What started out as a “let’s get to know Rams owner Stan Kroenke” article spun into a revealing look into the take over of the Manchester United Football Club, the Tampa Bay Buccaneers organization,Â and the man who owns them both, Malcolm Glazer.
I’ll be covering this story in two parts. Â I think Part 1 will shed some light on why some NFL owners are so reluctant about opening their books. Â Part 2 will talk about what all this may mean for the Rams and Stan Kroenke.
Malcolm Glazer and Manchester United
Malcolm Glazer is an American businessman and the current owner of the Tampa Bay Buccaneers and Manchester United. Â I knew he had one foot planted in Tampa Bay but had no idea he had his other foot in the UK. Â Makes you think of another NFL owner, right? Â Our Rams’ very own Mr. Stan Kroenke.
In 2003, Glazer started his bid to take over ownership of famous English Premiere League team and by 2005 he took full control of the club for a total purchase price of Â£800 million. Â There was a great deal of opposition from the fans mainly worried about how the purchase was being financed.
Why? Â Because the majority of the funds he used to purchase ManU were in the form of loans. In 2006, the club announced plans to refinance and restructure its Â£660 million debt with loans in the amount of Â£256 million borrowed against the assets of the team. Just in interest alone they would pay over Â£60 million a year. Â The remainder was covered by ManU’s parent holding company, Malcolm Glazer’s Red Football Joint Venture (RFJV) which is based in the UK. Â RFJV took out PIK loans which were later sold to American hedge funds.
But the controversy was just beginning to brew. Despite the financial restructuring ManU was unable to pay down any of the PIK loans in the first 5 years while still accruing millions in interest. Â All the while Glazers raised ManU ticket prices by an average of 42% since the take over in an attempt to balance the growing debt.
In, January of 2010, when reports of RFJV’s debt had increased to Â£716.5 million ($1.17B) surfaced, ManU successfully passed a bond issue to pay off Â£504 million of the Â£509 million owed to international banks. Through this new bond, the club would be looking at Â£45 million a year in interest and fewer restrictions than imposed on them by previous lenders. Â Angry anti-Glazer ManU fans (Manchester United Supporters’ Trust) were up in arms demanding a cut in ticket prices (as Glazer did for the Bucs fans) and working on their own take over of the club. Â The Glazers have made it clear they have no intentions of putting the club up for sale. Â Meanwhile, the “Red Knights” patiently wait for the right opportunity.
Now fast forward to February of 2011. The Glazers announced that they would be moving the ownership of the club from the UK to the US – more specifically to the state of Delaware. Â Apparently, Delaware is the place to go if you want to obscure business transactions.
Paul Kelso of The Telegraph writes:
The most pressing issue concerning Manchester Unitedâ€™s highly-mobilised fan base is how the Glazers managed to clear Â£249.1 million of payment-in-kind (PIK) loans that had been incurring interest at more than 16 per cent before it was abruptly paid off in November last year.
Delawareâ€™s secrecy rules mean that the directors, officers and shareholders of the new company are unknown, as is the source of the money used to repay the PIKs.
The PIKs were controversial because they were secured against the Glazer familyâ€™s shares in Unitedâ€™s holding company, meaning that ultimately the club could have been passed to the hedge-fund lenders in the event of default.
The Glazers have declined to say how they paid off the PIK loans, and whether any debt incurred to do so is still secured against the familyâ€™s shareholding in the club or related entities.
Is anyone else starting to see what I’m seeing? Â ”Opaque financials,” is what I believe they call it. Â Strangely similar to what the NFL owners are trying to do during labor negotiations.
Financial analyst and football finance blogger, Andrew Green, believesÂ the Glazers were trying to hide the source of their new loan.
â€œIt is almost as if the Glazers are trying to keep information about the PIK repayment secret. Â Naturally we canâ€™t ask the Glazers anything about this as they wonâ€™t talk to the fans and their employees in M16 donâ€™t appear to know. In my view that is not how the biggest football club in the world should be managed.â€
That’s definitely not what you want to hear if you’re a Bucs fans. Â If the Glazers are mismanaging ManU then you have to think about what they are doing – or as you will find out, what they’re NOT doing – in Tampa Bay.
Malcolm Glazer and the Tampa Bay Buccaneers
As stated earlier, Malcolm Glazer purchased the Buccaneers in 1995 for a then modest figure of $192M after the death of the previous owner, Hugh Culverhouse. They saw some early success during Tony Dungy’s tenure (1996-2001) making several playoff appearances and won a Super Bowl XXXVII (2002-2003 season) under new head coach Jon Gruden.
