Arsenal News from Untold Arsenal » Liverpool, WHU, Man U, Arsenal. Who will survive the debt repayments?

Knowing what a football club is doing financially is tough.  When Mr Usmanov put forward his refinancing plan recently he got one set of top bankers to draw up an analysis of the club’s situation and needs.  Those against the plan got another set of top bankers to show why we didn’t need the money.  The two reports were utterly different.

Which explains why “bank” is a four letter word.

But still, a mere lack of detail has never stopped me pontificating before, so here we go with a comparison of the just a few clubs that owe debts to which have to be repaid (as opposed to the KGB in Chelsea, Manchester Arab, Notts County, QPR and Portsmouth, whose debts don’t have a repayment date.)

The last set of Arsenal figures (interim figures from last February) showed match day income up, TV revenue up, and a big jump in pre-tax profits (to £24.5m for the half year).

Even Highbury Square hasn’t turned into the disaster that the daily papers want it to be.  Arsenal owe £135 million to be repaid in about 7 months and Arsenal opened talks with the four-letter-words to extend the loan. As far as I know that is all in place.  The flats will sell, and indeed are selling, and only three people are reported to have walked away from their deposits.  But the recession means they are selling more slowly than expected.

The stadium is secured on a mortgage which is being repaid month by month.  As matters stand Arsenal are considerably better off with the Ems than they were at Highbury – by which I mean that even after they have paid all their interest due on the Ems there is still more in the kitty, because of the higher earning capacity of the stadium.  Break-even is said to be achieved with an average crowd of 50,000 and Champs League group stages once every four years – so there is quite a a lot of leeway.

CHANCE OF ESCAPE: nothing to escape from.  Club totally sound.

Not so good over in the Invasion Zone, where the Icelanders have been trotting round the whore houses (well Standard, Lombard North Central, Bank of Scotland, Straumur and Glitnir) trying to borrow more and more.

They pay £4m a year in interest alone – and the banks want their money back, as the club has broken its agreements on reducing the wage bill.  The four-letter-word mob demand £3.5m paid back by the end of this season, and then (and this is the killer) £28 repayment over the next three years – plus of course all the interest on the loan in the first place.

Just to show you what sort of planet WHU’s chief exec lives on, this was his commentary in 2008 on WHU finances…  “Much credit rightly goes to Mr Gudmundsson for his work to provide the solid foundations that we have today.”

CHANCE OF ESCAPE: nil.  They are totally and utterly screwed.

Liverpool we know took the money that should have been used for the new stadium, and gave it to the two owners.  The owners have now pledged some of their own money in a desperate attempt to keep the money-lenders off their backs.   But the Four Letter Word merchants at RBS are demanding the repayment of the £350m loan (plus interest) at a rate of £65m a year, which perhaps explains why Mr Ben E Tez is not spending £20m a year plus the money from players sold each year.

For survival the club is totally dependent upon someone coming in and buying up the club and removing the debts.  A good youth strategy could save them, but their  youth system is going through a period of decline, having reached its height 2 years ago, and experience shows that it takes four or five years at least to build a new youth empire.

So just when Liverpool need some bright sparky youngsters to whom the management can say Kalm Down Kalm Down Kalm Down they ain’t got none.

Chance of escape (ie finding a new buyer) 20%.  Would you buy it?

As for Manchester United, why was so little of the £80m for Ronaldo spent on players?  Sir Alex F Word said that it was because the players are not there who are worthy of a shirt.

But it is not quite that simple.  Football accounts are not easy to read, but some are easier than others.  Arsenal describes itself as being in the business of football and property development, and from that it is possible to see what is going on in the separate companies for the two wings of Arsenal.

But Manchester United has companies like I have a collection of Arsenal programmes – companies which go from the tax haven of Nevada to those registered in Companies House.

The best estimate is that Man IOU has £699m debt.  But… ponder this.  The Glazer family removed £525m to buy the club.  And before that moment the club had no debt.  But the amount of interest paid since then is £263m.  So from this we deduce the club has made around £90m profit – and the effect of that is that it has reduced the debt from £789m down to a mere £699m.

All that profit – just gone in to taking off the tip of the iceberg.

And to explain further, the debt rises each year because the hedge fund debt at 14.25% interest a year, is not being paid – it just accumulates more debt each year.

Now the story at the Man U end is that there is of course no crisis – how could there be when they have won the league three times?  The answer is, “there was nothing to worry about at Leeds when they got to the Champs semi-final”.  Except financial meltdown.   In the end, the ability to borrow money runs out, and the pyramid scheme which is Manchester United falls over.

Man U have to start paying the four letter word spivs back in two years, and they have no mechanism for doing this.  Their squad is ageing and there is no amazing set of youngsters of the Beckham type ready to sort them out.  Will they manage to keep going?  Yes, but probably in a very different form from now.

Chance of survival: 50% – but not challenging for the league.

(c) Tony Attwood 2009