Where does this information come from?
He was supposedly fit when he arrived...I doubt he'd have signed a pay as you play contract.
ALL issues relating to the bond issue and club finances
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Where does this information come from?
He was supposedly fit when he arrived...I doubt he'd have signed a pay as you play contract.
You said: ''Given the current transfer policy it will be relatively young players brought in who are unlikely to be anywhere near the salary levels of the players they will replace initially.''
I think the players that we bring in will be earning a lot closer to the players that they're replacing than you think. For example, we'd have to give the likes of Gareth Bale 70k/80k per week.
He apparently gets a good basic which is below what he was on at Newcastle and then gets a 'playing' bonus to top it up.
A £10k pw differential when annualised represents a significant cost saving.
I took your comment to mean that the players we'll be signing will barely be earning half of what the departing senior players were on. Apologies.
No worries, I probably worded it badly.
You are quite right, but as GCHQ said I'd expect their replacements to be getting £50,000+ because they will need to be up and coming players already capable of competing for a first team place.
Oh look, another loon. Thats five.
Is it the case though? Can you see Scholes, Gaz and Giggs still be first teamers next year and if not who'll take their place as first teamers? Park? Bebe? Considering that a 35 yr old Scholes is much better to what the alternative options provides then maybe its time to get rid of the other 'value' options (even though they may be on a low salary), keep Scholes for a another year and bring in an adequate successor (you know someone who can pass the ball, who has pace and who can actually score goals).
Well Hargreaves will be off the wage bill for a start.
I think there's method in the apparent madness of the recent transfer policy/attempts to bring the wage bill down.
In a couple of seasons, the FFP Regs will come out and it is going to leave a lot of clubs in a spot of bother.
There are clubs at the moment who are actually paying their players more than could be afforded if the FFP Regs were in operation right now (City definitely are and Chelsea would appear to be another).
Unless these clubs sort themselves out, they are going to have to let players leave (maybe not so much Chelsea but City definitely).
Not many clubs out there will be able to afford the enormous salaries that these players are on and so it will be a case of the laws of supply and demand.
The supply of players all wanting £100-150k/week salaries might well be high but they won't be in much demand from the vast majority of clubs because they simply won't be able to afford them and when supply exceeds demand, prices have to come down.
These players will have no alternative but to accept lower wages if they wish to play football.
So. Clubs eager to shift these players (sensible transfer fees) and the players willing to accept lower salaries in 2-4 years time.
If this theory is correct then I think it fits in well with where we might find ourselves during those years and possibly the "next batch" of oldies need replacing.
Basically, whilst our revenues could well increase, our wage costs needn't necessarily rise.
This is one of the reasons why I don't lose too much sleep about "what if we don't finish in the CL places one season?"
For this to happen, four teams would have to finish above us. Which four are going to be in as strong a position as us (even with the debt) in a couple of years' time?
It's a bit old and slightly out of date now but the following table shows what I am getting at quite well:-
Look at the difference in revenues between ourselves and our competitors.
Now. When the FFP Regs come in and these clubs have to stand on their own two feet, which ones are going to be knocking us out of the Top 4?
In a couple of seasons, the FFP Regs will come out and it is going to leave a lot of clubs in a spot of bother.
There are clubs at the moment who are actually paying their players more than could be afforded if the FFP Regs were in operation right now (City definitely are and Chelsea would appear to be another).
Unless these clubs sort themselves out, they are going to have to let players leave (maybe not so much Chelsea but City definitely).
Not many clubs out there will be able to afford the enormous salaries that these players are on and so it will be a case of the laws of supply and demand.
The supply of players all wanting £100-150k/week salaries might well be high but they won't be in much demand from the vast majority of clubs because they simply won't be able to afford them and when supply exceeds demand, prices have to come down.
These players will have no alternative but to accept lower wages if they wish to play football.
So. Clubs eager to shift these players (sensible transfer fees) and the players willing to accept lower salaries in 2-4 years time.
