Manchester United Takeover - Case Study Example

Manchester United Take Over An integrated case study Ranjit B here) Decision Analysis and Risk Dawn Anderson 10th Jan 2006 Manchester United take over Is Malcolm Glazer's take-over of the sporting institution that is Manchester United a venture to enhance the US tycoon's own personal wealth or, elevate the brand name of the already flourishing franchisee With soccer's continuing status as the world's largest spectator sport, enjoying a high percentage of TV coverage and viewership, sold out match attendances and cross continental merchandizing, the high revenues these sources generate presents a lucrative business opportunity. This paper discusses the motivating factors behind billionaire Malcolm Glazer's take over of Manchester United. What are the benefits of owning a club like Manchester United Man United is more than just the world's wealthiest football club. It is a reputable brand with a worldwide following and like all famous brands has proven brand persistence, a key factor in determining its investment worthiness. Acquiring the Man United brand means more than just owning a trademark. Brand acquisition gives an opportunity for brand exploitation. And nowhere is brand exploitation more rampant and unrestrained than in the United States. As a hunting ground to further the Man United brand image, the US holds vast potential, and this is where Glazer's extensive marketing skills and resources come into play. But the US market is very competitive. Soccer has to contest with traditional American sporting pastimes like baseball, American Football and basketball. Soccer's rising popularity though, over the past ten years due in part to the 1994 World Cup held in the states could make Man United a household name as is the case in other countries around the globe. Even in Asia where Man United has a huge base of fans who neither speak English nor know where Britain is, brand image has rooted itself in the public mindset. Contrary to popular perceptions, Man United already has a fan following in the US, albeit a small one. When they played the Champion World Tour of exhibition games two years in a row the average crowd attendance was over 65,000 for each game, exceeding that of some NFL games. Americans know about the club through soccer telecasts and the products available on the streets. Merchandising had also made business there but in a small way, yet better than all the US Major Soccer Leagues put together (Chris Isidore). With more co-coordinated marketing efforts in the media (cable and DTH), wider coverage of soccer games, increased media exposure to star players and a retelling of past glories and successes, the Man United brand can further cement itself into the American collective conscience, reaching iconic status in a few short years. The mere purchase of the club puts the Glazers half way towards making Man United a household name. But there is still some way to go. There are other advantages in associating with a brand as well known as Man United. It gives Glazer's other businesses better commercial prospects. When a brand publicly joins forces with a marketing juggernaut, the value of both, in terms of market exposure and business opportunities multiplies. For Glazer whose diverse business portfolio at least in the US include food service equipment, packaging and supplies, marine protein, broadcasting, health care, real estate, banking, natural gas and oil protection, Internet publications, stocks, government securities and corporate bonds, the introduction and expansion of these businesses in Britain as a result of this acquisition gains importance (Bill Hutchison). Glazer's ventures may unhesitatingly attract investment in the hopes that the new businesses will pay rich dividends in the future. But these ventures may suffer if Man United's brand persistence is challenged by rivals. Sustaining the brand position therefore requires the football team to maintain a high success rate. The business side of the club must take a back seat to allow team management to do their work. As Sundar Bharadwaj puts it, "The impact of branding on firm performance outweighs both the impact of the competitive environment and resource allocation." Running the club's business and improving team performance are two sides of the same coin. Man United reached iconic status by their sheer mastery of the game controlled by a determined management led by Sir Alec Ferguson. His numerous trophies over the past 10 years illustrate his successes with the team. Such a history is difficult to ignore and is the main reason for United's brand longevity. There are other aspects of brand durability. Often, brands are like nominees for the presidential post. The more the brand speaks to the crowd, with promises of quality and performance, the greater public trust it gains. But unlike voting in a president, there is little to be gained in supporting a brand like Man United. At the heart, it's just empty worship. There is no logic in supporting a brand unless you work for it. If reason and logic are not involved, then that leaves just one human component - emotion. Brand support connects at a deep emotional