Does Being Debt Free Make Us Vulnerable?

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F

Fatter than Fleck

Member
Mar 14, 2012
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I agree with posters that it is excellent that the club is debt free and also welcome the comments that the forward business model for the club is that of a mutual.

My concern is that the Premier League is now seen as such a profitable investment opportunity, especially (but not exclusively) by American sport tycoons. A debt free Premier League Club must be attractive to anyone who wants to copy what the Glaziers did to Man Utd, leverage money against the asset to buy it and then strip out TV revenues to service the loan whilst carving out a fat management fee for themselves. Man Utd are big enough to survive such treatment but an unscrupulous investor could hollow NCFC out.

I trust our current management team to prevent that happening. Howebver I am sure McNally's talents have been noticed by bigger clubs and I would not be surprised if he is head hunted at some stage. And whilst Delia and Michael have always tried to do what is best for the club they are not getting any younger. My hope is that when they do sell up they do so through a share offering so us fans can buy sufficient shares to keep the club as a mutual.
 
Well, we still owe ~£12m to Delia and Michael, a debt which they have stated they would want settled at the sale of the club. Given they have said repeatedly that they would only sell up if the right buyer came in and have, I believe, rejected offers in the recent past I'd say were pretty safe. Todays announcement only makes us stronger an proves that clubs can compete without pouring vast amounts or external money into the club either from a sugar daddy or bank loans.

Also what the Glazers have done at united was actually very good business, they bought a company valued at around £500m and have recently had it valued at £2.5b, at some point the intend on floating a portion of it in singapore, a market where the brand is vastly over inflated and will make the money back. Yes they leveraged the credit again the asset but thats essentially what happens with a mortgage anyway, the increase in value of the club during their ownership has vastly outstripped the interest payments due in that time period.

McNally is one of the highest CEO's in the PL and working on an excellent project here, the turnover of CEOs isn't like players or managers.
 
According to Bowkett at the AGM, the debt owing to club directors is only about £2M, and is to be repaid this financial year. Is the money you say is owed to the major shareholders something different from that? <ok>
 
Thanks Bath I did not know that the club still owed Delia so much. In a perverse way that makes me feel better.

Yes Man Utd survived the Glazers intervention and have grown the club. But Man Utd had sufficent revenues to get through the early days before the Glazers debt was restructured. And a substantial proportion of their income still goes on servicing debts. Unlikely but not beyond the bounds of possibility that they will miss out on top 4 place this season. Then the debt repayments will increasingly hurt their ability to re-build their squad.
 
not sure if flecky covered this, but there is an argument that we could borrow against the future growth of the club - although this is risky with PL status not being assured
with that money you could either expand / improve the stadium, which mcnally and bowkett covered-off in discussion at the forum. without borrowing are we potentially not being ambitious enough, or risk adverse?
it's very difficult one indeed
given our previous financial issues, i think the current route is correct.
one last point, you can see pretty much every spare penny went into the playing squad for the last set of accounts - the profit was down to pretty much zero compared to c£12m the season before.
 
Robbie, i had only read that we had cleared our external debt levying the money owe to D&M, however is that's what Bowkett said then this make this news even more impressive.

FTF, weirdly and for a few years at least, uniteds revenue streams are unrelated to footballing success, they are basically the most successful advertising brand in the world. The sponsor on their kit is probably seen by 4/5 people in the world. This is what makes them such a valuable company. Obviously that would fall away in a period if extended decline but currently it's still true.
The floatation in Singapore was actually delayed because before the ipo the value of the company was still increasing at a rate higher that the accumulated interest. I'm convinced that the Glazers knew full well what they were doing when they bought united and in years to come it will be considered one of the cleverest prices of business in football.
 
