Manchester United Resisted SEC on IPO Risk for Investors

Manchester United’s Glazer Fought SEC Over Airing Risks in IPO
Fans burn a Malcolm Glazer effigy to show their feelings towards Malcolm Glazer's renewed bid for Manchester United at Old Trafford in this May 12, 2005 file photo in Manchester, England. Photographer: Matthew Lewis/Getty Images

Manchester United Plc team owner Malcolm Glazer is so loathed by fans that some once burned him in effigy. They might hate him even more if they learn how he tried to hide the true state of the soccer club’s finances before its August initial public offering.

The struggle to keep secret the material risks the storied team faces is detailed in letters between club executives and the U.S. Securities and Exchange Commission before United’s August IPO. The SEC demanded and got more disclosure about team losses, debt and benefits for Glazer and members of his family.

What investors and fans weren’t able to see until a month after the team raised $233 million selling shares, was the owners’ behind-the-scenes resistance to disclosing more transparent earnings data, details about Glazer’s debt and what the IPO money was to be used for. The full story of the correspondence, posted on the SEC’s website without fanfare in September, hasn’t been previously reported to investors or fans.

“The Glazer names are still toxic amongst hard-core United fans who are well aware of what they’ve done to Manchester United,” said Duncan Drasdo, who runs the 187,000-member Manchester United Supporters Trust fan organization. “Despite more recent purchases over their tenure they’ve created a ticking time bomb of underinvestment in players.”

The SEC-United letters show seven Glazer family members have kept almost total control of the club after the IPO, saddling the team with higher taxes to evade potential shareholder lawsuits by incorporating offshore.

Loss Reported

The club reported a loss in its first quarterly financial results after the IPO as the team failed to win a trophy either in domestic or European competition in 2012.

Today’s results show another quarter’s loss on operations as debt costs continue to drain money, before a tax credit of

26.5 million pounds ($42 million). The credit enabled United to report net income of 20.5 million pounds, or 13 pence a share. The mean of two analysts’ estimates was a loss of 2 pence a share.

“Focusing on the operating loss is important,” said David Menlow, president of the independent research firm IPO Financial Network, which specializes in companies going public. “Investors will probably just look at the bottom line that will show a net profit,” he said.

United, the world’s most valuable sports brand according to Forbes magazine, cited a 32 percent increase in sponsorship revenue after striking 10 new deals, including with General Motors Co., Toshiba Medical Systems and Banco Santander SA.

Player Spending

Spending on players dropped to 29.5 million pounds, from

47.1 million pounds a year earlier, United said in an earnings release. The team bought Shinji Kagawa and Nick Powell and made the first of two staged payments for Robin van Persie in the latest quarter.

Reported results were bolstered by one-time fees from nine Olympic games played at United’s Old Trafford stadium, according to the release. Debt fell after United used 68 million pounds of IPO money to retire U.S. dollar debt.

The back-and-forth negotiations between the SEC and the team are typical of the regulator’s reaction to an initial IPO prospectus that is found wanting in alerting investors to the risks of buying new shares.

Facebook Inc. went through a similar set of forced disclosures in its IPO earlier this year, adding new material about the risks of its growing number of mobile customers, among other things.

Several Rounds

“As with every SEC filer, we went through several rounds of SEC comments,” said Phil Townsend, United’s director of communications. “Our interaction with the SEC was very positive, and we look forward to many, many years as a U.S. public company.”

Townsend disputed Drasdo’s criticism about underinvestment for players, saying the owners have been “totally supportive” of the club’s legendary coach Alex Ferguson.

“In the last eight years, the club has never finished below second, has won the league four times and is currently top,” he said.

On the pitch, Manchester’s United’s performance has been a winning one. Post-IPO, United is top of the English F.A. Barclays Premier League 11 games into this season, with nine wins, two losses and no draws, after its defeat of Aston Villa on Nov. 10.

Champions League

In the UEFA Champions League, goals from Robin van Persie, Wayne Rooney and Javier Hernandez in the final 10 minutes on Nov. 7 in Portugal gave David Beckham’s former team a 3-1 win against Braga. United has four wins and no losses in its group.

