Better the Red Devil you owe

When the Glazer family took over Manchester United in 2005 the fans were in uproar as the Floridian family loaded the club with debt. The furore from the prawn sandwich brigade subsided as the Glazer's kept their heads down and Fergie led the Red Devils to three league titles in a row. However, what goes around comes around, and the interest on United's PIK loans is accumulating faster than Tiger Wood's mistress count.

Whatever Manchester United does will always generate huge attention and confirmation yesterday of its planned £500m bond has been all over the business and sports pages. In fact, while I think about it, the football community is more au fait with financial lexicon that you might expect. I vividly remember watching the telly when Sheikh Mansour took over Manchester City and thinking that a sovereign wealth fund acquisition was being discussed with alarming lucidity. Arsenal's Andrei Ashavin also displayed his financial savvy last year as he looked to renegotiate his £80,000 a week contract after being "unpleasantly surprised" by the UK's 50p tax rate for top earners.

Anyway, back to the point in hand...despite the blanket press coverage and element of doom saying from the more hysterical football fans, let's not get ahead of ourselves. By no means are United going to fall into the hands of the administrators – after all, the club also confirmed yesterday that it had recorded a pre-tax profit of £48.2m and a turnover of £278.5m for the year ending June 30. The club's success is also highlighted in the Deloitte Football Money League 2009 report, where they were ranked second in revenues, behind only Real Madrid. In fact, the report revealed that "had it not been for depreciation of sterling against the Euro, United would have leapfrogged Real Madrid." Making a profit in this market environment – and in a business as volatile as football – should certainly not be sneered at. Nonetheless, the debt burden is a real albatross round its neck, and the bond issue should go some way to ease the situation as they swap the expensive bank and hedge fund debts with the cheaper debts owed to bondholders.

The notes will be used to refinance the existing debt secured against the club rather than the PIK notes and as the FT reports, allow the club to "use up to 50 per cent of its cashflow to pay a dividend to the Glazer family, enabling them to repay a punitive payment-in-kind loan, which carries interest of 14.25 per cent." Fans bemoaning the lack of transfer activity of late to replace expensive flops such as Dimitar Berbatov could also take some comfort, as "United will also enter into a revolving credit facility to allow it to borrow an additional £75m, to be used for working capital and, probably, to help the club to continue buying players."

The United saga brings an interesting comparison to rivals, Manchester City. City have typically been regarded as United's unfortunate cousin – the pauper to their more illustrious neighbour's prince. However, since the Abu Dhabi Investment Authority's acquisition of the club, they are now armed with more funds than some countries' GDP. They've been spending money like it's going out of fashion and the ensuing battle seems to show parallels with another economic situation: a US-owned debt-laden mammoth versus an asset-rich Emirati pretender...sound familiar?

JS