Liverpool, WHU, Man U, Arsenal. Who will survive the debt repayments?

Knowing what a football club is doing financially is tough.  When Mr Usmanov put forward his refinancing plan recently he got one set of top bankers to draw up an analysis of the club’s situation and needs.  Those against the plan got another set of top bankers to show why we didn’t need the money.  The two reports were utterly different.

Which explains why “bank” is a four letter word.

But still, a mere lack of detail has never stopped me pontificating before, so here we go with a comparison of the just a few clubs that owe debts to which have to be repaid (as opposed to the KGB in Chelsea, Manchester Arab, Notts County, QPR and Portsmouth, whose debts don’t have a repayment date.)

The last set of Arsenal figures (interim figures from last February) showed match day income up, TV revenue up, and a big jump in pre-tax profits (to £24.5m for the half year).

Even Highbury Square hasn’t turned into the disaster that the daily papers want it to be.  Arsenal owe £135 million to be repaid in about 7 months and Arsenal opened talks with the four-letter-words to extend the loan. As far as I know that is all in place.  The flats will sell, and indeed are selling, and only three people are reported to have walked away from their deposits.  But the recession means they are selling more slowly than expected.

The stadium is secured on a mortgage which is being repaid month by month.  As matters stand Arsenal are considerably better off with the Ems than they were at Highbury – by which I mean that even after they have paid all their interest due on the Ems there is still more in the kitty, because of the higher earning capacity of the stadium.  Break-even is said to be achieved with an average crowd of 50,000 and Champs League group stages once every four years – so there is quite a a lot of leeway.

CHANCE OF ESCAPE: nothing to escape from.  Club totally sound.

Not so good over in the Invasion Zone, where the Icelanders have been trotting round the whore houses (well Standard, Lombard North Central, Bank of Scotland, Straumur and Glitnir) trying to borrow more and more.

They pay £4m a year in interest alone – and the banks want their money back, as the club has broken its agreements on reducing the wage bill.  The four-letter-word mob demand £3.5m paid back by the end of this season, and then (and this is the killer) £28 repayment over the next three years – plus of course all the interest on the loan in the first place.

Just to show you what sort of planet WHU’s chief exec lives on, this was his commentary in 2008 on WHU finances…  “Much credit rightly goes to Mr Gudmundsson for his work to provide the solid foundations that we have today.”

CHANCE OF ESCAPE: nil.  They are totally and utterly screwed.

Liverpool we know took the money that should have been used for the new stadium, and gave it to the two owners.  The owners have now pledged some of their own money in a desperate attempt to keep the money-lenders off their backs.   But the Four Letter Word merchants at RBS are demanding the repayment of the £350m loan (plus interest) at a rate of £65m a year, which perhaps explains why Mr Ben E Tez is not spending £20m a year plus the money from players sold each year.

For survival the club is totally dependent upon someone coming in and buying up the club and removing the debts.  A good youth strategy could save them, but their  youth system is going through a period of decline, having reached its height 2 years ago, and experience shows that it takes four or five years at least to build a new youth empire.

So just when Liverpool need some bright sparky youngsters to whom the management can say Kalm Down Kalm Down Kalm Down they ain’t got none.

Chance of escape (ie finding a new buyer) 20%.  Would you buy it?

As for Manchester United, why was so little of the £80m for Ronaldo spent on players?  Sir Alex F Word said that it was because the players are not there who are worthy of a shirt.

But it is not quite that simple.  Football accounts are not easy to read, but some are easier than others.  Arsenal describes itself as being in the business of football and property development, and from that it is possible to see what is going on in the separate companies for the two wings of Arsenal.

But Manchester United has companies like I have a collection of Arsenal programmes – companies which go from the tax haven of Nevada to those registered in Companies House.

The best estimate is that Man IOU has £699m debt.  But… ponder this.  The Glazer family removed £525m to buy the club.  And before that moment the club had no debt.  But the amount of interest paid since then is £263m.  So from this we deduce the club has made around £90m profit – and the effect of that is that it has reduced the debt from £789m down to a mere £699m.

All that profit – just gone in to taking off the tip of the iceberg.

And to explain further, the debt rises each year because the hedge fund debt at 14.25% interest a year, is not being paid – it just accumulates more debt each year.

Now the story at the Man U end is that there is of course no crisis – how could there be when they have won the league three times?  The answer is, “there was nothing to worry about at Leeds when they got to the Champs semi-final”.  Except financial meltdown.   In the end, the ability to borrow money runs out, and the pyramid scheme which is Manchester United falls over.

