The Business Of

Man United | What Are Their Costs?

Morning All!

So, we covered a lot yesterday and probably need a little recap on what Man United’s main revenue streams were for 2022. The 6 revenue streams below accounted for >70% of United’s total revenue (£583m):

1. Premier League (Broadcasting) - £140m.

2. Adidas (Commercial - Retail) - £75m.

3. UEFA (Broadcasting) - £60m.

4. Non-season tickets (Matchday) - £60m (estimate).

5. TeamViewer (Commercial - Sponsorship) - £47m.

6. Season tickets (Matchday) - £37m.

If you remembered all that, I salute you…

Today, we’ll look at the main costs involved in operating the giant football club. In the chart below we can see that costs are split into 3 main areas: (i) Employee costs, (ii) Amortisation, (ii) Other.

Let’s dive into each area. And as you’ll see by the end of this newsletter, football clubs have the most extraordinary of cost structures. But without further ado…

‘I needed moviestar money…’

For those of you who’ve seen the ‘Welcome to Wrexham’ series on Disney+, following the Welsh club’s progress under owners Ryan Reynolds and Rob McElhenney, you may remember this fantastic line that Rob says in the first episode…

‘I have TV money. But as I started to look at how expensive it actually was to run a club, I realised I need something more than TV money… I needed moviestar money’.

Enter… Ryan Reynolds.

But the main reason why you need ‘moviestar money’ in order to buy even a small club like Wrexham is because of how expensive employees are. Looking at the chart below we can see that the average salary for a full-time employee at Manchester United is ~£327k per year. There aren’t many companies that we’ll look at where the average employee is making £327k per year!

But of course, there’s a huge range across employees when it comes to these salaries. Manchester United employed 1,035 full-time staff in 2022. Only 36 of these staff (3.5%) were 1st team footballers. The other 96% of staff are made up of the coaches, chefs, media coordinators, groundsmen, etc. They also employed 1,045 part-time staff to help out on matchdays.

We managed to find (hopefully accurate) wages of the top 25 United players (source) and ranked them in the table below. These 25 employees cost Man United a total of £202m in wages for 2022. Given the company’s total wage costs of £339m, (this is less than the £384m total employee costs because we remove social security costs), this means that those 25 employees (just 2.4% of total staff) make up 60% of Man United’s total wages! See the full list below…

As we saw from the chart earlier, employee salaries have been growing steadily over the last decade, ~6% a year up till the pandemic. Of course everyone’s wages will have seen some inflation, from the groundsman to the chefs. However, the main driver of the rise in salaries is footballer wage inflation. The chart below shows how the top paid footballer in the PL has evolved over the years….

Where could this end up? Your guess is as good as ours. But it’s important to note why footballers are paid so much. And the main driver of these wage rises has been the ever-growing popularity of football globally. As more people watch football, it becomes more valuable for Sky/BT/Amazon and overseas media companies to broadcast the games (as they can sell ads for higher amounts). Because of this, these media companies pay the PL more for the media rights (£10.4bn for 3 years as we saw in yesterday’s newsletter). Because the PL receives more money, they can pay clubs more for being a part of the PL. Because of the huge money on offer, the competition between clubs to buy the best players has heated up - and what’s the best way to attract the best players… pay them more.

Additionally, in Friday’s section, we’ll look at the outlook for the football industry, and dive into the topic of wealthy owners buying football clubs. Because if in the future, clubs don’t need to rely on broadcasting or matchday revenues to buy and pay players - but rather can rely on oil money… there’s going to be continued upward pressure on wages.

But let’s wait till Friday for more of this discussion!

Amorti… what?!

I’m sure a few of you are wondering what on Earth amortisation is…

… and that’s completely fair enough! That’s what we’re here to break down.

So, amortisation is an accounting measure. It’s basically where companies spread the cost of an (intangible) asset over the lifetime of the asset. Let’s break this down.

When Man United buys a player, they don’t ‘own’ the person. They ‘own’ the person’s footballing ability. That’s their asset. Because footballing ability isn’t tangible (you can’t touch it), we call this an intangible asset.

If the player is signed for £20m on a 1 year contract, the lifetime of this asset is 1 year. And so we can say the entire £20m cost is for 1 year. However, if a player is signed for £20m on a 4 year contract, the lifetime value of this asset is 4 years. And so we would split this £20m cost over 4 years. The cost per year would be £5m - this is the amortisation cost. Okay, so let’s look at a real life example for United…

In 2016, Man United paid £89m for Pogba on a 5 year deal. This would mean that for each year of his contract (2016, 2017, 2018, 2019, 2020), Man United would account for £17.8m (89/5) amortisation costs on its income statement.

On its balance sheet, they would right down the value of their intangible asset (Pogba) on the balance sheet by £17.8m per year. After 5 years, when the deal is done, the value of Pogba on the balance sheet would be 0. Which makes sense because he no longer is contracted by Man United. (Don’t worry if you don’t understand this - you can always hit ‘Reply’ to this email and ask your questions. I promise to get back to you!)

As we can see from the chart above, all these player signings add up, with amortisation costs consistently above £80m a year. Last year amortisation grew to £151m and if United continue to buy expensive players, it will continue to grow!

Other costs

The final cost bucket outside of salaries and amortisation is simply called other. And we won’t spend too much time on it because the main costs to understand are the two we’ve already looked at. This third bucket makes up ~20% of Man United’s total costs and is comprised of several things including; security stewarding at Old Trafford, cleaning costs, visitor gateshare for domestic cup games, property costs, etc.

8th Mar 2023

Nigel Jacob CFA