The Glazer Debt — Dark Truth or Mere Paranoia?

Ever since the Glazers took over Manchester United Football Club, plunging it into severe debt — on a scale as large as they come — there was hardly much to cheer about if you were a United fan; at least in the early days. The first full ‘Glazer year’ in charge was the unfolding of, what many fans thought to be, the end of the world for United; a Carling Cup win and a limp Champions’ League campaign that saw us knocked out of the group stages was just too hard to bear. Not to mention the departure of a certain Roy Keane and a pasting at the hands of Middlesbrough.

The Guardian ran a piece today, revealing that the club has suffered losses despite the rosy pictures painted earlier, on the club’s financial position.

The success from 2006, till date, has gone some distance papering over possible cracks in the Glazer business model. My stance on the Glazer situation is one of ambivalence. Initially I was horrified when I heard of the amount of debts that the Glazers planned to drown our club in. It really felt unnecessary given the club were actually among the few clubs that made a healthy profit out of football. There really was no need for this, I thought.

Of course, what we fans think these days matters for little and I had to accept that the Glazers were going to be running the show, whether I liked it or not. But somethings never change and I continued to stay faithful to the club I loved. Last season’s title win and a semi final finish in the Champions’ League brought renewed cheer and belief back in the club. But at the back of my head there was this constant thought that now, more than ever before, this success is absolutely necessary for the club. Note the difference here: as a fan I crave for the success of my club, but now, it is necessary that my club remains successful. This point was also raised and addressed by Scott on his blog.

Of course there are things about the Glazers that I like which makes me conclude that surely there has got to be some sound business sense that went into buying the club and drowning it in debt, in the first place: at least they [the Glazers] are not Abramovich who meddled in team selection and forced certain players on the manager; at least they are not Gillett and Hicks who, after an initial PR offensive, moved to undermine the manager’s authority and just fought among themselves like school children; at least they are not Thaksin Shinawatra, who thinks Sven is shite even though he’s turned Man City around almost overnight. The Glazers trusted Gill and SAF fit enough to handle footballing matters and stayed out of the spotlight — credit to them.

If you are one for the numbers, though, let me quote some lines from the Guardian article:

David Gill, United’s chief executive, announced the headline results back in January, stressing that United’s phenomenal money-making power, with 76,000 crowding into Old Trafford and the Premier League’s huge TV rights deals, had produced record income of £210m and operating profits of £75m. The full accounts show, however, that even though United made a further £11m profit from buying and selling players, the interest and other accounting provisions pushed United into recording an overall loss of £58m.

Now there is no source really to back this up, and United is a private organisation that does not need to reveal its accounts. So there is really no way to judge the veracity of this article’s claim. But let us assume that this was wrong, and that our financial standing is healthy. Let me now quote some excerpts from a Glazer family spokesperson:

“The family continue to run United as a business. Their model is to encourage success on the pitch by backing Sir Alex Ferguson, and to grow revenues off it. The interest payments are more than covered by the cash generated.”

[Update: From the comments, it appears that reports, of there being a report, are true. Here are links to them in case you are interested: Link1 Link2 Link3 and Link4. Cheers Penguin]

I have no issues with the ‘family continue to run United as a business’ part. What worries me is that the business is run based on trusting Sir Alex’s judgement. Now this is certainly a noble thought. Backing a manager is good. But then a manager of SAF’s calibre has earned it over years of success. With the Glazer debt likely to be written off by the year 2016, at best, they would have to run the best part of their debt paying years in the club trusting the judgement of a new manager as it won’t be too long before the gaffer decides to call it a day.

What if, the new manager struggles to fill the shoes of his illustrious predecessor — which is of course certainly possible? What if the new manager endures a rough couple of seasons. Wouldn’t this drain in success hurt the club’s ability to pay off debts in time? The worldwide credit crunch has certainly dented many markets, particularly the American market which has forced the Glazers to put off any refinancing packages. But businessmen should have contingency plans in place to tackle such situations.

Moreover, reliance on success on the pitch demands either of two things: (1) identifying cheap world class talent, ala Fabregas, and build a world class team; or, (2) buying big to keep pace with the other big spending clubs, which would mean a reduction in profit margins for the club.

The former option would, on first glance, appear to be the best business idea, but the toughest to achieve because it is very hit and miss. The second is a much more assured plan but, again, cuts into margins. To their credit, SAF and Queiroz with their scouts have hit upon a middle ground by snapping up good young players rather than the more expensive ‘finished product’ with a reasonable degree of success — which is all good, as far as there is trust in the scouting structure in place.

At the end of the day a change in manager, and a prolonged dip in success, would really show up the kind of business model the club is run on.

But till then, we should come to terms with the stark reality that we need United to be more successful than we want them to.

I may have painted a very grim picture on the club, but it is something that has been eating away in my head and hence I had to address it. So I’ll hand this over to you to draw your own conclusions and throw some more light on what you think to be the Glazer model.