ManU: A Devil of a Headache?


By Stanley Holmes U.S. billionaire Malcolm Glazer finally has what he wanted: the Manchester United Red Devils soccer club, the world's most profitable sports franchise. After a two-year battle to gain control of the storied club, the hard work begins.

The owner of the National Football League's Tampa Bay Buccaneers is going to have to prove to a skeptical English audience that he knows the difference between the kind of football played in England and the kind he enjoys in the U.S. Nothing short of total allegiance will satisfy the fans of Manchester United (MCHUF), which means Glazer will need to throw in a lot of money to keep the team at the top of the league.

It won't be easy. To acquire the franchise for $1.5 billion, Glazer loaded $500 million in debt onto what had been a debt-free enterprise. His drive to acquire ManU has been opposed by the club's board and by its loyal fans, who are threatening to boycott next year's matches. What's more, he appears to have scant understanding for the traditions of English football and has revealed little about how he plans to pay back the debt and expand revenues.

NO "SUGAR DADDY".He will be under pressure to keep up with newly crowned champions Chelsea. The London club has benefited from Russian billionaire Roman Abramovich, who took the exact opposite financial approach when he bought the troubled club two years ago. He paid off debts and shelled out $100 million of his own money to build a world-class team. Glazer is putting up $25 million for player purchases, known as transfers.

"Chelsea was a club in crisis and had crippling debts and was days away from going into [bankruptcy]," says Oliver Houston, vice-chairman of Shareholders United, a key group opposed to Glazer's ownership. "Roman wiped out the debts. Glazer is a completely different animal. He's not a sugar daddy."

Glazer, who owned about 29% of the club, finally gained control after he bought a 28.7% share held by Irish investors J.P. McManus and John Magnier for $5.68 a share. Analysts had valued the club at no more than $4.53 a share.

THE FIRST CLUE. This was Glazer's third attempt to coax the Irish duo to sell their shares, and it appears that his promise of an immediate cash transaction was persuasive. Glazer's advisers have since been buying remaining shares throughout the day and have nearly reached the 75% threshold to take the soccer club private. It's believed that McManus and Magnier raked in more than $90 million in profits.

So what is Glazer's plan? Malcolm's son Joel, who is believed to be spearheading the purchase, revealed the first clue in a statement issued on May 13. He said Red Devils Chief Executive David Gill and United's entire management team, including famed manager Sir Alex Ferguson, will remain with the club in a bid to keep ManU at the top of the domestic league.

"We're delighted to make this offer to acquire one of the preeminent football clubs in the world," said Joel. "We're long-term sports investors and avid Manchester United fans. Our intention is to work with the current management, players, and fans to ensure Manchester United continues to develop and achieve even greater success."

FREEDOM IN GOING PRIVATE.Describing themselves as long-term investors suggests the Glazers intend to pay off debt and keep the team competitive by boosting revenues rather than using the other time-honored approach of cutting expenses. That should come as some relief to Red Devils supporters, who likely greeted the statement skeptically.

How will the Glazers continue to build the brand? It appears they will try to raise global media and TV revenues, expand merchandise sales, team up with a media or cable/satellite company to create a subscription service, renegotiate contracts with suppliers and sponsors such as Nike (NKE) and Vodafone (VOD), raise ticket prices, and tour the team more.

Those are all distinct possibilities. When the Glazers' ownership stake reaches the critical 75% level, they can delist the club from the stock exchange. Going private would give them greater control and freedom to manage the club without worrying about shareholder returns.

"IMPOSSIBLE" TO BREAK AWAY. "I don't think he's spending all this money to run a cut-rate team," says Salvatore Galatioto, president of Galatioto Sports Partners, a New York sports investment firm, who has worked for Glazer in the past. "The Glazers are extremely innovative and very bright people. If they're doing this, they have a plan that has a high likelihood of success. My experience with them is that they know what they're doing."

Still, Glazer's gambit is risky, and it's hard to see how it will pay off for him or the fans. Manchester United's board had repeatedly opposed Glazer's business proposals, calling them "aggressive" and "potentially damaging" to the long-term interests of the club. Renegotiating league television rights poses a huge challenge. Premier League Chief Executive Richard Scudamore told British papers on May 13 that Glazer's takeover of ManU will not affect the league's lucrative TV rights.

"The Premier League is based on a collective television deal for 20 clubs," Scudamore said. "It has always proved impossible in the past to break away. If they want to do so, 14 clubs have to do it, and it's almost impossible to think that can happen."

"TAINTED ASSET."Glazer's strategy carries other risks. Certainly, ManU has developed a global fan base that some marketing groups estimate at more than 70 million. The club was the first to market its brand in Asia and in the U.S. But other megaclubs such as Real Madrid, AC Milan, Chelsea, and Bayern Munich are catching on and making the same overseas tours and competing for the same fans. There's no guarantee, especially if ManU's form continues to slip, that the club will be able to attract the same loyalty in the future.

And Glazer now has to worry about his own fans. Making peace with outraged Red Devils supporters, as they're called in England, could prove difficult. Glazer, of course, is calculating that they'll come around after they get tired of burning him in effigy. But that could prove to be his biggest miscalculation. Supporters are threatening to boycott matches and merchandise. What's more, they will boycott Manchester United sponsors such as Nike.

Says Houston of Shareholders United: "He's got himself an extremely tainted asset -- this is by no means over. If that means starving ourselves, and starving the club of income, in order to make this parasite detach himself from us, then so be it."

Glazer could soon discover that his long ordeal in buying the club was a breeze compared with owning it. Holmes is a BusinessWeek correspondent in the Seattle bureau


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