MUST's response to Manchester United Financial Results

MUST's response to Manchester United Financial Results

Summary

United have announced record turnover and profits but the question is - is
this good news for supporters?

On the face of it record profits might appear to be something that
supporters would welcome and certainly if United was a supporter owned club
with all the profits being reinvested then this would be fantastic news.
However, under private ownership, the Glazers will be keen to extract every
penny of profit for themselves and so the extra revenue contributed by
supporters through the huge ticket price rises will be flowing straight
back out of the club with no benefit for the club or its loyal support.

From a supporter viewpoint increased profit is actually bad news if that
increase in profit has been achieved through either reducing expenditure on
the playing squad (both transfers and wages) or through massive hikes in
ticket prices. Both of these factors have contributed significantly to
these profit figures.

As ever, supporters have questions that are not answered by these results
or by the Glazers directly: What is the debt situation? Where is the profit
going? Why are ticket prices still shooting up if profits are so high?

The Glazers will no doubt be paying themselves a juicy dividend out of
these profits – after all there is a large debt to service and they won’t
want to be paying that themselves when they can get Manchester United
supporters to do it for them.

It is about time the Glazers stopped thinking only about their own pockets
and started to look at the long term damage they are doing to the
Manchester United support with more loyal fans being priced out every
season. These profits should be reinvested in the club, putting ticket
prices back to the pre-takeover levels and removing the compulsory element
of the automatic cup scheme would be a good start.

Government has already taken an interest in the abusive ticket prices at
Premier League clubs and these figures can only serve as further evidence
that they need to take action now to protect the ordinary supporter from
having their loyalty exploited for the benefit of already wealthy owners.


Analysis of the headlines in the MUL statement:

Group turnover increased 27% to £210m (2006 - £165m)

This increased turnover figure is attributed by MUL to stadium expansion,
increased sponsorship and on-field success. Interestingly, the substantial
ticket price increases in April 2007 are not mentioned. The new TV deal
does not kick in until next year, so further increases in turnover can be
projected next year, especially if ticket prices rise again (as expected).

Gross turnover (including sales from Nike merchandise and MUTV not
consolidated in these results) rose 21% to £245m (2006 - £202m)

It is not technically correct to include ‘sales’ from the Nike deal and
from MUTV in the gross turnover figure as neither of these companies are
included in the MUL group in accounting terms – Nike is a profit share
arising from a contract and United’s minority stake in MUTV was loss-making
again this year (as in every year since its launch).

EBITDA rose 72% to £79.8m (2006 - £46.3m)

This number exceeds the Glazers EBITDA target in their refinancing business
plan of £73.8m by less than the amount raised by the ticket price rises and
the compulsory Automatic Cup Scheme membership for all season ticket
holders. Why continue to make it painful for loyal supporters when you have
already met your target?

Profit before tax jumped 93% to £59.6m (2006 - £30.8m)

The net profit number was boosted by a couple of exceptional items – an
£11m profit on player disposal and the fact that no interest was payable on
the £575m Senior Secured debt which was transferred into MUL in August
2006, according to a Note to the 2005-6 Accounts. The Accounts show no sign
of that debt still being a liability of MUL. From what David Gill has been
telling journalists recently, it appears that this debt and the outstanding
hedge fund PiK (which stood at some £155m at the 2007 year end) has been
transferred back to Red Football.

Matchday revenue up 30% to £92.6m, (2006 - £71.3m) reflecting successful
expansion of Old Trafford, increasing capacity to over 76,000

The stadium expansion was largely completed and operational in the 2005-6
financial year, so for the year 2006-7 the matchday revenue increase can
largely be attributed to price increases across the board at Old Trafford
(parking, pies & pints etc) and particularly the ticket price rises which
caused such pain to loyal fans on top of two consecutive huge rises in
previous years.

Media revenue up 35% to £61.5m (2006 - £45.5m) due to semi-final appearance
in the UEFA Champions League, finalists in the FA Cup and winning the
Barclays Premier League

This number will undoubtedly increase next year as the new Sky deal kicks
in.

Commercial revenues up 15% to £56.0m (2006 - £48.6m) due to the first year
of the world record AIG shirt and accompanying financial services
sponsorship deals, increase in the Nike contract and new platinum sponsors,
Kumho Tires, Betfred and Hestiun

Who?

So where is the debt?

If the Glazers have taken the debt back into the books of their own company
Red Football, then this is good news for MU supporters in that the debt
becomes the direct liability of the Glazers’ company and is not hanging
over the club, weighing its finances down – the effects of this can be seen
from the results. The reason for doing this is not clear – it may be for
tax reasons, but more likely is the explanation that the Glazers wanted to
clear the debt from MUL in preparation for a securitisation of United’s
matchday and stadium revenues, and banks would look askance at adding a
potential £400m bond liability to a company which already had up to £700m
of existing debt. Of course the securitisation plan was put on hold last
year because of the credit crunch and the resulting inability to do a deal
on attractive terms.

It also needs to be said that even though the debt seems no longer to a
liability of the club, the Glazers will have had to pledge their shares in
MUL to the banks providing the debt finance to Red Football, so any failure
to repay that debt could result in the banks taking ownership and control
of United through the shares. There is still a debt risk hanging over the
club, but it is certainly less dangerous than before.

So where is the profit going?

What is clear is that the increase in net profits from not having to
service the debt will result in a large dividend (up to £40m cash) which is
payable to the owners, and which they can use to service the £660m debt
which is now in Red Football. The question is – will there be enough to
both service the debt and make enough cash available to strengthen the
squad if Sir Alex needs to? The credit crunch has made the debt more
expensive than ever.

So why are ticket prices still shooting up if profits are so high?

Fans are paying ever higher ticket and matchday prices at Old Trafford,
normal practice for the Glazers just as fans of the Tampa Bay Bucs have
experienced, and just as tenants of the Glazers’ trailer parks found to
their cost. Last year’s increase was an astronomical 12% (the third such
rise in a row) despite the Glazers saying in their refinancing documents
that the price rise would be 2.5%. The reason for this would be that the
cost of servicing the £660m debt for the Glazers has risen substantially
because of the current credit crunch - we estimate that the debt interest
bill could run to £52m this year, as against £42m last year. They may well
have to extract more cash from fans just to keep up payments on the debt.

Clearly the higher revenues are mainly driven by the cash being generated
from fans at the stadium. While everyone welcomes the success that the club
is achieving on the pitch and the performances of the team, the effect on
many fans has been substantial. Thousands have now been priced out of Old
Trafford, and for those that continue to struggle to pay for their season
tickets, it is no consolation to see that the hard-earned money they pay
for higher ticket prices is going back to the owners to pay off huge debts
they took on to buy the club.

It's time for the Glazers to consider the many thousands of Manchester
United season ticket holders who were priced out and unable afford their
season tickets this season, some of whom had supported the club for over
forty years. MUST is calling for a ticket price reduction so that the
growing exodus of fans from Old Trafford is stemmed, with the resultant
reduction in atmosphere currently being experienced. The Glazers also
compounded supporters’ hardship by implementing the hugely unpopular
Compulsory ACS (Automatic Cup Scheme) which takes the potential cost of a
season ticket to over £1000 for many. MUST is also calling for the ACS to
be returned to its voluntary status.

If prices go up next season, thousands more traditional supporters will be
on the edge of being 'priced out' of following the club at Old Trafford.