Manchester United 2018/19: Waterfall
In May 2018 Ed Woodward, Manchester United’s vice-chairman said, “Playing performance doesn’t really have a meaningful impact on what we can do on the commercial side of the business.”
Down at the Stretford End hardcore United fans were unimpressed with the comment at the time and no doubt Woodward is squirming after the club’s moderate start to the 2019/20 season.
Reds fans know United have just announced their accounts for the year ended 30 June 2019, and like events on the pitch last season, they are a mixed bag of results.
Income
A Football club generates income from three main sources, matchday, commercial and broadcasting.
The matchday income for Manchester United in 2018/19 was £111 million, impressive by Premier League standards and above that of any other club in that division (whose figures are from 2017/18 as no one else has published results yet). .
However, there has been hardly any growth in matchday revenue since Sir Alex Ferguson retired in 2013 and critics say that Old Trafford is falling behind rivals in terms of modern facilities and comfort.
Each club’s matchday income is calculated as the number of home matches played multiplied by the average attendance multiplied by the average ticket price.
Respect is due for United keeping season ticket prices frozen for the eighth year and Old Trafford is sold out every match, so there is little opportunity to increase this income stream unless Old Trafford has its capacity increased.
Historically commercial income is where United have been the smartest kids on the block through their policy of selling rights to commercial partners in different countries for similar products and services.
A concern for the boardroom at Old Trafford is that this total too was relatively static in 2018/19 and perhaps suggests a lack of silverware is taking its toll as sponsors like to associate their products with success.
Very few clubs can match United’s global appeal, but the club’s kit deals with adidas and Chevrolet signed a few years ago effectively locked it into long-term totals and other clubs are starting to catch up.
Even though broadcasting income increased by 18% in 2018/19 the numbers hide a more concerning story.
Reporting an increase in broadcast income of £37 million sounds impressive this was all due to a new Champions League TV deal starting in 2018/19.
In winning the Europa League 2016/17 United made £38 million in prize money.
Champions League prize money of £83 million was however made in 18/19 when United made the quarter finals of the Champions League but as UEFA award 80% of prize money for the Champions League and 20% for the Europa League United will face a drop this season. .
Having new ten-year club coefficients come into play in 2018/19 for clubs in the Champions League helped United earned €31 million, more than any other English club from this particular pot on the basis of their historic success over the last decade.
As there was success for other English clubs in UEFA competitions last season combined with United’s 2009/10 Champions League performance slipping out of the ten year equation has however seen Manchester City and Liverpool advance ahead of United in the club coefficient.
Results in the Premier League were moderate leading to a fall from 2nd to 6th and meant that Manchester United’s domestic broadcast earnings fell from £155 million to £148 million.
Despite this United still top the table for total income over their ‘Big Six’ peer group but the lead is eroding.
Keeping ahead of rivals financially is essential if United are going to compete for players and whilst in 2017 United earned £217 million more than Liverpool, the following season this fell to £135 million.
European success for Liverpool and/or Manchester City in the Champions League in 2019/20 could eliminate the gap totally, with Spurs coming up on the rails on the back of the new stadium.
One of the footnotes in United’s press release states the club expect 2020 revenues to be in the £560-580 million range, a fall of up to £70 million.
Costs
Getting costs under control for a club is difficult as the main expenses are player related, in wages and amortisation.
Having to keep up with the competition, United’s wage bill, despite paying fewer win and trophy bonuses than the previous season, increased to £332 million in 2018/19.
Alexis Sanchez’s contract for the full season, along with new contracts for some other players and Champions League participation bonuses being triggered, were the main drivers of the 12% wage bill increase.
The wage bill at United since Sir Alex Ferguson retired in 2013 has increased by 83%, putting the average weekly wage at approximately £160,000 a week.
This means that the wage bill is by some distance the highest in the Premier League but remember that other clubs have not yet reported figures for 2018/19.
