Friday, May 3, 2013

Manchester United - Higher Than The Sun

The week after they clinched the Premier League title, Manchester United announced record third quarter turnover of £91.7 million, more than 13 clubs in England’s top flight achieved in the whole of the 2011/12 season. To further place United’s incredible ability to generate revenue into context, this quarterly result was about the same as Newcastle United’s revenue last season – and Newcastle have the seventh highest revenue in England.

Revenue was up 30% with all categories posting impressive growth: commercial 32% to £36.0 million, match day 28% to £34.0 million and broadcasting 28% to £21.7 million.

Match day revenue growth is due to the club staging three additional home matches in this quarter compared to the prior year quarter: four more FA Cup ties, offset by a one game reduction in European matches (one Champions League match less two Europa League matches).

Broadcasting revenue growth is largely due to United progressing to the Champions League round of 16, as opposed to exiting at the group stage the previous year.

However, it is the 32% commercial growth that is most impressive, driven by the addition of several new sponsorship deals. In fact, sponsorship revenue is up a cool 52% to £21.0 million, while retail & merchandising grew 10% to £9.2 million and new media and mobile rose 14% to £5.8 million. At this rate, United’s commercial revenue for the whole year could be around the same level as Real Madrid and Barcelona (around £150 million).

These figures include some money for the new Chevrolet shirt sponsorship deal, even though this does not fully kick in until the 2014/15 season, when it will be worth an astonishing £45 million ($70 million) compared to Aon’s current £20 million. However, United somehow negotiated for Chevrolet to pay them £11 million in each of the previous two seasons – while Aon are still the incumbent shirt sponsors. Amazing stuff.

Furthermore, the latest results do not include the new deal signed with Aon last month for the naming rights to the club’s Carrington training centre and sponsorship of the training kit and overseas tours. The club has not divulged how much this deal is worth with press estimates varying between £120 million and £180 million for the eight-year agreement, but it will certainly represent a significant uplift to the DHL £10 million training kit deal.

In addition, more money can be expected when the kit supplier deal is renegotiated for the 2014/15 season. Nike currently pay £25.4 million a season, but any replacement deal will generate considerably more with some analysts believing that this sum might double.

It’s not all good news in these figures, as wages have again grown by an unexpectedly high 25% to £44.9 million following expensive arrivals in the summer (including Robin van Persie from Arsenal and Shinji Kagawa from Borussia Dortmund), renegotiated contracts for existing players and growth in United’s commercial team. That said, the important wages to turnover ratio actually fell 2% to 49%

Similarly, other operating expenses rose a hefty 50% to £21.8 million, primarily due to the costs involved in staging the additional home games.

Once again, United’s profits were hit by net interest payable, which increased £14.8 million to £18.3 million, even though gross debt was £56 million lower than this time last year at £368 million. The increase was largely due to £15.7 million of adverse exchange rate movements after translating the US dollar denominated senior secured notes into Sterling. It should be noted that this is an unrealised FX loss that has no cash impact until the secured notes mature in 2017.

In fact, the interest payable is enough to produce a small £3.6 million pre-tax loss (compared to £2.8 million profit last year), though this becomes a £3.6 million post-tax profit after booking £6.7 million of non-cash tax credits (reflecting a lower effective tax rate).

Of course, one swallow does not make a summer and we should not attempt to draw too many conclusions from one quarter in isolation. If we look at the first nine months of the 2012/13 season, revenue of £278 million is 13% up on the same period for the prior year. That’s still very impressive, but not as much as Q3’s 30%.

In much the same way, wages have grown “only” 15% to £129 million, leading to a very good wages to turnover ratio of 47% for the period.

Nevertheless, profit before tax rose 22% to a very healthy £19.2 million (up from £15.7 million in 2011/12) with profit after tax even higher at £40.3 million, thanks to £21 million of tax credits. This could be a factor for a while in United’s figures, as the Q2 statement referred to £60 million of unrecognised deferred tax assets being available (of which £6.7 million was used in Q3).

All football clubs are affected by the seasonality of revenue, especially the phasing of matches, which not only affects gate receipts, but also TV money (in terms of Premier League merit payments and European distributions). This means that traditionally most revenue is recognised in Q2 and Q3.

United have said that they expect total 2012/13 revenue to be between £350 million and £360 million. Taking the mid-point of £355 million would imply Q4 revenue of £76.9 million, only £2.4 million higher than Q3 last season. That would mean a £35 million (11%) increase over the £320 million reported for 2011/12.

After that growth, United would remain the club with the third highest revenue in the world, though the gap to Real Madrid and Barcelona would reduce (based on the Spanish clubs’ budgets). In 2011/12 United were £71 million behind Barcelona in second place with £391 million, but the difference would be only £25 million at current exchange rates. In fact, the real gap would be even smaller, but for the weakening of the Pound, which has boosted overseas clubs’ revenue in Sterling terms.

If we annualise United’s nine month wages of £129 million, that implies an annual wage bill of £173 million, which would be around the same level as Chelsea’s 2011/12 figure and is around £20 million more than Arsenal’s estimate of £150-155 million. Of course, the calculation is not quite that simple (e.g. if we were to annualize Q3 alone, that would give £180 million), but it’s an interesting indication of the continuing wage inflation facing Manchester United.

