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?