Between the Lines

"Of all unimportant subjects, football is the most important" – Pope John Paul II

How to solve a debt crisis in four easy(?) steps

Posted by hakanrylander on May 20, 2009

As I’ve pointed out in a previous post, the huge and rising debt they took on to finance the takeover mean that the Glazers need United to continue to generate a strong cash flow, while the total value of the club must also increase significantly. To achieve this they’ve designed a strategy consisting of four “key elements”:

  1. Maintaining playing success
  2. Treating fans as customers
  3. Leveraging the global brand
  4. Developing club media rights

Let’s have a closer look at each of these four points, the chances of success and the risks involved.

1. United have now enjoyed more or less continous sporting success for the last 16 or so years. To simplify it, the basis of this success has been the leadership of Sir Alex Ferguson in combination with a willingness from the board to provide money to enable him to sign and retain the best players. On both these counts the coming few years involve big risks.

To replace Ferguson is the biggest decision facing the present board. The best they can hope for is that results don’t deteriorate under the new manager.  In reality it’s likely that the successor will not be able to match Freguson’s achievements (who could?) regardless of whether the board choose to play safe but short-term (Hiddink or Capello), go for a younger version of Fergie (Moyes) or, as I hope, pick the controversial but very humble Mourinho.

Until recently I’ve not been worried as to the board’s willingness to continue to finance big-money signings, such as Rooney, Ferdinand and Berbatov. It simply seemed good business sense for the Glazers to continue this policy. But then I read an article about their American football team the Tampa Bay Buccaneers where they have released a number of key players and been outbid for the signatures of several new ones. The Buccaneers now have more of the salary cap unspent than any other club in the league. A recipe for sporting success? The Tampa Bay fans are unimpressed. In 2007 there was a 145 000(!) waiting list for season tickets, now the list has disappeared and anyone who wants a season ticket can buy one.

2. Treating fans as customers is probably a euphemism for trying to squeeze as much money out of us as possible. This makes sense from a short-term business perspective.  Demand for tickets at Old Trafford is much higher than supply, meaning that ticket prices could be raised (as indeed they have been for next season) without attendances dropping. Longer-term I’m not so sure. You tend to get an awful lot more loyalty from “fans” than from “customers”.

3. The United brand is very strong globally, and much of the potential to make money from this is probably as yet untapped.  But four years after the takeover I don’t really see any signs that the club is progressing along this route any faster than under the previous owners. This could be just ignorance on my part. Maybe these activities are much more visible in China and elsewhere.

4. To increase revenue from media rights could happen in two ways. Either by an increase in total demand for English and/or European football, or by United taking a larger part of total revenues. After many years of strong growth in interest from television networks, I find it a bit hard to expect continued strong growth.

The Glazers are probably mainly looking to points 3 and 4 to generate significant increases in revenue. But they hadn’t reckoned with the present severe global recession that will, at the very least, slow down any progress. I believe that Malcolm Glazer and his sons are quite worried at the moment. It remains to be seen in what way this might affect the area of most importance to the “customers”; the playing success. A first indication might be found in United’s activity, or lack of, in the transfer market this summer.

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3 Responses to “How to solve a debt crisis in four easy(?) steps”

  1. The Brain said

    As far as I see United’s debt is rising slowly without much effort to cut it down. I remember United went to Saudi Arabia last year and played a one-off game worth £1million.

    Success on the pitch is crucial, revenue from foreign can be made much greater.

    “Manchester United have 300m overseas supporters but do not make as much money from them as possible,” said Deloitte’s Alan Switzer. “Even £2 extra from each fan would make an enormous difference. That is something all the big English clubs are now focusing on.”

    Do you think United can implement part of Arsenal’s strategy? Many clubs envy it.

  2. Hakan said

    If by the Arsenal strategy you mean to mainly recruit and develop young players, the Glazers might want us to move in that direction. If Tevez is released, as seems likely, he might not be replaced by a big-name signing, but by the youngsters Macheda and Welbeck.
    £2 each from 300m fans is of course an extremely interesting possibility.

  3. […] the combination of a huge and rising debt and a global recession probably makes it very tempting for the board to increase profits by limiting […]

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