Man U have to start paying the four letter word spivs back in two years, and they have no mechanism for doing this.  Their squad is ageing and there is no amazing set of youngsters of the Beckham type ready to sort them out.  Will they manage to keep going?  Yes, but probably in a very different form from now.

Chance of survival: 50% – but not challenging for the league.

(c) Tony Attwood 2009

26 Replies to “Liverpool, WHU, Man U, Arsenal. Who will survive the debt repayments?”

  1. I think we have to evaluate the reasons why some of these clubs have been bought(into debt in more than a few cases). The two obvious reasons are a) to make money i.e. ManU and Liverpool etc (and the reason Usmanov wants Arsenal) b) as a plaything i.e. Chelsea (I have however heard rumours that Chelsea are being used to launder money in some form or other but there doesn’t seem to be any evidence to prove this). The Arab situation I’m not so sure about, have Man City been bought to make money (can’t see how), to raise the profile of the owners or as a plaything? Your guess is as good as mine.

    The plaything clubs are fine as long as their owners are willing to keep pumping money into them. The problem with football clubs is that the more you feed them the bigger their appetite gets, as Mr Abramovich has found and is trying to ween the baby off of his money and try to get them to be self sustaining. The problem with this is it isn’t easy to spend on a budget and still win trophy’s. The other problem with plaything clubs is it’s fine when your the biggest fish but how long will an owner maintain interest when a bigger spender comes along?

    The problem for ManU and Liverpool is that the debts the current owners have accrued have become so large that there is no way a new owner can buy the clubs and make money. A new owner at Liverpool would have to clear £290 million in debt and then fork out £350 odd million for a new stadium. This means that a new owner at Liverpool expecting an 8% return would take in excess of £50 million a season out of the club and this assumes that Tweedledee and Tweedledum would be willing to let Liverpool go with them making any profit on the deal, most unlikely unless Liverpool were days from insolvency. ManU’s debt puts them in a similar situation. This only leaves room for someone who wants a new to but how many rich owners can buy the PL and CL every season, how many can outbid and out spend the Arabs at Man City on a consistent basis?

    I really can see this ending in tears for a lot of the clubs who have pursued this route. The scariest thing is that if the shit really hits the fan and the clubs in debt go to the wall or drop down the league the Spud’s could end up as one of the big clubs in the PL!

    I’m now going to go and lie down in a dark room for a while.

  2. The Man U hedge fund debt at 14.25% interest a year, which is not yet being paid (not even the interest is being paid) will soon mount up. So I’ll say you are more generous with their chances than I would have been. I put it at 47%.

  3. Talking about spurs……WHERE DO THEY GET THEIR MONEY??????
    Season after season they always outspend arsenal and dont win anything aprt frm the beer cup.
    Can’t wait until this bloody dept is paid off and then arsenal will start outbidding other clubs for players like KAKA,torres atc…..

  4. Even finding philanthropic new owners who would come and clear all debts is a very difficult task. Let’s remember that we are not talking about mid-table or small clubs here but giant enterprises which will cost to the tune of a bollion dollars or so to the prospective buyer.

    Let’s be frank now that football clubs aren’t really the profit making entity you would want to invest money in and very few people in the whole world have so much money to distribute just out of interest.

    And what guarantee that those new owners don’t put the clubs in the soup that current owners have put them in by borrowing money to buy?

    The really funny case is that of Man U and Sir Chewing Gum for he is going to leave the club as a hero having won numerous medals and what not and having had unparalleled success but might leave the club to a very uncertain and dark future. Compare it to that of Lord Wenger who might never win what Sir Gum has but will leave us as a truly big club in the world with a great youth and scouting system, a world class 65k stadium with almost no debt(when Wenger finally leaves), world wide support base, great young team with the quality to fight for the title in both Europe and England and as a club that can generate 30 millions(or equivalent of that in that time) to invest on new players, every year, once debt free. There will be other managers some of whom will be very successful, some less so, but, we will always have secured the future as more or less one of the top clubs of the world.

  5. I totally agree Marc. That big bubble is going to burst sooner rather than later and the only club that will stand strong and dominate europe is Arsenal.

    P.s Don’t worry about the spuds, my pet dog has more brains than that club put together!

  6. SDK,
    The Worldwide support Base for arsenal is true. YOU CANNOT IMAGINE how big a deal the premier league and specifically Arsenal is here in kenya, a country ranked 104 in the FIFA ranking. Arsenal won many fans during the days of Kanu and Lauren (and trophies:-). It is still the most popular EPL club here and politicians know tha you get more votes than you lose by declaring that you support Arsenal.

