Glory Glory Man United? The paradox of profits without trophies
“You can see we haven’t played games at this level for a while,” Ole Gunnar Solskjaer, interim manager of Manchester United, admitted last month after the team was beaten by Paris Saint-Germain in the Champions League, Europe’s most prestigious club football competition.
Mr Solskjaer was an emergency hire after José Mourinho was sacked by the Premier League club in December — the latest coach to be dismissed during a five-year period of decline for a team that once dominated English football. Although Mr Solskjaer has inspired a remarkable recent run, the loss to PSG was a “reality check” on the team’s ambitions to challenge the continent’s best.
The two clubs will meet again on Wednesday in the second leg of their round of 16 tie, and Mr Solskjaer insists a famous comeback is still possible. “Mountains are there to be climbed,” he said.
That success has not been easy to replicate. Since Sir Alex’s retirement in 2013, the club has not won the Premier League nor the Champions League — the two biggest, and most lucrative, competitions it plays in. Mr Mourinho was the third manager to try and when he was fired, the team had been languishing in sixth place in the league.
Yet, United’s income has continued to rise regardless of the performance on the pitch. Annual revenues grew from £363.2m in 2013 to £590m last year, behind only Spain’s Real Madrid and FC Barcelona. Current executives, former staffers and others with close knowledge of club affairs describe a paradox — a sports business that has become untethered from on-field outcomes.
Despite these impressive financial results, however, it is becoming harder to avoid the awkward question — can United continue to be one of the most profitable and respected clubs in the world if the team does not challenge for major trophies?
“We need to win,” says Cliff Baty, chief financial officer. “And we don’t need to win just to be successful [commercially], we just need to win because that’s ultimately our raison d’être.”
This dilemma has left the club in a state of flux. Executives are working to strengthen commercial operations, exploiting technology to appeal to younger fans and overhauling sponsorship strategies. This work is intended to earn more money, funding even bigger spending on players. Crucial personnel hires are to be made, including appointing a permanent manager.
“That culture of wanting to win is just as true off the pitch as it is on it,” says Richard Arnold, United’s group managing director, and one of the key architects of its business. “As Sir Alex once said: ‘We never get beaten, we sometimes run out of time.’ That is the culture that runs throughout the club.”
However, as it seeks to mount a comeback the club faces stiff competition. Real Madrid, Barcelona and Bayern Munich enjoy broadly similar revenues. New footballing superpowers have emerged, such as Qatar-owned PSG and Abu Dhabi-controlled Manchester City. Liverpool and Tottenham Hotspur have surpassed United domestically through savvier choices in coaches and players.
“I think they are one of a handful of teams in world football that have such a strong brand and glorious appeal they will be able to withstand dips in form in from time to time,” says Nigel Currie, founder of NC Partnership, a sports consultancy. “But, obviously, not forever.”
United’s business took off following the inception of the Premier League in 1992, when the sale of English club matches to overseas broadcasters was stepped up. The club gathered legions of fans globally, becoming England’s pre-eminent team and a powerful brand.
In a call with financial analysts last year, Ed Woodward, installed in 2013 as executive vice-chairman by the club’s owners the Glazer family, said: “Playing performance doesn’t really have a meaningful impact on what we can do on the commercial side of the business.”
Mr Woodward meant that, regardless of fluctuations in the team’s form, the business has become remarkably predictable. Its main revenue sources are known well in advance. United projects record annual revenues between £615m and £630m this season, almost doubling in size from a decade ago.
Around a third of revenues comes from broadcasting, mainly from its share of the £8bn worth of multiyear television deals signed by the English Premier League. Upcoming increases from the league’s overseas broadcast contracts are expected to more than offset a decline in the value of the league’s UK live rights over the coming years.
The club receives a further 18 per cent of its revenues from matchdays. Old Trafford, its 75,000 seater stadium, one of the largest in Europe, is sold out for almost all games.
The club’s biggest strength lies in commercial deals, such as sponsorship contracts, which represent around half of revenues. Key partnerships have years left to run. In 2015, United signed a decade-long kit manufacturing deal with German sportswear maker Adidas worth £750m. Its main shirt sponsor, US carmaker Chevrolet Motor, is paying $559m over a seven-year contract that runs out in 2022. The deal was predicated on Manchester United’s perceived reach in China, where the club claims to have well over 100m followers.
Quietly, United is changing its commercial approach, which could lead to fewer but bigger sponsorship deals. The group has around 100 people on its sponsorship team, far more than any other club. Many of them are analysts who gather industry data for salespeople to help clinch a deal. This dedication to research allowed United to seek marketing deals far and wide, gaining dozens of sponsors across the globe. These include Chi, its “official sports drink partner” in Nigeria, and Manda Fermentation, an “official nutritional supplements partner” in Japan. The model has been copied by rival clubs.
United has allowed some of these deals to lapse, focusing on a smaller group of “global” partners happy to pay bigger sums. They include US manufacturing group Kohler, which has become United’s first shirtsleeve sponsor.
Other recent moves are designed to target millennials. Last August, the club launched an official app, a mobile service that provides live statistics during matches, interviews with players and other content. The plan is to build a direct relationship with supporters online, each a potential customer, gathering data on their preferences. The club claims it has become the most downloaded sports app in 70 countries.