The good news is that gross debt continues to fall, down from £437 million in June 2012 to £368 million in Q3 following the repurchase of £63 million of bonds. In fact, gross debt has been greatly reduced since the £773 million peak in 2010 with the hideously expensive PIKs now repaid. That said, United’s debt is still far higher than any other club in the Premier League with the next highest being Arsenal at £246 million.

United again demonstrated their ability to generate vast amounts of cash from their football operations with £57 million, spending a net £33 million on players (£41 million player purchases less £8 million sales), £11 million on infrastructure (property and equipment) and £2.7 million to complete the purchase of the club’s own TV channel, MUTV.

However, they also shelled out £46 million in interest payments and used the £69 million net proceeds from the IPO to fund £67 million of debt repayment. In the whole of 2011/12 United paid out £46 million in net interest, which was about the same as all other Premier League clubs combined.

So, this is a very good set of figures from Manchester United with even more growth to come, both from the seemingly never-ending stream of new sponsors and the blockbuster Premier League TV deal, which should be worth at least another £30 million. Indeed, Ed Woodward, the executive vice-chairman who will succeed David Gill as chief executive in July, said that the club still had plenty of untapped markets where they could sign sponsorship deals: “The opportunity remains huge.”

Wages growth is cause for some concern, though this will not be a major issue if revenue continues to grow apace. Moreover, under the Premier League Financial Fair Play (FFP) regulations, clubs with wage bills above £52 million will only be allowed to increase their wages by £4 million per season for the next three years. That said, the restriction only applies to TV money, so clubs are free to spend any additional income from ticket sales or commercial deals on wage growth. This caveat gives United plenty of flexibility with their demonstrable talent for increasing commercial income.

The one major irritant for United fans remains the high debt incurred as a result of the Glazers’ takeover, resulting in another £46 million leaving the club in the form of loan interest in the first nine months of 2012/13. Whatever praise the owners receive for their commercial acumen, there is no doubt that this money could be better used elsewhere. As the late, great Ian Dury once said, “What a Waste”.


  1. Another fantastic article on Manchester United's football finances; explained in a relatively easy - going manner.
    Sadly this along with many of the best football articles flys under the radar and is not treated with the respect it merits.
    Clearly there is much information to digest and ponder over in the Swiss Ramblers analysis of the state of play with United's financials at present.
    I should just like to add; the green & gold anti Glazer protest has all but disappeared and been silenced by the fantastic efforts of our manager Sir Alex Ferguson. In tandem with the brilliant efforts of the marketing people in Mayfair in London attracting many new sponsors to come on board and partner the global football icon that is Manchester United.
    Oddly there was an Article of a similar nature published yesterday on the fabulous football site 'This is the City ' where Andy Green ( AndersRed ) of Manchester United's Supporters Trust discussed on Bloomsburg TV in detail the impact of the new fascinating results.
    The Glazers are indeed with some luck and heavyweight new financial streams coming on line going to pull of the coup.
    Clearly there is a huge amount of detail in MR Ramblers article, but for myself one of the quick important aspects is the significant reduction in the albatross of debt which was and in many ways still is inhibiting the football club to be as successful as it should in the European theatre of the Champions League competition. Nobody in hindsight can possible agree after the Glazer hijacked United the horrific waste of in excess of 1/2 a Billion Pounds on servicing debt from the clubs income can say there involvement in Manchester United has come at a heavy cost.
    I commend MR Ramblers budgeting article to the house; a mighty fine read and as normal with all his football financial articles beautifully laid out.
    Simply along with David Conn of the Guardian and AndersRed's financial football blog, must read articles to endeavour to grasp some of the basics of the murky world of football finance in this day and age of speculative investors.
    Keep up the brilliant work Swiss Rambler.
    Will study your details in the article at greater length when time permits.

  2. Wonderful article, Swiss. Very glad to see you back writing and sharing your insight & analysis with us.

  3. Well let me say firstly how nice it is to see you writing regularly again! 'What a Waste' it would be were you not to do so, I might say!

    What really interests me is how the big clubs in the Premier League will get back to their stature of a few years ago. Although patriotically denied by many, the fact is the EPL is in a major slump period. Aside from Chelsea's anti-football, miraculous Champions League campaign last season, the record in the Champions League in particular has been atrocious for this and last season.

    FFP does seem to be having an effect: it looks as though City last summer weren't planning any new signings outside major captures like Van Persie, and their rushed buys at the end of the window appeared to be panic buys. Chelsea also seem to be targeting younger players who they can sell on/have cheaper wages. But United, despite the interest payments, look the best placed to compete with the European elite. Arsenal (who I support) will have an operating profit of £30m or so if the wage bill is around £150m in a couple of years but Wenger's coaching leaves much to be desired.

    If I could ask you then Swiss, do you think that if FFP is rigorously enforced that United, as a real juggernaut without financial backing from the owners, could run out of sight from the other big clubs in the league?

