Rangers: Automatic for the people

Introduction

8pm on 31st October is when I’m usually wondering if I can eat all the fun size Mars Bars that haven’t been vacuumed up by local youths dressed in Freddy Kreuger or Gary Neville fright masks trick or treating for Halloween.

Instead my email inbox pinged, and something came through about Rangers. Initially I ignored it, couldn’t be important surely, as after all the first team were playing high flying Kilmarnock at the same time.

At half-time, having prised myself away from the match on TV, it appeared that Rangers had published their annual results, a good time to bury bad news perhaps?

Key figures for 2017/18

Income £32.7m (2017 £29.2m) Up 12%

Wages £24.1m (2017 £17.6m) Up 37%

Recurring loss before player sales £9.9m (2017 £3.9m) Down Up 153%

Player signings £9.7m (2017 £10.3m)

Player sales £1.7m (2017 £0.8m)

Income

According to the accounts the club broadly generates its income from three main sources. Matchday, broadcasting and commercial.

Rangers didn’t produce accounts for 2011 and 2012 due to the club being in liquidation and the accountants not being obliged to submit them to the registrar.

Matchday income was up 6%, the main reasons for this were:

  • An early exit from Europe, although this still added an extra home match to the season’s total.
  • Higher average attendances which rose slightly to 49,173.
  • Season ticket prices rose from an average of £314 to £328.

Matchday income contributed 70% of total revenues for the club. Compared to the English Premier League (EPL), this is a far higher proportion than for any club in that competition. Rangers are also far more reliant than Celtic for matchday income as the latter had the benefit of Champions League participation.

Ranger’s matchday income was the second highest within the SPFL which places it is an awkward position. Too far behind Celtic to compete financially, too far ahead of other clubs in the division to be threatened, once it comes to term with the standard of that division, a state that hasn’t been reached yet based on results. The former duopoly in the domestic game has not quite yet been achieved.

If the club had been part of the English Premier League, Rangers’ matchday income figure would have placed it ninth in that division.

Broadcast income rose by 22%, to £4.4 million. Part of the increase was due to a UEFA pay-out for all clubs, although for Rangers it is just £650,000.

In 2018/19 this will rise significantly as the club has qualified for the group stages of the Europa League.

In 2018/19 the total prize money in the Europa League, whilst sneered at in some quarters for being the poor relation in UEFA compared to the Champions League, is £495 million

The SPFL TV deal is worth just £19 million a season split between 13 teams.

Even so, compared to the Premier League, where the side finishing bottom still earned £100 million in TV money, Rangers are paupers compared to those clubs, but kings compared to most of the rest of the SPL.

Rangers also benefited with the payments being made in Euros, as the poond continued to be weak following the decline in the UK economy following Brexit.

Commercial income was up by a third as the club made money from a successful pre-season tour and greater sponsorship and catering.

In the last six years, Rangers have earned overall £290 million less than Celtic. Most of this money has been spent but it gives Celtic a significant advantage of terms of investment in the playing squad and infrastructure, which can help generate greater income from conferencing and catering.

Costs

The main expense for a football club is in relation to players. These consist of two main elements, wages and amortisation. Wages are straightforward enough, amortisation is how the club deals with transfer fees for players bought, by spreading the cost over the contract life. Therefore, when Rangers signed Alfredo Morelos for £900,000 in 2017 on a three-year contract, this works out as an amortisation cost of £300,000 a year for three years. This is subtracted from income when profits are calculated.

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The amortisation charge has increased five-fold in the last two seasons as Rangers have invested in the squad since promotion to the SPFL. The problem they have is that Celtic’s amortisation last season was £8.8 million, highlighting the additional spending power they have.

Wages increased by 37% in 2017/18. This is partially due to the investment in new players, as well as giving new contracts to established players who have performed well in the top tier. The wages bill also probably includes the payoff to Caininha and Murty (Kenny Miller’s will be in next year’s accounts).

The problem Rangers have is that whilst their wages dwarf those of nearly every other club in the division, their fans are only focussed on their local rivals, who paid £250 in wages for every £100 paid out by Rangers.

This gap is likely to drop in 2018/19 as Celtic’s wages are likely to fall as Champions League bonuses will not be paid, and the recruitment of Gerrard and new players will increase Rangers’ costs. Even so there is likely to be a significant difference between the two clubs.

