A LITTLE knowledge may be a dangerous thing, but it can also be quite
The furore among Manchester United fans this week over the takeover by the
American tycoon Malcolm Glazer reminded me of something I encountered when I
first attempted to get to grips with Third World debt. It’s what happens when
lay people encounter for the first time practices that are taken for granted in
the City, and subject them to a new kind of ethical scrutiny.
Fifteen years ago, when I was researching a book,
Bad Samaritans: First World ethics and Third World debt, I asked
financial experts a series of naïve questions about how the international
banking system operated. It was a blundering process, but it worked.
What emerged was that many of the basic precautions that your bank manager
would take before lending you the money to buy a car were thrown out of the
window in the 1970s stampede to lend money to poor nations. As my questioning
went on — Was that sensible? Is that fair? Is that ethical? — some experts
became increasingly uncomfortable.
Man United fans have undergone a similar experience this week. They have
looked at the procedures of company law and the conventions of takeover rules,
and scratched their heads at the fairness of a system that allows someone to
borrow money to buy their club, and then, when he owns enough shares to de-list
it from the Stock Exchange, transfer that debt to the club.
So Man United, previously owing nothing, is to be saddled with £540 million
of debt — an astronomical figure when you consider its average profits in
recent times have been £27 million a year. To pay the interest on that loan,
the club will have to find between £16 million and £46 million (depending which
newspaper you read). The latter figure would mean £126,027 in interest payments
To repay this, Mr Glazer has produced, insiders say, a very aggressive
business plan, with rather optimistic assumptions about the club’s ability to
generate the increased profits to repay the debt. Fans are incensed because
they know this will mean higher ticket prices, as the club’s season tickets are
currently cheaper than those of many other clubs.
But they also fear that Mr Glazer’s plans will not work.
What they have learned is that these kinds of goings-on are standard
practice in the business world, even if Mr Glazer is at the more “exotic” end
of the market in the costly New York hedge-fund devices he has employed to
raise his loans.
Such calculated business gambles sometimes work, and sometimes don’t. If a
widget factory closes after such a deal, it can be a tragedy for the employees.
But the rest of the business community shrugs, and says that that’s the
destructive creativity of capitalism. A shrewder widget manufacturer will be
along in a minute. But Manchester United, say the fans, is a public company.
There’s a huge, if understandable, misconception at the heart of that
thinking. For, legally, the loyalty of a public company is only to its
shareholders. But the word public, to many fans, conjures up notions of wider
society and expectations about the common good.
It’s a fond delusion. The hard truth is that if the club’s supporters wanted
that, they should have combined to raise the money to buy Man United while they
had the chance. They could have turned it into a trust or a sporting club like
Real Madrid, which is owned by its members. They should have been as wise as
serpents; instead, they were as innocent as fans.
Paul Vallely is associate editor of The Independent.