    Some even say that our national team does poory because we try to play like Arsenal, something only Arsenal FC can do.

    We even “profile” each other just by the EPL club you support. Arsenal Fans are said to be into detail.. we know a lot about the club history, player and game stats, club finances. Man U fans are said to be “get it by all means” unscrupulous dealers. Chelsea Fans are considered to be new to football and Liverpool fans are a “suicide sect” people waiting for some grand miracle to happen. No one roots for anyone outside the top 4 unless they are trying to annoy someone else; or unless they have ever been to England. My sister supports Wigan! Unbelievable in these parts!!

  7. Great article mate, but it seems to me that Liverpool and Man Utd have already started their slide. Both teams selling one of their best players and not replacing them will be the beginning of the end.
    So its Arsenal v Chelsea for the title. Chelsea may edge it this year, but when they cant buy next season, and Wenger carries on doing his marvels……….

  8. Tottenham’s money is a mystery to most of us. There is Jo Lewis in the Bahamas, but somehow the club manages to show a profit each year.

    I think like Man U there is a web of companies, and the money moves around so you never know what you are looking at. I believe they are being groomed to be sold once they break into the top 4.

    So no changes expected in the ownership there then.

    Tony

  9. Gerald: I went with a good friend to one of your neighbouring countries, Nigeria, quite a few months ago. The classification of support in that country is astounding. I met some Arsenal fans & a very few other club supporters. They told me that majority of the thugs and touts are Man U & Chelsea fans. Arsenal fans are called the “Gentlemen & or Commonsense Club” fans or something like that. They advised me to stay out of Chelsea fans way whenever their team loses as they tend to fight, so too Man U fans. Scary isn’t it?

  10. Agreed, despite the panicky elements amongst our fans, we are in an excellent position for the coming years. We need to keep Wenger as long as we can though, since his premature departure would lead to a significant number of the current squad wanting to leave. That might yet throw us off-track, which is why we need to shut up all the booboys and idiotic Wenger haters.

    Liverpool are definitely deep in it now – it’s like a perfect storm of a reckless manager (£18m for Glenn Johnson?), internecine warfare in the boardroom, poor youth players and too many ordinary squad players, an ageing stadium that needs to be replaced and huge owner-imposed debts. In a few years’ time, regular top four finishes for Pool will be a memory.

    I think United are in a better position though. Yes, they have shedloads of debt thanks to the Glazers, but the sheer size of United’s national and global fanbase can’t be ignored. They are England’s only club to rival Barca, Real and Juve for size. That scale will see them through, even if they do fall behind us and whoever is still being subsidised out of Man Shitty and Chavski.

    By the way, does anyone else think this business of “purchasers” loading up the cost of buying a football club amounts to little more than theft? Or perhaps I should just rock up to Highbury House, offer Danny, Stan, Lady Nina and Ulisher £20k a share and then post it all on the AFC overdraft, so that hey presto, I own the Arse thanks to, ummmm, the Arse?! Bloody outrageous if you ask me.

  11. I agree with you Tony.
    I do think that MU will have a better chance to survive because they have a worldwide fan base but then again… how would that fans base react if they dont win anything for a couple of years ?
    But then again who would have thought only a year ago that the banks would be hit that hard and so many would be bankrupt ?
    In that case we speak about companies who are XXX-times bigger then MU.
    I would be laughing until I would wet my pants if MU and Liverpool would go bankrupt….. and Chelsea. I dont think I could survive Spurs bankrupt…

  12. The problem ManU and Liverpool have is that if they cut back on spending to try and reduce debt they risk falling out of the top 4. This reduces turnover significantly, even if for only a season. This means they have less money to strengthen and risk turning a single season out of the CL into several. This situation can very easily spiral out of control.

    On top of this ManU have the problem of Fergie retiring soon, just as the first repayments become due. It will be very telling who ManU replace Fergie with. If they go for a name and proven track record i.e. Moanrino, he will come demanding a huge transfer kitty something they might not be able to fund. If they go for a lesser known name i.e. David Moyes they will be able to control him better but while he is an excellent manager at a club like Everton, could he deliver the goods at a club like ManU especially with the intense media spotlight on whoever follows Fergie? All the while their local rivals will be spending ridiculous amounts, possibly even with some success.

  13. Agree regarding West Ham Tony. Stick a few pennies on them going down next season, when they have to do a Pompey and sell the family silverware. Lucas Neill has gone, expect Upson, Green et al to follow shortly.

    Would obviously love to see United do a Leeds, but I can’t see it…yet.

