The Glazers and the “Rich List”: why Forbes can’t add up

The Glazer family are rich, asset rich. They own what is generally considered to be the world’s most valuable football club and an NFL franchise. But what is their net worth?

That titan of business journalism Forbes has just published its semi-annual list of “400 Richest Americans”. Malcolm Glazer (and family) come in at no. 136 with an estimated net worth of $2.6bn. They comment:

“Owns NFL's Tampa Bay Buccaneers (team valued at $1 billion); controls English soccer's Manchester United, worth $1.84 billion (the sport's most valuable team burdened by a near 50% debt load). Inherited watch business from father at 15; formed real estate company First Allied. Today owns more than 6.7 million square feet of retail space. Opening of Glazer Children's Museum in Tampa slated for September. Sons now manage family assets.”

Given that the two key assets in this calculation are sports teams, it’s handy that Forbes also provide its own valuations for those, the most recent being their 25^th August 2010 valuation of the Tampa Bay Buccaneers and their 21^st April 2010 valuation of Manchester United.

Forbes’ sports valuations are always calculated as “enterprise value”, that is the combined value of debt and equity (unless the debt relates directly to stadium construction which is not relevant in these cases). Forbes also helpfully show what proportion of this “team value” estimate relates is debt.

The debt figure for United in their April valuation ($844m or c. £540m) clearly doesn’t include the PIKs which is a pretty major oversight. We know that the PIKS were around £228m at 30^th June, so even if only 80% are owed to 3^rd parties, that’s another c. $283m of debt they’ve missed (£228m x 0.8 x $1.55 exchange rate). That would takes the net equity value of the two sports clubs to $1.6bn:

So where do Forbes get the other c. $1bn in their estimate of the Glazer fortune from?

Forbes mention First Allied Corporation, but they clearly haven't looked at it in any detail as they seem to believe that the company “owns more than 6.7 million square feet of retail space”.  This is indeed the number of the main page of the First Allied website, but when one looks at county or mortgage records for the sixty-four centres First Allied say they own, the actual square footage is only 4.7m....

This 4.7m square foot of space is generating around $6m per annum in cash flow at present (that isn’t an estimate, it’s from the CMBS filings each centre makes), that’s before any central business costs. Is that worth $1bn? The answer is clearly no. Only half the centres generate any positive cash flow at all. Putting them on a capitalisation rate of 8.5% yields a value of around $70m. Which still leaves a $889m hole in Forbes’ big number.

Maybe the Glazers have over $800m just sitting around? If that were true, why not repay all the PIKs? Or invest in the Bucs playing squad? It sounds unlikely.

So Forbes end up looking pretty dumb for not being able to add up their own numbers or include $283m of PIK debt in their calculations and the Glazers look asset rich but suspiciously cash poor.

LUHG

Blacking Out

Is there a skill in the business management of sports teams? The Glazers obviously believe there is and that it's a skill they possess. Here's how they described themselves in the 2006 refinancing document:

The experience and success of the Glazer family in managing a sports club is well illustrated by its ownership of the Tampa Bay Buccaneers. The Glazer family acquired the club in 1995 when it was, at that point, one of the worst performing teams in the NFL both on and off the field of play. Since ownership the Glazers have transformed the business immeasurably:

Sporting success: winners of the Superbowl in January 2003

Financial success: the attraction of new sponsorship and commercial opportunities

Stadium development: now home to one of the NFL's finest facilities [paid for with public money, not by the Glazers. Anders]

Sustained investment in the playing squad

Enthusiastic fan support; seven years of consecutive sell-outs and a season ticket waiting

list in excess of 100,000 people.

Well that was then and this is now.

The 2003 Superbowl win was the last instance of "sporting success", with two lost Wild Card playoffs the only other post season achievements since. Last year of course, the Bucs only managed 3 wins out of 16, their worst season since 1991.

Many Bucs fans blame the poor on-field performance on a failure to make "sustained investment in the playing squad" with the franchise spending way below the salary cap. This summer's lack of big names and reliance on a large numbers of rookies seems unlikely to change many minds on the subject.

