Sunday, January 31, 2010

"Over £140m in the bank” (when I checked on Friday)

Now I know I promised a “full analysis” of David Gill’s interview on BBC Radio 5Live (download here).  Unfortunately a combination of United’s amazing demolition of Arsenal and the BBC’s choice of Garry Richardson as their highly trained attack dog interviewer (he tittered in agreement when Gill said “you’re not an accountant Garry” which was a bad start given the subject matter) meant that there’s not a lot of analysis to post tonight, so let’s focus on one thing.  The big pile of cash.

Don’t worry about the debit says David Gill, because when he went to the cash machine on Friday with his United debt card, it said the club had “over £140m in the bank”.

Well that was Friday.

Until the bank debt is repaid this week, none of the possible outflows of money to the Glazers described in great detail on this site can take place.  So by definition the money is there.  Plus we know there are banking fees and derivatives losses to pay.  What's more important is whether it's our football club's or may be needed by other people whose US shopping center (sic) empire isn't generating any cash.

But first, where did it come from?  Well we all know about the £80m for Ronaldo.  But another £36m came from our new sponsors Aon.  This followed the weird stipulation by United that any successful bidder to take over from AIG had to pay a big percentage (in this case 45%) upfront, more than a year before the shirts change.  So this is just money brought forward and means future cashflow will be £8.6m less than profits each year for the next four years.

Why would they be so desperate to bring cash in early which must have reduced the total value of the sponsorship deal?  I can’t imagine (but then I haven’t seen the PIK net debt / EBITDA covenants).

Now I don’t doubt that we will buy players of greater stature than the relatively unknown Chris Smalling in the next year or two.  The squad has an ageing element to it which needs work and even the most aggressive asset stripping owner would try to paper over a few cracks.  But I’m certain that we will operate at the “value” end of the market.

And here’s a weird thing: 
  1. Gill says all the money is available.
  2. We have £140m in the bank (true on Friday).
  3. He says we make a cash profit of around £90m each year (true).
  4. He says this comfortably covers the £45m bond interest each year (if 2x is comfortable then yes that is also true).
  5. He says that leaves £45m in cash coming in each year (true until someone lifts it).

So why, whilst doing the bond issue has the club put in place a £75m additional debt facility and said this about it (page 60 of the prospectus my emphasis):

Although we have not historically drawn on our revolving credit facilities during the summer transfer window, if we seek to acquire players with values substantially in excess of the values of players we seek to sell, we may be required to draw from our revolving credit facilities to meet our cash needs.

Hang on, we may need to borrow from the £75m facility to buy players……?

The ground is fully built out so doesn’t need much investment, we’ve got £45m in profits a year after interest (and Gill thinks that will grow).

We don’t overpay in frothy transfer markets.  Has a new age of plenty arrived?  Double Verons all round?

This is how much we have spent on transfers in the last 12 years (page 52 of the prospectus my emphasis):

From the 1997/98 season to the 2008/09 season, average net player capital expenditure was a cash outflow of £13.1 million per season (excluding the sale of a significant player in the 2008/09 season, average net player capital expenditure over the same period would have been a cash outflow of £19.8 million per season). For the 2006/07 season, net player capital expenditure was a cash outflow of £10.6 million, for the 2007/08 season, net player capital expenditure was a cash outflow of £26.4 million, and for the 2008/09 season, net player capital expenditure was a cash inflow of £44.0 million.

So having spent an net average of £20m per year on transfers in the last 12 years (excluding Ronnie’s sale), and a maximum of £26.4m in the biggest year of the last four and despite having Gill’s reassurance that we are generating enormous amounts of cash, we need a £75m back up debt facility.  That's odd.

It really is going to be fantasy football when Fergie gets his hands on all this cash.  I suggest Villa and Torres to go up front with Rooney and buyback Tevez and then play him in the reserves…

You’d almost think the profits were needed elsewhere.

A better interviewer than Garry would have put points like this to Gill, but until that happens we’ll just have to make up our own minds.

More tomorrow on Carrington and Gill's innocuous mention of “peppercorn rent”….


Today's BBC Radio 5 interviews with David Gill and Duncan Drasdo

Half time at the Emirates.  I want whatever they've slipped into Nani's porridge. Get in.

Here is a link where you can download Radio 5's interviews with United Chief Executive David Gill and MUST's Duncan Drasdo.

Full analysis to follow.....

PS. One of these people is paid over £1.8m a year to talk rubbish like this.....


Saturday, January 30, 2010

The Empire strikes back.....

So here we go, released from the legal restrictions during the bond roadshow, David Gill and the club hierarchy are coming out fighting against all the criticism they have received. Tomorrow morning, Gill will do an "exclusive" interview on Radio 5.

