I wrote a post several weeks ago questioning the narrative that the Glazers had been bad for Manchester United. The inevitable backlash raised some worthwhile questions, and I explored the MUST website to see what alternatives were being proposed by other fans. MUST suggest some form of fan/community ownership. Andy Green, who has written widely on the financial situation at MUFC, similarly views the club as a "community asset". I'm not an expert on different forms of sports ownership, so these seem like valid options, but I thought I'd start with a more basic question: what would be the characteristics of the ideal ownership structure of Manchester United, and what form should that ownership then take? Then, does the current ownership structure meet those criteria? Finally, what, if anything, can we do to improve the structure? For those not intimately interested in Manchester United, consider this an analysis of the company's strategy and corporate governance.
Characteristics of the ideal ownership structure
It goes without saying that all fans want to see United compete for and win trophies, but also to play entertaining, stylish football. The off-pitch set-up of the organization allowing for such on-pitch success is therefore paramount. I was greatly influenced by this article on Steve Jobs, as well as John Kay's book "Obliquity", in thinking about the type of organization that could provide a foundation for United's sporting success. This list is obviously not exhaustive but here are some qualities we'd all like to see:
A) Put football before profits, to paraphrase Jobs ("put products before profits"). In sporting terms, this means investing appropriately in staff, players and infrastructure. The "appropriate level of spending" does not necessarily mean more spending; it means being competitive in the market while using funds wisely and negotiating player deals effectively. To this end, it would be great to see Financial Fair Play being aggressively monitored by the authorities so that clubs aren't in a spending arms race.
Glazer verdict: This will be the biggest source of controversy, so let me just say "mixed". Many would like to see them re-invest more of the club's profit into players. I'm willing to believe that, when pushed, they'll be ready to spend. This summer should prove a litmus test of the Glazer ownership, but regardless of whether they step up or not, I firmly believe that the profit motive can be aligned with long-term interests, and in many ways, can spur value creation for fans and owners alike. Gus Levy, of Goldman Sachs, used to say that the firm was "long-term greedy", eschewing short-term profit in favour of long-lasting relationships with clients. (Goldman's ability to tread that line is doubtful, but I still enjoy the quote.) I wonder if Manchester's political leanings make United fans particularly averse to the idea of for-profit ownership being aligned with fans' interests, and if so, this bias needs to be corrected.
B) Able to raise capital at the lowest cost. This is tied to (A). Many fans were up in arms over the club's debt load, and cynical about the IPO. Assuming we are not backed by the largesse of a rich owner unmotivated by financial concerns, it is important for the club to have various sources of funding for investment in staff, players and infrastructure. Profits are one source, but the capital markets are another source. I have no issues with using physical assets like Old Trafford, Carrington, Littleton Road and The Cliff as collateral if this provides a lower cost of capital, although I'm opposed to selling Old Trafford's naming rights.
Glazer verdict: Poor in the early days, considerably better since. The financial future of the club appears to be secure, even though I've written about why I think it's a relatively poor business from a purely financial standpoint.
C) Appreciate the importance of the club's Manchester heart while continuing to build the club's global reach. As a fan from outside Manchester, I think of local fans as primus inter pares - first among equals. The club's soul is rightly and obviously in Manchester. Implicit in this is ensuring that ticket prices are affordable for local fans, especially youth. Yet at the same time, in order to expand (and as a price of success), the fan base will get ever more global. (Consider the fact that the population of Greater Manchester is just 2.7m, compared to 7.7m in Greater London. But of course Barcelona has a population of 1.6m and Madrid 3.2m, so local population isn't everything. The history of colonialism is still a big factor in the attraction of English and Spanish clubs abroad). There is a risk in this endeavour of course, as the passion of the fan base may get diluted. I'm reminded of this Little Richard song: "He got what he wanted but lost what he had." But I know some very, very passionate United fans from outside Manchester - I'm one of them.
Glazer verdict: I'm not from Manchester so it's hard for me to weigh in on this one. My impression is that they did a very poor job in the early days with ticket price hikes etc. These days, football tickets are expensive everywhere, and I don't think United prices are out of line with the rest of the country. That said, there's more to engaging the community than just ticket prices, and I think there's always room for improvement on this measure. I think they're doing a great job of expanding the global fan base with tours and the like, although these obviously have to be weighed against pre-season preparation.