If this theory is correct then I think it fits in well with where we might find ourselves during those years and possibly the "next batch" of oldies need replacing.
Basically, whilst our revenues could well increase, our wage costs needn't necessarily rise.
This is one of the reasons why I don't lose too much sleep about "what if we don't finish in the CL places one season?"
For this to happen, four teams would have to finish above us. Which four are going to be in as strong a position as us (even with the debt) in a couple of years' time?
It's a bit old and slightly out of date now but the following table shows what I am getting at quite well:-
Look at the difference in revenues between ourselves and our competitors.
Now. When the FFP Regs come in and these clubs have to stand on their own two feet, which ones are going to be knocking us out of the Top 4?
Given Harry's record I wouldn't be surprised if Spurs are too.
Eh? Mentalist.
The point I am trying to make here is that the club's actual value on the market can only be determined by that market. Forbes thinks fair valuation is 12x EBITDA. Liverpool's new owners think its more like 8.5 x. Maybe that's because of their predicament - maybe that's fair market value for a football club at present - even a high profile one.
The relevance of all this is why do the Glazers want to keep United despite a high level of debt and minimal return for them right now together with considerable hostility from a vocal element of fans?
Assuming that the club is "valued" at £1 bn and that was deemed fair market value. In other words offers are unlikely to exceed that amount. The Glazers would receive approximately £480m after deducting the bond debt of £520m. With that they have to pay off the PIK debt (£220m) which leaves them £260m to walk away with. Compared to an initial investment of say £275m in 2005 - a not very attractive proposition. Even an offer of £1.2bn would not seem a very enticing propostiion.
Set against that is the prospect of keeping the club and hoping that its revenue growth will continue in the future with costs contained. IN that case, projecting forward to 2017, and assuming 10% per annum growth, revenues will reach £567m with EBITDA at £195. If we then take the 12x multiple the club will be worth 195 x 12 = £2.34bn. If we take the 8.5 x multiple, then the club will be worth £1.67bn.
If the debt is left unrepaid the Bond will be £520m and the PIKs will have ballooned to £631m - giving a total debt amount of £1.15bn. So if the Glazers sold then they would get £1.19bn or on the lower valuation £520m - a big difference.
There is little doubt, therefore, that they will liquidate the PIKs as quaickly as they can and let the bond debt take care of itself. If they can make provision from cash reserves to repay the bond holders, then all well and good.
All the above assumes that revenues continue to grow at the same rate experienced over the past five years, with costs contained. The problem arises in providing for the team, without whose on going success, the above scenario might be difficult to achieve as well as liquidating the PIK debt and paying themselves something on top of that.
It seems high risk but obviously to them a risk worth taking, bearing in mind the success already achieved, both on and off the pitch and the confidence placed in the on going stewardship of the esteemed mananger and competent CEO.
My concern remains that to keep the team really competitive in order to keep revenues growing, there will need to be significant expenditure outlayed on it over the next few years. That should have started already but because of concerns about costs, such expenditure has been limited to what I call a few "young hopefuls".
Well, over two years I thought it was always £125m we were talking about, but seeing as it's a sportsman's bet I'll take your £70m trousered and £75m on players.
(I'm sure the terms keep incrementally moving here
)So, other than Bebe, we were actually owed slightly more for players than we owed? Who's that for, Foster and Campbell?
You keep missing my point entirely!
The club will not achieve 10% growth per annum, nowhere near, if the Glazers starve it of investment by eliminating the PIK's. Growth would be impossible without investment.
And the PIK's would not balloon to £600m! The carve-out of £70m plus one more payment of £40m in 2016 would keep the PIK's below £250m.
If you read my last few posts to you then you'll see that i've detailed these two points plenty of times already, but you keep ignoring them and consequently responding with counter-argument to a strategy that i've never put forward; on top of that your own proposed strategy is fundamentally flawed because it assumes incredible EBITDA growth with a shit football team and no investment. Wont happen.
