Why I say United debt woes are OVER-EXAGGERATED !!!!

grandmaster89 SG

Dear United Fans,

Please stop listening to the so-called ABU journalist who suddenly became financial experts 10 days ago. I would recommend that each of you to read up on United finances in the bond prospectus here - http://www.joinmust.org/docs/mufc-notes.pdf

What I have noticed in the financial statements which went un-mentioned in the ABU merchant of doom press:

1) Manchester United reported a net profit of 25 million including the gains from the disposal of players. What these financial experts did not mention was that there are numerous non-cash items that were included in the computation of the net profit like depreciation, goodwill and ammortization of its assets like player's registration. This are non-cash items and are merely there as an accounting input to balance its balance sheet. These non-cash expenses are sizeable - 81 million last year. United did not lose 81 million cash - instead it merely inputted a loss of 81 million to balance its asset sheet which registered a reduction in 81million value in player's contracts. Player's values are reduced as their contracts get closer to expiration.

If United bought Berbatov at 30 million for a 5 year contract, its income statement will not put a 30 million expense, instead there will be a yearly 6 million depreciation expense. The cash-flow on the other hand will recognize a 30 million outflow in investments. The depreciation expense is a non-cash item since the club doesn't lose 6 million cash a year. It has already paid the 30 million pounds when Berbatov signed for us.

2) To back me up, I look at its cash-flow statement. United received over 111 million cash from its operations - matchdays revenue, competitions, commercial and tv deals. This operating cash flow is similar to its net profit excluding non-cash items like depreciation and its interest payments (which comes under investment cashflow). United then paid 40 million for its debt interest and another 10 million financing expense hence leaving it with 60 million cash. United received 40 million from investment which I believed could be from the transfer surplus. In all, United received a total of 100 million pounds CASH last year. United didn't receive a mere 30 million cash (as many has been misled), it received over 100 million pounds cash!

3) In 2009, United received over 100 million pounds CASH. This is after paying the interest, transfers and capex. This is 1/5 of United's debt btw. While I doubt any of it will go to paying the principal of United's debt, I believe most of it will go to Ferguson's purchase of new players.

This is why I trust Fergie's claims that the money is there - simply because a) United made 100 million pounds last year and b) It has a total 150 million pounds cash in its bank. I won't be surprised if Fergie makes purchases totalling 80 million next year.

4) Considering that United might increase ticketing price, more overseas tour, more sponsorship deals, its operating cash-flow will definitely increase (an increase of 30mil since 2007). Perhaps within the next 2 years, our operation cash-flow might hit 150 million. Considering that after financing its debts with the bond issue, its interest expense will be around 40-50 million pounds (9-10% interest). Ferguson will balance his purchases with sale of some deadwood - hence I estimate on average, our transfers expense will be around 20-40 million a year (we don't really need much players beside a LW, GK, CM). Hence I estimate on average for the next 5 years, we can easily rack in 40-60 million pounds a year. This means around 200 million cash will be made over the next 5 years after deducting 50 million to Glazer as a dividend. We could easily repay half of the bond and raise a 300 mil bond issue in 2016.

5) The future is still bright despite being burdened with the debt. Don't be fooled by the ABU propoganda. My calculations are by no means accurate...they are just estimation based on my understanding of its consolidated financial statement. Most companies will rarely repay any of their bonds entirely with cash-flow. Usually they will repay a portion of it and raise a new bond issue to extend their debt maturity profile. I hate to analyse United as a financial corporation but ever since it become a PLC decades ago, it stopped being a traditional club.

MUST has a valid point about the immoral nature of the debt. But don't be deluded into thinking that the debt will lead United into the brink of oblivion. United is a business franchise. It stopped being a club when it became a PLC. The only chance it had of becoming a club again was lost when United fans failed to support Shareholder's United desire to buy out the club.

