A cloud of confusion has completely engulfed Manchester United following the release of the news that the Manchester United ownership group, Red Football Joint Venture Ltd, will pay off their £220 million loan.
Especially with no high-profile midweek matches on the docket, this breaking story has unsurprisingly grabbed all of the headlines, which has simultaneously caused a complete unrest amongst the Reds across the world.
The majority of United supporters are now left to ponder to what the pay off exactly means for not only the short-term team goals, but also the long-term future of the club.
No one, besides the financial executives at United, knows exactly what is going on and how this payment, which is set to be made on November 22, will effect the financial future of the club, so the fans have been forced to play the awful game of wait and see.
David Gill, though, has confidently stated, “I cannot speak for any other club but the United fans should not be concerned,” which could very well mean that United has weathered the storm of uncertainty and is on brink of a new dawn.
Gill has grown into one of the most-hated people in the red half of Manchester, because he sold his soul to the Glazers and disrespected the Red Devils.
However, this revelation could all be made possible because of the power of the Manchester United brand strategy, which, like or not, is the one the Glazers did correct by laying out and hiring a strong marketing team of experts to implement.
It has never been a secret that the Glazers have always wanted to pay off this Payment-In-Kind, better known as PIK, loan off, because it cut into their profits – especially with the interest rising from 14.25% to 16.25% this year.
There is an idea out there right now that it was the Green & Gold protests that have prompted this influence to change their business model, but that really remains to be seen.
Either way, the reduction of this alarming debt has to be a good thing for the financial future of the club, which allows them to compete in the transfer market with the biggest clubs to secure the biggest and best players.
One thing that is clear by Gill’s statements is that it would be quite surprising if the Glazers were willing to part with their biggest potential money-making investment.
Even though they have acted somewhat recklessly, the Red Football Ltd did show a bit of responsibility by negotiating that there was not any prepayment penalties associated with this massive loan.
What makes this plan that much more puzzling, though, is the fact that the club reported a record-loss of £83.6 million in October, which was nearly half of was caused by crippling interest payments totaling £40 million.
Promise
The good news is that the cash that is being used to pay off this substantial debt has not been leaned against, or taken from United’s cash flow, so Sir Alex Ferguson should have the promise funds available in the summer to spend on suitable players.
Prior to the Manchester Derby last week, the Gaffer said, “Obviously, in many people’s eyes, having the money is a lot better than not having it,” which may imply that he will spend a hefty sum this summer.
Whether he spends it all is completely up to him, but Ferguson has a good enough track record for the United supporters to trust.
Where
The marketing power of United did not leverage all the money to pay off this 220 million worth of debt seven years ahead of schedule, so where did the rest come from?
One common misconception about debt, as long as it is manageable, it should not be seen as such a terrible thing, but the catastrophic economic crisis in October 2008 led to the Glazers losing enormous amounts of their financial clout, which caused their financial obligations to spiral out of control.
Not that they predicted the collapse of the world’s economy, but the duress of the some of the well-educated United supporters was caused by the potential failure of the financial market, and the club that they loved passionately would be the one that was adversely affected.
However, now, depending on which media source one reads and trusts, the financial recession is deemed to be over, so their “other” investments or funds could very well be bearing financial gains, which has enabled them to pay the PIK loan off.
The TARP funds, which saved former shirt sponsor, AIG, from going out of business, could very well be responsible for this minor rescue of United as well.
TARP, which falls under the Emergency Economic Stabilization Act (EESA), which was George W. Bush’s last real course of action as President, is slowly starting to bleed into society over two years after it was executed.
This money, which totaled $700 billion, £440 billion, was to be used to eliminate “toxic” assets in American banks, and provide money to loan to reputable citizens and companies at a reasonable rate and terms, which JPMorgan Chase, who is the holder of the PIK loans, exactly is.
The Glazers sold the naming rights to their American football stadium in Tampa to Raymond James, which is one of the largest, most-trusted investment companies in America, so it is likely that they have used their services to turn around their fortunes.
Yes, their real estate investments have gone in the tank, because downfall in brick and mortar retail growth and the rise of retail sales on the internet, so the Glazers could very well be selling these off in private sales and using the money to pay off United’s debt.
Noteworthy
One interesting observation is that the Wayne Rooney situation may have forced, unveiled the Red Football Ltd’s hand, because they, along with Sir Alex, supposedly made him a promise that there will be investment in the squad this summer.
This could change the mindset that the bulk of the United supporters truly feel about how the out-of-sorts center forward, because it was Rooney who could very well have used his leveraging power to force the Glazers to pull this trigger ahead schedule, which ultimately does the club and supporters a huge favor.
Subconsciously or not, the bullish Liverpudlian could be much smarter and clever than he has ever been given credit for, and deep down Rooney could be a life-long Red.
Solution
There will be not be a real remedy to the club’s financial crisis until the club is completely out of debt, and sold by the American owners back to its rightful owners – the supporters.
The principal problem is that someone, or an ownership group, is profiting from the club that so many supporters love, and is not reinvesting into the club to allow United to compete for top honors year in, year out.
What many fail to realize, though, is that this issue is still going to rear its ugly head until the club resolves itself as Public Limited Company (PLC).
Manchester United was converted into public traded company back in 1990 under former Chief Executive, Martin Edwards, and was always going to be subjected to be made into someone’s toy.
Whether this is feasible or not, the trepidation of the supporters would subside if it went back to being privately held, but there are potential problems with that idea as well.
It will be intriguing to see what happens during next summer’s transfer window, but for right now, Manchester United has a job to do – which is to get back their most coveted possession: the Barclays Premier League title.
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