Richard Scudamore Esq.
The F.A. Premier League
11 Connaught Place
London W2 2ET
OPEN LETTER
25 July 2005
Dear Mr Scudamore
This letter is being sent to you by the coalition of fans’ groups and fanzines, acting under the ‘Not For Sale’ banner, who are opposed to the takeover and ownership of Manchester United plc (MUplc) by Malcolm Glazer,. We represent well over 50,000 United fans who are either members of the respective groups or subscribers/readers of the fanzines.
The members of all these fans groups are committed to the long-term objectives of an independently-owned United, with the supporters playing a significant part in that ownership structure. You may have read that Shareholders United was in discussions with the previous board of MUplc before Glazer launched his takeover, as a result of which United may have been the first Premier League (PL) club to have endorsed and supported a supporters’ trust which held a collective share stake on behalf of fans. Glazer’s moves and subsequent offer periods ended those discussions and we don’t expect a similar discussion with the new owners. But we are organised and we are more determined than ever to achieve our objectives, even if it takes us longer to achieve them.
We believe that the huge majority of United fans are either totally opposed to Glazer’s takeover, or are deeply suspicious of him because of the mountain of debt he is taking on to buy our club, which he is expecting fans to pay down for him, and because he has failed to make any meaningful communication of his plans and motives behind the takeover. Talk to almost any United fan and you will hear of a feeling of deep loss and pain that a profitable, debt–free, well-run club has been taken over by a person who will saddle it with the largest amount of debt ever assumed by a football club, on the basis of a business plan which (until now) remains a mystery, but which few believe can succeed. Glazer’s track record suggests a love of profit, not a love of United or football.
It has been reported that your recent meeting with the Glazer sons left you satisfied that the collective TV deal is safe with the new owners of United. This may have been what you were hoping to hear, but have you examined the record of the Glazer family when it comes to promises and undertakings? The most prominent parallel example is their undertaking to pay half the cost of the new Raymond James Stadium at the time of their acquisition of the Tampa Bay Buccaneers in 1995. Once they had completed their takeover, they reneged on the undertaking and threatened to move the Buccaneers franchise to another city unless Tampa City paid the whole cost. The city caved in and the citizens of Tampa are still paying for the $400 million new stadium, which is wholly owned by the Glazers, through their local taxes.
The Glazers’ track record in business consistently shows decisions and actions taken solely for the Glazers’ own benefit, without taking into account any third party interests that do not coincide with their own. Verbal assurances and warm words are not the test of their intentions – it is their actions which speak loudest. They do not like being told ‘No’ and we have already seen the hostile way in which they removed three directors from the MUplc Board back in November 2004 when that Board had thwarted their ‘aggressive’ offer. They also resort to law at the drop of a hat when it suits them.
Despite the ‘assurances’ you and others have been given about the Glazer intentions towards United and English football, there are still major concerns that this takeover has serious implications not only for United but for football in general and the PL in particular. We are writing to you about two issues relevant to the PL:
• TV and media rights
• ‘fit & proper person’ test
This letter is also being copied to the Chairmen of all other 19 PL clubs for their information, as the outcome of Glazer’s ownership of MU and the projected events of the next three or so years are very relevant to those clubs.
For your information, we enclose a copy of our analysis of Glazer’s financing, which was prepared from information obtained from the Glazer takeover documents on show at the offices of Allen & Overy, on the basis of which our financial experts have drawn their conclusions.
TV & media rights
You will no doubt have read with interest the Times front page story of 10 June, which contained details of a leaked business plan alleged to be that of Malcolm Glazer. We have every reason to believe that leak was accurate and came from Glazer’s advisers. We know from his financing agreements with the 3 hedge funds which were on display that Glazer is projecting EBITDA for MU of £57.1m in y/e 2006 and £89.1m in y/e 2007, because these agreements state that if Glazer does not achieve at least 85% of these numbers in both years, the funds can appoint 25% of each of the boards of Red Joint Venture, Red Football Ltd and MU . The Times piece confirms those numbers and a good source has also confirmed that the projected EBITDA figure for the following year ending 31 July 2008 is £107.7m.
It is worth putting these numbers in sequence:
Glazer’s target EBITDA
FY/End
EBITDA
31.07.2005
2006 2007
2008
EBITDA (*SU forecast 2005)
48.2*
57.1
89.1
107.7
This represents a near-doubling of cash operating profit over the two years 2006-8, from which base Glazer is confidently forecasting a de-leveraging of the company within 5 years. No respected financial commentator believes that this can be achieved on the basis of the revenue numbers contained in Glazer’s leaked plan. Our own analysis, using the aggressive ticket price, commercial revenue and other projected increases (e.g 10% uplift in the new collective TV deal from 2007/8) mentioned in the leaked plan, shows MU failing to hit those ambitious targets (see SU Financial Analysis enclosed):
SU max. projections for EBITDA based on Glazer’s numbers
FY/End
EBITDA
31.07.2005
2006 2007
2008
EBITDA (*forecast 2005)
48.2*
60.2 81.9 97.5
Many commentators doubt that these revenues can be increased so aggressively in what is already a well-run business whose revenues are under pressure now. So how does he bridge the gap between reality and his over-optimistic targets? Where are the additional revenues coming from, revenues that others more involved and more experienced in the business of football are failing to recognise?