Whilst paying higher sums to players does not guarantee better performance, in the main there is a link between wage totals and final league position. It’s possible but rare for this not to be the case, Leicester City winning the English Premier League in 2016 being an example.

Rangers total wage bill puts it about par with a mid-table Championship club in England, as the club has the 37th biggest total in the UK.

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One group who are not benefitting from the higher wage bill are the directors, for the past three seasons they have not taken payment for their roles at the club.

Because wages increased faster than income, Rangers wage control percentage rose from 60% to 74%. This means for every £100 of income the club paid out £74 in wages, this compares to £58 for Celtic.

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A good target rate for clubs is often claimed to be 60% or lower, which Rangers achieved the previous season but were unable to maintain.

Rangers had an additional cost of £3.3 million for 2017/18 in ‘impairment’ costs. This is where the club has signed players in the past who turned out to be pish a bit rubbish, and so the club wrote down their values. Rangers fans will no doubt have a good ideas as to the identity of these flops.

How much Rangers spent in the year on legal fees is unknown, but the club does have a few ongoing cases.

Profits and losses

Profit is income less costs.

There’s no ‘correct’ profit figure, different vested parties will have different viewpoints, so it’s best to look at a few to get an overall picture.

The first is operating profit. It is total income less all day to day operational costs of running the club.

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Rangers’ made an operating loss of £12 million in 2017/18, as higher wages, amortisation and impairment already mentioned increased player related costs.

The problem with operating loss is that it can be distorted, especially by player disposals. It therefore makes sense to also calculate profit before player sales and other one-off items such as redundancy payments and contract disputes.

This is referred to as EBIT (Earnings Before Interest and Tax). This removes the volatility in relation to selling one player in a single season at a huge gain as has already been seen.

Stripping out these figures reduced Rangers’ losses to £9.9 million. Over the last six years Rangers have sold players at a profit of £2.5 million, a relatively small sum which reflects that they were playing in the lower echelons of Scottish football during this period.

Celtic have made a profit of over £100 million during the same period (including the Dembele sale this summer), reflecting that they’ve been able to buy better players at a young age and sell on at a profit after showcasing them in Europe.

One final profit figure adds on player amortisation and depreciation of the stadium and other long-term assets to the EBIT total. This is called EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation).

This is the nearest figure to a ‘cash’ profit total, used by analysts when they are working out how much cash a business is generating or haemorrhaging each year.

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This loss of £4.2 million is in many respects the most disturbing, as if a club is losing cash from trading then the owners (or a bank) will have to stick their hands into pockets to fund these losses.

English Premier League clubs average an EBITDA profit of £61 million, on the back of the TV deals south of the border.

Player Trading

Ranger’s player trading is big by Scottish standards but still trails their rivals. They can outbid most other Scottish clubs, but with the arrival of Steven Gerrard also seem to be looking to pick off players from England who are perhaps not getting a game and fancy playing in front of nearly 50,000 people for home matches.

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The board have backed managers in the last couple of seasons since promotion, whether that money has been spent well is still uncertain, although as always for every success there is a turkey.

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Since June 30th Rangers have also spent a further £6 million on additional players.

Funding

Rangers’ previous financial history means that the club finds it difficult to borrow from banks, and so is dependent upon directors and friendly parties to lend the club money to make up the shortfall from regular operations and player trading.

Over the last six years the board has funded the club by pumping in over £53 million.

At 30 June 2018 the loans element had risen to £21 million.

The net debt (borrowings less cash) total has risen significantly since Rangers promotion to the SPFL. It will have halved following the share issue recently, but has a high chance of returning to an upwards trajectory as the running costs under Steven Gerrard are likely to exceed income, unless relative European success is achieved.

Rangers fans who had hoped that the club had generated over £12 million from a much publicised share issue will be disappointed.

90% of the share issue was used to convert loans to shares, which is swapping one piece of paper for another, rather than generating fresh money for the manager. The club did borrow a further £2million but this will require repaying.

The audit report gives a warning signal about the future.

Rangers need to raise over £7.5 million during the next two seasons to stay afloat. That money could come from (a) loans from owners, (b) a successful run in the Europa Cup, or (c) player sales. The uncertainty makes planning for the future very uncertain.

