In the annals of football history, few stories capture the imagination quite like the takeover of Manchester United. This tale of ambition, finance, and controversy unfolded through a daring strategy known as a Leveraged Buyout (LBO). Let’s unravel the captivating details of how the Glazer family, armed with financial wizardry, transformed the fate of one of the world's most iconic football clubs.
The Rise of the Glazers and the Leveraged Buyout
Manchester United is an iconic football club known worldwide, founded in 1878. For over 100 years, it remained under private ownership, with several attempts made to take over the club. However, instead of being bought, the club decided to get listed on the London Stock Exchange.
Malcolm Glazer, the head of the Glazer family, was renowned for owning the NFL franchise Tampa Bay Buccaneers. He became interested in Manchester United due to its global brand and profit potential.
The total cost of buying the club amounted to approximately £800 million. However, this purchase plunged Manchester United, previously a debt-free and profitable football club, into a debt of around £600 million
.
How, you ask?
Three letters: LBO.
LB-what? Leveraged buyout. Nothing to do with cricket.
Leveraged buyouts (LBOs), prevalent in corporate America during the 1980s, crashed into English football's cozy ownership party in 2003. Surprisingly, it took this long for an aggressive investor to make such a move, considering the club had been listed on the London stock market since 1991 and was, by definition, available for sale.
Buyouts are leveraged when the purchaser borrows a significant amount of money to fund the acquisition. This practice, although not uncommon (as many of us do it to buy homes), involves securing the borrowing against the purchased company's assets, much like a mortgage on your home. Moreover, the acquired company itself pays the interest on the borrowed money.
The Glazers borrowed most of the money, £525 million, at exorbitant interest rates, from hedge funds and banks. The debt was secured against Manchester United itself.
Consequently, Manchester United had to pay an average of £60 million in annual interest payments, along with a £30 million dividend to the Glazer family each year. It is worth noting that Manchester United is the only club in the major leagues where the owners take money out of the club instead of investing in it. Thus, a once mighty club became burdened with debt.
Protests and Reactions
Naturally, the substantial debt sparked outrage among Manchester United and football fans alike. Some fans opted to form a new club, FC United of Manchester, as they wanted no part in a financial engineering exercise that solely benefitted a family in Florida.
Several fan groups, most notably the Red Knights, attempted to buy the club, but the Glazers remained steadfast in their position.
It is common for post-LBO companies to cut costs to repay the incurred debt, which ultimately hampers their ability to thrive in the market.
Current Scenario
With profits reaching a saturation point and Manchester United increasingly in need of investment, the Glazers have recently considered selling the club. They are looking for a valuation of £6 billion, representing a massive increase on their initial investment of around £270 million. That's a profit of 2100% over 20 years!
This entire situation has clearly benefited only one family.
Hopefully, their ownership will come to an end soon. Until then, let us contemplate how people are allowed to exploit organizations for their own greed while systems are in place to enable such exploitation.
Should Leveraged Buyouts be allowed?
Yes
No
Maybe
References
https://theathletic.com/2934815/2021/11/05/explained-manchester-united-the-glazers-and-660m-of-debt/
https://en.wikipedia.org/wiki/Glazer_ownership_of_Manchester_United#:~:text=In May 2010%2C before the,loans by 22 November 2010.