Manchester United’s spiralling debt: The facts behind the latest financial report

Manchester United’s spiralling debt: The facts behind the latest financial report

As another set of financial figures released this week show Manchester United plunging further into debt, I thought it would be useful to look into it and see exactly what is going on.

First of all, here are the headline figures released this week (taken directly from the club’s published financial statement). They compare the period 1st July – 30th September 2019 with the same 3 months in 2018:

£ million (except earnings per share)

Three months ended 30 September

2019

2018

Change

Commercial revenue

80.4

75.9

5.9%

Broadcasting revenue

32.9

42.8

(23.1%)

Matchday revenue

22.1

16.3

35.6%

Total revenue

135.4

135.0

0.3%

Adjusted EBITDA(1)

34.8

29.4

18.4%

Operating profit

11.0

13.9

(20.9%)

Profit for the period (i.e. net income)

1.1

6.6

(83.3%)

Basic earnings per share (pence)

0.69

4.04

(82.9%)

Adjusted profit for the period (i.e. adjusted net income)(1)

3.9

7.0

(44.3%)

Adjusted basic earnings per share (pence)(1)

2.35

4.27

(45.0%)

Net debt(1)/(2)

384.5

247.2

55.5%

 

The first thing to notice is that the revenue figures – money coming into the club – are pretty much the same as in the same period in 2018, at £135m, which on the surface of it is good, since last year United had Champions League participation and TV rights revenue. But the reason they have stayed as good as last year is that United happened to play two more home games during the three month period, so the extra gate receipts compensated for most of the lost Champions League revenue. So, in reality, revenues are going down.

But it’s when you get to that bottom line figure that you start to worry. The club’s net debt has increased a whopping £137m – 55.5% – from the same time last year. That is an alarming figure. So why, if revenues are (albeit artificially) the same, has the debt increased so dramatically? You have to look at the cost figures in the report to figure this out, and they reveal some interesting facts.

First, investment in the ground. Now, you wouldn’t mind so much that the debt has increased if money was being spent repairing the rapidly decaying stadium, would you?

We have all seen photos of the poor state of Old Trafford, and yet, rather than increasing expenditure, the Glazers actually cut back by 37% compared to the same period of the previous year.

The report states: Net capital expenditure on property, plant and equipment for the quarter was £3.1 million, a decrease of £1.8 million over the prior year quarter.

What is more concerning about this is that this is not a blip, it’s a trend. If you compare the whole of the last 12 months figures with the previous 12 months, spending on the ground has decreased by £2.4m or 11.5%. This bears out the Glazers Out movement’s claims that the Americans are letting the ground go to rack and ruin.

Another figure of interest is the wage bill. This was down £6.8m to £70m, according to the report, “primarily due to reductions in player salaries as a result of non-participation in the UEFA Champions League.

What a clever board. The £10m loss in broadcasting revenue due to United’s non-participation in the Champions League was almost offset by the fact that a number of players suffered a 25% pay cut because they didn’t qualify for the Champions League. Well, that’s all right then, as long as the books balance, who cares? It’s only football.

By far the biggest figure that explains the massive increase in debt is cash flow, which went £130m in the wrong direction. The financial report says that: This is due to timing of cash receipts on commercial contractual arrangements and non-participation in the UEFA Champions League.

The actual Champions League prizes during that period account for £20.4m, so we are left with this mysterious £110m loss due to “timing of cash receipts on commercial contractual arrangements”. A more detailed look shows this as a big decrease in “trade receivables” – which usually means invoices sent to customers – but the report doesn’t make clear who these customers are (it is not the sponsors, as sponsorship revenue is not included in this part of the accounts).

Likewise, trade payments – bills paid as a customer – doubled from £18m to £37m in the period, and the explanation for this is equally unclear. It seems a bit fishy to me. If it is simply stuff being paid later or earlier than usual, then we should see a correction in the next financial report, which would show a huge decrease in the debt. Somehow, I don’t think that’s going to happen.

Ed Woodward has been using United’s failure to qualify for the Champions League as the explanation for the poor financial results, but as we’ve seen here, this is nonsense. The net cost of failing to qualify for the Champions League in this period is £17.8m, which accounts for only 12% of the debt increase of £137m. So where did the other £119.2m go, Ed? Certainly not on ground improvements or player wages. Meanwhile, the shareholders – mostly the Glazers of course – received a 7p per share dividend, roughly equivalent to an £11m payout. No pay cut for them for failing to qualify for the Champions League, then.

Presenting the results to shareholders, Woodward stated “”I want to reiterate that our ability to make the investments we need to be successful on the pitch is underpinned by our continued strong financial performance.” There are two things wrong with this statement. First, increasing the debt by £137m is not “continued strong financial performance”. It is a disastrous financial performance that you can’t sweep under the carpet. And second, more importantly, that is your big problem, Ed, you still don’t get it. The ability to achieve continued strong financial performance is underpinned by the investments you make to be successful on the pitch, not the other way around. If the Glazers continue to run this club as a commercial venture that funds a football team, with on-the-pitch success seen as unimportant to the financial health of the club, then it won’t be long before there is no club left to run.

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About The Author

Red Billy has been following transfer stories and voicing opinions on Manchester United since 1968.