“They are the masters of reversing adversity toward the end of the game,” said Manchester native Michael Burawoy, a University of California, Berkeley, sociology professor who says he watches every United match no matter which country he’s in. “They were completely outplayed by Braga until they got a lucky break toward the end of the match.”

The SEC was less impressed with the way the team laid out its finances in its initial IPO papers.

After a review, the agency made Glazer show the team hid losses with a one-time tax credit and an 80 million-pound sale of player Cristiano Ronaldo, according to correspondence posted on the SEC website Sept. 7. The SEC forced Manchester United to disclose how Glazer had repaid 10 million pounds borrowed from the club by extracting the same amount from team coffers as a dividend paid to him.

Glazer’s Worth

Glazer, now 84, is worth $3.6 billion according to Forbes, based on his ownership of United and the U.S. National Football League’s Tampa Bay Buccaneers. United fans burned him in effigy outside the team’s Old Trafford stadium when his stake reached 75 percent in May 2005.

Fans complained his debt-financed takeover would hurt the team and force fans to sell United shares. Even after he trimmed debt, United’s 50 million-pound interest bill in the past year equaled capital spending for players, filings show.

The Glazers took $110 million of the team’s IPO money, using the rest to cut debt to 374 million pounds, according to an Oct. 25 filing. Before the IPO, Glazer family members and affiliates earned 16 million pounds in consulting fees from 2009 to 2011, while extracting the 10 million pounds in 2008 at 5.5 percent interest; one son earned 8 3/8 percent by investing in United notes, filings show.

‘Debt Machine’

“Malcolm Glazer and his descendants have turned Manchester United into a heavily leveraged debt machine,” said Burawoy, who started going to Old Trafford with his father when he was seven or eight, he says. “When United’s run of success on the football field comes to an end, as it surely will, then it will become an economic disaster, but you can be sure the Glazers will bail out beforehand.”

Success on the field and sponsorship deals with companies such as Nike Inc. and General Motors could take United to $17, from $12.97 as of the close of trading today, Credit Suisse Group AG analyst Michael Senno said in an Oct. 29 report. He is one of at least five analysts with positive recommendations on the stock, at firms that sold the Glazers’ shares to the public. The stock fell one cent today in trading on the Nasdaq Stock Market.

“On-field performance is the biggest swing factor” for this year’s results, he said in the report.

The possible approaching retirement of Ferguson, 70, United’s manager since 1986, who is credited with much of the team’s success, may increase attention on the Glazers’ spending for players.

Era’s End

“There’s a feeling the team is nearing the end of an era,” said Drasdo, chief executive officer of the fans’ organization. “Anyone who came in would want to bring in his own players.”

That would require investment in players to rival teams in Madrid and Barcelona, he said. “And if United stops performing well enough to keep themselves in the leagues, they would lose commercial revenues. Companies like Nike and GM pay top dollar only for the top performers.”

United’s revenue slipped to 320 million pounds in the year ended June 30, from 331 million pounds a year earlier. Yet the club’s visibility -- 4.2 billion people watched United games on TV when it reached the European Cup finals in the 2010-2011 season -- helped draw Nike as a corporate partner that contributed 33.8 million pounds to United revenue in fiscal


General Motors will pay $70 million or more a season to put Chevrolet on the team’s jerseys starting in 2014, plus smaller amounts before then.

Glazer ‘Lucky’

“Glazer has been quite lucky” in building his wealth from United in recent years, said Andy Green, a U.K. financial analyst who writes a blog on the team, “The costs of the team have been high, but the revenue has been high too.”

Soros Fund Management LLC, with 3.1 million shares costing around $43.4 million at the IPO price of $14, is down about 8 percent or about $3.3 million. Billionaire George Soros’s firm won’t comment on the investment, said spokesman Michael Vachon.

United investors, like Facebook’s, must deal with a so-called overhang as the Glazers’ 147 million remaining United shares start to be eligible for sale about 180 days from the issue of the offering prospectus.

Independent U.K. research firm PrivCo valued United at $4.97 a share, saying in a September report that even winning teams “don’t make winning investments.”

