How Goldman's Jim O'Neill Attempted The Biggest Hostile Takeover In Sports History

Wayne Rooney

Photo: Wikimedia Commons – Gordon Flood

Manchester United played Chelsea live on Fox yesterday. It was only the second time a Barclays Premier League game had been broadcast live on network U.S. television.In the pre- and post-game chatter, the pundits mentioned every plausible angle and implication of the game, with one major exception.

No one talked about the controversy surrounding the fiscal handling of Manchester United by their American owners, the Glazer family, and how it prompted Goldman Sachs’ Jim O’Neill to lead a group of wealthy investors to try to buy the team in 2010.

Manchester United is a club with working class roots that's built a tradition of success

The club we now know as Manchester United was founded as Newton Heath L&YR Football Club in 1878. The founders were workers at the Carriage and Wagon Works of the Lancashire and Yorkshire Railway's Newton Heath train depot.

The clubs colours were green and gold.

In 1901, the club was facing bankruptcy and was bailed out by a local brewer, John Henry Davies. Davies changed the club's name to Manchester United in 1902.

The team achieved great success in the late forties through the sixties under manager Matt Bubsy.

Source: Manchester United FC

In 1986, Alex Ferguson took over as manager in a bid to re-establish that success at the team

Manchester United's modern-era is defined by the reign of manager Sir Alex Ferguson. Ferguson took over as manager having lead the previously marginal Scottish team Aberdeen in 1983.

Since joining in 1986, Ferguson has won almost 40 major trophies for Manchester United and the team has dominated the Premier League since its formation in 1992, winning the competition 12 times.

Source: Manchester United FC

It worked and success became the norm again at Manchester United

Manchester United have also won Europe's top club competition, the Champions League twice under Ferguson. His time at the club has seen internationally recognised stars such as David Beckham and Cristiano Ronaldo play for the club.

And while such statements are deeply divisive in the tribal world of British soccer, it can be argued that that Manchester United have been the most successful British team of the 1990s and 2000s. Other contenders for that distinction are Arsenal, Chelsea and Liverpool. Liverpool are United's fiercest rivals and historically the most successful team in England.

Source: Manchester United FC

In 2003, The Glazer's made their investment in Manchester United

Manchester United went public 1990 and was eventually the subject of takeover bid by Rupert Murdoch and his BSkyB broadcasting corporation.

However, shortly after that attempt to purchase the club, the Glazer family began to purchase their take in the team. By the end of 2003, they owned approximately 15% of the club's shares and had increased this number to 30% by 2004.

Source: BBC

And then acquired full ownership in 2005

In 2005, the family bought out a 28.7% stake held by a pair of partners, bringing their ownership to almost 60%. Shortly afterwards, the Glazers upped this number to 75% of the club's outstanding shares, enough to take Manchester United off the public exchange.

The Glazers then bought all but 2% of the club to acquire control of the club and were forced by regulation to purchase the remaining 2% soon after.

The series of transactions valued the club at almost $1.5 billion based on the exchange rate at the time and was funded by and large by debt financing.

Source: BBC and CBC

Fans get outraged when the Glazer's take out debt on the team to refinance their family debt

After acquiring the club, the new ownership announced plans to take out a total of £660 million in debt (more than $1 billion) to refinance the Glazers' family debt and increase the club's leverage.

A portion of the financing was secured against the Glazers' family assets and a separate portion secured against the club's assets.

The rationale was that the funds would allow increased capacity at the team's stadium (Old Trafford) and continued investment in the team's squad.

Controversially, the debt was also used to pay-off a large portion of the payment in kind (PIK) loans that the Glazers had used to finance their purchase of the team.

Concerns were raised about the interest payments required by the increased debt load, which amounted to approximately $110 million annually in addition to the payments required by the outstanding PIK loans.

Source: Football Economy

As debt levels increasd, fan discontent rose

Since the American owners had arrived, a fan movement against their stewardship had been drawing increasing support. The grievances included increased ticket prices, decreased investment in the players on the field and the precarious position the rising debt load put the club in.

Why is the debt load such an issue for fans?

Unlike in American sports where the concept of free-agency drives player moves from team to team, in European soccer, players team assets and can be sold or bought for cash sums.

Continued success therefore almost continual cash investment and upset fans felt that under the Glazers' ownership, the net investment in players was closer to struggling, mid-level teams rather than the European powers they saw as their real competitors. Some have begun to call this high spending into question, but it is still demanded from many loyal fans.

Source: The Financial Times

The 'Love United Hate Glazer' movement took hold

The simple slogan of fan opposition: 'Loved United Hate Glazer.'

Pointedly, the slogan is often written in green and gold, the club's original colours. Fans began displaying the motto and green and gold scarves, flags and jerseys at games and public protests outside the stadium.

Source: The Telegraph

And debt continued to pile up

In 2010, Manchester United announced that its debt had increased to £716.5 million or almost $1.2.

The club said it planned to refinance £500 million of that and when it went into the debt market quickly raised £504 from investors.

The terms of the debt was troubling to fans. They allow the Glazers to use the club's income to pay off the PIKs, which are family and not team debt, by granting them a on-time payment of £95 million and allowing the family to receive 50% of the club's net income annually.

The annual coupon payments that the club must pay on this debt are £45, with the debt maturing in 2017.

Source: BBC

That's when people started to question how rich the Glazers really are

So why is a reputably very wealthy family accruing so much debt under such high interest in order to finance one of the most valuable sports assets in the world?

One theory is that the Glazers' wealth has plummeted since the financial crisis. The family built their wealth ona series of diverse investments, largely in Florida and the South. Chief among them, particularly leading up to their purchase of Manchester United in 2005, was commercial real estate.

The value of commercial real estate has since dropped significantly and while the family will not disclose their personal wealth, it is likely that the cash flow generated by Manchester United is crucial to their ability to pay their family's debt.

Source: BBC Panorama

Fan protest reached a peak and the 'Red Knights' emerge to buy the club from the Glazers

In January 2010, fans protested en masse at the club's stadium, displaying green and gold scarves and a giant 'Love United Hate Glazer' banner.

Later in the month, it emerged that the Manchester United Supporters Trust had held talks with a group of high-level financiers and wealthy individuals to discuss a buyout of the club from the Glazer's.

In an homage to 'white knights' in corporate takeovers and the club's colours, the group was named the 'Red Knights.'

Source: BBC Panorama and The Guardian

In 2010, The Red Knights made their move to buy the team....

The Red Knights campaign to buy the team gained broad public interest. Among those involved was Jim O'Neill, the chief economist at Goldman Sachs and a Manchester United fan.

They offered the Glazers £1.5 billion, almost twice what the Glazer family had paid for the club.

Source: The Daily Mail

But despite increasing fan anger, the 'Red Knights' failed to gain control of the club

When team legend David Beckham made an appearance at Old Trafford with his current team AC Milan, he buoyed the hopes the takeover supporters by putting on a green and gold scarf that had been thrown onto the field while walking to the locker room. However, he stayed away from any explicit endorsement of the Red Knights, saying only that he supported the club and that it was more than a business.

The Red Knights went as far as to appoint Nomura as a takeover advisor, but by June 2010, they admitted their plans were on hold due to the inflated price of the club.

While Manchester United did spend significantly on young players after the 2010-2011 season, fan discontent remains simmering.

However, increased competition from cross-town rivals Manchester City, now owned by the Abu Dhabi United Group, has only prompted louder calls for more spending on talent and continued concerns about the debt-levels of the team.

Source: The Guardian, The Guardian and The Telegraph

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