level, partly due to loyalty but mostly to do with being associated with something iconic. This is true in many areas of life. A job seeker may not feel as satisfied working in a low brand valued company for a high salary than working for lower pay in a high brand valued company. It is prestigious to be associated with a symbolic entity. Man United fans are aware of this. The detractors are probably the ones with the strongest emotional connection to the club and it may be tough for them to sever this link. Brand loyalty will continue. Years of emotional relationship has built trust and kept the fans close (Power Branding). This had been Man United's main selling point and one Glazer recognized early on over many years of investing in the club. From the age of fifteen when Malcolm Glazer took over his father's watch business and invested in various enterprises along his route to billionaire status, the tycoon has looked at every opportunity to increase his business influence and dominance. Back in 1995 his purchase of the struggling NFL team the Tampa Bay Buccaneers for $192 million was considered a bad investment, but he did much to turnaround the club's fortunes. The down and out club had many areas of improvement which Glazer immediately identified. Introducing various changes like bringing in a new coaching team, changing the color of the Bucc's outfit from orange to an eye-pleasing red and the constructing a football stadium changed the way fans looked at the Buccaneers. The new coaching unit inspired by Glazer's mission statement to make the Buccaneers rise to the top of the NFL, gave the team a fresh impetus. Despite a few setbacks, an association with a successful coach propelled the Buccaneers to Super Bowl glory in 2003. In a span of a few years the once underrated team rose to become 7th most valuable NFL team in the US, a feat no previous team owner had achieved. With success such as this, Glazer had convinced himself that he was the ideal man to launch a campaign to acquire the premier sporting franchisee of them all. Since 2003 Glazer's shares in Man United had increased from 28% to 57% when he bought out joint majority shareholders J.P. McManus and John Magnier, Irish racehorse owners (USA Today). This encouraged other shareholders to sell their company shares enabling Glazer's investments in the club to touch 75% and finally reach the figure of 95% which all things considered made him Man United's new head. Next, by withdrawing the club from the stock exchange, his position as the sole owner was sealed. Taking control away from shareholders disposed of the shareholder meetings and allowed Glazer a free hand in heading Man United's strategic management plans. Decisions need no longer be taken by the consensus of many, a time consuming process, rather by a select few at the executive level. An analysis of the club's current position enabled formulating new agendas and policies to fulfill the club's financial and strategic objectives which his executive team comprising of his sons and former members of upper management focused on. Glazer's role was to provide overall direction, guidance and integrate corporate policy into a cohesive unit. The gates opened to financial freedom to invest freely in areas of the club that were identified as potential money spinners or in matters of improvement. So far some of the main revenue earners have been subjected to new policies. The extent of Glazer's business participation as Man United's owner might extend beyond just controlling the club. The Trafford area where the team is located would gain tremendous benefits. When Glazer purchased the Buccaneers, he did more for the Tampa Bay area than just acquire a football team. The Glazer Family Foundation contributed at least $2.5 million in grants and merchandise to bringing education and welfare towards the area (Glazer Family Foundation). This grant program donated substantially to 13 organizations, from delivering books to homeless children, supplying backpack to organizations involved in back-to-school programs, distributing teddy bears to hospitals, creating aquatic clubs to teach swimming and water safety to underprivileged youngsters, providing health care for the sick and homeless children, presenting clothes to children whose parents are HIV positive, the purchase of computers for certain schools and providing equipment for arts programs to keep children off drugs. Based on his past philanthropic activities it is safe to assume that he might contribute to the development of the Trafford area which has numerous organizations that aid the community, whether it be increasing access to and promoting the practice of arts, helping community members who require social care, helping neighborhood wardens in reducing crime and other community building measures. Glazer's purchase of the club would benefit local welfare. All this may come later when Glazer's business has settled down. More immediate concerns needed addressing - the question of bank loans. Glazer has had to borrow ,480 million just to complete the ,800 million take over (Wikinews). Since bank interest rates are high, this would incur additional financial pressures on the club. To cover