The accepted view is that the only way in which he can make up his numbers is by substantial increases in TV & media revenues. There are three principal ways this can be achieved, starting with the most likely:
1. Redistribution of revenues within the collective deal
2. Diversification of media rights market – greater scope for clubs to own and negotiate their own rights in ancillary areas such as mobile telephony, internet and internationally
3. Break-up of the current collective deal, with clubs controlling their own rights
In the first scenario, we can see from your Observer piece of 19 June and from your recent statements that you are looking to tie up distribution deals for the PL with broadcasters in Asia (and America?). United is the ideal club to act as spearhead for this, given its global brand and popularity. Glazer will go along with this as long as (i) there is a renegotiation of the revenue split to reflect United’s global reach (Chelsea, Arsenal and Liverpool will also want to benefit too) and (ii) he can make enough from the revenue redistribution to fund his debt service and repayment requirements.
As you yourself have said that the consent of 14 or more of the PL clubs is required for this. But if either of the scenarios (i) and (ii) above fail to materialise for him, all Glazer has to do is threaten a breakaway and the other clubs will fall into line, reasoning that while the top clubs get more, at least their income would not be materially reduced. Glazer has made similar threats before (e.g. the Bucs stadium financing) and forced concessions. Anyway, the big clubs can all point to their combined exposure on the Sky package as being worth far more than the % allocated to them which depends on appearances. They will argue that they are ‘propping up’ the other, less glamorous, rich and successful clubs and that they are frankly worth bigger shares.
A deal along these lines would prevent a breakaway and maintain the collective (just), but at the expense of the clubs who are not in the top 3 or 5 (at a stretch). And increasing the income of the big clubs will risk turning the PL into even more of a predictable procession which will ultimately kill off the tension in competition that sells a sport. This is already happening to an extent with the top 3 becoming richer than the rest – further movement in that direction will have serious deleterious effects on all. Ironically, to maintain real competition, movement should be in the opposite direction, to become more like the NFL in terms of e.g. salary caps and revenue sharing. It is difficult to see that happening here. Coming from the highly regulated NFL, Glazer must be rubbing his hands in glee at the lack of effective self-regulation or independent oversight of the PL and football in the UK. As someone said, it’s like an outlaw coming into a wild west town where there is no sheriff.
The second scenario presents another avenue for keeping the collective UK deal intact by giving all clubs the right to own and negotiate their rights to sell/screen matches via mobile clips, internet clips and even to the screening of some (or all) of their live games outside the UK on the platform of their own choice. 3G and internet markets have not yet taken off and do not look like doing so for some time, so Glazer cannot bank on this to happen within the 3-year profit timetable he has been set. And even if you allow clubs their own rights in these areas, you will inevitably reduce the attraction to broadcasters like BSkyB who will not risk the value of a 3-year deal being eroded by the clubs themselves selling into these areas at a competitive price when those markets take off. This erosion would be reflected in the price paid by the next winner(s) of the collective deal and again, the smaller clubs would lose out.
Giving clubs the rights to sell their games to non-UK TV broadcasters would clearly not be the PL’s preference, and you are even now trying to sign up deals through the PL collective, but for the same reasons as in the first scenario, you may not be able to prevent this happening. If the Commission comes out against you, can the PL can lock up exclusive deals with broadcasters in every country? Global broadcasters like BSkyB can offer the big clubs multiple millions of screens worldwide for each game and this represents a potential golden egg for Glazer.
The third scenario undoubtedly offers the most financially attractive option for Glazer, and despite his assurances, he may have no option but to try and achieve it if he cannot make his business plan work through existing or renegotiated distribution arrangements. In conjunction with a long-mooted European Super League, United would be able to make the most of its global appeal and try to cash in on the dangerously over-exploited European TV market, sharing in the larger revenue pool that a league of the top 15 or so European clubs could generate (at least initially). But it is also the most difficult to achieve, despite the EC’s known desire to see the spread of competition among broadcasters for the rights to screen an ever-increasing number of games (with consequent dangers of over-saturation).
You have affirmed that since at least 14 of the 20 PL clubs need to agree to change the current distribution of the TV revenues, the current arrangements are ‘safe’. But the PL itself was a breakaway in response to pressure from the top clubs for a bigger slice of the cake – how can it be guaranteed that this will not happen again, if enough people can be persuaded that they will benefit (or at least not lose out too much)? And how would the Commission react to a club owner like Glazer claiming that the fact he is forced to sell ‘his’ rights through a collective arrangement is a restraint of trade, an anti-competitive cartel? Glazer himself is forecasting a 10% uplift on the current deal when the new one is negotiated – at a time when the consensus is that the current deal may have represented a peak for UK football TV rights. Where is the additional revenue coming from? More packages for more live matches is not the answer - the market must be close to saturation.
