The acquisition of Manchester United by the Glazer family is still controversial to this day.
Their £790m takeover in the summer of 2005 was via a leveraged buyout: when a significant amount of borrowed money is used to fund the takeover of a company, with the debt against that company itself being collateralised.
This leveraged buyout was not just any company, it was one of the best known and most successful clubs in English and world football.
Over the years, that debt, the interest paid on it, and the dividends paid along the way to shareholders — the majority going to the Glazers themselves — have proved controversial.
Through various reorganizations of United’s finances, the Glazers have made debt and the cost of servicing it more manageable to the point where arguably it shouldn’t be an impediment to success on the pitch.
But without a league title in nine years and no trophy in five, while United continue to underperform and underperform in the post-Sir Alex Ferguson era, the Glazers’ management of the club’s finances remains under scrutiny.
What is United’s debt?
Prior to Glazer’s ownership, United had been virtually debt free since 1931. That changed overnight with the takeover in 2005.
An initial debt of around £550m was immediately dumped on the club and skyrocketed over the following years as the Glazers restructured finances, peaking at more than £700m in 2010 – around the time the supporters the first “green and gold” protests started.
A £500m bond issue earlier this year allowed some of the debt to be repaid and the club’s listing on the New York Stock Exchange in 2012 helped reduce it further.
But after 17 years in the Glazers’ ownership, United’s gross debt stands at £592m – just slightly less than the £603m in debt at the end of their first year at Manchester.
According to the latest quarterly financial report detailing the nine months to March 2022, the club’s net debt – gross debt less cash reserves – currently stands at £495.7m.
The debt has always been the main source of supporter opposition to the current owner, but the Glazers have little desire to pay it back, believing it will not affect the club’s ability to operate and compete.
“We think we’re in a very comfortable position in that regard,” co-chair Joel Glazer said at a fan forum last year. “We have debts, but many other clubs also have debts. We had made progress in reducing our debt in recent years. Net debt was significantly reduced a few years ago.
“Unfortunately the pandemic has struck and we have had to use up a lot of our cash reserves because we didn’t have fans in the stands, we didn’t have matchday revenue and that has affected us in how it’s affecting all clubs across Europe.
“There are always headlines [for the debt]and then there’s the real cost on an annual basis and that too has never affected our ability to operate in the transfer market or do anything else relating to the club.
How much does United pay in interest?
That “real cost on an annual basis” that Glazer is referring to is the interest payments United must make to service the debt.
During the 2020-21 campaign, the last for which there is a full set of accounts, United paid £20.5million in interest. For 2021-22, the club had paid a further £18.2m in interest by the end of March, according to the latest quarterly report.
Both numbers are substantial sums of money — enough to cover Frenkie de Jong’s deferred payroll, for example — but significantly less than in the early years of the Glazer ownership.
For the first five years, after the family used expensive loans in kind to finance their takeover, interest payments regularly exceeded £40m a season and threatened to be much higher.
United then paid interest rates of a staggering 16.25 per cent and often spent more money on debt servicing than on the transfer market.
Since the club’s last debt restructuring in 2015, interest payments have fallen to more manageable levels, averaging around £19m a year. Despite this, United pays more interest each year than most of Europe’s top clubs.
The total amount paid in interest alone since the takeover now stands at around £743million – all to service debt the ownership has imposed on the club to fund its own takeover.
How much does United pay in dividends?
The issue of dividend payments is not directly related to United’s debt but draws as much criticism from supporters as a means by which the Glazer family siphons money from the club.
Despite being common outside of football, United are the only Premier League club to pay dividends to their shareholders, with the majority going to the Glazers themselves.
Dividends are generally paid semi-annually at Old Trafford, once in January and again in June.
Three payments totaling around £32m were made during the 2021-22 season to make up for a late payment in 2020-21. Since United began paying regular dividends to shareholders in 2016, payments have averaged around £22m per season.
Joel Glazer defended the dividend payments during his appearance at last summer’s fan gathering.
“I know this is an issue on which many people have very different views, but if we take things and look at things as a whole, we think Manchester United are a very well run club,” he said.
“We think clubs across the whole of football could take a look at us and there’s a lot of good to see when it comes to some of these controversial things.
“We can spend money at the top clubs across Europe, whether it’s wages or transfer fees; we’ve been able to keep our ticket prices low, we haven’t increased them in over 10 years; We’re able to pay a dividend, but it’s a modest portion of our £500m-600m revenue; it’s less than three percent of it.”
After the last dividend payment in June, just weeks after United finished with their lowest points tally of the Premier League era, the Manchester United Supporters Trust criticized the Glazers for continuing to take money out of the club.
“Today the Glazers are paying the lion’s share of a £11m dividend at the end of one of their worst seasons in living memory,” it said in a statement. “Rewarding failure is bad practice in any business and totally unacceptable given the current state of affairs at United.”
How does that affect performance on the pitch?
In the early years of the Glazers’ ownership, which came with astronomical interest payments, the debt undoubtedly impacted United’s ability to compete for players in the transfer market.
Luckily they were blessed with Sir Alex Ferguson to have one of the greatest managers of all time and they have remained successful, winning five Premier League titles and the Champions League.
Since Ferguson’s retirement in 2013, the debt has been restructured, the burden of interest payments reduced and the club freed up to spend in the transfer market, but this has not been successful.
The recent underperformance arguably has less to do with United’s level of debt and interest payments, which limit spending, and more to do with how money has been spent, prompting broader questions about the Glazers’ leadership of the club and the former executive vice-chairman Ed Woodward posing.
At the same time, United still pay out around £40m in interest and dividends each season, a sum many supporters argue would not leave the club if different owners pursued a different, debt-free model.
https://www.independent.co.uk/sport/football/manchester-united-glazers-debt-explained-b2145746.html Man Utd and the Glazers’ debt explained