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The Athletic: Why Man Utd's profit must not drop below £65m
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Great start a thread with a pay wall article
Can anyone summarise what is in the article?
There's a free version of it somewhere. Read it last week.
I think that article insinuated that we have a covenant (like a condition on a loan repayment with Bank of America) that states our rolling 12 month EBITDA (earning before interest/tax/depreciation/amortization) should not be less 65m. It's a common thing with bank debt, so they know the borrower is in financial strength
This is reviewed quarterly, and the same article said that the issue is our merchandise/match-day revenue is down, and the deadweight we wanted to shift account for 20m of wages per year. So it's causing a problem in our ambitions for the transfer market.
I discussed this with a friend of mine, he said although plausible it's also worth considering a lot of banks are waiving some covenants in this environment or at least showing leniancy. So I'm unsure why BofA wouldn't do the same with a club like ours.
Our debt covenants prevent our 12 month rolling profits from falling below that figure. Anything below that, and administrators could come in.
It is obvious that we do not have the financial means as Ed likes to brag about. 2nd, the Corona crisis also hit the Glazers, so they want to have a nice dividend for sure.
This is the reason why we don't want to pay in this transfer markets. Coupled with an idiotic board and management, it just shows what an amateur club we are
This is the reason why we don't want to pay in this transfer markets. Coupled with an idiotic board and management, it just shows what an amateur club we are
Is that a bad thing in terms of relieving the Glazers of ownership of the club?
So this is what Luckhurst meant by suggesting that we wanted any Sancho fee to come out of next quarter rather than this..?
The bank will, in almost all certainty waive the covenant. Our bank waived the covenant around 18 quarters in a row. They just sent us a warning. Especially in this environment. I’m sure there have already been high level talks. I suspect this is a nothing article, just raising more speculation on an easy target.
It’s EIBTDA though which makes it confusing for people like me. Last season that was 175m apparently so I’m not convinced it’s as big an issue as it appears to be.
not unless you want club assets to potentially fall into the hands of debt collectors. Also as someone above stated it's something that can be waived with some simple assurances or a common understanding eg the coronavirus affecting profits rather than financial mismanagement
Sounds about right.
We are run as a business, City and Chelsea, Wolves and Everton, Leicester and suchlike are run as trainsets. Look at the relative level of clubs owners wealths - the Glazers are PAUPERS compared with the owners of quite a few 'lesser' teams. People want to be angry about us not signing players and that's understandable, but in the current climate, any club with owners that don't want to lose lots and lots of money - i.e. ours - will simply not be able to see past the 110million loss of revenue from matchday over a year.
Add to that a large number of players taking home HUGE wages, in a time where other clubs simply won't take them off our hands and you can see why the numbers simply equate to 'no more business.'. The absolute best thing that can come of any of this is thag the Glazers start seeing our club as a risk at last and decide to sell up to a richer owner that isn't as interested in the bottom line as they are in winning. But they don't tend to be very nice people at that level.
Given that "EBITDA" means "earnings before interest, taxes, depreciation and amortization*, it'll be saying that the bank loans for the Glazer debt will have a condition that the EBITDA can't fall below £65m. If they do, the bank can call in the loan.
It's common in company lending.
Maybe, but I am unsure on his article.
For me it would explain our perceived silence and delay in launching an offer even though it seems so simple to do so.
Its a bad thing yes. We could end up like Rangers and need to reform under a new name. FC United of Manchester is already taken too.
so we are waiting till next month to pay is what your thinking?
For them it is.
Possibly. But there is a difference between a bank waiving not acting on a covenant due to current external circumstances and then seeing us go out and spend 108 million on Sancho.
That seemed to be what Luckhurst indicated I think.. That if the deal was to be done. then it'd be 'official' between 1st and 5th October. Unless I completely mis-understood it
We've had this type of article already in the Sancho thread. Basically got debunked as being not an issue.
We'd not struggle for new owners like Rangers, so very very unlikely. If a bank took control of the club, it'd sell at a profit to clear the debts, but nothing like the 3 billion plus, the current incumbents would seek. There could be issues with the Premier League, but throwing United out would be like killing the golden goose.