expected debts he may want to sell the Old Trafford stadium to outsiders, sell off the team's contingent of high talent and increase ticket prices. Acquiring TV rights, long controlled by the Premiership clubs would generate more income for United, and less for others. But Glazer's sons vowed not to chase TV rights, thus maintaining the status quo. Glazer's detractors voiced concerns that the purchase of Man United might cost the fans dearly. Among their fears was the rise in ticket prices, a fear justified when Galzer announced plans to increase gate collections by as much as 50% over the next five years till 2010. As a business strategy this makes sense. Let go of certain elements of his acquisition, recover the investments made in the hope that in the long run, brand image will help a jump in revenue also achieved by match day sales, media deals and merchandising along with other commercial activities. For the team's die hard fans, this strategy only speaks of blatant commercialization and a total lack of affection for the game of football itself. As Jorgensen explains, "Football is the essence of their brand. The cornerstone of the most successful football brands, past and present, has been their footballing success." Without the football the business does not exist, and without the business, football doesn't exist. Both are complementary. Brand loyalty or worship complements business. The sheer strength of Man United's international fan base is enough to keep the brand's annual revenues touching the $250 million mark. With the club's vat of high valued players going global, endorsing foreign products and the team's own merchandise, the Man United brand will continue to dominate world sport, even if the team falters on the pitch. How might Malcolm Glazer's ownership affect the governance of Manchester United Glazer's football mad sons are widely acknowledged to be running the world's richest sporting club. With family passion behind the sport, not necessarily from Malcolm Glazer himself, wise and thoughtful decisions will be taken in the club's governance. A 50 million worldwide fan base depends on it. When Glazer acquired the Tampa Bay Buccaneers he identified the team's drawbacks and formulated a strategy to ensure his new acquisition received a face lift. He hired a good coach, bought the best training equipment and gave fans access to the players and the stadium. In a span of seven years, Glazer had turned a much ridiculed no hope team, to Super Bowl champions. The Tampa Bay Buccaneers brand soared to the top of the brand list, increasing team sponsorships, merchandise and other investments. But in quite a contrast, Man United, despite not winning a premier league since 2003, were not down and out when Glazer took over in 2005. They were already at the top, a world class club, teeming with talent and potential. Whereas with the Buccaneers there was much to do, the challenge of attaining the ultimate goal, with Man United, there was no ultimate goal. It became just a question of maintaining high standings in the Premiership League, trying to win as often as possible, and extending the brand's commercial value into places with less exposure. The goals were diminished but no less daunting. The type of governance required therefore was much different than that used when managing the Buccaneers in the early days of ownership, mainly because they started from scratch. But common governance characteristics employed by most companies are applicable in governing United. There are 8 such characteristics of good governance that can put the United team in a solid, stable position (Unescap): 1) Participation by all concerned in the club's activities and strategic plans is essential in ensuring everyone expresses their ideas freely and any grievance is heard and addressed. 2) Adherence to the rule of law to keep corruption and mismanagement out and maintain a moral code of conduct among the participants 3) Transparency in decision making and enforcement according to certain rules. Also ensuring that decision makers have access to information. 4) Good responsiveness to ensure that decisions are carried out in a timely manner without delay. 5) The undertaking of a consensus to hear a broad range of ideas from a cross section of the participants. 6) Equity and inclusiveness. Although not high priority since share holders are absent, it is important for all related parties involved in the club, from managers to players to other officials to feel they have a stake in the business. 7) Ensuring effectiveness and efficiency of governance to produce positive results and meet expectations and company objectives. 