With Charlie Green hot to trot on a Rangers share flotation, it’s a good time to look at Friday’s Manchester United flotation and to see whether any parallels can be drawn with the Ibrox situation.
Both have operated under the ‘Prune Juice Economy’ as described by Lord Sugar. He explained that you shovel the money in at one end and it comes sizzling straight-out the other end as never-ending record payments are made to players and their agents to quell the spectre of financial collapse which awaits relegation should on-pitch performance falter.
You might instinctively think it’s an unfair comparison with Manchester United situated near the pinnacle of UK Football with a 660 million global fan base and Rangers sitting as low as it gets in the SFL. But I think there are possibly lessons to be learnt.
Manchester United Supporters Trust (MUST) opposed the flotation and on Friday called for: “A worldwide boycott of Manchester United sponsors’ products, with support across the UK, Europe, Asia and the US.
“The boycott strategy is intended to send a loud and clear message to the Glazer family and club sponsors that, without the support and purchasing power of the fans, the global strength of the Manchester United brand doesn’t actually exist.”
Sponsors include: Aon, DHL, Hublot, Smirnoff and Nike with General Motors Chevrolet recently completing a £422million shirt deal for the 2014-15 season.
In the pre-internet social-networking universe I doubt if the Sponsors would have even heard about the boycott let alone given it a moment’s thought. But as we have recently seen in Scotland, football supporters can mobilise, campaign and actually exert real influence over clubs, associations and league structures.
I have no doubt that their ‘Sporting Integrity’ clarion call propelled Rangers into the depths despite desperate SFA and SPL attempts to prevent it. In turn, Rangers fans are plotting revenge on the vast majority of SPL clubs when the Great Day dawns that they can desert their current SFL ‘friends’ without a backward glance.
They intend to boycott away-games with SPL clubs which voted against them to starve them of revenue just as a portion of the Rangers support are currently trying to starve their latest ‘Saviour’ Charles Green out of Ibrox by calling on fans not to buy season tickets. Interestingly there is also an effort underway to cancel Sky subscriptions as a punishment for various perceived offences. No doubt Bears will have awarded themselves an exemption for pub viewing of games at home and away.
However, back to Manchester United. Advisors originally recommended a $16-$20 price launch but this was cut to $14 (£9) on Friday, valuing Manchester United at £1.5 billion. With 10% of the club (16.6 million shares) up for grabs trading was slow on the New York Stock Exchange and one trader attributed early gains to small retail investors buying a token share. He added: “Clearly, investors who are actually looking for a return as well as a shareholder voting right are steering clear.” By close of play the share price had fallen back to its starting price of $14 and its performance over the next few weeks will be the deciding factor whether more shares are sold.
Voting rights were a major reasons behind the MUST boycott because a successful New York floatation would result in investors owning 42% of the available shares but which only carried 1.3% of the voting rights. This comes from a two-class voting structure with the family retaining almost total control through B shares with 10 times the voting power of those sold publicly which also have no dividend payable.
There was also anger over original promises from the Glazer family owners that all the money raised from the share sale would go to reducing Manchester United debt which soared to £423 million after they bought the club for £800 million in 2005 with mainly borrowed money. It now appears that the flotation may raise £150 million with half going to reduce club debt and the other £75 million to the owners.
Manchester United is undoubtedly creaking financially, despite increased sponsorship income but with season ticket prices beyond the reach of ordinary fans and £500 million hoovered out of the club since 2005 to service debt interest as well as administrative costs and fees paid to the Glazer family. A run of poor yearly results in Europe could potentially create financial problems for the club.
I pointed out in an earlier post that only Celtic and Arsenal still have shares quoted on the Stock Exchange and if Charles Green takes Rangers to an AIM Flotation that would make three clubs although most of the Arsenal shares are held by a few wealthy individuals so aren’t really publicly traded. If you have the time or interest a more detailed explanation of the flight of of over 20 UK football clubs from raising capital through share sales can be found here.
In a nutshell, share flotations are no longer the flavour of the month and, as described above by Lord Sugar, in his not so sweet analogy, football is ruled by the ‘prune juice economy’.
Despite the billions ploughed into English Football the shareholders over 20 years got literally no dividends and share prices slumped for a variety of reasons. A football club investment fund launched in 2007 effectively ‘died’ five years later with initial investors having lost over 40% of their cash and that’s without taking inflation into account.
Geoff Walters, of the Birkbeck Sport Business Centre, part of the University of London, recently said: Being on the stock market is fundamentally incompatible with being a football club.
So what’s in it for Rangers supporters investing in their club’s new share offer? Well fans always have a hope for control of the club and also making money through dividend payments on the shares as well as an increase of value in the actual shares if the team performs well in the inextricably linked playing side and the financial one.
Previous experience tends to suggest that the control issue is a non-starter as major investors have an obvious financial interest in exercising control over their investment. A club share offer could even see 90% of shares going to supporters and they still wouldn’t have any control over directors because their shares are either non-voting or have restricted rights.
They are unlikely to pay any dividend and it could be argued in a debt-free Rangers scenario that the shares would increase in value if a successful flotation is achieved. I wouldn’t disagree with that although I think it will be a huge ‘ASK’ for a variety of reasons. But the ’emotional’ factor comes into play with football supporters because they didn’t buy the shares for profit but because they love their club.
So the share value might soar but the support won’t sell and then as we should all remember that what goes up usually comes back down. There are a large number of reasons both internal and external to Rangers that could affect the club’s share price. And there are also unresolved issues about the original major investors who apparently have a deal whereby they can double their original shareholding at an advantageous price. I have yet to see whether their shares will have voting rights and dividend payments but I would expect they will have.
Those in charge of any company can, by following procedures, issue unlimited amounts of shares and also make loans to other companies. That is why trust is so important and also IMHO ‘control’ through shares with voting rights. I would never buy a share that didn’t have voting rights and and quite simply anyone that does is a MUG.
Michael Jarman, chief equity strategist at H2O Markets, an ex-professional footballer and Man U. fan, said of Friday’s offer: “Investors are not idiots and there is simply no value in the company. The Glazers want to have their cake and eat it – the share structure shows they want to retain complete and utter control” and added that investors are better off buying shares in Tesco.
Posted by Ecojon