Bath-Canary said:
Robbie, i had only read that we had cleared our external debt levying the money owe to D&M, however is that's what Bowkett said then this make this news even more impressive.
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Here's what he said (from the EDP website):

&#8220;We had a debt of £11.3m last year and we&#8217;ve paid it off, so effectively this club has no external debt,&#8221; Bowkett continued. &#8220;Internal debt with the directors is £2.1m and we would be budgeting to eradicate that in this financial year and I don&#8217;t think there are many football clubs in the Premier League who could have a balance sheet like that."

Could it be that the majority shareholders have some kind of off-balance sheet interest the value of which they would realise if the club were sold? I don't know. <ok>
 
Max

If you cast your mind back Leeds and O'Leary tried the borrowing against future growth of the club based on one good run in the Champoins league. A high risk strategy than can end in tears. I also do not dispute that the Glazers have done well out of Man Utd, the question is more have Man Utd done as well as they could have done without the debts. One we will never know. My fear is that having the club almost vanish under a mountain of debt and then make an almost unbelievable financial recovery we don't end up in the hands of an investor on the make rather than someone who has the best interests of the club at heart.
 
Borrowing against future growth sounds like a bad idea, it is a slippery slope back down the mountain we have just climbed and should not be entertained in my opinion. Leeds is another classic case of chasing dreams and that nearly went completely t*ts up! Ridsdale - that was the fella and he has been a disaster wherever he has gone. I take on board Fleck's OP about McNally, you can't win can you?
 
robbie, my gut feel is that £2m must include what the clubs owes to delia and michael.

if you go to the clubs official site, they have a link to the full set of accounts in the news article about them.
having flicked through them there is no other loan-type debt than director loans which are actually £3.1m at the end of June (maybe they have repaid some of it already)
whatever money M&D pumped in, they have either (a) repaid it) or, more unlikely, (b) written it off and it won't be repaid
 
Fatter than Fleck said:
Max

If you cast your mind back Leeds and O'Leary tried the borrowing against future growth of the club based on one good run in the Champoins league. A high risk strategy than can end in tears. I also do not dispute that the Glazers have done well out of Man Utd, the question is more have Man Utd done as well as they could have done without the debts. One we will never know. My fear is that having the club almost vanish under a mountain of debt and then make an almost unbelievable financial recovery we don't end up in the hands of an investor on the make rather than someone who has the best interests of the club at heart.
Click to expand...

maybe i wrote that wrong, i didn't mean borrow against future earnings to spend on the team, more borrow to expand the ground - which is what mcnally talked about - that would be paid for via a mortgage which would be covered by the extra match day revenue - but only if you fill the stadium. risky. i did say we shouldn't do it at the end.
 
Many routes have been tried to "protect" clubs from falling into the wrong hands, but I don't know of any that are cast-iron. I'm sure when Jack Walker set up his Trust he intended to protect Blackburn Rovers from precisely the kind of ownership fate that in fact befell them. <ok>
 
we do not owe anything like the figure quoted by bath.

we owe roughly £2.1m to delia and michael and a further £1m to foulger - all of which is due to be paid to these directors before the turn of the year, unless they waiver it, although i think they will claim it back, and rightly so! if bowkett is quoted as saying only £2.1m is being paid back it could mean foulger is not calling his in or we've already paid it.

does the news today put the club at risk?

isn't any football club at risk if it falls into the wrong hands? the key is, when the time comes for new owners, to make the right call and not sell to someone just because they have the most money. there has to be a plan that is in keeping with the way the club has been run in recent years or it could all go to waste. being debt free is a tumultuous achievement considering the span of time its taken - we should all feel very proud of our club for getting their house in order and say a big thank you to those who made it possible, in particular mcnally and lambert but also all the players since our league one season and hughton for last season.
 
Anyone who sees us as being more vulnerable to a take over with zero debt is being a tad simplistic. If someone wishes to purchase a club to asset strip then the existance of debt and its repayment terms will exert a massive amount of influence on the price, no more, no less.

