Manchester United’s debt, analysed

Manchester United’s debt, analysed


The article uses last available financial disclosures of the club as at 30th June, 2007 (download document (PDF) here). The words “current/currently” reflect opinion/fact with the same timeline in backdrop. All figures are in million pounds.

The author is a financial analyst.

It has been some time that people have been talking about a financial crisis in-the-making at Old Trafford. There are also those who insist we are already seeing one. The team, however, is doing extremely well on the pitch. That suggests, at least from a financial point of view (perhaps not conclusively though), that players are happy with their wages. After all, the club spent 74m on wages and salaries in 2006-07 (majority of which must have gone to players).

Even football clubs like Manchester United can hardly rely on money from T-shirts, posters or footballs — they really have to sell football — in the ground and on the TV. For Manchester United that makes up ¾ of their revenue which is showing excellent growth (30% year-on-year). Compared to previous year, the administration has done a great job in keeping a lid on operating expenses (despite the widespread belief that Manchester United uses a Russian cheque book too). The club has grown from a position of gross loss (persistent gross loss is an outright indicator of a failed business model) to a modest gross profit.

This is all good. But here comes a mighty financial challenge (note: I do not want to carelessly use the word “crisis”). The club incurred financial costs of 81m. That is more than what the club has paid the people who make this club — the ground staff, administration and of course players. This is, at least in an academic sense, a highly inefficient and unsustainable cost structure. But there are worse and more practical issues here.

Despite closing the acquisition transaction in the preceding year, the club incurred more debt and re-profiled existing loans this year. Pricing that Manchester United has received from financiers is not going to make things any easier. And given the deteriorating financial health of the club, overall credit tightening and the very nature of the risk financial institutions have taken on red devil’s football, finance costs will only increase.

If you doubt that then there is one simple explanation I can give.

The collateral offered to financial institutions is 425m of “first fixed and floating charge over fixed assets”. A charge is a piece of paper that gives legal claim to bankers over collateral in an event of default. But Manchester United only has 252m of tangible assets, the rest are largely intangible. In other words, this acquisition exposes banks more than Glazers themselves. The Glazers simply bought the club on bankers’ wallet, and if push comes to shove, they will handover the “soccer club” to banks, endure manageable loss, swim back home and watch “football clubs” play in America. Now wouldn’t a bank squeeze every penny out of Manchester United after taking such a risk on it?

Let us say, my view so far has been very subjective. Then let us look at some crisp objective facts. Financial institutions do not like to keep their credit lines evergreen for corporate customers unless the business model is one of low risk (e.g. a heavily regulated power utility). One day all banks will ask Manchester United to repay the principal amount which currently stands at 666m.

A very dirty (read: conservative) multiple of debt-to-free cash flow (using current figures for both debt and free cash flow) stands easily above 25x! This is too high, even with all the grace period in debt maturity schedule. Going forward, this multiple must come down or the club will be at mercy of financial institutions (whether or not they agree to rollover). What are the possible ways of doing it?

  • Stop piling more debt – not possible until the club makes enough operating income to at least repay its finance costs i.e. interest cover above 1x. Currently, this ratio stands at 0.23x.
  • Continue to post solid revenue growth e.g. at least at least 15-odd % each year. Keep up the branding. Media money is all about that. There is a reason why TV in Malaysia will not pay 2 cents for covering a Derby match.
  • Win competitions. Duh!
  • Become more efficient i.e. increase its operating margin. The current 9-odd % is not going to work.
  • Buy like Wenger, not like Abramovich. The club does not have financial liberty as many would think.

A 194m accumulated loss on the balance sheet has reduced Glazer’s equity to only 80m (year-on-year 42% decline). This is alarming. Imagine, if loss in financial year 2008 is going to be anything above 80m (2006 loss: 135m; and let us say, Glazers don’t bring in more money from America), the club will have negative equity. In English that means bankruptcy for Manchester United where banks are involved. For clubs where no banks are involved, and Russians are involved, negative equity does not matter because the owner pays for his hobby, not the banks.

Even in the beginning of the article I clearly said, this is a challenge and not a crisis. One has to understand the buyout of Manchester United. These leveraged acquisitions, a couple of years back when things were not as bad, were in fashion. Financial institutions make good money in these. Where time is merciful enough to pan things out more or less the same way as those Excel sheets suggested in investment banks when the deals are struck, the equity investors (like Glazers) in these deals make money for their generations to come.

