Why United may have to take on new debt

Building a new stadium is expensive. That is a key factor behind the Glazer family’s decision to sell a 25 per cent stake in Manchester United to Sir Jim Ratcliffe — the British billionaire and founder of petrochemicals giant INEOS — in February after a year-long negotiation.

The cost to rebuild Old Trafford has been estimated at £2billion ($2.5bn) and a task force has been created by the club to discuss, among other things, where that money is going to come from.

More debt being added to the club to fund a new stadium or the redevelopment of Old Trafford is a viable option and one that decision-makers will seriously consider.

It is still a good stadium but it has needed significant investment for two decades and has fallen behind other Premier League venues in terms of modernity. The roof is leaky, the chicken isn’t cooked properly and a club of United’s size and stature should have a state-of-the-art home.

The cost of building a new Old Trafford has been estimated at £2bn — approximately twice the price of redeveloping the existing stadium and an amount that the club accepts will require support from funding partners.

Much has been made of the idea that public money may be used for the plans but it is far from certain that funds would be granted: indeed any government short of money spend on essential services would find it difficult to justify. Even then, they would likely be earmarked for the project’s wider regeneration aspects rather than the stadium itself.

When United released their results for the second quarter of the financial year on Tuesday, their debt was listed as totalling £773.3m, not including money owed in transfer fees.

But late on Wednesday night, a more detailed filing to the US Securities and Exchange Commission revealed that on 28 February, United paid off £120m worth of debt on their revolving credit facility — bringing their total debt down to £653.3m.

Understandably, debt at United is a toxic word due to how the Glazers leveraged money against the club and adding to it is likely to send a shiver down the spine of many United fans. But when debt is used against an infrastructure project, it is often viewed as a different scenario.

The Spurs example

Tottenham Hotspur’s stadium, which cost £1.2billion and opened in April 2019, is considered to be the best venue in the Premier League due to its myriad offerings that make it a year-round venue as opposed to just where Spurs play their home matches.

To fund the rebuild, the club borrowed £637million, taken out in multiple instalments, from Goldman Sachs, Bank of America Merrill Lynch (now Bank of America) and HSBC.

According to Swiss Ramble, a respected football finance analyst, and as per the club’s accounts for the 2021-22 season, more than 90 per cent of their debt was stadium-related. The average interest rate was 2.81 per cent, below recent rates of inflation. It would be higher at the moment as interest rates have gone up.

Spurs generate just under £5million every matchday when gate revenue and money spent by fans is taken into account. The next Premier League side on the list is Arsenal, who earn around £4.2m on a matchday.

In comparison, and according to a URFA report, United generated £3.2m per matchday, despite having a larger capacity than the Emirates and Tottenham Hotspur Stadium.

Borrowing to rebuild a stadium or build a new one is a normal use of a common financial instrument. It is different from using leveraged debt to buy a club.

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The Political Economy of Football V2

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