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Friday 8 October 2010

The Leverages Of Power

It’s a phrase that fails to convey the real meaning of what happens to the takeover target: the “leveraged buyout” ends up with that target saddled with debt, sometimes so much debt that it has difficulty servicing the costs of it. And debt has been sitting on Premier League teams at both ends of the East Lancs Road for a while now.

At the east end of that road – and today posting a record loss of 83.6 million notes – is Manchester United. The numbers, at first glance, do not make sense: that loss comes despite an operating profit of over 100 million. But its total debts stand at over 520 millions, added to which the Glazers, who now own the club, owe 225 millions’ worth in Payment In Kind loans secured on the club. The interest on these is racking up at an eye watering 16.25% every year.

Man U was bought by the Glazers in a leveraged buyout, as, at the other end of the East Lancs, was Liverpool, whose owners are now approaching the moment that the Royal Bank Of Scotland (that would be the one owned mainly by we the people) will be calling in a loan that is most unlikely to be repaid or refinanced in time. Tom Hicks and George Gillett are as popular at Anfield as the Glazers at Old Trafford.

While Man U are still performing well on the field, Liverpool have had a grim start to the season, and resolving the ownership issue is not helping. So the news of a sale, now approved by the Premier League, might be thought to enable all concerned to move on. But Hicks has moved to block the transfer of Liverpool FC to New England Sports Ventures (NESV). And the move appears perverse.

Unless Hicks can refinance the loan that RBS appear ready to call in, he and Gillett will not only lose their 140 million investment in Liverpool, but be liable for another 40 million in fees – maybe more. If they allow the sale to NESV to go ahead, they still lose the 140 million, but no more. And the club would have its acquisition debt removed.

Fans of Man U may gloat at the state of affairs at Liverpool, but with the Glazers poised to take more money out of the club to pay down those Payment In Kind loans, the future does not look ideal. Alex Ferguson looks to be placing a lot of faith in his senior players to keep going for another season, and the Glazers’ empire stateside is in poor shape.

If Man U were to stumble in the Champions’ League, and fail to get into the competition next term, a downward spiral could take hold.

Meanwhile, provided the sale proceeds, Liverpool will at least have their burden of debt lifted.

1 comment:

allegoricus said...

I expect you'll have seen this:


The sentiment I've observed from the MUFC camp - with whom I have close links, living as I do with a staunch supporter - is grudgingly sympathetic.