Don’t Be Fooled by Man Utd’s Gross Profits

Love United Hate GlazerManchester United gleefully announced their pre-tax profit had almost doubled this year to £59.6 million, an achievement trumpeted by chief executive David Gill as vindicating Glazer’s takeover. Fans’ concerns over the massive leveraged purchase had been misplaced, many said.

Yet the debt taken on has hardly gone away, and United will need to continue a record-breaking profit pace to finance it. In today’s Telegraph, David Bond writes that:

In the year to June 2006, Red Football paid a total of £85.2m in interest. The 2007 figures are expected to show a fall but are still likely to be around £67m. The interest charges are likely to be made up of £42m in what accountants call “cash pay interest”. This is the actual interest which must be paid by cash generated from the football club business.

A further £27.2m is due on what are known as Payment in Kind loans – a more costly mix of debt and equity which the Glazers took out with three hedge funds to secure the money they needed to fund their United buy-out.

A large chunk of those loans were paid off in August 2006 when the club refinanced their borrowings, leaving the club with a larger sum to repay (£600m) in the end but lower annual interest repayments.

There were plans to refinance again last summer but they had to be shelved as the global credit crunch took hold. So until the market improves, United are faced with their hefty annual interest bills. And the £67m interest figure certainly puts United’s record breaking financial performance in a very different light.

Moreover, let’s remember that fans’ concerns were also based on the fact that despite the growing profitability of the Premier League, the size of the debt meant United fans’ faced ever increasing financial burdens to finance it. And this is exactly what has happened, with United fans revolting this season after they were forced to buy cup game tickets with their season tickets for the first time, and they’re continually harangued to buy buy buy at the “Supermarket of Dreams”. It’s no wonder they’ve gone quiet at Old Trafford, is it?

Photo credit: gordonm1 on Flickr.

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