FINANCIAL ANALYSIS · PRT 466: Sport Finance and Economics PRT 466: Sport Finance and Economics ... sponsorship providers such as Adidas, Twentieth Century Fox, AON, Chevrolet,

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Manchester United

FINANCIAL

ANALYSIS

December 7, 2018

December 7, 2018

PRT 466: Sport Finance and

Economics

PRT 466: Sport Finance and

Economics

Austin L. Sym

Austin L. Sym

Austin L. Sym: Manchester United FC

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TABLE OF CONTENTS Page Number

About Manchester United Football Club 3

Economic/ External Environment 4

Revenue and Expenditure Summary 5

Assets and Liabilities Summary 8

Financial Analysis 11

Current Ratio 11

Debt to Asset Ratio 11

Gross Margin Benchmark 12

Future of Manchester United 12

Bibliography 13


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Manchester United Football Club

About Manchester United FC Sir Matt Bubsy said, “At United, we strive for perfection and if we fail, then

we might just have to settle for excellence.” Manchester United Football Club, otherwise known as Manchester United, is an English soccer/ football team that plays in the British Premier League, BPL, along with being, “one of the most popular and successful sports teams in the world” (Manchester United, 2018). Manchester United was founded in 1878 in the city of Manchester, England (History, n.d.). Manchester United has been playing their competitions at Old Trafford since 1910 (History, n.d.). At Manchester United the aim is to “increase our revenue and profitability by expanding our growth businesses that leverage our brand, global community and marketing infrastructure. The key elements of the strategy are expanding the portfolio of sponsors, further development of retail, merchandising, apparel and product licensing business, along with exploit new media and content opportunities, and enhancing the reach and distribution of our broadcasting rights” (Manchester United, 2018).Manchester United is structured to operate and manage business in three sectors of revenue streams; commercial, broadcasting and matchday (Manchester United, 2018). In 2017, Manchester United made £581m in revenue, the constant goal of Manchester United is to be an elite football club in the world along with continuing to grow its revenue streams in new ways. Commercially Manchester United has high profile sponsorship providers such as Adidas, Twentieth Century Fox, AON, Chevrolet, DHL, Gulf, TagHeuer, Toshiba, EA Sports and many more. From 2015-2017 Manchester United experienced a 4.6% compound annual growth rate in sponsorship revenue (Manchester United, 2018). Manchester United focuses heavily on new media platforms and content to “engage and transact with our [United’s] followers around the world.” One of United’s main way of doing so is by using their media platform of MUTV, which delivers Manchester United programming to over 56 countries and territories around the world. On matchday Manchester United has the goal of providing a world-class team for the city of Manchester to support and be proud of their success on the pitch. When United plays there is an average of 99% attendance capacity for their Premier League


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matches over the last 18 years. The revenues from matchday may vary based off of first team performance in competitions.

Economic/ External Environment Manchester United being in England has many external factors that could

affect their economic input and output. One of these factors that would affect

Manchester United would be Brexit. Brexit is the name of the proposal for the

United Kingdom to withdraw from the European Union. Brexit affects

Manchester United and the rest of the premier leagues ability to gain transfers

and recruit players to their teams. The way this happens is that players “who are

from EU representative countries will be treated in the same way as non-EU

footballers are” (Kellly, 2018).This would also restrict youth recruiting of players

between the ages of 16-18 according to FIFA regulation, which “allow for the

international transfer of footballers …moving between clubs that are EU”

(SOURCE). Another way Brexit has affect top tier clubs like Manchester United

is that the FA (Football Association) of England established a limit on the

number of overseas players that could be on the 25-man playing squad. Stating

that “Premier League clubs will be obliged to ensure that at least half of their

first-team squads are made up of “homegrown” players…reducing the number of

overseas players in each 25-man squad to 12” (Rodger, 2018). The economic

impact of having to cut down on overseas players to comply with the FA is

drastic because if the teams were not to comply with the deal then they would

have to pay more money and sacrifice their time to wait for the player to go

through the work permit process that non-EU footballers go through when

coming to an EU football club. These extra costs and time are completely

unnecessary when the club could have just complied to the agreement, Another

economic threat to the success of Manchester United would be new and

developing leagues that could pay talent more or could potentially injure players

whom are still on the active squad. An example of this would be UEFA’s Nations

League which would feature players from United’s squad representing their

home country. This is a threat because it comes with “uncertainty” about the

fitness and health of players. Being selected to play would give “players just a

month off before preparations for the new season” (Bray, 2018) to begin with

pre-league exhibition matches. Another threat “is only doing what the English

Premier League has done to its rivals in Europe for years in hoovering up the

best available talent” (Minto, 2017). The way this Chinese league is able to do

this is because the teams are able to pay outlandish price tags to entice players


