United revenue rises, but all is not rosy

Posted by Sean Smith

Ed Woodward and Avram Glazer Man Utd GettyImagesMan Utd CEO Edward Woodward has the unenviable task of following in the footsteps of successful predecessor David Gill.

The Glazers would no doubt have welcomed the opportunity to report the progress they have made off the pitch at Manchester United since the start of the season; they have seen more than 250 million pounds wiped off the value of the company on the New York Stock Exchange since they reported very upbeat, full-year numbers for the last 12 months in September.

And so it proved as the Premier League champions announced a record first quarter revenue of 98.5 million pounds, a 39.3 percent increase in commercial revenue, thanks to 12 new sponsorship deals that have been signed since September. The effect of the new TV Premier League deal has begun to benefit the club as well, with a 40.9 percent increase in broadcasting money from the same time last year, and with a new contract with BT for the Champions League just signed, that figure will continue to be healthy.

Ed Woodward, executive vice chairman, told investors on Thursday: "We are pleased to have achieved another record first quarter, driven by the strength of our commercial business and increased broadcasting revenues.

"We are also excited by the continuing rise in the value of sports content, evidenced, amongst other things, by the recently announced BT deal for the UK rights to broadcast the Champions League and Europa League matches for three seasons from 2015-16. This deal represents a meaningful increase over the current arrangement, which should translate into higher broadcasting revenues for the participating clubs."

Commercial revenue has been aided by the opening of an Asia office at the beginning of the year, which netted a number of deals. The next stop is likely to be the U.S., where the Glazers plan a similar operation in a bid to exploit their home market. It is one of a number of strategies that the owners are putting in place to fight the debt that is putting the club in danger of being outspent in perpetuity by its nearest rivals in England: Arsenal, Man City and Chelsea.

The problems with debt and rising costs are persisting, and they appear to be getting worse. Despite record revenues, the club made a loss of 300,000 pounds on the quarter, compared with a profit of 20.5 million pounds in the same period last year. That comes from operating costs ballooning to 90.2 million pounds -- an additional 15.4 million pounds, or 20.6 percent than the same period last year.

Meanwhile, David Moyes is battling disquiet at home after a very frugal summer in the transfer window, which has inevitably led to the club suffering a rare slow start to the season; a win against Arsenal at home last weekend really only papers over the cracks as they moved from eighth to fifth in the Premier League table.

Despite such small investment in the summer, the story that the club are pushing is that an increase in players' wages has forced the bottom line into a deficit, but the fact remains that a club with the kind of revenue streams that Manchester United have should not be using 15 pence of every pound it earns to repay its debtors.

The gross debt of the club has risen another 1.3 million pounds in the last three months. And that is despite the Glazers managing to reduce the interest on the debt by 4.1 million pounds for the quarter.

That struggle with debt is becoming too much to cope with and, at the start of the quarter, the Glazers put in motion the possible sale of up to 23 million shares, which would dilute the current number in the club by more than half.

The share issue, which at today's prices would net in the region of 225 million pounds, will in some part pay for a substantial spending spree in the January window and pay off some of the 389.2 million pound debt -- currently costing the club more than 70 million pounds a year to service.

"We are comfortable with the amount of debt on the business," Woodward told investors on Thursday.

"Although we expect to reduce our leverage over time, we expect interest expense to continue to be a significant component of our expenses," a club spokesman added.

The debts that the club are looking to pay off are most likely the 504 million pounds of bonds, which will mature up to February 2017, that they issued in 2010.

But the Glazers are also looking to take a cut, according to sources, in a bid to rearrange the family's finances, which have been complicated by the fact that their NFL franchise, the Tampa Bay Buccaneers -- valued at 613 million pounds by Forbes -- managed only their first win of the season at the tenth time of asking on Monday. And that was against a team -- the Miami Dolphins -- who themselves had lost four of their previous five games.

Also, because of the complicated nature of the Glazers' finances, and the lengths they have gone to protect their businesses from the public gaze, it is difficult to know for sure how Manchester United's owners paid off the club's notorious Payment in Kind (PiK) loans that disappeared off the club's balance sheets, to the tune of 249.1 million pounds late in 2010.

Financial expert and Manchester United fan Andersred believes that the Glazers themselves are liable for the money, as they borrowed it from financial institutions, and they will be looking to pay that back.

Indeed, there was little in this financial statement, or the last, to suggest that Manchester United fans' hopes of seeing the debt disappear will happen sooner rather than later -- there is very little benefit in the Glazers paying off the entire debt anytime soon out of a club with healthy revenues, when they patently do not have cash to burn themselves.

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