A long winded but interesting article setting out the Glaziers mode of operation in sports business (profit based) and a sobering message to the rags. Read on and be very grateful for having our marvelous owners!
Manchester United: profits before goals
By Simon Kuper and Roger Blitz
Recent setbacks for one of the world’s most famous football clubs reflect the owners’ approach
With a warning that his results “have not lived up to our standards”, the Glazer family lost patience and fired their club’s coach.
The man they sacked on December 30 was Greg Schiano of the Tampa Bay Buccaneers, their American gridiron football team. Yet some fans of the Glazers’ other club, Manchester United, want the same fate for their manager too. David Moyes – who succeeded Sir Alex Ferguson last May – has overseen three United losses in seven days, an exit from the FA Cup, and the club has all but forfeited the league title it won 12 times in 21 years.
United’s long English hegemony may well have ended. Moyes has a modest reputation, having never managed a giant club or won a trophy, but the club’s problems go deeper. Sir Alex also bears some blame. But the chief culprits for United’s slide are probably the Glazers themselves. Almost uniquely in football, they run their club as a profit-seeking business. With Sir Alex gone, the family’s pursuit of profits is now likely to impede United’s pursuit of trophies. Private equity-style management has squeezed investment in the UK’s most famous sports club.
The Glazers represent a new kind of football club owner to have emerged in recent years: the profit-driven investor, usually American. There are now six US majority owners of Premier League clubs, including John Henry at Liverpool and Stan Kroenke at Arsenal. They seek to earn money from their clubs rather than winning at all costs. That makes them different from the “sugar daddies” – the sheikhs and oligarchs who treat their clubs as playthings and throw money at them. A conflict between the two kinds of owner now looms.
When Sir Alex retired after a nearly 27-year reign, decline was almost inevitable given his reputation as one of the most admired managers in British business. He proved his worth particularly after 2003. Before then, United’s dominance had been the logical consequence of money. It had the highest revenues in global football from 1997 to 2004. High revenues usually translate into high salaries for players, and the team with the highest wages typically wins the title.
Yet after 2003, rival plutocrats emerged. In that year, Russian oligarch Roman Abramovich bought Chelsea and began outspending United. Internationally, Real Madrid has topped Deloitte’s “Football Money League” every season since 2005. In 2008 Sheikh Mansour of Abu Dhabi bought Manchester City and began outspending everybody.
By contrast, the new owners of Manchester United completed their £790m leveraged buyout in 2005 intending to earn money. Scarcely anyone in Britain had heard of Malcolm Glazer or his six children before they began buying United shares in 2003. Malcolm, the son of Lithuanian Jewish immigrants to the US, took over the family watchmaking business as a teenager during the second world war. He later expanded into junk bonds, nursing homes and sausage skins. In 1995 he paid $192m for the Buccaneers. His interest in United was driven by his soccer-loving sons: Joel, Bryan and Avram had been season-ticket holders of the Rochester Lancers, a team in upstate New York. By the time Malcolm suffered two strokes in 2006, the sons were running the company. Avram and Joel are now United’s co-chairmen.
They seem always to have envisaged United as a long-term investment. Aware that British football clubs had traditionally kept ticket prices down, and seeing that foreign interest in the Premier League was rising, they bet correctly that revenues would grow – United is now worth at least double what they paid for it. They kept a lid on costs and have since extracted more than £500m in interest, management fees, bank charges and debt repayments to service loans of £525m borrowed to fund the takeover.
In recent seasons, United has had only the third-highest wage bill in England. Still the team kept winning: from 2007 to 2013 they clinched five English titles and reached three Champions League finals, winning one. It was statistically perhaps the club’s best period in history.
If it were possible to copy Sir Alex’s methods, other managers would have done so long ago. Commentators have struggled to identify specific reasons for his success, which is why his new career as a management guru will probably disappoint and why no successor could expect to match him.
Last May he said: “The quality of this league-winning squad, and the balance of ages within it, bodes well for continued success.” It does not look that way now.