Conclusion

Rangers are in a tricky situation. Fans have been patient to date but will expect regular silverware at some point. The club is dependent upon a board that is still given to infighting and a lack of unity, apart from when it comes to picking a dispute with outsiders (such as Sports Direct and the Takeover Panel). Chairman Dave King, who seems to have modelled his stewardship of the club using the handbooks of Ken Bates, Mike Ashley & the Oystons at Blackpool, but without the pleasant element of their characters, seems to have a smoke and mirrors approach to the club’s troubles.

How much additional funding is available is uncertain, but unless Rangers repeat their achievement of 2008 in making it to a UEFA cup competition final (a match I attended as live in Manchester, which will stick in the memory for a long time for the sights in the centre of the City at 6am when I went to work), or at least make major progress in the competition, then it would appear that significant further funds will be needed to keep the club trading.

If the owners are willing to continue to provide such funding then all is good, if not then the Gerrard experiment may have a limited shelf life, and the club could be plunged into another financial crisis.

The numbers

Celtic: Rattlesnakes

Introduction

Is that what you call a treble?

Celtic announced their 2017/18 results in mid-September 2018, but these came in the form of a detailed press release, rather than the full annual report. Like many things in relation to Celtic, it left a few unanswered questions where perhaps it would have been easier to give a fuller story.

Having failed to make the qualifying rounds of the Champions League, the club face a challenging season where for the first time in many years there could be a credible challenge to their domination of the domestic game.

Ambivalent comments from manager Brendan Rodgers, a Rangers who are getting a lot of attention since the arrival of Steven Gerrard and a decent start from the two main Edinburgh teams seem to have knocked the confidence of the club and its fanbase.

Having achieved the double treble in 2017/18, where does this leave the club financially for the following season, in a sport and city where memories are very short.

Key figures for 2017/18

Income £101.6m (2017 £90.6m) Up 12%.

Wages £59.3m (2017 £52.2m) Up 14%.

Recurring profit before player sales £5.1m (2017 £6.7m) Down 23%

Player signings £16.6 m (2017 £13.8m)

Player sales £16.5m (2017 £4.2m)

Income

According to the accounts the club generates its income from three main sources. Matchday, merchandising and broadcasting.

Matchday income was up 16%%, the main reasons for this were:

  • Champions League and Europa Cup participation meant there were mor games at Parkhead. Attractive opposition in the form of PSG and Bayern Munich meant that premium prices could be charged for these matches.
  • Higher average attendances which rose to over 57,000.

Matchday income contributed 43% of total revenues for the club. Compared to the English Premier League (EPL), this is a far higher proportion than for any club in that competition.

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Celtic’s matchday income was far higher than that of any other club in the SPL, with Rangers being closest at £21.6 million, due to more matches and higher attendances. If the club had been part of the Premier League it’s matchday total would have placed it seventh in that division.

Being in Europe against glamour opposition such as PSG and also playing Rangers domestically allows the club to charge higher prices too,

Broadcast income rose by 10%, to over £40 million, again driven by Champions League qualification. This is crucial for Celtic as the domestic TV deal is relatively meagre. In 2017/18 the total prize money in the Champions League was £1,200 million, compared to £350 million in the Europa League. The SPFL deal is worth just £19 million a season split between the teams.

As can be seen from the above, when Celtic make it to the group stages of the Champions League, as they did in 2012/13, 2013/14, 2016/17 and 2017/18, there is a spike in broadcast income.

Even so, compared to the Premier League, where the side finishing bottom still earned £100 million in TV money, Celtic are paupers compared to those clubs, but kings compared to most of the rest of the SPL.

The payout from participation in UEFA competitions has increased significantly in 2018/19 to enlarge the gap still further.

Celtic also benefited with the payments being made in Euros, as the poond continued to be weak following the decline in the UK economy following Brexit.

Commercial/merchandising income was up 8%, the club launched another three kits with New Balance.

Hibernian are the only other club to publish their results to date for 2017/18, but even so the gap between Celtic and the other clubs is huge.

The failure to qualify for the group stages of the Champions League could narrow the gap between Celtic and Rangers in terms of income for 2018/19 substantially.

Costs

The main expense for a football club is in relation to players. These consist of two main elements, wages and amortisation.

Wages increased by 14% in 2017/18. This could be due to bonuses being paid for winning the domestic treble and participation in the Champions League group stages. After a period of relative stability during the decade Celtic’s wage bill rose significantly in 2016/17 and then by a further £7 million in 2018.

