The one thing I like about Manchester United fans is their obsessively narrow focus. The world may be ending but they will still be able to see it from a Manchester United perspective. The other day I witnessed a great example of this. I was talking to a friend, who has the United weakness. She is fascinated by the world around her but tends to see an Old Trafford angle in even the most remote events. We were talking about the global economy, the crisis in China, the fall in the price of oil and the instability of the Gulf region given the conflict between Iran and Saudi Arabia.
I was rabbiting on about Shia and Sunni, conflicting American interests in the region and the implications for Syria when she stopped me suddenly, as if she had just split the atom, and asked excitedly,
“Yeah, yeah ok, the Yanks are out of their depth, the Iranians are up for a scrap but, the question is David, what does all this mean for City?”
Ever the Red, the United fan in her had seen the Stretford End angle on the Middle East crisis: if City are financed by oil-rich Arabs, what happens to Ageuro, Kompany, Toure and co if the Arabs run out of brass?
This got me thinking about the finances of the Premiership, the economics of English football and in particular the business model of the two big Manchester teams.
It is clear that Man United have a much more robust model, much greater fan base and are a much more secure club, financially. City’s model is based on Arab money (and maybe now Chinese) but the Arab money is significant and it is related ultimately to the price of oil. Just look at the collapse in the price of oil since Sheik Mansoor bought the club in 2008 when it was over $140 a barrel. Oil then collapsed but it recovered quickly and the oil price has been over $100 a barrel for most of the time there’s been Arab ownership of City. This allowed City to outspend their rivals.
FIGURE 1 BRENT CRUDE OIL
Over the past five years, City has spent a net £740 million (€985) on players. This compares with Chelsea who forked out £670 (€890) million and United, a distant third, who splashed out a net £450 (€ 600) million on players. This has bought some success to City but not nearly enough.
When you compare City’s business model to United’s, the precarious nature of City’s finances becomes apparent.
Let’s look at United.
The first aspect to understand is that the Glazers have been good for United. They have increased the value of the club from £790m to roughly £2bn. You can see from the chart exactly how United makes money. There are three ways the club makes cash: commercial, merchandise and ticket sales.
FIGURE 2 UNITED’S REVENUE STREAM 2005 vs 2015
Under the broad heading of “commercial“, according to the Man Utd website, the revenue is generated by three sub headings. The first is massive sponsorship whereby United made £154.8 million for the year ended 30 June 2015. These sponsors include Abengoa, Adidas, Aeroflot, Aperol, Aon, Bulova, Concha y Toro, DHL, Epson, General Motors (Chevrolet), Kansai, Nissin, Singha, Toshiba and Yanmar.
FIGURE 3 ADIDAS SPONSORSHIP
To put that in context, that’s a 30.5% compound annual growth rate in United’s sponsorship revenue from fiscal year 2013 through fiscal year 2015. This is when the team is playing badly!
The other major area is of course shirts. Amazingly, Manchester United sell more shirts in Dublin than in Manchester! Dublin ranks second after London in global Man Utd paraphernalia sales. In total, the club made £31.6 million from merchandising last year.
FIGURE 4 UNITED VS CITY SHIRT SALES
It also makes a chunk from mobile and content revenue: £10.4 million in 2015. The next big area is broadcasting via centrally-negotiated domestic and international television and radio rights to the Premier League, the Champions League and other competitions. So this is all directly leveraged to performance in terms of qualifying for competitions. (And of course the same rules apply to City.) It’s worth noting that Man United didn’t qualify for any European competition in 2014/15 and only qualified for the Europa league this season. But even so, the wholly-owned global television channel, MUTV, broadcasts in 90 countries.
Finally, there is the more traditional form of revenue: the amount the faithful pay for the Theatre of Dreams. Old Trafford seats 75,669 and is the largest football club stadium in the UK. United have averaged over 99pc capacity for Premier League matches in each of the last 17 years! Match-day revenue was £90.6m last year. It’s hard to disentangle bluff and claims about United’s global reach but if we take likes on its Facebook pages, we see that United has 67 million likes versus City’s 20 million.
When it comes to shirts, United sells 20 times more shirts worldwide than City. And when we drill a bit deeper in City’s finances, we see a worrying picture of shaky financial foundations.
