talkingOfArsenal.com

On the face of it, and coming quickly on the heels of Arsenal's trading figures being announced last year, the accounts reported by Manchester Utd seem impressive.

With headline figures of 93% increase in profit and turnover of £245million (up 27% from last year), and newspapers leading with stories that read "Manchester Utd back on top of Premiership rich list", the picture being painted is a very rosy one looking towards the future, and a seemingly impregnable position at the heights of English football or thereabouts.

Scratch beneath the surface though, and you might start to smell the well turned-over earth emanating from what is potentially a can of... No, scrap that, more like an industrial-size pot of worms.

Firstly, let's look at their figure of 93% profit increase from last year.

The 93% profit headline masks the actual profit value which is £45million - a figure which doesn't look that impressive when held up against Fergie's annual spending on player purchases - for a club that doesn't hesitate to spend £18m on Carrick, £17m on Hargreaves, or £17m on the two youngsters Nani and Anderson, £45m profit isn't going to get you very far even if that profit is after player purchases.

Now let's consider turnover, reported to be in the region of £245m.

At the risk of stating the obvious and irritating the finance folk amongst you, that figure is usually misinterpreted by us non-finance folk because even with turnover of that magnitude, a large and costly operating bill (which includes player purchases and wages) plus taxes could have a massive impact on net profit, which is essentially what it's all about.

In the end though, the figures highlighted above pale into insignificance when you consider where the manoeuvring of the Glazier-led leveraged-debt takeover have left the Old Trafford club.

In 2005, the Glaziers borrowed approximately £540m to purchase the club, and that attracts interest of £42m per year. As part of that deal, the Glaziers also borrowed an additional (also approximate) £120m based on future earnings of the club, and that attracts additional interest of £20m per year. So in total, Manchester Utd have debts of about £660m (well over half a billion), and are paying annual interest of around £62m per year. Since the takeover, that debt is reported to have since increased overall.

In the space of a couple of years, Manchester Utd have gone from being a high-spending debt-free club, to a high-spending debt-laden club.

The question is why.

Why did a club with the undeniable pedigree of Manchester Utd, allow themselves to be made the subject of a takeover when they had a good squad, have a proven manager, fantastic worldwide support, and no debt?

For the answer to that question, I think you have to travel south to the London Borough of Kensington, and the London club Chelsea. In 2003, Chelsea were bought by Russian billionaire Roman Abramovitch, purportedly the 2nd richest person in the UK (at the time of writing). Within three years of purchase, and having spent an estimated £250m on the club, Chelsea had won the Premier League twice, the FA Cup and Carling Cup twice.

During this time, many clubs, and this would appear to include Manchester Utd, came to the conclusion that in order to compete with Chelsea, they were going to have to find billionaire buyers of the same ilk. How this perceived need for rich owners who would fund the club, morphed itself into a takeover based on leveraged debt remains a mystery, especially as the new owners appear not to be spending over and above what Manchester Utd would have done had they not been purchased in the first place.

Contrast this with Arsenal, who after flurry of share purchases both (apparently!) on the advice of David Dein between American Billionaire Stan Kroenke and Russian Billionaire Alisha Usmanov, have now reduced the probability of a takeover and as such remain relatively unscathed by the purchasing tide that has swept the Premier League.

This has been achieved whilst keeping spending under control, and yet remaining in contention (in January of 2008) in all key competitions the Carling Cup, the FA Cup, the Premiership and the Champions League.

Arsenal's group operating profits from last year (before player trading and depreciation) increased by 274% to £51m (in 2006 it was £13.7m). Turnover from from the same period increased by 46% to £201m (in 2006 it was £137m). Their debt at approximately £370m, is just over half that of Manchester Utd's.

The debt, structured over a 25 year period, and with current gate income being the highest in the world (£3.1m per game), merchandising, and the soon-to-be-launched Arsenal TV, and other sales, should be comfortably serviced over the owing period. In addition, the last set of results excluded income from sale of 'Highbury Square' properties, built on the grounds of the old Highbury, which with 91% already pre-sold, will bring in an additional £300m - this will appear in next years trading results.

When it comes to operating costs, Arsenal's expenditure on player purchase is low, and collective weekly wages are the lowest amongst the top four (we don't sign superstars, we make them).  Add to that, Wenger's unspent warchest of £70m which is unlikely to be spent anytime soon by the Premiership's most frugal manager, and you start to see a completely different picture being painted for the North London club. You can read more about Arsenal's finances here.

