Woodward has been at the centre of attention for many months for failure during Moyes’ era at the club but little did we know Manchester United were still progressing off the pitch at an incredible rate.
I haven’t been blogging for a while so I have decided to start something special for hear onwards as a return to the blogging world. I’ve decide to write on Manchester United but from the perspective of an investor looking at Manchester United as an investment with no intention of keeping up to date with them on the football field.
Why not begin with the bare basics, so we’ll start with Revenue. Manchester United has declared £433 million of revenue for the financial year ending May 2014. For a normally running business this is the money you earn from selling your products but in a football club’s case this is a little more complex since they have a number of sources to earn from. A football club can earn revenue from their; Commercial team, which normally involves sponsorship income; Broadcasting team, bringing income from the Premier League and UEFA if the club feature in any European competitions; and finally their Match day team, which involves any extra income earned on the day of a football match such as ticket sales and food sold during the day.
United have been in the news for their glamorous sponsorship deals with Aon, Adidas and Chevrolet but where do they lie compared to 2010 for their diversification of revenue? In 2010, United earned 27%, 36% and 37% of their revenue from their Commercial, Broadcasting and Match day departments, respectively, but in 2014 these percentages changed to 44%, 31% and 25%. Woodward has taken the club from a stage of being dependent on match day income to a stage of being able to attract large corporations wanting to advertise their own services using United’s name.
United’s revenues are expected to grow at an annual rate of 11% taking the final figure to almost £700 million in 2020 alone. If we think United are currently doing well to reach £433 million, what exciting plans have the club got in mind to reach this wonderful figure. I can only sit and be patient with pure excitement. The growth percentage incorporates many factors such as future signings, the potential to acquire big sponsors and Van Gaal’s future success.
I have attempted to shed positives on the Glazer takeover for many months on Twitter even though they bought the club with a huge amount of debt. Although there is a considerable amount of money being paid from the club’s bank each year as interest payments but as far as phrase, ‘The Glazers are putting all of our money into their back pockets’, I can confirm the family is only receiving £10 million annually from the club’s accounts. I believe an individual who owns 90% of a company that is building in excess of £100 million of cash from operations, has every right to touch at least 10% of this. That’s business I’m afraid.
Anyway, back to the positive, there have been many reports of the English Premier League rights package as it’s expected to be growing by 20% when it is renewed in 2017, which will contribute to at least £120 million of annual revenue. The UEFA contract will also be experiencing a major bump up of 30% taking annual revenue from Europe up to at least £55 million every year. These two figures will be relatable to other clubs such as Man City, Chelsea and Arsenal and maybe Liverpool. If for whatever reason Van Gaal misses this year’s qualification for Champions League and the Europa League the club will be losing the chance of acquiring an extra £55 million through Broadcasting and Match day revenues.
In 2012, the club had 10 global sponsors identifying another 40 potential categories for growth. Two years later, its portfolio of global sponsors has grown to 17 partners, and the club has identified 95 total categories for potential expansion. Although the club has already partnered with more than 35 sponsors, we believe that MU can continue to average 2-3 new global and 3-5 new regional deals for at least the next 3-4 years.
Manchester United’s sponsorship business is the best in the league and highly profitable as each global sponsor holds a margin in excess of 75%. For example, the Adidas sponsorship will be adding £750 million into United’s bank account; however £562.5 million (£750 million x 75%) will actually be PURE profit. The majority of United fans believe we are supporting the club at a great time because of the restructuring going into the squad, however I believe we are supporting the Red Devils at the right time due to the huge financial growth the club is on the verge of achieving, in order to pay for the investment of many more Di Marias on the pitch.
Ed Woodward was forced to pay a fee of £2.5 million in the summer to Nike as a penalty for missing the Champions League, which suddenly broke out to rival shirt providers to incorporate these constraints into their clients. Adidas have incorporated a much larger fee to the contract signed for their services, which means if the club don’t manage to meet Champions League qualification again, their annual fee will decrease from £75 million to £52.5 million. Although this is still a large figure to receive from one entity, I know which figure Ed would rather receive.
According to KantarSport Research, Manchester United has one of the biggest followings in the World of Sport. To the greatest degree of accuracy we are expected to have a following of 659 million fans around the globe. One in every eleven born in the world will become a United fan in their lifetime. The majority of the fan base originates from Asia with 325 million, and 106 million of these coming from China alone.
The fan growth of the football club can be taken to Social Media outlining the volume of the brand. Real Madrid reached the 3 million follower milestone after 4 years of making their Twitter account, while it took Barcelona just over 2 and a half years to also reach the same achievement. United continue to break records after reaching the same milestone just after 1 year of making their Twitter account.
Manchester United is currently developing a digital media platform for their fans which is expected to be unveiled in 2016. Although the club has yet to release specific details on the product, it will likely feature premium content, catered to the local region, while tying in e-commerce and the promotion of their sponsors, which only helps them to increase Sponsorship revenue if the platform succeeds. A £5 million investment is expected to be made this year, with the intention of earning £20 million revenue within the unveiling year. I am optimistic that this will be a growth driver for the company.
Over the course of the 2013-14 season, Manchester United sold and lost (retirement) a whopping 17 players while bringing in a total of 13 new players to their squad, as 6 of these were promoted from the youth team. In the summer, the club spent close to £150 million including the record signing of Angel Di Maria for £60 million. The general public, or the general fan seems to think each club has the subsequent amount of money transferred to the counter club once a deal is organised and the majority of the time this isn’t the case. Manchester United normally organise the acquisition of players with the intention of making all payments to the club within two years if they’re of considerable value. Last season, the club paid just over £90 million of capital expenditure related to signing as this figure is expected to be well over £100 million by next summer. I anticipate total wages (every single employee at Manchester United, including players) will be increasing this year by 20%, taking the final figure to £209 million. This figure is expected to grow by 10% year-on-year thereafter.
I like to see myself as a neutral football fan but also as an unbiased United fan. I don’t believe in the hypocorism instilled within a football fan’s personality so I’ve set myself targets of 3rd place in the Premier League. If Manchester United manages to finish 3rd place in 2015, the club will be in receipt of £50 million extra revenue in 2016 compared to what they will be earning this season on last year’s 7th place finish. This additional revenue is simply additional match day and broadcasting revenue of playing in the Champions League compared to not playing in Europe at all. However if we win the league, which I highly doubt, United will be earning another £20 million on top of the £50 million I previously mentioned.
£20 million is a lot of money in the world of football, roughly the same amount as Chelsea’s annual profit last season.
Manchester United’s stadium is the biggest club football stadium in the country and 9th biggest in Europe. Match days are consistently sold out having averaged a 99% fill rate for the last 17 seasons. Tickets prices are the main reason for this fill rate, as United can advertise the cheapest season ticket compared to Liverpool, Chelsea and Arsenal. The average season ticket costs £450 matching the Premier League average, as Chelsea, Arsenal, and Liverpool are selling their services for £500, £1,050 and £700 per season, respectively. The reason of selling their tickets cheaper than the rest is simple tactics to ensure games are sold out every week. As mentioned earlier, United can now afford to sell their tickets cheaper than before knowing the majority of their revenues are earned from different channels. Highly energised and full stadiums creates a favourable experience for fans at home as well in the stands, contributing to the feeling of ‘going to a United game’. Ticket prices will continue to grow at the inflation rate of the country, ensuring the club have a sustainable, predictable revenue stream in order to reach record high match day revenues of £115 million by 2018.
I hope you understand the excitement I have on the pitch this season as well as off the pitch. Manchester United are already a super club, however at the same time they are on the road of becoming a super brand. We are yet to see anything from Ed Woodward.