Don’t Be Fooled by Man Utd’s Gross Profits
Manchester 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.
Tweet
Today Max Bretos on FSC’s Super Sunday Plus praised all the great things to do with American ownership in the Prem. I was shocked when he applauded the profits Man U reported and attributed it to the fact that Americans sure know how to run a sports team as a business. No mention of debt was made.
It’s amazing to me how many people don’t see the potentially unstable financial situation the Glazers have brought to Man U. They HAVE to win the Prem, perform well in the Champions League, win cup trophies, etc. to essentially survive. Sir Alex will not be around forever. Who knows what the next few years will bring. If the winning trends don’t continue, the Glazers will have a serious mess on their hands.
Yes, that’s pretty bizarre, particularly in the context of Liverpool’s ongoing problems.
Of course, Randy Lerner has done much better at Villa, but then he didn’t need to borrow hundreds of millions of pounds.
The Man Utd Supporters Trust has put up an alternative analysis of the figures that makes for an interesting counterpoint.
http://www.joinmust.org/forum/showthread.php?p=230566#post230566
Thanks Ursus. What does “EBITDA” stand for? (As in, “rose 72% to £79.8m (2006 – £46.3m)”)
Earnings Before Interest, Tax, Depreciation and Amortization.
It is a common measure used in getting a handle on how much debt an enterprise can service without getting into trouble (and EBITDA multiples are often used in valuing enterprises).
Ah, cheers. What’s your take on the alternative analysis, then? The part about the debt being moved out of the football club is intriguing, but understanding why they’d have done that is over my head.
“Today Max Bretos on FSC’s Super Sunday Plus praised…”
If only there was a way to sell short anything that came after these words, I would be rich.
My take is that the alternative analysis, while certainly a bit polemic, is also a more accurate description of what is actually going on than the Man Utd press release or (especially) the media spin of that release swallowed by credulous rubes like Bretos.
The debts have hardly gone away and ticket prices are climbing. It is a shrewd move by the Glazers who bought the club and shifted the liabilities back to the fans.
They are servicing the interest payments comfortably now but if the club hits a sticky patch and lose out on the titles, the picture will not be so rosy. As far as I am concerned, It is still a shaky financial situation for me.
John
SoccerNet Live
Nothing against the above comment, but as the Brian Phillips who writes for this site I’d just like to make clear that it wasn’t left by me. I’d agree that finance takes a backseat to competent ownership made up of people who don’t mortally despise one another. Then again, you can’t spell “competent ownership made up of people who don’t mortally despise one another” without “finance” (I checked).
Brian — the previous comment was a spam comment. I’m about to delete it but I’m posting this so your response at least makes some sense.
Sounds much like US major sports. The fans have to pay rather large sums to see a game. In fact, most low to mid income families cannot even afford to attend a game. The stadiums are financed by the municipalities in most cases, yet the fans pay for everything else.
Looking very nice site and provides good latest updated matter to us.good, keep up it.
What’s your take on the alternative analysis, then? The part about the debt being moved out of the football club is intriguing, but understanding why they’d have done that is over my head.Manchester United gleefully announced their pre-tax profit had almost doubled this year to £59.6 million I’d agree that finance takes a backseat to competent ownership made up of people who don’t mortally despise one another.,,,
Thanks for such a nice comment…
Paying off the debt over a longer period may seem more attractive, but will there be a point in the future where the new interest payment is unaffordable and has to be refinanced again?
How does this bode for all clubs?
They may have been able to pay off a good chunk of that debt with the sale of Ronaldo to Real Madrid. Let us all watch this January for the offers made on Ronny. I have a hunch that Man City will offer an unheard of amount of money for #7.
“doubled this year to £59.6 million” I should say its just to rock the path. I am impressed by David Gill as vindicating Glazer’s takeover. I think “the Supermarket of Dreams” will come true.
Even I found most effective comments. So this is best post. Keep on writing.
Lets checkout debt with the sale of Ronaldo to Real Madrid. Thanks
Thats true finance takes a backseat to competent ownership made up of people who don’t mortally despise one another. But Manchester United gleefully announced their pre-tax profit had almost doubled this year to £59.6 million I’d agree that finance takes a backseat to competent ownership made up of people who don’t mortally despise one another. Really I too think to checkout the sale of ROnaldo to Real Madrid.
nice post
Man United are a rich club but there heavily in debt! does anybody know how much there in debt?
Yeah, your right man u are in a lot of debt but they’ll still be number 1 for many years to come, they can handle the debt too!
I just like a bit escape from Interest, Tax, Depreciation and Amortization.
This have fad up me, I never have thought to be stacked in debts, but now i am..! your post just cover what to be done to avoid it, but not the solution after in it. am just looking for a way to get out of it. And am in search of such Lawful person. Hope you could have look…!
- – - – - – - – – - – - – - – - – - – -
very nice site and provides good latest updated matter to us.
with recession all the English clubs have taken a hit
I’m a Man U fan…they rock! Love their matches but not sure if I care about their profit and loss statement. It’s none of my business anyway!
Btw, I totally agree with Watch Football live that they’ll still be no 1 in years to come… simply awesome team!