Financial challenges for United's new leadership

Manchester United’s pre-tax loss for the first 9 months of 2023/24 nearly tripled from £31m to £89m, despite revenue increasing by £39m (8%) from £481m to £520m and profit on player sales almost doubling from £16m to £31m. However, this was accompanied by operating expenses rising £79m (16%) to £587m, while net interest payable also increased by £32m from £20m to £52m.

This is the third season in a row that Manchester United have reported a pre-tax loss in the first 9 months. Revenues and costs are not evenly phased during the financial year, but it is perhaps worth noting that the previous season’s £31m loss in this period ultimately became a £33m loss, so little change in Q4.

It is a little concerning that the £89m loss in the first 9 months is by some distance the club’s worst for many years, up from the previous season’s £31m deficit. This would have been the case even without the £40m of exceptional charges.

The revenue growth was driven by the return to the Champions League, which meant a large increase in broadcasting, up £39m (27%) from £144m to £183m, and to a lesser extent match day, up £3m (3%) from £101m to £104m.This was partially offset by lower commercial, which fell £4m (2%) from £236m to £232m.

Costs included £40m of exceptional items, mainly linked to the sale of part of the club’s shareholding to Ratcliffe, which had a significant impact on the bottom line. Nevertheless, even if these once-off charges are excluded, United’s pre-tax loss would still have widened from £31m to £49m.

The impact of interest payable on United’s accounts is also clearly evident, amounting to a hefty £52m in the first 9 months, which represents a significant increase over the previous periods. This is due to a combination of factors: rising interest charges on the club’s revolving facilities, a change in the value of derivatives and an unfavourable swing in exchange rates.

United’s profit from player sales increased from £16m to £31m, mainly thanks to the moves of Dean Henderson to Crystal Palace, Anthony Elanga to Nottingham Forest and Fred to Fenerbahce.  This was United’s best result from player trading for many a year, but it remains relatively low by Premier League standards.

Looking at player sales profits in the four years up to 2022/23, we can see that United’s £68m was firmly in the bottom half of the table, miles below the likes of Chelsea £357m and Manchester City £298m.   United’s inability to match their rivals in terms of player trading goes a long way in helping to explain the club’s challenges with Financial Fair Play.

The club’s latest estimate for revenue for the full 2023/24 season is £660m, which would be an all-time high for United, surpassing the previous year’s £648m.  This was at the upper end of the previous range of £635-665m, though it is still lower than the club’s initial outlook of £650-680m, again because of the early Champions League exit.

Champions League

The difference in United’s earnings in the seasons when they qualify for the Champions League is obvious. This was highlighted this season, when United earned £52m (€60m) from the Champions League, notwithstanding their disastrous fourth place finish in the group, which meant that they didn’t even drop down to the Europa League.  That is around twice as much as the £28 (€33m) they received last season in the Europe League, when they got as far as the quarter-finals.  Nevertheless, United’s unexpectedly early elimination from the Champions League hurt them financially, as their £52m was much lower than two other English clubs that reached the quarter-finals, namely Manchester City £95m and Arsenal £81m.

There have been whispers about the club selling naming rights to a refurbished Old Trafford, which would certainly not fill United’s supporters with joy. Ratcliffe’s desire to “sweat the assets” to drive up revenue in a PSR world is understandable to an extent, but this would still be an unpopular move, though it would probably be less of an issue with a new build.

United’s wage bill increased by £32m (14%) from £245m to £277m, mainly due to higher bonus payments as a result of qualifying for the Champions League, allied with investment in the squad and contract extensions.   Even after the likely increase for the full year, United’s wages will still be a long way short of Manchester City’s £423m Premier League record and Chelsea’s £404m, both from 2022/23.  It is worth noting that United’s players will reportedly receive a 25% cut in their wages after failing to qualify for the Champions League, which will help mitigate the lost revenue.

Even after all the various refinancings, United’s £654m gross debt at the end of Q3 was still higher than the £604m owed after the Glazers’ leveraged buyout nearly 20 years ago.  United have now paid out a shocking £810m in interest since the Glazers’ leveraged buy-out in 2005.

Even though Ratcliffe’s purchase of a 27.7% stake was not the full sale hoped for by the majority of fans, because it left the Glazers in overall charge, Sir Jim will have responsibility for all football operations, including transfer policy. The hope is that this will mark a change in the funding model, as the Glazers have taken a lot of money out of the club.

United complied with PSR in 2023/24 by the skin of their teeth, as their £103m adjusted loss ended up being only £2m within the target.   Any United fans expecting a spending spree this summer are likely to be disappointed, as the club’s budget is likely to still be restricted, unless they can realise decent money from player sales.

The club still faces a number of financial issues, as shown in the figures for the first 9 months of last season. Despite setting a new revenue record, the fact remains that United still posted an enormous pre-tax loss, though this was partly due to the inclusion of once-off costs linked to the share sale.

Next season’s figures will also be hit by the loss of Champions League income, meaning that it will continue to be tricky to comply with PSR (though the large 2021/22 loss will drop out of the 3-year monitoring period).

In summary, there will be no shortage of challenges confronting the new leadership team, but at least there now seems to be a plan to address them, even though the transition is unlikely to be 100% smooth sailing.