By Phil Gregory
Manchester United: highly profitable business, well run within its means. But…
This is the third in a series of articles covering the economics of the premier league, based entirely around information found in their official accounts. There’s a link to all the articles in this series at the end.
Manchester United’s finances are never far from the back pages any more, and with the club losing the Premier League title to Chelsea after three successive victories, the furore over the Glazers’ handling of the club is only going to increase.
That their performance fell after the sale of Ronaldo is undeniable: from 90 points the season before to 85 this season despite a stellar season from Rooney. Some Mancunians would point to defensive injuries, but they have been blighted to less an extent than ourselves, [see our summary of last season’s injuries across the top teams here] and suffered few injuries amongst attacking personnel making no mention of the bizarre contribution from own goals. But enough of that: we’re here for the finances.
United’s accounts are much more open than Chelsea’s and the breakdown of turnover allowed me to see that matchday revenue rose by around 10% from 07-08 to 08-09.
With attendances accounting for 99.6% of capacity in 2007-2008 and falling (but only slightly) to 99.1% in 2008-2009, there isn’t scope for selling more tickets. The price rises under the Glazers are common knowledge, but with recent reports of substantially lower than expected season ticket renewals, it certainly seems the scope for further price rises has vanished entirely. Short of selling a pint on the concourse for a tenner, my conclusion is that matchday revenues for United are likely to plateau soon, and if the Green & Gold movement keeps gathering pace, they could well fall.
TV money grew by 10% from 07-08 to 08-09, though if it wasn’t for the new TV deal starting in 2010, they couldn’t expect to improve on the 08-09 TV money figures either thanks to an appearance in the final of the Champions League and first place in the Premiership.
Commercial revenues grew steadily to £70million, far and away the highest in the league. Such growth in revenues resulted in an increase in turnover from £256million to nearly £280million between 07-08 and 08-09.
Given how Manchester United are never out of the news for financial issues, it is ironic that they are a shining example when it comes to having a sensible overall wage bill. United have one of the lowest wage to turnover ratios and indeed it fell in 2009 compared to 2008 (from 47.1% to 44.2%). This percentage is marginally lower than Arsenal’s despite their wage bill being around 20% higher, courtesy of their monster turnover. This is a result of commendably low wage growth figures of 2-3% and good turnover growth.
Amortisation – accounting for transfer fees over time
Amortisation spending has risen slightly, pointing to an increasing transfer expenditure over the last few years.
While I’m venturing into the subjective, I think from a sporting point of view this needs to increase but may not due to financial burden so kindly applied by the Glazers. Scholes, Neville and Giggs cannot be expected to keep chipping in and Rafael’s inconsistency as well as issues surrounding Anderson at the start of 2010 mean that signings in those positions could be beneficial to United.
I however don’t think we can expect too much from them this summer. Recent signings such as Diouf, Hernandez and Smalling didn’t come cheaply (easily over £20million for the three judging from various reports), while a cynic would argue money must be tight if they don’t want Joe Cole on a free. This makes me think United will struggle to build on their 09-10 points tally and won’t be adding to their league title tally any time soon thanks to the Glazers. Couldn’t happen to a nicer bunch, either.
The interest payments
The big issue with United’s financial health is of course the Glazers and the various management and interest fees going out of the club. A cursory glance at the Manchester United club accounts reveals no interest payments, but lo and behold, by the end of 2008 over £70million had left the club as “loans to parent company” along with over £50million in 2009. Vast, vast figures, which more than account for the £42.8mill (2008) and £47million (2009) operating profit.
The interest bill is hidden away in the parent company accounts, as the debt is with the parent company. An interest bill of over £100million for the last two accounting periods accounts for the operating profit and then some, meanwhile tax, amortisation and depreciation all still wait to be taken into consideration.
It’s plain to see why the debt is growing and transfer policy has shifted to those likely to have significant resale value. Naturally, a significant one-off income such as selling a star player for £80million would help with this for a while, but demanding the fee in a single lump sum as United did clearly points to their desperation for the money.
The operating profit figures are very healthy, with an increase from 07-08’s £42.8million to £47million. While United are on the whole in a hell of a mess, at least their core business is profitable. I’ll underline however, that operating profit doesn’t take into account interest payments amongst other things, which clearly is a significant cost for a highly leveraged business like United. If the interest bill wasn’t there, they’d be competing for the biggest names every summer: what a shame they aren’t.
In a nutshell: they are a highly profitable business which is run well within its means. Their problems have come as a result of a leveraged buyout and the subsequent reshuffling of the debt to bonds which has allowed the Glazers to use club money to pay down all aspects of the debt. As such, Glazer debt is Man United debt, and once interest payments are considered, United make a loss.
Clearly an end to this type of buyout is needed for the Premier League to be healthy overall, but the question of how to do this remains.
This article is about Manchester United, not their owners. However we will be published a separate piece on the Glazer’s own finances and how it is affecting the Manchester United situation, in the near future.
There’s a new Financial Index showing all the financial reviews published to date, at www.blog.emiratesstadium.info
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