Man U Valued at $1.5 Billion -- American takes control

[Lawrence of Arabia]

Poison pill is a term used to describe a variety of potential strategies to fight off a hostile takeover. One strategy is to dilute the stock - a simplified example is if somebody buys 10% of a company, you issue more shares to knock that percentage down to, say, 5%. Another strategy is to issue a new class of preferred stock, with increased voting power, to a select group of shareholders that will align themselves against the raider. Yet another strategy (especially used in fighting off a hostile LBO) is to burden the company with debt levels that will make the LBO unsustainable.

"LBO" stands for Leveraged BuyOut (I capitalized the "O" to show where the acronym comes from), which is what Glazer did - use the companies assets and earnings to sustain the both the carrying costs of the debt and the repayment of it.

a poison pill can also be a trigger that increases the price of a share for a single investor after he gets more then a certain percentage of the shares.

its now reported on socccer net that total repayment will be around 800 million pounds. thats more then half the value of the club.

[Spiffor]

LoA:

So, the club must pay an extra 800 mil, half of its own value. Such an extravagant investment made by the club should be supposed to have tangible positive effects for it. Do you know what the positive effects will be?

[Lawrence of Arabia]

i have no idea what the benefits are. the shareholders obviously got a lot of money, but for the actual club, i doubt theres anything good in the future. i mean, the club only earns 160 million pounds a year. profits for the last half year were a mere 8 million pounds, 100 times less then the total debt payment.

[DanS]

So was there mass havoc created at the FA cup? Did the refuseniks wimp out?

It wasn't reported in the news on this side of the pond.

[DanS]

Here's a fun article. Looks to me like naming rights to Old Trafford and rising ticket prices is where much of the money to renovate the team will come from.

See the end for what I'm sure will be LoA's favorite paragraph. The MLS is the example par excellence of this.

Red devil
May 19th 2005
From The Economist print edition

Can Malcolm Glazer, Manchester United's unpopular new American owner, turn a profit in European soccer?

A BITTER atmosphere threatens to spoil Saturday's English FA Cup Final—a showpiece that remains to many fans soccer's equivalent of American football's Super Bowl and the baseball World Series. Fans of Manchester United—the “red devils”—who play fierce rivals Arsenal in the final, plan to abandon their usual red scarves and joyful (at least when they are winning) singing in favour of black flags and protest. The focus of their ire is Malcolm Glazer, an American shopping-mall tycoon and owner of the Tampa Bay Buccaneers, an American football team. This week Mr Glazer declared victory in his long battle to buy United. Death threats have been made against him.

Mr Glazer's main offence seems to be that he is a businessman who intends to run United as a business. That is not what owners of British sports teams—or, indeed, of teams in most of the world—are meant to do. Businessmen and other wealthy folk, even foreigners, are welcome as owners—but only if they plan to put money into a team, not take it out.

Manchester United has news of Mr Glazer’s dealings with the club. Shareholders United is a group of fans “holding shares in Manchester United plc as part of their emotional stake in the club”. See also Chelsea Football Club, owned by Mr Abramovich, and the cheerleaders of the Tampa Bay Buccaneers, owned by Mr Glazer.

So what if by so doing they are merely trying to boost a flagging public image—as Harrods owner Mohamed Al Fayed and, earlier, the late Robert Maxwell, did by buying Fulham and Oxford United, respectively? Or if their aim is to cement a valuable friendship, as the Libyan dictator, Muammar Qaddafi's, 2002 investment in Italy's Juventus did with the team's main owner, the Agnelli family? Better, though, if he or she is a lifelong fan whose dearest wish is to spend money to help the team they love. A star of the English soccer season now ending has been Norwich City's main shareholder, Delia Smith, a celebrity cook, who made headlines by delivering an alcohol-assisted speech during a half-time interval urging fans to get behind the beloved team that she once rescued from the brink of bankruptcy. A more pertinent example for Manchester United fans is Chelsea's devoted owner, Roman Abramovich, a Russian oil billionaire, who has spent a large chunk of his controversially gotten gains to assemble the team that easily won this season's English Premiership title. His unprecedented redistribution of money from the people of an economically struggling nation to a handful of wealthy foreign sport-stars bothered fans of Chelsea not one bit.

If United supporters believed that Mr Glazer would follow Mr Abramovich's generous lead, there would be few protests. But they have not been reassured by one of 76-year-old Mr Glazer's five sons, Joel, who will oversee day-to-day affairs at United. He has said that his family are “avid Manchester United fans” who want the club to “achieve even greater success”.

