Thursday, 9 June 2011

The facts about Manchester United’s cash pile

Yesterday on Twitter I mentioned that United enter this transfer window with over £180m of cash in the bank. This sits alongside around £478m of bonds (i.e. debt). My cash estimate met with some scepticism, so I thought I'd show how this state of affairs arose.

Seasonal cash flow
All professional football clubs have seasonal swings in their cash balances (or overdrafts) during the year. Cash levels are at their highest in the summer following the distribution of TV money and when fans buy season tickets (and often when sponsors pay in advance for the next season). This seasonally high balance falls over the season as players are paid (there are uplifts at various points as TV money is distributed across a season). The cash balance at clubs' year end (usually May, June or July) are therefore not representative of the money "available" for the whole season.

Because United now publish quarterly accounts we can see this seasonality quite clearly. The graph below shows cash flow before capital expenditure and transfers (but including interest payments). In 2008/09, incentives for early exec ticket renewal boosted cash flow in Q3 at the expense of Q4. In 2009/10 most season ticket income came in Q4. The overall seasonal pattern is however very clear.

So United's cash balance is always high in June. The graph below shows how the total has varied over the last few years. I have added the unusual impact of the quadrant expansion costs in 2005 and 2006 to show the underlying numbers. What is striking about this graph is that having had year end cash balances averaging £47m up to 2008, from 2009 onwards the average balance has been over £166m (including my estimate for this year).

Ronaldo and Aon
To understand how the club has come to have such huge sums of money in the bank we need to disaggregate the cash flow between June 2008 and today. The chart below shows this. The blue bars represent the cash balance at 30th June 2008, 31st March 2011 (the most recently published figure) and my estimate for June 2011 (excluding this week's transfers). The black bars represent inflows of cash and the red bars represent outflows.

What the graph shows is that two windfall receipts, Real Madrid's payment for Cristiano Ronaldo and Aon's prepayment of 45% of its four year sponsorship (both received on 30th June 2009 coincidentally), provided a "one time" boost to the club's cash balance that remain to this day.

The rest of the cash flows from 30th June 2008 to 31st March 2011 are pretty much a wash. The club generated £276m of cash profits (EBITDA), and paid out £328m in interest, debt finance costs, debt repayments and transfer spending (see table):

Those are the totals up to the end of March this year. As described above, the club will receive significant sums in Q4 from season ticket renewals, TV (Champions League final payments for example) and sponsors. That should add £70m+ to the total.

Will (can) they spend?
The Ronaldo and Aon monies arrived almost two years ago and Fergie has yet to go on a major shopping spree. The club even had £122m in the bank when it announced its bond issue in January 2010. This huge cash pile has sat around unspent for some time.

Regular readers will know that I believed this money was sitting in United's bank account earning next to nothing because it was earmarked to be paid to the Glazers (to repay the PIKs). The bond issue allowed significant sums to be extracted from the club (a current "entitlement" of c. £120m) that had not been permitted under the terms of the old bank loans. In the event those "entitlements" have not been used and it looks like they managed to refinance the PIKs without dipping their sticky fingers into United's kitty.

That leaves this enormous sum as a huge mystery. So don't ask me what our transfer budget is, all I can say for certain is that United have £477m of bond debt and £180m+ of cash available for something.....