Football Focus on BBC1 this morning had a piece on the gold and green protests and spoke to MUST, Keith Harris (banker not ventriloquist) and a rather ill informed academic. The club was obviously given the chance to take part but instead sent the BBC this statement:

"Manchester United is the most profitable football club in the world, last year, on a record turnover of £278m, the club made a record cash profit of £91m. Interest payments were £41m and wages accounted for less than half of the turnover.
"The recent bond issue has been very successful and provides the club with certainty in its interest payments, as well as great flexibility with the removal of bank covenants.
"The cash from the sale of Cristiano Ronaldo is available for Sir Alex to spend and it will be spent on players who are available for purchase and who the manager thinks can improve the squad, not to prove to pundits that it exists."

Let's take a look at this statement bit by bit:

"The recent bond issue has been very successful" - They have indeed raised £504m, £4m above the initial target.  That is a successful bond issue.  Well done all.

[The bond issue] "provides the club with certainty in its interest payments" - This is also true.  From now until February 2017, the club will have to pay a fixed £44m per year (unless it chooses to redeem some bonds). The 8.72% they are paying on the £504m is indeed certain.  It is also higher than the actual interest rates on the bank debt they are replacing and is even higher than the fixed rate (5.0775%) that the management chose to lock into in 2007 and is now costing the club £35m to unwind.  But yes, they get certainty.

[The bond issue gives] "great flexibility with the removal of bank covenants" - hmmm.  Let's be very clear about this.  The bond does indeed remove the bank covenants and replaces them with bond covenants.  These are a lot less onerous than bank covenants.  They allow Red Football Ltd flexibility to do the following:
  1. Pay an immediate dividend to Red Football Joint Venture Ltd of £70m (page 130 note 13).
  2. Pay an additional dividend to Red Football Joint Venture Ltd of £25m whenever they wish (page 130 note 14).
  3. Transfer Carrington (for free) to another Glazer company, sell it and let the new owners lease it back to the club (page 78 and onto 79 "Real Property").
  4. Pay £6m a year to the Glazers in management fees (page 100).
  5. Pay £3m a year in "general corporate expenses" to Glazer companies (page 129 note 10b).
  6. If EBITDA is at least twice the interest bill, pay 50% of the net cash profits of the club to parent companies in dividends (page 127 note c(i)).

So who benefits from the "flexibility"?  The football club or the Glazers personally?

"The cash from the sale of Cristiano Ronaldo is available for Sir Alex to spend and it will be spent on players who are available for purchase and who the manager thinks can improve the squad, not to prove to pundits that it exists." - Now I don't want to use rude words in a family blog, but this is a bit much.....

Look at this table from page 44 of the prospectus.

At the end of September 2009, Red Football Ltd had £146.6m in cash (that's the first column entitled "Actual").  Why so much?  Firstly because £80m of Ronaldo money was in the bank and secondly because Aon, our new sponsors paid £35.9m of their £80m four year deal up front.  So that's a bonus inflow of £115.9m in the £146.6m.

The second "As adjusted" column shows the impact of the bond issue (as if it had happened in September because those are the most recent figures).  See how the cash mysteriously falls from £146.6m to £116.6m. This is explained on page 43 of the prospectus.  The bond cash needs to be topped up with club cash to pay off all the old debt, plus some of the losses on the interest rate derivative and the £15m in fees the bond deal cost.  So there goes £30m.

Then look at little note 1 below the table,  "we may, without restriction, make a distribution or loan of up to £70.0 million to our immediate parent company, Red Football Joint Venture Limited, that may, in turn, use the proceeds of that loan for general corporate purposes, including repaying existing indebtedness."

They "may" do that.  If they did that of course, no less than £100m would have gone out of the club.  Have they done it as of today 30th January 2010?  No.  Why not?  Because the settlement date for buyers of the bonds (the date they pay for them) was yesterday the 29th January.  It wouldn't have been possible to pass the money up to Red Football by today because they need to do the "Closing Funds Flow" whereby money moves around group companies.  So today it is true the money is there.  You can guarantee it won't be around for long.

Will they pay up the £70m?  We won't know for certain until the accounts for the year to 30 June 2010 are published next year.  But with the PIK time bomb ticking under the Glazer family (and their other businesses struggling in the US) the answer is obvious.  My bet of a pint to anyone who wants to gamble on the money staying in the club is still there.

So what of buying players?  Even if the cash goes as I described, the club can still buy, with even more debt. The Glazers can take the money from Ronaldo as set out above but out of the kindness of their hearts they've fixed a new £75m bank facility for the club.  Now of course cash is cash whether its Aon cash, cash paid by TV companies over the rest of the season, Ronnie cash or cash drawn down under the £75m facility.  Maybe they have put the Ronaldo money in a separate account called "Look, look it's the Ronaldo fee account" so they can show journalists the bank statement.  It doesn't matter of course,  sell the best player in the world for £80m and push at least £100m of cash out in fees, dividends, derivative payments etc and you end up in exactly the same position.

