Man Utd to IPO… in the U.S.

Manchester United, one of the worlds biggest brands and highest valued sport franchises has decided that they will pursue an Initial Public Offering to raise $100 million  in the U.S.  This isn’t probably that strange of a thought, as the team is owned by Americans, the Glazer family to be specific, who also own the Tampa Bay Buccaneers.  However, I can see that many individuals will be quite unhappy in England, as there has already been a lot of backlash against Premier League teams being bought up by foreign investors.  Now with stock being sold on the U.S. stock exchange, I believe that there will be another wave of criticism.

Another question arises in, whether it would be worth the money to buy stock in Manchester United.  Certainly the franchise has a high value, but many football clubs in Europe have been running large debts, and it doesn’t seem like a sure thing that this stock will make quick money for anyone.  As a long-term investment it may make sense.  That said, I already know several people who live in the U.S. who are rather excited, as they love the prospect of being able to own a piece of their favorite club.

The Glazer’s were also hoping to sell of a good chunk of stocks on the Singapore markets as well, however the volatile nature of the Asian markets has caused the $1 billion Singapore IPO to be put on hold for another day.  CNN notes that this comes after Formula One also put a halt to their IPO in Asian markets because of too much uncertainty.

Liverpools threat of breaking away from the Premier League Broadcasting deal.

A few days ago I talked about the landmark case in regards to Premier League broadcasts in Europe, and how there may be important changes coming in regards to how the rights are sold across Europe.

Now the threat is not from decoder cards and external forces, but internal ones.  Liverpool has started to make threats about breaking away from the Premier League’s current overseas broadcasting deal.  Liverpool’s challenge is that the TV rights for Premier League clubs should be sold overseas on a club-by-club basis.  In other words, Liverpool believes they and other clubs should have the right to sell their own broadcasts overseas.  Liverpool’s managing director even came out publicly and stated that this is:

“a debate that has to happen”

The Guardian notes that the current Premier League deal is set up as follows:

Since the Premier League’s foundation in 1992 its success has been largely based on the principle of collective selling, where each club no matter how lowly can expect a fixed share of TV deals with “merit” awards for finishing positions as an add‑on. Changing this model would risk revolt from the smaller clubs who stand to lose most, and thus threatens the league’s very structure.

Liverpool thinks that the super powers of the Premier League, Manchester United, Chelsea, Liverpool, Arsenal (the clubs who are usually at the top of the table) should be getting a bigger share, as they are the ones who are bringing in the large audiences.  Again, these are deals which are worth billions of dollars to the Premier League, but if the money was not split evenly, and were sold on an individual club basis, it would mean an even greater imbalance in club revenues.  And of course, club revenues are a big part of buying talent, and hence being able to perform on the field.  Such a deal would be problematic in my mind, as it would destroy any sense of competitive balance in a league that already has balance issues, especially at the top.  Furthermore, it could mean that the mid-level and low-level clubs would be even poorer, and would not be able to field as attractive a product.

I point to La Liga, where two teams (Barcelona and Real Madrid) dominate the league in regards to revenue, and pretty much dominate on the field as well.  I think the Premier League, for the sake of having a better product, should continue to share revenue, and have the TV rights package deal sold in a single group.

Trouble Brewing in the Arsenal Takeover Bid?

Greetings IJSF blog readers.  Just a bit of background before I start this post.  I am a big supporters of Arsenal, and have been for many years now (maybe it has something to do with Arsene Wenger have a degree in Economics).  Additionally, I also live in Columbia, Missouri which just happens to be the home of Stanley Kroenke, the most recent foreign investor attempting a takeover bid of another top Premier League club in England.

