before.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The interest charge fell very sharply from £17.6m to £2.9m as the burden of Hicks and Gillett's debts was lifted. It is worth noting that cash interest paid actually rose slightly.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Although not treated as an "exceptional", the club recorded a huge profit on player sales in 2010/11. Such profits are calculated as the difference between the price at which a player is sold and his "book value". Torres was acquired for around £20m and probably had a book value of around £10m when he was sold to Chelsea. That means the club recorded a profit on his sale of around £40m. Add in Mascherano and the "profit on player sales" was £43.3m.</div>
<br />
<u>Pre-tax loss</u><br />
<div style="text-align: justify;">
Bringing all these numbers together, Liverpool reported a pre-tax loss of £49.3m compared to £20m the previous year. The exceptional charges are unlikely to re-occur, but neither is the enormous profit on Torres. Estimating a "normal" profit on player sales is very difficult (the figure was £23m in 2010, £4m in 2009), but £10m looks a reasonable estimate for a club with Liverpool's strong youth set-up. Stripping out the exceptional costs and using £10m for a "normal" profit on player sales implies an "underlying" pre-tax loss of c. £23m. The collapse in EBITDA means Liverpool are structurally loss making at these level of income and wages. To change that of course, the club need cheaper players or more revenue.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<u>Cash(flow) is king</u></div>
<div style="text-align: justify;">
Accounting items like non-cash exceptionals, amortisation and player sale profits can often make the profit and loss account of football clubs misleading. It is always important to focus on cash flow as shown in this table:</div>
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<br /></div>
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<br /></div>
<div style="text-align: justify;">
The collapse in EBITDA (here including cash exceptionals), led to a very sharp fall in operating cash flow at Liverpool. Unlike in the P&L, the transfer spending here reflects actual cash spent and received and with the Carroll spending paid up front but the Torres receipts staggered, there was punchy £40m of cash spending in 2010/11. Deduct interest and the club saw a £42.5m outflow before financing.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
It goes without saying that Liverpool need to generate more EBITDA and hence cash flow to be able to compete in the transfer market in the future or will need subsidising by FSG.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<u>Debt and financing</u></div>
<div style="text-align: justify;">
Of the £42.5m cash outflow shown above, £26m came from an injection from new parent company UKSV and the balance from running down the club's cash balance (which fell from £19m to £2.5m).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The £30m "debt" on the Liverpool balance sheet owed to UKSV/FSG is really equity by another name (it attracts no interest). At 31st July there was a real bank loan of £37.7m (the "stadium finance" part of a larger £92m facility with RBS and Wachovia/Wells Fargo) secured on the club's assets.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
On 30th September 2011, the club entered into a new £120m facility with RBS, Bank of America and Barclays for £120m. The facility runs for three years. £45m is the stadium project facility and £75m for "general corporate purposes". Whilst with year end debt of only £37.7m there might appear to be plenty of spare capacity, football clubs' cash positions are highly seasonal and the club will definitely need this facility during the course of the season. We do not know the interest rate on this debt (the old facility was LIBOR +450bps).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<u>Prospects and thoughts</u></div>
<div style="text-align: justify;">
Fenway have a very big challenge keeping Liverpool competitive in the next few years. The Warrior kit deal next season will add c. £13m (7%) to revenue, but there was no Champions League football in the current season and there won't be any next season. Wage inflation across football remains endemic despite the imminent arrival of FFP. The playing squad needs investment and a new ground is desperately needed.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
If all that wasn't bad enough, the competition for CL places is far fiercer than it was in the good old days of "the big 4". A £100m+ wage bill used to guarantee qualification for the CL, now it barely guarantees qualification for the Europa.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The great unknown in all this is the willingness of FSG to invest their own money in Liverpool FC. So far £30m has flowed in on top of the cost of acquiring the club. The expansion of the banking facility very much suggests that the business will be debt not equity financed in the next year or two and that is a worry.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Despite all this gloom, I think Liverpool will negotiate these financial risks, for two reasons. Firstly as shown by the Standard Chartered and Warrior deals, the club is a big brand still on the global stage. It is commercial success that has allowed United to compete despite its debt burden and remains a key advantage for Liverpool too. Secondly, there is significant scope to expand matchday income if a new stadium can be developed. Liverpool L4 is not London N5, but Arsenal's move to the Emirates gives a flavour of what can be done. Liverpool's matchday income is only 37% of United's. FSG need to close some of that gap.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The other thing Liverpool need is for Financial Fair Play to be rigorously enforced. This is the great unknown of course, but FSG have clearly made a bet that it will stick. </div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Taken together, the Liverpool "project" is a steep, steep challenge.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b style="background-color: white; color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b>
</div>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-35844529596343668452012-03-09T16:08:00.000+00:002012-03-09T16:08:14.177+00:00The issues the football authorities won't address<div style="text-align: justify;">
<span style="font-family: inherit;">So finally, we now get to see "football's response" to the government's call for the game to reform itself.</span></div>
<div style="text-align: justify;">
<span style="font-family: inherit;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: inherit;">What a damp squib.</span></div>
<div style="text-align: justify;">
<span style="font-family: inherit;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: inherit;">You can see the "response" <a href="http://www.premierleague.com/content/dam/premierleague/site-content/News/publications/other/core-group-29-02-12.pdf" target="_blank">here</a>, page after page of moving blazers around committees and no action. It's a depressing document more concerned with preserving the status quo than looking at the real issues; debt and financial mismanagement, ownership, ticket prices etc.</span></div>
<div style="text-align: justify;">
<span style="font-family: inherit;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: inherit;">Debt, the cancer that kills clubs and costs fans gets one mention. Actually it doesn't, the word "debt" appears as in "debt of thanks". Thanks for nothing.</span></div>
<div style="text-align: justify;">
<span style="font-family: inherit;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: inherit;">Crucially, the authorities have chosen to ignore government suggestions on supporter involvement and leveraged buyouts.</span></div>
<div style="text-align: justify;">
<span style="background-color: white; font-family: inherit;"><br /></span></div>
<div style="text-align: justify;">
<span style="background-color: white; font-family: inherit;">Why is there no response to this (from the </span><a href="http://www.culture.gov.uk/images/publications/Football_governance_15427_Cm_8207_2.pdf" style="background-color: white; font-family: inherit;" target="_blank">Government response to the select committee</a><span style="background-color: white; font-family: inherit;">)?</span></div>
<br />
<blockquote class="tr_bq" style="text-align: justify;">
<span style="line-height: 115%;"><span style="font-family: inherit;">30. The Government
notes the evidence before the Committee on the use of leveraged buyouts to
purchase football clubs and the strong view of the Committee on the
appropriateness of this vehicle. The Government expects that the issue of
financial sustainability should be addressed as part of the recommendations
on the new licensing model. </span></span></blockquote>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: inherit; line-height: 115%;">and why is there nothing at all in the document on supporter involvement in clubs as suggested by the government here (my emphasis)?</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="line-height: 115%;"><span style="font-family: inherit;"><br /></span></span></div>
<blockquote class="tr_bq" style="text-align: justify;">
<span style="line-height: 115%;"><span style="font-family: inherit;">38. The Government
supports the Committee’s recommendation about effective consultation with
fans. The Government believes that every club should have a dedicated and
mandatory supporter liaison officer. <b>Furthermore, that every club should
officially recognise the relevant supporters groups or trusts and keep an open
dialogue with them. They should hold official and regular annual general meetings
at which these groups are invited to take part and at which appropriate
financial and other information can be shared and consulted upon. </b></span></span></blockquote>
<blockquote class="tr_bq" style="text-align: justify;">
<span style="line-height: 115%;"><span style="font-family: inherit;">39. The Government
believes that these conditions should be an explicit condition of the
football licensing model recommended by the Committee and so compliance
should be a requirement of the club competing within the English game.</span></span></blockquote>
<blockquote class="tr_bq" style="text-align: justify;">
<span style="line-height: 115%;"><span style="font-family: inherit;">40.<b> Furthermore,
the Government urges the football authorities to consider ways to actively
encourage and incentivise methods of including supporter representatives
on the Boards of clubs.</b> We see the value in the views of many supporters
that such representatives should have a full role within the club Board.
