Man Utd Debt

[Matthewjbutler]

Does anyone understand how Man Utd have managed to become over £700m in debt? If so I would like an explanation.

I heard something on Radio 2 on Monday being discussed by Steve Claridge (I fine one to be discussing debt) and co and it went along the lines of buying bonds to cover loans etc.

I cannot find any answers on the www so can the accountants out there provide comment. Please don't spare the detail.

My underlying fear is that we go the same way, not.

I did write a lengthy reply, but RO crashed as I pushed the submit button, and I couldn't be arsed to do it again.

Basically Glazer wanted to buy ManUre, but couldn't afford it, so he borrowed the money to buy the majority shareholding, then transferred the debt to ManUre and hocked the club, it's stadium, season ticket money, future stadium naming rights, TV rights, the company van, and just about everything else.

Although ManUre has huge crowds, the debt is so huge, and was taken when interest rates were (relative to today) high and the club can't afford the repayments, hence the sale of Ronaldo last summer.

The rumours are that they will have to sell another big name before the end of the season.

The bond issue was to raise capital to repay some of the debt to reduce the interest charges to avoid player disposals. The bonds pay investment income at a rate lower than the interest charged on the borrowings, thus making it financially benefical. It worked to the extent that the bond issue was full taken up to the tune of £504m, but the value of the bonds is falling rapidly as no major investor has confidence in ManUre's finances. The bonds will have to be repaid at some point in the future.

Sooner or later, a &quotbig&quot club is going to fall.

Leeds United?

[Dr Bob]

I want to see a big club fall soon. I have nothing against any club per se, but until or unless one does go, I will continue to doubt totally whether it will ever happen or be allowed to happen. Even Chester, which should have been put out of its misery months ago, has had umpteen reprieves. It seems very small clubs can go under, as they are sufficiently far down the pyramid for their demise not to be seen as setting a precedent or having anything to do with the situation at clubs further up. But for as long as the administrators at the FA/PL/FL/Conference, HMRC, Uncle Tom Cobley et al continue to take such a feeble stance, clubs will continue to take decisions, fail to pay debts and taxes, etc. that will see difficulties continue, players sold, maybe clubs relegated multiple divisions a la Boston, but without the fundamental problems ever being addressed.

[theox]

I agree with Dr Bob in principle but the theory has one problem, how can anyone decide when enough is enough?! What if its Oxford who fall at the time when it is decided that no more reprieves will be given?! The supporters of the club who are made an example of would rightly feel incredibly hard done by.

Frankly, the monetary situation in football is a disaster but how do you change it now? As long as big clubs refuse to entertain wage caps etc then no one else can either as there would be no chance of ever catching them.

[GodalmingYellow]

Does anyone understand how Man Utd have managed to become over £700m in debt? If so I would like an explanation.

I heard something on Radio 2 on Monday being discussed by Steve Claridge (I fine one to be discussing debt) and co and it went along the lines of buying bonds to cover loans etc.

I cannot find any answers on the www so can the accountants out there provide comment. Please don't spare the detail.

My underlying fear is that we go the same way, not.

I did write a lengthy reply, but RO crashed as I pushed the submit button, and I couldn't be arsed to do it again.

Basically Glazer wanted to buy ManUre, but couldn't afford it, so he borrowed the money to buy the majority shareholding, then transferred the debt to ManUre and hocked the club, it's stadium, season ticket money, future stadium naming rights, TV rights, the company van, and just about everything else.

Although ManUre has huge crowds, the debt is so huge, and was taken when interest rates were (relative to today) high and the club can't afford the repayments, hence the sale of Ronaldo last summer.

The rumours are that they will have to sell another big name before the end of the season.

The bond issue was to raise capital to repay some of the debt to reduce the interest charges to avoid player disposals. The bonds pay investment income at a rate lower than the interest charged on the borrowings, thus making it financially benefical. It worked to the extent that the bond issue was full taken up to the tune of £504m, but the value of the bonds is falling rapidly as no major investor has confidence in ManUre's finances. The bonds will have to be repaid at some point in the future.

Sooner or later, a &quotbig&quot club is going to fall.

How long was the 'lengthy' reply?!

5,000 word dissertation....

