The Business Of

Man United | Outlook

Morning All!

It is Friday, and we’ve covered quite a bit so far this week. So we’ll try keep it light! For the final section, we’ll look at the outlook for Man United and the wider football industry. After all, we now know how the company makes money, what its costs are and what it does with its profits. But we also need to look at the future and how those elements could potentially change. So without further ado…

Glory, Glory Man United?

Man United for many years was a name synonymous with success. In the 21 seasons from 1992-2013, the club won an extraordinary 13 league titles. And they actually won 8 of the 11 titles from 1992-2003! Throw in a few Champions Leagues too…

However, things haven’t been quite the same since 2013, with Man United yet to win a title since then. And in fact, they’ve struggled to break into the top 4 places, something that was unthinkable during the glory days.

The chart below shows how Man United’s league performances have slipped over the last decade.

Why is this all important? Well, we saw yesterday how Man United (as a business) would suffer if Man United (as a team) suffered. Broadcasting revenues would fall (as you get more money for finishing higher and being the the champions league) and Commercial revenues would fall (as sponsors pay more to be associated with the best teams).

So, how are the club trying to turn this around? Well, much of Man United’s decline as a team (and hence business) has come about since the retirement of Sir Alex Ferguson. And the search for the correct replacement has been extensive, but elusive thus far. Even the ‘Special One’ didn’t last longer than 3 seasons…

Let’s see if ETH can turn the ship around. Hopefully (for United fans), last Sunday at Anfield was just a blip…

Can You Compete With Oil?

Speaking of history, most readers will probably be too young to remember the time when Man City used be led by a Swede called Sven and be hammered by teams like Middlesborough 8-1. Yes, that really did happen.

How times have changed since 2008 when Sheikh Mansour and the Abu Dhabi United Group (a UAE based private equity company) took ownership of Man City!

Why am I saying this? Well we recently heard Jurgen Klopp talk about how teams just can’t compete with Man City, Newcastle, or PSG and their ‘oil money’. But what does he mean? Rich owners can’t just buy whoever they want - Financial Fair Play states that clubs can only spend a certain percentage of their profits on buying players.

What Jurgen really means is the impact these owners who are state funded can have on a club’s revenues. And in particular their commercial revenue. Let’s give you an example. Back before Man City’s takeover, the club’s shirt sponsor was Thomas Cook. And the club would receive £2.3m a year from this sponsor. When Sheikh Mansour took over, Thomas Cook was ditched and in came Etihad Airways - the Abu Dhabi airline. Their agreement with Man City meant the club received £67.5m a year from Etihad. Yes you saw that right. From £2.3m to £67.5m!

And it’s not just Etihad. Sheikh Mansour’s considerable links with the UAE have seen many sponsors from the UAE, including Emirates, Masdar, Etisalat, Wix and others all throw inflated, above-market commercial revenue City’s way. Back in 2009, Man City’s commercial revenues were ~£8m. This has grown to £310m in 2022. Quite remarkable. PSG have seen similar trends. And we’re seeing Newcastle follow the same outline since their takeover…

So that’s clear I hope. If Newcastle and other teams start receiving huge commercial income boosts from state linked sponsors, they’ll be able to spend more money on players and start climbing the Premier League. What impact will this have on Man United?

Well in terms of revenue, we covered it quite extensively yesterday what would happen if United started falling down the PL rankings. However the other impact is on the cost line. If Newcastle starts offering players humongous wages to attract them to the club - which will no doubt happen - then Man United will also have to up their bids in order to match Newcastle. This will bring even further employee cost inflation and could see Man United’s margins deteriorate. Not pretty…

Elon Musk: CEO - Maybe, Saviour - No

The final thing we’ll touch on briefly is the current debate on who will acquire Man United. Back in November, the club’s owners, The Glazers, announced that they were looking at options to sell the club. Many potential buyers have been touted: Apple, Sir Jim Ratcliffe (one of the richest men in Britain), and even Elon Musk.

What could new owners mean for Man United? Would it mean huge increases in commercial revenue like Man City has (and Newcastle will) see? Simply put, no. For all his charms, Elon Musk or whoever takes over, won’t have the influence over sponsors to get them to cough up inflated, above-market values for sponsorship like the Saudi-backed funds are able to do. However, training facilities will be modernised, and investments that weren’t made during the Glazers’ 16-year reign will likely finally be made.

Will this turn things around for Man United? We think it’s unlikely. And given all the analysis we’ve done on The Business Of Man United this week, we would be surprised if Man United ever returned to those glory days.

(Final Whistle Sound)

So that brings us to the end of Week 3 of The Business Of newsletter! We hope you enjoyed diving into all things Man United. This week we’ve dug into;

(i) how football clubs make money,

(ii) how much it costs to operate their business model,

(iii) what they do with their profits, and

(iv) what the future might look like in the industry!

But it’s not quiteeeee the end. Because we have a special newsletter being released imminently!

10th Mar 2023

Nigel Jacob CFA