At the same time, we acknowledge that this may not be the right solution
for all clubs or all supporters. Where there are ways of achieving this role
in an advisory capacity that do not attract fiduciary responsibilities
that could create conflicts of interest, then we urge the football
authorities to also consider this route. Whatever the way that
representation is achieved, we believe that there is every reason to think
that clubs are stronger because they have supporters at the heart of the
club, not weaker. </span></span></blockquote>
<blockquote class="tr_bq" style="text-align: justify;">
<span style="font-family: inherit;"><span style="line-height: 115%;">41. One option that
we have considered is to specify within the new club licensing system a
trigger point that would require clubs to make a seat available to one or
more supporters’ representatives on the Board. Such a trigger point could
be the next time the club changes hands; the point at which the officially recognised
supporters organisations reach a certain size; or by a majority vote of
eligible supporters. There will be other options as well.</span></span></blockquote>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: inherit; line-height: 115%;">The whole document smacks of complacency and an unwillingness to change.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="line-height: 115%;"><span style="font-family: inherit;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="line-height: 115%;"><span style="font-family: inherit;">Hugh Robertson should scrawl "not good enough, try again" on it in big red letters and send it back to Wembley and Gloucester Place.</span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="line-height: 115%;"><span style="font-family: inherit;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<b style="background-color: white; color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px; text-align: -webkit-auto;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b>
</div>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-19133162018785392702012-02-21T22:32:00.000+00:002012-02-22T10:41:16.663+00:00Manchester United Q2 2011/12 results - the amazing, expanding wage bill<div style="text-align: justify;">
The second quarter of Red Football's financial year (September to December) is the least exciting. The transfer window is firmly shut, the season ticket selling season is over, it's the dull group stage of the Champions League. Nothing is won before Christmas and from a financial point of view, not much happens...</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
That is largely the case with these figures for the three months to 31st December 2011 (and therefore the first half of 2011/12 too). Having said that, there are some surprises.</div>
<div style="text-align: justify;">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmcGvTEPRBuNUgOIt8WAXtMxkmbD3u26BSCA1i9i41sHjkEvl2_ItANkbA7xhSVy1ar3sq_uCVU4o5URpUumctv648b-w_OIWpHgo_xsfAAGwCk8DnKcfUzSU6rwEKh1cvj5pTM7EU8a-z/s1600/MUFC+q2+2012+pandl.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmcGvTEPRBuNUgOIt8WAXtMxkmbD3u26BSCA1i9i41sHjkEvl2_ItANkbA7xhSVy1ar3sq_uCVU4o5URpUumctv648b-w_OIWpHgo_xsfAAGwCk8DnKcfUzSU6rwEKh1cvj5pTM7EU8a-z/s1600/MUFC+q2+2012+pandl.png" /></a></div>
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<u>Revenue</u></div>
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The trends seen in the first quarter figures were present again in Q2. Matchday income was up 3.8% compared to last year despite exactly the same number of home games. The club put through an average price increase of 2.5% this season and the additional revenue has come from better corporate hospitality sales, a real credit to the Old Trafford corporate sales team at what is obviously a very difficult time economically.</div>
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Media income rose an impressive 9.8%, but this increase is somewhat deceptive. United benefit this season from a higher share of the English "market pool" than in 2010/11 because of winning the league last season. Furthermore, the club recognises some of the Champions League media income evenly over the number of games played in the competition. With United being knocked out at the group stages, there is a paradoxically higher amount of revenue recognised in the first six months than last season (when income was spread over ten games across the whole season, not six in the first six months).</div>
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In the second half of the season, there will be no Champions League income of course and the meagre pickings from the Europa League (a maximum of about €5m if the final is reached) will depend of course on progress in that competition.</div>
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Commercial income continues to grow very fast (up 13.4% during the quarter vs last year and up 17.7% over the six months). Much of this growth comes from the c. £10m per annum DHL training kit deal. The club has also recently signed new deals with Bulgarian and Bangladeshi telecom operators. This strategy of finding a local telecom partner in a myriad of markets will eventually reach a natural end of course, but I must confess to having been too cautious on United's commercial growth. The "brand" has stretched far further than most observers (including this one) felt was possible.</div>
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In total, revenue growth of 12% in the first six months of the year is very impressive, even if the impact of the early Champions League exit is yet to be felt.</div>
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<u>Costs - terrifying</u></div>
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It's a good thing that United's top-line is growing so well, because so is the cost base, and particularly the wage bill. After the 12.2% year-on-year growth in staff costs in Q1, they rose 17.2% in Q2. This increase is before any end of season bonuses obviously, so can only be put down to significantly more expensive deals for key players. When you consider that Garry Neville, VDS, O'Shea, Brown, Obertan and Scholes (his return is not included in these figures) all left the club in the summer with younger (and you would imagine cheaper) players coming in, the wage inflation is even more extraordinary.</div>
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Historically, there has been a very, very strong correlation (r squared of 0.98) between media income and wages at United. What has happened this season is effectively a breakdown in that relationship.There is no big new TV deal to drive player salaries up. Endemic wage inflation is THE financial problem in football, it is what Financial Fair Play is designed to deal with. These figures show it remains a huge issue in 2011/12.</div>
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Non-staff cash costs rose an equally punchy 14% in Q2 vs. last year. Some of this must be the club's swanky new corporate offices in Stratton Street in central London. Unlike at the old Pall Mall office, the club has the confidence in Stratton Street to have their name listed in reception.</div>
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<u>EBITDA and below</u></div>
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With revenue up 8.7% and costs up 16.3% during Q2 vs 2010/11, EBITDA was virtually static (up 0.4%) and the margin was down from 48% to 44.4%. For the first half as a whole, EBITDA was up 7.7%. United remain very profitable, but the negative "jaws" between cost and revenue growth (costs are rising faster than income) is a worry in any business.</div>
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Below EBITDA, depreciation and player amortisation were virtually static. The club made its usual small profit on player sales and there was a totally unexplained £2m exceptional charge.</div>
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<u>Interest and various marks to market</u></div>
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The interest charge in the profit and loss account was down 11% compared to Q2 last year. This reflects the increasing number of bonds the company has bought in during the last two years. It should be noted that actual bond cash interest payments are made twice a year in February and August.</div>
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Under International Accounting Standards, Red Football must recognise the initial discount on bonds over their life, any premium paid when buying bonds, any "mark to market" increase or fall in the sterling value of the US$ bonds and must also mark any swaps to market too. I don't consider any of these (largely non-cash) charges to be material to the health of the business.</div>
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<u>Cash and debt</u></div>
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The second quarter is not a big one for seasonal cash flow (pre-payments of season tickets and sponsorships unwind over the quarter). Operating cash flow was slightly negative (-£2.7m) as these working capital positions unwound. As stated above the main bond interest payments fall outside this quarter and there was little transfer cash flow outside the window.The club bought another £5.2m of bonds during the quarter to take the total to £92.8m (almost 20% of the bonds issued in 2010).</div>
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The press have focused on the c. £100m fall in the club's cash balance, but £86m of this fall took place in Q1. In Q2 the cash outflow was only £14m.</div>
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The cash outflow and bond buybacks left gross debt at £439m and cash at £50.9m. Net debt has therefore risen slightly from £368m at the end of September to £388m at the end of December.</div>
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<u>Thoughts</u></div>
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Credit has to go to the club for once again boosting revenues in a tough economic climate. United (along with Real, Barcelona and Bayern) is one of the commercial giants of modern football. Much though it pains me to say it, the Glazers have overseen extraordinary commercial growth (this year Commercial income will be more than 2.5x the level the plc achieved in their best year). The second half will see weaker media income as the CL exit bites, a timely reminder that on-pitch success is never guaranteed.</div>
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Despite United's excellent revenue growth, the dynamics of football finance remain awful (hello Rangers, hello Pompey). Any business which sees core cost growth of 16% year-on-year is going to struggle to meaningfully grow profits. Profit growth is not crucial for a football club, but it is for the owners who are no doubt still eyeing an IPO and want to tell a story of rising profits, not just revenue growth. I remain confident that FFP will eventually calm player wage inflation but such restraint is not visible in these figures.</div>
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Finally, for all the booming income and soaring wages, there can be no doubt whatsoever that the £116m Ronaldo/Aon windfall received on 30th June 2009 has gone to deal with the debts laden on the club. In the thirty months from that date 31st December 2011, the club spent the following on debt service and investment.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYongpfvS3Ms0EUKmsxVVz8FTRaTmwslawTnQyseoysYPCOBjB0JaQezcVnUMz-QH8c4qdpxLbMhycOCc7IxgBgi7TzzCW_4e4mDA_rWqBg7JIqPOrJ9zXObLPThhoIrQqU5IAJQkCuu40/s1600/outflows.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYongpfvS3Ms0EUKmsxVVz8FTRaTmwslawTnQyseoysYPCOBjB0JaQezcVnUMz-QH8c4qdpxLbMhycOCc7IxgBgi7TzzCW_4e4mDA_rWqBg7JIqPOrJ9zXObLPThhoIrQqU5IAJQkCuu40/s1600/outflows.png" /></a></div>
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In almost all football clubs, surplus cash is reinvested. At Manchester United it is still far more likely to be spent dealing with debts that the club should never have had.</div>
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<b style="background-color: white; color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;"><br /></span></b></div>
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<b style="background-color: white; color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b>
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<u><br /></u></div>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-85157307868196848612012-02-08T13:42:00.000+00:002012-02-08T21:08:27.887+00:00Income up, costs down - Chelsea getting in shape for FFP<div style="text-align: justify;">
Chelsea have a rather irritating habit of issuing an anodyne press release trumpeting their financial results (this year on 31st January), several days before the <a href="https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0B2k6HQD5WemzMjZjNmNjNmQtZDU0MC00MTc4LThjYWUtN2FkZTZlYmU4NGY1&hl=en_US" target="_blank">real accounts</a> become available at Companies House (today). Normally, the detailed figures hide a whole host of nasties not in the release. This year however, the accounts show real progress in the club's aim to meet UEFA's new Financial Fair Play rules.</div>
