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.....



Saad Mustafa Zaman said...

Thank you for this. Excellent info. Very clear.

redluhg said...

So I guess this generates some money in interests at the moment...?

Anonymous said...

@redluhg The only people making money on this is the Bank's money market traders! The interest that MUFC are getting isn't worth talking about

Anonymous said...


Fantastic graphs! Have you revamped the place lately? It's almost like walking in to Swissramble's place.
Fine analysis too.

Questions: How have you arrived at your estimate for Change in Workng capital for Q4 2011? Wasn't there supposed to be a negative WC impact of around 9m from the Aon deal? Perhaps that came in the earlier quarters.
There is a swap loss payment of about 4m- I am not sure if this was paid earlier in the year.
One final point: You allude to the the cash drain from the stadium expansion; Do you have an estimate for how much (if any) of the expansion cost was financed? The Aug 2006 refinancing was supposed to pick up a drawn RCF(stadium related) of about 29m.

Many thanks.

Anonymous said...

Good factual report. I think clearly we are going to spend some money this summer, the net spend on transfers since the glazers arrived has been minimal and they probably will accept fergusons requests at this time.

I think a net spend of about £30m will be accpetable to them and to fergie and if spent well, will make the squad stronger and keep the club challenging for trophies.

The problem is that the very best midfielders are expensive and it's that area of the squad that needs strengthening the most, apparently Sanchez is $30m - i just cant see fergie spending his entire transfer budget on one player, so how do you bring in real quality with that kind of restriction?

andersred said...

Hi Anonymous at 20.55,

Yes I've got smarter at doing the graphics etc!

The Q4 working cap is just a "same as last year", after all, ex-VAT prices are flat y-on-y.

You are right about the Aon unwind but so far it hasn't been very visible because of other prepayments from other commercial deals. We don't see the details in the quarterlies but in the 2009/10 annual report "Deferred income" rose despite Aon unwinding.... Eventually (as % growth rate in Commercial falls) it will start to unwind....

From memory the cash impact of the ongoing swap loss payments goes through the interest line (hence the small charge in non-coupon quarters).

There was stadium expansion RCF but it was never used.


andersred said...

Hell to Anonymous at 21.56

I don't think anyone outside the Glazer family and senior MUFC management know what our "budget" is.

This money wasn't "meant" to be there of that I'm sure. So whether it can be used under whatever Plan B they developed to refinance the PIKs is totally unknown to all of us on the outside.

If they have refinanced the PIKs in some way that means they are happy to let them roll up over six years until the bonds are repaid and then intend to repay the PIKs as part of the 2017 refinancing, it is possible that all this cash is "available" to SAF. Possible but not likely!

One important thing to remember with modern transfers is that wage demands are often more important than transfer prices. Sneijder may "cost" £30m but that gets spread over a five year contract (and hopefully longer if a player signs an extension) so that's "only" c. £6m per annum. Compare that to suggested wage demands of £200k per week. That's £10.4m per year, 10% of profits. It also raises the bar for the rest of the squad.

I understand the Glazers were underwhelmed about having to give Rooney a pay rise costing £4m. In my view it'll be the wage angle that determines who we do and don't sign.


Anonymous said...

Anon at 20:55 here.
Thanks for that Anders.
I assumed though that the Aon prepayment would only unwind from this financial year- 2010/2011- and not the previous year.

andersred said...

Hi again, you're quite right, the Aon unwind started this financial year not last. Doh! My point on other deferred income rising remains though. Up front payments on other deals offset the unwind to a certain extent.



Anonymous said...

Anon at 20:55 again.

Yep, the club logged additional prepayments last year of a size equivalent to the Aon unwind. If repeated then not much changes.

It's been a feature of the Glazer reign- this protecting or bolstering of the cash position.
The club made a few acquisitions during their tenure-33% of MUTV, the terminal, etc- and they have used financing rather than cash.
Furthermore the trade policy seems to have changed a bit: cash-up-front sales with instalment plans for purchases. Tbf, the Ronaldo deal exaggerates the position. We used to sell players with a contingency element too but that practice seems to have stopped. I guess all this is what you might expect under an LBO.
It was in ths regard that I was asking about the stadium expansion earlier. Though the special stadium facility was not used, the investment report from 2006 mentions in "use of funds" the intention to refinance 29.8m of the drawn RCF (drawn for Stadium Capex). I am trying to determine if any of prodeeds of the 2006 refinancing went to paying down the RCF.


simpson said...

Glazers eye Man Utd float in Asia

sunday times

Anonymous said...

Whats the 411 on this? Any comment Anders?

Paul said...

Excellent post Andy as always, keep up the great work.

Webbo said...

suspect net summer spending won't be huge, with likes of Berb, Nani, Wes, O'Shea & Gibson possibly leaving.

Had Glazers withdrawn cash there would have been an adverse reaction from fans. By leaving cash in the club they would still get the benefit on a sale/float as value will be based on a debt free basis, i.e. cash will be deducted from debt to give net figure.