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In a letter to Sir John Vickers, Chairman of the Office of Fair Trading,
Professor
Christine Oughton, Director of Birkbeck's Football
Governance Research Centre has stated that the OFT should refer
the takeover of Manchester United Plc by Red Football Ltd for investigation.
Professor Christine Oughton, says the takeover is "anti competitive
because it is expected to result in annual compound ticket price increases
of around 9 per cent over the next 4-5 years (amounting to 54 per cent)
(1) that appear unrelated to increases in costs of production (wage
and non-labour costs) and significantly greater than predicted inflation.
These price increases will not reflect any increase in the quality of
the product. This is on top of a price increase for next season of 24
per cent that was introduced by the pre-takeover board of Manchester
United in a bid to protect the club from takeover. Taken together these
prices increases amount to 90 per cent (almost double over 5 years)
and seem excessive."
She continues: "Pre-takeover, the company was already maximising
(long run) profits earning the highest profits in the industry, considerably
above those of all other companies in the industry in the UK, Germany,
Italy, Spain and France. Manchester United Plc made £27m pre-tax
profits in 2003-04, the next most profitable club made £11m.
"The price increases built into the takeover bid reflect the (predicated)
decline in efficiency and competition associated with the fact that
the takeover is highly leveraged with interest payments under the proposed
new company on bank loans of £265m and imputed rates on a further
£210m and £65m of PIK debt instruments of 20 per cent and
14 per cent, respectively.
"If the reports of the business plan are correct, the new owners
are planning to exploit their local monopoly power by raising prices
significantly above the rate of inflation. They are also seeking to
exploit the highly inelastic demand curve that they face as a result
of exceptional brand loyalty that is a peculiarity of the football industry."
"The rise in ticket prices and merchandise prices may trigger similar
price rises across the industry resulting in a further decline in competition
and efficiency." Consumers will be worse off as a result of this
takeover and prices will be higher than they would otherwise have been.
The pre-takeover board of Manchester United Plc described these plans
as 'aggressive' and refused to endorse the business proposals despite
the offer price being 'fair' (2). The takeover will also turn a debt-free
company into a company saddled with £540m of debt.
"Recently, the OFT acted to prevent price-fixing of replica football
shirts. The Chairman, John Vickers said then that "before the OFT
began its investigation, it was very difficult to buy an adult short-sleeved
England shirt for less than £39.99. By the time of Euro 2004,
England shirts were widely available for as little as £25. That's
a real saving for fans."
Commenting on this, Professor Oughton stated that, "Fans do not
have to buy a shirt to watch the match but they do have to buy a ticket.
Most fans are unlikely to buy more than one shirt in a season, so the
OFT action, while welcome, gave fans a saving of around £15 a
year. Having acted correctly in this case, it would be bizarre if the
OFT failed to act to protect fans from next season's price increase
and planned future price increases on which the Glazer bid is built.
Season ticket holders are going to be worse off to the tune of hundreds
of pounds."
NOTES TO EDITORS
1. These figures and those on the debt and interest discussed below
come from the business plan underlying the bid that has been reported
in the press.
2. The pre-takeover board announced a rise in ticket prices of 24 per
cent for the coming season (2005-06). This announcement was made before
Glazer announced his second bid and it is arguable that the current
board were forced to make this increase as a defensive move to help
protect the company from Glazer's aggressive takeover attempts/manoeuvres
that have been going on for well over a year.
Contact:
Catherine Doherty, Media and Publicity Officer
External Relations, Birkbeck, University of London, Malet Street, Bloomsbury,
London WC1E 7HX
Tel 020 7631 6569
Fax 020 7631 6351
Email c.doherty@bbk.ac.uk
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