Football finance - can anyone explain?

[hornetrider]

In view of an awful lot of clubs who are in debt at the moment.

Let's take the Man Utd situation, where buyers are lining up a potential 1 billion bid for the club.

My understanding is that Utd (with debts of circ 750 million), have been leveraged (ie bought with money secured against the value of the club), or effectively mortgaged? The same as Liverpool?

So we have existing owners with a massive debt, and buyers willing to pay 1 billion pounds for the club. So... does this mean that the existing owners will, in the simplest Utd example, pocket 250 million pounds proifit?

And the key point - for the club to be free of debt - that the next purchasers would effectively write off 1 billion pounds?

I just don't get it.

[P-Jay]

hornetrider said:

In view of an awful lot of clubs who are in debt at the moment.

Let's take the Man Utd situation, where buyers are lining up a potential 1 billion bid for the club.

My understanding is that Utd (with debts of circ 750 million), have been leveraged (ie bought with money secured against the value of the club), or effectively mortgaged? The same as Liverpool?

So we have existing owners with a massive debt, and buyers willing to pay 1 billion pounds for the club. So... does this mean that the existing owners will, in the simplest Utd example, pocket 250 million pounds proifit?

And the key point - for the club to be free of debt - that the next purchasers would effectively write off 1 billion pounds?

I just don't get it.

My guess...

If someone buys UTD for 1bn, the current owners would trouser £250m (based on your figures) very much like buying a house from someone who has a mortgage.

If they want a debt free club. The new owners would have to have the cash to buy it. Then their 1bn would be invested in the club, they'd own all profits and the re-sale value when it was sold on again. This potentionally gives the club more money to buy players etc. But it would still be run like a business. the owners would expect a good return for their investment and they could very well demand more money is taken out of the club in profits for shareholders (them) than they pay in interest at the moment.

To be truly debt free I would think it would have to be floated / refloated on the market, the revenue raised used to pay the debt off and buy out the current owners and it runs like any other big PLC (well medium sized one). That way chances are a lot of the shares would be owned by fans and they're more likely to vote in favour of buying players, inproving ground etc over dividends and such.

[Nic jones]

P-Jay said:

hornetrider said:

In view of an awful lot of clubs who are in debt at the moment.

Let's take the Man Utd situation, where buyers are lining up a potential 1 billion bid for the club.

My understanding is that Utd (with debts of circ 750 million), have been leveraged (ie bought with money secured against the value of the club), or effectively mortgaged? The same as Liverpool?

So we have existing owners with a massive debt, and buyers willing to pay 1 billion pounds for the club. So... does this mean that the existing owners will, in the simplest Utd example, pocket 250 million pounds proifit?

And the key point - for the club to be free of debt - that the next purchasers would effectively write off 1 billion pounds?

I just don't get it.

My guess...

If someone buys UTD for 1bn, the current owners would trouser £250m (based on your figures) very much like buying a house from someone who has a mortgage.

If they want a debt free club. The new owners would have to have the cash to buy it. Then their 1bn would be invested in the club, they'd own all profits and the re-sale value when it was sold on again. This potentionally gives the club more money to buy players etc. But it would still be run like a business. the owners would expect a good return for their investment and they could very well demand more money is taken out of the club in profits for shareholders (them) than they pay in interest at the moment.

To be truly debt free I would think it would have to be floated / refloated on the market, the revenue raised used to pay the debt off and buy out the current owners and it runs like any other big PLC (well medium sized one). That way chances are a lot of the shares would be owned by fans and they're more likely to vote in favour of buying players, inproving ground etc over dividends and such.

Wasn't it a proper PLC before the Glazers bought up all the shares and put the club into so much debt?

[Beardy10]

I think if someone pays a billion for united the Glazers would pretty much come out even except any money they have managed to pay themselves in dividends over the alst few years. The club has roughly £750 mil in debt and there is about £250 mil in equity which is what the Glazers invested. So any buyer would have to assume the debt (or pay it off) and buy the equity.

The only way this Red Knight group has a hope is if they can get the owners of the PIK debt (which are HF's) on their side. They may well be interested in converting that debt into equity as part of any takeover.

The whole not buying season tickets thing is a bit of a red herring, sure they wouldn't get all that cash in over the summer but season tickets are sold at a discount to the value of the seat if it was sold separately every week os over the course of the year the club would actually make more....not buying tickets at all would obviously have an impact!

[walm]

hornetrider said:

In view of an awful lot of clubs who are in debt at the moment.

Let's take the Man Utd situation, where buyers are lining up a potential 1 billion bid for the club.

My understanding is that Utd (with debts of circ 750 million), have been leveraged (ie bought with money secured against the value of the club), or effectively mortgaged? The same as Liverpool?

So we have existing owners with a massive debt, and buyers willing to pay 1 billion pounds for the club. So... does this mean that the existing owners will, in the simplest Utd example, pocket 250 million pounds proifit?

And the key point - for the club to be free of debt - that the next purchasers would effectively write off 1 billion pounds?

I just don't get it.

Imagine it is a house. If the new buyer buys with £1bn cash, he pays off the £750m mortgage (debt) and gives the old owner the difference between the total debt and the purchase price (£250m in this case) and the club is then debt free.

If he buys with £250m cash and £750m in debt then the situation stays pretty much as it is today with the current ownership structure.

(Note that no one is doing any writing down of anything. That only happens when the value goes down, here it is going up or staying the same.)

As to whether the current owners made a "profit" that can't be answered with just the numbers you gave above.

Again imagine it is a house. If the current owners bought it for £1bn with a £250m deposit (and £750m mortgage) - then they broke even. They put in £250m and took out £250m.

Perhaps they bought the house for £500m (£250m cash, £250m debt) but did £500m of improvements to the house so that it is now worth £1bn all of which they financed in debt with a remortgage.
Again they break even - they put in £250m and take out £250m.
(However, note that for the same money they got to live in a nicer house BUT they will have had higher mortgage repayments.)

Final example, they bought it for £500m (£250m cash, £250m debt) but didn't do any work to it. The housing market just went up. It is now worth £1bn. They then decide to do a mortgage-equity withdrawal and increase the debt from £250m to £750m. That extra £500m goes to them, the owners, to blow on hookers and coke or whatnot. Then they sell and get their original £250m back.
In that case their profit was £500m. They started with £250m and ended up with £750m (less hookers/coke).

In reality it is far more complicated. The "house" generates a boat-load of cash, some of which the owners will probably have given to themselves as a dividend each year. Also, they will have done SOME work on the "house", buying new players or improving the stadium all of which will have cost money.
The club didn't go from £500m to £1bn without some investment.

HTH.