Man United Refinancing Offers Valuable Lessons for All of Us

Alex Parsons Alex Parsons | Secured Loan Expert

More than ten years after the Glazer family purchased Premier League football club Manchester United, fans are still not happy with the ownership's inability to eliminate the club's debt. Even more agonising to the fans is the fact that team debt has gone up some 18% since the June EU referendum. Some are openly wondering whether the organisation will ever be debt-free again.

Manchester United took on debt of roughly £275 million, which was then refinanced in 2010 and combined with personal debt the Glazer family took on to purchase the team. The total refinancing package increased the team's debt load to roughly £660 million. While they have paid down quite a bit of it, they still owe some £338 million.

There are valuable lessons to be learned from Manchester United's financial problems. Anyone thinking of refinancing their property should pay attention to what has happened here. Refinancing is not a bad thing, but it needs to be done wisely.

What Happened to Manchester United

A lot of things worked together to create the current situation with Manchester United. However, the biggest problem has been the crash of sterling since the Brexit vote. Granted, there's nothing the Glazer's or Manchester United could have done to stem currency losses. But they could have financed their debt with UK assets rather than US assets.

They now find themselves having to repay a debt in US dollars with UK revenues generated in sterling. Disparities in exchange rates have suddenly made that US debt more expensive because sterling isn't worth as much.

What's the lesson to be learned here? No one can predict future economic movement. Therefore, every precaution should be taken to guard against the most extreme circumstances in case something does happen. For the homeowner looking at a refinancing package, a lot of thought should go into how the debt would be repaid if something were to go wrong. That homeowner could lose a job, a family member could become seriously ill, or an economic collapse could result in seriously high inflation.

Manchester United Not Hedged

The second problem Manchester United has run into is the fact that the Glazer family did not adequately hedge its investment. In other words, investors typically diversify their funds so that investments with greater risk are offset by those with proportionally less risk. The Glazer family apparently didn't do that. That is why refinancing was necessary in 2010.

Now they are faced with a higher debt load due to the currency crash and lower revenues generated by the team itself. The Glazers will either have to find ways to generate more revenue by way of the team or make up the shortfall via some of their other investments.

Again, it is a very valuable lesson here. When a homeowner takes advantage of refinancing, it's often to release equity in the property or to get a better interest rate and more affordable payments. In either case, refinancing is risky if the property owner has no means of backup in case something should happen.

Before the property owner decides to refinance, he or she has to take a serious look at his/her budget to see if it's really affordable. What are all the sources of income? Are there any savings in reserve? What kinds of assets can be used to settle the debt if income streams dry up?

As previously mentioned, refinancing itself is not necessarily a bad thing. It only becomes bad when it's done without proper forethought and planning. Hopefully, Manchester United's example will motivate property owners to be more careful about refinancing.


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