It was business as usual on Wednesday night as Wayne Rooney and Manchester United routed AC Milan to go through the quarter finals of the European Cup. Off the pitch, the sight of thousands of green and gold scarves, including one worn by David Beckham, highlighted a growing movement among the fans and a very much more unusual business. So why are the supporters wearing green and gold instead of the traditional red? Well, the object of their ire is the Glazer family who bought the club five years ago and have since saddled it with a record debt of £716m.
Over recent weeks a group called the Red Knights have met to discuss a proposed take over. They aim to “put the club on a sound financial footing” whilst giving supporters as much control and ownership of the club as is feasibly possible. The Knights include Goldman Sachs chief economist Jim O’Neill; Mark Rawlinson, a partner at law firm Freshfields; and Richard Hytner who is deputy chairman of Saatchi and Saatchi and is president of MUST, the Manchester United Supporters’ Trust. So, are the Glazers willing to sell? The Glazers put in £272m in equity when they bought the club in 2005. To sell, they may want as much as £500m because as businessmen and not football fans the return on investment is more important than the number of league titles. Also, £200m of ultra-expensive debt is secured against their personal shares and this too will need to be paid off. Under these assumptions, even before considering a further £500m in recently issued bonds, cash in the region of £700m could be needed for the buyout. This figure is by no means fixed and a successful bid will lie within a range of values. How will the green and gold movement pan out? Will it force the Glazers into a quick sell of their ‘asset’ on the cheap or will they continue to ignore the personal criticisms on display at Old Trafford each week. The Red Knights have also released a statement saying they are “not willing to pay over the odds” and that “all numbers circulating in the media are purely speculation.” …and how will the money be raised?
Not to be put off, Figure it Out has studied all sources of information and created a simple model to determine the probability of a successful bid. The source of funding has been split into 3 groups: • The Red Knights – the Independent reports that there have been 40 serious expressions of interest from would-be Red Knights each contributing between £10m and £15m each. • Wealthy Individuals – MUST then envisages a further 100 throwing in (as you do) between £1m and £5m each. • Fans – potentially the most challenging of all – a 100,000 fans contributing up to £2,500 each We’ve assigned probability distributions to these uncertain values and used a technique called Monte Carlo simulation* to help us arrive at the answer. For once, we wont go into further details** (its rather like explaining the offside trap) but this technique allows us to quickly calculate the probability of a successful bid. Assuming the bid consortium can come of ¾ of the target groups e.g. 30 Red Knights, 75 Wealthy Individuals and 75,000 Fans (the capacity of Old Trafford), the model gives the Red Knights a 56% chance of a successful bid. This assumes the Glazers would most likely accept a bid in the region of £600m – £800m cash. Please feel free to download the model and have a play with the assumptions yourselves – obviously we’ve kept the model fairly simple for now but if you want to suggest improvements or give your opinion, feel free to comment on the blog below. The input values (and hence the probability of success) will also evolve in the weeks to come – the big question is whether Sir Alex will soon be joined by a few more worthy knights. Notes: * Capgemini are presenting on Monte Carlo methods at the forthcoming Risk Conference in London ** Please see FiO : ‘Nul Points or Natural Selection’ or FiO : ‘Queen Acts on OR Analysis’ for a fuller explanation of Monte Carlo simulation