Glory or Gory future awaiting United

For years the words “Glory, Glory Man United,” have been sung home and away by the Red Army but as we fast approach the 2012/2013 season is it not a case that the L has slipped and it’s now more of a case of ‘Gory, Gory Man United’?

Since the Glazier family took over the running of Manchester United they have saddled a once debt free organisation with millions of pounds of debt to the annoyance of the clubs following. This summer they plan to raise more money through an IPO with the New York Stock exchange giving up ten per cent of the equity in the club with share price muted to be between $16 and $20 a share. For a club with true global appeal this would seem a great opportunity to get involved as a fan but what exactly will you be getting for your money? Well not a lot it seems.

10% equity isn’t a massive amount to give away in a business. Ask any entrepreneur entering the Dragons Den and they will tell you that the Dragons are always as potential investors looking for more return on their money and a larger share of the pot. The shares are issued in two ways; Via Class A shares and Class B shares. Class A shares come with one vote per share, Class B shares come with ten votes per share. Of the 19,166,667 shares can you guess which option of half the shares the Glazier family will take up? Yes you’ve guessed it the Class B shares meaning that despite giving away 10% equity in their company they will only be giving away just a mere 2% of the voting rights meaning they retain the right to run their company how they choose even if the so called other 10% doesn’t actually agree.

So why have the Glazier family chosen to float on the New York Stock Exchange? They previously looked at launching IPO’s in both the Singapore and Hong Kong markets but plumped for NY because it enables them to have a business structure in terms of voting rights which wouldn’t be allowed in the UK markets. It’s as simple as that yet more complicated with other factors included but I’ll leave that side to someone far more qualified than I to explain.

Just like the debt of the club which see’s all the attachment to the company and not the Glazier family, all the costs of the IPO are being born by the clubs coffers as they attempt to raise $330 million from the share issue. However some of that money will be going direct to the Glazier money and not to the club and if the issue is successful it will mean that the clubs debt is only reduced from £425 million to around £350 million which will save the club around £5 million a year in interest which by today’s standards doesn’t buy you very much in English Premier League terms.

Manager Sir Alex Ferguson one of the most vocal men in football has always backed his owners despite the fury of some fans and this may be in part because as part of senior management he will be entitled to share part of the 16,000,000 million shares on offer to them worth $288 million. At £13 a share the value of Manchester United stands at around £2 billion which in theory looks incredibly impressive to any investor but profits at the club actually fell 15% last season as they faded badly in European Competition. The real worrying figure is the cash balance of a club which is supposed to be valued at £2 billion which has fallen significantly since 2009. The cash balance is the pool of money that is used for acquisitions of new players. In 2009 the audited balance stood at £150,530,000. In 2010 that figure rose to £163,833,000 before falling again in 2011 back down to just over the 2009 mark at £150,645,000. The unaudited figure for March 2012 puts the cash balance way, way down from any of these figures at £25,576,000 a total of £138,257,000 from its four year peak of 2010.

So what exactly would potential investors be getting for their money exactly? It’s hard to see really offer than being able to say they own a small part of one of the world’s most iconic teams. There are no dividends paid on the shares annually, they come with no real voting power, the clubs profits are falling and the total raised will largely go to the Glazier families pockets and see just £75 million written off the clubs debts in total. With falling cash reserves it’s hard to see what serious investors would actually gain from investing in a club who are trying to compete against rivals like Chelsea and Manchester City who are owned by billionaires who can push United out of the transfer stakes for players they would have only a few seasons ago been in a poll position to attract as they bid to compete in domestic and European competitions.

It remains to be seen if the lure of investing in the name of Manchester United will be enough for the Glazier families IPO to succeed. Buying into a big brand name comes with no guarantee’s and the serious investors will I’m sure have seen the warning signs after this year’s Facebook IPO which has seen share prices drop 45% since their issue from $38 a share when they were issued on May 18^th. The IPO instead of improving the company’s reputation has actually seen its brand damaged a lot and worse is set to come for investors when August 16^th comes along. The date will see insiders such as company officers, directors and employees being able to sell 268 million shares of stock after the 91 day rule has passed. Between 91 and 181 days after the IPO insiders can sell an additional 137 million shares. With investors braced for an influx of insider shares into the market it’s expected that the share value will be hit once more.

I think given what’s happened with Facebook low level investors will be put off and any serious investors will have weighed up how little potential there is to see a return on any investment. Maybe the Glaziers will have chosen the best market to launch their IPO or maybe their non UK allowed structure will significantly back fire on them. I guess only time will tell.

Glory, Glory or Gory, Gory?