Manchester United will be fine, but what about the rest?
Posted on May 24, 2020
THE LATEST financial results from Manchester United show a club in the process of being economically harrassed by the Covid-19 virus, but does not reveal one in a personal crisis. There’s plenty of strength in the MUFC business model, even in these extreme times, but the third quarter was not a full three month period in lockdown. Worse will undoubtedly be the horizon, especially if the Premier does not restart, with or without fans.
United’s year-on-year revenues were down nearly 19% to £ 123.7 million. A club of United’s size can deal with that, however uncomfortable it may be to accept, but smaller clubs will be quaking at the prospect of a similar-sized downturn. United are one of the few clubs that report quarterly figures, some clubs may have bigger shocks ahead.
United’s quarterly loss amounted to £ 28.5 million before tax, a near-£40 million turnaround after a profit of £ 11.1 million in 3Q 2019. Most obviously, the club suffered substantial declines in broadcasting revenues (-51.7%) and matchday income (-8.2%).
More worrying, the club’s net debt increased by £ 127.4 million (40%) to £ 429.1 million, partly explained as the result of exchange rate fluctuation. This theory seems a little over exaggerated. The club’s finance costs went from £ 5.4 million to £ 25.8 million with the note, “increased due to unrealized FX losses on unhedged US dollar borrowings”. Why were they not hedged?
Naturally, the Glazers come in for some criticism, particularly due to the £ 11 million they paid themselves in dividends. This is all the more sensitive as the club has been putting off paying a £ 10 million tax bill to HMRC. In this age of skin-deep nationalism and virtue signalling, such a scenario paints a relatively bad picture of the club. Interestingly, United have now paid £ 828 million of interest on their debts, far more than the £ 700 million used by the Glazer’s to buy the club.
More positively, United have refused to furlough their staff and have played their part in community projects during lockdown.
The club will be hoping the Premier League resumes so the team can push for a Champions League place. Getting into that competition is of paramount importance for United, especially as the deal with their kit provider, Adidas, has a reduction clause that could mean a 30% drop in sponsorship if the club fails to get into the Champions League for two successive campaigns. On many levels, failure to qualify for the top European competition would be a disaster for United.
There will surely be another blow for the club in the form of travel restrictions, preventing United from undertaking a lucrative summer tour. And everyone envisages further broadcasting rebates as a result of the lockdown. When announcing the results, Chief Executive Ed Woodward said he expected a £ 20 million reduction in revenues from the Premier League.
United’s dilemma will be mirrored by most of their Premier League stablemates. Their financial base is strong enough to withstand the volatility – they have £ 90 million in cash reserves and £ 150 million in credit reserves – but others may not be able to brush aside the forthcoming storm.
The club can no longer take for granted that it will be competing for major honours even though they have spent heavily in the transfer market over the years and they currently have a huge wage bill that needs to be serviced. They are the best supported club in the land, but will Old Trafford see another 75,000 crowd once normal service is resumed? Indeed, what will be “normal” by the time Manchester United report their 4Q results?