But huge risks are involved. There are too many assumptions, from the club itself to the economy at large. If you ask me in a nutshell if Manchester United is heading for a serious financial crisis — I will say it is not so certain at the moment. Glazers should really kneel down and thank the outstanding team and some great fans who continue to buy season tickets despite $120+ crude oil and a terribly confused Brown-Darling-King tripod.

The greatest positive surrounding all of this is the debt profile — the club does not really repay any principal in the next 5 years. That is a good breathing space. But even then, for this Glazer deal to let Manchester United live, this club needs to grow really badly. Did not we all think Manchester United is an enormous club? Size is relative. You are only as big as your debt makes you look.

Also see:

Football Debt, Spiralling Wages and the future of European Football
Chelsea FC’s financial accounts and understanding Roman Abramovich

Transfer Rumors: Arsenal, Manchester United, Chelsea, Tottenham, Barcelona, Real Madrid, AC Milan, Napoli, Portsmouth, Sevilla
What constitues a football hotbed? Newcastle fans look away now...


  1. Watch your excess mockery about ‘Russian owners’ et al.

    At least our Russian owner isn’t bankrupt or bringing our club to bankruptcy, something you Manures can’t claim.

    Man Utd have a good team, but fanatics like you make me sick.

  2. cool, thanks for scaring me to death, maybe now ill become epileptic. Good article, i thinks its funny how success on the pitch can change ur view of those greedy fuck owners. I went from hating them to loving them now back to hate for good. At leats now that i know the real truth and arent listening to this bullshit Gill is going on about us being th emost profitable club in the world etc….

    p.s. Sumesh, shut ur mouth plz, for everyones sake. Wrong article to label the writer a fanatic. Actually, he can mock ur owner all he wants because its all totally true. Whats even funnier is how abramovich got his billions, swindiling russia out of one of its oil after the breakup of the USSR thnks to some well connected friends. So again, plz shut ur mouth.

  3. I’d like to query the first statement in this article that Azar is a financial analyst. There’s nothing in the article that suggests even a nodding acquaintance with corporate governance. Nor does it deal with any of the detail of United’s or Red Football’s accounts or balance sheets. I think it more likely that Azar is a bedroom football fan who has access to Google but little understanding of what he finds therein. Recommendation: grow up and leave financial analysis to those who know how to read a balance sheet. Having said that, Azar’s scatter gun approach has accidently hit on one important point in all this but as he’s missed in every other detail, I don’t intend pointing out what it is. Poor, very poor.

  4. lol… “acquaintance with corporate governance”…. muhahaha… where did that come from (probably a popular phrase tooth read in paper)? Actually your comments suggest you’ve never even seen a finance book. Or maybe at a pathetic n-th tier cheap college…. just another sorry fan-in-denial!

  5. united use a russian cheque book??? what are you talking about… foolish…

    $120 oil?? economic conditions?? united will always fill their stadium unlike other supposedly ‘popular’ teams like chelsea…

  6. In your other article you say you are a chelsea fan so would you care to comment on chelsea business model which pays higher wages, higher transfer fees, recoups less revenue and is less successful?? or will you just berate teams of whom you have an inherent jealousy?

  7. i dont know why we all get so raveled up in this, soccer is suppose to be a pure sport, not govened by debt, hell pay me 5 bucks and ill play, since when do soccer players need 125,000 a game? not even surgeons with a masters degree get that much, soccer has lost its purity and has become a circus that only the rich and powerful orchastrate- lay off chelsea and real madrid is 1# again!!!!!!

  8. Something that NEVER gets mentioned is that the Glazers also own a $700 million dollar NFL franchise in Tampa, Fl. If things were/get as dire as you claim, don’t you think that selling the Buccaneers would make “pretty good” financial sense. I get bored of all the UK press/fanboys who claim that the Glazers are running Man U into the ground. If they didn’t have the collateral they wouldn’t have received the loan, plain and simple. I know of 3 to 4 potential billionaires in the Tampa area just waiting for the Glazers to sell. Please stop the one sided view of the Glazers and look at the big picture.

  9. The most important figure to me was the intrest coverage ratio. It is way below 1 and it is quite alarming. I understand its a world of highly leveraged balanced sheets but I think this is too far towards danger.

    What is the debt to Equity?

  10. [Chris]

    The United debt is mounted on the club and not the Glazers. So push comes to shove, they have no obligation to sell the buccaneers. Eventually it will depend on the Glazers to sell TBB and use that money in United.

