United learn that cash is king

In this era of profit and sustainability, it is easy to forget that a football club needs two things to spend in a transfer window: room for manoeuvre on financial fair play and enough cold, hard cash to pay for signings in the first place.

Cash is king, it is said. At Old Trafford, reality is beginning to bite.  The January transfer window is open, but Manchester United are yet to make a signing due to a need to balance any incomings with outgoings.

That may come as a surprise to anyone glancing at the most recent set of accounts. As of the end of September, United had a healthy bank balance of £149.6m. That is more cash than they have held in reserve at any point since the Covid-19 pandemic.

Last month, a further £79m was added by Sir Jim Ratcliffe as part of the $300m investment promised upon him becoming a minority owner last year, which also increased his minority stake to 28.9 per cent.

There is a problem, though: United’s pile of cash has not been generated by the club itself.  It has come through either short-term loans, which carry interest charges and will one day need to be paid back, or through Ratcliffe’s investment, which is earmarked for upgrades to facilities at Old Trafford and Carrington.

And on top of that, according to September’s accounts, United still have a net figure of £319m in transfer fee instalments to pay for players they have already signed, with at least £154m due within a year.  “The thing that goes under the radar with Manchester United is that, especially under the Glazers, they bought players on tick,” says Kieran Maguire, football finance expert and lecturer at the University of Liverpool.

After five years of consecutive loss-making amid mediocrity on the pitch and stagnant revenues off it, United have had to defer payments, spend on credit and pull different financial levers to maintain their level of investment in the playing squad.

Like any Premier League club, United need cash to pay transfer fees, wages, tax bills and interest charges and to meet the cost of any upgrades to their stadium or training facilities.  Last season, United’s operating cash flow stood at £118m, with a further £37m recouped in transfer fees. A £4m tax rebate also helped. Yet, all together, that £159m generated was quickly eaten up.

First, take away £36m paid out in interest, partly spent servicing the debt lumped onto the club by the Glazer family upon their leveraged buy-out in 2005. That is almost all the cash received in transfer fees immediately wiped out.

Then, subtract the £18m spent on improving facilities at Old Trafford and Carrington. Upgrading the stadium and training ground has been a long-term necessity and the type of investment United should have made long before now, but it is still a short-term cost.  And, finally, take away the £191m spent in transfer fees last season, which will have partly paid for the three major summer signings.

You do not need a calculator to see that the cash generated by the club last season did not even cover United’s transfer outgoings. Factor in the interest payments and infrastructure upgrades and there was an £86m gap between the cash flowing in and cash flowing out of Old Trafford.

It was not a one-off, either. It was a similar story a year earlier, at the end of the 2022-23 season, when a £44m deficit contributed to United’s cash in the bank falling from £121m to £76m.

It is no coincidence that things started to deteriorate during the Covid-19 pandemic. United’s cash reserves stood at £308m at the end of the 2018-19 season but had fallen to just £52m a year later. United were disproportionately affected by Covid compared to other Premier League clubs in respect of matchday revenue, by virtue of the 74,310-capacity Old Trafford being English football’s largest club stadium. 

The club had an operating cash flow of £264m before the pandemic, yet it has barely reached half that figure in the years since. Were it not for the credit facility and Ratcliffe’s investments, United would have a negative cash flow of £330m since the end of the 2019-20 season.  Nevertheless, unlike some of their rivals, United did not take advantage of the government’s furlough scheme and continued to pay casual staff despite matches being played behind closed doors.

Far more questionable was the Glazers’ decision to continue paying out £166m in dividends over the course of a decade between 2012 and 2022, much of which lined their own pockets as majority shareholders.

United’s interest payments on debt under the Glazers’ ownership have come at an even greater expense, totalling £790m since their leveraged buy-out in 2005, and have steadily increased in the last few years due to rising interest rates across the globe.  Yet by far the most costly expense — and in many cases, the most wasteful — has been transfer spending, which has seen a net £1.3bn in cash spent over the past decade.

It was always taken for granted that there would be money to burn at Old Trafford, but after years of failing to back their spending up with success on the pitch, United are beginning to wake up to their new reality.