Yesterday news began to sprout around the sport websites that Stanley Kroenke was moving forward in an attempt to takeover Arsenal Football Club.  In moving to buy more shares, Kroenke hit the 62.89% ownership of the club mark, meaning that he now has the controlling stake of the club, and must make a cash offer to all the remaining share holders.  Kroenke’s takeover bid has hit a bit of a snag, as Russian oligarch Alisher Usmanov has refused to sell Kroenke his 27% stake of the club.  Rather, on the SkySports blog they are reporting that Mr. Usmanov tried to make a counter against Kroenke’s takeover, supposedly offering Lady Nina Bracewell-Smith a £13,000 pound per share offer, more than what she had agreed to with Kroenke for her shares.  All of that said, Lady Bracewell-Smith refused the offer, as she already had a full agreement with Mr. Kroenke.

With news of Usmanov’s defiance, the Arsenal Supporters Trust, a group of about 1,800 supporters announced that they would also not be selling the few shares of Arsenal which they held.

What does this all really mean?

In order from Kroenke to fully takeover the club, he needs to hold 90% of the clubs shares, and at that point it would force all the remaining shareholders to sell their stake to Kroenke.  However, with Usmanov sitting on 27% and trying to fight back, it seems that this is not likely to happen.  Usmanov’s hopes of countering Kroenke, and having himself takeover seem an even more unlikely happening, so Arsenal may now be facing a battle of two owners causing headaches for each other.  Kroenke’s offer for the remaining shares would have made Usmanov a nice profit, but from the look of things, it looks like Usmanov may be digging in for the long-run.

This whole episode does bring up two other interesting points.

First, many seem worried about club debts, and the use of Premier League clubs as debt servicing for rich foreign owners, as has been done by Malcolm Glazer and Manchester United.  Kroenke in his bid made sure to note that this takeover was not going to be done by taking out loans, but that he would be making cash offers for the remaining stakes, and that Arsenal would not be saddled with any of the debt.  Still, it seems that many really reject the idea of Kroenke fully taking over Arsenal, and that leads into my second point.  Currently 10 of 20 Premier League clubs are fully owned or have a majority of their stake owned by foreign investors.  Notably all of the “big” clubs have been taken over by foreign investment, with the top 4 teams in the table (Man U, Arsenal, Chelsea & Man City) all being owned by foreigners.  While many will probably not care as long as their team is doing well, there are some who are probably most likely worried about non-UK owners slowly taking over more and more of the most popular league in the world.

Cost of referee decisions at World Cup

For those of you waiting to watch the match between either Germany and Serbia or the U.S. and Slovenia on Tivo or on video because you missed it today, stop reading this post.  Today was quite an exciting day of World Cup matches, and the referees are coming under heavy scrutiny after a number of calls which the press have described as being too harsh or outright wrong.  The first notable call was the sending off of German striker Miroslav Klose, who was given a second yellow card in the first half, leading to an automatic red card and one match suspension.  Germany went on to lose the match to Serbia, meaning that Germany could win their last match and still potentially not qualify for the knockout round (if the other teams also pound on weak Australia and advance on goal differential).  The second notable call, which seems to be the talk of every U.S. media outlet, was the referee’s decision to award a foul in the box against the U.S. a split second before they struck home what would have been the third, and possibly winning, goal in the 85th minute.  The match ended in a draw, and England also went on to tie Algeria, throwing Group C into great confusion.

These calls got me thinking about the cost of being knocked out of the World Cup in the group stages, and the knockout round.  Digging a little deeper, I found that this year’s World Cup prize payouts were 60% higher than in previous years.  Additionally, the prize money paid to teams begins to increase at an increasing rate as teams advance further into the tournament.  Being knocked out in group play nets a national team $8 million and making it to the first round of the knockout stage gets only a $1 million increase.  Looking at Wikipedia the full payouts are

• $9 million – Round of 16
• $18 million – Quarter-finals
• $20 million – Semi-finals
• $24 million – Runners up
• $30 million – Winners

The difference between qualifying for the knockout rounds and playing in the group stage really isn’t that great, especially considering prize money is divided among the entire 23-man squad, and most of the teams in the tournament are stocked with stars who make a lot of money.  However, for a team like the U.S., this difference is quite dramatic as the $1,000,000 difference is equivalent to about $43,000 per player.  For American squad members who play in Major League Soccer (MLS), this is close to their annual salary (and possibly more).  I can understand some American players being quite disgusted with today’s decision; not only may it cost them a chance at advancing further into the tournament, it may have also cost them a good chunk of change.

