The Sweeper: Man Utd to Sell Old Trafford?

old-trafford

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Yesterday’s diagram may have helped explain to readers smarter than yours truly the financial situation at Manchester United, as the club embarks on a bond issue. And there is much more in the papers today about the details of the club’s financial situation.

One passage from the bond issue document has been picked up on by the Guardian, noting the line saying the issue “will limit our ability to sell or transfer, but not prohibit us from selling or transferring, our training ground or our stadium”.

Curiously, the piece focuses solely on the prospect of Man Utd losing control of their training ground, and does not mention the stadium itself. In either case, it appears United would lease back the property, and it seems unlikely either step would be taken unless the financial situation worsens.

That, though, is not far-fetched, as the document itself explains. The bond issue notes legally had to explain the risk in Manchester United as a business, and these are very well analysed (as ever) by David Conn. From Alex Ferguson’s impending retirement to “strong competition” from other clubs enjoying “recent investment from wealthy team owners”, there are many scenarios addressed in stark black and white that detail what could essentially bring down a club currently wallowing in £700m of debt.

The Telegraph, meanwhile, focuses on the document’s emphasis on revenue generation through increasing ticket prices: “The prospectus highlights match-day income as a key plank of the club’s income, and suggests that further rises are likely. The document even talks with some pride of rises in excess of inflation.”

The Independent notes that the document warns investors about UEFA’s new financial fair play requirements, which by 2012 will require clubs entering the Champions League to be debt-free, ending “success on credit”:

While United run at an operating profit, it is the repayments on the loans taken out by the Glazers that drag them down. As United say in the bond prospectus: “These rules are intended to discourage clubs from continually operating at a loss. There is a risk that, in conjunction with increasing player salaries and transfer fees, the financial fair play initiative could limit our ability to acquire or retain top players and, therefore, materially adversely affect the performance of our first team.”

The bond prospectus also revealed that the Glazers now have a facility that allows the parent company to take up to £70m from the club’s profits to pay down the £202m debt on the family’s payment-in-kind loans. This is the part of the debt that the American owners are personally liable for and taking money out of United’s profits to pay it is likely to go down as badly with Uefa as it does with the fans.

With the Glazer debt now at more than £700m and no Ronaldo to sell next summer to balance the books, it would appear that United will attract the interest of Uefa if they are still under the same ownership come 2013. Their business plan includes a £75m rolling credit line which United could use in the transfer market. Buying players on credit is the exact opposite of what Platini wants clubs to do.

Roman Abramovich, the owner of Chelsea, and Sheikh Mansour, Manchester City’s owner, have both converted their extraordinary investment in their clubs into equity in order to fall into line with the new Uefa rules. Making the debt disappear at United will require much wealthier owners than the Glazers.

There are few ways United could raise that much money fast. But United fans will surely be concerned that the club’s ownership of both their training ground and their stadium could change in not-too-distant future, should one of the negative scenarios so well explained by United themselves unfold.

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The Sweeper appears every weekday, and once at the weekend. For more rambling and links throughout the day every day, follow your editor Tom Dunmore @pitchinvasion on Twitter.

7 thoughts on “The Sweeper: Man Utd to Sell Old Trafford?

  1. Brad

    Tom: I’m a CPA, and the Man United org chart is (without any further research) absolutely baffling to me, so don’t feel too badly about it. The thing is, it’s meant to baffle. It’s the Enron-ization of the world, and this seemingly is what every industry is coming to. Lawyers and accountants devise these absurd financial structures to either limit personal liability, income taxes, or both.
    The heart of the matter is that the Glazers waltzed in, saddled a club with hundreds of millions of pounds of debt, and are likely to leave it in ruins. That they can do this so easily and brazenly is astounding to me. The one saving grace for United fans is that the club is such a trophy that someone of significant wealth will likely swoop in and ‘save the day.’
    How many clubs would be so lucky? Are Liverpool a big enough name to be saved in such a manner? Maybe we’ll find out soon enough if they don’t make this year’s Champions League….

  2. Allan

    well i hope somebody is on the search for a new owner .I dont understand alot of what is going on but i do know united are in a lot of crap thanks to the glazers i think all united fans should be calling for their heads just have to get them out now this is only going to get worse.

  3. ursus arctos

    Tom,

    I haven’t read the entire prospectus yet, but I’m pretty sure that the reason why the Guardian has focused on the possible sale of Carrington rather than Old Trafford is that the bonds are “secured” by Old Trafford (and other assets, including the Manchester United name and trademarks), but that Carrington is not “pledged” in the same way.

    To put it another way, were Man Utd to sell Old Trafford while the bonds are outstanding, they could only do so subject to the security interests held by the bondholders (think of it as selling a house subject to a mortgage). The existence of those security interests obviously makes the property less attractive to potential buyers. Carrington, however, isn’t yet subject to any such security interests, and could therefore be sold “free and clear”. It’s also likely that Carrington has greater potential for “non-football related development” than Old Trafford, and therefore is more attractive to potential buyers even without the difference in the existing pledges.

    To pick up on one of Brad’s points, a very interesting (at least to me) element of the 75 million revolving credit agreement that Man Utd is entering into in connection with the bond issue is that it provides that the club is not required to meet certain of the specified financial covenants if they do not qualify for the Champions League. However, this provision can only be used twice during the seven-year term of the loan. Were Man Utd to suffer “three strikes” during the term of the loan, they would very likely struggle to meet the covenant in the third year.

  4. sam

    surely fergie could have been a bit more prudent? i know overall his recent transfer record is good ( something like a net 8m spent in 5 years) however that is largely distorted by the ronaldo and tevez sales. he has paid over the odds for berba anderson nani hargreaves carrick ferdinand. i know utd fans have been somewhat oblivious to this siruation but surely someone who is so instrumental to the club, and has been there so long could not be.