Their scepticism can be attributed in large part to the fact that they view Mr Glazer and sons as typical profit-driven American capitalists, prone to do ghastly capitalistic things such as raise ticket prices—as they have done in Tampa at the Bucs. Indeed, as United tickets are now underpriced (rampant ticket-touting surely indicates unmet demand), he can and arguably should raise prices. If some fans then boycott United games, as they say they will, there are lots more where they came from—or will be so long as United remains successful. That, if only for profit-maximising reasons, will surely be a priority for Mr Glazer. The Bucs, which he bought in 1995, won the Super Bowl in 2003.

Likewise, it will be no surprise if the naming rights to United's Old Trafford home are sold to a sponsor; Arsenal recently took $100m over 15 years for naming its new stadium after Emirates, an airline. Mr Glazer will also bring marketing nous honed at Tampa—Bucs fans could not live without the comprehensive cheerleader section of the team's website, for instance. But it will not be easy to improve on United's existing merchandising efforts to its estimated 75m fans globally—judging by the club megastore's extensive range of replica shirts and other themed items (Manchester United curtains, anyone?).

In the red

True, United fans may have some reason to worry about the debt that Mr Glazer is piling on to the club's hitherto healthy balance sheet. Exactly how much of a purchase price that values United at £790m ($1.5 billion) will be paid by borrowing is unclear. His use of a high-risk financing technique known as a “PIK” (pay in kind) loan that is now worryingly popular in private-equity deals is not encouraging. Nor is the example of Leeds United, a team that only a few years ago was briefly among the best in Europe but has since been relegated amid a financial crisis brought on by excessive debt and whizzy financing techniques such as making asset-backed securities of its top players. The trigger for this disaster was the failure of Leeds to qualify for the hugely lucrative annual Europe-wide Champions League—a fate that Mr Glazer must ensure never befalls his new team.

To boost revenues, Mr Glazer is expected to try to end joint negotiation of television rights by the top English teams that play in the Premiership, instead negotiating separately the right to screen United games. That sort of rampant individualism, after all, is what American capitalists are famous for. In fact, American team owners tend to profit by suppressing, to some extent, their individualism, points out Stefan Szymanski, co-author of “National Pastime”, a superb new book that compares the economics of the sport business in different countries. American sports leagues—above all the National Football League, in which the Bucs play—tend to be cartels, with fewer teams than there would be in a free market, protected by the absence of relegation, and often using socialistic practices such as salary limits for players and a centralised sharing out of young players to stop any team becoming too hopeless. As the Premiership evolves, and, above all, as Europe's top soccer teams, with United to the fore, debate how to take Europe-wide competition to the next even more profitable level, Mr Glazer's knowledge of American sport's anti-competitive collectivism may prove priceless.

[reds4ever]

That last part seems to be hoping that the tail will wag the dog. i doubt it wil happen.

[DanS]

I'm not sure what you mean.

[MikeH]

"As the Premiership evolves, and, above all, as Europe's top soccer teams, with United to the fore, debate how to take Europe-wide competition to the next even more profitable level, Mr Glazer's knowledge of American sport's anti-competitive collectivism may prove priceless."

This bit seems to be aimed at the theoretical European Super League - there's very strong opposition.

[Dauphin]

It also assumes Man Utd at the fore.

[DanS]

Ah, OK. A sly subtext.

Isn't that somewhat what the Champion's League is already?

It also assumes Man Utd at the fore.

Why wouldn't it be?

[reds4ever]

Originally posted by MikeH


This bit seems to be aimed at the theoretical European Super League - there's very strong opposition.

..and with an American sports type business model, it's a big jump that won't happen anytime soon (if ever).

[DanS]

To be fair, an American sports type business model wouldn't be needed. Rather, the "let's work together for the good of us all" attitude would be operative.

But of course, I have no idea how realistic such a league would be.

[Dauphin]

Originally posted by DanS
Ah, OK. A sly subtext.

Isn't that somewhat what the Champion's League is already?



Why wouldn't it be?

They are past their peak, having dominated the Premiership in the 90s and winning a European Cup in '99 they end this last season with no silverware, several poor seasons in Europe, and a second season outside the English top two. Now they have less money to spend on transfers and disgruntled support. They are good yes, but they are not currently competing in Europe, I don't see any radical upturn in fortunes. And that just on the field.

Off the field their influence is not, alone, anywhere near big enough to force change in the European setting.

[reds4ever]

..dp

[MikeH]

The problem with it is that the clubs that want to do it want to have it something like the Champions League but ensuring they are in it every year - at the moment any club can get in if they do well enough in their own national league.

It's the "let's work together for the good of us all" but "us all" being a few elite clubs and not all club teams

As far as I know American sports don't tend to have promotion / relegation etc. or the equivalent of qualification for the equivalent of an international qualification.

This would be fought strongly by all the other clubs in all the other national federations as it would basically be taking money away from them and keeping it with a few elite clubs.