I think The Swiss Ramble says it best:
Gill has always insisted that funds can be spent on improving the squad, “The Glazers have retained that money in the bank and it’s there for Sir Alex if he needs it for players”, but the reality is that since 2005/06 United’s net spend of £68 million (per the Transfer League website) is only higher than the notoriously frugal Arsenal among top clubs. In the same period, Manchester City’s net spend is over £400 million, while Chelsea’s is nearly £300 million. Clearly, United’s net spend is reduced by the Ronaldo proceeds, but even so that’s a galling comparison, considering United’s revenue potency...
Nevertheless, a club with United’s financial capacity should be competing for the very best players, especially as they need to respond to the competitive threat from teams not afraid to spend. Although last season was pretty good by most standards, a bit more investment in the squad might have avoided losing the Premier League to City on goal difference and crashing out of the Champions League at the group stage.
Although United would probably still have not matched City’s outlay with Sir Alex Ferguson admitting, “We are not like other clubs who can spend fortunes”, they should still be spending a lot more than the likes of Aston Villa, Stoke and Fulham, which has not been the case over the last few years.
Similarly, United are under pressure to increase their wage bill of £153 million, as they have now slipped to third in the English wages league behind Manchester City (£174 million) and Chelsea (£168 million). In 2008, United’s wage bill was £67 million higher than City’s, but it is now £21 million lower, a turnaround of £88 million in just three years.
If all the debt is paid off after the IPO, the £45 million saving could theoretically be added to the wage bill, which would close that gap and allow United to challenge for the top talents in the game.
In fairness, United have not done too badly under the Glazers, winning the Premier League four times and the Champions League once, though much of that is down to the brilliance of Ferguson. It is doubtful whether any other manager in the modern era could have papered over the cracks and achieved so much with such a limited budget. The question is whether this success can be maintained once the great Scot finally leaves. As the prospectus drily puts it, “Any successor to our current manager may not be as successful as our current manager.”
This is another reason why the IPO is important, as it is doubtful whether a manager of the calibre of, say, Jose Mourinho would be tempted if he had to operate with one hand tied behind his back (from a financial perspective), when there are plenty of other clubs that are willing to give elite managers carte blanche.
As noted in the prospectus, “Our success depends on our ability to attract and retain the highest quality players and coaching staff. As a result, we are obliged to pay salaries generally comparable to our main competitors in England and Europe.” By this token, United are a fair way behind Barcelona and Real Madrid, which helps explain the 10% rise in the wage bill for the first nine months of 2011/12.
To give some idea of the constraints faced by Ferguson, we only need to look at the club’s cash flow statement. Since 2009 United have generated a very healthy £353 million operating cash flow, but have spent the vast majority on interest payments and paying off loans and bonds. In that period they have used 77% of their expenditure on these financial costs with only 12% (£45 million) on player purchases.
As an aside, cash flow for the nine months up to 31 March 2012 is a large negative £125 million, partly recognising higher expenditure on transfers, but mainly due to working capital movements of minus £71 million, which are described as being down to timing, e.g. receipts from sponsors, season tickets and hospitality). This may well be the case: for the same period the previous year, working capital movements were also negative (minus £41 million), but ended up as positive £14 million for the full year. However, it does go to show that United’s cash flow is under pressure in the current business model if they pay interest AND buy players.
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.
In the last nine months alone, they have thrown away £79 million: interest £43 million, bond buybacks £28 million, IPO professional fees £5 million and £3 million consultancy fees, not to mention £10 million dividends to the Glazer family to repay loans taken out previously.
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There is no doubt that United’s commercial business has thrived under the Glazers’ guidance, but, again, other owners with the slightest business acumen would surely have done much the same with a brand as wonderful as that described in the IPO prospectus.
