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Red Devil Debt: How Might a Buyer Finance a Takeover of Manchester United?

Red Devil Debt: How might a buyer finance a takeover of Manchester United? - Enness Global
HEAD OF CORPORATE FINANCE

Scott Monks

Sir Bobby Charlton once said of Manchester United and Old Trafford: ‘This is the Theatre of Dreams,’ and he’s not wrong. For owners, however, those dreams extend well beyond what happens on the pitch, and encompass the business opportunities presented by owning one of the most recognised and (arguably, depending on your football loyalty) best-loved teams in the world. 

On November 22nd, the Glazer family who currently own Manchester United, announced that they were “commencing a process to explore strategic alternatives for the club.” While it’s not known if they will sell the entirety of their ownership or only a portion of it, the Glazer’s are at least considering handing some – or all – of their holding to a new stakeholder for the first time in more than seventeen years. 

Is Manchester United For Sale, And If It As, What Would A Sale Look Like?

The Glazer family could decide to sell a minority stake, all of their shareholding or something in the middle, although it’s expected that they might sell the entirety of their stake, provided they get the right price. The exact valuation of Manchester United isn’t known, but it’s thought to be in the region of £5 billion, which realistically only puts the club within the reach of a consortium, sovereign wealth fund, or established sporting conglomerate. 

Glazer debt, which the family used to finance their purchase of Manchester United, is largely secured against the club’s assets. They made their purchase via a leveraged buyout and their debt is thought to sit at around £500 million, which also needs to be considered by the buyers. While the Glazer’s may wish to keep some of their ownership stake, their statement that they want to “…enhance the club’s future growth, with the ultimate goal of positioning the club to capitalise on opportunities both on the pitch and commercially” suggests that they recognise there ispotential for yet-untapped opportunities that will increase revenue and the club’s value. Liquidity, however, is likely needed to create those opportunities, which is presumably why “strategic alternatives” are being explored by the family now. 

Deloitte’s Football Money League, which ranks clubs based on revenue generated from football operations placed Manchester United 5th on its 2020-2021 season ranking. If a new investor can tap into enduring fan support for Manchester United, bolster team performance, drive commercial and off-pitch revenue, make Old Trafford infrastructure improvements, and push the brand globally, there is money to be made for any significant or majority shareholder or new owner.

Whether or not the Glazer’s will stay on board in some capacity, or if an investor will want to take full control of the club allowing them to guide direction more fully, remains to be seen. A sale and is ultimately likely to depend on who will pitch to buy the club and what they want to pay for it.

How Will A New Buyer Raise Capital To Buy Manchester United?

Buying a football club tends to look good on paper but growing a club’s revenue is a highly strategic venture akin to growing a multi-national business. Manchester United undeniably has a strong brand, and there are certainly opportunities to increase the club’s commercial revenue. However, delivering more to the bottom line of a football club is tricky, especially if the team’s on-pitch performance doesn’t support the club’s wider goals as a business.

Buying and then growing a football club’s revenue comes with risks and rewards, and as a result, no buyer is likely to go in with an all-cash offer. A consortium of individual investors is a possibility for a buyout. They may be a group of international individuals supported by a larger VC fund, as we saw with the Chelsea FC takeover, or possibly a group of US investors, given the seemingly exceptional American appetitive for UK football clubs. A consortium would likely raise capital via a mix of personal capital, venture capital and possibly securities-backed lending, if individual investors are involved in the deal.

To raise any kind of debt to finance a purchase at this level will focus either on another leveraged buyout, and/or leveraging upon the acquirer’s other assets. Given the expected sale price, any individuals involved will likely need to be of significant personal wealth and are likely to be billionaires. Margin loans against listed securities or single stock lending can be options if an individual investor's wealth is linked to large or listed businesses, which is often the case.

Venture capital firms are ideally placed to offer at least partial funding for potential buyers. This is because despite the scale of debt that needs to be raised, buying a football club remains risky compared to raising debt in other sectors, and the deal will therefore be out of the reach of most mainstream lenders. The ambitious but high-growth opportunity presented by Manchester United also lends itself to venture capital debt. 

A leveraged buyout where a significant portion of the funds required are raised using various types of facility and secured debt is a possibility. Both a sporting conglomerate or consortium might take this route. Equity would likely form part of the deal, with the rest of the finance being raised against Manchester United’s assets, just as the Glazer family have done.

Demand And Potential Buyers

While supporters predominantly focus on what happens on the pitch, for potential owners, the beautiful game can be incredibly lucrative. Supporter backing for teamsi s enduring, and with strategic ownership, the potential for substantial returns is huge if clubs are held as long-term sporting assets are carefully managed to add continued value.

Liverpool FC’s US-based owners, Fenway Sports, are also considering selling the club, or seeking new shareholders. When initial sale rumours circulated during the summer, it was speculated that a complete divestiture of the club would potentially bank one of the largest returns on investment in sporting history, given Liverpool FC was thought to be valued at around $5 billion. Fenway, (which also owns Anfield Stadium, Red Sox and its home stadium, Fenway Park, as well as the Pittsburgh Penguins), bought Liverpool FC for £300 million in 2010 – a relatively paltry sum when you consider what the club is worth today. Overall, the case shows how and why football club ownership is so attractive.

Back in Manchester, it’s thought that buyer interest in the Club is expected to come from all corners of the globe. The Dubai Sovereign Wealth Fund is rumoured to be considering making a play for the Club, and it’s expected that other Middle Eastern investors may also follow suit. There is also huge US demand for UK football clubs as underlined by the Todd Boehly-led consortium that bought Chelsea FC earlier this year alongside venture capital firm, Clearlake Capital Group, Hansjörg Wyss and Mark Walter. Interest has also come from unexpected corners, with Apple rumoured to be considering the possibility of making a bid, perhaps as a way to expand its streaming services, although the firm has made no official statement to suggest purchasing Manchester United is on the cards. Closer to home, Sir Jeff Radcliffe had already expressed an interest in buying Manchester United over the summer, before the Glazer family had openly stated they were considering their options. It is thought that he remains interested in considering a purchase. Other investors are likely considering the same, possibly with the aim of forming a consortium.

What’s next for Manchester United, what a buyout might look like and what form it will take, all remains to be seen. But what remains absolutely certain: the Manchester United and the Theatre of Dreams are still hot property.

 

The views and opinions expressed in this piece are those of the author and are not intended to indicate any market or industry viewpoints, or those of other industry professionals.