It does appear that Manchester Utd have taken a high risk gamble - by allowing themselves to be bought out through leveraged debt and by continuing with their policy of buying expensive players in order to guarantee trophies, they hope to convert a wide fan base (in Asia and the Far East especially) into paying customers, which in turn would service the debt that they have, and after some years (how many?) start to generate reasonable levels of profit.

The truth is, regardless of how the season turns out for Arsenal it is clear with what Wenger has already achieved during the 2007/2008 campaign, that it is still possible to win the Premier League without spending anywhere near the likes of Manchester Utd or Chelsea - and this does shine a stark light on Manchester Utds decision to go down the route they've chosen.

So rather than taking solace in the recent financial statements about being the richest club in the world (by some 12 Euros, is this someone's idea of a joke?), along with the common assertion that their club has always bought the best and most expensive players and will be entertaining for years and years ad infinitum, Manchester Utd fans ought to consider this.

With the amount of debt that the takeover has created, and interest payments accruing at what can just about be conservatively described as a daily rate with a fair wind, operating costs (including interest payments and player purchases) plus debt repayments are likely to remain high, and can only be kept under control by increasing ticket and merchandising prices.

There is already anecdotal evidence of this occurring, with large constituencies of Manchester Utd supporters expressing concern at the rate of price increases, and some Utd fans finding themselves at the front of the Old Trafford waiting list far earlier than expected as a result due to list drop-outs.

Worse than price increases though, is that if Fergie gets his wish and wins the Champions League a second time anytime soon, he will retire after that with his legacy carved in stone, but leave behind a club with high debts and a potentially uncertain future if the next manager does not deliver within a relatively short period.

And that may well turn out to be the ultimate nightmare scenario for the Mancunians.

With the amount of debt sustained, if Manchester Utd either under Fergie or under a newly appointed manager, were to go through a period of say, two or three consecutive years of not winning any Silverware, you could end up with the Asian and Far Eastern fans losing interest en masse over that period, and quite possibly envisage a 'negative equity' scenario where the level of their debt, exceeds the value of the club.

And if you think that a few years of not winning any silverware is not possible, remember that the English Premier League is an extremely tough competition to win, requiring tremendous consistency and huge doses of luck over long periods of time - an unlucky combination of injuries, bad luck and pockets of unfriendly fixtures is all it would take to tip the balance the wrong way. Manchester Utd fans who have been around a while, Arsenal fans from the last few years or even Chelsea fans to some extent this season will happily testify to this.

Little wonder then, that after the Glaziers completed their takeover, not inconsiderable numbers of hard-core Utd fans decided to form their own new club, FC United - they can see the long term future of Manchester Utd, and it is in no way self-assured.

With both Arsenal and Manchester Utd vying for top position in the Premier League (Jan 2008), and both clubs having recently laid claim to being amongst the richest clubs in the world, on the surface there would appear to be some similarity in their respective standings both on the pitch (first and second in the table) and in the boardroom (healthy finances).

However with half the debt that Utd have, with the largest gate receipts per match in the world, with the expected profits from the sale of Highbury Square properties, and with Wenger, a manager recognised for his ability to deliver Silverware whilst maintaining fiscal prudence, most Arsenal fans armed with the facts would prefer to be where Arsenal are (even if we don't win the title this year for the third year running) rather than be where Manchester Utd are.

Far be it for me to suggest the demise of any English club, much less one with the pedigree of Manchester Utd - and much as I love Arsenal, I honestly wouldn't want to see that happen for the sake of the Premier League - but when you hear the "we are the richest club" bragging rights being spouted by Manchester Utd fans, or read about the Old Trafford club regaining their position as the richest club in the Premiership or even the world, take it with a very generous pinch of salt.

It is likely that we won't be reading negative headlines about the health of Manchester Utd's finances (as all financial statements, including Arsenal's, aim to do), however it would appear that the Mancunians have taken a considerable gamble, the outcome of which will unfold over the next few years - and their massive debt could end up being their undoing.

Sentimentality plays little part in the business affairs of the boys from The City when they come knocking on the doors of those who gamble with their clubs, and yes, although this is a totally, 100% different proposition, I am going to mention the 'L' word here.

Leeds United, anyone?