Malcolm Glazer built a multi-billion-dollar fortune through the clever use of debt.
But now, his fondness for debt may be growing into a liability.
Glazer, the 84-year-old retail and sports billionaire, achieved a new milestone today with the initial public offering of Manchester United, the fabled British soccer club. Glazer purchased the team in 2005 for about $1.4 billion, and today’s offering values the team at more than $2 billion.
Yet the IPO also highlights the high levels of debt Glazer put on Manchester United. It also adds to criticism that the Glazer family has been extracting value from the team, rather than growing it through investment and added capital. (Click here to tell us whether you like Man U as a stock.)
The Glazer’s 2005 purchase saddled Manchester United with more than $600 million in debt. Half of the proceeds raised from today’s IPO will go toward paying down the team’s debt, which the Glazer family has repeatedly said is manageable. The other half will go to the Glazer family.
Investors have been lukewarm to the IPO, in part because of the debt issues. The stock has been stuck today at around its $14-a-share opening – well below the target price of $16-$20 that was floated to investors in the weeks before the IPO.
“Manchester United’s real owners — the entities that have title to the assets of the business — are now the banks,” wrote Michael Moritz, chairman of Sequoia Capital, and an avowed Manchester United fan.
Leverage, however, has worked well for Glazer over the years. The son of Lithuanian immigrants, Glazer grew up in upstate New York and inherited his father’s watch-parts business. He expanded into real-estate and in the 1980s used junk bonds to help grow an empire that included real estate, food proceesing, health care and broadcasting.
In 1995, he broke into the sports world with the purchase of the Tampa Bay Buccaneers for $192 million. With the help of hundreds of millions of dollars in taxpayer funds, he built a new stadium and grew the team into Super Bowl champions in 2003.
When he acquired Manchester United in a controversial take-over, the team's fans were instantly critical, saying ticket prices would rise, player payrolls would fall and the commercial strains of so much debt would eventually threaten a 144-year-old franchise.
Even today, longtime fans hold protests against the Glazers and criticize their ownership through popular chants and songs.
For their part, the Glazers rarely give interviews or appear in public. Malcolm Glazer has had health issues since suffering a stroke in 2006. He and his wife live in Palm Beach, Fla. His six children currently sit on the Manchester United board.
Spokespeople for the family and executives for Manchester United say the team is stronger than ever, with solid performance on and off the field.
“I think you’re buying into one of the world’s iconic brands, playing in the fastest-growing sport in the world,” CEO David Gill told CNBC. “We can demonstrate across all our revenue streams great growth opportunities.”
-By CNBC's Robert Frank
Follow Robert Frank on Twitter: @robtfrank