United we stand

BUSINESS
British football

Feb 24th 2005
From The Economist print edition

Do business and the beautiful game really mix?

ENGLISH football fans are notoriously vocal in their displeasure. On February 23rd, before a big game against AC Milan, Manchester United's supporters staged a protest to reiterate that Malcolm Glazer's long-running bid for Britain's top team of recent years was, er, unwelcome. Mr Glazer, an American fish-oil and property tycoon, has so far spent £180m ($343m) to amass a 29% stake in the club. On February 6th he approached the board with an offer valuing the club at £787m—including more cash and less debt than an offer he made last year that was rebuffed.

Outsiders may wonder why Mr Glazer, according to Forbes America's 278th richest man, is not warmly embraced. Alas, he is the wrong sort of billionaire—he wants to use the club to make money, not spend it like Roman Abramovich, a vastly rich Russian, who bought Chelsea in 2003 and won the approval of fans by lavishing £250m on the world's best players.

United is unusual in an abnormal business; it makes a healthy profit (£28m on revenues of £169m in 2004), whereas most clubs teeter on the brink of financial calamity, often relying on rich patrons to keep them going. Yet Mr Glazer sees untapped potential, and hopes to use his experience as owner of the Tampa Bay Buccaneers, an American football (not soccer) team, to exploit it. He bought the Buccaneers for $192m in 1995. Today the team is said to be worth almost $800m.

But the two sorts of football may be as different as business propositions as they are as sports. Last year, all but one of America's 32 National Football League (NFL) teams made an operating profit. Wages are capped, many revenues are shared and the worst teams get the first chance to sign rookie players, keeping sides on a relatively even footing. Profits and success need not go together. Teams that play badly do not face relegation, a financial disaster for sides that fall out of England's soccer Premiership.

Manchester United has been profitable since 1990 and is free of debt largely because it has enjoyed unprecedented success, winning the Premiership eight times and securing the European Cup in 1999. Soaring transfer fees and wages for players ensure that to stay at the top soccer clubs have to spend freely. United uses profits to fund its transfer kitty while nurturing talent through its youth system. Fans fear that money to buy new players will dry up if Mr Glazer succeeds—though his Buccaneers did win the Superbowl in 2003. They also worry that ticket prices will soar, as they did after he bought the Buccaneers.

How else might Mr Glazer extract more value? He thinks that United's world famous brand is underexploited—the club claims 75m fans globally—particularly in America, despite a relationship with the New York Yankees baseball team. America hosted the World Cup in 1994 in the hope that soccer would flourish there. Major League Soccer, a league of 12 teams, was set up as part of the deal, but crowds now average a paltry 16,000 a game. Yet the game is hugely popular with young Americans, who like to play it, and Latinos, who (currently) care only about Mexican and Latin American teams.

Mr Glazer might also seek a sponsor for Old Trafford, United's stadium. The most profitable NFL clubs own their grounds and reap the rewards of naming rights. Arsenal, one of United's main rivals, has sold the rights to its new stadium to Emirates, an airline, for £100m over 15 years.
Mr Glazer might also try to scupper a TV deal brokered jointly by the Premiership clubs. Top clubs such as United, which earned £34m last year from domestic-TV rights, resent the implicit subsidy to lesser clubs. United reportedly envies Spanish team Real Madrid, which negotiates its television deals individually.

But whatever he did, Mr Glazer would struggle to resist the market power of the top soccer players. In 1994-2003, Premiership revenues grew by 400%. In the same period, however, wages soared by 550%.

If Mr Glazer does buy United—which will depend less on the views of United supporters than on those of two big Irish shareholders, J.P. McManus and John Magnier—he could get a shock. A business strategy that works in American football may not be a winner in European soccer.

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