Let’s indulge a “hypothetical” scenario for a moment.

It’s 2005. The Premier League is growing in popularity the world round, the global economy is chugging along at full-steam, and no one has heard of Financial Fair Play or break-even clubs. Clubs can spend whatever they wish on players in order to compete. It’s an open market, and the nature of English football is rapidly changing, particularly with the recent takeover of Chelsea by a shady and politically connected Russian oil baron.

One day near the end of the domestic football season, you read the news and discover that a billionaire American businessman has increased his shareholdings to just under 75% of the total, thereby purchasing your incredibly popular and successful football club. This news comes after several years of rumours of ownership bids from the American, and ominous reports which indicate any takeover would involve leveraged funds, or borrowed money, which would load hundreds of millions of debt on the club books.

Not only that, but the board had earlier opposed the bid for that reason, with the consequence that the owner simply voted them off with his shares in the club. There had also been huge fan protests leading up to the sale. In the previous year, supporters had tried to burn an American flag on the pitch to show their anger, and they poured paint over the car of a former shareholder who sold their stake to the owner in question.

Despite the fact the amount of debt had been decreased from the initial bid and reassurances from the owner that the club look for ways to radically increase commercial revenues under his watch, many are convinced this would be a disaster for the club.

So presumably you’re freaking out. Several scenarios run through your mind:

  • Won’t the club spend less money on transfer payments and player wages as revenues will now be going to pay down the debt this owner put on the club in order to purchase it?
  • What happens if the club goes through a fallow period on the field and sees a drop in revenue? Wouldn’t all that debt would put the team in a perilous financial position?
  • What’s to stop Glazer from stripping club assets in order to service the debt if things go awry?
  • Won’t this debt put off infrastructure spending? Academy investments? Stadium improvements?

Flash forward to 2013. Over the past eight years, the club has won five league championships, three League Cups, one European Cup and one FIFA Club World Cup. It has gone public on the New York Stock Exchange, and released a report which reveals the club earned £152.5 million for the year ending June 30th, 2013, a 29.7% increase from the previous calendar year. It also posted a club record turnover of £363.2 million, and a drop in total outstanding debt of just under 11% to £389.2. Not only that, but the team made a profit: £17.2 million. Moreover, in contrast to fears the leveraged buyout would affect spending on players, total wages rose 11.6% to £180.5 million.

Even so, this news comes after both a major managerial change and a transfer window that many believe was a total disaster. The club could still face a competitive lull, and would have less room to maneuver financially with nearly £400 million still owed after eight years of ownership.

Was the leveraged purchase of the club then a “success”? Or could it still fail despite the incredible progress the owners have had in expanding global commercial revenues?

Before I offer some tentative answers—triple duh—yes, this all in fact happened in 2005 with Malcolm Glazer’s takeover of Manchester United. So vociferous was the response to the purchase eight years ago that a new club was formed in protest—FC United of Manchester, which has progressed all the way to the North Premier League Premier Division (so many Premiers).

It would be tempting in light of positive financial news to play Monday morning quarterback and write that Man United fans who were concerned at the financial risks involved in the buyout were “wrong” because, you know, look how well the club is doing right now. But it’s not quite as simple as all that.

To explain why, I think it would be helpful to borrow concept I’ve used often when writing about analytics: the difference between process and result. With this distinction in mind, let’s ignore the recent financial report and consider: is there a case to be made to the nervous supporter in 2005 that the Glazer takoever would turn out to be a good thing for Manchester United?

Perhaps there is a boatload economists and big data modelers somewhere who would make a compelling case that Malcolm Glazer’s leveraged buyout was a worthy investment despite the considerable risks involved. For example, Glazer’s debt-driven purchase wasn’t exactly a 1000-1 shot. The club was already immensely popular, and like most English clubs, wasn’t doing nearly enough to exploit its global popularity to increase revenue. There was also reason to believe that it would continue to enjoy major success domestically and in European competition, thereby maintaining the club’s popularity. Even if it had seen a relative fallow period on the pitch, Liverpool’s impressive commercial and TV and broadcasting revenues (4th and 5th highest in the PL as of 2011-12) despite the lack of a league championship in over 20 years indicates the drop off in earnings would not have been severe enough to send the club into a Leeds-like tail spin.

Additionally, the simplistic line that many critics of the Glazer family continue to peddle—that the club revenues are going to pay down debt and not to buy the best players money can buy and thereby undercutting its competitiveness—isn’t exactly supported by the available evidence. Despite losing a very close race for the Premier League title in 2011-12 to Manchester City, the club has performed as well or better than Chelsea and Manchester City in recent years despite a significantly lower transfer deficit. When the club has purchased players, some have made a tremendous impact on the fortunes of the team, like Robin van Persie. As for the most recent window, there is also a strong case to be made that all bungling had more to do with the inexperience of club vice chairman Ed Woodward than any reluctance on the part of the owners to spend the club’s money.

It sometimes seems that United’s ability to win comes down to the team and the manager except when the Glazers enter the conversation.

Even so, there are still some hard questions about the process despite the impressive result. Andy Green for example raises a very important point:

The Glazers haven’t gone to all the work of seeking lucrative commercial sponsorships and releasing an IPO in the NYSE for the good of the club, or even to ensure the speedy payment of outstanding debt. There is definitely the possibility that shares will pay dividends. Profits may indeed come before investment. Even with the club in rude financial health, shouldn’t the end game be the good of the club on the pitch, not in the stock market? Isn’t it possible the one could trump the other? Or can a football club consistently win on the pitch without dumping every last penny of record-breaking revenues into the team?

The uncertainty behind these questions is why supporters need better assurance that what is good for the Glazers is in fact good for the club. That seems to have been the case perhaps up until now. Whether it will be for the next eight years is uncertain. We still might not see the ill-effects of the leveraged buyout until things start going pear-shaped on the field. Which, sans David Gill and Alex Ferguson, may yet come to pass.

Comments (2)

  1. To me, the question is this: could the massive growth in United’s revenues have been achieved without the Glazers? If that’s the case, then what they did was basically load debt onto the team which is paid for by the revenue that the team generates, with no real benefit to the team.

    Just doing some quick googling I see that, for example, Bayern Munich’s revenues went up by €100MM between 2007-11. Barcelona’s revenues grew by about €170MM. Those are two clubs that aren’t subject to a sort of capitalist model of ownership and yet they’ve done just fine despite that.

    In most cases with capitalism, the owner is providing something – capital or skills – that add value to the operation. I’m not entirely sure that the Glazers have done that. That being said, there’s probably been some benefit to the rest of the league. Every pound that the Glazers pull out of the club for debt service makes Manchester United that much weaker. Five league championships, three League Cups, one European Cup and one FIFA Club World Cup in eight years? Imagine what they could have done with more money.

  2. Justify it? For the Glazers it obviously does. Don’t think it does for any one else involved really.

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