Having a high bill is affordable on the back of United’s revenue streams, with wages representing £53 of every £100 of income generated, the highest for a decade.
Even so United fans can be relatively relaxed as this is well below UEFA’s ‘red line’ of 70% when comparing wages to income.
Wages are one way of attracting talent but the other means is through player signings and these are dealt with in the profit and loss account via amortisation.
Having a new signing does not mean that the whole fee is charged as an expense immediately.
Every fee payable is spread over the contract life so when United signed Fred from Shakhtar Donetsk last season for £52 million on a five-year contract, this resulted in an annual amortisation charge of £10.4 million a year.
Every amortisation charge is then added together to give a total charge for the whole squad last season of £129 million, treble the amount of when Sir Alex was last in charge.
Looking at the rapid increase in amortisation costs indicates that Manchester United have spent large sums recruiting players from other clubs and paying them handsomely, but the quality of the recruitment must be called into question.
The two English clubs who participated in the Champions League final last season together had a lower amortisation charge than Manchester United, and remember that Rashford, Lingard and McTominay all are academy recruits with no amortisation cost.
Having sacked Jose Mourinho and his entourage during the season, United had to pay off their contracts at a cost of £19.6 million, which took the total cost of getting rid of managers to £40 million since 2013.
A surprise for some fans is that United boosted their profits with player sales that made the club £26 million as Fellaini, Blind and Johnstone left Old Trafford.
Profits
Net profits are calculated as total income less total costs, but before getting to the bottom line Manchester United had trading profits from their day to day operations of £50 million in 2018/19, an increase compared to the previous season but still lower than in 2013.
Every United fan knows that the Glazers borrowed £790 million in 2005 and at the time lenders were very wary about giving the club money so charged interest rates up to 16.25%.
Developing a reputation for making the interest payments on time was essential for United and the club managed to convince the markets it was generating enough cash from its day to day operations to reschedule the loans at lower rates in recent years.
Whilst the annual interest expense has fallen to just £22 million last season the total cost since 2005 has now reached £809 million, exceeding the sum originally borrowed.
Overall taking into account interest and tax costs Manchester United made a profit of just under £19 million, lower than some other clubs who had the benefits of much larger player sale gains the previous season.
Out of those profits £23 million was then paid from the club in the form of dividends to shareholders, United are the only club in the Premier League who make such payments to the Glazer family and hedge funds who own nearly all the shares in the club.
Player trading
Diago Dalot, Fred, Dan James and Aaron Wan-Bissaka arrived at Old Trafford in the year to 30 June 2019 for a total of £135 million, the latter two of course arrived just before the end of United’s year end.
Whilst United have now spent over £1 billion on new signings since Sir Alex retired, the quality of the signings has been questioned as the likes of Di Maria, Lukaku, Sanchez and Bailly have not justified the fees paid for them.
A glance at the footnotes to the accounts shows United have been busy in the transfer market since 30 June 2019 too, spending £99 million on new players and extending some existing player contracts, mainly on Maguire and De Gea.
Romelu Lukaku’s sale post the accounting year end is shown at £67 million, presumably in relation to Romelu Lukaku. This figure seems much lower than the amount quoted in the media but may be net of agents fees on the deal.
Debts due to other clubs on transfers to £188 million at 30 June 2019, although this figure is another which has risen rapidly since Sir Alex retired.
Summary
So, where does this leave Manchester United? There is no doubt that the Glazers and Ed Woodward are unpopular with a large proportion of fans. The lack of trophies in recent years is now perhaps catching up with the club as it no longer shows the incredible growth in sponsorship deal values that took place once upon a time. So perhaps Ed is wrong and playing performance does really have a meaningful impact on the commercial side of the business, and that might worry the owners and investors as it has done the fans in recent times. Whether that will result in an improvement in United’s fortunes on the pitch if the club is driven by the manager instead of the commercial department is an unknown.
