ALL issues relating to the bond issue and club finances

[Rood]

I've been saying this for a while. With transfer fees being comparatively very low vs 10-15 years ago, whilst wages are now much, much higher it really doesn't make sense keeping to the arbitrary 50% ratio. Without Fergie's genius we would not have been very successful with such arbitrary constraints.

I think if Ronaldo wanted to stay Fergie would have dug his feet in to the owners and we'd have probably seen pressure in letting other players go/not signed (maybe the likes of Giggs/Scholes wouldn't have been pushed to stay as much as they were and Valencia/Young probably wouldn't have been signed. Also Fergie may also have let Rooney go when he kicked off).



Barcelona/Arsenal spend a modest 53-55% ratio, if we spent the same we'd have an additional c. £11-14m to spend yearly. This would be two top players at £110-140k a week or one World Class player on a wage similar to Rooney.

I think there is an argument for relaxing our 50% ratio - we could easily manage 55% even with current debt levels. Although FFP should hopefully force other clubs to cut their wage ratios anyway.

 

[Antisocial]

The wages of those non-playing staff will barely make any dent on the total wage bill, relatively speaking.

What would a top marketing exec earn in London? 100k, 150k per annum? Less than what most of our top players earn in a week.

We could hire 50 marketing execs and it would still only be the same as signing one top player.

True enough - even executives won't get that close what even fringe players are on (though I think Gill is on over a million annually). But there was talk back in February about the impact of wages outside the playing staff having contributed to the increase in wages at a time we'd lost Brown, O'Shea, VDS and Scholes' wages from the books:

Presumably, yes. There were 628 employees at the end of the last financial year on June 30 2011. That has since increased to 696 in the six months to 31 December 2011.

That's clearly played a significant part in the £9.8m increase in wages in the first six months of the year but you'd have to think that a jump in player remuneration accounts for the majority of it.

So when talking about wages, it's more than just players' wages being included - which is fine as long as results continue to be delivered.

 

[robertsoncrusoe]

De Gea, Antonio Valencia, Phil Jones, Chris Smalling, Javier Hernandez, Kagawa, Powell all came for free right?

And the 'marquee' players are?

 

[Vibhas]

If people think we are so close to the edge that we cant retain ronaldo at 250k pw if he wanted to stay then ..... 12.5 million a year is the total cost to keep him aside from the opportunity cost of flogging him off. Rvp at 10m a year and 20m transfer fee would cost around 50m for 3 years; 17m per year. Hazards transfer fee over a decade would be 3m per year; add that to his 10m wages and you get a similar amount of cost per year. Oh and you guarantee far more revenue. Agueros goal costs us at least 5m in CL money plus more in PL and possibly impacts commercial deals, although we dont have to pay an extra 2m to BBurn for jones.

Ronaldo is also very marketable and whilst we probably would be in for tony V i doubt we'd have gotten young (4m per year plus 18 m over say 5 years for the fee to villa). Of course, if he stays he doesn't fetch us 80 million, but i don't see us selling Rooney, who'd easily fetch 50 million.

 

[Stretch]

Can somebody please clarify for me, what is the clubs debt to equity ratio currently? Somebody asking me this and I'm not too sure on this.

Let me try again...

NOTE: I'm not a fin boffin so I know diddly squat. As far as I know, we don't have 'equity' right now, right? LondonRed, GCHQ, Rood...somebody, anybody...

 

[Rood]

Can somebody please clarify for me, what is the clubs debt to equity ratio currently? Somebody asking me this and I'm not too sure on this.

We don't know as the club has no official valuation at the moment.

 

[Stretch]

We don't know as the club has no official valuation at the moment.

Thank you! Just as I thought.

 

[KingMinger22]

Transfer fees have fell significantly in relative terms whilst wages have gone up.

Not paying competitive wages at the top end of the talent scale makes the so called war chest that Gill talks about every summer redundant for the best talent.

 

[KingMinger22]

I can't understand how anyone can praise the Glazer's business skills when the amount of wastage that has happened with finance manoeuvring.

All the praise for the commercial deals - We're still miles of Barca, Real and bayern in that department. People act like we're doing some uniquely innovative with mobile deals etc. I bet we would be getting similar revenues from this area if we were a plc.