It is difficult to construct a scenario which gives the top clubs a larger share of the TV & media income, within the collective deal or outside it, in a way which does not potentially reduce income for the rest and/or seriously decrease competition in the PL. But the pressure will be there, and those clubs which have significant debts at the time of the negotiation of the next TV deal will be absolutely in the firing line. The risk to the PL and to top-class English football are there for all to see – but there does not seem to be the will or the urgency to address this by way of anyone even asking Glazer how he is going to bridge the gap between reality and his business plan. Legally-binding undertakings need to be sought, even though it is highly unlikely that Glazer would agree to anything which limits his own room for manoeuvre and his ability to pay down his enormous acquisition debt.
‘Fit & proper persons’
Somewhat late in the day, the PL has introduced a ‘fit & proper person’ test for incoming directors of PL clubs. The FA has a similar test as well. But in our view these are completely inadequate – they ask directors to self-certify that they are not bankrupt, criminal or otherwise unfit to be in charge of a football club. There is no independent investigation or enquiry into fitness, which is astonishing given the problems which have bedevilled football clubs in the recent (and not so recent) past. This test smacks of the minimum reaction to a regulatory loophole which the PL and the FA have been forced to adopt but which will not seriously inconvenience the major stakeholders in either organisation - the clubs themselves. Nor does the test extend to new owners of a club, which can of course do as much (if not more) damage to a club than a Board of Directors.
So we have a family like the Glazers who can buy a club like United, using an inordinate and dangerous amount of debt, right at the moment when almost everyone recognises that debt and football clubs do not mix. There is no power or scope for regulatory investigation, at Government or league level. Unlike in the NFL or the French League, for example, no-one has the right to ask Glazer what his business plan says and to extract binding undertakings if it is felt that the new owner could threaten to undermine the sport by, for example, loading it with debt or treating it purely as a business asset. At least the NFL showed how it should be done, using its powers by asking Glazer to account to the owners as regards the potential impact his debt-driven takeover of United could have on the Bucs and the NFL itself. The powers and sanctions in the NFL actually have bite, even though it is self-regulated.
We do not know whether the three Glazer sons appointed to the United Board have been asked to complete the PL and FA self-certification test yet. We assume they must have been and would respectfully request confirmation of this fact. It would be interesting to know whether the test elicits or demands to know the sort of information about Avram which has circulated in the US and UK press for some time now. We refer you to the article in Business Week of March 2004 (attached as Annex 1), which is instructive about Glazer/Avram’s business practices in the US. There have been several SEC investigations into Zapata Corp., of which Avram is CEO.
Avram is the man who was reportedly described by the owner of a dotcom business acquired by zap.com, the Glazer internet company run by Avram, as "an idiot – and I am not the sort of person who uses the word idiot lightly". This person, Marisa Bowe, was also quoted as saying that Avram’s ambitions to become an internet mogul were hampered by an "almost surreal incompetence".
And Avram is the man who is described in some of the leaked pieces from the Glazer camp as having a significant input into the financial structure of the Glazer bid.
It is not too late for the PL and the FA to wake up and institute much stricter new owner/director tests, starting with the Glazers. You assert in your Observer article that "the links between a club and its local community should remain strong". We see no evidence of that in the actions and decisions of the PL, the FA and many boards of directors of PL clubs, who seem intent on chasing (or have no option but to chase) higher and higher revenues from their customers, the fans, thereby driving more and more away from the game. Glazer is just the latest and potentially worst example.
And we are already hearing the rumbling of the herd that always follows a deal like this – private equity firms, owners of sports franchises in the US who are starting to look beyond their shores to the value of global sports brands. These people may have no love for Glazer, but they will surely want to be part of the reach and success of the global game, if only to profit from it or promote their own brands on the back of it.
The heritage of English football cannot be handed over so spinelessly to debt-laden, profit-driven new owners who have no links to, or interest in, the communities in which the clubs are based.
Conclusion
"I’m sure that the Glazers would not want to harm United, they are smart business people who want the team to be successful, so let’s wait and see what happens". A common reaction from ‘neutrals’ and those with vested interests in the commercial side of the sport. Well, many fans of Manchester United FC will not wait to be priced out of going to games, to see their club taken away from them, its heart & soul ripped out, by people who have no understanding of what the sport of football is all about, let alone the heritage and traditions of Manchester United itself. We will continue our campaign to ensure that Glazer’s ownership of United is as short as possible.
Until there is proper independent regulation of English football, until there are some effective curbs on the over-commercialisation of the sport, and until the supporters of football clubs are given the right to own a stake in their club, it will be up to us, the fans, to protect the heritage of the game, and maintain the community links, which generations of fans have helped build make the game what it is.
We think the Premier League and the FA have a major problem, about which little appears to be being done. English football is sleepwalking to disaster.
Yours sincerely
Nick Towle (SU)
Mark Longden (IMUSA)
J-P O’Neill (Red Issue)
Barney Chilton (Red News)
Andy Mitten (United We Stand)
cc Brian Barwick FA
and the Chairmen of all other 19 Premier League clubs