Correct me if I’m wrong, though — my understanding of ManU’s debt is that they are accumulating additional liabilities at an extremely high rate(14.25% of a £135mloan) that is not necesssarily reflected in current income statements. All that’s required on income statements — at least all that I’m seeing — is current interest due. And with PIKs, that’s not an accurate reflection of liabilities. As stated in the article above:

PIK notes are debt on which lenders are not entitled to get regular interest payments until a company is sold or refinanced. Interest instead rolls up annually, often at exponential rates.

And the fact that they were already paying 14.25% (basically what they could be paying for a credit card) before the liquidity crisis means that credit institutions aren’t necessarily considering them a good financial bet.

Add in the fact that they tried to refinance under more favorable terms last summer but weren’t able to, and I’m thinking there is a lot more going on than is reflected on the financials.

Again, it’s been years since I’ve sat down and analyzed financial statements, so I’m not saying this is accurate. I’m just saying that I’m not sure that what’s on those financial statements is the full picture.

As you can see, after repaying interest on their debt, MUFC made 87 million GBP between June 2006 and June 2007 (page 8). Also, the club’s assets amount to 827 million GBP (page 6, notes 9-12)…

Having 1.32 billion GBP debt IS a lot of debt. But when you have 827 million GBP in assets and 87 million in annual profits (post-interest), it’s less risky.

Sure, the credit crunch can mean a lot of things (for instance, will Man U still be having a 300+ million euro turnover?), but so far the debt level Man U has is not very dangerous. The EPL just signed new media deals, Man U can cash their cheque for winning the champion’s league, and even after cashing out to sell Berbatov it’s hard to imagine Man U needing more money than, say, selling Ronaldo would provide…

Your comparison with the French league is misleading, to say the least… English clubs can only take out loans against existing assets (much like a French club). However, whilst the vast majority of English clubs -have- assets other than their employees/players (stadia, training grounds, sometimes merchandising brands, so forth), almost no French clubs have such assets. The only Ligue 1 club that owns their stadium is Auxerre. A stadium is typically worth several million pounds, more often tens or hundreds for top league stadiums! French clubs can’t loan money because they have very small assets. It’s like looking at someone without a house, and saying it’s strange he can’t get as good a loan as someone with a house (both similarly employed, so forth). The Stade Velodrome, the Parc des Princes, the Stade Gerland… Even the Stade de la Route de Lorient are worth a large amount of money. But they are assets that are owned by the city councils, and not by the clubs. Thus meaning that the clubs can’t use them to broker a loan. French clubs aren’t all in the black all the time (Marseille are a club that regularly rely on their president’s deep pockets, as did PSG under the Canal+ era), but when your total assets are your squad… Well suddenly having a five-ten million loss is a big problem. Not only because it probably means you’re losing assets (bad financial results often go in hand with bad sporting results), and when your total assets are perhaps only fifty million… Well, ten million in losses is 20% of your worth. It’s not at all the same thing when a club like Man U with 870 million in assets (plus players) has a 10 million deficit… In their case it’s less than 2%!

This is the case for Bundesliga clubs with the exception of Leverkusen and Wolfsburg, where there is the special situation that the clubs were founded by companies, and as such the companies were allowed to “own” them, though they aren’t allowed to sell them as a whole.

Jan, interesting point. Chris and I were talking about this earlier today, and he said that’s just what happened in Italy in the 90s — the owners defaulted and the clubs were sold. It looks at least somewhat likely in the case of one or more of the highly-indebted clubs as well. The question is what a club which has been through this kind of restructuring — and which lacks the ability to rack up more debt — will look like. My guess is it won’t look much like the clubs as we know them today.