The PLC v. The privately held company

[billyho96]

After reading this topic (the Glazer thing) until I think I'm gonna go blind, I have a question.

How is the privately held corportation, that has debt to service, different in its business plan than a PLC?

Do they not each have the same obligation, to maximize profits? One has the responsibility only to himself and his creditors, and the other to the shareholders to show a profit and protect the value of the stock . . . but how is it not ultimately the same. Is it nothing more than a matter of degree?

hmmm........ where's the econ 101 forum

[nicephoras]

There is no obligation to make money to one's creditors. There is only a requirement to pay them back. A privately held company may be run in many different ways. It may be run to maximize investment, or it may be run to maximize winning. So long as the investors in the private company are fine with that, there's no problem. Because, they can't be bought out on the open market. If the investors are OK with the situation, that situation simply can't change. Being a PLC just means you're subject to more scrutiny due to the requirements under exchange laws (i.e. LSE rules in the UK, SEC rules in the US, which carry more application to public companies) and that you can always be bought on the open market............as is what happened.
If you run a privately held company for profit, no, there's no real economic difference. Problem is, ManUtd wasn't really run for profit as a PLC, because football has been repeatedly shown to be a bad investment - it doesn't generate enough income. (Neither do most sports.) Usually, any increase in investment is reaped through the increase in the value of the franchise. But given that Glazer has probably paid for ManUtd at the height of its value, its debatable how much more the club will be worth in the future, especially when saddled with lots of extra debt.

[Motterman]

It's funny as I was going to suggest for billyho to post this in the Chelsea forum, as it sounded right up nicephoras's alley.

[billyho96]

There is no obligation to make money to one's creditors. There is only a requirement to pay them back.

Splitting hairs aren't you. "No Obligation" . . . "requirement to pay them back." Sounds like there is an obligation.

That aside. Could one not infer through your explanation that a private held corporation has a better chance at long term success?

[The Jitty Slitter]

Splitting hairs aren't you. "No Obligation" . . . "requirement to pay them back." Sounds like there is an obligation.

That aside. Could one not infer through your explanation that a private held corporation has a better chance at long term success?

Your are mixing up some stuff here.

The directors of a private company are bound to further the purposes for which the company was set up (usually written down in the companies formation docs). There are also common law and statutory obligations on them to act in the interests of shareholders, keep the company solvent etc. So in terms of creditors, the directors need to act responsibly and reasonably, but the company does not need to be run in creditors best interests. More usually, the company is being run in the interests of the company owners or investors, and the creditors have lent finance money and taken on risk, for which they receive interest, precisely because things might turn out bad for them.

A private company is much more nimble and flexible than a PLC. However the usual reason for becoming a PLC is that a size is reached whereby you can't go any further without much more cash. One way to get the cash is to float the company. eg Google right now. The downside is much tighter scrutiny and regulation, because Joe Public's cash is now on the line.

The disconnect with all of this with Man Utd is that the fans have no real official status within the business other than as customers.

[Elwood]

I have a few questions related to the PLC vs private ownership after reading the news over the past day or so (as well as the thread here).

First off, how many EPL teams are PLCs vs privately owned? And are there many below the EPL who are PLCs? It would seem to me that once a team went PLC, something like the Glazer takeover is instantly always a possibility. That's the risk of going PLC.

When did Man U go PLC, and why? Was it "for money"? Who owned the club prior to going PLC?

From what I can understand, Man U was not in debt prior to this week (and technically still isn't at this point, as Glazer is up to only 74.81% according to TalkSport). With Glazer borrowing money to purchase the shares, once he gets to 75% ownership, he can transfer that debt accrued to buy the club shares to the club, so it's just a formality until Man U is in some serious debt.

Is debt for a club normal in Europe? How many current EPL clubs are in major debt, vs self-sufficient?

[M]

If you run a privately held company for profit, no, there's no real economic difference. Problem is, ManUtd wasn't really run for profit as a PLC, because football has been repeatedly shown to be a bad investment - it doesn't generate enough income. (Neither do most sports.) Usually, any increase in investment is reaped through the increase in the value of the franchise. But given that Glazer has probably paid for ManUtd at the height of its value, its debatable how much more the club will be worth in the future, especially when saddled with lots of extra debt.

Right. This isn't a Tampa Bay situation where there is a "false shortage" of teams and the league is run as an effective cartel. Tampa was ripe for the picking because it was a poorly run franchise in a very successful cartel. Those parameters really don't apply to Man Utd.

[nicephoras]

First off, how many EPL teams are PLCs vs privately owned? And are there many below the EPL who are PLCs? It would seem to me that once a team went PLC, something like the Glazer takeover is instantly always a possibility. That's the risk of going PLC.

I don't believe there are many other PLCs in the EPL. Spurs are one, aren't they? (Or not, I'm not sure.)
As for the risk of takeover - football is a bad business. ManUtd is practically the only club (along with the anomalous Juve example) that will make money. Ergo, no one's jumping all over everyone else to be able to take over Spurs.
I can't imagine there are many (if any) clubs below the EPL that are PLCs. The extra headaches of being a public corporations as well as the costs wouldn't help, and I don't think there are too many investors desperate to plow money into the Readings and West Ham of the game.

When did Man U go PLC, and why? Was it "for money"? Who owned the club prior to going PLC?

There is no other reason to become a PLC other than to gain much easier access to the capital markets.

From what I can understand, Man U was not in debt prior to this week (and technically still isn't at this point, as Glazer is up to only 74.81% according to TalkSport). With Glazer borrowing money to purchase the shares, once he gets to 75% ownership, he can transfer that debt accrued to buy the club shares to the club, so it's just a formality until Man U is in some serious debt.
Is debt for a club normal in Europe? How many current EPL clubs are in major debt, vs self-sufficient?

So long as all debt payments are met, there's really not much of a problem. I believe French laws have something about debt levels, but they don't apply to Europe. Barcelona are in really high debt at the moment (why they're looking for a shirt sponsor) but that doesn't affect their UEFA participation. At the moment.

[nicephoras]

Right. This isn't a Tampa Bay situation where there is a "false shortage" of teams and the league is run as an effective cartel. Tampa was ripe for the picking because it was a poorly run franchise in a very successful cartel. Those parameters really don't apply to Man Utd.

Especially since the concept of relegation exists in football. Tampa Bay had license to be as bad as they wanted to be, and I don't mean that in a good way. They were guaranteed vast revenue streams from attendances and TV deals. Football doesn't have that sort of safety net or cushion.
The real question as to how well Glazer has done would be to see how much more his club went up in value relative to other NFL clubs during that period. My guess - not that much.

[billyho96]

The real question as to how well Glazer has done would be to see how much more his club went up in value relative to other NFL clubs during that period. My guess - not that much.

I know when he bought the Buccaneers he paid what was then a record for a franchise . . . around 175 million in 1994. This was an even hire number than what Jerry Jones paid for the Cowboys in 1989, a far more value franchise.

Since 1994, the Redskins sold, in 1999 or 2000 for around 800 million and I believe the Vikings sold recently for around 350.

Tampa Bay as a franchise including their new stadium would be worth well over three times what Glazer originally paid for them.

[M]

Especially since the concept of relegation exists in football. Tampa Bay had license to be as bad as they wanted to be, and I don't mean that in a good way. They were guaranteed vast revenue streams from attendances and TV deals. Football doesn't have that sort of safety net or cushion.

And the concept of not qualifying for the Champions League also exists in football...