8) Accountability within the club is essential to those directly or indirectly affected by those decisions the club takes. The above points form a guideline for good corporate governance. The challenges involve following them diligently to ensure long term club survival. Glazer had already created a model success story with the Tampa Bay Buccaneers. Ownership of Man United forced Glazer's management team to adopt new governance styles to keep fans and players happy. While internal governance is essential in running the club, equally important is forming a business strategy in chalking out the aims and goals. Although the strategic management initiatives used to hoist the then down-and-out Buccaneers may be used here, additional management skills are required to run United since United's assets are much more valuable. Prof. Glenn M. Gomes says that normal business models need to employ a set of strategic tasks: 1) Development of a strategic vision and mission 2) Setting objectives 3) Crafting a strategy to achieve objectives 4) Implementing and executing the strategy 5) Evaluating and correcting the strategy. Glazer's main objective is to improve the Man United brand across the Atlantic in the United States, as well as increase local revenue earnings from merchandising and ticket sales (Ashling O'Connor & Ingrid Mansell). A plan is on paper to increase the Old Trafford stadium capacity from the current 67,800 to 75,600 by the 2006-07 season, resulting in matchday turnovers of ,108 million. Exhibition games and tours of both US, Europe and Asia are also likely to boost revenues. Some sponsors like Vodafone are unlikely to continue their support but other key sponsors have been earmarked to pump in additional revenue. Merchandising successes stretching from Scandinavia to China to the south East Asian islands, have encouraged diversification. Restaurants and cafes solely devoted to catering Man United fans have opened in these nations and United's expansion plans will extend the merchandising footprint globally. What are the effects on brand image over the medium term Since Man United's listing on the stock exchange in 1991, its brand image along with its on field success have positively impacted the confidence of investors and the public globally. While some have said that listing the club on the stock exchange turned the club into a commodity, a product to be bought and sold, the brand image did not suffer. And this is unlikely to change in the near future. Man United is undoubtedly a very strong brand and its owner continue to examine ways to enhance its bottom line and sway customer preferences. The brand's healthy image helps audiences at home and outside make decisions about whether they intend to attend the football match or watch it on television. Home viewers may expect a battery of advertisements encouraging them to purchase merchandise and other memorabilia and when persuasion succeeds, Man United's brand value gets pushed higher. The emotional relationship between fans and the Man United brand is just as strong. This was put to the test a few years ago when United faced its first take over bid. In 1998 Rupert Murdoch's cash cow BSkyB under threat by opposition from Office of Fair Trading who proclaimed Murdoch's broadcast practices was monopolistic. Another threat came from rival media companies proposing a breakaway European league. But a combination of legal advice, propaganda and lobbying by fans and various interest groups prevented Man United falling into Murdoch's hands (Andy Walsh). When supporters hold their team in high regard, they intend to maintain that firm emotional bond with the team. As long as the brand performs well and consistently, that emotional connection continues and ingrains itself deeply. Rational decision making processes take a back seat and emotions start determining actions. Brand loyalty is directly related with quality and in this case performance. Consistent strong showings at football events will place the brand in a respectable position and fans won't mind paying a hefty ticket price to watch. A decline in performance or inconsistent play may see a decline in fan attendance and consequently fan loyalty. A more hands on approach by team managers will enable control of team performance. And performance is crucial for business. What is the lifespan of the Man United brand Economists say that in traditional product markets, brand performance and longevity is a result of competitive market forces (Sundar Bharadwaj). As new brands enter the market thus increasing the output, prices come down to average. The previously above average players are forced down to level playing field in order to compete thus creating perfect competition. Profit earnings consequently decline. Therefore the economists theorize no brand can stay long at the top. But some brands have consistently dominated markets for quite some time and many of them continue to defy market economics. Examples of some persistent brands are Coca Cola, Pepsi, Microsoft, Kellogg, HP and Intel. Add Man United to the list and it becomes apparent that these brands have performed unfailingly better than their competitors and above market average. The essence of maintaining good brand identity and image in order to sustain brand recognition is good brand management. United's brand managers have so far been successful in developing the brand image worldwide. Now with Glazer's marketing team behind the campaign, the United brand could muscle its way to settle among the top twenty brands in the US and other countries. This brand exploitation is another aspect of globalization. Brands are bought by rivals, competing companies or tycoons in order to have a foothold in the brand's industry