So if you happen to hear David Gill on the radio tomorrow, remember this, the money IS there this weekend, but the whole design of the bond issue is structured to mean it and a whole lot more will walk out of Old Trafford in the weeks, months and years to come.


Thursday, January 28, 2010

How we know they're planning to take out cash..... the final piece of evidence

I'd like to apologise for the dweeby, technical, accounting nature of this post.  Hopefully it will make sense the way I describe it below.  If not please don't hesitate to contact me and I'll try to explain what I mean.  Despite it being technical, I thinks it's important.

The digging around that I and others have done since the bond prospectus was published on 11th January shows conclusively that the Glazers will be able to take huge sums out of United now the old bank debt has been replaced with bonds.

What's obviously harder to prove is that they intend to exercise these rights and to what extent.  We know for certain that they intend to take the Ronaldo money out, it's mentioned on pages 27, 44 and 130 of the prospectus.  We know they are going to grab Carrington, sell it and make the club that built it from its own funds pay to use it, that's on pages 78, 79 and 156 amongst others.

But maybe that's it. Maybe just because they've got the right to take 50% of the cash profits they won't exercise that right.  What sort of smoking gun would you need to find to the prospectus to make a convincing case that not only can the Glazers pillage Manchester United to the tune of hundreds of millions of pounds, but that they intend to?

I think you'd need to find something like this:

This small print appears on pages 43 of the prospectus with the same routing of money also described on page 44 and is defined on page 158 as the "Closing Funds Flow".

For clarity, taking this small print together with other bits of the prospectus, this is what will happen to the £504m of proceeds from the bond issue:

£504m raised
of which:

£15m paid in costs to the banks that organised the bond issue
£489m left in MU Finance
of this £489m:
"approximately £400m" is passed to Manchester United Ltd (the rest goes straight to Red Football Ltd to pay off bank debt).
Manchester United Ltd lends the £400m to Red Football Joint Venture Ltd (the parent company of Red Football and the company with the famous PIKs).  The loan is indefinite and interest free.
Red Football Joint Venture Ltd pushes the £400m back into its subsidiary Red Football Ltd (the company with the bank debt) by making a "capital contribution".

Red Football Ltd uses the £400m it has just received (together with more of Manchester United's cash, to pay off the rest of the bank debt and some of the losses on the interest rate derivative).

Now when I first read this clause it didn't seem very important.  I didn't know why they were doing all this money moving, I guessed (wrongly) that it was something to do with tax.  When I had some free time I asked an expert, a senior accountant at one of the big 4 firms in Manchester (thanks mate).  Being a qualified professional he worked it out pretty quickly.  And when he told me the answer it all made sense.  Let me try to explain:

Under English company law, there are restrictions on companies paying dividends.  It is not generally possible to pay dividends from what are called "non-distributable reserves" without a complex and costly "capital reorganisation".  Without boring you with the detail, a company's net worth (it's "shareholders funds") are divided into different "reserves".  A company (even if it has the cash) cannot easily pay dividends from its "share premium reserve".

This is what the various "reserves" that make up Red Football Ltd's net worth ("shareholders funds") looked like at 30th September 2009:

So despite having a net surplus of over £450m, Red Football Ltd can't really pay dividends because it all sits in the "share premium reserve".  If it had a positive number in the "profit and loss reserve" it could pay dividends up to this amount, but this number is negative (the product of over four years of losses).

So how do companies in this position get around this problem?

One way is for the company's owner to make a "capital contribution".  The owner just pumps money into the company (no new shares are created).  Intuitively you can see why this money from the parent and placed in a separate "Capital contribution reserve" can be paid back to the parent in dividends, it is after all the parent's money.

So suddenly, the £400m flow around the Red Football group makes perfect sense.  The new reserve created by this inflow into Red Football's account allows the company to pay dividends to its parent Red Football Joint Venture Ltd.  It has no other possible purpose (and let me add, this is a normal method of creating "distributable reserves" and is perfectly legal and normal).

And the most important thing about this accounting cash shuffling is this, it creates £400m of dividend paying capacity.  Not just the £70m identified upfront in the prospectus, or the extra £25m dividend they can pay that is hidden on page 130 of the prospectus.  £400m.

Still not 100% certain the Glazers are planning to asset strip our club for years to come?

Some simple questions: why bother creating the accounting room to grab £400m and and pay it out to the owners?  
If asset stripping is a scare story with no foundation, why have thy deliberately made it possible?

If you were a benevolent owner who put the interests of the club first, would you create the accounting mechanism to pay out £400m?
You don't need to be a knowledgeable accountant like my mate to know the answers......


Harry's Game

Last week everyone’s favourite cheeky chappy, happy Harry Redknapp, admitted that Tottenham Hotspur were keen on bringing Real Madrid forward Ruud van Nistelrooy back to England, but warned that meeting the Dutchman’s wage demands could “kill the club.” It was no surprise to see Redknapp wake up during the transfer window, the time of year when his revolving door transfer policy comes into its own, nor was his interest in an over-priced player well past his best particularly unexpected, but it was simply astonishing to hear of his new-found financial prudence. After all, this is the manager who normally spends money like it isn’t his own (actually, it isn’t). In the 2009 window, he splashed £45m on five players, an amount which was only exceeded by “more money than Croesus” Manchester City.

