I have always been sceptical of the notion that when the Red Knights turn up with a decent offer for Manchester United, the Glazers will roll over and sell up. I think their game plan has always been to make a profit out of capital appreciation on the Old Trafford franchise, although that scenario now looks less realistic in the medium term given the economic situation.
I have always been sceptical of the notion that when the Red Knights turn up with a decent offer for Manchester United, the Glazers will roll over and sell up. I think their game plan has always been to make a profit out of capital appreciation on the Old Trafford franchise, although that scenario now looks less realistic in the medium term given the economic situation.
However, there has now been a development that may make the Glazers more willing to consider selling up. When they reorganised the club’s finances in 2006, they took out a loan with some 20 high-risk financial investors to top up their bank debt of £500m plus. The loan was in the form of Payment in Kind (PIK) debt where no money is paid until the debt is due in 2017 and interest rolls up until then. One possible scenario would be that before then the Glazers would sell Newton Heath, ending up with a nice profit.
The interest on these PIK notes was already high at 14.25 per cent, reflecting their risky character. One reason for using them is that they have significant tax advantages which means that United can minimise their corporation tax. The Glazers have now broken a financial rule that thier net debt must not be more than five times as much as their profits (I would certainly be worried if my net debt was five times my income, but that is probably not an apt comparison as I am not a multinational business).
The club must now pay 16.25 per cent interest from August until they increase their profits. With corporate revenues hit by the recession, there is no easy way that they can increase profits. Even the Glazers are unlikely to sell Wayne Rooney or, if they did, it might well be a step too far for Sir Alex Ferguson. The rate hike increases United’s interest rate bill by an extra £75m.
It’s just possible that the Glazers might decide to get out while they are ahead, although the offer would probably have to be more financially attractive than what has been mooted up to now. The green-and-gold campaign has been a very impressive mobilisation by United fans, who are not all prawn sandwich eaters from Guildford by any means. But it is probably hard nosed financial considerations that will eventually deliver their club back to them.