The true and parlous picture of Manchester United’s debts has become a little clearer over the past few weeks. The highly leveraged takeover of the club by the Glazer family has turned the club from one of the wealthiest in the world into a beast burdened by over US$720 million of debt. The club has become liable for US$460 million in interest, fees and charges since the Glazers acquired it in 2005. Are the Glazers showing any signs of being bothered by this? No. Are they looking to bale-out by accepting an offer to sell the club and walk away? Almost certainly not. Why? Because a sale at anything less than a ridiculous price would be unlikely to meet their negotiating needs.
Two attempts have been running in parallel to oust the Glazers. Firstly an increasing number of club supporters have symbolically adopted the “green and gold” colours of the club’s spiritual fore-runner, Newton Heath, and vocally called for the Glazers to go at a succession of home matches. This group, orchestrated by the Manchester United Supporters Trust has created a hostile atmosphere which the Glazers’ have so far pointedly ignored. Secondly, the band of potential investors called the “Red Knights”, led by Goldman Sachs banker, Jim O’Neill and consisting of high net worth individuals who are all Manchester United fans, has created a consortium to buy the club. Reportedly, they were preparing to put together an offer of £1 billion to buy the club until the Glazers let it be known through the media that they were uninterested in selling-up at anything less than a valuation in excess of £1.5 billion. Why would this be? The answer is that the Glazers appear to have two negotiating needs, neither of which would be served by a sale at this time.
The first is cash-flow. The Glazers’ First Allied Corporation which owns and rents out shopping malls in the US is in trouble. Four malls have recently gone bust and another twenty eight are on a “watch list” which means that Banks are worried about whether their mortgage repayments can be serviced by the rental income they earn. First Allied owes US$567 in mortgages which is not likely to be cleared any time soon. The Glazers also have £202 million of very expensive PIK loans to service at Manchester United on which the interest will shortly climb to an eye-watering 16.25%. So, the Glazers have a “reassurance” need for ongoing cash-flow. Manchester United generated a record £278 million in cash last year, and there are no other parts of the Glazer Empire reliably delivering cash of this kind. Moreover, the Glazers have been able to extract nearly £23 million in management and consultancy fees and loans from the club since they took over, which has clearly been used to finance their personal life style. In addition, as part of the recent bond issue by which the club re-financed £500 million of its borrowings, the Glazers were given the freedom to take up to £100 million out of the club plus half of its annual cash profits. When the rest of your Business is in trouble why would you be keen to relinquish this kind of cash flow?
The second reason why the Glazers would be unwilling to sell the club is that they are running something of a business dynasty. Malcolm Glazer’s sons, Edward and Kevin Glazer are directors of First Allied. Three other sons, Avram, Joel, and Bryan are Directors of Manchester United and their struggling American Football franchise, “the Bucs”. Malcolm Glazer’s daughter, Darcie Glazer Kassewitz is a co-president of the family’s charitable foundation which is associated with the Bucs. With this kind of dynasty comes a “respect” need in relation to the family’s name and business reputation which makes it unlikely that the Glazer family would wish to bale out of Manchester United ignominiously.
So, don’t expect the full time whistle to blow on the Glazers tenure at old Trafford any time soon – not unless someone makes them an offer they can’t refuse which would satisfy both their need for cash-flow and the desire to preserve their family esteem.