In the past, Redknapp has argued that he should not be blamed for this “hey, big spender” approach to football management, as it was financed by the (stupid) owners. It was not his fault if they wanted to “live the dream” and funded his acquisitions accordingly. Tough luck if those dreams ended up being of the shattered variety. The money side of the game was “nuffink” to do with him. So, logically, you cannot expect Redknapp to be sympathetic about what has happened to the clubs he left behind. It’s probably just a coincidence.

"Shiny Happy People"

Whatever the reason, it’s a veritable trail of destruction for Bournemouth, West Ham, Southampton and Portsmouth, but Redknapp has stated that he does not feel responsible for the financial problems that have troubled these clubs after his departure. Bournemouth were forced into administration, suffering points deductions two seasons in a row. West Ham have undergone two changes of ownership with the recent deal with the porn barons narrowly avoiding a fire sale. Southampton suffered a similar fate, entering administration and struggling to make the payroll before being sold to a Swiss consortium. Portsmouth are perhaps in the most serious economic difficulties with Her Majesty’s Revenue & Customs presenting the club with a winding-up order and they have become a laughing stock as they seek investment from anyone that sounds like a wealthy Arab: Sheikh Your-Money-Maker, Sheikh It-All-About, Sheikh Rattle-And-Roll and even Sheikh n-Vac.

And what do these clubs have in common? They’ve all been saddled with a crippling wage bill for the footballing equivalent of prima donnas, lame ducks and assorted waifs and strays. If ever anybody had done his utmost to provide an unbeatable argument for a salary cap or at least a rule to limit wages as a proportion of turnover, that man would be Harry Redknapp.

Financial disaster has yet to hit Spurs, but with Jonah as their manager, it’s surely only a matter of time given his perfect record in ruining a club’s balance sheet - unless chairman Daniel Levy can keep him on a tighter leash than usual. Tottenham are already trading at a loss if you exclude player sales and I think that the days of persuading bigger clubs to spunk their money on the likes of Berbatov and Keane are long gone.

"Shirty Harry"

Droopy’s modus operandi has become horribly familiar over the years. First, you crank up the transfer merry-go-round, moving out large numbers of the existing squad, only to replace them with your own tried-and-trusted bunch of mercenaries (Pascal Chimbonda anyone?). Next, and this is crucial, you highlight how astute your transfer dealing is, for example hailing West Ham’s purchase of Liverpool’s misfiring forward Titi Camara as a coup: “I’ve got a £10m striker for £1.5m”, while conveniently forgetting to mention the ridiculously inflated salaries that are used to tempt the players into joining a second-rate team.

At a later date, you also overlook how these bargain buys actually perform on the pitch, so Camara’s record of no goals in eleven appearances for West Ham will never be discussed. The team might do well for a while, but sooner or later they will suffer from the gigantic increase in running costs and the associated rise in debt levels, and then the walls come tumbling down.

Redknapp started as he meant to go on in his first managerial role at Bournemouth, when he traded players like a South Coast version of Arthur Daley, increasing the debt from £150k in 1987 to £2.6m in 1992 (enormous for a club at this level in the early 90s). Although he made a small profit on the transfers, he drove up the salaries to a level that was to prove unsustainable. A financial advisor commented, “There was a degree of irresponsibility in his actions. It has developed into the mess we are now trying desperately to resolve.”


Given their precarious position, Redknapp’s activities at Portsmouth are also worth reviewing, as he effectively gambled the club’s future by gathering together a large squad of over-paid players. As an example, he wasted £13m on the totally unproductive forward line of John Utaka, the club’s record signing at £7m, and David Nugent, a snip at just £6m. When they were signed, Redknapp boasted, “I’m delighted with the pair of them. They will give us an awful lot up front.” At least, he was right about the awful bit, as Nugent has been loaned to Burnley after scoring a pathetic three goals, while Utaka is still a long way from reaching double figures after over fifty appearances.

Utaka is a perfect example of how Redknapp’s “strategy” damages a club, as he is paid a quite unbelievable £80,000 a week, which means that his total cost over his four-year contract is a staggering £23.6m. At his current rate of scoring, that will work out to something like £2.5m for every goal. Signings like these took Portsmouth’s annual wage bill to nearly £55m, which is around 90% of the club’s turnover (according to an investigation by the News of the World).