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<u>Rising income and falling costs - the holy grail of football finance</u></div>
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Football clubs find it incredibly hard not to pass increases in revenue straight on to players, managers and agents in the form of higher staff costs. It is the achilles heal of the financial side of the sport. These results from Chelsea show revenue rising by 8% and pre-exceptional costs <u>falling</u> by 5%, including a 2.6% fall in wages. That is a remarkable achievement. To put it into context, in the last five years there has only been one other occasion when the wage bill at any of the old "big 4", City or Spurs has fallen year-on-year.</div>
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Readers who think "oh cutting the wage bill is easy, CFC let loads of old, expensive players go", should remember that United did the same last summer when VDS, Neville, O'Shea, Brown, Hargreaves and Scholes (temporarily) all left, yet we can see from MUFC's Q1 results that wage costs are still up on last year (by 12.2%). The trick is not just offloading players, it is preventing endemic wage inflation amongst the remaining squad, especially when TV money is increasing as it was in 2010/11.</div>
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The only cautionary point to make about Chelsea's wage control in these figures is that Fernando Torres and David Luiz will only be in these numbers for six months. On an annualised basis they would add c. £4m to these salary figures (although there have been offsetting cost reductions from the sales of Alex, Anelka etc).</div>
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<u>Revenue</u></div>
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Chelsea's revenue (excluding the digital JV) rose £16.5m or 8% in 2010/11. Chelsea unhelpfully do not give the usual "matchday/media/commercial" split other clubs provide. We know from UEFA figures that CFC received £10.3m in CL TV income in 2010/11 vs. 2009/10. We also know from Premier League figures that CFC's receipts from the league rose £4.9m. </div>
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Using these PL and UEFA figures, Deloitte's estimated segmental split for last season and adjusting for one fewer home game in 2010/11 vs. 2009/10 and we can get quite a good estimate for the club's segmental revenue performance for 2010/11:</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxBqnAZJFMsirnRmrf_KSeh7063bdhD_Ins6ItHxYS1fJHC_SICq79Bi8D-85u6HRDmQMwQZwl8td8eLQxrBTncBarH8UzZVyUjBxcHhA0xw709OifIftYO4R9XRthSdrWLh7y4ENAOJBT/s1600/CFC+2011+segmental.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxBqnAZJFMsirnRmrf_KSeh7063bdhD_Ins6ItHxYS1fJHC_SICq79Bi8D-85u6HRDmQMwQZwl8td8eLQxrBTncBarH8UzZVyUjBxcHhA0xw709OifIftYO4R9XRthSdrWLh7y4ENAOJBT/s1600/CFC+2011+segmental.png" /></a></div>
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The table above shows quite an encouraging growth in commercial income, especially in difficult economic conditions, although at c. £60m pa, CFC's commercial revenue is far behind that of MUFC (£103m) or Real Madrid (£127m).</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjry16y5vgkzwBvxmvJ03TfcUmxw76ccyooas32pa35k_EzDJPg8H79vhXIEMLP95j5aPeM32iltTM6W6Pm27ve3UM8x2-3BCQT8axwCbCYlaew4Fs9j3_7cNDsvkPUU_arRwXHkyqlBOSP/s1600/CFC+2011+PandL.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjry16y5vgkzwBvxmvJ03TfcUmxw76ccyooas32pa35k_EzDJPg8H79vhXIEMLP95j5aPeM32iltTM6W6Pm27ve3UM8x2-3BCQT8axwCbCYlaew4Fs9j3_7cNDsvkPUU_arRwXHkyqlBOSP/s1600/CFC+2011+PandL.png" /></a></div>
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Decent revenue growth and tight cost control meant that Chelsea made positive EBITDA (before profit on player sales and exceptionals) for only the second time since Abramovich bought the club (the other occasion was a £1m profit in 2007/08). The c. £4m EBITDA in 2010/11 is not huge (Arsenal made £47m from non-property activities) but being able to cover cash costs (pre-transfers) from earned income is a key first step in achieving financial sustainability, . The contrast with City's £71m EBITDA <u>loss</u> is stark.</div>
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<u>Below EBITDA - messy</u></div>
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Unfortunately neither the profit and loss account nor UEFA's FFP "breakeven" calculation finishes at the EBITDA line.</div>
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On the plus side, Chelsea made a profit on player sales of £18.4m, boosting EBITDA to £22.4m. After that, things get worse quite fast.</div>
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Chelsea are still hampered by a very significant amortisation charge (the way transfers spending is recognised across the life of a player's contract). This charge has fallen in recent years, something that is key for meeting FFP, reflecting a reining back of the very aggressive transfer spending of the early Abramovich years. The charge rose in 2010/11 however, and this rise only includes six months of amortisation from the c. £75m spent on Torres and Luiz in the January 2011 transfer window (see chart below):</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdFQQHyTCiSY86UcPoJacmP4P0R8jVv_0sKN9D_j-IMpbxCxAwOYJK4W2KUifjODoSIsbAPEmr7ftzy8V6VDBJQGrl_cghRlGfttOik-SjaSYS0RrkJ7vxq2je8w7ZnHzw5mrJr1hZ6ALo/s1600/CFC+amort+chart.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdFQQHyTCiSY86UcPoJacmP4P0R8jVv_0sKN9D_j-IMpbxCxAwOYJK4W2KUifjODoSIsbAPEmr7ftzy8V6VDBJQGrl_cghRlGfttOik-SjaSYS0RrkJ7vxq2je8w7ZnHzw5mrJr1hZ6ALo/s1600/CFC+amort+chart.png" /></a></div>
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At around £40-45m, the amortisation charge nowhere close to being covered by EBITDA. Once depreciation is added too, the club made on operating (EBIT) loss of £26m (inc player sales), a loss but a great improvement on last year's £71m.</div>
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<u>Exceptionals (again)</u></div>
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In the last four years, CFC have reported "exceptional" costs relating to firing their manager on no less than three occasions. Nothing very exceptional there.... In 2010/11 there were £41.9m of exceptional charges. These split as follows:</div>
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<i>Termination of Ancellotti + back room staff contracts/compensation to Porto for AVB: £28m</i></div>
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<i>Impairment of player registrations: £7.4m</i></div>
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<i>Payments to HMRC for unpaid NI on "image rights": £6.4m</i></div>
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Now these costs are individually "one-off" in nature, but Chelsea's managerial merry go round has cost the club no less than £64m in compensation to various parties over the last four years. That is equivalent to 25% of the club's matchday revenue over that period, a staggering waste.</div>
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Adding the exceptional charge, a small interest bill and the share of profit from the media JV takes the £26m EBIT loss to a pre-tax loss of £67.4m. Ignore the exceptionals and the loss would be £25.6m. This compares to £70.4m in 2009/10. There is definite progress being made.</div>
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<u>Cash flow and Roman's support</u></div>
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With £34.3m of the £41.9m of exceptional charges being real cash payments (the impairment is a non-cash charge), Chelsea's operating cash flow was weak in 2010/11, with an cash outflow before investment of £5.5m, but this is still an improvement on 2009/10, reflecting the far better underlying EBITDA performance and strong working capital inflows.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8duA6RiTOYvVhrIJuuA-Y9NwsEJlcqKdqoLRyPV8mSWLOp7vd3t2lV8QUhf_nlgZAGtgLN_QsCQzP2g0Hi-Wie4ffNRSmNDpm719ffActgE20tXFQeyoXoA_gKlODwMCgE7BWc3xaohZV/s1600/CFC+cash+flow.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8duA6RiTOYvVhrIJuuA-Y9NwsEJlcqKdqoLRyPV8mSWLOp7vd3t2lV8QUhf_nlgZAGtgLN_QsCQzP2g0Hi-Wie4ffNRSmNDpm719ffActgE20tXFQeyoXoA_gKlODwMCgE7BWc3xaohZV/s1600/CFC+cash+flow.png" /></a></div>
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In 2009/10, Chelsea had negative net cash transfer spend. That all changed of course in January 2011 with the (panic?) purchases of Torres and Luiz. These accounts show £112m of "intangible asset" additions on the balance sheet and a gross cash spend of £85m. As I have explained before on this blog, cash flows from transfers are very volatile but the pattern is clear. Chelsea are spending again (at least for now).</div>
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Even adding in £24m from player sales, the accounts show net cash spending on transfers of £60.6m. Add in capex and there is a £72m cash outflow before financing. This hole is filled as it is every year by loans from Abramovich's parent company Fordstam Limited. In the past, such loans are converted to equity after a while and no doubt the same will happen again.</div>
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<u>Some FFP maths</u></div>
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So how close are Chelsea to meeting the FFP rules? On the assumption that UEFA ignores exceptional items (and I believe it is reasonable to make that assumption, especially in the early years of the new rules), the club has made good progress.</div>
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I have assumed that within Chelsea's cost base is c. £8m of spending on youth development and c. £1m of spending on community development. These items are effectively "deductible" under FFP. </div>
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The table above shows that based on these assumptions about spending on youth and community activities, Chelsea have closed their "break-even" deficit quite substantially over the last three seasons. Revenue is up and costs are down. This calculation is before any player wages based on pre-June 2010 contracts are excluded under the Annex XI exemption, which will reduce the loss further.</div>
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Most big clubs should be able to generate profits on player sales (academy products have zero "book cost"). Assuming Chelsea can match the £18.4m profit achieved in 2010/11, the core deficit is only around £8m. That is well within the the €45m (c. £38m) allowable loss over the first two years of the new rules.</div>
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As discussed above, the main risk to this happy position is a big rise in the amortisation charge (i.e. a further splurge of transfer spending). Five years ago the amortisation charge was £70m. A return to that level would blow a big hole in the FFP calculation.</div>
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The other, ever present, risk if of course that the club will abandon it's cost control in an attempt to stay competitive on the pitch. I have written before how "six into four doesn't go" when it comes to Champions League places. Chelsea can only meet FFP with the sort of squad cost they have now by being in the Champions League. The stakes are high.</div>
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<u>Concluding thoughts</u></div>
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Ignoring the exceptional charges (and Chelsea will pray UEFA do just that), these are impressive figures. To continue to meet FFP and to ween the club off Abramovich's cash, Chelsea will need to repeat the trick of holding down wages whilst achieving top four finishes. That is no easy task when every other club's wage bill is rising and when the squad needs a significant overhaul.</div>
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The other long-term option of course is boosting matchday income from the current c. £65m pa to an Emirates Stadium like £90-100m. Maybe Nine Elms/Olympia/Earls Court etc is the answer.</div>
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<b style="background-color: white; color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b>
</div>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-26637122196277412422012-01-19T15:49:00.000+00:002012-01-19T23:04:52.649+00:00Why England's richest club doesn't have any money...<div style="text-align: justify;">
<b>I wrote this article for the latest edition of the famous fanzine <i>United We Stand</i> and it is reproduced here with the very kind permission of the editor, Andy Mitten.</b></div>
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<b>If you don't buy it at the match I'd heartily recommend United fans <a href="http://www.uwsonline.com/subscribe.php">subscribe to UWS here</a> (ten editions for only £28).</b></div>