[GodalmingYellow]

I agree with Dr Bob in principle but the theory has one problem, how can anyone decide when enough is enough?! What if its Oxford who fall at the time when it is decided that no more reprieves will be given?! The supporters of the club who are made an example of would rightly feel incredibly hard done by.

Frankly, the monetary situation in football is a disaster but how do you change it now? As long as big clubs refuse to entertain wage caps etc then no one else can either as there would be no chance of ever catching them.

As theox says, whilst Premier League clubs and officials continue to sanction overspending and unaffordabl debt, the situation will never be rectified, adn the awards will go to the clubs most heavily subsidised by wealthy shareholders.

Football at senior level is not about a game or fair competition, it is about who wants to be seen as the wealthiest.

[Dr Bob]

A good place to start would be the ideas posted in an excellent article on twohundredpercent on 5-1-10. Not sure if this will work but here goes:
http://www.twohundredpercent.net/?p=4236

Enough is enough when clear rules are clearly violated when HMRC treats football clubs like anybody else (unless someone can enlighten me as to how much leeway other types of tax non-payment are dealt with) and when a legal structure is put in place that the financial obligations fall on those creating the mess, not those that come after (although there are those here with more knowledge of such things who may say this is impossible, in which case &quotbugger&quot). Until or unless that can be done, there will never be an even slightly sloped playing field between those with wealthy benefactor-type owners (as distinct from owners such as the Glazers) and the rest, because there will never be sufficient incentive for fiscal prudence. I think theox and I only disagree to the extent that I was doing more dreaming of what ought to be.

[GodalmingYellow]

A good place to start would be the ideas posted in an excellent article on twohundredpercent on 5-1-10. Not sure if this will work but here goes:
http://www.twohundredpercent.net/?p=4236

Enough is enough when clear rules are clearly violated when HMRC treats football clubs like anybody else (unless someone can enlighten me as to how much leeway other types of tax non-payment are dealt with) and when a legal structure is put in place that the financial obligations fall on those creating the mess, not those that come after (although there are those here with more knowledge of such things who may say this is impossible, in which case &quotbugger&quot). Until or unless that can be done, there will never be an even slightly sloped playing field between those with wealthy benefactor-type owners (as distinct from owners such as the Glazers) and the rest, because there will never be sufficient incentive for fiscal prudence. I think theox and I only disagree to the extent that I was doing more dreaming of what ought to be.

Sorry, that won't work.

Limited companies are a separate legal identity to the shareholders and directors. The word limited means limited liability of the shareholders.

Shareholders liability to a company is limited to the issue price of the shares - commonly £1 per share.

Therefore, shareholders ie owners of the business can never be legally held responsible for the demise or poor operation of the business.

Directors are employees of the company, acting on instructions of the owners of the company ie shareholders. Therefore, if a business goes down as a result of their actions, it is either due to incompetence on their part, or poor instructions from the shareholders.

Provided directors have complied with company law, it would take a case in the high court to prove willful negligence or fraud, which is not easy to do and is very costly, and the outcome might simply be that the director cannot hold office as director in the future. In reality, even that sanction is pretty rubbish as sons, daughters, spouses etc can take onthe role of director in owner managed companies, which is where many of the problems derive from. Actually forcing a non-shareholding director to cough up for the consequencies of their actions, provided they are not willfully negligent or fraudulent, would require very substantial changes in employment law and company law, and it might prove very difficult to employ someone as a director knowing that their personal finances might become drawn upon though actions which were not entirely their fault.

There needs a change in tax law, forcing businesses who collect taxes like VAT and PAYE on behalf of the government, to hold those monies collected in a separate bank account which may not be used for purposes other than collection and reimbursement of taxes.

People often forget, and this really annoys me, that when a company deducts tax from employees under PAYE, the comapny is paying the employee the agreed gross wages, then the employee is paying the government the taxes that are ue from the employee. The tax money never ever belongs to the business and they should not therefore be using it to subsidise their activities. The same applies to VAT. There really is no excuse at all for getting into arrears with these taxes, and doing so just costs there rest of us more in higher tax rates to compensate.

[slappy]

People often forget, and this really annoys me, that when a company deducts tax from employees under PAYE, the comapny is paying the employee the agreed gross wages, then the employee is paying the government the taxes that are ue from the employee. The tax money never ever belongs to the business and they should not therefore be using it to subsidise their activities. The same applies to VAT. There really is no excuse at all for getting into arrears with these taxes, and doing so just costs there rest of us more in higher tax rates to compensate.

