Manchester United: Breaking Down The Financials

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Friends,

Manchester United, the third most valuable soccer team in the world, reported financial earnings yesterday — as you would expect, they weren’t pretty.

Here are the highlights (YE June 2020):

• Revenue fell to ~$641M, an 18% decrease from 2019.

• Operating Income dropped to ~$166M, a 29% decrease from 2019.

• MANU recorded a loss of $29M, versus a net profit of $24M in 2019.

• Ended June with a cash balance of ~$67M, compared to over $400M last year.

With so few sports teams throughout the world wholly or partial owned by publicly traded companies, it’s not often we get to peak behind the curtain and check out their finances — so today, we’ll do just that.

(📸 / Bleacher Report)

The easiest way to think about Manchester United’s finances, for those that aren’t already familiar, is to break it down into three categories:

1. Commercial Revenue

2. Broadcasting Revenue

3. Matchday Revenue

Here’s a good visual from Statista showing how the percentages shake out.

Furthermore, here’s how the revenue numbers have changed from 2019 to 2020 (Source):

Rather than break down each category specifically, and bore you with random financial statistics, let’s run through a few things I thought were interesting.

If you prefer the former, you can read the entire earnings call transcript here.

Broadcasting Revenue

In 2019, for the fourth time in six years, Manchester United finished the season outside of the Premier League’s top four — missing an invite to the UEFA Champions League.

The financial impact was significant.

Broadcasting revenue came in at $183M, which represented a decline of 42% from the $314M they posted 2019.

To be fair, poor play isn’t the only thing to blame for a decrease in broadcasting revenue. A total of ten matches (6 Premier League, 3 UEFA Europa League, and 1 FA Cup) were rescheduled due to the COVID-19 pandemic, shifting potential match-related revenue from fiscal 2020 to fiscal 2021.

After finishing third in the 2019-20 Premier League, and subsequently returning to the Champions League, Manchester United should be in a position—depending how well they play—to recoup a significant sum of broadcasting revenue they lost out on this year.

Where Did All The Cash Go?

One thing that stood out to me in particular was the massive drop in reported cash balances — MANU went from having ~$400M of cash on hand in 2019 to ~$67M in 2020.

The decline in cash comes down to three main things:

1. Player Investments — MANU reported almost $75M in additional player Capex this year “due to player investments made during the year and the associated accelerated payment profiles.”

2. Season Ticket Payment Delay — With fans uncertain around when they can return to the stadium, there has been a delay in the payment of season tickets. Most season ticket payments are typically received by the club on or before June 30th, but over $65M still has not been paid.

3. Sponsorship Money Deferral — In the spirit of being good business partners, Manchester United has offered some of their large commercial sponsors, which were impacted by the COVID-19 pandemic, the ability to delay sponsorship payments. They mentioned payments are coming in now and will continue throughout fiscal year ‘21 — this should increase cash by over $100M.

Although the top-line decrease in cash might look scary, the explanation given by MANU—if all payments are collected—would bring cash balances back up to ~$250-$300M, a much more respectable number given the circumstances.

Headlines will read that debt levels are increasing, but I wouldn’t give that much attention — MANU’s debt payments have remained constant, but the decline in cash has elevated the overall debt equation.

Dividend Payments

Speaking of declining cash balances — MANU paid out an additional ~$15.6M in dividends to shareholders in Q4, bringing their total for this year to over $30M.

What’s the problem?

The majority of those $30M in dividends, despite an ~18% reduction in annual revenue, went to the six Glazer family members who hold shares in the club.

Point being — even if times are tough, the owners are still getting paid.

Digital Acceleration Funnels To E-Commerce

Similar to other professional sports teams and leagues, Manchester United saw an acceleration in digital engagement throughout the COVID-19 pandemic — especially on platforms they own and operate like their mobile app.

Here’s what Manchester United’s Managing Director Richard Arnold had to say on yesterdays’s call:

Given the inability for fans to interact in person, digital engagement should be up for just about all sports teams and leagues — but Manchester United’s ability to turn those interactions into “stronger” e-commerce sales is what interested me.

No data has been provided for context, but certainly something to keep an eye on.

In the end, investors have reacted well to the financials — after seeing a decline of more than 30% YTD, MANU is up almost 10% since earnings.

As always, none of this information presented above is intended to serve as financial advice — do your own research.

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