Poor performance, under investment and a weak economy have all contributed to the complete evaporation of the season ticket waiting list (sound familiar?). Despite price discounting and the abolition of most seat deposits and long-term ST contracts, only 40,000 season tickets have been sold for the coming season (in a stadium seating 66,000).

As fans feared, the Bucs announced earlier this week their first "blacked out" home game for thirteen years, a preseason against Kansas City Chiefs. NFL rules say that games cannot be shown on local TV within a 75 miles radius of the stadium if the game is not sold out. It's an attempt to encourage fans to go the game (not totally unlike the English ban on the live broadcast of 3pm Saturday football). More blackouts during the main season look certain.

Last season several Bucs home games "should" have been blacked-out, but the club stepped in and bought up unsold tickets and declared the games were sold out. For whatever reason (is there ever a reason to do with the Glazers that isn't financial?), that isn't going to be repeated this year.

Is there a skill in the business management of sports teams? Judging from the Glazers' record in Tampa, United fans will hope it isn't a transferable skill....

LUHG

Is Malcolm Glazer a better boss than Tom DeLay?

Edit: 8th June 2010.  If you think I'm being harsh, check out these two comments on this statement from NFL commentators including one of the main sports writers on the Tampa local paper, The St Petersburg Times:

St Petersburg Times
Adam Schein

I couldn't help but laugh at the swift statement issued by the Tampa Bay Buccaneers spokesman Jonathan Grella today. The man used to be press spokesman for disgraced House Speaker Tom DeLay. Plus ca change.....

This is what he said:

"Buccaneers fans should know that the Glazer family is as financially well-positioned as ever before.

"Companies they own generate revenues in excess of $800 million each year.

"Sophisticated real estate experts know that the family's refinancing of their commercial real estate before the global meltdown has proven to be the wise move.

"While First Allied represents only a small portion of their asset portfolio, it continues to generate significant profits, enjoys over 90-percent occupancy, and has long term non-recourse financing.

"This franchise remains committed to bringing the resources to build its next championship team.''

Let's do the paragraphs one by one.
1. On my calculations, the three companies generated revenue of c. $780m (it depends on the exchange rate you use for United), so no missing gems. As someone once said, “Turnover is vanity, profit is sanity, cash flow is king”. Revenues are not profits and First Allied proves it. Old friend of United, AIG, had revenues of $96bn the year it went bust. Anyway, it's interesting that he chose to quote a revenue figure.

2. As these details have never been published before, we must wonder who these "sophisticated real estate experts" are. Maybe the commercial property lending department of Lehmans? Anyway, how wise is it to remortgage in 2005, 2006 and even worse in 2007? Of the 35 remortgaged properties, nine already can't cover their "wise" loans and eleven more will join them when interest free periods end. 

3. I have looked at every shopping centre they own (bar one that had 2008 cash flow of $0.5m) and "significant profit" is not possible. The $9.7m I have quoted is cash flow before income taxes (be they personal to the Glazers or corporate taxes) and before any head office costs (First Allied operates out of three offices and employs such cheap staff as Edward Glazer). The cash flow will fall to just over $7m per annum as interest only periods end, if occupancy rates don't pick up.

The 90% occupancy doesn't tally with actual data. On their website, First Allied like to include buildings they don't actually own, but are on the site. You can see a "142,438 sq ft" centre here (including Walmart). The 90,000 sq ft Walmart isn't owned by First Allied (I checked the county records), so occupancy is 88.3% not 96.5%.

I calculate occupancy to be 86%, but frankly it doesn't matter. The centres in trouble (DSCR below 1x) have occupancy that averages 79%, the one with DSCR above 1x average 94%.

Non-recourse just means that the bancruptcy of a centre doesn't knock on to other companies.  Brilliant.

4. Does being "committed to bringing the resources" actually mean anything?  If you've got resources, why not bring them?

LUHG