Worldwide Following

Founded in 1878, the team has won 60 trophies and gained 659 million so-called followers worldwide, attracting an average of 49 million viewers for each of its 60 games in the 2010-2011 season, according to its prospectus. United is worth about $2.2 billion, ahead of Real Madrid’s $1.9 billion, according to Forbes.

By comparison, the New York Yankees baseball team, tied with the Dallas Cowboys NFL team as the most valuable U.S. sports franchise, drew about 5 million viewers for Turner Broadcasting System Inc.’s Oct. 14 telecast of its playoff game against the Detroit Tigers, according to

The Yankees’ regional audience on YES Network this year is about 355,000 people a game, the sports network said.

Glazer, who expanded his father’s watch business into shopping malls, saddled United with 649 million pounds in acquisition debt in 2005, when television revenue was declining and the team faltering on the field. He later blamed two years of United losses on interest and swap bills, telling the SEC the business was “thriving.”

Loan Payments

About 200 million pounds of loans were paid in fiscal 2011. After scrapping plans for a $1 billion Singapore Stock Exchange offering, Glazer settled for raising $233.3 million through lead underwriter Jefferies Group Inc., as some Manchester fans boycotted team sponsors.

Malcolm Glazer’s name appeared just twice in a footnote of a May 3 draft IPO prospectus, although the principal shareholder was disclosed as “the Glazer family, who has a proven track record of creating and developing value in sports brands, including the NFL’s Tampa Bay Buccaneers.” The SEC made them take out the reference to the Buccaneers. The selling shareholder offering stock to the public wasn’t named until the SEC demanded it, nor the “six lineal descendants” who controlled affiliates of Red Football LLC, United’s parent company, the regulator’s website shows.

United warned investors, “our principal shareholder will be able to exert control over us and our significant corporate decisions.”

Among SEC questions and demands for disclosure were how many votes the Glazers’ Class B shares, with 10 votes to one for A stock, would have for special board resolutions.

Governance, Control

Glazer’s team was told in a June 15 letter to explain the family’s control of United “so that investors can clearly understand.” United must also reveal names of Glazers who borrowed from the team, how much and if they were officers or directors, it said. Investors must know how Cayman Islands law might prevent a change of control and benefit the Glazers, according to the letter.

In amended filings through Aug. 3, investors were told these things. The Glazers would have almost a 99 percent vote for special resolutions, and minority shareholders would have limited rights to sue them.

Along with sons Avram and Joel, executive co-chairmen, Kevin and Bryan also were directors, along with David Gill, chief executive officer, and Edward Woodward, the executive vice chairman, revised filings said. Two more Glazer children have joined the board.

Multiple Demands

The SEC had to make two or three demands for some disclosures, including on Cayman law and operating losses. Glazer’s team was summed up in the May 3 draft filing as “a worldwide platform to generate significant revenue from multiple sources, including sponsorship, merchandising, product licensing, new media & mobile, broadcasting and match day.” Broadcasting and match revenue were described as growing consistently.

United in fact “would have lost money in two of the last three years but for the extraordinary results due to the sale of a player,” the SEC said on June 15.

When Glazer’s team said it “respectfully submits that the company is thriving,” the SEC said it would have a loss in the latest nine months, too, but for an unusual tax credit. United was told to spell out the effects of all such items high up in the filing, which it did.

Post-IPO, United reported a net loss of 15 million pounds for the June 30 quarter, or 10 pence a share.

Executive Pay

The SEC tried and failed to make the team disclose how much individual top executives and directors were paid, as U.S. law requires, because United is governed by Cayman law. However, the regulator did force disclosure that a lump sum of 4.3 million pounds was buried in fiscal 2011 employee costs totaling about 153 million pounds. Some directors took no salary or bonuses that year, Glazer’s team said in a revised filing.

Revised numbers in United’s 2012 annual report put key management compensation at 7 million pounds, up from 5.3 million in fiscal 2011.

Glazer’s team resisted saying exactly how it would spend its share of the IPO money, until the SEC told it to revise its filing again “to explain why you are conducting this offering,” without a specific need. A July 3 disclosure told investors that United would pay some debt, and how much would remain afterward as a burden on the team.

“The Glazers are driving up revenues -- their commercial deals are good,” said Drasdo, the head of the fan group. “But if the money is not going to the club, it’s no use.”

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