Manchester United:The Glazer Effect

When Sir Alex Ferguson landed up a world-class acquisition in Robin Van Persie for £24 m in the closing stages of summer transfer window of 2012, the Red Devils supporters seemed a tad more pleased than usual , as United made their first marquee signing since the arrival of the mercurial Dimitar Berbatov in 2008. A new wave of optimism surrounds Old Trafford with the customary injection of youth in Nick Powell, signing of Dortmund star Shinji Kagawa and a few other new faces.

For the richest club in the world, one may think they have the ability to buy a player of their choice but that does not seem to be the case. Part of it may be down to the fact that Ferguson likes to build stars and bring in young talents with a long-term view, and also that he finds most of the players having inflated price-tags on them in recent years. But the fact seems to be a very straight-forward one. The statement may seem paradoxical for a club of United’s financial stature, but they are on a limited transfer budget for some time. The financial situation at England’s most famous and successful club has been unstable and volatile, and the roots of it were laid in 2005.

The year 2005 saw the American Glazer family taking the ownership of Manchester United for a deal close to £800m after delisting it from the London Stock Exchange where the club had been listed since 1990. The Glazers, who also own Tampa Bay Buccaneers National Football league franchise, had borrowed the money from banks and hedge funds, putting the assets of Manchester United as security. This put the English club into a massive debt of almost £660m. The United supporters have disliked the Glazers ownership from the start because of the debt loaded by them on a previously debt-free club.

The recent initial public offering (IPO) of the club in early August, 2012 in the New York Stock Exchange (NYSE) has not gone down too well with the supporters and has met with skepticism from financial experts and analysts. Approximately 16.6 million shares were put on sale for the public by the Glazers with initial planned price per share in the region of $16-$20. But after receiving pessimistic comments from the Wall Street experts in the aftermath of a disappointing stock-market debut of Facebook in May, the final pricing lowered to $14 per share. Even at that rate Manchester United are valued at almost $2.3 billion, making it the richest sport franchise on the planet.

The prices have not met with any rises yet. But if seen in the light of past, the signs look ominous. Professional sports teams don’t tend to perform too well when publicly traded. In 1998, American baseball team Cleveland Indians went public at $15 but the share value quickly fell into single digits, and the team went private soon. Going back to the 80’s NBA side Boston Celtics went public in 1986 but was taken in private in the end.

With United’s I.P.O the Glazers are trying to make the optimum use of the JOBS Act passed by Barrack Obama regime, which has been legislated with an intention to help the private companies in raising capital. Under the American rules and regulation the Glazers can maintain control of United inspite of taking it public because of a dual-share structure implementation. The Glazers are retaining the Class B shares which have 10 times the voting power of Class A shares which are being publicly traded. Hence, the Glazers will retain complete management control in any case.

A startling fact remains that the investors who are willing to buy the shares would be buying risk without any potential return whatsoever. The shares of a sport franchise do not offer dividends and the profits hinge on the individual and team performances. The broadcasting and merchandise revenues are directly impacted by the team’s placing in the league and participation in Europe. Moreover a sports team expectedly tries to invest the profits in sprucing up the club infrastructure and attracting top-talents, leaving almost nothing for the shareholders.

The team is expected to raise $233 million from the public trading of 10% stake of the club but the amount is well under the initial target of $333 million. To the ire of the supporters, Glazers have decided to keep half of capital raised for themselves and the rest to the payment of the debt incurred during the take-over. The last audit this year amounted United’s debt to be around £430m which is more than that of any English club at present.

The Glazers had at first planned to put Manchester United on I.P.O. in either Hong Kong or Singapore expecting to raise about $1 billion. The public offering fell through because of weakening demand due to the dual-class share structure. Thus, the I.P.O was shifted to USA where dual-class listings are prevalent in companies like Facebook, Rupert Murdoch’s News Corporation and The New York Times Company.

The supporters fear that the impending debt may lead the club to insolvency and have vociferously protested against the Glazer rule. Fan campaigns like “Love United Hate Glazers” have been existing since the Glazer take-over looked imminent. The supporters have been attending the matches with Newton Heath Green and Gold scarfs, with slogans and graffiti demanding the ousting of the American owners. Because of the debt the hiked ticket prices has burnt a hole in the pockets of long-standing loyal supporters. The Glazers have drained out approximately £500m of the club in paying debt interests, administration pay-offs and fees.

A wealthy group of fans terming themselves as “Red Knights” even tried to buy out the club from Glazers but they backed off, as allegedly, the pricing of the club seemed to be too high. In the wake of Manchester’s United I.P.O. the MUST (Manchester United’s Supporters Trust), a large group of the club’s supporters launched a boycott of the products sold by the club’s sponsors which include the likes of Nike, Chevrolet, and Hublot amongst others .

The buy of Van Persie may seem ambitious on part of Ferguson but most of the football experts opine that United still need a dynamic central midfielder to complete the team. Ferguson might need to urge the Glazers to put more cash into the transfer funds. It’s evidently hard to compete financially with Sheikh Mansour’s Man City and Roman Abramovich’s Chelsea but United surely need to splurge cash on a proven central defensive midfielder to add more balance to the side.

That department has been left void since Roy Keane’s departure in 2005. Fletcher, more of a box-to-box midfielder, has added steel but he is out injured for long. An out and out defensive midfielder is the need of the hour and a talented prospect in Jack Rodwell was swooped by City.

For all the opposition of fans the Glazer’s tenure has been a successful one for the club on the field. They have won four league titles, Champions league in 2008, and two other final appearances. The Commercial revenue has spiked up and recently a lucrative shirt sponsorship deal was struck with General Motors Chevrolet.

By retaining David Gill, the CEO of Manchester United and Sir Alex Ferguson at the helm the Glazers knew that they have the personnel to maximize the minimal transfer budget available. The Glazers surely can cut themselves some slack if they provide United with much needed funds in order to compete with Europe’s elite.

The years post Glazer take-over has shown that United have the ability to compete with the best. But the grim financial situation is worrisome and needs to be rectified at the earliest. It will be beneficiary for the shareholders as well as the supporters. Manchester United would obviously want to avoid the plight of Rangers and their estimated 659 million supporters worldwide would like to see a stronger United side on the field.