One other thing I noticed is that clubs are compensated for each day one of their players appears in World Cup competition, including the 15 days leading up to the World Cup.  While most of the American squad play in Europe or Mexico, there are three MLS clubs which are being rather well compensated for having players appear in the World Cup.  The Los Angeles Galaxy have two players in the World Cup (Landon Donovan and Edson Buddle).  If the U.S. is knocked out on the coming Tuesday, each player will have completed 21 days of paid play at the rate of $1,500 a day.  That’s $63,000 for the L.A. Galaxy even if the U.S. national team is knocked out.  Sure this isn’t a huge amount of money, but it is equivalent to selling about 2,100 tickets at their average price ($30).  Just an interesting side note of another way teams in the MLS might profit from the World Cup other than the increased attendance that might come from a World Cup year.  For teams like Manchester United or Real Madrid which have a plethora of stars in the World Cup, they will see a significantly higher payout, but compared to the annual turnover of these clubs, it is probably more like a drop in the bucket.  My best guess is that the J-League in Japan may see the highest payout from the World Cup, as most of Japan’s squad are domestically based, and the league has just barely made a profit for the last several years.

• $9 million – Round of 16
• $18 million – Quarter-finals
• $20 million – Semi-finals
• $24 million – Runners up
• $30 million – Winners

Man Utd Owner in Financial Trouble?

In the build up to the World Cup, soccer (football) news seems to be churning out of the fourth estate every minute.  The news which caught my eye today was this report from the BBC (linked through ESPN’s soccernet) indicating that the Glazer family, owners of Premier League club Manchester United and the National Football League’s (NFL) Tampa Bay Bucs.  The Glazer’s, who have taken quite a beating in England from Man Utd supporters were dealt another publicity nightmare today when it was found by the BBC that the Glazer’s are $1.6 billion in debt.  While it was known that the Glazer’s owed a great deal of money, this new figure is more than half a billion dollars greater than previously estimated figures.

There is indication in the BBC report and ESPN article that the Glazer’s are in trouble, but the Glazer’s have pointed out that Man Utd is worth $1.8 billion in the newest Forbes rankings, and that their total assets total over $2.3 billion.  It is notable that of the $1.6 billion debt, the largest portion of it is one billion dollars which is owed because of the Glazer’s $1.4 billion purchase of Manchester United in 2005 (currently they only owe $95 million on the Tampa Bay Bucs who are valued at $1.09 billion).  The Glazer’s continue to reiterate that they will not be selling Manchester United.  My feelings are that if someone offered enough money, they would possibly entertain an offer to sell the club.  Yet considering the gradual progress they have made in chipping away at the debt on Man Utd and the Tampa Bay Bucs, it is possible that the Glazer’s have bigger long term plans in regards to their professional sport franchises.

Sports Conference within spitting distance of Manchester United

Slightly shameless plug there. The 2011 Mathematics in Sport conference will be held in Salford, Greater Manchester. The venue, the Lowry Centre (think: the artist of Northern English stick people) has excellent views of Old Trafford, home to Manchester United, hence is an excellent venue for a sports conference.

The dates are 23-24 June 2011 for the conference, which is now into its third year, having been held in Groningen, Netherlands in 2009.

Deadline for abstracts will be January 2011, so plenty of time for tentative ideas to be formed ahead of the conference, and this could be an excuse to encourage a Masters student to delve into some investigation of sports-related economics of finance research. A journal special issue is envisaged out of the conference proceedings, so a publication is a realistic possibility.