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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?</div>
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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? </div>
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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. </div>
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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. </div>
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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).<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9Gy0zCp7xJx_c4KDst2a1Gb6AJ8UrvTH0NjsPz1TPqki3NQjQEptUTEcQvvs6HEHNb9y20rncIXj-nKVF_PJ0D3zenguViXkTAiPz7UO3Dh2cjQ69Vzic6kOtn58AEQvnUV0CGfrqKAUU/s1600/MUFC+cash+bridge+2011-12.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9Gy0zCp7xJx_c4KDst2a1Gb6AJ8UrvTH0NjsPz1TPqki3NQjQEptUTEcQvvs6HEHNb9y20rncIXj-nKVF_PJ0D3zenguViXkTAiPz7UO3Dh2cjQ69Vzic6kOtn58AEQvnUV0CGfrqKAUU/s1600/MUFC+cash+bridge+2011-12.png" /></a></div>
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<span style="text-align: justify;">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. </span><br />
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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. </div>
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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. </div>
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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. </div>
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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. </div>
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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....</div>
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<b style="background-color: white; color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px; text-align: justify;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-75114286171516913362012-01-17T14:39:00.001+00:002012-01-17T16:42:42.784+00:00Explaining the confusing world of Everton's cash transfer spend<div class="separator" style="clear: both; text-align: center;">
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<b>Warning</b><br />
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<b>This is slightly dweeby analysis of Everton's transfer spending that attempts to explain why the figures quoted by EFC Chief Executive Robert Elstone and published in the club accounts <u>do</u> tie in with reality. Hopefully it casts some light on the complex cash flows involved in many transfers, but it may be a bit dull!</b></div>
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<b>Andy</b></div>
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<u>The problem</u><br />
After Everton announced the purchase of Darron Gibson last week I tweeted:<br />
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<span style="background-color: white; color: #333333; font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, sans-serif; font-size: 14px; line-height: 18px;">"Little known fact. Everton have been net spenders on transfers every year since Rooney left (cash figs from accounts)."</span></blockquote>
Along with this graph:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3otUo6uxyoOCqo9Vw8Z8Zc9fnLoAhSMwcU0OdzOXePMDrwVXeGGUMtGM7L3BiJb5u6lX3x7ynd0kkcc7vIC0n9-pffoxHa-w_sNdqeK87ZalInJ66CUDwYaJRIAxFcFK5vHqWFnwtHdwc/s1600/Everton+net+transfer+spend.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3otUo6uxyoOCqo9Vw8Z8Zc9fnLoAhSMwcU0OdzOXePMDrwVXeGGUMtGM7L3BiJb5u6lX3x7ynd0kkcc7vIC0n9-pffoxHa-w_sNdqeK87ZalInJ66CUDwYaJRIAxFcFK5vHqWFnwtHdwc/s1600/Everton+net+transfer+spend.png" /></a></div>
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This was met by some understandable scepticism from Evertonians pointing out that in 2010/11 "we didn't sign anyone". Then by happy coincidence, Everton Chief Executive Robert Elstone published an extraordinary blog on the club's official website entitled "<a href="http://www.evertonfc.com/evertoninteractive/where-the-money-goes">Where The Money Goes</a>", which said exactly the same thing I had said.</div>
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The dichotomy between the honest opinion of Everton fans that the club has been more about selling than buying and the numbers in the club's cash flow statements in the accounts showing net spend over each of the last six years needs explaining.</div>
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The problem arises with the phasing of payments for players and receipts from their sale and from the fact that the only information we have are headline figures for deals, what you might call "the Sky Sports News number", and two numbers in a club's cash flow statement, one for purchases and one for sales.</div>
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<u>The details Elstone gave on transfers</u></div>
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This is what Robert Elstone has to say about Everton's transfer activity since 2006/07 (emphasis as in original):</div>
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<b><span style="font-family: Arial, sans-serif; font-size: 10pt;">"[2006/07] We spent £4m net on new players</span></b><span style="font-family: Arial, sans-serif; font-size: 10pt;"> (money we paid out on signing
including Kroldrup, Davies, Johnson and Lescott less money banked on the likes
of Rooney, Bent, Kilbane and Davies).<b><o:p></o:p></b></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 10pt;"><b>[2007/08] </b>A <b>net spend of £15m</b> (further money we paid out for
Kroldrup, Johnson and Lescott and new spending on the likes of Howard,
Jagielka, Yakubu, Baines and Pienaar, less the money banked for Davies,
Kroldrup, Beattie, McFadden and Naysmith).<o:p></o:p></span></div>
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<b><span style="font-family: Arial, sans-serif; font-size: 10pt;">[2008/09] We spent £6m net on players</span></b><span style="font-family: Arial, sans-serif; font-size: 10pt;">(payments for Yakubu, Baines, Howard,
Kroldrup, Lescott and Fellaini, less monies in for McFadden, Kroldrup, Beattie
and Johnson).<b><o:p></o:p></b></span></div>
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<b><span style="font-family: Arial, sans-serif; font-size: 10pt;">[2009/10] We spent £3m net on players</span></b><span style="font-family: Arial, sans-serif; font-size: 10pt;"> (payments out on Yakubu,
Fellaini, Bilyaletdinov, Distin and Heitinga, less monies in for Johnson,
Rooney and Lescott).<b><o:p></o:p></b></span></div>
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<b><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">[2010/11] We spent a further £7m net on players</span></b><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;"> (money spent on Fellaini, Heitinga and Gueye, less cash in for
Lescott and Pienaar)."</span></div>
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<u>Modelling Everton's cash transfer spend</u></div>
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We can look at Elstone's long list of purchases and sales in more detail in the table below, along with the <b>actual</b> cash flows from the Everton report and accounts.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5WK3k5Qcb_bByaoOmJV2W7hI_L6lo0p9JD-NZ1D6gGM7QWvJRfzD_OODQgFOk13NeAEdP-dFmQcgD2womA4cVmF0U44aSaM1glnH885o5PFd-h-Y7nL8ihyphenhyphennT6rIVF5qet9YlFoODzHrV/s1600/EFC+transfer+payment+timings+from+Elstone.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5WK3k5Qcb_bByaoOmJV2W7hI_L6lo0p9JD-NZ1D6gGM7QWvJRfzD_OODQgFOk13NeAEdP-dFmQcgD2womA4cVmF0U44aSaM1glnH885o5PFd-h-Y7nL8ihyphenhyphennT6rIVF5qet9YlFoODzHrV/s1600/EFC+transfer+payment+timings+from+Elstone.png" /></a></div>
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We can then apply some estimates of transfer prices, I have used figures from transfermarkt.co.uk except for Tim Howard for whom no figure was available on the site and I have estimated £3m, the sale of Simon Davies (est £2m) and for Rooney where the relevant stage payments for 2007 and 2010 are estimated from note 11 of MUFC's 2005 accounts.</div>
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Except in the case of the Rooney stage payments and the payments for Lescott, I have assumed that where cash is received or paid over multiple seasons all payments are equal (a modelling simplification I concede), so we can get to an estimated payment/receipt per season:</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjC6BMnV5H7IVpZ0yfx8y829iG_uy2eExWC6a5C2hm07iErU2ua3W6GOWzykdszLhwn3bWlShl0vxCda4Xu1Q_xzTrv8sGyF8Tjz80_YGBnh5Q1mmo7MejcEmJ9aglOyF8iD8AawYwq_G55/s1600/EFC+price+per+year.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjC6BMnV5H7IVpZ0yfx8y829iG_uy2eExWC6a5C2hm07iErU2ua3W6GOWzykdszLhwn3bWlShl0vxCda4Xu1Q_xzTrv8sGyF8Tjz80_YGBnh5Q1mmo7MejcEmJ9aglOyF8iD8AawYwq_G55/s1600/EFC+price+per+year.png" /></a></div>
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We can then apply the payment/receipt per annum estimated to the sequence of payments given by Elstone and compare the calculated figures to the actual cash flows in the report and accounts:</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNIJA80HCZSg02emu8x_2HWti0w9sBvDi8dTuDpBXhcx5RqLPRyLyhqibx62VEVmhYHUEdMLXIGSnovdIQRjXd_CRVTtjdiLtG83XlGtkU72FD9w3g2QfylHCH0k8ikDhYOCTk54t19dc2/s1600/EFC+calculated+phasing+purchases.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNIJA80HCZSg02emu8x_2HWti0w9sBvDi8dTuDpBXhcx5RqLPRyLyhqibx62VEVmhYHUEdMLXIGSnovdIQRjXd_CRVTtjdiLtG83XlGtkU72FD9w3g2QfylHCH0k8ikDhYOCTk54t19dc2/s1600/EFC+calculated+phasing+purchases.png" /></a></div>
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As can be seen from the table above, this model matches the actual numbers from the accounts pretty well, with an error of only £1-2m per annum.</div>
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<u>Conclusion</u></div>
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I am not claiming the above model is perfect, but hopefully it shows why Everton's published numbers are correct. The issue of phased payments creates significant confusion when people examine football club accounts, something we will no doubt see with Chelsea and Liverpool's next few results in which the £50m paid for Torres will be spread over 5 years....</div>
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It's worth noting that for two years in 2003/4 and 2004/5, Manchester United, under pressure from the club's major Irish shareholders Magnier and McManus published detailed player by player analysis of all transfers. The example below from 2004/05 (apologies for the low quality) shows the complexity of the cash flows and conditional payments:</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidZzXvaR5vCDpeFCq6CVw8TRiDOpYBASqUBaJv-DKW74JzARTYreIr59tlgM-A3qlH19YY23e-gS-y_fiw21osdRIBhOUQlL3Qye5azWukDt3E30ZSDZrMr2XiIRdRnvlGSuZY8rmOV6wO/s1600/note+11+05.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="532" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEidZzXvaR5vCDpeFCq6CVw8TRiDOpYBASqUBaJv-DKW74JzARTYreIr59tlgM-A3qlH19YY23e-gS-y_fiw21osdRIBhOUQlL3Qye5azWukDt3E30ZSDZrMr2XiIRdRnvlGSuZY8rmOV6wO/s640/note+11+05.png" width="640" /></a></div>
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Only £1.4m of the £23m cash United received that year was from player sales in that season and only 58% of cash spent related to deals signed in that year.</div>
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I can see no logical reason why UEFA, FIFA or national associations shouldn't insist on this level of disclosure, prices paid are hardly commercially confidential, and then everyone could see how much their club does or does not spend and on whom.</div>
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<br /></div>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-29999454966254206502012-01-14T13:34:00.000+00:002012-02-23T14:00:39.910+00:00An open reply to steve_mcfc's questions to me on 13th January 2012<br />
<div class="MsoNoSpacing" style="text-align: justify;">
This is an open reply to steve_mcfc,
the Manchester City supporting Twitter sensation. I blocked Steve on Twitter
months ago but in a rush of blood to the head I unblocked him yesterday.... Steve
proceeded to tweet me around 30 times starting at 7.48pm yesterday. The Tweets
were a combination of insults and questions and are reproduced in full below
(in bold). You can check they are exactly as Steve tweeted on his timeline. I
was out at the time.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
Given that it is hard to reply to 30
tweets I thought I would give more detailed answer to each of Steve’s points on
this blog. I apologise for not replying on Twitter but as Steve doesn't restrict his questions to 140 characters, I don't see why I should restrict my answers...<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b><span style="background-attachment: initial; background-clip: initial; background-color: white; background-image: initial; background-origin: initial;">Before you blocked me, you said you were