  11. [Jimmy]
    Chelsea doesn’t have a business model. They don’t need a business model. It’s not a business for Roman. He spends for his passion. He liked Shevchenko, he bought him at an insane price. It’s his love for the game and the players he likes. It’s sad ManU could only find an American capitalist, who hardly cares for football. And ManU is a great club. I hate Liverpool but I have a lot of respect for ManU. I hope its clear I have no jealousy.

    Glazers weren’t born in Manchester. They don’t have a love affair with ManU. They feel nothing for it. It’s their business, try to accept it. They came from FL and they will never sell a “profit-making” asset to support an “ailing” asset if, God forbid, ManU does fall into crises.

    Thank you for trying to understand the spirit of my article which was never intended to be an anti-ManU article, like the rest believe it to be. As for your question, total debt-to-equity = 10.5x. This is as skewed and risky a capital structure as any entity can have. But the reason why I did not mention this ratio in the article is, what matters more is ManU’s cash-generation ability in the future, not the current leverage. Thats why I showed the Debt to FCF ratio.

    Again, I have nothing against the club. This is a very objective analysis. Like it or not, your choice.

  12. Azar,

    Fascinating article and it makes very interesting reading. Having said that, I don’t really understand the financial stuff as I’m just a football hack!

    I support Watford and I’ve been accused of being ‘obviously’ a fan of just about every other team in England, so to expect people to ‘get’ what you’re saying may have been a tad ambitious! :)

  13. And this is what happens when normal people meet football fans. Normal people don’t have the passion.

    Mind you Arsenal aren’t far behind with 43% debt of their total value which explains a lot of Wenger’s policies esp since he has a Phd in Economics.

  14. Azar the Glazers have absolutely no emotional attachment to the Buccaneers. They’ve basically used the franchise to further their financial gain. They are businessmen at their core, not sports fans. I think that people need to look at them that way. The fact of the matter is they have capped out the market in Tampa. We’ve known that for years over here. Manchester Utd is the top sports brand in the world. If you think they’d pick the Bucs over Man U, you are mistaken.

  15. Great article, Azar. You raise a lot of points that are rather scary to think about. It’s going to be turmoil when SAF leaves, I think.

  16. Why does everyone always forget the Glazer’s other sports assets. Agreed, I’m a ManUtd fan (and we won a competition today), but I really think the Glazers actually do know what they are doing.

    They’ve proven in the past that they know how to market a sports club and no matter what hate they might have _won_ with their season ticket prices… still they sold out within only weeks. Compared to many other clubs ManU has a healthy economical plan. What was our yearly profit again?

  17. Currently, Chelsea and Manchester United have a combined debt of 1.5 billion pounds, so i wouldn’t go and start talking about Chelsea SUMESH.

  18. Azar, I doubt if you are a financial analyst. I admire your guts though. You took the bull by it horns and decided to tell a big lie. You are a donkey a** bloke.

    From what I’m hearing from the auditors, the situation is under control. Yes, I do get the point but there is no need to be alarmed. Whats needs to be donoe though is to start buy on the low and selling on the high. I think we should cash in Ronaldo to start with. His presence drives the wage bill. He will continue to demand more and more and that will mean we will have to pay Rooney, tevez, ferdinand, Vidic, etc more to be at parity.

    Also, we should buy a soccer academy in Brazil, Argentina, Portugal, Germany, and Italy. Think of this…… How much will it cost to build a academy? 5$-$10 tops. We can recoup this back with the unvailing of real gem. We have the means to do it. Besides this will give as clout in all of these countries. A soccer acadamey in the above mentioned countries will mean we will not spend sh*t loads of money like we have been doing in the last couple of years.

    Another area that we can explore is getting out of the EPL TV package deal. I know this may be tough but I personally think it helps the likes of Hull City than Utd. Utd can easily negotiate a $1 billion 3 year TV package with skysports. Yes its possible. This will mean approximately $33 m quid every year.

    And the last but not the least is to do a fun base takeover ownership just like they have at Barca. Utd is bigger than Liverpool and have a well educated fun base that understands issues like this, so I think it will be an easy sell.

  19. First manchester has a Huge name,tradition and history with can’t be compared with any other british team except liverpool. But as a brand name man utd is huge so if glazer is about to collapse there will be a million millioners who will want to buy and ressurect ..why roman will himself sell chelsea and buy manutd!! To know this u dont have to be a financial analyst!

  20. Azar : how is it possible that equity is only 80m, if a sell of let’s Ronaldo to Real would bring probably sth around 100m…aren’t the players the biggest equity of Man U. They could sell them if they were in trouble, right?

  21. Critics, thanks for the analysis. if Glazers sell, others will buy so stop disturbing yourself

Comments are closed.