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Can Manchester United Kick Its Debt Habit?


England's most storied team is winning on the field, but like most other Premier League clubs it is deep in hock

London - Among English soccer teams, Manchester United is in a class by itself. The Red Devils, as fans around the world call them, have been England's top club 16 times since World War II, with 11 English Premier League (EPL) titles in the past 17 years. Man U's financial performance, though, has been less exalted. Thanks to rising interest payments on debts dating from the team's 2005 purchase by U.S. billionaire Malcolm Glazer, Man U's books seem to have more red than its jerseys.

In January the club completed a $747 million bond issue to refinance mounting debt. While Man U's revenue has grown 72% since Glazer took over, to more than $400 million annually, the team also paid $102 million in interest for the fiscal year ended June 30. And Man U would have seen a multimillion-dollar loss if it hadn't managed to sell its best player, Portuguese striker Cristiano Ronaldo, for $120 million. Fans are miffed that the cash has gone to repay loans, not for new players. "A huge amount of money has been taken out of the club with nothing put back in," says Duncan Drasdo, a rabid fan who heads an organization of former shareholders from when the team was publicly traded.

Drasdo wants a change of management—and he might get one. On Mar. 2 a group of financial heavyweights, including longtime Man U supporter (and Goldman Sachs' (GS) chief economist) Jim O'Neill, said it was mulling a bid to buy the team from Glazer, whose holdings also include the Tampa Bay Buccaneers. "There's too much leverage going on with Manchester United," O'Neill says. Man U Chief Executive David Gill says any proposal will be rejected.

Man U may be the highest-profile club struggling to balance its books, but it's far from the most troubled. Unlike Man U, many weaker teams have binged on top talent. With no wage caps or other limits on salaries, just nine of the EPL's 20 clubs are profitable, according to the latest data from consultancy Deloitte. All told, English teams have debts of some $4.8 billion, 56% of the total for all European clubs. "Something has gone badly wrong," says Alan Switzer of Deloitte's sports business group.

On Feb. 26, Portsmouth Football Club on England's southern coast filed for bankruptcy after the team couldn't pay $18 million in taxes. Portsmouth shelled out $82 million—three-quarters of its annual revenue—on wages in 2008, the latest figures available. Other clubs, particularly those near the bottom of the rankings, could face a similar fate in the next two years, says sports adviser Pete Hackleton of consultancy RSM Tenon. "Their business models are completely out of whack," he adds.

Liverpool, No. 2 in the EPL last season, also faces mounting debt. U.S. billionaires George Gillett and Tom Hicks, who own big league baseball and hockey teams, borrowed heavily at the height of the credit boom to buy the club for $260 million. Since then, interest payments have increased the debt to $354 million. Liverpool's creditors have demanded $149 million by July. Christian Purslow, the team's managing director, says Liverpool is in talks with potential investors to cover the shortfall.

More money from broadcast rights might give a lift to weaker teams. The league is negotiating TV contracts with overseas networks that could double foreign broadcast revenue. The EPL's global profile, says Bob Mitchell, who negotiates sports deals at law firm Harbottle & Lewis in London, is its strongest asset. "Without worldwide TV rights," he says, "smaller clubs would struggle to make ends meet."

With Tariq Panja and Zijing Wu. Mark Scott is a correspondent in BusinessWeek's London bureau.

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