opposed to a cap on squad spending where the cap is the same for all clubs. </span>How can you claim to be impartial when you
refuse to support a cap that's fair and you will only support a cap that
provides United with a huge long-term advantage? You're not impartial at all,
are you?<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
I’m not impartial about which team
(United) I want to win things and which teams (others, especially Liverpool,
City) I don’t. That’s called “being a supporter”. I am impartial about wanting
football organised in a fair and sensible way maintaining decent competition,
preventing the exploitation of supporters and the endangering of clubs through
excess debt and financial mismanagement.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
I support FFP because I think
excessive owner subsidy unbalances competition and injects unsustainable
inflation into the system. The labour market in football has an almost vertical
supply curve, that is to say the supply of footballers is almost completely price
inelastic. Additional cash above a certain level just increases the price
(wages) of footballers. The vast majority of clubs lose money because of the
wages they are forced to pay. Controlling owner support through FFP should calm
this systemic inflationary problem, helping the whole pyramid.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>Why
did you refuse to support a cap on spending where the cap is the same for all
clubs, & you would only support either FFP as it currently stands, or a cap
on spending where the cap is set to be a percentage of revenue?<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
Because a fixed cap would eliminate
any incentive to grow and develop a club, surely a daft and unwelcome consequence?
What is wrong with the “normal” equation of “play good, attractive football,
attract higher gates and more sponsors, reinvest this money back in squad and
create virtuous circle....”?<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
FFP doesn’t preclude massive
investment in stadia, youth development, training facilities etc in any way. It
just limits inflationary bursts of wage and transfer spending.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
I would have preferred FFP to
have specific debt restrictions in addition to its spending limits, debt is a
cancer on the game. I would like to see any English licensing rules to include
debt restrictions. See my submission to the CMS Select Committee, available
here: </div>
<div class="MsoNoSpacing" style="text-align: justify;">
<a href="http://www.publications.parliament.uk/pa/cm201012/cmselect/cmcumeds/792/792vw13.htm">http://www.publications.parliament.uk/pa/cm201012/cmselect/cmcumeds/792/792vw13.htm</a><o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>Do
you still think that FFP will land City "back in the ditch", as you
once charmingly said?<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
I hope City go back to the regular relegation/promotion
comedy cycle of failure they have been on for most of my life yes! In other
shocking news I hope Liverpool implode with King Kenny going mad, that Leeds
never come back up and I have to tell you Steve, THE POPE IS CATHOLIC.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>Before
you blocked me, you said you were opposed to a cap on squad spending where the
cap is the same for all clubs. How can you claim to be "impartial"
when the reason you oppose that is because you want FFP to provide United with
an unfair advantage?<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
I don’t support FFP because it helps
United (under the current ownership all it would actually do is help the
Glazers boost EBITDA and get a bigger price for any future IPO in any case).<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
I actually think there needs to be a
financial rebalancing between the richest clubs like United and the less well
off. I would advocate the reintroduction of league gate sharing and a
redistribution of Champions League income across the PL to help this. I think
the FFP exclusions on stadium development are great for aiding a rebalancing
but bottom line, clubs like United should be “taxed” through gate sharing etc.
If you don’t believe me, ask Dave Boyle, David Conn and Ian King (of
TwoHundredPercent) with whom I’ve been discussing this for a while now.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>Why
did you assume that Etihad Airways would not grow at all over the 10-year
period that the Etihad sponsorship deal of City covers? Etihad is a young
airline that is looking to massively expand over the next decade, yet the
figures you assumed for Etihad's growth over the next 10 years was 0%. Your
assumption of 0% growth was dishonest wasn't it, Andy? Why would a young
airline seeking to massively expand sign a £400m sponsorship contract and expect
to grow by 0%? <o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
If you are talking about my
benchmarking of the Etihad deal to the company’s current financial in my blog
post of 13<sup>th</sup> July you have got the wrong end of the stick. I pointed
out that the company’s current turnover was £2bn and that even at a 10% EBIT margin
the deal would represent an unusually substantial proportion of profits. When
did I say the company would never grow?<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
I think the deal is extraordinarily large
compared to the size of the company and can find no equivalently large deal vs.
company size out there (Bayern’s sponsor Deutsche Telekom for example have
EBITDA of €3.9bn and pays Bayern €25m pa). Let me know if you can find another
mismatch between deal size and company size...<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>No
response to anything I've just said then? Does that mean you accept everything
I've just said?<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
No, hence these replies!<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>As
for verbal diarrhoea, I would say you being interviewed by the BBC talking
about City's finances is the best example of verbal diarrhoea I've seen. Why on
earth a supposedly unbiased broadcaster has a highly biased Utd fan on to slag
off our finances I'm not entirely sure.<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
Why don’t you ask the BBC Steve.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
You don’t like me or my views, but lots
of other people take me seriously unfortunately.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>One
other thing. Do you not consider it extremely hypocritical to campaign against
the Glazers because they limit United's spending while you also act as
cheerleader for FFP, cos it will limit City's spending? Is that impartial?<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
The Glazers exploit United and its fans (like Hicks and Gillett exploited Liverpool and their supporters) through an LBO. My main gripe is not spending
restrictions, it is enforced ticket price hikes to make the LBO numbers stack
up. The House of Commons Select Committee for Culture Media and Sport was
scathing of LBOs in football, it is not an unusual view that they add no value.<br />
<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
I am not a cheerleader for FFP, I
support it but think that the financial structure of UEFA’s CL is a major
problem and would like specific debt limits in the rules too. Again, see my
DCMS submission for details (and note that the committee quoted my submission
on several occasions).<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>No
response to any of that then? Guilty as charged then.....<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
Sorry, it took me a while...<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>You
actually blocked me because I accused you of being a liar, Andy. I see you're
lying about that too now.<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
Did I Steve? I knew there had to be a
good reason.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>Sorry,
my mistake, you blocked me because I accused you of being a biased liar. That's
the one.<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
OK, if you say so Steve.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>Come
on Andy. I think I explained the issues I have with your claim of being
impartial. You used to stick up for yourself, so why not now? For example, this
is a yes/no answer: Do you still think FFP will land City "back in the
ditch"? Yes/no - wouldn't take you very long to clear that up, would it?<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
I actually think City may get around
FFP sufficiently to remain quite competitive. As a United fan I would of course
like to see you back down in the ditch!<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>Stop
pretending to be impartial. We all know you've only started covering clubs
other than Utd so that you can help to convince people of the supposed need for
FFP so that Utd get their massive unfair long-term advantage. Unless you can
convince people why it's "fair" for United to spend around 65% more
than their PL rivals year in year out when on-field success has been shown to
be highly correlated with total spending on wages & transfer fees<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
Are you saying nobody who supports any
club can comment on the finances of any other club or on football wide
regulation? That would rather restrict debate!<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
As I said above, I think the big clubs
like United need reining in financially through new rules. The fact that clubs
without rich owners like Everton can’t possibly compete and that clubs with <i>quite</i> rich owners like Sunderland can
spend £100m of their owner’s money and not get anywhere suggests fundamental
flaws with the system. The answer to that is surely not a billionaire owner for
every club?<br />
<br />
<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
I started covering other clubs because
the whole subject interests me and I believe fans are exploited all too often (see
my work on QPR’s ticket price hikes for example). The Football Supporters
Federation were kind enough to nominate me in their blogger of the year award. I’ve
helped out various supporters trusts behind the scenes too, not that you appear
to care about ownership issues Steve.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
In fact Steve, you are like a stuck
record, fixated by FFP and its relative impact on City and United.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<b>You've
provided a great defence of your impartiality, Andy. Well done son.<o:p></o:p></b></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>
<div class="MsoNoSpacing" style="text-align: justify;">
Thanks Steve.<o:p></o:p></div>
<div class="MsoNoSpacing" style="text-align: justify;">
<br /></div>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-39790809274743898792011-12-08T15:00:00.000+00:002011-12-08T16:22:00.519+00:00The financial cost of United's CL exit<br />
<div class="MsoNormal" style="text-align: justify;">
So it’s London 2 – Manchester nil (enjoy it while you can
London, you aren’t going to win the thing).</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
The way modern football works, not only is being knocked out
of the Champions League miserable enough, but the financial consequences aren’t
great either, especially when you’re up to your eyes in debt.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Lots of people have asked me about the cost of United’s CL
exit, so here’s a quick run through of the figures. The bottom line is that due
to the way UEFA makes its payments, with a big element relating to the last
season’s domestic rankings, United will not lose a huge amount of cash compared
to last year.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
What two wins, three draws and a defeat in one of the
easiest of groups says about the club is another matter.....</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
</div>
<div class="MsoNormal">
<b>Last season<o:p></o:p></b></div>
<div class="MsoNormal" style="text-align: justify;">
I’ll make financial comparisons with last season when of
course United were (well) beaten finalists. UEFA publish the TV cash
distribution and its shows MUFC received €53,197,000 (c. £46m) in Champions League income.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal">
</div>
<div class="MsoNormal">
<b>This season<o:p></o:p></b></div>
<div class="MsoNormal">
There are several elements to the CL TV payments:</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
</div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0cm; mso-add-space: auto;">
<i><u>1. Participation and “match bonus”</u><o:p></o:p></i></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0cm; mso-add-space: auto;">
All
clubs in the group stages receive a €3.9m “participation” payment and a €550,000
per game played “match bonus” (nonsensical since everyone is guaranteed six matches!).