 

[LondonRed]

I can't understand how anyone can praise the Glazer's business skills when the amount of wastage that has happened with finance manoeuvring.

All the praise for the commercial deals - We're still miles of Barca, Real and bayern in that department. People act like we're doing some uniquely innovative with mobile deals etc. I bet we would be getting similar revenues from this area if we were a plc.

You are missing the point. What wastage is there for the Glazers? Remember all this money was paid by MUFC and will be paid by MUFC for the float in NY. The whole point of a LBO - all of the costs of the acquisition and the cost of the asset is paid for by debt - secured against the asset itself. Any ongoing costs are then a business expense not an investor expense.

So again, I stick to my point that the Glazers have played this to a tee. <£150m acquisition cost to be left with their share of the asset worth c. £1bn (2/3rds) after 5 years. I'd call that an unbelievable bit of business. Just a shame the party that suffered was our team as opposed to a packaging firm in Minnesota (to the Glazers, MUFC might as well be).

 

[VoetbalWizard]

You are missing the point. What wastage is there for the Glazers? Remember all this money was paid by MUFC and will be paid by MUFC for the float in NY. The whole point of a LBO - all of the costs of the acquisition and the cost of the asset is paid for by debt - secured against the asset itself. Any ongoing costs are then a business expense not an investor expense.

So again, I stick to my point that the Glazers have played this to a tee. <£150m acquisition cost to be left with their share of the asset worth c. £1bn (2/3rds) after 5 years. I'd call that an unbelievable bit of business. Just a shame the party that suffered was our team as opposed to a packaging firm in Minnesota (to the Glazers, MUFC might as well be).

If the UK had the same poison pill rules that the US has, the Utd board could have potentially stopped the LBO (if they were not muppets).

 

[LondonRed]

If the UK had the same poison pill rules that the US has, the Utd board could have potentially stopped the LBO (if they were not muppets).

As far as I was aware, the substantial shareholders were in favour of the takeover - Magnier, McManus and Dobson. They got the value they wanted for their shares so any potential SRPs would have been moot anyway.

 

[Sir A1ex]

I bet we would be getting similar revenues from this area if we were a plc.

Get the popcorn in, GCHQ can't be far away!

 

[MPTutd]

You are missing the point. What wastage is there for the Glazers? Remember all this money was paid by MUFC and will be paid by MUFC for the float in NY. The whole point of a LBO - all of the costs of the acquisition and the cost of the asset is paid for by debt - secured against the asset itself. Any ongoing costs are then a business expense not an investor expense.

So again, I stick to my point that the Glazers have played this to a tee. <£150m acquisition cost to be left with their share of the asset worth c. £1bn (2/3rds) after 5 years. I'd call that an unbelievable bit of business. Just a shame the party that suffered was our team as opposed to a packaging firm in Minnesota (to the Glazers, MUFC might as well be).

Completely and utterly agree with you. Glazers will make a huge return on their investment once they cash it in. They have played a blinder as the club has paid for everything, and their only outlay was their initial part of the acquisition cost.

 

[Stretch]

Completely and utterly agree with you. Glazers will make a huge return on their investment once they cash it in. They have played a blinder as the club has paid for everything, and their only outlay was their initial part of the acquisition cost.

The PIKs?

 

[KingMinger22]

You are missing the point. What wastage is there for the Glazers? Remember all this money was paid by MUFC and will be paid by MUFC for the float in NY. The whole point of a LBO - all of the costs of the acquisition and the cost of the asset is paid for by debt - secured against the asset itself. Any ongoing costs are then a business expense not an investor expense.

So again, I stick to my point that the Glazers have played this to a tee. <£150m acquisition cost to be left with their share of the asset worth c. £1bn (2/3rds) after 5 years. I'd call that an unbelievable bit of business. Just a shame the party that suffered was our team as opposed to a packaging firm in Minnesota (to the Glazers, MUFC might as well be).

Yeah, point taken. You're right.

 

[Red-Indian]

You are missing the point. What wastage is there for the Glazers? Remember all this money was paid by MUFC and will be paid by MUFC for the float in NY. The whole point of a LBO - all of the costs of the acquisition and the cost of the asset is paid for by debt - secured against the asset itself. Any ongoing costs are then a business expense not an investor expense.