More details as and when they become available.

This week in the Premiership.

It’s been a very interesting week in the Premiership, with Arsenal and Manchester United both winning big yesterday, the title race has really become exciting at the halfway point of the season.  A little bit of history was also made in the Arsenal match yesterday, as for the first time in Premier League history, no Englishmen were featured in the starting lineup of both squads.  That’s right, Arsenal and Portsmouth featured 22 players, none of whom were English.  I can already see Platini and UEFA waving their hands in complaint.

And the big news of the day from a financial standpoint is that, yet again, Portsmouth is in big financial trouble.  The team was sold earlier this year by Alexandre Gaydamak to Sulaiman Al-Fahim about 5 months ago.  Mr. Al-Fahim kept the club for a total of 42 days before he was bought out by Ali al-Faraj, the clubs current owner.  The club is currently thought to be in a debt of around £75 million and that they need to magically come up with £30 million immediately just to keep the club operational.  The HMRC (Her Majesty’s Revenue and Customs) department, which collects taxes among other things in the UK, issued a petition on Wednesday, as it seems the club still owes the government a few million pounds.  The club expressed their feeling about this petition in a statement which claimed to be “surprised” by these actions.

The club has made a bit of a turnaround though, as earlier in the year their debt was around £100 million, meaning there has been some reduction.  However, there is still need for more cash-flow into the club, and thus Portsmouth have begun actively looking for a third-party to invest in the club, as ESPN’s soccernet is reporting.  To date, no Premiership club has gone into administration since the league was created in 1992.  Leeds United is probably the most famous example of a professional football club in England which was placed under administration in 2007.  Only a few years earlier, the club had been competing in the UEFA Champions League, but overspending on player salaries and transfers sent the club into a spiraling debt, in which they were forced to sell away their best talent, their stadium, and training grounds.  Demoted to the Championship, they voluntarily entered administration and docked 25 points sending them down to League One, the third tier of professional football.  The club is now financially stable, and looking to work its way back up, however the question remains whether Portsmouth will see a similar fate.

On one final note, with UEFA fast demanding that clubs get rid of debt in order to play in Champions League, Chelsea has announced that they are virtually debt free.  The current leaders of the Premier League claim to have cleared the £340 million debt.  Notably, the debt was almost entirely loans made to the club by current owner Abramovich, who had complained earlier this year to UEFA President Platini about how ridiculous that costs for player transfers were becoming.  It is thus, Chelsea have converted all the outstanding amount of the loans into equity, and are now supposedly compliant with the new UEFA mandates which are set to be imposed on teams in European competitions in 2012.  I don’t find it the least bit surprising that the man who was complaining about costs has done this, so Platini can now claim that if Chelsea has become compliant, so can the other teams in Europe.

I wonder how much this week will change things in European football.  Chelsea becomes compliant, a Premier League game has no Englishmen start in it for the first time in history, and another club falls deeper into danger of administration.  Platini has already made the case to the European Union that sport should be considered a special case when considering the current EU labor laws, and should be able to ignore them in order to preserve financial fair play.  Platini is also one of the advocates for limiting the number of foreign players on a clubs roster, and has claimed he would not fight the EU over this matter.  Of course if Platini can gain sport “special status” in Europe, maybe he’ll be able to make the case for limiting the number of foreign players on a club as being inherent to his crusade of creating “fair play” in Europe.

The Plight of Liverpool FC

Last night saw Liverpool, who recently lost their claim to be England’s most successful side in history when Manchester United equalled their 18 league championships, struggle to a 2-2 draw at home with lowly Birmingham. They have now won just one of their last nine matches – that one win, ironically, against Manchester United.

The pressure is firmly on manager (coach) Rafa Benitez after such a poor run. The club is suffering a massive injury crisis with many of their top players, including the two players widely regarded as indispensable for the team, Steven Gerrard and Fernando Torres. The club is also suffering from raised expectations, after they ran Man Utd very close last season for the Premiership title, the closest the club has been to winning the championship for almost 20 years.