Hibernian are the only other club to report for 2017/18 and their wage bill rose by 17%.

For the first time a Celtic director received pay of more than £1 million, with Peter Lawwell taking home in total £1,167,000. Somewhat bizarrely, for the four previous years the highest paid director had always been paid £999,000, perhaps not wanting to upset fans with the thought of one of the suits trousering more than a million for being to help mastermind the defeat of the likes of Ross County and ICT.

Celtic seem to have their wage levels under control, even with the increased amounts being paid. The wage/income ratio, which in the English Championship was over 100%, was more in line with the EPL, which averages 68%.

Amortisation is the method clubs use to spread the cost of a transfer over the length of the contract signed. For example, when Celtic bought Scott Sinclair for £3m on a four year deal this works out as an amortisation cost of £750,000 a year (£3m/4 years).

The total amortisation figure in the accounts each year relates to the whole squad for which the club have paid a fee.

Even considering the amortisation fee for the year, Celtic’s total spending on players worked out as £67 for every £100 of income in 2017/18.

The amortisation charge arose as a result of Celtic spending £10.6 million on players for the 2017/18 season.

Eh pal, explain to me what amortisation means again.

Exceptional costs

Celtic did have a further £4.1 million of costs in 2017/18 that were called ‘exceptional’. These are expenses that are one off in nature and so not expected to recur every year.

This included £511k in relations to signings that proved to be shite less impressive than when the club bought the player, and so had to be written down. There were also payments totalling £3.5 million in respect of staff who had their contracts terminated early, which is likely to include Nadir Ciftci, who was encouraged to leave the club a year early after signing for £1.5 million from Dundee United and scoring four goals during his three seasons at Parkhead.

Profits and losses

Ask an accountant what they mean by profit, and they will start to sweat, loosen their tie, and look nervously around the room.

There are many types of profit that can be calculated, but here at the Price of Football we concentrate on three.

The first is operating profit. It is total income less all day to day operational costs of running the club.

Celtic’s operating profit was a record £18 million in 2017/18, due to the good cost control already mentioned but distorted by the 20% profit sell on when Virgil Van Dijk was sold by Southampton to Liverpool in January 2018.  Rangers had an operating loss of £6.8 million for 2016/17 but broke even in the six months to 31 December 2017.

The problem with operating profit is that it can be distorted, especially by player disposals. We therefore also calculate profit before player sales and other one-off items such as redundancy payments and contract terminations.

This is referred to as EBIT (Earnings Before Interest and Tax) This removes the volatility in relation to selling one player in a single season at a huge gain as has already been seen.

Despite the domestic success and European qualification over recent years, Celtic made an EBIT loss of over £30 million in the last nine seasons.

This shows that the club is dependent upon selling players each year to help make the books balance. Celtic have made a profit of £83 million since the summer of 2009 on player sales and this is likely to have increased substantially further in 2018/19 after the sale of Moussa Dembele for £18 million to Lyon.

The final profit figure adds on player amortisation and depreciation of the stadium and other long-term assets. We call this EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). This is the nearest figure we have that is a ‘cash’ profit total. This is what is used by analysts when they are trying to calculate a price for a club that is up for sale.

Celtic’s EBITDA profit of £15.9 million in 2017/18 was the same as the previous season and shows how critical it is for the club to have Champions League qualification. This compares to an EBITDA loss of £0.7 million for Rangers for 2016/17.

In the English Premier League EBITDA profits average £61 million, which highlights the gulf between that and the SPL,

Player Trading

Celtic’s player trading reflects their dilemma. By Scottish standards they are a huge club but compared to the Premier League they are small fry financially. Over the last nine years the club has had a net zero spend on signings, and this is likely to turn negative once the Dembele sale is taken into consideration in 2018/19.

Whilst this means the club is likely to vacuum up many trophies domestically it also results in a squad that struggles to make much progress in Europe.

Celtic have made a profit of about £100 million, taking into account Dembele, since the summer of 2009

Debts

Celtic are debt free, having cash of £43million of cash at 30 June 2018, compared to outstanding loans of £11 million. Whilst this will no doubt impress investors and potential buyers of the club, fans may feel that the club should have invested more money in players if it wants to progress in Europe and ensuring that Rangers are kept at arms-length domestically.

