Manchester United’s financial situation explained
With thanks to Tony Attwood from ‘Untold Arsenal’
For those who didn’t understand the news that Man United’s loans have been traded around the city, here is a simplistic view from an expert (who is unfortunately, an Arsenal fan!)
Manchester United was utterly debt free when the Glaziers came along. They did a leveraged buy out, which meant that the previous shareholders were given a huge sum for their shares, and so walked away with a massive profit.
The Glaziers funded this buy out by borrowing money from Manchester United once they had bought it – so effectively they bought the club for nothing, because all the funding came from within the club.
However the debts are so huge that although some of the debts are guaranteed by assets (the ground, the players, future season ticket sales) much of the debt has no guarantee, and because of this is at a very high rate of interest (17% or more).
The repayments on the debts are so high, that the club is unable to pay them, and so each year the debts get bigger, because they are the debt plus this interest from the previous year – and of course that growing debt requires more interest.
To fund this the club had two strategies – one is the increase in marketing sales (shirts etc) and the other is the increase in the cost of seats. The problem is that while the games are still selling out, some of the increase revenue schemes have come unstuck, which is why the club is being sued by its supporters over the ticketing scheme. Marketing has also come unstuck because of the recession – the number of new shirt sales to be got each year has now reached a level and won’t go up any more.
Worse, the problem with AIG means that some other money is being lost, and it is hard to find another sponsor who will pay as much as AIG.
The problem is: what next? The club is based on spending about £40 million a year in transfer fees, and getting about £10 million back – but it simply doesn’t have the money to do that any more, nor any way of increasing its income. This is why Arsenal feels so good about life – their system is based on a much smaller cost of transfer fees because each year they sell some top players who came in and cost nothing.