I believe the law is changing in May so that PAYE not paid on time is subject to penalties of 1% to 4% depending on the number of offences each year. Whether this will help or not I don't know.

Also, does anyone know about the Conference rule book appendix E which was referred to in last week's NLP? Something about all football creditors needing to be paid by May - is this just for clubs who have entered administration, or is it all clubs?

[boris]

Also, does anyone know about the Conference rule book appendix E which was referred to in last week's NLP? Something about all football creditors needing to be paid by May - is this just for clubs who have entered administration, or is it all clubs?

It's for all clubs except those relegated from the Football League. Failure to comply will lead to expulsion from the Conference. And my understanding is that it's all creditors, not just football ones, and they have to be paid in full, so no CVAs or nuffink.

[Ascension Ox]

Also, does anyone know about the Conference rule book appendix E which was referred to in last week's NLP? Something about all football creditors needing to be paid by May - is this just for clubs who have entered administration, or is it all clubs?

It's for all clubs except those relegated from the Football League. Failure to comply will lead to expulsion from the Conference. And my understanding is that it's all creditors, not just football ones, and they have to be paid in full, so no CVAs or nuffink.

Too strict a rule, badly thought out in my view. Could lead to decimation of a number of clubs.

Nothing to stop a CVA being proposed that pays creditors 100p in the pound Boris

[Snake]

Also, does anyone know about the Conference rule book appendix E which was referred to in last week's NLP? Something about all football creditors needing to be paid by May - is this just for clubs who have entered administration, or is it all clubs?

It's for all clubs except those relegated from the Football League. Failure to comply will lead to expulsion from the Conference. And my understanding is that it's all creditors, not just football ones, and they have to be paid in full, so no CVAs or nuffink.

Presumably this does not include holding companies owed money, like WPL.

[slappy]

I've sent the Conference an email asking for a copy of Appendix E, but don't hold out much hope of getting a positive answer . The NLP article suggests that it is Northwich, Salisbury and Farsley who are affected, so presumably it is something to do with going into administration.

[boris]

I've sent the Conference an email asking for a copy of Appendix E, but don't hold out much hope of getting a positive answer . The NLP article suggests that it is Northwich, Salisbury and Farsley who are affected, so presumably it is something to do with going into administration.

It's to do with coming out of administration via a CVA (one that does not pay the creditors 100%!). I believe that under that rule they have to pay the creditors the rest of what they're owed by May (not sure exactly when in May) or they is stuffed.

[Mally]

I've sent the Conference an email asking for a copy of Appendix E, but don't hold out much hope of getting a positive answer . The NLP article suggests that it is Northwich, Salisbury and Farsley who are affected, so presumably it is something to do with going into administration.

It's to do with coming out of administration via a CVA (one that does not pay the creditors 100%!). I believe that under that rule they have to pay the creditors the rest of what they're owed by May (not sure exactly when in May) or they is stuffed.

Presumably its a catch all rule to stop clubs going into virtual adminstration via a CVA.

In answer to Snake - it would only apply to creditors who were due payment. Nothing wrong with owing money of you have the means and a sensible schedule to pay it back. As long as our schedule to WPL remains near infinity then I'm sure we'll be able to repay it.

[GodalmingYellow]

Also, does anyone know about the Conference rule book appendix E which was referred to in last week's NLP? Something about all football creditors needing to be paid by May - is this just for clubs who have entered administration, or is it all clubs?

It's for all clubs except those relegated from the Football League. Failure to comply will lead to expulsion from the Conference. And my understanding is that it's all creditors, not just football ones, and they have to be paid in full, so no CVAs or nuffink.

Too strict a rule, badly thought out in my view. Could lead to decimation of a number of clubs.

Nothing to stop a CVA being proposed that pays creditors 100p in the pound Boris

Not much point having a CVA that pays 100p in the £.

I would like to see the wording of the rule before considering if I regard it as a good rule or not. Footballs clubs do however need to get their houses in order and stop relying on borderline fraudulent attempts to avoid paying their creditors and using this as a method of capitalisation to fund activities that they cannot afford.

It isn't good enough to say let them overspend, then get the debts written off.