Julian, as far as i can see there are three basic way the PIK's can go in the next seven years:
They can be eliminated, left, or serviced.
Elimination would likely mean no money for healthy squad investment; you eliminate the PIK's but kill the asset.
Leave the PIK's alone however and they shoot up to £600m by 2017. The asset might be healthy but the PIK's are ridiculously high.
My suggestion here is that it'd be stupid and non-profitable to take either the above two options; the first because the asset would be greatly de-valued, and the second because the debt would become too large. (Your suggestion, that they eliminate the PIK's and profit because the asset has flourished and the debt's been greatly reduced seems unrealistic; it's like never watering a plant because you're drinking all the water yourself and hoping that in a few weeks time you'll be both lovely and refreshed and have a big, healthy plant to look at.)
The third option though, to service the debt with the £70m carve-out and a further £40m in 2016 (or before, whenever taking it would not impede investment), would leave plenty of cash for solid, healthy investment into the asset whilst keeping the debt at a reasonable level.
Three options; two stupid ones, and one that'd make a shitload of profit.
Which would you choose?
They can be eliminated, left, or serviced.
Elimination would likely mean no money for healthy squad investment; you eliminate the PIK's but kill the asset.
Leave the PIK's alone however and they shoot up to £600m by 2017. The asset might be healthy but the PIK's are ridiculously high.
My suggestion here is that it'd be stupid and non-profitable to take either the above two options; the first because the asset would be greatly de-valued, and the second because the debt would become too large. (Your suggestion, that they eliminate the PIK's and profit because the asset has flourished and the debt's been greatly reduced seems unrealistic; it's like never watering a plant because you're drinking all the water yourself and hoping that in a few weeks time you'll be both lovely and refreshed and have a big, healthy plant to look at.)
The third option though, to service the debt with the £70m carve-out and a further £40m in 2016 (or before, whenever taking it would not impede investment), would leave plenty of cash for solid, healthy investment into the asset whilst keeping the debt at a reasonable level.
Three options; two stupid ones, and one that'd make a shitload of profit.
Which would you choose?
It's possible to pay off the PIKs and still be able to invest in the squad. It's never as simple as you are trying to make out.
If so then we've got nothing to worry about, have we?
Personally i don't think healthy squad investment can be combined with PIK elimination over the next seven years, not unless revenues really shoot up.
I'd welcome it though; PIK elimination and healthy squad investment? Perfect. Hats off to the Glazers if they manage to pull that off.
btw
I simplified above because i'd gone into much greater detail in my previous posts to Julian and he'd seemed to have missed my point.
Well, over two years I thought it was always £125m we were talking about, but seeing as it's a sportsman's bet I'll take your £70m trousered and £75m on players.
(I'm sure the terms keep incrementally moving here
So, other than Bebe, we were actually owed slightly more for players than we owed? Who's that for, Foster and Campbell?
Possibly Tosic too.
Why don't you both just make a guess at how much money the Glazers will take and how much net-spend there'll be and then the winner will be the one who's guess is most accurate? Just give two figures each, simple as that.
One of the points I was trying to make with my wages theory was that if revenues can grow but wages don't escalate to the same degree then that, in itself, will free up some cash.
It's obviously speculation on my part but I strongly believe that the Glazers were somewhat surprised at how much they have had to increase wages in order to remain competitive with Chelsea (who are mostly responsible for the mega-inflation over the years).
Our wage bill has increased by over 60% in five years which, when you think about it, is crazy. How many more of us have experienced a 60% growth in our salaries for doing the same job over the last five years?
I think that the FFP Regs will mean that this kind of growth becomes a thing of the past because it will remove the reason why it happened in the first place (mega-rich Sugar Daddies coming in and buying players whatever the cost and offering them silly salaries which sets the benchmark for everyone else to try to match).
The question now is: can the Glazers increase revenues (commercial) at a rate greater than the wage bill rises because that will provide the cash required to give room for maneouvre on both fronts (Divs and Squad).
