The Death of Football? Or Why Glazer's Takeover Is Bad News For Football, Not Just Manchester United

The Ranter

There's something that English football fans do better than anyone else: schadenfreude. There has been plenty going around in the week and months since American sports tycoon Malcolm Glazer first mooted an £800m bid for Manchester United in the autumn of 2004.

Indeed while the vast majority of Red Devil's fans have remained openly hostile to the possibility of a takeover, rival fans have been heard to chant - USA, USA, USA” with regularity at Old Trafford this season, such is the amusement at United's predicament.

Given the intense competition inherent in the English game it is an understandable sentiment, perhaps, but way off the mark.

In truth Thursday 12th May 2005, the day Glazer finally secured a majority shareholding in the club will prove to be a pivotal moment for English and European football – but not a good one.

The bare bones of the deal are this: Glazer's bid amounts to something around £790m or 300p per share. His 29% shareholding was bolstered with the 28% stake purchased from Cubic Expression, the holding company owned by Irish Racehorse magnets JP McManus and John Magnier. Effective control of Manchester United PLC was gained by Glazer as soon as Cubic sold out.

In the days to come Glazer will look to increase his shareholding first to over 75%, allowing de-listing from the London Stock Exchange, and then 90%, enabling compulsory purchase of all remaining shares.

Hostility

Why then such open hostility from Manchester United supporters? After all, the club has been open to takeover since it was floated on the Stock Exchange in 1992. Indeed before floatation both former Daily Mirror owner Robert Maxwell and businessman Michael Knighton failed in attempted bids for the club. BSkyB then famously tried to buy the club in the summer of 1999.

Superficially at least this is no Abramovich-style takeover; Glazer neither comes to the club with vast wealth nor a love of football. Indeed, Glazer, who already owns the Tampa Bay Buccaneers American Football franchise, has borrowed somewhere in the region of £550m from banks including JP Morgan to fund the bid.

There's the crux of the problem. While the majority of United fans oppose any takeover, one built on hundreds of millions of pounds of debt is a complete anathema.

The spectre that haunts the Red Devils now is that of Leeds United, who with debts totalling around £100m, were forced to the brink of liquidation. United's rivals from across the Pennines were forced to sell off the majority of their playing squad together with their Thorpe Arch training facility as well as their stadium at Elland Road. Could this be Manchester United's ultimate fate should Glazer ever default on his vast loans?

Servicing The Debt

The consequences for United of serving such a massive debt mean that new revenue streams must be found, both over the short and long term. The irony being that United has always been the most commercially minded of the Premiership's founders; if there were new revenue streams to be found, they surely would have been.

Indeed the club's interim results, announced recently, showed a 50% reduction in half-yearly pre-tax profits. While new revenue is desperately needed, United's market is being squeezed for the first time in a decade.

In the short term, Glazer has a limited number of options open to him:

Ticket Price Rises

Despite the Old Trafford hierarchy raising prices for the 2005-6 season by something like 25%, Glazer will surely look to increase revenues at the turnstiles.

This is precisely the course of action he followed at the Tampa Bay Buccaneers. The fact is demand for United tickets remains strong. While 'ordinary' fans will end up priced out of football, many others will be prepared to pay a premium rate.

Naming Rights

Arsenal, Middlesbrough and Stoke City have sold the rights to name their stadium to commercial partners in recent seasons. Glazer could expect anything up to £15m per season in revenue from selling these rights to a major commercial partner. It would be a highly unpopular move but would anyone really be surprised at 'Nike Trafford'?

Sales and Lease-Back

In the most extreme circumstances Glazer may look to sell Old Trafford, for anything up to about £200m, and lease it back. It's an expensive option over the longer term but would provide short term cash. If Glazer's purchase of the club isn't divisive enough selling Old Trafford would surely further alienate United supporters.

Commercial Revenue

Glazer will look to squeeze more money out of both United's 'Platinum Commercial Partners', such as shirt sponsor Vodaphone, as well as ordinary matchgoing fans visiting the Megastore.

TV Rights

The big goal for Glazer, and I mean the really big goal, is the eventual renegotiation of television media rights. Currently, United's TV revenues come from two principal sources – the Premiership-BSkyB agreement and the UEFA Champions League pool.

Both deals are effectively collective agreements reached between a group of participating clubs and the media owners. Although prize money is awarded on the basis of results and success the basic income is based on a share of the collective agreement.

In the Premiership the effect of this type of agreement is that the larger clubs, such as United, subsidise the smaller clubs. The recent interim results revealed that United made £62.5 million (37 per cent of revenue) from media rights in 2004, with £33.8 million being from the Premiership.

However, United's market reach is huge; recent club analysis estimated 65m United fans globally. Were United to sell their media rights individually – as part, say, of a European Super League – they could reasonably expect to see a massive increase in media revenues both domestically and particularly in overseas markets such as Asia and the USA.

Indeed, this is the very business model that Malcolm Glazer is used to in the American Football League. It is for this reason above all others that Glazer has bought Manchester United.

Thus the argument comes full circle. While Manchester United fans reject utterly what Malcolm Glazer stands for, his business plan and the debt he has accrued, essentially it is the whole of the football community that will suffer as a result of the takeover.

Glazer cannot be successful without the renegotiation of TV rights; the figures simply do not add up in any other scenario. Yet a renegotiation of TV rights will inevitably hit the smallest clubs the very hardest. BSkyB, for example, are hardly likely to pay an exclusivity premium for TV rights without the largest clubs as part of the contract.

Imagine this scenario if you will. The beginning of the new season, August 2009, Manchester United Devils take to the field at the renamed Vodaphone Dome, Manchester for the opening match of the McDonalds European Super League. 75,000 'customers', half of them corporate guests, are watching in the stadium but 50m are tuning in worldwide on their broadband pay per view connections.

At £50 a ticket, revenues on matchday are around £4m. However, this sum is dwarfed by the TV rights on offer. In our example, at $5 per PPV customer, TV rights alone will generate more than $250m. This is the realistic, yet frightening, model that awaits all football fans.

Rival fans may not yet realise it, but the takeover will surely change the face of football forever. The death of football as we know it. Schadenfreude indeed.

The Ranter

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