Celtic’s investors have neither bought shares in the club nor lent it money over the period of analysis. This may because they feel there has been no need, as Rangers’ well documented struggles have left with bigger issues to deal with and the other clubs in the SPL are so far behind financially that they have not generated anything than token rivalry.

This has allowed Celtic to pay down debts to lenders relatively slowly, but at the same time could be indicative of a club lacking in ambition to compete on a broader sphere, in the shape of European football.

Conclusion

Celtic are in a strong position financially but money in the bank is no guarantee of trophies in the cabinet. The SPL looks more competitive this season than for a long time, and Celtic could be accused of resting on their laurels for a season too long.

Such are the riches of UEFA competition it could only take one season for the huge financial  gap between the two Glasgow clubs to evaporate, and that season could potentially be 2018/19.

The numbers

Walsall 2018: Heading Out on the Highway

Introduction

Walsall have just published their financial results, the first for a League One club for 2017/18, and, just as they have done for the previous five years, they’ve made a profit and kept their status in that division for the eleventh consecutive year.

That seems to be enough to satisfy the ambitions of the club owner, Jeff Bonser, though some fans seem to be fed up with his control of the club, and the way he extracts money from it through owning the stadium.

Financial summary

Income: £5,853,000 (down 12%)

Wages: £3,376,000 million (down 0.3%)

Sustainable operating profit £63,000 (down 89%)

Wages to income 58% (up from 51%)

Player sales £110,000 (purchases of £179,000 in 2016/17)

Borrowings £2,038,000 (down £289,000)

Income

Not breaking the law

Most clubs show three types of income in their accounts, but somewhat frustratingly Walsall only show two, by combining broadcasting and commercial streams.

Matchday income was almost identical to 2016/17 at just under £1.1 million. Average attendances fell by 6.2% and early exits from the cup competitions didn’t help either. The importaince of a good cup run or a draw against a ‘big’ team was highlighted in 2015 and 2016 when the Saddlers made it to the FL Trophy final at Wembley and had a cup draw against Chelsea respectively.

This works out at £229 per fan for the season, a 7,5% increase on the previous season, but probably due to having an extra home cup game compared to 2016/17. If fans think this is far lower than the price they pay for their season ticket, note that the club figures exclude VAT at 20% and are an average of adult and concession prices.

‘Other’ income fell by nearly £800,000 to £4.76 million. The main components of ‘other’ income are broadcasting (estimated at £1.5 million) and commercial sponsors, catering conferencing and so on. The importance of this income source, which can generate cash far more often than the 23-28 home match days each season is highlighted as it brought in more than half of the Saddler’s revenue in 2017/18.

Compared to the income of L1 clubs the previous season, Walsall in 2017/18 were about mid-table in terms of the total generated (Bolton’s figures were distorted as they were in receipt of parachute payments from the Premier League).

Costs

Footballs main costs are in relation to players, and here Walsall continue to keep tight control.

The total wage bill, including pensions and national insurance costs, was 0.3% lower than the previous season, despite the club employing eight more staff., The reason for the slight fall is likely to be linked to a 19th place finish in League One, compared to 14th the previous season, and so player win bonuses would be lower.

The club clearly have a tight wage budget set each year, but the wage to income ratio increased from 53% to 58%, meaning that the club was paying out £58 in wages for every £100 of income that was generated in 2017/18. This compares to an average of 100% for clubs in the Championship.

The increase in staff numbers meant that the average annual salary of someone at Walsall fell by 6% to £24,824. Players and management are clearly likely to be on higher than this average figure, and we estimate they earned about £90,000 (£1,730 per week) which puts the club at the lower end of the division of those clubs who report wage totals (many clubs hide behind a legal loophole and don’t show this figure), and may explain why they have infrequently challenged for promotion to the Championship in recent years.

Director pay at Walsall fell by 9% but was still £175,000

One figure that irks some Walsall fans is the rent paid by the club, as it does not own the Bescot Stadium. For the last couple of seasons Walsall have paid £449,000 a year to Suffolk Life, owner Jeff Bonser for rent for the stadium, training facilities and car park. Whilst the rent was frozen compared to 2017, it had risen significantly in prior years.

It does seem that whilst Walsall are one of the lowest wage payers in the division, they are one of the most generous tenants to their landlord.

Profits

My Oh My

Profits are income less costs. Walsall seem to be able to break even each year, just. This could be manipulated by the directors’ tweaking their pay to ensure the club finishes in the black each season.