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to play in their league, examples of which being £70 million for Carlos Tevez

and £51 million for Oscar. Therefore there are many potential threats to a club

like Manchester United but the stability and legacy of a club like Manchester

United is enough to hold strong and true through much of the adversity that is

thrown their way because they continue to have success on a top-tier level.

Revenue and Expenditure Summary

During the fiscal year of 2017, Manchester United had a total revenue

stream of £581,204,000. Commercial revenue made up for £275,471,000 or

about 47.4% of total revenues. The sponsorship sector of commercial revenue

had a revenue stream of £162.3 million, primarily due to new sponsorship deals.

The retail, merchandising, apparel and product licensing revenue sector of

commercial revenues was £104 million primarily due to a full year contribution

from an Adidas agreement. Then mobile and content revenue sector of

commercial revenues was £9.2 million due to the expiry of some sponsorship

deals. Broadcasting revenue made up for £194,098,000 or about 33.3% of total

revenues. This figure and increase from 2016 is primarily due to Premier

League broadcasting rights agreements along with success of winning the

UEFA Europa League final. Matchday revenue made up for £111,635,000 or

about 19.2% of total revenues. While Manchester United’s operating expenses

were £511,315,000. £263,464,000 of which were analyzed as employee benefit

expenses which makes up 51.5% of total operating expenses. Other operating

expenses made up for £117,942,000 or 22.9% of total operating expenses.

Depreciation accounted for £10,228,000 or 2% of total operating expenses.

Then amortization accounted for £124,434,000 of total operating expenses or

24.3%. Then exceptional items accounted for £4,800,000 which is about 0.9% of

total operating expenses. This exceptional items credit is mainly related to the

reversal of a player registration impairment charge for a player who was re-

established as a member of the first team squad. In conclusion the operational

profit before profit loss on intangible assets was £69,889,000. In 2015 the net

revenue was £515,345,000 while the operating expenses were £436,709,000,

thus making the operational profit before profit loss on intangible assets for the

year was £78,636,000.


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INCOME STATEMENT For the years ending (2017 and 2016)

Numbers are in £ millions.

Revenues 2017 2016

Commercial Revenue 275.5 268.3

Broadcasting Revenue 194.1 140.4

Matchday Revenue 111.6 106.6

Total 581.2 515.3

Source: Manchester United Football Club 2017 Annual Report

Broadcasting Revenue

33%

Sponsorship Revenue

28%

Matchday Revenue19%

Retail, Merchandising,

Apparel, and Product Licensing

Revenue18%

Mobile and Content Revenue

2%

Revenues

Broadcasting Revenue

Sponsorship Revenue

Matchday Revenue

Retail, Merchandising, Apparel, and Product Licensing Revenue

Mobile and Content Revenue


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Income Statement For the years ending (2017 and 2016)

Numbers are in £ millions.

Operating Expenses 2017 2016

Employee Benefit Expenses 263.5 232.2

Other Operating Expenses 117.9 91.2

Depreciation 10.3 10.1

Amortization 124.4 88.0

Exceptional Items (4.8) 15.1

Total 511.3 436.6


Employee Benefit Expenses

51%

Amortization24%

Other Operating Expenses

22%

Depreciation2%

Exceptional Items1%

Operating Expenses

Employee Benefit Expenses Amortization Other Operating Expenses

Depreciation Exceptional Items


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Assets and Liabilities Summary In the fiscal year of 2017, Manchester United’s total assets were accounted at

£1,534,274,000 which was an increase from 2016s total of £1,451,903,000. The greatest

attribution from non-current assets was intangible assets which account for £717,544,000 or

46.8% of total assets. Property, plant and equipment made up £244,738,000 of total assets or

