Sunday, March 9, 2014

We Need To Talk About Malcolm

Warning: What I'm about to write about the Glazers will make some people very angry. If you have something constructive to say, please feel free to do so in the comments section. I'll delete abusive posts because frankly they're a waste of everyone else's time. The source of most of my info is the prospectus the company had to file with the SEC when the Glazers sold shares in an initial public offering (IPO). But I hope that you'll read closely particularly if you dislike the Glazers, and do your best to be objective about my conclusions.

The recent string of poor results at Manchester United (MUFC) has fans and commentators searching for the causes, and for possible solutions. Like many, I've been quite critical of the manager, David Moyes, arguing that he hasn't shown much managerial acumen in his first season. Another (not mutually exclusive) cause for the poor performances is an aging pool of players that the club failed to bolster meaningfully in the summer transfer season. Unsurprisingly, attention has also been called to the majority owners of the club, the Glazer family. It would be a massive understatement to say that the Glazers have never been popular with fans since buying the club in 2005 for roughly GBP 800m. The common narrative is that they loaded the club with debt to fund their purchase, which put it in a precarious financial situation and hampered the club's ability to sign big-name players as they paid off high-interest loans. The Glazers have also taken money out of the club, which could have been used for marquee signings. Finally, they have to take ultimate blame for David Moyes because they hired him, and they did so primarily because he had a reputation for overachieving with a limited budget. Again, this would allow them to save money, which could be funnelled back to them. 

Perhaps the most articulate expositor of this viewpoint is Scott the Red, who wrote a superb piece on David Moyes's shortcomings, but concluded that "whilst the protests against Moyes will likely come first, it is the Glazers who are responsible, and they are the real enemy here." It seems many people disagreed with Scott's conclusion, so let me try to express those objections here. Football fans are understandably passionate, and reasonable people can disagree, so I don't expect to change too many people's minds today, but if I can contribute something to the debate, I'll consider it a worthwhile endeavour.

First, let me say that much of the hatred for the Glazers in the early days had a xenophobic and anti-Semitic element to it. As a United fan not from Manchester, I found that distasteful. You don't hear people criticise them for being "Yanks" too much any more, but let's be honest that some of the ire is tinged with xenophobia so that we can assess them somewhat objectively as owners. Some people will say "you're not from Manchester, so you don't get it". Should clubs be completely locally owned? Frankly, I don't think so. Recognizing that the core of club is local is absolutely crucial, but I think fans have benefited from having some of the world's best players arrive in England funded by non-English sources of capital.

Now on to the issue of debt. It is completely undeniable that the Glazers took on a stupendous amount of debt to purchase the club. But let's think about why they did that. They did it because they wanted to own the club, but didn't have the cash to pay for it in full, the same reason you take out a loan to buy a home. Sometimes fans say "the club was debt-free before them." Let me point out very briefly that the optimal amount of debt for a business is rarely zero. I was amazed at the amount of debt the Glazers were taking on because it seemed risky for them financially. I've written here and here about why football clubs aren't great investments, so the risk to the Glazers was quite high, because of and reflected by the levels of interest they were paying. Mind you, there were lots of transactions outside of football where people funded purchases with massive amounts of debt (and many of these have turned out horribly for the equity owners and lenders). But let's not forget that the Glazers own the club's equity. So it's not fully right to say they loaded "the club" with debt. They basically put other people ahead of them in line to receive money the club was earning (not out of altruism, of course, but in order for them to make money, they'd have to NOT drive the club into the ground). And yes, they've taken cash out of the club. Isn't that kind of the point of a financial transaction? You pay for it upfront and you get paid back by some stream of income throughout its life or by selling it a higher price. For the same reasons as I'll argue about the debt, I struggle to believe that these dividends to themselves have hindered the club in the transfer market. 

Furthermore, it's very difficult to say that this high level of debt prevented the club from making big-name acquisitions. Post-Glazer, the club spent large sums of money on Carrick (18.6m), Hargreaves (17m), Anderson (27m), Nani (25.5m), Tevez (fee unknown), Berbatov (30.8m), Valencia (16m), Jones (16.5m), Young (17m), de Gea (18.9m), van Persie (24m), Fellaini (27.5m) and Mata (37.1m). Realistically, would we have bought better players if the debt load had been lower? I can't for the life of me see why. And perhaps this is the right time to talk about Fergie. The man was a managerial genius, and provided me with some of the most enjoyable football moments of my life. But he, not the Glazers, was the last word on these transfers. The man clearly prided himself on his Scottish frugality, often complaining about a lack of "value" in the transfer market. And maybe it's for the best that he wasn't signing marquee players all the time. Some of these transfers turned out to be pretty crap actually. Arguably, United have done very well with less touted names (Solskjaer, Ronaldo, Vidic, Evra) but have a far more mixed record on the big-name signings (add Veron to the above). So, again, it's hard to make the claim that United, sans Glazer, would have spent more money on players, and that doing so would have translated to greater footballing success. If you're going to point fingers, Fergie was the real man in charge.

The same is true with the hiring of Moyes. Fergie has been very clear that Moyes was his choice. Should the owners have overruled the architect of the club's greatest era? I don't think they hired Moyes solely because he had a reputation for operating on a shoestring budget. I believe the expectation was that if he could get Everton to a consistent 6th or 7th, he would be able to do much better at United given the resources at his disposal. That is not the same as saying he was hired because he wouldn't spend a lot of money. The ludicrous amount of money paid for Fellaini seems to debunk the notion that the Glazers expected Moyes to keep transfer fees down.

You may wonder why I'm bothering to write this. I'm not particularly pro-Glazer. Some of the stuff that goes in the club seems a little weird to me, like making personal loans to the family, or creating a second shareholder class with significantly worse rights. Those are just other reasons to give one pause about owning shares in the company. But I just think it detracts from the real causes of the club's woes to paint them as the ominous bogeyman in the background. Fans are very right to debate whether Moyes is the right man to lead a club of United's standing. Linking it back to the owners at this point just seems a bit of a stretch, and an unwelcome distraction from the nub of the issue.

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