I think they can because I simply cannot see enormous wage rises in the future and they clearly think they can as they seem to be basing their valuation of United on things they have put in place/are currently working on which will create future revenue growth.
Sorry but this seems to be going round in circles. I thought you were saying you thought they wouldn't pay off their PIK debt because it wouold be insignificant in relation to what the club might be worth in 2017. Secondly I am not proposing any sort of strategy merely trying to show what might be their thinking viz a vis selling the club now v selling it later.
I was also trying to show you that debt comes off gross value in order to determine what someone might pay for the club. The less debt the greater the money they will walk away with. You had some curious notion that debt was irrelevant and that all that counted was a multiple of operating profit.
I also suggested that they would definitely reduce the PIK debt by the 70m avaliable to them and that that they would seek to reduce it further in forthcoming years. You seem to think, if I have it right, that they will use this once off payment and then leave that debt to accumulate until they sell.
Even if they use the £70m now and do nothing more the PIK debt will still balloon to around £400m in 2017. That's at 15.25% and not the current 16.25%. Still is the club is worth £2bn plus at that stage then £900m plus debt won't be a huge issue. The bad publicity of increasing debt might though.
If you look back in this thread it was me who first suggested that wages and their contribution to overheads was the main issue regarding investment in the team and not how much cash there was in the bank or available through the RCF.
My final view on this is that I think their aim is to grow the club at the same rate it has been growing in the last 5 years, relying greatly on Fergie's expertise to keep success on the pitch going. Part of that expertise will mean not having to dip heavily into the transfer market unless it is to replace existing players. In other words wages as a percentage of turnover will be kept in check. I do not know if their (not my) strategy will work. In fact I think we may already have fallen off the pace a little.
Good balanced post. A scary thought, what happens if growth and success dry up both possible I suppose although hopefully not. Could say failure to qualify for the CL be disastrous
I feel despondent, and pessimistic.
And angry.
This family of tossers bought this club for no other reason than to use it to offset all their other debts. They aren't United fans. They aren't even football fans.
Can someone say something positive that might give me a bit of hope.
Ta.
And angry.
This family of tossers bought this club for no other reason than to use it to offset all their other debts. They aren't United fans. They aren't even football fans.
Can someone say something positive that might give me a bit of hope.
Ta.
Hargreaves starts v West Brom
We will still support them no matter what Livvie and the good news is alot of what we are talking about is worst case scenario's.
I certainly won't disagree with that, they can't even come on TV and explain themselves, I long for the day they leave
And the worst thing is that the opposition fans sing 'USA USA USA'; it's a bloody nightmare!
I think the debt kinda trumps that.
There's a lot of folk on here going on about paying off the piks to save money, which I can't understand.
Am I right in thinking that pik loans are only taken out, at very high interest rates, because other lenders see the risk as too high to lend at normal rates?
So the lender is taking a substantial risk, but in return gets much higher interest rates.
Well if the piks are paid off early to save the borrower interest, then all very well for the borrower, but the lender will have taken the risk and not got the reward.
Hence I don't think the piks can be paid off early, not without paying a shedload in penalties anyway, otherwise these loans don't make sense.
Am I right in thinking that pik loans are only taken out, at very high interest rates, because other lenders see the risk as too high to lend at normal rates?
So the lender is taking a substantial risk, but in return gets much higher interest rates.
Well if the piks are paid off early to save the borrower interest, then all very well for the borrower, but the lender will have taken the risk and not got the reward.
Hence I don't think the piks can be paid off early, not without paying a shedload in penalties anyway, otherwise these loans don't make sense.
Are you kidding?
Next customer please!
hope the green and gold grows faster now and bigger now,hopefully theres all chanting outside old trafford from green and gold guys,bring it on to every member of united ground,liverpool are free from debt, why can't we be the same, get the glazers out........
If United fail to quailfy for Europe how much revenue will United lose.
About £15m i think for the group stages.
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