15.9%. Deferred tax assets were 9.2% of total assets or £142,107,000. Rounding out non-

current assets to a total of £1,135,420,000. While current assets totaled £398,854,000. Trade

and other receivables accounted for £103,732,000 or 6.8% of current assets. Cash and cash

equivalents were the greatest contribution at £290,267,000 or 18.9% of current assets. While

total equity for Manchester United in the 2017 fiscal year was £477,617,000. Share capital

making up £53,000 of total equity or 0.01% of total equity. Share premiums accounted for

£68,822,000 or 14.4% of total equity. Merger reserve accounted for £249,030,000 or 52.1% of

total equity. Hedging reserves accounted for a loss of £31,724,000, 6.6%. Then retained

earnings accounted for 40.1% of total equity or £191,436,000. Non-current liabilities totaled

£642,348,000 in the 2017 fiscal year. With derivative financial instruments accounting for

£655,000 while trade and other payables accounted for £3,587,000. Borrowings accounted

for the greatest contribution to non-current liabilities with £497,630,000 or 77.5%of non-

current liabilities. While deferred revenue and deferred tax liabilities accounted for

£39,648,000 (6.2%) and £20,828,000 (3.2%), respectively. Current liabilities totaled

£414,309,000 for the fiscal year of 2017. Derivative financial instruments accounted for

£1,253,000 or 0.3% of total current liabilities. Tax liabilities accounted for £9,772,000 or 2.4%

of total current liabilities. Then 45.9% of total current liabilities came from trade and other

payables with £190,315,000. Borrowings made up £5,724,000 or 1.4%. Deferred revenue

accounted for £207,245,000 or 50% of total current liabilities. Total equity and liabilities

totaled £1,534,274,000 in 2017 which was an increase over 2016s total of £1,451,903,000.

Balance Sheet For the years ending (2017 and 2016)

Numbers in £ millions

Assets 2017 2016

Non-Current Assets Property, Plant and Equipment 244,738 245,714

Investment Property 13,966 13,447

Intangible Assets 717,544 665,634

Derivative Financial Instruments 1,666 3,760

Trade and Other Receivables 15,399 11,223

Deferred Tax Asset 142,107 145,460

Current Assets


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Inventories 1,637 926


Trade and Other Receivables 103,732 128,657

Cash and Cash Equivalents 290,267 229,194

Total 1,534,274 1,451,903


Balance Sheet For the years ending (2017 and 2016)

Numbers in £ millions

Equity and Liabilities 2017 2016

Equity Share Capital 53 52

Share Premium 68,822 68,822

Merger Reserve 249,030 249,030

Hedging Reserve (31,724) (32,989)

Retained Earnings 191,436 173,367

245,714 244,738

13,447 13,966

665,634

717,544

3,760 1,66611,223 15,399

145,460 142,107

926 1,6377,888 3,218

128,657103,732

22,194

290,267

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2016 2017

Am

ou

nts

in

£

Years

Assets Comparison

Property, Plant Equipment Investment Property

Intangible Assets Derivative Financial Instruments

Trade and Other Recievables (Non-Current) Deferred Tax Asset (Non Current)

Inventories Derivative Financial Instittions (Current)

Trade and Other Receivables (Current) Cash and Cash Equivalents


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Non-Current Liabilities Derivative Financial Instruments 655 10,637

Trade and Other Payables 83,587 41,450

Borrowings 497,630 484,528

Deferred Revenue 39,648 38,899

Deferred Tax Liabilities 20,828 14,364

Current Liabilities


Tax Liabilities 9,772 6,867

Trade and Other Payables 190,315 199,668

Borrowings 5,724 5,564

Deferred Revenue 207,245 188,844

Total 1,534,274 1,451,743


0.01% 14.40%

52.10%6.60%

40.10%

Equity

Share Capital Share Premium Merger Reserve

Hedging Reserve Retained Earnings

0.10%13.01%

77.50%

6.20%3.20%

Non-Current Liabilities

Derivative Financial Instruments Trade and Other Payables

Borrowings Deferred Revenue

Deferred Tax Liability


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Financial Analysis

CURRENT RATIO

This ratio should be over 1, to state that the organization has the assets to

meet the obligations. For Manchester United the current assets are

£398,854,000 and the current liabilities are £414,309,000 which creates a

current ratio of 0.96. Compared to the ratio that United had in 2016 the

organization is getting better with handling their current assets and liabilities but

have to continually improve to meet their obligations.