If you have a club with assets of £100m and no debt then negotiations with the shareholders kick off at £100m and the price will depend on how much one party wants to buy or how badly the other needs to sell..

If you have a club with £100m assets and £50m debt then a buyer would look to pay no more than £50m.

In my opinion the club being debt free makes us less vulnerable to a takeover as we would be more expensive to purchase. This is pretty immaterial as if one of the super-rcih oligarchs or sheiks wanted to buy England's most easterly premier league club then our debt levels would be meaningless and similarly if the current board do not need or wish to sell then debt and price is not an issue.

In economic terms us having no existing debt means that we are not paying to service and repay it which means more funds are available in other areas. It also means that should we wish to borrow again to redevelop FCR then we would be more likley to get a facility at a better price than if we had other debts as less debt = less risk.

Personally I'd be thrilled if we stay up this season, spend a bit on improving the team and then looked to put a few million away to redevelop the stadium in a couple of seasons time from cash reserves rather than going down the debt road again. I can see the Sky bubble eventually bursting and I'd rather not have my club mortgaged up to the hilt with its main revenue stream either reducing or disappearing altogether.

I know it's an old fashioned mentality but to me debt is risk - we could gamble and spend £50m on redeveloping the stadium and improving the team but what happens if we were to get relegated or the tv monies dry up. We go bust and we're back where we were five years ago. I don't ever want to see us in League 1 again without any cash and precious little hope.

The club has made a huge financial journey and we need to accept that the long term future of the club is more improtant than trying to do a Leeds and have a season in the sun follwed by bankruptcy.
 
As Norfolkbhoy said, it doesn't really make a huge difference for potential buyers. So long as the debt is manageable it could even be argued that it's preferable to buy a club with significant debts, it makes the club cheaper(again as Norfolkbhoy said) but you keep the full control of the club. So using the examples of 2 clubs worth £100mill, one can be bought outright for full value, £100mill, and one can be bought outright for, £50mill with £50mill debt attached. Say both clubs were well managed and rose in value so that they are now worth £120mill and both sell up, then the guy who buys the first club gets a return of £20mill on £100mill invested whilst the other guy takes £20mill returned off £50mill.

What the Glazer's did was disgusting though and shouldn't have been allowed. All they had to do was raise the initial funds to buy the club and once they did that they moved all the debt onto the club so that even if it went tits up they won't have lost any money. If the PL's fit and proper owners test did anything they wouldn't have been allowed to buy them. That's got to be the biggest concern though, the Glazers got away with it but investors that are prepared to risk the club's existence are allowed to buy clubs and equally those that don't have a clue, like the Venkys, can also. We're all at risk of getting bought by greedy ****s or total idiots <yikes>
 
Yid Vicious said:
As Norfolkbhoy said, it doesn't really make a huge difference for potential buyers. So long as the debt is manageable it could even be argued that it's preferable to buy a club with significant debts, it makes the club cheaper(again as Norfolkbhoy said) but you keep the full control of the club. So using the examples of 2 clubs worth £100mill, one can be bought outright for full value, £100mill, and one can be bought outright for, £50mill with £50mill debt attached. Say both clubs were well managed and rose in value so that they are now worth £120mill and both sell up, then the guy who buys the first club gets a return of £20mill on £100mill invested whilst the other guy takes £20mill returned off £50mill.
Click to expand...

Whilst it's cheaper to buy a club in debt, equally it could be argued that it's harder to make a profit off of them. Taking your two identical clubs, one has an income that can be used entirely to improve the worth of the club, the other has to service its debts. That makes it harder to make £20m off of a £50m purchase than from a £100m one.

Whether that works in our favour or not, I don't know!
 
to be honest, any club could get taken over at any time - there are no guarantees that you will get a good owner or a bad one. you can put measures in place to try and get it right but you just can't ever be 100% sure of someones intentions. the only question that really matters is this:

would you rather be in debt or not?

i'd take the latter every time <ok>
 
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