Thursday, 23 September 2010

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 25th August 2010 valuation of the Tampa Bay Buccaneers and their 21st 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 30th June, so even if only 80% are owed to 3rd 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.