However, since the purchase of ManU many Bucs fans will tell you that they have gotten the short end of the stick. Â Underinvestment in the team, rising costs, and a sagging national and local economy have forced some Bucs fans to watch games on their couch. Â Last season marked the first time since 1997 ALL pre-season and regular season games were blacked out. Â (Previous years black outs were avoided by the team buying out the remaining unsold tickets at 30 cents to the dollar.)
From a fan’s perspective we would like to see the team be active in free agency and getting the best players they can to make their team more competitive. Â But despite the 2010 -2011 season was an uncapped year the Tampa Bay Buccaneers only spent $84.4M on players’ salaries. Â Guess what the league average was? Â $124M.
David Conn of the Guardian writes:
According to wage spending figures filed with the NFL players’ union, which the Guardian has seen. They show that despite booming NFLÂ TV income of $3.3bn a year, which is shared equally between all franchises, the Bucs are spending $84.4m on players’ salaries, the NFL’s lowest, dramatically less than their competitors.
The figures show the Bucs spending way below their competitors in the National Football Conference South: the New Orleans Saints, the highest spenders, have a $148m salary bill; the Atlanta Falcons are paying $120m, and the Carolina Panthers’ $113m is still $29m, 34%, more than the Bucs.
Let’s do a quick review. Â Each NFL team EQUALLY share revenues and yet the Bucs spend the least. Â This did not sit well withÂ Peter Schaffer a principal of All Pro Sports & Entertainment, which represents NFL players.
“That is their (The Glazers) choice, but US sports fans are mostly blue-collar workers, who will vote with their wallets if they feel owners aren’t giving the team a chance to compete.”
Where is all this extra money they’re saving if the Glazers are not putting it back into players’ salaries? Â Is anyone else wondering if it was used to pay off the high interest PIK loans? Â Or maybe the cash is being funneled into other businesses. Â Miami’s Richard Luscombe points out that no one really knows for sure.
There are few clues about the exact status of the family’s fortunes from public documents. Privately held businesses are not required to report their profits and losses in the US and the notoriously secretive Glazers are not about to open their company’s books to public scrutiny any time soon.
But it is clear that they suffered greatly in the recession, and accompanying crash in property values. First Allied Corporation, the Glazers’ New York-registered holding firm, owns 6.7 million square feet in retail space at 64 shopping centres and malls across the US, but appears not to have made any new acquisitions for almost four years.
Additionally, at least five of the malls owned by First Allied across the US defaulted on their mortgages in the previous six months, and are facing foreclosure, suggesting that these are still turbulent times for the family’s core business.
Analysts have suggested that annual revenues from the entire portfolio are little more that $9 million (Â£5.6 million), hardly enough to support an empire the size of that built by Malcolm Glazer and his sons.
If I were the Glazers I’m not sure I’d want to open my books either. Â I have a headache just from writing this story let alone trying to live and manage it. Although they have a healthy incoming revenue from the NFL they are losing money in other ventures. Â Which makes me ask, how are they still maintaining their businesses? Â Luscombe continues:
They are assisted greatly by the profits from some shrewd property moves and other business dealings, the ship remains afloat. For example, in 2009 the family quickly raised almost $100 million (Â£62 million) by selling off the exclusive La Bellucia mansion in Palm Beach for $24 million, Florida’s biggest real estate transaction of the year, and disposing of its majority stake in the investment firm Zapata for another $74 million.
But you have to understand this $100M infusion is a one time deal. Â I can only imagine what their finances going to look like NEXT year at this current rate. Â They are going to have to come up with something more than creative restructuring of loans, raising ManU ticket prices and new endorsement deals to cover that amount in the years to come.
Unfortunately for the Glazers we didn’t have to wait a whole year for news about how they’re doing. Â Rumblings from across the pond are not encouraging. Â AP in London is reported last month that ManU’s holding company RFJV suffered a NET LOSS of $171.5M last season.
The Glazers own two major sports franchises and seem to be very involved in the operations of each team. Â I’m not sure that’s such a good thing judging from their history so far. Â They’ve managed to sink the top valued sports franchise (ManU) into heavy debt, alienate fans who pay to see their teams play and don’t care much about what these fans think. Â I’m not a finance expert or a PR person but it doesn’t take a genius to figure out this is not going to end well. Â ManU may have a world wide fan base serious enough to take on ownership of the club if needed but I doubt the Bucs will be as forunate.
Hey, I hear LA is looking for team.