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SBD Global/July 6, 2012/Finance
ManU's IPO Could Lift The Veil On The Club's Debt
Published July 6, 2012
GOOD OWNERS: In London, David Conn reported that ManU manager Alex Ferguson has repeatedly described the Glazers as "excellent owners" to the dismay of clear-sighted supporters. The club's CEO David Gill has insisted that "the debt and interest burden has not damaged the club's ability to invest in Ferguson's team," or its sense of itself as the grandest of clubs. Those blandishments have worn thin (GUARDIAN, 7/4). The GUARDIAN's Jamie Jackson wrote in The Sports Blog that the club's indebtedness "increases the risk" that it may be unable "to generate cash sufficient to pay amounts due in respect of our indebtedness." Of the six ways this could happen three are of particular concern. The debt could affect ManU's "ability to compete for players and coaching staff," limit its flexibility in planning for, or reacting to, changes in its business and the football industry; [and] increase its "vulnerability to general adverse economic and industry conditions" (GUARDIAN, 7/3). The AFP reported that ManU supporters "gave a guarded welcome" to the club's planned U.S. share sale, warning the move could only be deemed a success if it helped to pay off the Red Devils' massive debts. ManU fans have long protested the Glazers' heavily leveraged takeover, arguing that the debts loaded onto the club have "steadily eroded its ability to compete for top talent in an ever-spiraling transfer market. Tensions over ManU's finances hit a peak in '10, when the club's liabilities topped $1.55B and fans rebelled at management, launching protests aimed at denying the club revenues. But the debts have been slashed in the past two years, and profits have grown despite the team's narrow loss of the EPL title to cross-town rivals Manchester City (AFP, 7/4).
DROP IN THE OCEAN: In Manchester, James Robson reported that "frankly £64M ($99M) is a drop in the ocean" that is still likely to see Alex Ferguson forced to"punch below his weight" in the transfer market. This is not a £64 ($99M) bonanza for Ferguson, even if the Glazers have admitted that their indebtedness does affect ManU's ability to compete for players. No supporter will oppose the reduction of the debts that came as part of the Glazers' takeover in '05, but the reality is that ManU's spending power "is unlikely to be significantly boosted by the share issue." That is the bottom line for the average fan. Can the most valuable club in world football still compete for the best players? (MANCHESTER EVENING NEWS, 7/5). In London, James Ducker reported that many seized on a line on page 25 of the filing that states that ManU's "indebtedness could adversely affect our financial health and competitive position," but to anyone who follows the club closely that was as much a statement of the obvious as the warning of the adverse impact the retirement of Manager Alex Ferguson would have. Primarily, there was hope in the form of just 15 words. Having listened with growing resentment to repeated claims over the past seven years that ManU's ability to compete was unaffected by the club's debt mountain, the news that the Glazers "intend to use all of our net proceeds form this offering to reduce our indebtedness" was warmly received (LONDON TIMES, 7/5).