"Happy Harry"

As the respected former Tottenham manager David Pleat commented, “Some of the have-nots have been absolutely stupid, like Portsmouth, and have just paid for what they consider assets in the pursuit of short-term glory. A lot of clubs are loaded with players on high salaries who they would have massive problems manoeuvring to other clubs.” These costs are often funded by the club taking out loans, borrowing money against future income, sometimes with the stadium as collateral, which can be highly risky if the projected revenue stream (normally from television) does not materialise, e.g. if the club is relegated.

While Redknapp should be given credit for developing the likes of Frank Lampard, Rio Ferdinand and Joe Cole at West Ham, his policy is normally to buy a new player or twenty, rather than coax the best of his existing team. He has denied this, “Sometimes you get unfairly labeled in this game. I’m supposed to be a wheeler dealer, but I understand the game and maybe I don’t always get credit for that.”

It is hard not consider him a bit of a barrow boy, when he launches into his standard transfer spiel, “We’re down to the bare bones and desperately need new players.” This is usually accompanied by numerous public shows of admiration for the target with plenty of “nudge, nudge, wink, wink”, but obviously no, absolutely no tapping up. His reputation for being able to spot a player is also far from perfect, as West Ham fans would surely agree, when considering expensive flops like Marco Boogers, Ilie Dumitrescu and Florin Raducioiu, whose displays Redknapp himself described as “worth about two bob.”

"Big Mouth Strikes Again"

Possibly those who consider Redknapp a cheque-book manager are thinking of the 44 players he brought in during his first 30-month spell at Portsmouth or maybe they remember the 134 transfers he was involved in at West Ham, prompting Chairman Terry Brown to ask, “What’s Harry up to?” Fair question, given that Redknapp had thundered, “The day I would want to leave West Ham is the day we start wanting to sell the Ferdinands, the Lampards and all them”, a few short months before accepting Ferdinand’s transfer to Leeds, possibly comforted by the £300,000 bonus he himself received for the deal. This was apparently on the condition that he did not use the Ferdinand funds on transfers, which he subsequently ignored, buying just the ten players.

Imagine what managers like Harry Redknapp would have to do without the transfer window. If they weren’t able to reach into the owner’s wallet so easily, then they would have to stand or fall on their ability to coach, the quality of their preparation and the ingenuity of their tactics. At least that would give Redknapp the opportunity to make use of his enormous back-room staff. I confess to having lost track of how many coaches Spurs have now, but I believe that the lengthy list includes Kevin Bond (more of him later), Joe Jordan, Tim Sherwood, Clive Allen and Les Ferdinand. Maybe that’s why journalists are always talking about their strong bench, as they would certainly need one for that lot – especially if Tom Huddlestone is among the subs.

"All by myself"

If ever a film were made about Redknapp, it would probably focus on another aspect of his colourful career, namely the many accusations of corruption. They could call it “When Harry Met Money” or possibly “Dirty Harry”. Of course, our crafty Cockney has never been found guilty of anything and he is innocent until proven otherwise, but some malicious folk will still mutter, “no smoke without fire”. For the record, three allegations have been widely reported.

Back in September 2006, the BBC’s “Panorama” investigated football corruption, including a video of “Readies” appearing to express an interest in approaching a player illegally, though our hero told the BBC that he had never taken a bung and considered himself to be “one million percent innocent.” His assistant manager at Portsmouth, Kevin Bond, was accused in the same programme of receiving payments, which provoked him into taking legal action against the BBC. However, the corporation stood its ground, only for Bond to mysteriously drop the case just before the hearing was about to start. Nobody knows the reason for this volte-face, which seems particularly strange after all the legal costs he had incurred, but those interested in an answer could always contact Mr. Bond at Tottenham Hotspur, where he has once again been re-united with his old mucker, Harry Redknapp.

"Happy days are here again"

Along with four others, including Portsmouth Managing Director, Peter Storrie, and former Chairman, Milan Mandaric, Redknapp was actually arrested in November 2007 on allegations of conspiracy to defraud and false accounting, though he was later released without charge. With his customary chutzpah, Redknapp bizarrely claimed that being arrested somehow proved his innocence, “I’ve been answering questions to help the police. I am not directly concerned with their enquiries. They have to arrest you to talk to you, for you to be in the police station. I think that’s the end of it.”

So, imagine Redknapp’s astonishment this month, when he was informed that he would be charged with two counts of cheating the public revenue following a lengthy investigation by HMRC. This focused on allegations of unpaid tax relating to an offshore payment made to Redknapp by Mandaric. Liverpool fans greeted this announcement with their legendary Scouse wit, “You’re being taxed in the morning”, though it is not known whether the Anfield DJ played the Beatles’ classic “Taxman” during the half-time break. Whether or not Redknapp is guilty as charged, there is a moral issue about this payment, as it was apparently linked to a bonus scheme where Redknapp was given 5-10% of any profits from transfers, but it surely cannot be right to incentivise your manager to sell your best players (assets).