and, as a means of expansion into new territories. For example, when Sony Japan signed a partnership with Errikson Sweden, the new company became one of the largest producers of mobile phones in the world capable of covering a larger marketing footprint than individually possible. The merger of AOL and Timer Warner created a mega company worth billions giving each company penetration into additional market segments. This symbiosis where two or more entities benefit by mutual association is becoming more common in world business. Companies realize that in order to propagate their products, brand identity and brand image, merger with or take over of competing rival brands becomes necessary. Glazer's take over was not as a result from any threat of competition or rivalry. It was mere brand acquisition in order to exploit the brand image to generate revenues. The take over may not leave a lasting negative impact. Once corporate governance succeeds in successfully maintaining brand integrity, opposition will diminish and fans will return to watch their team play rather than berate the owners. Although some anti-Glazer groups have threatened to create their own club, they can do little to dent the Man United brand. Overall, the controversy has only heightened the club's profile due to the public backlash against the American take-over of a British institution. The brand is less likely to be affected in Asia and the rest of the world where fans have remained as passive observers. Man United continues to lead the world of football. Consistent high revenue earnings commercially, in match day sales and the media have kept the club at the top spot. The following page shows Man United's financial statistics. Europe's major football sides derive most of their income from three main sources - matchday ticket sales, TV broadcast rights and commercial interests, including merchandise sales and sponsorship. When it comes to revenue, Manchester United remains at the top of the table, according to accountants Deloitte. What's in a name Many millions of pounds, if you're Manchester United. The side has led the way in exploiting demand for shirts and scarves - especially in the emerging markets of Asia. On a smaller scale, United makes extra money from hiring out its Old Trafford ground for private events, such as parties and concerts. Television, and in particular BSkyB, has revolutionised the way most people watch live football. BSkyB has pumped millions of pounds into the sport. As well as a lucrative share of the rights from BSkyB, United makes millions of pounds from coverage of the European Champions League. While the nearest many United fans may get to their team is a TV set, nearly all of the side's league and cup ties are sell-outs. In addition, success in Europe guarantees an even greater share of the spoils at the turnstiles. United also makes a tidy sum from the sale of hot food and drinks on matchdays. (Manchester United in Figures) United's brand recognition was one aspect among the numerous driving forces that compelled Glazer to buy the 127 year old franchisee. Another was a history of personal success with catapulting the Tampa Bay Buccaneers to NFL glory. The third reason was an acknowledgment that United's brand visibility could be intensified to generate additional revenue. With United's commercialization proving extremely lucrative, banks and businessmen were likely to invest in the brand that promised a sustainable and performing business. The reasons for Glazer's take over of Man United are manifold. But love for the sport probably does not factor in the acquisition. During an NFL game involving his Buccaneers when one of the teams scored a touchdown, 75 year old Glazer went into uproarious celebrations until someone pointed out that it was the opposing team who had scored. Clearly, America's 244th richest man is out of touch with whatever's happening on the field. Once can speculate that his take over might have been encouraged by his football crazy sons who are now running the Man United show. As avid long time United fans, the sons have always taken a keen interest in the club's success. And so association with such a highly regarded brand was an opportunity too good to miss. Personal pride as well as the prospect of earning enormous revenues to increase family wealth was among the chief reasons for the take over. And the Man United brand became the vehicle to attain their goals. References Bharadwaj, Sundar.(2004) The Secrets to Superior Persistence in Brand Performance. [Online]. Available at: http://www.zibs.com/sundar1.shtml [Accessed 11th Jan 06] Hutchison, Bill (15-5-05). Malcolm Glazer and Manchester United - Feint or Play [Online]. Available at: http://worldsoccer.about.com/cs/theposts/a/manmalc.htm [Accessed 10th Jan 06] Glazer Family Foundation. [Online]. Available at: http://www.glazerfamilyfoundation.com/AboutUs.aspxb=1 [Accessed 10th Jan 06] Gomes, Glenn M. (31-8-96). Strategic Management Self-Study Modules. [Online]. Available at: http://www.csuchico.edu/mgmt/strategy/ [Accessed 12th Jan 06] Gomes, Glenn M. (31-8-96). Strategic Management Self-Study Modules. [Online]. 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