D) Creatively increase the stream of revenues. It's easy to poke fun at the club's ever expanding list of commercial partnerships, but of course these offer a very important source of funds for the players we covet, while keeping ticket costs down.
Glazer verdict: Well done, but the club's position as commercial juggernaut should not detract from the footballing performance. The profit motive is a wonderful incentive to continue improving this side of the business.
E) Footballing knowledge/vision. This is a tricky one. I've heard many fans say "Well, we ended up with David Moyes because the Glazers don't know anything about football." Yet at the same time, I'm wary of owners who are overly involved in footballing decisions. Arguably, Abramovich's heavy hand has offset some of the good that his ill-gotten millions offer Chelsea. Perhaps a middle ground is to say that it's important that the club's owners, as well as its executive and footballing leadership have a vision for the club. While I'm completely in favour of fan involvement (see the last section), it is interesting that Jobs warns about being a slave to focus groups. I'm happy to admit that we fans are the most fickle of focus groups, so there are times when our voice should be overruled.
Glazer verdict: Poor. See the next section on the club's corporate governance structure for my assessment of the situation.
Overall verdict: I maintain my view that the Glazer ownership has improved United in some ways, and made the club ever more accessible to global fans. On the very controversial issue of whether they are investing appropriately for the future, we'll have an excellent opportunity in the summer to see their response to the squad's clear shortcomings. There is, however, room for improvement.
How can the ownership structure be improved under the current circumstances?
Firstly, there is some ambiguity as to the club/company's corporate governance structure. In the annual report filed by the club on 24 Oct 2013, there are two different lists of club directors. On page 86 of the PDF (not the number at the bottom of the page), they list the following directors: Avram Glazer, Joel Glazer, Ed Woodward, Richard Arnold, Michael Bolingbroke, Kevin Glazer, Bryan Glazer, Darcie Glazer Kassewitz, Edward Glazer, Robert Leitao, Manu Sawhney and John Hooks. On page 416 of the PDF, there is a similar list but EXCLUDING Robert Leitao, Manu Sawhney, and John Hooks, and INCLUDING Sir Bobby Charlton, Sir Alex Ferguson, David Gill and Michael Edelson.
On the club website, there is a similar list to PDF page 86. I was unable to find any SEC filings explaining the difference.
Let me make a few points on this matter:
a) The company/club should clarify this discrepancy. Obviously there is a difference between being a director of the football club and being a director of the listed entity, but this is not entirely clear in the filings, and it should be. The responsibilities of these individuals should be laid out explicitly.
b) Following on from (a) what exactly is the role of Sir Alex Ferguson? Who on the board is in charge of decisions, such as the hiring and firing of the football manager? This should be clarified, and improved so that the Board is receiving a diverse set of sophisticated and knowledgeable opinions. Fergie is unquestionably a managerial genius but his input needs to be supplemented with other views.
c) Following on from (b), there are far too many people from the Glazer family on the board of this company or club. Assuming that the list from the website is the most updated one, 6 out of the 12 directors are from the Glazer family. This is particularly silly since there seems to be a lot of overlap in what they bring to the board (which frankly does not appear to be very much). The board seems to contain solid experience in sports business management (through the Glazers' ownership of Tampa Bay), finance and luxury retail. But the board should consider replacing some of the Glazers with sophisticated footballing people. Frankly, I'd like to see Gary Neville on the board, although that could be awkward since he'd be overseeing his brother (probably not for the first time, eh, Gaz?) and his brother's boss.
One method of actively changing the club discourse could be to raise a crowd-sourced fund to purchase a small stake in the company, and push for a seat on the board as a "community representative director". I haven't valued the stock recently so I have no opinion currently whether the purchase would make sense from a financial perspective (I'm doubtful), but it could be a way to engage with the club constructively. (I bet a fund could raise £10m easily - might even be too big for crowd-funding! That's a drop in the ocean in terms of the club's market cap, but possible enough to agitate for change.) The representative should be well-versed in finance and sport business as well as football. He/she should also be keenly interested in Manchester while representing the club's global fan base. I believe someone like Gerald Shamash could serve in this role, or make some suggestions on the matter.
Whether or not this activism comes to pass, the current leadership should implement changes to improve the club's corporate governance. The suggestions are in the interests of fans and shareholders alike (and I mean ALL shareholders, not just the Glazers or passive minority shareholders). A stronger organizational set-up will lead to a stronger United, and hopefully 20 more titles.