United they stand – off the pitch at least

After years of waiting, there’s a queue of people proclaiming the end of an era for Manchester United. But while that may be the case for David Moyes, it’s the beginning of an even richer era for the club, writes Ewan MacKenna

If you’ve never come across the story of John Spano, it’s worth delving into, even all these years on. Back in 1996, the Texas businessman briefly acquired the New York Islanders after a purchase of $165m was signed off on before the money was paid up, and despite the fact that Spano was really worth just a few hundred thousand. It was the most audacious sporting con job of them all as he hid behind a non-existent business in the Cayman Islands, hung in exclusive circles that he made sure never interacted to give away his lies, and got a loan of $80m from Fleet Bank in Boston with a just a few forged documents and a growing reputation. For four months he even sat in the owner’s box and operated the franchise while getting halfway to closing the deal, all on the strength of fraud.

Spano’s case may never be repeated, but there are plenty of other instances of capitalism, greed and sport coming together to result in catastrophe. The biggest of all could so easily have been Manchester United but amidst all the present-day talk of potential financial woe, what’s crucial to remember is reporting of the issue should be kept in the past tense, if only because of luck and perhaps the greatest feat from probably the greatest manager.

It’s strange how Alex Ferguson is sometimes viewed with a sense of bitterness these days due to his autobiography, his choice of David Moyes as successor, and mostly because of the lingering feeling that he pandered to the Glazer family after the majority of cash for their purchase of United came in the form of loans that were secured against the club’s assets. But this week, as they drop from the top three of football’s rich list for the first time, supporters should remember what Ferguson actually did, and we aren’t talking trophies here.

United is a club that proudly stated in their initial public offering prospectus that average annual net transfer spend since the 1997/98 season has  been £14.3m. It’s a strange boast as that’s small for any major club. With an ageing and shrinking squad, particularly in recent years, that Ferguson kept them so successful is impressive, but against the backdrop of potential collapse it’s remarkable. After all, he’d have known all too well that because of the Glazer’s reckless gamble, keeping United at the top was keeping United alive. Had Ferguson and the team achieved at what was closer to their level given the investment in players, Moyes would be the least of their worries. In short, many will at best remember Ferguson for making the club we now know, but a greater achievement was saving the club from disintegration.

Yet right now there are still those looking to attack from all angles and proclaim an endgame. Maybe we shouldn’t be surprised as for rival fans, what’s seldom is wonderful and for newspapers, what’s seldom is readable. The problem here is that negative predictions about the financial future of Manchester United are simply jumping on a trend, as the truth when it comes to the club as a business is they are over the hump and now is the easy bit. If they’re going anywhere, it’s up.

Sure enough, there’s no denying on the pitch matters are a mess and perhaps their high point midweek summed up the low of their season. With extra-time almost up against Sunderland and having gone behind in their League Cup semi-final just seconds earlier, Javier Hernandez’s celebration for the equaliser exuded the sort of raw joy United used to save for historic moments in historic games.  At least their exit may hasten Moyes putting his belongings back in a box so soon after unpacking them as game by game we are being flooded with proof that he overreached in his step-up to this level and he’s a manager that can work well within limits but never push those limits as the biggest clubs expect.

But when it has come to United in the Glazer era, the financial state has often been the inverse of what’s happening on the pitch, and to an extent, that has continued this season. Okay, along with that rich list, the share price has taken a battering, falling around 16 per cent since Moyes was confirmed as manager last May, wiping almost £300m off the club’s market value. And there’s the brand issue too. In their 2012 Security and Exchange Commission filing, the club claimed 659 million followers worldwide but followers is the wrong word. Especially in the lucrative far-east markets, choosing a team is often an attempt at association to popularity and another accessory that suggests status. What this year is a Manchester United jersey, Yankees baseball cap, Chanel bag and bottle of Coke, next season could be a Manchester City jersey, Dodgers baseball cap, Gucci bag and bottle of Pepsi. It’s as soulless as fickle and losing interrupts sales.

Yet none of these figures or facts are problematic for United, just mere warnings that they need to remain successful in the medium term. In the short-term however a year, or even two, without Champions League football does little harm to the Glazer’s business model that envisages ever more commercial relationships. Indeed relative footballing failure is built into the club’s “Revolving Credit Facility” – essentially an emergency overdraft. And while the current struggles make the club’s shares look expensive, it’s important to remember that only 10 per cent of the club was floated meaning the smallest transactions can cause share price fluctuations. Besides, to draw a link solely between playing performance and stock value ignores the many outside influences.

While negativity when talking about the club is en vogue, the reality is that their commercial product is strong, their increases in revenue are record-breaking and the forecast for this year is £400m. No matter what happens this season or next, that will only grow. The value of the new Premier League domestic television rights deals went up 70 per cent on the last three-year deal and will jump again. In October, the club was reported to have signed a monster shirt deal with Nike worth £300m over five years. Next year there’s the beginning of a £340m, seven-year shirt sponsorship deal with General Motors. And there’s so much more.

United have 35 companies listed as partners and this includes official noodles, paint and tyre sponsors. Laugh away, but it’s estimated that all these deals add up to another £130m per year and that’s growing too. It’s why anyone who thinks the Glazers are in this to sell are way over the bar because sources say the owners feel they’ve only scratched the surface of what is a money-printing machine. They’ve already gone west for obvious deals, now they are going east for pioneering moves and are believed to have long-term plans that revolve around mobile and internet markets that could breach the $1bn mark. Even the interest payments that threatened the club not so long ago are less burdensome as there’s been a 20 per cent reduction on the £50m incurred last year.

None of this is to say the Glazers have done a good job. They loaded the club with debt and the nine per cent interest rate they were paying on it, even before the banking crisis, was madness. But Ferguson kept that fire under control and now the Glazers are in a position to do what they are good at and put it out altogether through making huge profits. For supporters, they can expect the sort of investment that’s begun with Juan Mata, even if it’s for the wrong reasons, meanwhile on the pitch they can expect things to get better even if it’s under a different manager and is next season. All in all, a capitalist nightmare like that of Spano and the Islanders has been averted and, despite results, United are now a capitalist’s dream.

But that’s only because of the one man that you can’t put a figure on. It’s eight months since Ferguson announced his retirement but Manchester United are still learning about his true value.

26 January, 2014
Sunday Business Post


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