“Teams who are now developing their fan base for the first time are doing it from scratch based on current performance,” says Phil Lynch, Manchester United’s head of media who leads its digital strategy. “They don’t have an emotional resonance the way you do if you already have an established fan base and your dad was a fan.”
The area of unpredictability in the club’s financial performance is the Champions League. Close to €1.95bn is shared among participating clubs of this season’s tournament, mainly from broadcasting contracts. Real Madrid overtook Manchester United as the world’s richest club last season, partly on the back of winning three consecutive Champions League titles.
The English club believes it is less reliant on continental success than rivals, with executives building financial projections on the more modest premise of regularly finishing at least third in the Premier League and reaching the Champions League quarter finals.
Bigger problems emerge if poor performance becomes endemic, however. A poor start to this season means the club is battling to qualify for next term’s Champions League. United’s deal with Adidas contains a penalty clause which means failure to reach Europe’s top competition for two consecutive seasons will see it being paid £21m less for each year outside the tournament.
Analysts at Deutsche Bank wrote in a recent paper that although United’s brand is durable it could be tarnished if the team is not regularly challenging for the biggest trophies. This could affect the club’s attractiveness to a new generation of supporters and decrease the value of future commercial deals.
PAUL POGBA £94.5m
The French midfielder arrived from Juventus in August 2016 as José Mourinho took over.
ROMELU LUKAKU £76.2m
Bought from Everton in July 2017 after a season in which he was the second highest scorer in the Premier League
ÁNGEL DI MARÍA £67.5m
Signed from Real Madrid in August 2014 as Louis van Gaal took over, the Argentine winger failed to settle and moved to Paris Saint-Germain for £56.7m almost exactly a year later
ANTHONY MARTIAL £54m
Moved from Monaco to Old Trafford in 2015, but fell out of favour under Mourinho. Has experienced a resurgence under Ole Gunnar Solskjaer
The club has thrown money at the problem. In the six seasons before Sir Alex retired, Manchester United had only the third highest wage bill in the Premier League, yet won the title three times and reached three Champions League finals, winning one. This was an impressive return, as research has shown the best predictor of a team’s league position is player salaries.
The club increased spending. But that has not worked. In the past five seasons, United had the Premier League’s highest wage bill, but did not come close to winning the title and reached the Champions League quarter-finals just once.
“The damage was done [before Sir Alex’s exit] and we haven’t recovered,” says Duncan Drasdo, chief executive of the Manchester United Supporters Trust, which has argued that the more than £1bn the club has paid in loan interest charges, fees, dividends and other costs related to the Glazers’ £790m leveraged buyout of the club in 2005 would have been better spent on improving the playing squad.
“If you’re serious about challenging the likes of PSG, you have to be investing in the same sort of level,” he says. “It isn’t clear that we will do that.”
However, in the past five seasons, the club’s net spend — the amount spent to acquire players minus money recouped in sales — is about £500m, according to Transfermarkt, a football statistics site. Mr Baty says United will continue to be a “net spender” in the transfer market and maintain a huge wage bill.
“Obviously if we’re sitting on the sidelines and we’re watching Arsenal, Chelsea, Liverpool and Manchester City battle it out, then that’s not good for us and you can see how that would play into [long-term] commercial impact and clearly it would impact the club,” says Mr Baty.
What United needs is a capable heir to Sir Alex to make its financial power pay off. Mr Solskjaer has the task until the end of this season. A resurgence in form means he is being seriously considered as a permanent appointment, according to people close to the club’s leadership. Other targets are being assessed, including Tottenham Hotspur’s Mauricio Pochettino and former Real Madrid manager Zinedine Zidane.
Perhaps a more important hire is that of a new “head of football”. Rivals like Liverpool, City and Spurs already have technical leaders tasked with building a playing squad over several years, identifying signings and training young players. The club put off making this appointment as Mr Mourinho fiercely resisted giving up any control of football affairs, according to people familiar with internal club matters.
However, Mr Woodward is still to define the precise nature of the head of football role, such as whether they will take full control over transfers, according to a person close to the deliberations. Both internal and external candidates have had talks over the position.
Making the correct calls over sporting operations may prove critical if the club is to turn a commercial juggernaut back into a dominant team.
Value: Win lose or draw, United is worth billions
Saudi Arabia denied reports last month that Crown Prince Mohammed bin Salman was considering a £3.8bn takeover offer for Manchester United.
The speculation was fuelled by regular contact between club executives and the country’s officials in recent years. Still, analysts have long wondered whether the Glazers, who own over 97 per cent of the club’s voting shares and half its board seats, will cash out. In 2010, they resisted a takeover attempt by a group of wealthy supporters, led by former Goldman Sachs executive Jim O’Neill, who offered a reported £1.5bn, around double what the family originally paid.
Today, the share price of the New York-listed group suggests a market capitalisation of around $3.5bn. According to Forbes’ list of the world’s most valuable sports teams, it is worth $4.12bn, behind only the Dallas Cowboys NFL franchise and the New York Yankees baseball team.
John Tinker from the research company Gabelli suggests any move to sell would push the stock above Forbes’ valuation, providing an even greater potential windfall for the Glazers. Regardless of the owner’s intentions, United’s place as one of a handful of sports teams with a global profile should ensure it remains a valuable asset for years to come.
“Of course, it’s better to succeed [on the pitch],” says Mr Tinker. “But if you have moved into that magic circle [of the world’s best supported teams], there is a tremendous long-term franchise.” (Financial Times)