So again, I stick to my point that the Glazers have played this to a tee. <£150m acquisition cost to be left with their share of the asset worth c. £1bn (2/3rds) after 5 years. I'd call that an unbelievable bit of business. Just a shame the party that suffered was our team as opposed to a packaging firm in Minnesota (to the Glazers, MUFC might as well be).

I'm not so sure.

To your point about costs for the potentially wasteful bond being paid by the Club - its true that the cash didn't come out of the Glazers' pocket directly but value destroyed is value destroyed. A further 50-60Mn in the bank for United would reflect in its value. Since they own 100% of the club, any money lost by the club is money lost indirectly to them.

On whether they played a blinder on their handling of the acquisition, we'll know in a few months won't we? Its perfectly possible that the IPO could point to a valuation of 1Bn GBP (could be even lower...the entertainment industry is currently trading at an EV/EBITDA multiple of 7ish). If so, after taking net debt out of the equation, we're left with an equity value of 600Mn. Account for their initial outlay and paying back the PIKs - say 400Mn in total and they've made about 200Mn. While thats perfectly respectable, I wouldn't say its "an unbelievable bit of business."

Of course, all this is moot since they're not selling out right away but i'd say it points to a pretty overvalued initial acquisition (EV/EBITDA of 20?) and reasonably decent (not genius) financial management since then.

 

[KingMinger22]

I'm not so sure.

To your point about costs for the potentially wasteful bond being paid by the Club - its true that the cash didn't come out of the Glazers' pocket directly but value destroyed is value destroyed. A further 50-60Mn in the bank for United would reflect in its value. Since they own 100% of the club, any money lost by the club is money lost indirectly to them.

On whether they played a blinder on their handling of the acquisition, we'll know in a few months won't we? Its perfectly possible that the IPO could point to a valuation of 1Bn GBP (could be even lower...the entertainment industry is currently trading at an EV/EBITDA multiple of 7ish). If so, after taking net debt out of the equation, we're left with an equity value of 600Mn. Account for their initial outlay and paying back the PIKs - say 400Mn in total and they've made about 200Mn. While thats perfectly respectable, I wouldn't say its "an unbelievable bit of business."

Of course, all this is moot since they're not selling out right away but i'd say it points to a pretty overvalued initial acquisition (EV/EBITDA of 20?) and reasonably decent (not genius) financial management since then.

Good post

 

[LondonRed]

I'm not so sure.

To your point about costs for the potentially wasteful bond being paid by the Club - its true that the cash didn't come out of the Glazers' pocket directly but value destroyed is value destroyed. A further 50-60Mn in the bank for United would reflect in its value. Since they own 100% of the club, any money lost by the club is money lost indirectly to them.

On whether they played a blinder on their handling of the acquisition, we'll know in a few months won't we? Its perfectly possible that the IPO could point to a valuation of 1Bn GBP (could be even lower...the entertainment industry is currently trading at an EV/EBITDA multiple of 7ish). If so, after taking net debt out of the equation, we're left with an equity value of 600Mn. Account for their initial outlay and paying back the PIKs - say 400Mn in total and they've made about 200Mn. While thats perfectly respectable, I wouldn't say its "an unbelievable bit of business."

Of course, all this is moot since they're not selling out right away but i'd say it points to a pretty overvalued initial acquisition (EV/EBITDA of 20?) and reasonably decent (not genius) financial management since then.

I have absolutely no idea about comps for US sports franchises/entertainment companies, and nor do I have any intention to learn (bringing work home is not fun). You seem to know your stuff though so thanks for the info.

So many variants affect a business value that none of us can predict how successful the Glazers have been until we get an idea for market cap post admission; I may have been a little hasty in my 'praise' for their management. Coming to market at the right time, having the appropriate banks on the deal, having sufficient distribution lines etc. Something as simple as a good pitch can mean the difference between £100m + or - on an evaluation, especially with an entity which places so much value on its 'brand' as opposed to tangible assets.

I think the 'magic' of utd might play a big role in this as well. Asian investors with more money than sense would be my target investor because If I was going to invest (i am not), it certainly wouldn't be at anything over £1bn.

 

[Vibhas]

They're obviously going to be appealing to sell a lot of the shares to United fans, who just want to own part of the club, yes? That's what they've been doing to United fans already; as the Ramble said 'milking us like a cash cow.'