So every club gets €3.9m + (6 x €0.55m)
= €7.2m.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0cm; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0cm; text-align: center;">
<b>Difference versus 2010/11: ZERO<o:p></o:p></b></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0cm; mso-add-space: auto;">
<b><br /></b></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0cm; mso-add-space: auto;">
</div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0cm; mso-add-space: auto;">
<i><u>2. Group performance bonus</u><o:p></o:p></i></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0cm; mso-add-space: auto;">
For
every win in the group stages, a club gets €800,000 and for every draw €400,000.
The table below shows the number of each for the four English clubs this
season:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGPMcrrhWO_aW7NMathOgga8PabpuwHwhlM9zdAbb-f4f8GnT9zdlsawhumpK2N9gB4Kl1l0b-tCTG2yufAwXpL1wp6MJcUbcIgKTe0rrCWJOBQXhPABtQTYWm7iaBo_oZxT7bwrACT5_A/s1600/CL+exit+7.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGPMcrrhWO_aW7NMathOgga8PabpuwHwhlM9zdAbb-f4f8GnT9zdlsawhumpK2N9gB4Kl1l0b-tCTG2yufAwXpL1wp6MJcUbcIgKTe0rrCWJOBQXhPABtQTYWm7iaBo_oZxT7bwrACT5_A/s1600/CL+exit+7.png" /></a></div>
<br /></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0cm; text-align: center;">
<b>Difference versus 2010/11: DOWN €1.2m<o:p></o:p></b></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0cm; mso-add-space: auto;">
<b><br /></b></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 0cm; mso-add-space: auto;">
</div>
<div class="MsoListParagraph" style="margin-left: 0cm; mso-add-space: auto;">
Bringing
these elements together we can calculate how much the basic group stage
payments are:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZuVbjq4JC4H6LNebkBb8SEshDE9k9BkmS8QkFL9XoRGbWBgaj0wGxl7gOJsiG9-Cv4oYpSlF5Mornpy2N_KxjzENOdo3COdlIqzDRw2PV2kJPmfsgo6ov4nJoLrrbWuE8ujJkM2VB5zIA/s1600/CL+exit+8.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZuVbjq4JC4H6LNebkBb8SEshDE9k9BkmS8QkFL9XoRGbWBgaj0wGxl7gOJsiG9-Cv4oYpSlF5Mornpy2N_KxjzENOdo3COdlIqzDRw2PV2kJPmfsgo6ov4nJoLrrbWuE8ujJkM2VB5zIA/s1600/CL+exit+8.png" /></a></div>
<br /></div>
<div class="MsoListParagraph" style="margin-left: 0cm; mso-add-space: auto;">
<i><u>3. Last season's knockout round payments</u></i></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0cm; mso-add-space: auto;">
Participation in each round means another payment of the following amounts:</div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0cm; mso-add-space: auto;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-92R0uAhXZVZZh75CoYhd-cKX1csSlHWva4TF-iodWdnQgPbW8IO7q-DybFCPb06u_XyVmEEtlxo0kedjsTX_2QYVi74XL3QtwErb9u-kzhAOTlWjnxEJgwfdXLiPZTdmTiOZ83QHLahM/s1600/CL+exit+5.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-92R0uAhXZVZZh75CoYhd-cKX1csSlHWva4TF-iodWdnQgPbW8IO7q-DybFCPb06u_XyVmEEtlxo0kedjsTX_2QYVi74XL3QtwErb9u-kzhAOTlWjnxEJgwfdXLiPZTdmTiOZ83QHLahM/s1600/CL+exit+5.png" /></a></div>
<div class="separator" style="clear: both; text-align: -webkit-auto;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Last season United earned €16.1m as losing finalists.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<b>Difference versus 2010/11: DOWN €16.1m</b></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 0cm; mso-add-space: auto;">
<i><u>4. The “market pool”</u><o:p></o:p></i></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0cm; text-align: justify;">
The
market pool represents around 45% of the CL money UEFA distributes to clubs.
Each country has its own pool amount (reflecting the relative size of the
advertising markets). The English pool is c. €84m, around 25% of the total.</div>
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<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0cm; text-align: justify;">
Each
market pool is distributed based on two formulae, 50% by the relative domestic
league position of the clubs from the relevant country and 50% by how far in the CL each club progress.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0cm; text-align: justify;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0cm; text-align: justify;">
<i><u>4a. Market Pool - PL finish element</u></i></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0cm; text-align: justify;">
As
Champions, United receive 40% of the Premier League finish element of the
English market pool, Chelsea (2<sup>nd</sup> in the league) receive 30%, City
(3<sup>rd</sup>) 20% and Arsenal (4<sup>th</sup>) 10%.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiq-00qcwHlxItO8HhdDak02TR_bjCKwarePE3xYihJ4orwztdKBX7ZlwjoXK78zjxou01WxpQVRXLuIQGjkg_0Q80wh1_laiTafVBnl7KKSXathn_6Qj8DEV1w0yH_o_I8-FO3P3Tw5cWe/s1600/CL+exit+3.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiq-00qcwHlxItO8HhdDak02TR_bjCKwarePE3xYihJ4orwztdKBX7ZlwjoXK78zjxou01WxpQVRXLuIQGjkg_0Q80wh1_laiTafVBnl7KKSXathn_6Qj8DEV1w0yH_o_I8-FO3P3Tw5cWe/s1600/CL+exit+3.png" /></a></div>
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<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 0cm; text-align: justify;">
This
means that United receive c. €16.8m this season vs. the €12.5m they received
last season (when Chelsea were the reigning champions).</div>
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<br /></div>
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<b>Difference versus 2010/11: UP €4.3m<o:p></o:p></b></div>
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<b><br /></b></div>
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</div>
<div class="MsoNormal">
<i style="text-align: justify;"><u>4b. Market Pool - progress in the CL element</u></i></div>
<div class="MsoNormal" style="text-align: justify;">
The 50% of the market pool determined by the relative
progress of the clubs cannot be calculated for certain until we know how far
through the competition Chelsea and Arsenal progress. The split is determined
on the number of games played (maximum of thirteen for finalists). The minimum
the London clubs could play is eight (if they go out in the next round).<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj56svGKUTNGA1yHwpthnt8bMMEHprNvpU_yBysuHhtjQUrF0Jgzgc4fsakqVRK52bLFFFyCM-sXvNwMhbif1k8FTbbYo-pyDlhMdHTH4fcwPz3O8a17D_CGMpfOr0GYjvwFywcm6dEMXmV/s1600/CL+exit+6.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj56svGKUTNGA1yHwpthnt8bMMEHprNvpU_yBysuHhtjQUrF0Jgzgc4fsakqVRK52bLFFFyCM-sXvNwMhbif1k8FTbbYo-pyDlhMdHTH4fcwPz3O8a17D_CGMpfOr0GYjvwFywcm6dEMXmV/s1600/CL+exit+6.png" /></a></div>
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<div class="MsoNormal" style="text-align: justify;">
The difference for United and City between the best and worse case is not huge (around €2m).</div>
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<br /></div>
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</div>
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<b>Difference versus 2010/11: DOWN €4.4-6.8m<o:p></o:p></b></div>
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<b><br /></b></div>
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</div>
<div class="MsoNormal">
<i><u>5. Total UEFA CL payments</u><o:p></o:p></i></div>
<div class="MsoNormal" style="text-align: justify;">
Adding up the group stage payments, and the market pool, the
most United can earn from the CL this year is around €36.5m, the least is €33.4m.</div>
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<br /></div>
<div class="MsoListParagraph" style="margin-left: 0cm; text-align: center;">
<b>Total difference versus 2010/11: DOWN €17.4-19.8m (£15-17m)<o:p></o:p></b></div>
<br />
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<b><br /></b></div>
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</div>
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<b>Europa League cash<o:p></o:p></b></div>
<div class="MsoNormal" style="text-align: justify;">
United and City will both get the dubious honour of being
parachuted into the Europa League in the new year.</div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
The UEFA distribution for this beaten up tournament is less
than 20% of what is paid out for the Champions League. There is a market pool
and payments for progressing through each of the five(!) rounds up to and
including the final. Winning the competition could add around €10m (there is a
market pool here too).</div>
<div class="MsoNormal" style="text-align: justify;">
<b><br /></b></div>
<div class="MsoNormal" style="text-align: justify;">
<b>Gate receipts<o:p></o:p></b></div>
<div class="MsoNormal" style="text-align: justify;">
There are potentially four home games in the Europa league
vs. three in the Champions League, so the impact on gate receipts depends on a
few factors, primarily how far through the EL United progress. The club’s
website does not have ticket prices for the Europa League yet, and we do not
yet know whether the club will enforce the ludicrous “automatic cup scheme”
that compels Old Trafford season ticket holders to buy tickets for all cup games
(with an opt out only for the League Cup). If United enforce the ACS, if prices
are set close to those for the Champions League and if United get to the
quarter finals or beyond, there will be no impact on revenue.</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
A nice club would waive the ACS obligation to buy Europa Cup
tickets and would cut prices too (as Spurs have this season). Don’t hold your
breath.....</div>
<div class="MsoNormal" style="text-align: justify;">
<b><br /></b></div>
<div class="MsoNormal" style="text-align: justify;">
<b>Conclusion<o:p></o:p></b></div>
<div class="MsoNormal" style="text-align: justify;">
Because of the big market pool boost from being champions
last season, United will only lose a maximum of £17m in TV cash from the early exit.
