Manchester United are a football club on the decline. Like a nation state leveraged too far, it is in the midst of its final war. And this is not one for supremacy, but one for survival.
How this has happened to one of the most storied franchises in world club football is a tale of modern finance more than one of sport.
Malcolm Glazer, American sports business tycoon and owner of the Tampa Bay Buccaneers, engineered a leveraged buy-out of the club. Using some of his own cash, and a tremendous amount of loans, Glazer acquired the club in 2005. He then proceeded to shift his own debt of 660 million pounds ($1.06 billion) onto the club, as his purchase of the club was made through loans from hedge funds and other sources. He has since been using the money the club makes, from ticket sales, televisions rights, and player transfers, to pay off this debt.
But now he is even having trouble keeping up with the interest payments. Similar to buying a house with an adjustable rate mortgage that skyrockets two years down the line, Glazer did not plan ahead for his PIK loans increasing interest rates. Instead, his team is now just combatting this credit crisis by issuing new bonds at higher rates to pay off the debt, or at least keep it in line.
Now this might seem to be off pitch business, but the way it can affect a club is staggering. Last summer, United sold their star forward and best player in the world Cristiano Ronaldo to Real Madrid for 80 million pounds. This allowed them to make a profit on the year, but only of about 5 million pounds. The club was unable to reinvest in their squad, add new talent, and prepare for another challenging year in the Premier League and Champions League as a result.
United have already been knocked out of the FA Cup, England's domestic cup tournament of choice, and may be knocked out of its less relevant cousin the Carling Cup this week. The club currently sit first in the Premier League, but they do so having played a game more than Arsenal and two more than Chelsea. They have not looked convincing this year, and are certainly lacking Ronaldo's goal scoring abilities, with much of the weight being shifted to English forward Wayne Rooney. While Rooney is an excellent player and now a leading talent in world football himself, it is difficult to see him carrying the goal scoring burden alone successfully over a 9 month season.
With the boardroom starting to impact the locker room, fans have started to voice their discontent. Supporters are wearing yellow and green in protest to the Glazer's ownership, a throwback to the club's traditional home of Newton Heath. Turnouts have dropped at games, and murmurs can be heard in every corner of Old Trafford about the future of current manager and club legend Sir Alex Ferguson. There are concerns that his retirement is approaching and that whomever replaces him will be incapable of leading the team to success on what is starting to become an increasingly tight budget.
The Glazer's position is untenable. Like a private equity firm leveraged to the hilt, they now want to punt off their asset to a higher bidder, and are searching the middle east and Asia for an investor, preferably one tied to a sovereign wealth fund. But while when they bought the club those investors seemed numerous, now many have already bought clubs of their own, or lost so much in the financial crisis that they no longer have the taste for glamour purchases.
While Manchester United are far from struggling on the pitch, they do look to be falling back a bit from their pre-financial crisis heights. Many other clubs in the Premier League have had a similar fate befall them, Portsmouth being the example most under threat at the moment. Liverpool were bought in a similar manor to United, and are now facing financial problems which are affecting their ability to be active in the transfer market.
Financial insanity is wrecking English football. Unlike the modest Germans who have a balanced budget provision in their league rules, England remains laissez-faire about how their clubs conduct their business. UEFA, the governing body of European football, is planning on exporting those rules to the rest of Europe by force, preventing teams which break them from entering the lucrative Champions League tournament. It might be the case that the only way to control the English is to have the continent's leaders regulate their markets. Sounds familiar.