Obviously it's more than just what the shares will give you; it's obviously not a great investment at the moment, but it's a stable investment with the added value of actually owning (but not controlling) United.

 

[7even]

I think the 'magic' of utd might play a big role in this as well. Asian investors with more money than sense would be my target investor because If I was going to invest (i am not), it certainly wouldn't be at anything over £1bn.

If you value the club from a financial point of view then you are probably right, £1bn (10/1) seem like a fair price for a company who deliver a annual profit close to £100m, but this isn't a ordinary IPO.

United is one of the worlds most famous brands, a club who is on world wide television nearly two times a week for almost 10 month of the year, is weekly or daily in every national and international newspaper, millions of supporters and followers talk about this club every week, maybe every day like it was a religion and Sir Alex is their God.

You find me another brand on the stock markets, worth less then £1bn, who can match this media figures. Other companies would kill to have such a cover in media and television, and on top of it get paid for it. Our manager is more well known then the CEO's of Forbes top ten. Our sport results is for some people more important then national elections.

Manchester United Football Club sells emotions and hopes. These are priceless assets and you have to put all this goodwill on top of a normal financial analyze to get a proper value at the club.


United is in the same bracket as Ferrari, Rolex, Apple and Armani. You don't just buy a product, you buy a life style and the magic around it. I bet investors know this and will pay for it. Let's just wait and see.

 

[Red-Indian]

We'll see. You'll note though Formula One just postponed an IPO. They were targeting a similar valuation to what the Glazers seem to want and decided they weren't very likely to get it. I'd say they're pretty iconic as well with a number of fanatic followers.

 

[Rood]

They're obviously going to be appealing to sell a lot of the shares to United fans, who just want to own part of the club, yes? That's what they've been doing to United fans already; as the Ramble said 'milking us like a cash cow.'

Obviously it's more than just what the shares will give you; it's obviously not a great investment at the moment, but it's a stable investment with the added value of actually owning (but not controlling) United.

I don't believe fans will be buying these shares - it is not being marketed for them really. Although I suppose it depends what kind of fans we are talking about, there may well be a few Arab sheikhs who support United!

The first time we floated back in the 90s there were many fans who purchased shares (usually for sentimental rather than investment reasons) but I don't expect the same to happen this time.

 

[LondonRed]

We'll see. You'll note though Formula One just postponed an IPO. They were targeting a similar valuation to what the Glazers seem to want and decided they weren't very likely to get it. I'd say they're pretty iconic as well with a number of fanatic followers.

Add Graff Diamonds to that as well. F1 pulled at the start of June (just postfacebook) whose impact should not be underestimated. Not sure if enough time has lapsed because the market is completely locked down atm. Deals in the pipeline are staying in the pipeline. Global IPO market down 45% this year, has been a bit busier over the last few weeks though (subjective viewpoint not based on any empirical data).

 

[7even]

We'll see. You'll note though Formula One just postponed an IPO. They were targeting a similar valuation to what the Glazers seem to want and decided they weren't very likely to get it. I'd say they're pretty iconic as well with a number of fanatic followers.

Correct me if I'm wrong but wasn't Ecclestone quoted to say that he thought F1 was worth "on top $8bn" but only $3bn would be available for public purchase? IMO a little bit different to our IPO when we only need less then 40% of that sum (£500m) to be home.

But let's wait and see. Time will tell.

 

[Pogue Mahone]

Manchester United file out-of-date accounts for share offer

• Glazers avoid revealing 2011-12 financial performance
• Figures expected to show a decline due to failings in Europe

David Conn, guardian.co.uk, Tuesday 10 July 2012 19.15 BST

The Glazer family's timing for floating Manchester United is facing criticism from some analysts who argue the Glazers are deliberately avoiding having to present United's expected decline in financial performance in 2011-12.

The Glazers have filed with the New York Stock Exchange, to float a Manchester United company registered in the Cayman Islands tax haven, United's financial accounts for the year before that, to 30 June 2011. United's income is expected to have suffered a significant decline last year, principally due to Sir Alex Ferguson's team being eliminated from the Champions League at the group stage, whereas in 2011 they earned €53m (£44m) from Uefa after reaching the final.