Some of this can even be recovered from the Europa league. The club don’t
budget to progress beyond the last sixteen in any season, so recent success has
been a financial bonus. To put this loss into context, it represents a maximum of 15% of last year's EBITDA.</div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
The fact that a club who have reached
three finals in four years can get eliminated from one of the easiest groups points to wider problems....</div>
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<br /></div>
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<b style="background-color: white; color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b></div>
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<b><br /></b></div>
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<br />
<br />andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-11261824194767195212011-11-15T12:36:00.000+00:002011-11-15T14:07:38.652+00:00Manchester United Q1 2011/12 results: The big red money machine slowed down by debt<div style="text-align: justify;">
The first quarter of United's 2011/12 financial year saw a familiar story of a very profitable football club servicing some pretty expensive debt. Because the club is so profitable at the operating level (and full credit to the players, coaching staff and commercial team for making it so), the debt can be comfortably serviced. The threat of substantial dividends seems to have disappeared at the moment, but the sheer sums of money wasted by the Glazers' financial structure remains eye watering.</div>
<div style="text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZ6AgHNizbGqbu7kZsQ8Pr9V-KoFROcySxuFXfk6hRIrx5ULdpPyMewOZ1J_tCksxqErVD4fE_-BlH3x9uxilFS1Nx04vgpwysjizmSJBQZj6mCDiwzEwOZt83ijIZQBHgpACMZF-Jv_61/s1600/MUFC+q1+2012+PL.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZ6AgHNizbGqbu7kZsQ8Pr9V-KoFROcySxuFXfk6hRIrx5ULdpPyMewOZ1J_tCksxqErVD4fE_-BlH3x9uxilFS1Nx04vgpwysjizmSJBQZj6mCDiwzEwOZt83ijIZQBHgpACMZF-Jv_61/s1600/MUFC+q1+2012+PL.jpg" /></a></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b>Revenue</b></div>
<div style="text-align: justify;">
<i>Matchday</i></div>
<div style="text-align: justify;">
There were four home matches at Old Trafford during the quarter as there were in the prior year, with attendances virtually identical. Seasonal hospitality sold out for the first time in several years, adding £400,000 to income. The other c. £1.4m growth came from a bigger US tour (tour income is included in "matchday").</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<i>Media</i></div>
<div style="text-align: justify;">
The substantial growth here (up £3.2m) reflects a final payment from UEFA for last season's Champions League campaign which has been accounted for this financial year. United also receive a greater share of the Champions League English "market pool" this season. This is because we were Premier League champions last season rather than runners-up the year before.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<i>Commercial</i></div>
<div style="text-align: justify;">
The £5.4m year-on-year growth in Commercial revenue comes from a variety of sources including the DHL training kit deal (worth around £2-2.5m per quarter), step-ups in existing deals (such as Aon) and the inclusion of partnerships signed post Q1 2010/11. On the bond holder conference call the club talked of "many" additional opportunities on the commercial side. United has by far the most successful commercial operation in English football, but still lags behind some major European clubs (especially Bayern Munich). The Stratton Street office in London now has over forty staff.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b>Costs</b></div>
<div style="text-align: justify;">
<i>Staff costs</i></div>
<div style="text-align: justify;">
Despite the retirement of several senior players over the summer and the sale of Brown, O'Shea and Obertan, staff costs again increased sharply, by 12.2% vs. the previous year. The club said they "continue to face pressure" on wage costs. The club confirmed they had signed new deals with Valencia, Smalling, Park, Cleverley and Hernandez. Some of the cost pressure came from a further expansion of the London commercial team.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Despite the 12.2% rise in staff costs, the ratio of staff costs to income actually fell slightly vs. last year from 53.2% to 51.2%. By way of comparison, the figure at Arsenal in 2010/11 was 55.2% (football revenue only), at Barcelona was 58.3% and at Real Madrid was 45.0%.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<i>Other operating costs</i></div>
<div style="text-align: justify;">
Other costs (ex-depreciation and amortisation) rose sharply up 13.3% year-on-year. Some of this is due to the expansion of the commercial operations and associated costs (the club revealed they pay for some elements of partner companies' advertising, such as the Turkish Airlines TV advert). The other main factor relates to the larger and more costly US pre-season tour.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b>EBITDA to EBIT</b></div>
<div style="text-align: justify;">
With revenues up 16.6% and costs up 12.6%, EBITDA (earnings before interest, tax, depreciation and amortisation) rose 29.6% to £19.3m for the quarter. This represents a 26.1% margin, which is good for Q1 (a seasonally weak quarter).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Depreciation grew slightly to £1.8m. The club achieved an accounting profit on selling Brown, O'Shea and Obertan of £5.6m. The amortisation charge (how transfer spending is recognised in the profit and loss account) was virtually unchanged at £10m. This all meant that EBIT rose substantially from £4.9m to £13.0m.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
There was no goodwill amortisation charge now Red Football has moved from UK GAAP to International Accounting Standards.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b>Below EBIT</b></div>
<div style="text-align: justify;">
The P&L interest charge was £10.0m, lower than the prior year reflecting the interest saved by the club buying back bonds over the previous twelve months.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
In addition to this interest charge there were £9.3m of non-cash accounting charges. These relate to changes in the value of United's debt caused by the pound depreciating vs. the US dollar (£6.3m), the premium paid on repurchased bonds (£1.9m), the ongoing bond issue discount and issue cost amortisation (£803,000) and a small mark to market movement in interest rate swap (£321,000). In the previous year these items were a positive £11.4m and are of no real importance to the club's financial position.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b style="background-color: white; font-family: Verdana, Geneva, sans-serif; font-size: 13px; line-height: 18px;">Cash flow, interest and debt</b></div>
<div style="text-align: justify;">
EBITDA of £19.3m and a £3.2m inflow from working capital (largely prepayments on commercial deals) meant the club saw a £22.5m operating cash inflow during the quarter, virtually identical to the prior year despite the strong profit growth.</div>
<div style="text-align: justify;">
<br /></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDuRt4alEwZlZCdBS2a6xs2OlGauPNrqVGreLu7sU8fcyLD6L6dpuVL2aMyP8HjS2EXhK4eMIsTvURBTFnT1NI2TpkmCZl0GTwVBW9jcscaazeysVymDT3W_gd1fxsvzjz4WAOyHI4pgJM/s1600/MUFC+q1+2012+CF.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDuRt4alEwZlZCdBS2a6xs2OlGauPNrqVGreLu7sU8fcyLD6L6dpuVL2aMyP8HjS2EXhK4eMIsTvURBTFnT1NI2TpkmCZl0GTwVBW9jcscaazeysVymDT3W_gd1fxsvzjz4WAOyHI4pgJM/s1600/MUFC+q1+2012+CF.jpg" /></a></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
There was an August coupon payment on the bonds (the other payment is in February each year) of £21m and the club actually paid £3.2m in corporation tax, a rarity caused by group losses in 2010/11 being insufficient to offset the entire tax charge.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The club spent a substantial £13.8m on capital expenditure, including £8.2m on property near Old Trafford with the balance being spent on box refurbishment in the ground.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Unlike Q1 2010/11, there was substantial transfer spending in Q1 2011/12. The club spent a net £47.1m buying De Gea, Young and Jones (netting off receipts for the players sold).</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The combination of heavy capex and transfer spending meant there was £62.6m outflow before financing. The club bought back a further £23.1m of bonds, meaning the total cash outflow for the quarter of £85.7m.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The club's cash balance fell sharply from £150.6m at the end of June to £65m at the end of September. Gross debt (excluding bonds held in treasury) is down to £433.2m, meaning net debt is £368m, up slightly on the same date last year.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b>Thoughts</b></div>
<div style="text-align: justify;">
Another £21m of interest and £23m of bond buybacks takes the total cost of the Glazers' financial model to an eye watering £578m. There have been some savings along the way (corporation tax savings of around £100m), but the net cost is clear.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
