Losses are to be expected in a Covid-19 world, so it was no surprise to see Manchester United’s financial results take a dip in the year to 30 June 2020.
Under New York Stock Exchange rules (where Manchester United’s shares are traded) companies must publish accounts relatively quickly after the year end as it also has to sent out quarterly figures.
Keeping shareholders up to date is part of the price paid for those companies such as Manchester United who want access to stock market funds.
Every club has had a tough 2019/20, so with Manchester United being the first club to produce figures for last season caution should be used when comparing to other clubs whose numbers are for the previous season.
Starting at the top of the Profit and Loss account, Manchester United’s total revenue for the year ended 30 June 2020 decreased by 19% but there were mitigating factors.
Having had the highest revenue total of any Premier League club for the whole of its existence Manchester United faced the prospect of being toppled in 2019/20.
A lack of Champions League competition, having finished 6th the previous season, coupled with Covid-19 hit Manchester United, as the club has the highest average attendance and matchday income.
Whether United can hold onto top spot in the revenue table is uncertain, as Liverpool and Manchester City both had the benefit of higher league positions and Champions League participation last season.
Over the last decade Manchester United have tended to keep season ticket prices frozen, and 2019/20 was no different.
Revenue from ticket sales fell however as matches were postponed because of Covid-19 and when they returned, they were played behind closed doors.
Due to having the largest capacity stadium and sold out home matches Manchester United matchday revenues last season are still impressive even compared to figures from 2018/19 for all the other Premier League clubs.
Europa League matches, especially in the group stage, do not generate high ticket prices, but even so Manchester United are likely to top the Matchday table, although Spurs’ new stadium will make them potential challengers.
Revenue from broadcasting for a club the size of Manchester United comes from two main sources, Premier League and UEFA.
Some matches in 2019/20 were played after Manchester United’s financial year end (30 June) and the club has not included the broadcast revenue generated from these games in the figures.
Due to being in the Europa League, which only gets about a quarter of the broadcast income of the Champions League, Manchester United’s only made about £22m from UEFA, compared to £83m the previous season.
Ordinarily Manchester United earn more money from the Premier League than some clubs who finish above them in the table due to being so popular with broadcasters, and the £118 million for 2019/20 is likely to be surpassed by very few.
Unlike every other club in the Premier League, who all earn more money from broadcasting than other sources, Manchester United’s most lucrative revenue source is from commercial and sponsor deals.
Because Manchester United have so many blue-chip commercial partners their revenue from this area rose slightly in 2019/20 after a few years of flatlining.
Looking at the biggest deal with Adidas, who paid the club £78 million in 2019/20, Manchester United would have been subject to a 25% deduction if they failed to qualify for the Champions League two seasons running, so a third place finish will be hugely beneficial to the club for 2020/21 too.
Even when compared to other clubs 2018/19 figures, Manchester United’s ability to strike deals with sponsors is peerless, effectively earning the same as the combined commercial income of the ‘Other 14’ clubs added together.
Commercial revenue fell by about 10% overall in the final quarter of 2019/20, reflecting the impact of Covid, but suggesting that should some form of ‘normality’ return to life that Manchester United could exceed £300 million from this source.
Having high revenues is great, but a club still needs to spend them wisely to deliver success on the field of play.
Everyone knows that the key costs in relation to football are talent based in terms of the footballers at a club.
Expenses relating to players come in two forms in a profit and loss account, wages, and transfer fee amortisation.
Spending on wages at Manchester United fell by 15% in 2019/20.
Europa League participation was a significant factor in this decrease because Manchester United’s pay structure is heavily incentivised towards Champions League participation.
Because Manchester United played ten games after the financial year end of 30 June 2020 appearance, goal and other bonuses also were not earned, further driving down the overall wage total.
UEFA Champions League bonuses will therefore increase the wage bill in 2020/21, along with a full years wage bill for new contracts for Marcus Rashford and David De Gea, as well as the likes of Cavani coming in on large salaries.
Remuneration for executives at Manchester United also fell slightly, although the suits still took home £10.5 million plus many of them earning dividends too.
Given that Manchester City and Liverpool both participated in the Champions League in 2019/20 and finished as runners up and Champions of the Premier League then Manchester United may end up with the third highest wage bill for the season when the results are published for other clubs.
Even with a significant salary cost reduction in 2019/20 the average Manchester United first team regular had an annual wage of about £7.1 million.
Revenue fell faster than salaries and so Manchester United paid £56 in wages for every £100 of income, the highest proportion for a decade, but still well below UEFA’s ‘red line’ of 70%.