"Hurry Up, Harry"

There’s also a nasty smell about the strange betting patterns on Betfair prior to Redknapp’s appointment at Portsmouth, following his short-lived tenure at Southampton. An incredible £16.5m was traded on the exchange before Redknapp’s surprising return to his “spiritual home” was announced. This was obviously nothing to do with Redknapp, but eyebrows were raised.

This was just one of the many moves that Redknapp has made that have caused accusations of disloyalty. Of course, people change jobs all the time, but they don’t always profess undying loyalty before exiting stage left shortly afterwards. When he first walked out on Portsmouth, claiming that he needed a break from football, he told a reporter that he would not join their arch rivals Southampton, “I will not go down the road, no chance”, but was appointed their manager two weeks later. Similarly, when he was asked about rumours that he might quit Southampton, following the hiring of Sir Clive Woodward, England’s Rugby World Cup winning coach, as Technical Director, he boomed, “If I wanted to walk out, I would have gone in the summer”, only to resign a few weeks later. Most revoltingly, he never stopped telling people that he would stay at Portsmouth:

“Any unfulfilled dreams I have left in football can be achieved here. I turned down two exceptional offers in the last twelve months and that was a clear indication of where my heart and mind was.”

"It wouldn’t make an ounce of difference who came in for me now. This is where I belong and this is where I want to finish.”

“It would have been easy to walk away in the past year and I don’t think anyone would have had any real complaints. But, as tempting as the offers were, I couldn’t have lived with myself. There would have been a massive sense of betrayal.”

"Fans' Favourite"

Well that’s cleared that up – except that five months later, Redknapp jumped ship and headed off to Tottenham, leaving Portsmouth’s number one fan (and annoying bell ringer) John Westwood to sum up the fans’ feelings, “Every fan feels let down. When he came back from Southampton he said how much he loved the club and this would be his last job. Yet again he’s stabbed us all in the back and left us in the lurch.”

People should not be too surprised; after all, this is the man who has no compunction about rubbishing his managerial colleagues. After he returned to Portsmouth, he complained that his predecessor had left him with a useless squad, “Look what I have to work with. Some of the guys don’t even speak English. It’s ridiculous.”

Never mind his own chequered history with foreign imports, “Samassi Abou don’t speak the English too good”. When he arrived at Tottenham, he lost little time in whipping out the traditional self-serving script, “This is a football club that has been put together by I don’t know who and I don’t know how. It is a mish-mash of players. It’s scary.” And he might just have mentioned on a couple of occasions that when he took over Spurs only had two points from their first eight games …

"Blow football"

Forget other managers, what about his celebrated man management? The proverbial “arm around the shoulder” was by all accounts the main inspiration for the Spurs revival, as Harry explained, “I have just got to know them, talked to them and encouraged them.” However, not everyone at Spurs has been singing “Kumbaya” around the camp fire with Roman Pavlyuchenko complaining that Redknapp was “mocking him”, while Sunderland’s Darren Bent was understandably miffed when his manager joked that his “missus could have scored” after he had squandered an easy chance, “Even last year when I was the club’s top scorer, I never actually felt wanted.”

Nor does Redknapp appear to be in full control of his team. Apart from David Bentley’s drink driving and Ledley King’s alleged assault, his decision to not allow his team to hold a Christmas party was ignored, as the majority of his first team squad simply flew to Dublin where they went clubbing late into the night. Of course, it must be fairly difficult to take a moral line when you’re frequently in the headlines for corruption charges. That sort of undermines your authority.

One thing that football managers demand is consistency, whether it be from their players or referees, but this is a concept that has frequently challenged Redknapp. Having previously claimed that he was a “big Arsenal fan as a kid”, he altered his stance when he moved to White Hart Lane, “I followed Tottenham”. He tends to sway with the wind, so when John Hartson kicked team-mate Eyal Berkovic in the head during training, he initially dismissed the incident, “it was nothing”, before bowing to public opinion, “what he did was totally out of order, absolutely terrible.” This is one man who can “handle the truth”.

"Taxing times"

Given the tests posed by his Del Boy character, you would have thought that his lengthy career as a football manager must be justified by many great accomplishments, but in fact he has been no more successful than Peckham’s finest market trader, winning just one trophy of significance (the FA Cup) in nearly thirty years – and he virtually bankrupted Portsmouth in doing so.

He was described as Harry Houdini when he “miraculously” steered Portsmouth away from relegation, but this reputation does not really stand up to close scrutiny, as he was unable to keep Southampton in the Premier League, ending their 27-year spell in the top flight. Moreover, Portsmouth were in 16th place when Redknapp arrived and actually finished one place lower. The immediate response to Redknapp’s appointment was nine defeats in ten games, before a fine run saved them, largely thanks to significant investment from the new owner, Sasha Gaydamak, and a favourable fixture list (with two teams fielding reserve sides in advance of important FA Cup matches). In reality, Redknapp’s record was only marginally better than his much-maligned predecessor, Alain Perrin.