  4. Under the new FFP rules, does anyone know if it will be allowed to put increases in transfer revenues on the wage bill? If that loophole works I can imagine a big smile on agents faces...

  5. I'm sure if the Glazers had a debt free United they'd just be hoovering up the same or more in dividends, management fees etc. so the club would be in the same net position.

    Something to bear in mind before getting all misty eyed at the club missing out on investing £50m a year of transfer fees and wages into the playing squad.

    It *is* impressive just how strongly they've turned United into an absolutely cash generating machine, and justifies their confidence that the previous management had seriously underutilised their asset, but it doesn't make it any easier to swallow for supporters.

  6. Great article. Welcome back, you have been missed. One quibble and one request. How do you make the income from the new TV deal "just" £30m when other commentators seem so suggest between £50/75m? Secondly it would be interesting if you would do a detailed article on the 4 european super-clubs, looking forward over the next 3/5 years. As it would seem with the changes at the top at Real and Barca and the resurgence of the German league, there could be a power shift approaching.

    1. "At least ANOTHER £30 million", which would take United's PL TV revenue to over £90 million, as they received £60 million in 2011/12. This assumes that they continue to finish in the top few places in the league.

      I looked at the new TV deal in some detail here:

      If anything, I think that I may have under-estimated the growth in the overseas rights sales, so it might be even more.

  7. Great article SwissRamble.. :)

    would u mind to make an analysis of United Account from the last 3 years, since they published the new annual report on Form-20F which is different with the Red Football Annual Report that u had been analyze in some previous blog post?

    It would be great and of course with the comparison with the Arsenal account and the impact with UEFA FFP.

    thanks SwissRamble :)

  8. Good analysis.. Considering the importance of continously winning and competing/finishing at the top for Man Utd, what would be your guesstimate of the number of losses before David Moyes will get sacked?

  9. Swiss Rambler, I am very glad to see you back writing here again, as your absence since last October was far too long.

    As a keen Utd fan myself, I especially like reading your articles about them and am happy to contribute some comments myself as and when.

    For the moment, all I have to say is that Utd's revenues seem set to soar over the next few years, due partly to the increased money from the Premiership next season but due mainly to Utd's phenomenal success in the commercial arena.

    It is safe to say that next season's, 2013/14, total revenues at Utd will be about £400m and £450m the year after that, 2014/2015.

    Real Madrid and Barcelona are gonna be disappearing out of sight in our rear-view mirror.

  10. "Whatever praise the owners receive for their commercial acumen, there is no doubt that this money could be better used elsewhere. As the late, great Ian Dury once said, “What a Waste”." There's also no doubt that, if the plc were still running the club, the money would not, in the large part, exist.

    There's also no doubt that any other purchaser of the club would have used the LBO format - with the same results as the Glazers'. (One can only hope that they would have been as successful developing the commercial side.)

    A final point: United's debt (£368m with revenues of £355m) is almost identical to Arsenal's (£246m with revenues of £235m). Amazing how United's debt is so much more toxic than Arsenal's.

    1. Hello Anonymous

      In fairness, the issue about Utd'd debt is not so much about its level today but its level four or five years ago when it was much higher than today and included the truly toxic PIKs.

      With total revenue for the coming season likely to hit the £400m mark and much more than that in coming seasons, the issue of debt will die down and be replaced by how much of the hugely increased revenues goes on player purchases and how much goes into the Glazers' own pockets - there has been very little of the latter thus far despite the length of time the Glazers have owned Utd.

      Buying Bale for £60m on a six year contract would add only £10m a year to costs. His likely wages of £250,000 a week would be another £13m a year, bringing his annual cost to £23m a year, about £140m over 6 years - easily affordable with Utd's revenues, even without selling Nani, Young, Valencia, Hernandez let alone Rooney!

  11. What are Rooney's exact weekly wages (base salary without any bonuses)?

  12. One of the things that amazes me is how people swallow this IPO 'debt reduction' scam.

    Anyone who knows anything about finance knows that dividends will be payable to shareholders, the only question being 'how much'.

    Just because you can't put an exactly quantitative value onto that doesn't mean that 'fair value accounting' shouldn't take it into account.

    You can be sure that major institutions will not tolerate dividend holidays at the expense of vast increases in player wages, so it's a pretty sure-fire bet that dividends of £70m will be paid over the next 15 years or so.

    1. "anyone who knows anything about finance knows that dividends will be paid"

      Well I have worked in an investment bank for many years (if that qualifies) and there is absolutely no guarantee that dividends will be paid, certainly not in the short term. There is a difference between companies that seek capital appreciation instead of income.

      Do I think that dividends will be paid eventually once the majority of the debt is gone? Yes absolutely.

      Do I think those dividends will be on roughly the same yield as pre-Glazer, yes I do. So spin it however you want, but despite paying off all this interest, we have had the most successful period in the club's history over the last 5/6 years and we are in no worse position financially by the end (I.e. still paying dividends) with the caveat that we are now a financial behemoth.

  13. Great work... thank you for the insight and I hope that you continue analysing the various clubs. Would be interesting to see an analysis of the clubs cash flows in years after winning the champions league.


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