Manchester United could seek funding for their new stadium from one of the private equity behemoths who are betting billions on the football industry, football finance expert Kieran Maguire tells United in Focus .
Private equity is a touchy subject in football, sport and macroeconomics. It’s a model which is dominated by American money, leveraged buyouts and – its critics argue – stripping out the soul of the institutions it acquires in its pursuit of profit.
Sound familiar?
There are, however, several fundamental differences between the Glazer family’s approach to running Manchester United and what private equity is attempting in football.
Man Utd’s new stadium plans, what we know right now
Set to be complete by 2030/31 season
Expected cost around £2 billion
Old Trafford set to be demolished
Expected to create 92,000 new jobs, 17,000 new homes and drive 1.8 million visitors annually
Capacity of 100,000 with steepest stands allowable in UK (35 degree angle)
Munich clock and other iconic club landmarks set to be included in new design
Manchester United v Luton Town - Premier League
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The Glazers’ approach has been extractive. They have taken hundreds of millions of pounds out of the club in dividends, management fees and directors’ payments, while simultaneously pocketing around £1.5bn from the club’s public listing in New York and Sir Jim Ratcliffe’s part-takeover.
It’s an extractive model. And while the dividend well has run dry after years of losses, the Glazers appear content to let Ratcliffe manage the asset and await a £6bn-plus payout when they do finally exit.
But they aren’t in a hurry and, in contrast to private equity, the six Glazer siblings don’t have thousands of limited partners to appease. Private equity firms buy companies with debt, optimise costs and then flip the assets for a profit within a defined exit window.
The names of some of these firms – Carlyle, Ares, Apollo, Elliott and Oaktree – will be familiar to readers who followed the Man United takeover saga closely.
Manchester United badge against backdrop of dollar bills
Photo Illustration by Budrul Chukrut/SOPA Images/LightRocket via Getty Images
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Most wanted to insert themselves into the deal via providing capital for prospective buyers rather than taking a stake in the club itself. But as well as buying shares in league TV rights, player agencies and transfer credit lines, PE firms are also investing directly in clubs.
Chelsea, Atletico Madrid and the two Milan clubs are some of the biggest names whose majority shareholders are PE companies. In total, 12 Premier League clubs have an equity link to the PE world.
And now, with Manchester United’s plans to replace an Old Trafford in desperate need of TLC with a shiny new 100,000-seater stadium encountering funding issues, private equity could provide a controversial solution.
‘Debt’ is a scary word, but it needn’t be.
Borrowing money is a bet on the future success of a company. In football, it builds infrastructure, finances squad rebuilds and provides security when – due to the inherent seasonality of season ticket sales and prize money pay-outs – cash flow is tight.
The problem with United’s debt, however, is that they have next to nothing to show for it. And the £1bn-plus the Red Devils owe could be extraordinarily prohibitive as Ratcliffe’s plans to build a new stadium which could cost two or three times that amount evolve.
Neither Ratcliffe nor the Glazers have the free cash to finance their jaw-droppingly ambitious stadium plans. Even if they did, they wouldn’t put it up. Billionaires don’t get rich by spending their own money, and it is virtually unheard of for a £2-3bn capital expenditure project to not be majority-funded by debt.
Manchester United Announce Plans to Build New World Class Stadium
Photo by Ash Donelon/Manchester United via Getty Images
£315m of United’s debt is due for repayment in June 2027, but the club will almost certainly renegotiate with the lenders, after which interest costs will increase due to stubbornly high global rates and, potentially, United’s increased risk profile.
The club also has the Premier League’s second highest net transfer debt, after Chelsea. Even though most of that is due for repayment within the year, it seems likely that they will continue to fund transfers in this manner given the club’s cash flow situation.
The latest accounts also showed that United had just over £100m remaining capacity on their revolving credit facility, which acts as their overdraft. That pot, however, is reserved for day-to-day spending, not capital expenditure projects which, in any case, would be orders of magnitude more expensive.
Public money will be used too, but not for the stadium itself. Any taxpayer money given to the Old Trafford Regeneration Mayoral Development Corporation will be ringfenced for infrastructure surrounding the ground.
It is inevitable, therefore, that if and when the stadium is built, United’s total debt and annual interest payments will soar, especially given the cost of acquiring land needed for the project (United’s neighbours Freightliner want £400m for a plot that the Stretford End currently overlooks), as well as flourishes such as the canopy and towers proposed in Foster + Partners’ mock-ups.
Whether Foster + Partners’ striking vision of the stadium is realised at all is in doubt, but inviting a third party to invest in Old Trafford 2.0 could lessen the debt burden significantly, whatever the building itself looks like.
Should United scale back their ambitions for their new stadium?
100k seats, huge canopy and three towers would come at eye-watering cost for club already £1bn in debt
Manchester United Announce Plans to Build New World Class Stadium
Photo by Ash Donelon/Manchester United via Getty Images
The Sun is the latest outlet to report that United have considered creating a new, separate business to house the stadium in which third parties could potentially invest. In this model, a company or individual could buy shares in the stadium but not the club itself.
So how might this work in practice? And what profile of investor would Ratcliffe and the Glazers court? Private equity is the most likely route, says University of Liverpool football finance lecturer Kieran Maguire in exclusive conversation with United in Focus.
“The third-party investor would take a direct share not just of gate receipts but also every other way the stadium is monetised. That might be other sports, concerts, conferences, hotels on site and so on.
“You can certainly see why that would be attractive. The one thing investors like least is uncertainty. The problem with a football club is that, because the Champions League is now so incredibly lucrative, if you fail to qualify, that has an impact on your core revenues from year to year. But if you’re just invested in the stadium side of things, your revenue is more predictable. If you look at United’s wages plus amortisation, it is quite scary. As a third party, you can avoid the football side of things and focus on the stadium as a separate entity.
“In terms of the profile of investor they’d be looking at, private equity would be interested, as would hedge funds. They can work out the guaranteed financial receipts. If it’s as lucrative and successful as United hope it can be, these private equity companies would be looking at an exit even before the deal is signed. United can show how much revenue they anticipate, give the details of how much they expect the yield to be and so on.
Aerial View of Old Trafford
Photo by John Peters/Manchester United via Getty Images
“United have increased ticket prices by up to five per cent at Old Trafford. You can expect that to accelerate at a new stadium. Ineos don’t care about football; they are interested in a vanity exercise for their owner, Sir Jim Ratcliffe, and the eventual financial return.
“We have seen just how successful multi-function stadiums have been in the United States. When you couple that with the Manchester United brand, you can see why it would be attractive to private equity.”
PE involvement at United might ring alarm bells among a fanbase who bear the scars of the Glazers’ leveraged buyout and are justifiably suspicious of byzantine financial deals and the relentless commodification of their club.
Private equity involvement could help solve the funding problem, but it is another layer of complexity that United fans already grappling with the emotional weight of leaving their spiritual home won’t get a vote on.
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