Current Assets/ Current Liabilities Current Ratio

398,854,000/414,309,000 0.96

DEBT TO ASSETS RATIO

This ratio is a leverage ratio that define the total amount of debt relative to

assets. A high ratio shows higher degree of leverage and higher risk. Therefore

the debt to asset ratio of Manchester United of 0.69 shows that there is little risk

associated with Manchester United. The ratio being less than one states the fact

that a greater portion of United’s assets are funded by equity.

Total Liabilities/ Total Assets Debt to Asset Ratio

1,056,657,000/ 1,534,274,000 0.69

0.30% 2.40%

45.90%

1.40%

50%

Current Liabilities

Derivative Financial Liabilities Tax Liabilities

Trade and Other Payables Borrowings

Deferred Revenue


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GROSS MARGIN BENCHMARK

Gross profit percentage or the gross margin benchmark is a ratio that

allows you to cover costs and to gain return on investment. A solid gross profit

percentage would be 40% Therefore Manchester United’s benchmark of 48%

shows that Manchester United can cover their costs and have a competitive

advantage over their fellow football clubs.

Gross Profit/ Net Income Gross Margin Benchmark

39,177,000/ 80,815,000 0.48

FUTURE OF MANCHESTER UNITED FC

In the future Manchester United will continue to grow based off of the

growth that has been presented in all of their revenue streams compared to

previous years. One substantial area of growth that will continue to prove vital to

Manchester United will be their broadcasting revenue streams due to the

continued growth and television exposure of the Premier League along with the

continued growth of MUTV which is the broadcasting service owned by

Manchester United which can showcase more of the organization than the

normal media could. This is all shown based off of the 2017 annual report

presented by United. The advantage of having a legacy team like Manchester

United that has been built on tradition also makes it easier for the team to face

adversity. Manchester United also is the most recognizable brand of football

along with developing talent that becomes the eventual face of football

worldwide while also having continued success year after year. One can safely

say that Manchester United is an overall powerhouse in the world of sports and

could most likely endure any challenge


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Bibliography Bray, J. (2018, 11 21). How the Nations League Finals will Affect Manchester

United Next Year. Retrieved from ManchesterEveningNews.co.uk:

https://www.manchestereveningnews.co.uk/sport/football/football-

news/man-utd-nations-league-england-1

History, F. (n.d.). Manchester United FC. Retrieved from Footballhistory.org:

https://www.footballhistory.org/club/manchester-united.html

Kellly, R. (2018, 10 12). How Brexit will Affect Premier League Football.

Retrieved from MSN.com: https://www.msn.com/en-za/news/other/how-

brexit-will-affect-premier-league-football/ar-BBOhviJ

Manchester United. (2018). Retrieved from MANUTD Investor Relations:

https://ir.manutd.com/

Manchester United. (2018). About Manchester United. Retrieved from MANUTD

Investor Relations: https://ir.manutd.com/company-information/about-

manchester-united.aspx

Manchester United. (2018). Business Model. Retrieved from MANUTD Investor

Realations: https://ir.manutd.com/company-information/business-

model.aspx

Manchester United. (2018). Business Strategy. Retrieved from MAUTD Investor

Relations: https://ir.manutd.com/company-information/business-

strategy.aspx

Manchester United plc. (2017). 2017 Annual Report. Manchester: United States

Securites and Exchange Commision.

Minto, R. (2017, 1 19). Chinese Super League: Is It Really a Threat to the

Premier League. Retrieved from Yahoo Sports:

https://sports.yahoo.com/news/chinese-super-league-really-threat-

144948358.html

Rodger, J. (16, 11 2018). Premier League Clubs Set to be Hit by Brexit Pan-

How Liverpool, Manchester United, Manchester City and Arsenal are

Affected. Retrieved from BirminghamLive.co.uk:

https://www.birminghammail.co.uk/sport/football/football-news/premier-

league-clubs-set-hit-15408274

https://www.footballhistory.org/club/manchester-united.html

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