Should not be a problem, banks are smart enough to know short-term liquidity issues arising from a black swan event should not stop long-term capital deployment by the business.
I wouldn't worry about this anyway, there's no way we'd be in danger of falling below that - if we were there'd be a fire sale and there's no way we'd be haggling over a couple of million for Smalling.
It's just another red herring from the club to try to divert attention from them being useless, or to try to pretend in public that we're skint (as if that will have any impact on what other clubs look to charge us for their players).
It's just another red herring from the club to try to divert attention from them being useless, or to try to pretend in public that we're skint (as if that will have any impact on what other clubs look to charge us for their players).
It's an interesting idea but I think it would be emotionally jarring for many to see the club fold and reform under a new name. We'd still be subject to the ownership lottery then too. There's no guarantee that we'd get better owners than the Glazers.
I'm not sure about that. With such a big transfer I would have thought our bank would be willing to waive it or renegotiate some terms, especially during Covid.
This has shades of a more advanced version of the 'no value in the market' excuse for me.
This has shades of a more advanced version of the 'no value in the market' excuse for me.
Can someone who actually knows please just answer this one question:
Does it actually mean ‘Profits’?
I mean surely United don’t have to make a £65m profit every year? Surely we don’t post a profit in excess of £65m every year? How would we ever buy anyone if that was the case?
Transfers don’t affect Profit and Loss anyway do they? Although they are accounted for as player costs, which include wages, on an annual basis.
In any event due to Corona that £65m is well fecked.
Surely someone is getting confused somewhere? Anyone who genuinely knows what’s going on?
Does it actually mean ‘Profits’?
I mean surely United don’t have to make a £65m profit every year? Surely we don’t post a profit in excess of £65m every year? How would we ever buy anyone if that was the case?
Transfers don’t affect Profit and Loss anyway do they? Although they are accounted for as player costs, which include wages, on an annual basis.
In any event due to Corona that £65m is well fecked.
Surely someone is getting confused somewhere? Anyone who genuinely knows what’s going on?
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I don't think that makes sense unfortunately. Player acquisition costs must be featuring as capex and not affect EBITDA (except agent fee and player bonus). To the extent player wages are an issue, that will be a problem for next quarter also as it's not like we are expecting sudden revenues next quarter either.
Plus even if we were to break the covenant we could probably take loan from another institution to pay back BoAF or negotiate with them as clearly the issue is beyond our control.
Exactly this, IMO too.
Just think about it. The actual outstanding debt isn't even that huge, relative to the club's worth.
Correct and since it’s EBITDA the subsequent depreciation/amortization wouldn’t have an impact.
How on earth did the PL pass them as fit and proper owners. Plunging the world’s most profitable football club into debt. It’s madness.
Jesus the latest sequel to Crank sounds absolutely terrible, despite the haircut Woodward isn’t a patch on Statham.
It's EBITDA, so the net income before taxes, interests, amortizations and depreciations.
Yeah same, I can’t see how a company the size of ours could be that tied to financial dates particularly as you said where we could just temporarily fund the monies from other sources to balance these so called financial deadlines/ date clauses.
The club always brief excuses when we face failures in the transfer market. Covid is the perfect excuse so it'll be rammed down our throats.
Usually a lot of our fans will belief the briefs because they're comforting lies. Not sure they'll get that usual level of unwavering support this time.
Usually a lot of our fans will belief the briefs because they're comforting lies. Not sure they'll get that usual level of unwavering support this time.
I don't think the test was in place back then.
It's bad.
The only reason I think the article paints a bleaker picture than reality is that if we were worried, the club would have taken severe cost saving measures like other clubs did. It could be we already have an understanding with our creditors.
Yeah I know what it says I just don’t know what any of that is and I suspect most people commenting don’t either.
Just seen an interesting post on Twitter stating United’s EBITDA over the last ten years:
EBITDA
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Debt for a profitable business is not a dirty word though. Most large businesses will be in debt to manage their working capital and maximise their potential to invest in assets to achieve a return. I would be surprised if other large football clubs have no debt, and if they don't, I would expect them to have a sugar daddy.