By:

Grandmaster89

sand king SG

Sweet, cheers for the read =)

iceFatboy SG

well, if only if it keeps winning right??

grandmaster89 SG

We will keep wining. The whole squad is fine. We just to fine-tune it - a new left winger if Obertan can't step up, a creative attacking midfielder, a goalkeeper, a central defender if vidic leaves. This can be balanced with the sale of Foster, Nani, Vidic.

iceFatboy SG

i like your optimism..

grandmaster89 SG

Don't worry and live the dream. We won't win anything this season unless we are lucky. I am looking forward to the next haha!

iceFatboy SG

Don't worry and live the dream. We won't win anything this season unless we are lucky. I am looking forward to the next haha!

well,no matter, the debt is still like a "fish-bone in the throat". I wish this can be resolved asap.

mrwonderful SG

if you are so confident about United's balance sheet then whats stopping you from buying their recent bond issue

new_b SG

hi guys..this might be a long shot...
was wondering if we can buy the bonds...where can we buy them..and the minimum we buy? If it is affordable, maybe y not :P

cheers

Ashianamarley SG

there is a game later match against Man Utd VS Man City, will Manchester win this time?

zocoss SG

Cos its in US$100,000 blocks? Its not for the average businessman or retired investors to play with as it has a 7 yrs maturity time on it... Its more for big investment group or very very rich individuals...

new_b SG

wow.. hehe..guess not for people like me :)
anyhow thanks for the info
cheers

grandmaster89 SG

If I had a million dollars, I would definitely purchase 100,000 pounds worth of United bonds at 10% yield. I will be getting 10K pounds a year (or approx S$2K interest income every month). United has 1.1 billion pounds worth of assets, it can easily be liquadated at 50% valuation to repay its bond-holders in the event of a bankrupty which is highly unlikely.

United's debt is over-hyped by the ABU press. Glazer and Fergie isn't worried for a reason - United's cashflow is extremely strong.

zocoss SG

United's debt is over-hyped by the ABU press. Glazer and Fergie isn't worried for a reason - United's cashflow is extremely strong.

I think they said the returns are like between 7% to 9%... I agree its a very good plan if it sells...

grandmaster89 SG

The lower the better for the Club. I heard that it will be priced at around 9-10% yield since Manchester United lacks any credit rating from either S&P or Moody's. One of my investment has a credit rating and its bond yield is 6.875%. So I don't expect it to be at 7%...but then again this is Manchester United so you never know,

grandmaster89 SG

there is a game later match against Man Utd VS Man City, will Manchester win this time?

Depends which team fergie sends out...

wqtrigger SG

The thing is, United fans are getting fed up with the recent increases in ticket prices. If you've noticed recently on tv, Old Trafford has had many empty seats due to (a) many more passionate fans have been priced out of watching every single game, (b) leading to more daytrippers/prawn sandwich brigade who leave the stadium 15 minutes before full time. You may have noticed that the atmosphere in Old Trafford has been shockingly poor this season, where away fans continually outsing United fans in what is the biggest stadium in club football in the UK. (Leeds game for example)

Secondly, there is an ACS (automatic cup scheme) being forced on all season ticket holders meaning they cannot opt out of FA Cup and Champions League matches which may be midweek/late nights when they cannot attend due to schedule clashes/other commitments. This is all part of the Glazers' plan to suck as much money as possible without listening to the pleas of the average United fan. "Want a season ticket? Pay for cup matches you cannot attend. If not, pay the normal price for every league match you attend." As of Sept 30 2009, 16% of corporate and executive tickets remain unsold. (That's where the biggest money comes from)

Prices for the average attendee have been continually increasing 14%, 11% and 11% each year.

Besides, if you analyse the prospectus carefully, notice 23 million pounds have been taken out of United for "management and consultancy fees" with each Glazer pocketing more than 6 million pounds. All this for sinking a previously debt-free, financially stable club into one with the biggest debt in football. 41.9 million pounds have been paid last year just to service the interest of the principal debt ALONE. Which means the principal debt of about 509 million pounds has not been touched. In addition, the funds owed to PIKs with an interest rate of 14.25% has snowballed from to 200 million pounds with the first tranche due to be paid in August 2010 (no wonder they need to raise capital through the bond offer).

On top of that, they are now planning to sell Carrington (the state of the art training complex a financially flourishing pre-Glazer United could afford and build) to one of the Glazers' holding companies and lease it back to United. That's asset stripping in broad daylight. And if a multi-billionaire comes and buy United I suspect that he'll have to pay extra to get Carrington back under United's control too.

What people don't get is how some people like the Glazers can come in and buy a club like United when they don't have the money to pay for it in full, take a huge loan of 500 million pounds, probably more than the GDP of a 3rd world country, secure the debt against the club, raise ticket prices through the roof, force the ACS on season ticket holders, and still pay themselves "management and consultancy fees" while not touching the debt they incurred. And probably in the future, when they manage to sell United at a huge profit, eff off and go back to Florida to enjoy the fruits of their "clever investment project".