Perhaps the most telling thing though is that the lack of squad depth at Liverpool is being revealed by the absence of these two top players. Man Utd and Chelsea have bigger squads more capable of withstanding absences of their star players, but Liverpool don’t. And it shows. They are mid-table in the Premiership, as after 12 games they have won only one more game than they have lost. They are, barring a miracle, out of Europe’s showpiece tournament, the Champions League, and all the riches that provides.

When Leeds United suffered a similar run of poor form that led to their European elimination, the impact was drastic: The money dried up, their debts became unpayable, the club insolvent, and was relegated twice, a fate from which they are yet to recover. It would be madness to suggest the same thing might happen to Liverpool, but serious questions are being asked about their place in England’s prestigious “top four”, and rightly so.

Perhaps this is a good example of the effectiveness potentially of limiting squad sizes for European teams, instead of the illogical Platini proposal to cap salaries mentioned in the last blog post by Brad. I’d be interested in any research that has been done to investigate the effect of squad size on soccer outcomes.

Watching the Clock

Sunday saw the first Manchester Derby of the new season, since Manchester City spent millions and millions (see Brad’s last post about red ink in Madrid) in an attempt to topple Manchester United from their position at the top of English football.

Manchester United squeaked a win, 4-3, with the last kick of the match. Which wouldn’t have caused Mark Hughes, the Manchester City manager, too much discomfort, had it come in regulation time. Unlike in North America where the clock counts down to zero signalling the end of a game, in European soccer, the referee has sole control over when the game ends. Nowadays the referee must disclose at the end of 90 minutes how much “injury time” he will add, time lost for injuries and other disruptions during the 90 minutes.

At the end of 90 minutes, the referee signalled four minutes of injury time to be added, but Michael Owen hit Manchester United’s winner after six minutes of injury time had been played. Arguably, the game would have ended a draw had it been played with a countdown clock, and understandably Manchester City are furious.

But the referee still has discretion, and can add more time if there are stoppages in injury time (although this never usually happens and time wasting is very effective in injury time). I don’t know of any studies that have looked into injury time in England, before or after the length of time had to be stated at 90 minutes. There is a great study by Luis Garicano, Ignacio Palacios-Huerta and Canice Prendergast which finds for the Spanish La Liga, referees do systematically favour home teams to satisfy crowds by adding more minutes of injury time at the end of matches.

Manchester United’s stadium has over 70,000 supporters, which is a lot of fans to satisfy, and so it would not be surprising to think that a referee might be swayed by this. Fine, I think Mark Hughes might say, but to add six when you say four? It does seem a little unfair to me…

Limiting Foreigners in Sports Leagues

The blog Economic Logic has a post on some new research from sports leagues on the prevalence of foreign players. It’s based on new research from Markus Lang, Alexander Rathke and Marco Runkel on the potential benefits of restricting foreign players in leagues.

The suggestion is that leagues with foreigner restrictions are more balanced competitively, domestic player wages are higher and club profits rise too. I can certainly believe much of this, and in the case of the English Premier League, some of it sounds desirable – Man United’s dominance in recent years means I lose interest.

But would such a restriction really be enough? My micro theory isn’t my strongest suit, but it seems that the model in the paper doesn’t allow for outside injections of cash into clubs, such as Roman Abramovich’s money at Chelsea, or the Abu Dhabi United Group and Manchester City. Such developments will likely always, when the talent pool isn’t fixed by roster size (something referred to in the paper), lead to competitive imbalance as the teams with outside injections can buy up the best of the available player talent, domestic or foreign, and dominate a league.

I personally am not in favour of restricting foreign players, particularly in the Premiership, as I believe it will do little to help develop domestic players (all economists know about the virtues of protectionism), and I don’t think it will help create a more balanced contest because of other issues such as the absence of squad size limits.