Forget Spain, forget Italy...the highest profile entity out there in need of a bailout is one of the most successful sports franchises in the world - Manchester United. While a potential bailout of the club may not cause ripples in the global financial markets, the repercussions will be felt by every other sporting franchise running a business model with layers of debt which can only be serviced by winning. Ask any Leeds United or Glasgow Rangers fan and they know how this story ends. With due respect to both clubs they are your Bear Stearns. With United we are talking Lehman Brothers where the game ends and business models change.
As a life long United fan I was actually quite excited to hear that the club finally filed their IPO papers to raise equity to help pay down debt and which would also allow the Glazers to slowly cash out. There were many reports circulating that they were looking to file in Singapore but I guess they were convinced by their US bankers (Jefferies) to go with a US listing. I was indifferent to the listing location to be honest but Singapore would have turned out to be a joke and a big marketing PR exercise vs a fundamental need to raise capital in a serious business. The first thing I looked at in the document was the Cash Flow Statement of the club - this is where you can not hide your skeletons (its a lot easier to do in a Profit and Loss Statement as United have done in the past).
Forget Spain, forget Italy…the highest profile entity out there in need of a bailout is one of the most successful sports franchises in the world – Manchester United
This was on page 63 of the IPO Prospectus and I almost fell out of my seat when I saw the final figure at the bottom. There was a net cash drain of £124m during the nine months ending March 31 2012 in comparison to a £50m drain the previous nine months ending March 31 2011. The total cash as of March 31 2012 on United's books was £26m - compared to £150m on June 30th 2011. During the nine month period in question the club have paid £43m in interest expenses, £55m purchasing new players and £28m buying back outstanding debt. The club has always told the fans that the money is there in the bank to spend on players, but now we know that this is not the case. It was there a year ago but now the whole world can see that it has gone. Nick Powell may turn out to be the new Scholes but the club can not compete with the likes of Man City and Chelsea with a balance sheet like this.
All this shouldnt have been a surprise as we all knew about the debt and the need to roll it over. But what were the Glazers thinking? How were they going to get out of this rot? By winning...buying good players and reaching finals of the Champions League vs actually fixing the cost side of the equation which has continued to balloon. Winning the Premiership will probably just about pay the day-to-day operating expenses. To make it big you need to get to at least the last 4 of the Champions League where you earn a significantly more from television rights. Think about an airline - they break-even on their economy class seats but only make the big bucks from business class. This is how the Glazers have been running the club and most airlines around the world have needed bailouts in one form or another. So the Glazers got lucky for three out of the last five years where the club managed to reach the final of the Champions League and this was good enough to hide the on-going deterioration in the financials from a leveraged business model. Which now shows up after one year of no knockout Champions League football. Also lets not forget the £80m the club received from Real Madrid for Cristiano Ronaldo in 2009. With one cheque the Glazers were able to buy some time but for how long? That money has now officially gone - to bond holders and banks.
There is one immediate solution and that is to sell bankable players to raise the cash, so do not be surprised if the club start the season without the likes of Nani or Anderson and god forbid Rooney.
So with £26m of cash on the books I dont think it takes a rocket scientist to figure out that the club needs money ASAP. Hence the need for an IPO to raise equity and pay back some of the debt. The timing couldnt have been worse; around the world we are seeing companies pull their IPOs - Formula 1, Graff Diamonds and several tech/internet companies who stand no chance of getting a dime past the Facebook IPO fiasco. So can the Glazers pull it off? I have my doubts and would probably say there is a 50/50 chance they could raise money which again will only buy them time especially if they aren't able to go further in the Champions League in the next two years. The IPO structure is also a disaster for minority shareholders as the Glazers will continue to hold the majority voting rights and there will be no dividends paid for the foreseeable future. I can not see large institutional investors buying this rubbish but you never know as there are always a few big suckers out there who would want to own the brand. If the IPO does get pulled then the Glazers will have just months to find some cash or then finally sell the club to a potential Asian, Russian or Middle East suitor which constitutes a bailout in my books.
There is one immediate solution (again to buy them time) and that is to sell bankable players to raise the cash, so do not be surprised if the club start the season without the likes of Nani or Anderson and god forbid Rooney. I hate to sound so depressing but my day job is spent analysing financial statements and documents like the IPO prospectus and I need to take the emotional factor out of the equation in this case. The club is in deep trouble and in need of a bailout to save them.
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