Who suffers the most? The fans, no doubt. Imagine, during a period of sustained success, 3 Premier Leagues in a row, 2 consecutive Champions League finals, including one win, and a World Club Championship to boot, selling the best player in the world, and yet they are still in this precarious financial position. In the very near future, Sir Alex would be retiring, so will Giggs, Scholes, van der Sar, and the old guard. Can one guarantee success on the pitch? If United fails to finish in the top 4, the loss in Champions League revenue etc will seriously implicate their cash flow and ability to pay off the debts. Some of the glory-hunting supporters will no doubt move on to teams like Chelsea, Arsenal, even City and there would be lower attendances. To compensate for the loss in revenue, the Glazers would most probably increase ticket prices again.

Yes, some of the analysis which can be found all over the web might be exaggerated, but do not underestimate the threat of this situation, which could have been avoided altogether in the first place had the Glazers not been allowed this daylight robbery.

grandmaster89 SG

I do agree that the debt is immoral. The club is being forced to take on Glazer's debt since it is now part of its assets. But this is the real world where capitalism rule. Everbody uses debt to attain control of something. Even you would have used debt to purchase a car or a house so isn't it similar to Glazer borrowing 500 million pounds to buy out a club at 200% leverage?

The Club is no longer a club owned by the fans. It became a business franchise the moment the fans decided to list in out on the stock exchange as a PLC. As a PLC, United became a business whose interest lies in making as much money as possible for its shareholders. The fans became the Club's clients through ticketing sales or merchandise sales or overseas tours. So don't ever get the illusion that the fans are the Club or that the fans own the Club. This is a fallacy which MUST has sold on to you. The fans own nothing, they are merely repeat customers to a business franchise. If tickets are priced out, there are numerous others tourist fans who are willing to buy it - Old Trafford volume still remains above 75K.

It is harsh but it is true - which is why I stopped regarding United as a Club but a business franchise long ago. United fans had the opportunity to buy out the club for more than 2 decades. Yet, nobody supported Shareholder's United proposal to raise fund to buy out the Club and turn it into a Barcelona or Real Madrid model. So instead of blaming the opportunistic Glazers, I blame the complacent and ignorant fans who were happy to leave United as it was (a valuable take-over target). This is why, as much as it pains me toI say, Glazers and United fans deserve each other. But Glazer doesn't deserve to be the owner of such an illustrious institution.

Glazer took out 26 million from the Club which is a mere 25% of our cash generated this year. I don't see anybody complaining when their businesses or shares gives them dividend payouts exceeding 50% and neither do I see people slamming Man United for giving its shareholders dividends when it was a PLC. Glazer is United owner - he has the right to take a portion of United's funds.

In short, United has the funds (over 150 million cash in the bank) and the ability to generate at least 30-40 million pounds of cash over the next 5 years. I see no reason how the club is destabilized financially. The Club is operating in conditions prevalent among most businesses in the real world albeit with a very strong cash-flow.

United's short-coming on the field is to be blamed solely on United's player and coaching staff. Glazer has given Fergie sufficient resources to purchase Berbatov, Nani, Anderson, Owen Hargreaves and Tosic recently. Is it Glazer's fault that these players did not step up to the mark? Clearly not - poor scouting and a lack of good coaching can be blamed for contributing to poor replacements for Giggs and Scholes. Fergie will spend big this summer - he needs a LW (if Obertan fails), a creative midfielder, a forward striker (if Diouf fails), a central defender (if Vidic goes) and a goalkeeper. Outgoing - Nani, Foster, Vidic could easily translate to an outlay of 80 million pounds (half of United's cash in bank)

I don't support the Glazer but since they are here, there is nothing I can do but support the Club and hope it does well on the field.

Chris88110 SG

I don't support the Glazer but since they are here, there is nothing I can do but support the Club and hope it does well on the field.

A good read man, just curious, are you an accountant?

grandmaster89 SG

Hi Chris,

Thanks for the compliment but I am not an accountant.

I do some equity investment in the local stock market in my free time hence analysing financial statement is a skill which I picked up. Though I am not as good as a professional accountant or investment guru. This are my personal views based on my interpretation of the Club's prospectus and their performance on-field over the past 2 seasons. I just felt that I needed to speak out against the merchant of doom press and ABU propoganda against the Club.

May we silence our noisy neighbours tomorrow!