Despite 2014/15 being the seventh consecutive year of increased revenues, City only made a small £10.7m profit. And, this was the first time since the acquisition of the club by the Abu Dhabi United Group for Development and Investment in 2008 that the club has made any profit. In previous years, City’s accounts show that Sheikh Mansour has put almost £1bn into City since his 2008 takeover, including £190m in 2013. Since he bought the club, his total losses are in the region of £560m. All this has been paid directly out of Sheikh Mansour’s back pocket and, ultimately, the depth of this back pocket is determined by the price of oil.
Such losses are extraordinary. But things may be looking up.
Last year, Man City generated £351.8m – breaking the £350m threshold for the first time in its history. The club has experienced overall revenue growth, with commercial revenue up by 4pc to £173m and broadcast revenue up by 2pc to £135.4m. However, match-day revenue decreased by 9pc to £43.3m. The Etihad stadium has a capacity of 55,097, the third largest in the Premier League, and it is rarely full; the problem for City is the wage bill of its players. They are some of the highest-paid players in the world, with average wages of £100,000 a week! City has net assets valued at more than £676m and continues – due to the oil money and Islamic aversion to borrowing – to operate with zero financial debt. But it can only maintain these losses as long as the Arabs plough money into the club. Will they be prepared to do this if oil falls as low as $20 a barrel or even $10 a barrel? I doubt it.
Thus, when seen from a Manchester United perspective, the crisis in the Middle East, global deflation, the Chinese slump and the collapse in the price of oil, can only be a good thing.
What was that about clouds and silver linings again?
David
Your new years resolution must have been to write upbeat articles this year !
Dont want to pour cold water but what about the general markets view?
Dow plunges 365 points on fears of oil plunge and China
http://money.cnn.com/2016/01/13/investing/dow-falls-on-oil-fears/index.html?iid=hp-stack-dom
Geo-political fallout possibility especially in Saudi Arabia. Baltic dry index fallen off a cliff, etc
Subscribe.
Looks like a bad business model does City. Throwing good money after bad seldom works. Your first loss is usually the best loss. Trying to sell the team will generate the final loss. These losses have little to do with the price of oil.
Thanks David, I have no interest in soccer but this article is very easy reading. I appreciate the perspective. Munster Rugby, having had a great run during the boom years of the Celtic tiger is now on its knees. They need money & lots of it to buy players, hire competent coaching talent & get back to winning games and selling out Thomond park – for which they are currently shopping around the naming rights. I read last week that UBER have opened a centre of excellence in Limerick city centre – 100 jobs created. Someone at the Munster branch… Read more »
“In previous years, City’s accounts show that Sheikh Mansour has put almost £1bn into City since his 2008 takeover, including £190m in 2013. Since he bought the club, his total losses are in the region of £560m.´´
Sounds like Ango-Irish Bank in its pomp!
They’ve always been a classic example of spending Capital (City) versus spending Income (Utd). Much of Utd’s turnover is from classically ‘income’ sources – selling shirts, tickets, etc, whereas City have so often relied on capital infusions from someone or other. This is a beautiful parallel to most economies in the last 20/30 years. Some focus on creating income generating activities (e.g. Germany) whereas others have used financial skills to repackage future capital as income, and spend that instead. Just as with City (Ireland, US, UK etc), they look the same until the capital runs out when everything stops, whereas… Read more »
There are so many clubs I hate and I can’t even remember why I hate some of them. Villa ruined my night the other day by winning (albeit against Palace) but I’m not sure why I hate them, I just do. Another is Brighton. But my likes and dislikes are usually linked to Utd and the late Newcastle equalizer on Tuesday was a chink of light in the dark clouds. I hate Liverpool almost as much as Utd. Too often I dislike both teams in a match and cross my fingers for a nil-all draw. One club I always hated,… Read more »
Bugger what it means to millionares kicking a lump of leather around a field and their billionare supporters.What does it mean for Paddy and Mary Average? Does it mean cheaper fuel at the pumps ,and that finally the Dail of fukwitts might with dropping prices actually consider buying in a national reserve and figuring out where to store it on the island for times of need?
Sport and music – trivial, ultimately meaningless activities – more suited for children. I’ll watch the odd soccer match (especially high quality like Barcelona, or giantkilling in the otherwise irrelevant Mickey Mouse cup) but you wouldn’t find me in a stadium with a herd of commercially milked lemmmings. Likewise I wouldn’t go near a concert. Noise and smelly crowds, forget that. Funny thing is I was brilliant at soccer – made plenty of money out of it – but always felt a bit uneasy about that – how can you be good at something but not really like it half… Read more »
David Conn has written some very good stuff on football finances in the Guardian.