There are different profits that can be used when analysing a business, Operating profit is before taking into account interest costs on loans.

Walsall’s operating profit fell by 78% in 2018, mainly due to the decline in income in the year, but the club made a profit, which is not the case for many of its fellow League One clubs.

EBIT (Earnings Before Income & Tax) is the same as operating profit but strips out non-recurring items such as gains on player sales, legal cases writedowns and redundancies.

Walsall’s EBIT was £63,000 in 2018, whereas every other League One club that published an profit and loss account made a loss in 2017, and there is little reason to suspect this will have changed in 2018.

Walsall paid £50,000 in interest costs in 2018, of which £23,000 was on loans from directors. This means that directors made a total of £656,000 from the club in 2017/18 (Rent £459,000, pay £175,000 and interest £22,000).

One of us is in the money.

Player trading

You don’t see Walsall mentioned too often in the transfer gossip columns of the papers or sports broadcasters, and there’s a good reason for that.

In the four years leading up to 2016/17 the club neither sold nor bought a player for a fee. This record was broken when Cypriot striker Andreas Makris was signed for £179,000 (€200,000). Makris’s season proved to one of disappointment, with one goal in 32 games.

After proving to be shite a disappointment Makris’s value was written down in the accounts, and he was sold back to Cyprus in the summer of 2017 and this has shown up in the 2018 accounts as a fee of £110,000.

Walsall did not sign any players for a fee in 2017/18, but they are not alone in League One in relying on Bosman signings and loans.

Debts

The sale of Makris allowed Walsall to repay some of their outstanding loans. In total the club had borrowings of just over £2 million at 30 June 2018, a reduction of £289,000 compared to the previous year. Included within these borrowings is £1,339,000 due to directors and £399,000 to the bank, which is guaranteed by Jeff Bonser.

Conclusion

Walsall, almost uniquely for a League One club, have shown that they can break even season after season by managing their wage budget carefully, and being ultra-cautious in the transfer market.

Promotion to the Championship is worth about an extra £7 million a season in TV money, plus bigger gates against local rivals such as Villa, West Brom and Birmingham City. With the club so close to the playoffs at present going up could be an income windfall.

The danger with promotion is that wage bills also tend to balloon (the average is £22 million per season) and for clubs with resources such as Walsall the stay in the Championship is often brief (Burton, Barnsley and Rotherham can testify to that).

Whilst owner Jeff Bosner has been generous in lending money and guaranteeing the bank loans and overdraft, he is also the biggest beneficiary of the club financially in terms of the varying income sources from Walsall.

From an analysts’ perspective, we do however commend Walsall for producing their results so quickly after the end of the season and not taking advantage of legal loopholes to restrict the amount of information they publish.

The Numbers

 

Manchester United 2018 Finances: Made of Stone

Panic on the streets

Introduction

Tuesday 25th September 2018 may not go down as a great day in Manchester United’s history, as the club lost in the Carabao Cup to Derby County and there was a very public spat between Jose Mourinho and Paul Pogba, but off the field the club announced record revenues for the year ended 30 June 2018.

They’re paying Woodward HOW much?

How this was achieved is more to do with the abilities of the marketing department which continues to set a standard that most other clubs can only envy.

Earnings this high are likely to ensure that United are once again top or close to the top of the Football Money League when other clubs announce their results, although this is of little consolation to fans who saw their team go without a trophy in 2017/18.

Goals rather than profits excite fans, although the financial results show that United are still setting the standard that others aspire to in terms of generating money.

Losing a match in the Carabao Cup is likely to have little impact on United’s financial fortunes, as the competition generates only £100,000 prize money for the competition winners, compared to £1.8 million for the FA Cup and £38.6 million for the Premier League.

Income

All clubs divide their income into three main streams, matchday, broadcasting and commercial.

Zooming in on the figures show that United’s matchday income fell by £1.8 million last year.

Extracting the matchday income is straightforward, as it is the average ticket price multiplied by the number of matches played at home.

Reducing the number of games at Old Trafford in 2017/18 was the main driver of the fall in income as United’s early exit in the Champions League to Sevilla resulted in five fewer home matches.

Since acquiring the club, the Glazers, whilst criticised for many of their early pricing activities by fans, have frozen matchday prices for most of the last decade and this is reflected in matchday income being relatively constant.