Sir Alex constructed a team that peaked in his last season. He sweated United’s assets to the maximum. The £24m he spent on Arsenal’s injury-prone striker Robin van Persie in 2012 had a short-term pay-off: the Dutchman’s brilliant first six months at United sealed Sir Alex’s last title. But now Van Persie is 30 and injured again. Several other players are older.
Moyes has made mistakes. His sole signing last summer was Marouane Fellaini, bought from his old club Everton for £27.5m. Chelsea’s coach José Mourinho – who was a contender to succeed Sir Alex – once said any manager who buys players from his old club risks looking underinformed about the broader talent market. Fellaini has struggled at United. Moyes, however, is chasing Everton’s Leighton Baines. He also replaced several of Sir Alex’s backroom staff with his own men. Whereas Sir Alex sought a diversity of views, Moyes risks encouraging groupthink.
Yet the Glazers, who gave Moyes a six-year contract, intend to keep him. They expected a bumpy transition. In some senses Moyes suits them more than the autocratic Sir Alex, because he allows them more say in their own club. Ed Woodward, United’s vice-chairman and the Glazers’ appointee, speaks to Moyes at least once a day. The manager will be given time. The squad’s age could work to his advantage, allowing him to bring in his own players this summer.
The Glazers are patient partly because – unlike most of United’s fans – they are not desperate for trophies. The business plan is predicated on finishing third in the Premier League and reaching the Champions League quarter-finals. The Glazers know that with the third-highest wage bill in England, and without Sir Alex, third place is a realistic expectation. Even missing the Champions League for a year or two would not be disastrous.
The Glazers will give Moyes money for transfers (United has £80m in cash) while pursuing profits. They will continue to cap spending accordingly. Three of the four highest transfer fees United has ever paid preceded the Glazers’ takeover, despite inflation and football’s rising revenues since 2005. In 2002 and 2004 United bought the young stars Rio Ferdinand and Wayne Rooney for large sums. If similar players became available today, United probably could not afford their fees or wages. In 2011-12, the last season for which figures are available, United spent just 51 per cent of turnover on wages – the second-lowest proportion in the Premier League, after Norwich. (Similarly, at the Buccaneers, the Glazers spend famously little on players.) Only Sir Alex could be expected to achieve cut-price success. United’s transition has, therefore, redirected attention to the Glazers’ model of ownership.
In the US, many sports franchises, including the Buccaneers, make profits. The American investors who have bought English soccer clubs in recent years have aimed to do the same, or at least to make a large capital gain when selling. Their cost-consciousness puts them at odds with the sugar-daddy owners, who have driven up spending on players. The profit seekers want to drive it down. They hope European football’s new rules on “financial fair play” will stop the sugar daddies’ clubs from spending more than their revenues. There are signs that “FFP” is already modestly slowing growth in players’ wages.
That should keep United’s business purring along. The club’s commercial office has been busy with deals, headed by a seven-year shirt contract with General Motors for $559m. The Premier League’s global television rights also keep rising. United predicts annual revenues of up to £430m and pre-tax earnings of £130m, while gross debt has fallen to £360m.
If that pleases the Glazers, most United fans would probably welcome a new owner less focused on profits. But the family shows no appetite to sell. Jim O’Neill, former chairman of Goldman Sachs Asset Management, who led an attempt by wealthy United fans to buy the club in 2010, believes it is a myth the owners will remain for the long term. The problem, he said, is that “nobody will pay them what they would readily sell the club for tomorrow”.
Although United’s share price on the New York Stock Exchange has slumped from $19 last summer to just over $15 and hedge funds have taken short positions, the club’s market value is still $2.5bn – far above the price of any past sports club deal.
One future for United under Moyes-Glazer rule is as a northern version of Arsenal. The London club has won no trophies since 2005, but always does enough to qualify for the lucrative Champions League, and makes profits. That suits the American majority owner, Mr Kroenke: the club’s market capitalisation has risen over the years to £949m. It does not suit Arsenal’s fans. United’s supporters, having long mocked the discontent of their rivals, may come to share it.
United’s saga raises a fundamental question: what is a football club for? To the Glazers, it is a business. To the fans, it is an ancient glory-seeking institution – more like a museum, or a church, than a company. Bacon face delivered both profits and glory. In future, the club may have to choose one or the other.
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