The following is an example of financial jiggery-pokery going on at City:
“City reduced their wage bill by £28m, mostly due to 125 staff being moved into the accounts of a parent company, City Football Group, which also services Mansour’s New York City, Melbourne City and his minority stake in Yokohama Marinos.´´
http://www.theguardian.com/football/2015/apr/29/premier-league-finances-club-by-club
For more:
http://www.theguardian.com/profile/davidconn
Back in the olden bays Matt Busby coached a multi champion United.
Disaster struck when a plane crash killed most of the first team players
A marvel of research and development was revealed when those called up from the farm team were immediately championship players.
Thus did the seventeen year old Bobby Charlton appear. The rest is history….
United’s business plan then was to develop local talent and coach the juniors. Their research and development paid off in performance and profit, in good times and bad.
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You’d have to wonder about these ISIS sorts.
It takes 5 of them to kill 2 civilians and they all die?
And from the footage it looks like they set themselves up outside a strip mall setting bombs outside a deserted Starbucks or whatever, not a soul around.
Very odd.
Eve of Destruction market style; http://www.zerohedge.com/news/2016-01-15/bursting-bond-bubble-has-begun-pt-2 Eve of destruction door gunner style; https://www.youtube.com/watch?v=dY39EZcEgdc Geeeeeeeeeeeeeetttttttttttttt Ssssssssoooooooooooommmmmmmmmmmmmmeeeeeeee! The lyrics from the song include “your young enough to kill but not for votin” got me thinking David. Why don’t you get Peter Sutherland to tell Michael O Leary to send home the poles and to ring whoever in the department of foreign affairs and tell him that he will take as many syrians as he can between the ages of 16 and 18. This of course is because the min wage for this category is 6.41/hr and not the usual 9.15/hr. O’Leary will… Read more »
Commentary by National Inflation Association Over the last 24 months, a median of $24.9 billion of U.S. high yield corporate debt was issued on a monthly basis. Very disturbingly, America’s monthly high yield corporate debt issuance has been below this median for the last seven consecutive months! In fact, in December 2015, the issuance of high yield corporate debt declined to a shockingly low $3.5 billion – down 67.3% on a year-over-year basis from $10.7 billion in December 2014! In recent years, many U.S. publicly traded corporations have borrowed money at artificially low rates, for the sole purpose of buying… Read more »
Currency wars heat up
http://www.bloomberg.com/news/articles/2016-01-16/currency-war-revival-s…
Dave from Denver… U.S. Economic Collapse Becoming More Evident January 15, 2016 Financial Markets, U.S. Economyeconomic collapse, negative interest rates, NY Fed business index, stock market bubble, stock market collapse It’s days like today that will keep the muppets invested as we keep going down. – Jim Quinn of The Burning Platform in reference to Thursday’s stock market moon-shot Well, I was wrong. I was predicting that the Census Bureau would engineer a miraculously positive retail sales report for December. As it turns out, the CB is admitting to a .1% drop in retail sales for the month. The question… Read more »
Keynesian monetary policies cause abust. Mises sound money policies are the cure.
https://www.goldmoney.com/our-research/goldmoney-insights/austrians-get-some-mainstream-credibility?gmrefcode=gata
“Why are we looking on helplessly as markets crash all over the world?”
http://www.theguardian.com/commentisfree/2016/jan/17/china-economic-crisis-world-economy-global-capitalism
We could start by regulators actually doing the job they are supposed to. We do not need more oversite and control, the laws existing need to be enforced.
Central bank ponzi money is the prime culprit.
Close central banks and jail the executives who violate the laws.
Currently all that happens is a corporate fine that is meer
http://thenewsdoctors.com/gatas-bill-murphy-fridays-midas-newsletter-placed-in-public-domain-what-this-is-leading-to/
The best economic coverage out there.usually only by subscription
http://inflation.us/the-2015-christmas-season-was-a-disaster/
““This is true happiness: to have no ambition and to work like a horse as if you had every ambition. To live far from men, not to need them and yet to love them. To have the stars above, the land to your left and the sea to your right and to realize of a sudden that in your heart, life has accomplished its final miracle: it has become a fairy tale.” ? Nikos Kazantzakis, Zorba the Greek @AlfieMoone : “my life is soap-opera,online photoshop’d Soap Opera…please allow me to introduce myself, I’m a man of stealthy gait” “allow me… Read more »
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