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Can Glazer Keep Manchester United Profitable?


Malcolm Glazer could really use a David Beckham right now. Having finally won control of Manchester United, Britain's most storied soccer team, after a two-year fight, Glazer is fending off the hostile rants of irate fans who can't stand the idea of the controversial American tycoon owning their favorite team. And to make his pricey deal pay off, he desperately needs to draw worldwide attention to ManU's brand, pump up its fan base, and expand its global presence. Too bad Beckham, a celebrated heartthrob, was sold to Spain's Real Madrid in 2003.

But Glazer, a financier who bought the Tampa Bay Buccaneers in 1995, has to start somewhere. He has told the London Stock Exchange he will borrow $490 million to fund the $1.47 billion takeover, and raise a further $509 million by issuing preferred securities to large investors. This means Glazer must ramp up revenues and cut costs in a big way. "For the deal to work, Glazer will have to improve financial performance very significantly," says Sanjib Datta, director at Inner Circle Sports, a London corporate-finance boutique. Yet what had been a growth story for ManU has gone a bit flat, as the team has faltered on the pitch. Rival Chelsea Football club, now owned by a Russian billionaire, has bought the players needed to grab first place in the English Premier League.

Experts in the City of London say the team's financials aren't strong enough to support the new debt Glazer is expected to take on. ManU, which prided itself on its debt-free balance sheet, generates operating profits of just over $90 million on revenues of more than $300 million. While Glazer has yet to reveal the details of his financing arrangement, analysts estimate he will have to shell out at least $55 million a year on interest payments. That doesn't leave much to run the rest of the business. "The logic isn't something that stares you in the face," says Roy Kaitcer, a director at stockbroker Brewin Dolphin Securities Ltd. in Manchester.

Glazer is expected to try to renegotiate key TV contracts and sponsorship deals, as well as co-market and co-brand Tampa Bay and ManU in the U.S. That could pave the way for establishing a global pay-per-view TV network. While fans question his commitment to the club, Glazer is known in the financial world for taking a measured approach to his investments and ManU remains one of the richest sports franchises going. In a statement, son Joel Glazer, who will be running the club, says: "We are long-term sports investors and avid Manchester United fans."

Boosting revenues won't be easy. There are so many games on TV in Britain that "audiences are getting footballed out," says Andy Jones, a TV buyer at ZenithOptimedia, a London-based media buying firm. The Glazers may also have bought ManU at the start of its decline. This could hurt Glazer's strategy to expand abroad, where allegiances to clubs are more fickle than in England.

SLOW BUILD

Glazer's biggest worry may be the clout of Roman Abramovich, the Russian billionaire who owns the Chelsea team. Abramovich's deep pockets, which helped the team win its first title in 50 years, are tough to compete with. Glazer could boost ticket prices, as ManU has already done. Yet since there's a limit on how many price hikes fans will tolerate, Glazer is expected to focus on cost-cutting.

Asia will be key to expanding the franchise. ManU has made inroads in China, thanks in part to its Mandarin-language Web site, and the team has a new soccer school in Hong Kong. The U.S. is not so promising: The number of people who play soccer here has held steady, at 18 million, for a decade. Glazer is a smart manager. But it may be a while before he scores with ManU.

By Laura Cohn in London with Stanley Holmes in Seattle


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