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Commentary: What's Behind The Run At ManU?


Editor's Note: This is an extended, online-only version of the story that appears in the Feb. 28, 2005, issue of BusinessWeek.

So what was that chant of "U.S.A! U.S.A!" wafting over the pitch during a recent English Premier League match between Manchester United and its lesser-known local rival, Manchester City? It was bitter English irony, that's what, expressing the disdain of countless soccer fans at the notion that American billionaire Malcolm Glazer might take over Man U. Their fear: that he will cripple the world's most valuable and popular sports franchise.

Well, if Glazer's $1.5 billion hostile bid proves successful, it probably won't be the kiss of death for Man U. But making it work won't be a romp, either. First, his offer would pile about $1.1 billion in debt onto a debt-free company. Second, Glazer has failed to outline clearly how his plan will enhance the value of the club and pay the loans in a reasonable time. Finally, it's hard to see how his bid will benefit fans or keep the team competitive if he jacks up ticket prices and redirects money that could be used for buying star players to debt payments, which is likely.

What's more, Man U's fans at this point seem inflamed against the bid, and Glazer's indifference to their passions could come back to haunt him.

Glazer, who controls 28% of the stock, certainly has the right to try convincing shareholders that his strategy is better than the current one. But is it? Glazer, who made millions in real estate and as a greenmailer in the 1980s, declined to talk to BusinessWeek. Financial experts speculate that he can expand Man U's global TV exposure, particularly in Asia and the U.S. "Man U is one of the premier brands in the world. There is huge marketing potential," says Salvatore Galatioto, a sports business analyst at Lehman Brothers Inc.

But Glazer will pay a steep premium for that potential. Analysts at Dresdner Kleinwort Wasserstein figure the club is worth no more than $4.53 a share, while Glazer is offering $5.68. (On Feb. 16 shares closed at $5.13.) Even if Man U matches last year's record operating profit of $110 million on revenues of $320 million, a $1.5 billion deal puts the price-earnings ratio close to 29, far above the leisure sector average of 16.5.

Marketing experts say it appears the best way to boost profits would be to create a soccer TV superstation that would beam matches to paying customers around the world. This scenario would call for a media partner with global reach. "I'd be very surprised if he didn't have Rupert Murdoch or somebody like that waiting in the wings," says John P. Bevilaqua, president of Sequiam Sports Inc., an Atlanta sports-consulting firm. "I'm betting his future is TV and corporate sponsors." A spokesman for BSkyB declined to comment on the prospect of a superstation.

Murdoch's operation fits well with Glazer's grand vision. News Corp. (NWS) already controls a major chunk of soccer broadcasting around the world, including British Sky Broadcasting Group plc in Britain and Fox Soccer Channel in the U.S. Murdoch's interest in Man U is well known: BSkyB failed in a hostile bid for the club back in 1999.

Others point out that Manchester United could make money by selling the naming rights to its hallowed Old Trafford stadium. But that move would risk enraging fans even more. And Glazer's strategy is risky in other ways. Certainly, Man U has capitalized on being the first soccer club to promote its brand in Asia and elsewhere, but there's no guarantee it will be able to attract the same fan loyalty in the future. European mega clubs such as Real Madrid and A.C. Milan are now making the same Far East or U.S. tours and competing for global adherents.

Glazer would also have to persuade other Premier League teams to tear up the current broadcasting rights deal, under which they share revenue equally. That seems an uncertain prospect at best.

So can Glazer's vision make the club stronger in years to come? It doesn't seem likely, and Man U's board remains skeptical: In a statement issued on Feb. 9, the board said it thought Glazer's price of about $5.68 a share was "fair" but that a takeover would hurt the club: "The board continues to believe that Glazer's business plan assumptions are aggressive and that the direct and indirect financial strain on the business could be damaging."

Glazer can get rid of the board if he buys the team. Making peace with the fans is another matter. He's calculating that they'll come around after some grumbling. But English football followers are not like American sports fans -- not even close. English football is more than entertainment. It is a way of life. Backers will pour all their passion and discretionary income into a team as long as they see the club giving something back.

They will also turn on a club if the team plays poorly or tries to exploit the fans. "We are not in it for the money," says Oliver Houston, vice-chairman of Shareholders United, a key group opposed to Glazer's bid. "We are in it for love. It's a 24-hour, 365-day commitment. If Glazer succeeds, a bunch of irate Man U fans spanning the globe will not forgive and forget easily."

And what might they do? Violence is never far from the surface in English soccer, as Glazer is learning firsthand. A militant group dubbed the Manchester Education Committee warned Glazer and his advisers in a Feb. 8 statement that Man U "is our club, and we will be ruthless in protecting it.... Our previous symbolic actions have been disregarded; we have no choice now but to act with our full capabilities."

It's a chilling threat -- or hooligan bombast. Either way, it seems unlikely to deter Glazer, but it may bode ill for his foray into football on the other side of the Atlantic.

By Stanley Holmes with Laura Cohn in London


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