Manchester United fail to heed lessons of Liverpool's sorry decline
They are English football's most decorated clubs but events this week suggest their futures are far from secure
David Conn
Timing is everything, the sages say, and today's release by Manchester United of their latest hideous financial figures, in the same week Liverpool were convulsed by their Hicks and Gillett breakdown, hammered home the horror of takeovers based on debt. There went United, the glory, glory club that should be England's richest, announcing enormous earnings of £286m from 76,000-seat Old Trafford, television and the other commercial wringing, but a loss of £84m. That was suffered largely because £81m was paid in interest and in the cost of servicing the Glazer family's borrowings to buy the club in the first place.
That is the exact same figure United received for selling Cristiano Ronaldo, one of the world's most glittering footballers, gone in £40m interest, on the £500m bond the Glazers borrowed in January, and £41m for early repayment of an interest rate agreement United's financial wizards had entered into only a year earlier. The same huge money earned for trading a great and thrilling player, spent in useless payments to financial institutions who, in a recession, can surely hardly believe their luck.
And there they were again, the same justifications rolled out by David Gill, United's chief executive, as if he, a United fan and football lover, really believes them: that the mountain of debt, now up to £769m, has no effect on United whatever, that the club is not burdened in any damaging way by money going out on that scale. With the interest payments, plus interest at 14.25% on the £202m "payment in kind" hedge fund debt, and the £13m paid to banks for United to issue that bond, the cost of the Glazers' financial chicanery last year alone was £123m. The total cost of the Florida-based family's takeover of United, done with mostly borrowed money in 2005, which was then loaded on to the club to repay, has since been £583m, in interest, bank fees and other charges.
Gill, talking up the income figure and £101m operating profit, rather than the debt or interest mountain, pointed out that United have £163m cash in the bank, which Mr. Ferguson could spend if he wanted to. But he chooses not to, Gill says, and United are serenely untroubled: "We are comfortable with the business model."
Over at Anfield the pretence has been blitzed away that they are comfortable and that, contrary to all common sense, massive debt does no financial damage. Tom Hicks, in opposing the sale the chairman, Martin Broughton, has agreed to the owners of the Boston Red Sox, is making essentially the same argument as Gill. In one of only two statements Liverpool's co-owner has made to explain himself during this tumultuous week for the club's future Hicks pointed to the income Liverpool have generated from fans and commercially, rather than the debt he and George Gillett loaded on to the club following their £185m takeover in 2007. During their tenure, Hicks said, "revenues have nearly doubled, investment in players has increased and the club is one of the most profitable in the [Premier League]".
Ferociously opposed to him in this most public battle are Ian Ayre, Liverpool's commercial director, Christian Purslow, the managing director who is a financier by trade, and Broughton, chairman of British Airways, one of Britain's top businessmen. These are not fan campaigners, or founders of supporters' trusts, devoting their unpaid spare time in half-empty meeting rooms to the belief in a better way for football to be run. Yet these habitués of the City have been saying in the most forthright way that the fans, pointing at the owners as emperors with no clothes, have been right all along. Of course debt on this ludicrous scale, imposed by owners motivated by personal profit for themselves, is damaging to football clubs.
Purslow, in his interview a fortnight ago, the first breach of the public front that the directors were working with Hicks and Gillett, not in spite of them, finally stated as barmy the assertion fans have been expected to swallow, that huge interest payments have no impact on clubs. Acknowledging that Liverpool are indeed doing well commercially, with Anfield full of fans paying a big whack for their seats, Purslow said: "Far too much of that benefit currently services loans, interest costs and bank charges. Can we afford to meet them? Just about. Do I wish that every penny spent on interest was available to spend on players? Passionately. And every minute of my working day I look for the day we are able to reduce our debt, freeing up our profits to be able to invest in players."
Broughton, in interviews he gave this week when launching his onslaught against Hicks and Gillett, whom he described as having "no credibility", said of their leveraged (debt-based) takeover of Liverpool: "If you are leveraged, that's bad for a football club." So there it was: the plain truth at last.
At Liverpool the pretence has been dropped so completely that Broughton made it a condition of the sale that no new owner – US investors like John W Henry evidently included – could finance his takeover with debt and load it on to the club. Broughton explained how good it would be for Liverpool to be freed of the "acquisition debt" with which Hicks and Gillett saddled the club. "Our aim was always zero debt," he said. "Why? It means the club has vast profits available again [which] it always should have had available to invest instead of servicing loans."
It is even believed that a line of attack in court next week could be to confront Hicks and Gillett with their own promise, made in their official 2007 offer document to buy the club, that: "The payment of interest … will not depend to any significant extent on the business of Liverpool." Broughton's lawyers are, according to Anfield sources, preparing to argue in court that that broken promise is a further reason why Hicks and Gillett cannot be trusted to remain in charge.
So at Anfield the truth has been declared. The speculators' practice of borrowing money to buy great football clubs, then loading those borrowings on to the clubs to repay, is financial vandalism. It should never have been allowed by the Premier League, which remains embarrassingly silent on why it failed to protect arguably English football's most legendary names.
At Old Trafford, where the Glazers have longer to repay their loans and Ferguson has a still fairly formidable squad to field, income is ballooning, cash draining out. The truth is not acknowledged and the chief executive is "comfortable with the business model".
http://www.guardian.co.uk/football/blog/2010/oct/08/manchester-united-liverpool-ownership-decline?CMP=twt_gu