Presenting accounts more than 12 months old fails to comply with US Securities and Exchange Commission requirements, and United have had to apply for special dispensation to have the out-of date accounts allowed. In a letter dated 3 July, Edward Woodward, United's executive vice-chairman based in London, points out the accounts for United's most recent financial year, to 30 June 2012, are not overdue in the Cayman Islands – "its jurisdiction of incorporation" – or any other country. Having to present the 2011-12 accounts, Woodward claims in the letter, would be: "impractical and involve undue hardship" for United.

United spokesmen both at their Old Trafford offices and representing the Cayman Islands-registered company in New York are not commenting on any aspect of the proposed flotation until it is complete and declined to explain why the Glazers had chosen this timing for the float, and to deliver out-of-date accounts.

Owen Wild, deputy editor of International Finance Review, has criticised the timing, suggesting it is because United's financial performance in 2011-12 is likely to have been significantly worse than for 2010-11. "It is very often unnecessary to do this, and investors are rightly suspicious when companies do it," Wild said. "We have several times seen companies file out-of-date accounts, then when the more recent accounts come out, they show a decline in financial performance."

United's 2011-12 accounts are almost certain to show the club made less money than in 2010-11. That year, Ferguson's team won the Premier League and lost in the Champions League final at Wembley, to Barcelona. With full houses at Old Trafford regular and the team's success marketed for global sponsorships by a team Woodward oversees in the London office, United posted a record income of £331m in 2010-11. Despite paying interest and other finance costs of £53m on the debts, then standing at £459m, which the Glazers loaded on to United to buy the club, United returned a £12m profit in 2010-11.

The club's income from European competitions will be significantly reduced for the most recent season, when United were dismissed from the Europa League by a skilled Athletic Bilbao after their Champions League failure. Uefa are due to release figures on Friday for how much each club was paid for Champions and Europa League participation last season. United's payment can be expected to be around half that of the previous year. The club also missed the earnings from three knockout stage matches at Old Trafford, which are thought to bring in around £3m each.

Many United fans feel that last season was the one in which the debts loaded on to the club by the Glazers, now at £423m, finally started to bite into the performance of Ferguson's team. Its relative drop in fortunes will have dented the club's financial performance. Those figures are not the ones being presented to potential investors in Manchester United Ltd (Cayman Islands) in New York.

...

 

[Interval]

Certainly bizarre. Last thing you want, if you're looking for a high valuation, is to act suspicious.

 

[Kraftwerker]

Would the 2011/12 accounts even have been released yet?

The 2010/11 accounts might be the most up-to-date available.

Conn even says, "United's 2011-12 accounts are almost certain to show the club made less money than in 2010-11.", suggesting he's not certain himself.

 

[Will Absolute]

Would the 2011/12 accounts even have been released yet?

The 2010/11 accounts might be the most up-to-date available.

Conn even says, "United's 2011-12 accounts are almost certain to show the club made less money than in 2010-11.", suggesting he's not certain himself.

The figures will be worse, but the drop will be modest considering how unsuccessful the team was last season.

I'd guess profits will fall from £111M to a little under £100M - which shows how robust United's revenues are. Failure to qualify for the CL knockout stage, early elimination from the domestic cups, beaten into second place in the league, and profits fall 10%. That should actually reassure investors.

If I'm mistaken, and the drop is much greater, United's reluctance to come clean will be more understandable.

 

[charleysurf]

Would the 2011/12 accounts even have been released yet?

The 2010/11 accounts might be the most up-to-date available.

Conn even says, "United's 2011-12 accounts are almost certain to show the club made less money than in 2010-11.", suggesting he's not certain himself.

Won´t be the last sensationalist article by Conn about United. It's either United are screwed articles, or City are amazing and fantastic articles with him.

 

[Red-Indian]

...

I don't think its a big issue. The 9 month unaudited are in the prospectus for all to see and its quite likely the audited full year accounts will be out by the time the float actually goes through.

The odd small investor might base an investment decision on dated financials but thats not who the IPO is targeted at anyway. The Club will be forced to give guidance on 2011-12 results during the roadshow. No big investor will going into this with his eyes closed.

 

[KingMinger22]

We'll see. You'll note though Formula One just postponed an IPO. They were targeting a similar valuation to what the Glazers seem to want and decided they weren't very likely to get it. I'd say they're pretty iconic as well with a number of fanatic followers.

Also worth noting the socio-economic demographics of those who follow F1 too.