Amortisation is how the accountants deal with transfer fees, by spreading them over the life of the contract.
Non-cash this figure may be, but it does give an indication of a club’s long-term investment in player spending as it strips out the impact of large or small amounts spent on player signings in a single season.
Due to Lukaku leaving and Manchester United having a substantial number of first teamers such as Rashford, Greenwood and McTominay coming from the academy and so cost nothing in terms of amortisation the amortisation figure was broadly flat in 2019/20.
For critics of the Glazers, who believe the club has not invested enough in the playing squad in recent years, Manchester United still have the second highest amortisation charge of Premier League teams, as well as their success in bringing in players from the academy.
Running a football club of the size of Manchester United means there are other overheads too, but these fell by 15% in 2019/20 as fewer matches played following Covid meant lower transport, accommodation, and stadium costs.
If a club sells a player then the profit (transfer fee receivable less the accounting book value at sale date) is taken directly to the income statement.
Each year clubs usually record more profits than losses due to the accounting values for players being cost less amortisation which explains why Manchester United have made gains in nine years out of the last ten.
Some clubs have business models where they aim to make a lot of money from player sales but Manchester United do not tend to take this approach.
Profits are revenues less costs, although talk to anyone involved in finance and they will often talk about a variety of different profit measures.
Operating profits are those made from the day to day running of a club. Due to Covid this fell by £57 million, meaning that the club lost money for the first time in a decade.
Manchester United must achieve an EBITDA profit (Earnings before Interest, Tax, Depreciation and Amortisation) of £65 million to avoid penalties being charged by lenders. The club easily achieved this target, making more than double the metric that could have triggered the penalty and higher than any other Premier League club except Spurs, even though the other figures are from 2018/19.
Financiers like EBITDA because it excludes non-cash costs such as depreciation and amortisation, and so many see it as a ‘cash’ profit measure, which is why it is often linked to borrowings.
Manchester United had an interest cost of £27 million in 2019/20, taking the total to £837 million paid since the Glazers acquired the club by borrowing £700 million in 2005.
In addition, Manchester United paid out £23 million in dividends to shareholders and £21 million in buying back shares from the stock market, perhaps to shore up the share price.
Many fans are unhappy with the Glazers in respect of investing in players, but the figures suggest it is the quality of players signed, rather than the sums spent, that is the problem.
Since Sir Alex Ferguson retired Manchester United have spent £1,173 million on players to 30 June 2020, and a further £101 million since then in summer 2020.
Manchester United have made a big effort in the last few years to reduce the sum they owe to other clubs for outstanding transfers. Leicester apparently insisted on the full fee for Harry Maguire being paid up front, which explains why there was a net cash cost of £192 million in 2019/20.
Manchester United’s debt increased slightly due to the continued fall in sterling against the dollar. The club’s loans are set out in dollars, so a weakening pound increases the value of loans in the accounts.
Net debt (borrowings less cash) increased spectacularly following the large cash cost of signing players along with monies from season ticket sales for 2020/21 not being sought due to Covid-19. Net debt was negative pre-Glazers and increased following the takeover, with reductions arising when the club raised some money on the stock market.
Manchester United’s actual cash balance fell from £308 million to £52 million, and the club has arranged for a £150 million overdraft facility to help it ride out the worst effects of Covid-19. In mid-October 2020 the overdraft facility was extended by a further £50 million.
Buried away in the small print of the 782 page document (on page 166 for those that are interested) the accounts disclose “We are in active discussion with UK tax authorities over a number of tax areas in relation to arrangements with players and players’ representatives”. This is probably connected to image rights disputes, where a portion of player remuneration is paid to a company, sometimes located offshore, and the player therefore pays less tax. Such arrangements tend to be opaque but are not necessarily tax evasion (which is illegal) but could be tax avoidance (which accountants prefer to call tax planning and/or compliance).
Manchester United paid their independent auditors, and former Ed Woodward employers PWC £446,000 for tax advice (up from £160,000 the previous year) as well as a devilishly impressive £666,000 for the audit itself. PWC have earned over £17 million in fees since becoming the club auditors nearly 20 years ago.
Manchester United also, perfectly legally, took advantage of Covid-19 legislation in the UK to delay paying £19 million of VAT. The club commendably did not use the furlough scheme.
Manchester United would have been happy with a third-place finish in the Premier League in 2019/20. However, the increased competition for Champions League places and the consequences of non-participation explain why the so called ‘Project Big Picture’ which aims to make the Premier League less competitive has been plotted for about three years.