Of course, Redknapp is a darling of the media with his down-to-earth, “apples and pairs”, lovable rogue persona, so he invariably gets a good press, even if his managerial style is extremely predictable, as summarised in this glorious flowchart:

The newspapers also don’t appear overly concerned about the way he manipulates them, such as when he returned to Fratton Park with Spurs. Before the game, his concerns about his likely reception were quoted every day: “If people are stupid enough to shout abuse when I go back, they need their heads looking at”; “I know some idiots will try to have a go”; “The phone calls hurt. They were from sickos. People said ‘I hope you get cancer’. They are not human beings.” After the game, without a trace of irony, he stated, “The fans were as good as gold. Absolutely lovely. It all just got hyped up out of nothing.”

This is clearly a man without shame, as anyone who has had the misfortune to witness the Redknapp family’s Wii advert will attest, though this is nowhere near as bad as the hideously tacky Thomas Cook ad featuring Jamie and Louise, which has set a new low that will surely never be beaten (“We dream about it” – oh, just do one, you tight-trousered buffoon and take your has-been wife with you).

"The apple doesn't fall far from the tree"

Harry Redknapp has achieved relatively little in football, yet receives far more credit than he deserves. He is a sneaky, disloyal, feeble excuse for a manager, who appears to be motivated more by money than results. As he infamously said, possibly when taking in the ocean view from his palatial property in Sandbanks, “At the end of the day, no one gives a monkey’s about you once your career’s over, so in my view you should make the bucks while you can.” This is one manager for whom money is never too tight to mention.


Feeling a little jaded today.  You really can't beat injury time winners against little city.....

But how little are they? Here's a snippet (from the accounts to 31st May 2009 City slipped out on 13th January and the recent United accounts to 30th June 2009):

Turnover City United
Matchday £15.4m £108.8m
Media £48.3m £99.7m
Commercial £28.3m £69.9m
Total £87.0m £278.5m

EBITDA City United
2008/09 -£30.7m £91.3m

Obviously the 40% cumulative ticket price rises at United since 2005 make that £109m number possible, but ask yourself this:

a) Isn't Michel Platini right?  Isn't the financial tragedy of football both United style debt but also the fantasy world of £31m+ annual losses funded by rich men who feel nothing for their club toys?

but more importantly....

b) Aren't City a MASSIVE club?


Monday, January 25, 2010

Politicians watch no.2

"Gordon, I've got these bonds I need to shift...."
"Funny you should say that Alex...."

So there you are, waiting for a major politician to step in and apply themselves to the debt crisis in English football when suddenly the Prime Minister himself gets involved.

At his No. 10 press conference the PM, when questioned by lifelong red, Newsnight Political Editor and mercilessly effective biographer Michael Crick (himself nudged into it by a certain Red Issue Sanctuary agitator) had this to say:

"There is an issue here for football supporters, that over the last few years a number of football clubs have become highly leveraged and therefore they have far higher levels of debt than the income they are able to generate from the footballing activities and the television activities,"

Now for some clubs that is no doubt true, but for United (and Liverpool), the real issue is debt piled on by leveraged buyouts and the subsequent asset stripping.  Gordon Brown went on:

"Of course, in many cases there are very simple ways that they can deal with these problems. In other cases, football clubs don't have the income that is necessary to deal with the leverage that they have.

The Prime Minister didn't expand on these "very simple ways" to "deal with these problems".  Perhaps this is where the asset stripping comes in.  Don't worry about those horrible PIKs, the Glazers will have pillaged enough from the club to pay them off in a few years.  Problem solved.  Anyway, there was more:

"But this is an issue and it's an issue football clubs are facing and it's a worry to supporters and I think the management of football clubs have got to look very seriously at their responsibilities to their supporters, that they have high levels of income from the supporters but the debt levels have been at a leverage level that is too high."

Quite.  Sentiments we can all agree with, but if the management of the club you support doesn't just not "look seriously at their responsibilities to their supporters" but puts in place a mechanism to cream off 50% of the profits that the "high levels of income from supporters" generate, what happens then?  Could someone in charge do something?

"It's an issue for the clubs themselves, they have got to deal with this issue."

Oh dear.  Well it was all going so well wasn't it?  Haven't we learned that letting industries prone to excessive debt and greed and that impact the lives of millions, regulate themselves isn't always the best idea?
Now I know the problems of professional football clubs doesn't compare to the banking crisis in either impact or importance.  What I do know however, is that the mindset that allows rich men to dazzle politicians into leaving well alone is just the same and just as wrong.


Don't take my word for it..... ask an expert.

"Scare mongering, don't understand business, very profitable club, unprecedented success since they took over...."

Yes, according to some of the ranting comments on newspaper websites (and implicitly according to Richard "£866,000 per year is a bargain" Scudamore the Chief Executive of the Premier League in his recent relaxed comments about club finances), United fans are totally wrong to worry about Glazer and the debt.