The out-of-date books filing is just adding to the negative press around this.

It makes sense that they will get a valuation higher than the club is worth in terms of the profit it generates but there is this feeling that the Glazer's are expecting that to something like double. Probably because they are greedy leeches.

 

[Rood]

Also worth noting the socio-economic demographics of those who follow F1 too.

The out-of-date books filing is just adding to the negative press around this.

It makes sense that they will get a valuation higher than the club is worth in terms of the profit it generates but there is this feeling that the Glazer's are expecting that to something like double. Probably because they are greedy leeches.

Well the extra they are looking for is all about the 'brand value' - how much extra that is worth is very difficult to calculate.

Also I think all this out of date accounts stuff is pretty irrelevant (David Conn is always writting negative stuff about us, that is all he ever does) - most investors are not stupid enough to base decisions on 1 years accounts, you look at the picture over a period of several years - also I am sure the brokers will be telling potential buyers about the new TV deal kicking in which is a guaranteed boost to future profits.

 

[Red-Indian]

A PM from ralph250 in the newbies. Throws a bit more light on the wage comparison between Madrid and us. He's also made a pretty decent point on the reason for the bonds that seem so wasteful in retrospect - that perhaps they were issued to fulfil covenants on the original primary that it needed to be repaid before the PIKs.

Also as an aside, regards the conversation in the thread of wage comparison to Madrid. Pretty sure bonuses are included, to which we'd have paid significantly higher that year as Prem winners/CL finalists compared to Copa Del Rey winners.

We paid out £4.9m in 2006, £8.6m in 2007, £13.4m in 2008,
http://i.dailymail.co.uk/pdf/ManUtdProspectus.pdf

and from the 2010/2011
"The price of success on the pitch can be seen in the sharp rise in costs during 2010/11. Staff costs rose £21.2m or 16.1% to £153m. The club splits this increase between additional bonus payments of £9.7m and "normal" increases of £11.5m. So the "normal" inflation in wages was around 8.7%."
http://andersred.blogspot.com/2011/09/manchester-uniteds-q4-and-full-year.html

That obviously says additional as opposed to the full fee. Accounts doesn't breakdown bonuses for 2009/10 where came 2nd, and won League Cup (where £4.9m was paid out for the same success in 2006), so bonuses probably around £13-16m ish for the 2010/2011 period, accounting for wage boom? Missing 2008/2009 aswell (PL winners, League Cup winners, ECL finalists), c. £11-12m?

Either ways, I'd envisage could be a fair swing this season, with Madrid paying bonuses for winning the league, and us going empty handed; as much as £20m possibly.

 

[peterstorey]

It's not really a big deal + or - 10% either way, the problem is Chelsea and City inflating wages to the point where a decent top 4 player expects £100K a week minimum.

 

[MPTutd]

A PM from ralph250 in the newbies. Throws a bit more light on the wage comparison between Madrid and us. He's also made a pretty decent point on the reason for the bonds that seem so wasteful in retrospect - that perhaps they were issued to fulfil covenants on the original primary that it needed to be repaid before the PIKs.

Seems to know what he is talking about. Lets promote him.

 

[KingMinger22]

Seems to know what he is talking about. Lets promote him.

Exactly what I was thinking.

 

[The Wizard]

Does any of the more knowledgeable lads on this subject know when this so called 'roadshow' kicks off... Is there a way to tracking how much the IPO raises, and when will we have more of an indication of how much of the debt they will pay off?

 

[Commadus]

The money wasted in the Glazers’ reign is now estimated at £553 million, comprising £295 million interest payments, £128 million debt repayments, £101 million for various bits of financial reengineering (fees for takeover, refinancing, interest swap termination, bond issue and IPO) and £29 million payments to the Glazer family via consultancy fees and dividends.

 

[KingMinger22]

The money wasted in the Glazers’ reign is now estimated at £553 million, comprising £295 million interest payments, £128 million debt repayments, £101 million for various bits of financial reengineering (fees for takeover, refinancing, interest swap termination, bond issue and IPO) and £29 million payments to the Glazer family via consultancy fees and dividends.

Utterly tragic and the single biggest reason we have had such an underwhelming transfer policy for the last four seasons.

Imagine if we had invested in one class player per summer like Barca and Real do (usually 2 or 3!) from the summer of '08. We'd be at least on their level.