Glazer scores at last

May 16th 2005
From The Economist Global Agenda

Malcolm Glazer has secured control of Manchester United, the world's biggest football team by revenues. Fans are aghast that an American wants to load their beloved club with debt in the search for profit. Does Mr Glazer have his tactics right?

AN ADVERTISEMENT for Budweiser beer currently running on British television gently mocks Americans’ scant knowledge of football. Among the variations suggested to enliven the spectacle of a soccer match are monster-truck racing at half-time and a multi-ball shoot-out when matches end in a draw.

One American thinks he can buck the national stereotype. On Thursday May 12th Malcolm Glazer, a wealthy businessman who made his money from property and ownership of the Tampa Bay Buccaneers, a team that plays the American version of football, launched a long-awaited bid for Manchester United. The English club is one of the world’s most successful teams, both financially and on the pitch. By acquiring a 28.7% stake from John Magnier and J.P. McManus, two Irish racehorse owners, to add to his own holding of 28.1%, Mr Glazer secured a majority stake in United. British takeover law now obliges him to bid for the rest of the shares. By Monday he had increased his holding to more than the 75% he needs to delist the club and run it as he wishes.

However, many observers have questioned the wisdom of his move. The price Mr Glazer is paying to the Irish duo values Manchester United at £790m ($1.5 billion). United’s board has reservations about Mr Glazer’s business plans. And more importantly, many of the club’s supporters expressed open hostility towards Mr Glazer during the lengthy build-up before the bid kicked off in earnest. Once the bid was under way, hundreds of fans gathered outside the club's stadium where Mr Glazer was burnt in effigy, and further protests were promised.

Manchester United is no ordinary football club. It has won the Premiership, Britain’s top football division, eight times in the past 15 years and won the European Cup in 1999. And it has managed this feat without encumbering itself with the hefty debts that characterise the balance sheets of most football teams in Europe. Since 1990 the club has made healthy profits which it has used to finance a transfer kitty to refresh the side each year with new star players.

England’s lower divisions are packed with clubs that have overreached themselves in the quest for success and have ended up saddled with vast debts and a dwindling income stream with which to pay them off. Several of these teeter on the brink of bankruptcy. Many football-club owners are little more than philanthropists keen to keep a local amenity above water, or successful local entrepreneurs who regard club ownership as an expensive hobby.

Manchester United’s fans, whose ticket purchases provided 36% of the club’s revenues of £171.5m in 2004, fear that Mr Glazer will be nothing like so benevolent. His bid relies heavily on debt to finance the purchase; he plans to raise £265m using the club's assets as security and a further £275m through unsecured loans. And this level of debt may threaten the business model that has brought United success on and off the pitch.

Furthermore, fans and neutral observers alike worry that Mr Glazer might not have the skills needed to run a top football team. His experience with the Buccaneers may not help. Last year, all but one of America’s 32 National Football League (NFL) teams made an operating profit. Wages are capped, many revenues shared and the teams that finish bottom of the league, far from being relegated, are allowed to the front of the queue to sign promising rookie players for the next season. Thus profits are determined less by success than in the non-American version of football. It is unclear whether Mr Glazer can repeat the trick, which has seen the worth of the Buccaneers, which he bought for $192m in 1995, soar to some $800m today.

Fans are also concerned about the tactics Mr Glazer may employ to squeeze more money out of Manchester United to repay debts. They fear a similar increase in ticket prices to the one that accompanied his takeover of the Buccaneers. In fact, the relative lack of success that Manchester United has enjoyed this season (it is set to finish third in the Premiership) has forced the club to bump up admission charges for next season, though there may be some more scope for price increases. Old Trafford, the club’s 67,000-capacity ground, is invariably packed, mainly with season-ticket holders, and there is a waiting list for fans that want to join them.

Mr Glazer also thinks that more can be wrung from United’s world-renowned brand—the club claims 75m fans globally—particularly in America. But despite hosting the 1994 World Cup, America has seen several false dawns for soccer. Major League Soccer, a league of 12 teams, was set up as part of the World Cup deal, but crowds now average a paltry 16,000 a game. But though young Americans aren’t keen on watching soccer, they like to play the game; and Latinos are keen too, though they currently care only about Latin American teams.

Mr Glazer might also seek a sponsor for United’s stadium. The most profitable NFL clubs own their grounds and reap the rewards of “naming rights”. Arsenal, one of United’s leading rivals, has sold the rights to its new stadium to Emirates, an airline, for £100m over 15 years. Fans mutter about crass commercialisation at any suggestion of renaming Old Trafford—perhaps forgetting that the club’s commercial interests reaped revenues of £47.8m last year, some 28% of the total.

United’s new American owner might also try to do away with a joint TV deal brokered by the Premiership sides. United, which earned £62.5m last year selling broadcasting rights, resents the implicit subsidy that this deal gives to lesser clubs. The club is said to envy Italian teams such as Juventus and AC Milan, which negotiate individual deals and pulled in around €130m ($167m) each last season.

For all their talk of boycotts to protest against Mr Glazer, Manchester United’s fans, like those of any other side, are likely to find that the lure of watching their heroes outweighs any antipathy towards the American tycoon and his plans for wresting more money from them. Chelsea has welcomed with open arms Roman Abramovich, a Russian oil tycoon who bought the London club in 2003. And this season, Chelsea has topped the Premiership for the first time in 50 years.

But Mr Abramovich, the world’s 21st richest man, has lavished millions of his own cash on top players. Mr Glazer, merely America’s 278th richest man, is a different prospect. He has bought Manchester United because he wants to make money. This is less likely to bring unalloyed joy to supporters, who prefer not to have to spend too much of their own hard-earned cash on their team’s success.

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