    Joe Lewis at Spurs has been pulling rabbits out of the hat money-wise for quite some time now. Rumour has it that they need the myth of the new stadium to be out there so that him and his nephew Levy can sell out for a profit.

  14. I really believe that the main reason for Fergie to stop will be that he cant spend money like before. Untill now Fergie had to open his mouth and the bank lended the money for a new transfer. It seems those days have gone at Utd.
    In the next seasons we will begin to see if Fergie is indeed the best manager or just a manager who was able to get succes by buying a lot of players, like most others.

  15. Great article as always Tony!

    GORDON BROWN should ask Wenger for help with the economy….lol!

  16. Tony, have you asked any of the liverpool or Man U fans what they think of there money problems? i would like to know what their views are.

  17. Hi Tony

    Great article and nice investigation. Would have loved to compare ourself with Chelsea too but then its not possible.
    I had read it somewhere that Chelsea owes 800 million to the Russians and he has an offer to buy half the club for 400 million. Still 400 million left.
    Liverpool owes too much and you told it well in detail. The worst part is that Liverpool owners have a history of infighting. One of them previously bought Corinthians and promised them a new stadium. They left the club eventually but the Corinthians got relegated in between and no wonder they were playing in the same stadium. I can see a lot of things similar with Liverpool and just hope that they are there to compete with us in the next few years for premier league.
    Now comes the biggest surprise Man U. I just scanned on web and found the most shocking details of debt repayment. The repayment would start in 2013 and will demand a staggering amount of money. I just smell something into it. The repayment schedule looks like Fergie has been kept in confidence. He might be here for the next 3 years and then go for retirement. Probably this unwritten agreement has led them not to say bad about each other(unlike RAFA). Otherwise its hard to understand that he bought Owen for free as a replacement for Tevez and Valencia for Ronaldo. Ideally they should have bought someone like Ribery or top class to repalce his class and the money he had. Here is a part of the story i read on the web. I can not paste the link as it sends my comments in moderation.

    “City analysts with connections to United fans’ pressure groups have uncovered startling detail in accounts published this week by the club and its holding companies.

    The Glazers will have to repay 75 million pounds in 2013, 150 million pounds in 2014, 150 million pounds in 2015, 150 million pounds in 2016 and a final payment of 600 million pounds in 2017.

    The financial analyst said: “For the first time the accounts show the debt repayments that are due over the next nine years. The Glazers will obviously try to re- finance but that is not going to prove easy in the current global financial crisis.”

    United’s finances are being monitored by supporters’ action groups who have campaigned constantly since the Glazers paid over 800million pounds for the club in 2005.”

  18. Now it’s time to reproduce this kind of success and stability onto the pitch this year!

  19. This would meean MU have to pay 1125 million pounds in 8 years time ????? This could be the end of their succes for a very very long long time.
    Thank you AW and the board for your strong financial stability. We dont have to worry about the future.
    The future is bright for us and for me personal, I will visit the Emirates tomorow with one of my sons. Really looking forward to it. Perry Groves will be our guide.

  20. Interesting sign of the times re Tottenham. In their marquee pre-season tournament at Wembley, cheap tickets, top draw Barcelona (World, Europe, Spain champs). Great chance to show the depth of their support. How many show up? 38,000! about the max for WHL. Doesn’t look positive for a new 60,000 seater stadium.

  21. Sorry for reposting:I just think that the best part ofmy earlier post got hidden in all the worldly views that I presented.

    I am just reposting the Man U’s debt schedule as found by some brokers which shows how dire the situation is at Manyooooo.

    “City analysts with connections to United fans’ pressure groups have uncovered startling detail in accounts published this week by the club and its holding companies.
    The Glazers will have to repay 75 million pounds in 2013, 150 million pounds in 2014, 150 million pounds in 2015, 150 million pounds in 2016 and a final payment of 600 million pounds in 2017.
    United’s finances are being monitored by supporters’ action groups who have campaigned constantly since the Glazers paid over 800million pounds for the club in 2005.”

  22. The only way out for Man U has something to do with their fan-base and that’s all. That is one of the things that is going for them.

    But, the thing with fanbase in Asia, at least, is very fickle and except for a few people who have been supporting the club for a long time or so, all others will shift base as soon as the success fails to come.

  23. Indeed Abhishek, good to put that in the spotlight. If those figures would be about Arsenal I wouldn’t sleep at night.

  24. The difference between us and United: we bought a stadium for our money; all United bought for their however many million it will be of debt was the Glazers’ purchase of them.

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