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If you look carefully at the Premiership, and the modern game of top flight football, it’s overwhelmingly defined by one word, debt. In recent times, it has led to the downfall of many Premier League sides as they began a slow slide down the slippery slope of high interest financing and counting on the success of the season to come.
Now it seems Manchester United is perilously close to the danger zone as Wayne Rooney, one of their biggest assests looks to leave for green pastures. Leeds United, Southampton, Luton, the list of clubs that have gone into administration goes on, but no case is so shocking, or should worry the Red Devil faithful, as the recent disclosures at Liverpool.
See a map of the clubs that have gone into administration here
Liverpool’s most recently published accounts, for the financial year of 2009, showed the Reds’ earnings swallowed up by interest repayments of £40 million, a reported loss of almost £53 million. And this figure represents a period where there were no new signings, and overall expenditures were cut back. Without the new NESV investment it was impossible for Liverpool to ever get out from their mountain of debt.
With the recent increase in interest rate on the PIK loans used by the now infamous Glazer’s to purchase the club, the Manchester United jersey may soon be all that’s keeping the club afloat. Rooney is a big reason that shirt sells, and without him Sir Alex maybe dining on the football equivalent of the Titanic. The loans, originally worth £265m and taken out with three hedge funds, but reduced to £138m as part of a 2006 refinancing, include strict agreements relating to net debt levels and the club’s earnings. Failure to meet the borrowers’ terms by 16 August meant the annual interest rose from 14.25% to 16.25%. Basically, this means the bank isn’t confident the Glazers can pay their debts in the long term, so they raised the rate hoping to get the best they can.
As part of a refinancing earlier this year, the Glazers have an option to take up to £95m out of the club’s cash reserves. United currently has only £95.9m of cash available. With the annual loan payment on the Glazer’s debt, not the clubs, increasing to £38m, up from £25m last year, and the annual ticket sales already swallowed up in operating costs, its seems that the cash reserve is destined to be raided. If a third of the cash on hand is going to be used to pay down the Glazer debt, the consequences could be dire. Without that reserve, the windfall from Rooney’s transfer fee may not be enough to buy a replacement for him, and certainly won’t cover any replacements for Giggs or Scholes.
You may say I’m an alarmist, and I’ve forgotten about all the younger players United could sell, the overseas kit sales, or you may (as I do) put your faith in Sir Alex leading the way forward. But Ferguson won’t be here forever, and Liverpool had many of the same advantages we have now. Under these circumstances it seems Rooney may not be a petulant money grubber, but more enlightened than everyone gives him credit for.
Galling as it is for fans to acknowledge, the success of Manchester United on the pitch in the Premier League era has gone hand-in-hand with a slick commercial operation that left the other clubs far behind allowing them to invest in players. As a result, by a mixture of exploiting a new Asian fan base and clever management, United are far stronger financially and as a result can sustain more debt, but are unable to purchase players they sorely need on the transfer market. This advantage combined with continued success on the field, is all that has insulated Manchester United from facing the same situation as Liverpool, but with the Glazer’s and their debt, and Rooney on the way out, only the bank can say how long this will go on.
Written by: Matthew Wall, editor, soccerprose.com
*the opinions expressed in this piece do not represent the opinions of soccerprose.com or her parent company*
