In the first of our series of articles that acknowledge and embrace positive change when it comes to considering value creation for business and its stakeholders, and as a Red at heart, we start with a topical look at Manchester United and what we – and perhaps its owners – can learn from recent events.
Written by: Matt Fleetwood
Football fan or not, Red, Blue or indifferent, the fortunes of MUFC are significant to many and to some, they are so in their own right. The club is immensely important to vast numbers of people for various different reasons across our region, nationally and worldwide, as businesses are for their employees and the wider communities and the individuals that rely upon them for their well-being.
We think it also matters because a number of the considerations at play when considering stakeholder value in the context of a football club matter more widely in considering the fortunes of businesses large and small. Whilst the positive trend was there pre-Covid, some of these considerations have come into focus in a more meaningful way during the last 12 months since Covid. Now, perhaps more than ever, it’s not just about financial performance and shareholder returns. Stakeholder and community interests mean something. Whatever your personal views, the rules of the game are changing.
A brief history – Ferguson, the Glazers, and a horse
For Manchester United, discontent around Glazer ownership and the debt burden on the club have been well documented in the media. The root of the current situation lies in the early noughties, when movements began leading to the ultimate takeover of the club by the Glazer family.
The full saga behind this is beyond the scope of this article – and isn’t its purpose – but bears recapping.
In the early noughties, the Irish businessmen and racing horse magnates, John Magnier and JP McManus, were major shareholders of United, owning 28.7% of the club through their investment vehicle, Cubic Expression. The club’s then manager, Sir Alex Ferguson, had been close friends with the pair, and Magnier allegedly gifted 50% ownership of the horse Rock of Gibraltar to Ferguson. Rock of Gibraltar went on to have a prolific racing career, as a result of which the potential stud rights associated with the horse grew to a reported £10m per year. Sir Alex sued Magnier for 50% of these fees, and this action led to retaliation from Magnier, who initiated a formal examination of the conduct of the United board, with specific reference to allegedly untoward dealings on the part of Sir Alex.
It was this investigation which led to the BBC documentary Fergie and Son and which in turn resulted in Sir Alex refusing to be interviewed by the national broadcaster for seven years.
Meanwhile, the United board had sought outside investment to reduce the influence which might otherwise be brought on the club by Magnier and McManus. From an outsider looking in, and considering the business opportunity, the Glazers (who had already a small stake in the club) perhaps saw an opportunity to leverage the unrest within the shareholder base and the division between Magnier and Ferguson; they increased their shareholding by increments, taking their holding to over the 75% threshold by the middle of May 2005. This included acquiring the stakes of the two Irishmen. By the end of the following month, the Glazer family were able to exercise legal rights to force a squeezing out of remaining the shareholders, and acquire entire ownership of the club.
The next chapter: fewer wins on the pitch, more debt on the balance sheet
Although success continued in the years immediately following the Glazer acquisition (four Premierships and a Champions League in six seasons), the last eight or so years since the retirement of Sir Alex saw a steady decline in the dominance of the club on the pitch, in parallel with astronomical increases in the debt burden borne by the club.
Between 1990 and 2005, (with the exception of one year), the balance sheet of the club bore debt of less than £10m in any given year. In 2020, debt level stood at £526m. Context is relevant: football is also a business (perhaps it needs to be in order to fulfil its wider purpose for its community stakeholders and media stakeholders?) and revenues have also increased markedly during this period. The global financial playground within which Manchester United now operates is radically different to that of the mid-2000s era. Nonetheless, unrest with a perceived lack of investment, coupled with unhappiness at the significant levels of debt in the club, have contributed to well-documented and ongoing fan unrest about the direction of travel of the club, highlighted by the recent postponement of the game with perhaps its largest community rivals, Liverpool, as a result of a fan protest before the game. Although this protest came in the wake of the abandoned plan of United and 11 other self-selected clubs to form a European Super League, we think the reality was ultimately the action was aimed at the issue of the Glazers’ debt leverage, its effect on the club, and the impact for a wider group of stakeholders. And this is not something new – protests about the potential Glazer takeover and the way it was to be financed had taken place back in 2003; the alternative FC United had been founded in 2005, and the Green and Gold campaign that took hold in 2010 came at a time of great footballing success.
Does it even matter?
Forums, fanzines, chat rooms and the media have spent a lot of time debating the fortunes of the club on the pitch, and its place within the world’s elite clubs from a financial perspective.
We have been looking at the situation from a slightly different perspective.
There is a school of thought in business circles that the enterprise value of a business should be assessed based on a number of criteria extending beyond shareholder value. In broad terms, this means considering who the stakeholders of a business are, and its importance in a holistic and societal way to contributing to the wellbeing of a wider body of parties than the shareholders alone.
We think this is an interesting shift in dynamic which is permeating businesses of all sizes and shapes, in our region and nationally. It has also gained some momentum as an outlook through the course of the last 12 months, during which time perspectives on community and the value of social interaction have perhaps manifested as never before.
It’s an interesting question when looking at parallels with Manchester United – to whom do the Glazers owe their responsibility, and to whom should they be addressing their attention? The answer is a wider body of people than merely the shareholders of the club. Notwithstanding the globalisation of football, and the commoditisation of big clubs as businesses, the stakeholders of a football club are – obviously – not merely its shareholders but its employees, and its fans. As with many businesses, social media criticism and direct action by protesting fans can have a direct and real impact on the reputation and financial performance of a club such as United. The pressure brought to bear on the board or owners of a business in these circumstances is significant. And underlying this, the question persists:
What is the point of Manchester United?
There isn’t a simple answer to this, but to a large extent its responsibility remains to its fans, who are still the lifeblood underpinning the revenues, which in turn support the large debt burden. In this context, as with any other business, communication with stakeholders is a key consideration. Social media interaction is a two-way channel, where a business suffering adverse publicity needs to be seen to respond and listen to consumer sentiment, and to act quickly in dealing with it. In the same way that a traditional manufacturer of consumer products can suffer rapid decline in revenues arising from an ill-placed comment or business initiative, football is essentially a consumer business relying on reputation and those consumers who support the brand. If the consumers – the fans – of Manchester United turn against the club, this could trigger a rapid decline in its sporting and business fortunes and ultimately an unravelling of shareholder value in the club.
Does this reduce the whole analysis to one of implementing an effective communication strategy?
No.
What’s important for the Glazers (both a responsibility, and for their own good as the owners of the business), is running an effective and profitable business, leveraged appropriately, delivering quality “product” on the pitch, but crucially – and this has been the disconnect in recent years – managing an effective communication of the club’s strategies with its consumers and fan base. What’s difficult for the Glazers, and what may mark out football clubs as a different type of business to any other, is reconciling their ownership of the club as a financial asset with what the fans see as their ownership of the spirit of the club.
Ultimately, the pressures being brought to bear on the Glazers are nothing new, but we can only see these intensifying with an increased awareness of the obligations of businesses to their stakeholders, as the world returns to a new perspective post-Covid.
What’s the point of Manchester United? To deliver a sense of wellbeing, ownership and community, as much as a return on investment. Perhaps we are saying nothing new here, but it’s a movement which, for the benefit of all of us, should only get collectively stronger.
