Manchester United: Too Big to Fail?

What do AIG and Manchester United have in common? Besides a shirt sponsorship, investors consider them equally risky investments.

Manchester United, controlled by the Glazer family, successfully sold 500m of bonds on January 22, £250m of which were denominated in sterling and $425m in dollars. The sale was part of an ongoing effort to refinance and give the owners the flexibility to pay down existing debts held by the family and the club. In order to entice buyers Manchester United agreed to a yield of 9.125 per cent on the sterling notes and 8.75 per cent on the dollar notes.

Recently, investment grade rated (if that actually means anything) AIG bonds maturing in 2018 traded at yields between 8.75 and 8.875 per cent, or similar in pricing to the new issue ManU debt. Just as a rough comparison, the pricing/yield suggests that investors consider the two companies to be equally risky investment prospects, which should be eye-opening given the recent history of the AIG franchise. The AIG debt has a Moody’s rating of A3 and S&P rating of A-, both of which are in the second lowest investment grade tier of their respective rating systems, which would suggest that ManU has a similar or lower credit rating. A lower rating is the more likely possibility as the ManU paper pays a higher rate of interest, paying 8.75 compared to the 5.85 of the AIG notes; investors demand more of the value of a bond paid in interest from riskier borrowers.

Of course it can be said that it is apples to oranges, one company being an insurance giant and the other a football club. And it is true that comparing debt pricing between the two is only a snapshot look at a small part of each institution. However it is still a piece of the puzzle and it provides clues as to how people view the business side of the club and consequently, the football world.

It should be a serious wake up call to the football community that Manchester United, arguably the most commercially viable club in the world, can only issue bonds at prices slightly better than those of companies with credit rated as junk.

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Manchester United: Too Big to Fail?

6 thoughts on “Manchester United: Too Big to Fail?

  1. ad says:

    i was just thinking about and typed it into google and found your piece.
    i was thinking more along the lines of the clubs relationship with the government, in this case the FA. do you think there are similarities to the way the banking crisis was handled and the way the league might be structured.
    the commentator said during a game united have had no red cards or penalties against in the entire 12/13 season. they put it down to discipline but maybe the FA has some interest in maintaining the clubs that are too big too fail.
    With sir alex about to retire the fortune and influence they ve accumulated over the last 20 years will surely make their price drop but the FA will have a decision to make if they want to continue to pull massive global profits from the money they bring to the league.
    your thoughts? the football they re playing is horrible at the moment but they won the league!

    1. I certainly believe that the FA has an interest in seeing the bigger clubs succeed, particularly with respect to pushing England’s status/position in UEFA. However, I don’t believe that objective is reflected on the pitch through things such as biased officiating or other anything else that would bring into question league fairness. I think it is more likely to crop up in long-term decisions about how to structure the league financially and commercially.

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