There are very few football clubs that could support a burden like that, after all Hicks and Gillett's Kop Holdings Limited collapsed after a couple of years with a lower interest bill than United's. Thankfully, Manchester United can cope with its current level of interest. The club's resilience is down to good management, good luck and good fortune. It is largely of course a product of Sir Alex Ferguson's extraordinary record.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Despite the fact that the club's £100m+ of annual EBITDA can support the £40m+ of interest paid each year and still leave funds for investment, the mooted IPO in Singapore (currently on hold of course) tells its own story.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
United's debt is expensive at an effective rate of c. 8.5% at a time of very low interest rates. The club's wage structure cannot apparently be stretched to afford a Wesley Sneijder type purchase, and net cash transfer spending since the Glazers took over is only £114.6m or £21.8m per year.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
The House of Commons Select Committee report on Football Governance was highly critical of leveraged buyouts in football and the Department of Culture, Media and Sport response acknowledged this. The crushing cost of the Glazers' LBO are clear every time Red Football reports results. Just because United can "afford" to waste millions, it doesn't mean it's right or sensible.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
If the club does do an IPO to reduce debt it appears that message has even made it to Florida.....</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
<b style="background-color: white; color: #333333; font-family: Trebuchet, 'Trebuchet MS', Arial, sans-serif; font-size: 13px; line-height: 16px;"><span style="color: red; font-family: 'Trebuchet MS', sans-serif; font-size: 18pt;">LUHG</span></b></div>
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<div style="text-align: justify;">
<br /></div>andersredhttp://www.blogger.com/profile/01894819061607086081noreply@blogger.comtag:blogger.com,1999:blog-6525088379436999555.post-63844855739226264242011-10-12T11:06:00.001+01:002011-10-12T11:07:15.072+01:00The real problem with Liverpool's media income<div style="text-align: justify;">
There are few things as unedifying in any aspect of life as hearing the rich demand more at the expense of the less well off, and football is no different.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Ian Ayre, Liverpool FC's Managing Director has suggested that the current (equitable) distribution of the Premier League's overseas rights income should be looked at. Ayre believes that "big" clubs (which apparently includes clubs that finish 7th and 6th respectively in the last two seasons) should get a bigger share.</div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Ayre is particularly worried about "competing" with Barcelona and Real Madrid and told the Guardian:</div>
<blockquote style="text-align: justify;">
<span class="Apple-style-span" style="background-color: white; color: #333333; font-family: arial, sans-serif; font-size: 14px; line-height: 18px;">"If Real Madrid or Barcelona or other big European clubs have the opportunity to truly realise their international media value potential, where does that leave Liverpool and Manchester United? We'll just share ours because we'll all be nice to each other? The whole phenomenon of the Premier League could be threatened. If they just get bigger and bigger and they generate more and more, then all the players will start drifting that way and will the Premier League bubble burst because we are sticking to this equal-sharing model? It's a real debate that has to happen."</span></blockquote>
So how bad is the competitive gap between Liverpool and the Spanish giants?<br />
<br />
<div style="text-align: justify;">
Well at face value, the gap is big and growing. The chart below shows Liverpool and Barcelona's media income for the last five seasons (numbers for 2010/11 are derived from the PL, UEFA, FCB's account and an estimate of LFC's domestic cup income). I have converted Barcelona's income from Euros into Sterling at the average exchange rate for each season.</div>
<div style="text-align: justify;">
<br /></div>
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<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
Having been £20m in 2006/07, the gap has expanded enormously to £75m last season. So what's going on?</div>
<br />
<div style="text-align: justify;">
Much is made of La Liga's highly inequitable TV rights deal which allows Barcelona and Real Madrid to negotiate to sell their rights individually, creaming off the majority of the total paid between the two clubs. This has indeed been a factor as the chart below showing income from the domestic league rights demonstrates:</div>
<div style="text-align: justify;">
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjN0MtLjJBo5whXOWf0Ekc5yDLDvpxnJ1OEdStySQ9QZGDQT2eoFDY3UIzZvqCczEQmWnCoGWo5sxflMzM8641LvJpiJfhI1iKOHcG6qq77WfgZIciF_qS3kViQzY0Nc2hc6J1uUcCMuk37/s1600/LFC+FCB+domestic+media+income.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjN0MtLjJBo5whXOWf0Ekc5yDLDvpxnJ1OEdStySQ9QZGDQT2eoFDY3UIzZvqCczEQmWnCoGWo5sxflMzM8641LvJpiJfhI1iKOHcG6qq77WfgZIciF_qS3kViQzY0Nc2hc6J1uUcCMuk37/s1600/LFC+FCB+domestic+media+income.png" /></a></div>
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The chart appears to show Barcelona's league income running far ahead of Liverpool's in recent years, but it masks the key impact not of the way rights are sold, but of currency. In 2006/07, one € was worth on average 67.6p, by 2010/11 the pound had devalued substantially and one € was worth 85.7p. Once this currency impact is accounted for, a different picture emerges:</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTXYRjKFqQMkSo3Dbpq7SZ2AbYG-w2WNvX14aKgwEXjQDUKWhtpqdHA1KZEykOlkWfyWZpi0j0gA37nQrZOGoF2gtPrE7G3WcwDHAPEgkv4rlijixUsVcLIVmfCq5D5QN0CDu8FO2Vn4w1/s1600/LFC+FCB+domestic+media+income+rebased.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTXYRjKFqQMkSo3Dbpq7SZ2AbYG-w2WNvX14aKgwEXjQDUKWhtpqdHA1KZEykOlkWfyWZpi0j0gA37nQrZOGoF2gtPrE7G3WcwDHAPEgkv4rlijixUsVcLIVmfCq5D5QN0CDu8FO2Vn4w1/s1600/LFC+FCB+domestic+media+income+rebased.png" /></a></div>
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The chart above, rebases domestic league media income to 100 in 2006/7 and shows Barcelona's figures in both £ and €. From this chart it is clear that in local currency, the value Liverpool receive for domestic competitions (PL, FA Cup and Carling Cup) has actually grown faster than the equivalent in Spain.</div>
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So currency plays one factor in explaining the divergence between the clubs, but there is another huge factor at play; performance on the pitch.</div>
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To get a sense of how the relative fortunes of the two clubs have diverged and how crucial this is to media income, consider the following chart showing UEFA TV distributions (all in €).</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWPnVAjIqroo37St7DTY87uVJWOKhxl_N92b5sdyRTMYbBiyeIewZDAwWw1i4X0uHrqvqMegrDqLA4ir6It8Uk3r4pcxHpOxQN83X17l5tBkK7NYU5ndKOto1JFBSuQ0rbTZJU_7qfag-0/s1600/LFC+FCB+UEFA+income.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWPnVAjIqroo37St7DTY87uVJWOKhxl_N92b5sdyRTMYbBiyeIewZDAwWw1i4X0uHrqvqMegrDqLA4ir6It8Uk3r4pcxHpOxQN83X17l5tBkK7NYU5ndKOto1JFBSuQ0rbTZJU_7qfag-0/s1600/LFC+FCB+UEFA+income.png" /></a></div>
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In 2006/07, Liverpool earned €9.5m (£6.4m) <u>more</u> from the Champions League than Barca. By 2010/11, the positions were radically reversed with Barcelona earning €44.9m (£39m) more from their winning CL campaign than Liverpool did from the Europa league. This season, Liverpool will earn precisely zero from Europe.</div>
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Rather than bleating on about how unfair the allocation to Bolton Wanderers is, Ayre needs to look at the performance of his own club. The gap in media income with Bolton over the last five years is already £159m, how much more does he want?</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgK71-6f78w59U_Zz2itcDmgbCDl3PXheywnyQMgCrdUmyC7eXs9VvkBwo_gZFZb4Ql9nNjxYZqzWFkp1ntiQ4FRdpuS2bP29PCbIktrIDsg5lRdil24x_tvEiNHV11QQXvjXewDT_K9uw8/s1600/LFC+BW.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgK71-6f78w59U_Zz2itcDmgbCDl3PXheywnyQMgCrdUmyC7eXs9VvkBwo_gZFZb4Ql9nNjxYZqzWFkp1ntiQ4FRdpuS2bP29PCbIktrIDsg5lRdil24x_tvEiNHV11QQXvjXewDT_K9uw8/s1600/LFC+BW.png" /></a></div>
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If Liverpool football club had made better use of the £340m in media income they have received since 2007, perhaps they would have been closer to Manchester United on the pitch. The gap last year between United and Barcelona? Not £75m but £20m.....</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0OjHWlcrV1i358PCMb_p-Hh8GOmFEewZvKGpBBlx3tkPuCrvc_FKPtDfOKcvrBgMIXW4JPum-UwnILeS3jc4Wk9aNDdUrD6ef4vOlurUQNn7uVNhjsp4cfrZeF02PWkX1OcwwjafsiqVb/s1600/LFC+FCB+MUFC.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0OjHWlcrV1i358PCMb_p-Hh8GOmFEewZvKGpBBlx3tkPuCrvc_FKPtDfOKcvrBgMIXW4JPum-UwnILeS3jc4Wk9aNDdUrD6ef4vOlurUQNn7uVNhjsp4cfrZeF02PWkX1OcwwjafsiqVb/s1600/LFC+FCB+MUFC.png" /></a></div>
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