Penny wise or pound foolish? United's dilemma

Ever since Sir Jim Ratcliffe purchased a stake in Manchester United, the INEOS chairman has taken a series of unpopular decisions that have left many supporters scratching their heads, as the local boy made good appears to not care about being put in the same category as the reviled Glazers.

Is he a rat putting the club over the cliff or a hard-nosed businessman sorting out a bloated club? Change is certainly needed, but some of his cost cutting measures seem to inflict more pain than is justified by the savings they create.

The billionaire has pushed forward a series of decisions to reduce the club’s cost base, including making around 250 employees redundant last year with plans to further reduce staffing levels, reportedly by another 100-200. This will even impact United’s famous academy, which has supplied at least one homegrown player for every match day squad since 1937.

Other cost savings measures included ending Sir Alex Ferguson’s ambassadorial role despite the Scot being the most successful manager in United’s history. In the same way, the salaries of former players acting as ambassadors, such as Bryan Robson, Andy Cole and Denis Irwin, have been lowered.

Various other staff perks such as subsidised travel to the FA Cup final have been cut, while the traditional staff Christmas party was also canceled. In addition, the club has increased members’ match-day ticket prices to £66 with no reductions for seniors or children and increased parking charges for disabled fans.

Revenue negatives and positives

Manchester United’s pre-tax loss widened from £6m to £33m in the six months to Decenber, as revenue dropped £41m (11%) from £383m to £42m, though this was partly offset by profit from player sales increasing from £30m to £36m.

Following the revenue reduction, operating expenses were cut £15m (4%) to £359m, while net interest payable also decreased by £6m (17%) from £35m to £29m. However, exceptional charges more than doubled from £10m to £23m. It’s worth noting that United nearly broke-even (including player sales), but interest charges led to another substantial loss.

The revenue reduction was driven by only participating in the Europa League compared to the Champions League in the previous year, leading to a large decrease in broadcasting, which fell £53m (36%) from £146m to £93m.  On the other hand, there was growth in both commercial, up £8m (5%) from £162m to £170m, and match day, up £3m (5%) from £75m to £78m.

Although United’s H1 revenue decreased to £342m, this is still the club’s second best ever for the first half of the season, boosted by a new records in both match day and commercial. The club has maintained its revenue forecast for the 2024/25 season at £650-670m. If they achieve the higher number, this would actually be their highest ever revenue, overtaking last season’s £662m.

United have the second highest revenue in England, only surpassed by Manchester City’s £715m last season. However, they hold a big advantage over everyone else, as Liverpool £615m and Arsenal £614m were nearly £50m behind them.

In fact, United have the fourth highest revenue in world football, only below Real Madrid, City and Paris Saint-Germain, so they should really be performing an awful lot better on the pitch.

Although Ratcliffe only has a minority stake, he has been given operational control of the club, so it is not an enormous surprise that INEOS have started to follow their standard modus operandi after making an investment. Looking for efficiencies is simply what businessmen like Ratcliffe do.  More specifically, Ratcliffe will have noted that United have the highest headcount of any football club in England with their 1,140 being much higher than anyone else, e.g. Liverpool 1,008, Chelsea 827 and Arsenal 826.

However, United’s headcount is inflated by some special factors: their own TV channel (MUTV), the largest stadium, a large commercial team to support the revenue generation, a large investor relations team and more compliance staff due to being quoted on NYSE.

Like all football clubs, United have been adversely impacted by significant growth in other operating expenses, due to higher inflation, which has increased the cost of utilities and services. This cost category is often overlooked by supporters, but it has become increasingly important for clubs, particularly those with a large stadium and those involved in European competitions with the consequent impact on travel and accommodation.   Consequently, each of the Big Six pays out well above £100m in other operating expenses, though United’s £149m is actually lower than Manchester City £190m (possibly including substantial lawyers’ fees) and Tottenham £167m.

Ratcliffe has even said that the redundancies are necessary to help the club avoid going bust, though that seems overly melodramatic. They should ultimately lead to annual savings of between £30m and £40m, though the redundancy plan will cost £10m.

It is undoubtedly true that United have lost a lot of money, adding up to £313m before tax in the last three years, as the club has not generated a profit since 2018/19, i.e. before the pandemic struck. Indeed, the authoritative Swiss Ramble believes that the £33m loss in the first half is United’s worst ever for this period, though it would have been a lot smaller without the £23m exceptional payments.

United’s declining performances on the pitch since Sir Alex Ferguson retired in 2013 have had a significant impact on the club’s bottom line. Things have got even worse since Ratcliffe’s arrival with club currently languishing in a lowly 15th place.  United have spent a huge amount of money on bringing in new players, but the problem is that this has been spent very badly.

United’s failure to qualify for the Champions League in two of the last three seasons has also badly hurt the club’s finances. For example, the €116m European TV money they have earned in the last three years (could be more when 2024/25 is completed) is considerably lower than the €188m and €178m in the preceding 3-year periods.

Money taken out of the club

The Glazers have taken a lot of money out of United since their arrival, e.g. defining owner financing as owner loans plus share capital less dividends, the club paid out £177m in the ten years up to 2023, split between £156m dividends and a £21m share buyback.

This is in stark contrast to most other clubs, e.g. in the same period other owners have provided significant funds, such as Everton £747m, Fulham £619m, Aston Villa £574m and Chelsea £493m, albeit with varying degrees of success. In fact, United were the only Premier League club where the owners took out more than they paid in.

Although the “Theatre of Dreams” is famous worldwide, it’s fair to say that it is showing its age. From a financial perspective (and also that of the humble fan), it has been overtaken by stadium development at other clubs, e.g. Tottenham’s splendid new facility.  However, this will require huge investment with the project costing anything up to £2 bln, so this will almost certainly require the club to take on more debt, as it is unlikely that Ratcliffe would shoulder 100% of the burden.

There are clearly many problems at Old Trafford, as Ratcliffe acknowledged, “The club has drifted for a decade or so. Manchester United has become mediocre. It’s not elite and it is supposed to be one of the best football clubs in the world. There is major change to come to achieve elite status. A lot of inertia has built up in the organisation.”

This has left the club in a delicate financial position, so to an extent the cost cutting campaign is understandable, though targeting staff feels inappropriate, not to mention unfair, when there are far bigger issues elsewhere.

Similarly, the fans should not be asked to pay the price for management failures via another increase in ticket prices.  Talk of the club going bust is well wide of the mark, given United’s impressive cash generation, but they desperately need to improve their player trading (both in terms of recruitment and player sales) and do better on the pitch, so they can get back to the lucrative Champions League.

David Moyes recently commented that his performance as manager doesn't look so bad in retrospect and I am sceptical about the value of constantly changing managers.  But then someone like Sir Alex is rare gem.  His great skill was to have an excellent team and at the same time start building the next one.