Friday, August 17, 2007

Meanwhile, over at the Swamp

It might be my imagination, but I'm detecting a growing sense of unease from our rivals from Stretford. Aside from the fear of trailing seven points behind after Sunday's game, United's debt mountain appears to be becoming a genuine problem for them.

Last year the debt increased from £559m to £663m, and now clocks up £62m-a-year in interest charges (details). The Glazers also spent £272m of their own money to buy United which, if also borrowed, would take the total debt up to £935m.

United's debt falls into the 'subprime' category, which effectively means it is seen as a high risk and so attracts much higher interest rates than normal. John Robson & Andrew Selsby, from RH Asset Management, offered this fascinating insight into how the subprime market works:

One of the reasons subprime borrowers had previously been unable to afford mortgages was that market driven interest rates made them unaffordable. To overcome this, the bank would offer them an especially low, artificial rate of interest for say three years. The underpaid interest would accrue as additional debt. At the end of the ‘teaser’ interest rate period, a proper market rate would then apply to the whole of the increased loan. The increased debt level would be more than covered by the presumed appreciated value of the house. However, the borrower would yet again be faced with an unaffordability issue.

The crazy and doomed scheme was thought foolproof because everyone stupidly believed that the rate by which the unpaid interest accumulated would be less than the rate by which the property would appreciate - a process that would continue indefinitely.

To put it another way, it is rather like putting a huge amount of debt on a credit card that has a special introductory offer, then hoping to switch to another card with another artificially low introductory rate each time an offer expires.

The Glazers have done this once, increasing the debt last year in return for a lower interest rate. They were hoping to refinance again last month before problems in the global debt market caused these plans to be scrapped. The proposed refinancing package would have increased the debt to around £700m.

United's chief executive, David Gill, insists the debt is manageable (where have we heard that before) and maybe it is - as long as they continue to make United fans pay through the nose. Ticket prices at Old Trafford rose by 14% this year on top of the 12% hike last year, while some season ticket holders have taken the club to court over the club's policy of forcing them to buy tickets for cup games. And according to The Telegraph's David Bond even this summer's transfer spending spree isn't quite what it seems.

But I'll leave the final word to Roy Kaitcer, a director at Manchester stockbrokers Brewin Dolphin, who gave this assessment of the takeover to Business Week in 2005: "The logic isn't something that stares you in the face," he said.

~ You can read more about United's finances at the Manchester United Supporters Trust

The man bags and the sad Rags

There was an interesting story in The Guardian last week that claims the redevelopment of United's training ground facilities will include extra locker space specifically to house the players' 'man bags', which apparently are 'vanity cases containing gels, lotions and pomades'.

And finally, I have a question regarding United fans' habit of referring to CoMS as 'the council house'. Did they also use that tag for the San Siro (owned by Municipality of Milan) during their 3-0 defeat there in May?


Simon-Peter Vickers-Buckley said...

Great post Andrew. Keep this coming. I am very interested in United's finances...

Anonymous said...

The bastards are coming apart at the seams, the red faced clowns childish pre match rants gave rise to speculation he was losing it, idiotic substitutions proved it in the second half apart from playing half man half monkey Tevez who they also paid peanuts for.
In debt to thier ears and beyond, well written piece un noticed by the allegedly financial uk press, think there is more mileage to come on this with US financial upheaval.
Yee Hawwww