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As a member of the Premier League, United, like all clubs, agree to centrally negotiated broadcasting deals which are usually for three-year periods which commenced in 2014 and 2017.

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Reds fans are used to rarely seeing their team play at 3pm on a Saturday, and this is because United are very popular with TV audiences, appearing more times last season than Champions Manchester City due to their ability to deliver high ratings.

Each incremental final season position in the Premier League is worth an extra £2 million to a club, so United finishing 4th compared to 2nd in 2017 generated £4 million on top of the benefits of being in the Champions League compared to the Europa Cup.

The area in which United have excelled over the last decade has been commercial income as the club’s marketing department has struck global and regional deals with everyone from tractor manufacturers to Indonesian isotonic drink partners.

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Whilst commercial income has plateaued in the last three years, mainly due to the new big deals with adidas and Chevrolet both being long term, United have announced a sleeve sponsor deal for 2018/19 with American toilet and generator manufacturer Kohler which is likely to be worth many millions.

Adding all three income sources together took United to overall revenues of £590 million, a substantial way ahead of the only other club to have announced results for 2017/18, Manchester City.

The income gap between the two Manchester clubs has narrowed in 2018, but over the last decade United have generated over £1.1 billion more than City and far more than any other club in the Premier League.

Superior levels of income are however no guarantee of success in terms of trophies, a lot depends on how well a club spends its income.

Expenses

For most clubs the main expenses are going to be player related, in the form of wages and transfer fee amortisation.

United’s wage bill increased by 12% in 2017/18, despite paying no bonuses for winning trophies, the increase was due to new contracts for existing staff such as Jessie Lingard and Jose Mourinho as well as signing Alexis Sanchez in January for a contract estimated to cost the club £20-25 million a year.

City’s wage bill, which a few years ago was out of control as the club tried to attract players by paying above market rates, now show more modest rises since 2013 as the owners focus on FFP compliance and a breakeven model in terms of profitability.

Keeping players happy and recruiting new ones is always a challenge whilst not exceeding the wage budget but what United do have in their favour is good control of wages as a proportion of income.

Only a club with owners who were prepared to underwrite huge losses could have coped with City’s wage bill a few years ago, as wages peaked at £114 for every £100 of income in 2011 whereas United have always had one of the lowest wage control financial metrics since the Premier League started.

Funding transfers is another big outlay for clubs, and this is shown in the profit and loss account via the amortisation charge, which is the fee paid spread over the contract life.

For example, United paid Everton £75 million for Romelu Lukaku in July 2017 on a five-year contract, which works out as an annual amortisation cost of £15 million (£75m/5).

Every transfer fee is amortised, and the total is shown as an overall expense in the profit and loss account, United’s amortisation figure rose by 11% to £138 million.

Despite the amortisation figure rising substantially since Sir Alex Ferguson’s retirement in 2013 United have failed to win the Premier League or Champions League, which adds further weight to those who take the view that Ferguson was able to maximise results without breaking the bank.

Overall costs rose by 9% compared to just a 1.5% increase in income, which hit profits. Included in costs was £896,000 paid to United’s auditors, PriceWaterHouseCoopers (PWC) for the audit and ‘tax compliance services’. Ed Woodward is a former employee of…PWC.

Because the Glazers acquired United by borrowing huge sums of money, the club has historically paid large amounts of interest on loans. The good news for United is that these interest costs are falling as time progresses but have still sucked a large amount of money away from the playing budget over the years.

Over the last decade United’s net interest cost has been £447 million. In the early years of Glazer ownership, the club was seen to be risky borrower, and so ended up paying interest rates of up to 16.25%. As things improved, in part due to Alex Ferguson’s caution in the transfer budget the interest cost has fallen, but the club has now paid an estimated £785 million to banks since the takeover arose in 2005.

Other clubs, funded by their owners, such as Chelsea, Manchester City and Stoke City, have paid no interest on the sums advanced.

Profits

There are a variety of profit measures to consider when looking at a business, the good news for United is that the club has performed well regardless of the assessment method compared to most other clubs, but 2018 was poor compared to the previous year at Old Trafford.

Operating profit is simply income less day to day running costs excluding interest. This fell by 45% in 2018, as the increase in player costs exceeded the rise in income. United’s record operating profit was in 2009 when they sold Cristiano Ronaldo for a then world record fee and banked a huge profit on the transaction.

Compared to their local rivals, United have made £618 million of operating profits whereas City have lost £474 million.