So who's right and who's wrong?  Well, someone who might know is Jim O'Neill, Head of Global Economic Research at Goldman Sachs (one of the banks that syndicated the recent bond issue).  A life long United supporter, O'Neill was a director of the plc in the last few months before the Glazer takeover (he was brought in to try to mend fences with Magnier and McManus during their spat with Fergie).  His career also include long periods  researching bond markets so he has excellent knowledge of all the relevant areas.

Despite working for a bank involved in the bond issue, almost immediately after the issue closed, O'Neill felt strongly enough about United's financial situation to appear on BBC Radio 4's "The World this Weekend" yesterday afternoon (24th January 2010).  You can download the item (which also includes discussion of the situation at Pompey) here.

So what does O'Neill think?

Here are a couple of quotes:

"Trying to use a lot of debt and leveraging the balance sheet on the belief that a company's value and its business will improve forever; in many sectors has proved to be very vulnerable when you have a recession, and in football it's becoming more apparent by the week."

So football is falling into the same debt trap that we have seen across the world of business in the last few years.

"I think it suggests that to run a highly successful football club on the basis of a leveraged debt business.... carries all sorts of risks."

So football is not suited to being run on a highly leveraged basis.

Now none of this will come as any surprise to people who have paid attention in the last five years but let's hope the it filters through to the free market ranters on the web and the ostriches who run English football.


Friday, January 22, 2010

Understanding the finer details of the bond pricing

So the bonds have been priced.  The annual interest bill will be £43.4m per annum, £307.7m over the life of the bonds.  Red Football has raised £504m and will repay £514m in 2017.
This huge sum of money provides no benefit or gain to Manchester United. Not a penny will be spent on players, the ground or Carrington.  Not a penny of this money will be applied to keeping ticket prices down or giving free tickets to local kids or subsidising better pies.

Every penny of this money will pay down old debt.  This is new shiny bond debt for boring old bank debt.

This shiny debt lets the Glazer family suck cash and assets out of our club.

For the masochistic, here is a guide to what all the terms in the bond pricing notice from the bank syndicate means (all $/£ conversions are at $1.6124):

Issuer: MU Finance plc.
Issuing company (100% owned subsidiary of Red Football Ltd).

Sec Type: Senior Secured Notes (144A/RegS, no Reg Rights)
The bonds are the senior debt, are secured on certain assets and are not registered under US Securities Act 1933 as they are being sold to "qualified" (i.e. expert) investors only.
Maturity: February 1, 2017
The bonds are to be repaid in full on this date.

Face amount: £250,000,000 | $425,000,000
Number of bonds being sold: 250m £ bonds and 425m $ bonds.  So £250m and $425m will have to be repaid.  That's £513.6m in total.

Proceeds: £245,222,500 | $416,776,250
What Red Football get from selling 250m £ bonds (250m x £98.089) and 425m $ bonds (425m bonds x $98.065).
Total proceeds are £503.7m ($812.2m)

Coupon (s/a): 8.750% | 8.375%
The interest payment pa on each type of bond.  So interest is £21.875m on £ bonds (250 x 8.75%) and $35.594m on $ bonds (425 x 8.375%).  In £ that's £43.95m per year. The interest payments are every 6 months.

Reoffer price: 98.089 | 98.065
Actual price for each £/$ bond as set by the banks.

Yield: 9.125% | 8.750%
The yield is the return investors get if they buy at the issue price, receive coupons twice a year until Feb 2017 and receive "par" (£100 or $100) back, expressed as an annual return
Reoffer spread: UKT 4% Sep-16 +569bp | UST 3.25% Dec-16 +568bp
How the yield compare to UK and US government bonds that mature (get repaid) at a similar date.
The £ bonds yield 5.69% more than UK government bonds
The $ bonds yield 5.68% more than US government bonds

Call Schedule:
01-Feb-13: 108.750 | 108.375
01-Feb-14: 104.375 | 104.188
01-Feb-15: 102.188 | 102.094
01-Feb-16: 100.000 | 100.000
Prices at which MU Finance can redeem some or all or some of the bonds from 1 Feb 2013 onwards

Min Denom: £50k + £1k | $100k + $1k
The minimun you can buy is £50k worth of £ bonds or $100k of $ bonds, and then increments of £1k/$1k

CUSIP: | 144A: 553799 AA5
Reg S: G63262 AA0
ISIN code: XS0479707688 | USG63262AA01 (RegS)
XS0479707845 | US553799AA50 (144A)
Various codes to identify the bonds when they start trading.

Interest Pay Dates: February 1 and August 1
Bit obvious!

Ratings: None
The bonds are not rated by a recognised "rating agency"

Trade date: 22-Jan-10
Settlement date: 29-Jan-10 (T+5)
The bond issue takes place 22 Jan and investors have to pay in 5 business days on 29 Jan.
Underwriters: JPM (b&d), BAML, DB, GS, RBS // Co-Manager: KKR
The banks doing the deal