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20 March 2010

The Green and the Gold

Tag(s): Business, Sport

Last week Manchester United knocked AC Milan out of the Champions’ League. David Beckham, the world’s most famous footballer, played as a substitute for Milan on his first return to Old Trafford where he had played so many games for United, and received a standing ovation from his former club’s fans. He responded by taking a green and gold scarf from a fan and putting it on. This was the image that appeared on countless newspaper front pages all over the world.

 

Green and Gold? Surely United’s colours are red and white. What is going on? Well I am a Manchester United supporter (sound of groans from half my readership) and have been for as long as I can remember. I grew up in the Manchester area and went to school in Manchester. The first match I saw at the ground was in November 1961, almost 50 years ago. I then went to most home games and some away games for the next several years and even after I moved away from the area continued to support them even when they got relegated to the old second division.

 

During that period I have changed my religion (from C of E to nothing), have changed my politics (from left to right), and took a long time (20 years) to find the woman with whom I wanted to spend the rest of my life. But I have never changed my football team. Such brand loyalty is typical in football but otherwise exceptional. In a recent survey only 10% of men said they would ditch their football team but 25% would ditch their partners if they met someone better. 38% of men said they are loyal to their country; 27% to work colleagues, and only 7% to a political party.

Because of this almost tribal loyalty factor football as a business is quite unlike any other business and should therefore be run differently. MU was exceptionally well run even when it was publically quoted and at that time was the most successful sports organisation in the world financially speaking. Then the Glazers took over. As a small shareholder I refused to sell my shares to them but the majority did. The Glazers have transferred the debt with which they bought the club to the club itself. It is now the most indebted sports organisation in the world. Last year the club, despite winning the League title for a record equalling 18th time and also getting to the final of the Champions League, only made a profit by selling its best player, Cristiano Ronaldo, for  a world record £80 million. The Glazers have paid themselves substantial fees and taken out loans from the club.
 

According to an article in The Guardian by David Conn and Owen Gibson on 19 January 2010

“Glazers could take £130m out of Manchester United next year

 Small print in bond offer reveals shock provisions - Owners able to get cut of money from player sales

The Glazer family, who own Manchester United, can take almost £130m cash out of the club next year alone if enough lenders sign up for the bond they have launched to borrow £500m for United.

Nestling in the small print of the 322-page bond prospectus are provisions allowing the Glazers to take £70m out of the club's cash reserves, which includes the money they have received from selling players such as Cristiano Ronaldo. The document also reserves for the Glazers the legal right to pay £25m out of the club in a dividend, and half of what is termed "consolidated net income". This is effectively the club's cash profits, which based on the most recent accounts would have meant £23m being paid out last year.”

At the time of their takeover I wrote to Sir Bobby Charlton, a director of the club whom I had met a number of times, suggesting that if he resigned in protest it might save the club. He stepped down later without making such a statement and that opportunity is now gone as the board consists of 6 Glazer family members and three executive directors with no outside Non-Executive Directors. I also wrote to the Office of Fair Trading saying “Mr. Glazer has taken on enormous debt to acquire the club. Current profits from a well run club do not come close to covering interest payments. It is therefore inevitable that Glazer will be forced to take many actions to exploit the monopoly of fans’ loyalty and increase prices of tickets and everything else that the loyal fans buy.” All of that has proved correct.

 

The Manchester United Supporters Trust was formed to fight the Glazers’ takeover and failed in that, but it has kept together and has grown its membership to over 140,000, almost double the capacity of Old Trafford. It has asked its members to wear the Green and Gold as a form of protest. They were the original colours of Newton Heath, the predecessor club to MU, and so it symbolises the club in a previous, more innocent age.

 

They have set up an alliance with The Red Knights, a group of high net worth individuals who are also club fans and who share the common objectives of getting the Glazers out, obviously by buying them off, and setting up a trust based on ownership by the supporters so that it can never be put at such risk again. This kind of ownership structure is common on the continent and is, for example, employed by Barcelona, the current European champions, and so it is no bar to success. It should be the norm.

 

However, if I was the richest man in the world I would buy a second division club in Portugal based in the Algarve, use one of those nice stadia they built for the European championship a few years ago, hire a great Portuguese speaking manager, Jose Mourinho comes to mind, and give him enough money to buy and pay the Brazilian national team mixed with some of the best Portuguese players such as Ronaldo. This team would win the second division in its first year, the Portuguese League in its second year and the Champions’ League in its third year,

 

But by then I would have bought a Spanish second division team, Girona would be nice as it’s close to Barcelona, hired a top Spanish speaking manager, Rafa Benitez of Liverpool does not come to mind but perhaps Pepe Guardiola of Barcelona would do the trick, then given him enough money to buy the best Spanish speaking players both from Spain and from its former colonies, Argentina and so on. This team would immediately win promotion to the Primera Division and then go on to challenge my other team for the Champions’ League.

 

Such a fantasy should tell you why the current ownership model stinks and that football as we know it is doomed if it does not address this issue.

 

Copyright David C Pearson 2010 All rights reserved




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