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Some figures in the profit and loss account are erratic and so distort profits. These include gains on player sales, redundancy costs, legal settlements and so on. If these are stripped out we get EBIT (Earnings Before Interest and Tax), which reflects a more sustainable view of United as a business.

EBIT profits fell by nearly 60% to £28 million in 2017/18, again reflecting the club’s big investment in player costs that was not matched by income increases, along with the price of an early exit from the Champions League, which was worth $102 million in prize money to winners Real Madrid last season. The low EBIT figure in 2015 in the table shows the impact of not qualifying for the Champions League to United that season.

Stripping out the non-cash costs of transfer fee amortisation and depreciation gives EBITDA (Earnings Before Interest Tax Depreciation and Amortisation). United like to quote this figure in press releases as it excludes some key costs (interest to banks and player amortisation) and so tends to be a high number. Other analysts like EBITDA because they claim it is a cash proxy of profits as non-cash costs are ignored.

EBITDA fell by 12% to £177 million but was still the third largest in the club’s history.

United’s fiscal muscle is very much shown in the EBITDA figures, generating £1.3 billion of such profits in the last decade, a billion more than Manchester City.

The final profit figure to consider is profit before tax. This shows the impact of the Glazer’s borrowing so much money to finance their acquisition of the club. United’s profit before tax was £26 million, equivalent to Sanchez’s wages for the season. United have made £171 million in profits before tax over the decade, compared to City’s loss of £544 million in the same period.

Profits belong to the club owners, who have the choice of either reinvesting back into the club’s future or withdrawing in the form of a dividend. The Glazer’s are the biggest shareholders in United and they and other shareholders took £22 million of the profits for the year for themselves.

Player trading

United spent £163 million on new players in 2017/18, recruiting Lukaku, Matic, Lindelof and Sanchez, although the latter was part of a swap deal with Arsenal for Henrik Mkhitaryan.

This takes the club’s spending over the last decade to just over £1 billion. The problem for United, is that the transfer market is competitive and crowded, and City have spent £460 million more than them in the same period.

Many fans talk about ‘net spend’ when it comes to player trading, and here United are in an unusual position as unlike many other clubs they do not need to sell to buy.

Having said that their player sales in recent years have not been particularly lucrative, reflecting some acquisitions, such as Depay, Di Maria, Zaha and Babe who have failed to impress in a United shirt.

Since selling Cristiano Ronaldo in 2009, United have only made £86 million profits from player sales in the subsequent nine years. City have more than that in the last three years and Liverpool exceeded this sum from the sale of Coutinho last season.

What United do seem to have done is adopt a policy of signing players on credit rather than paying cash for them.

Since the Sir Alex days, the sums owed by the club have increased rapidly, from £11 million at the start of the decade to £258 million by June 2018. This may explain why the United board were so reluctant to allow Mourinho to sign more players in the 2018 summer transfer window, as so much was still owed for previous recruits.

Funding

Clubs can be funded from borrowing from a bank and/or owner investment in shares. Under the Glazers United borrowed over £1/2 billion from banks to buy the club from the previous owners.

Debt has both good and bad qualities, it is tax efficient and can multiply the original investment from owners but comes at a cost of the interest being paid and can lead to bankruptcy if payments are not made.

United’s borrowings have increased since 2014 but this is as much to do with the club taking out two loans in US dollars (one for $425 million and the other for $225 million) and sterling falling in value post Brexit as much as anything else.

Critics of United supremo Ed Woodward will query why the club has over £240 million of cash sitting in a bank account earning next to no interest, which perhaps would be better used to pay down the loans, where the interest rate being paid is higher.

A look at the loans appears to indicate that the money is not repayable to the banks until 2027 and 2025. Critics of Woodward point out that he’s an ex-banker and is more concerned with earning fees for his old chums in finance than doing what is best for United.

If United’s EBITDA profit falls below £65 million then they may have to pay interest penalties, but there appears to be little chance of that happening at present.

Summary

United are in a strong financial position. Woodward’s recent comment that “playing performance doesn’t really have a meaningful impact on what we can do on the commercial side of the business” won’t have gone down with the United faithful.

This is further evidenced by United’s board’s refusal to accede to Mourinho’s summer transfer requests suggesting that they don’t particular care, or need to care, what the fans think, and whether you’re a Red or ABU, that isn’t good for football.

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