Thursday, 1 September 2011

Manchester United’s Q4 and full year results: 19 titles and a Champions League final

United's Q4 and full year 2010/11 results published today reflect a great season on the pitch that was almost as good as it gets.

The financial impact of the 19th title and reaching the Champions League final were significant on both the revenue and the cost lines. The EBITDA performance was exactly in line with my forecast in my post of 17th August, United remains a predictable money machine.

The interest bill remains very high (£51.7m in cash in 2010/11), and the year can be characterised as one where operating profits were largely used to reduce debt rather than invest in the club. Bond buybacks accounted for c. £64m, whilst net transfers only cost £11.4m. The cost of De Gea, Young and Jones will fall into the current financial year.


United played 29 home games in 2010/11 vs.28 the previous year and also benefited from a share of gate receipts for the two trips to Wembley. The extra games and gate sharing added c. 5.7% to matchday income with a strong US tour and better corporate hospitality sales adding c 2.7% to leave total matchday income up 8.4%. This is a really as good as it gets for matchday income with virtually the maximum number of games played at 99% of capacity crowds. There was no price increase put through in 2010/11 (excluding the VAT rise).

Media income rose £15m or 13.9% on the previous year. Premier League income rose £7.4m, largely from the overseas rights deal (shared equally by all PL clubs). Champions League income rose c. £5.5m due to the club reaching the Champions League final rather than quarter final (offset by a smaller "market pool" payment). The balance came from better domestic cup runs and MUTV. As with matchday, on current deals this is close to the maximum United can expect to earn from media. The extra earned from winning the Champions League would be c. £3.2m and the extra "market pool" payment for coming first in the PL is worth c. £3.6m.

This is of course the key growth area for the club. The 2010/11 results saw Commercial income rise 27% or £22m on the previous year. This was driven by the Aon deal (adding c. £6m pa), the contracted step-up in Nike income (adding c. £2.1m pa) and the raft of secondary sponsors (Conchay Y Toro, EPSON, Singha, DHL etc). Nike and Aon now account for 47.4% of Commercial income, with the majority now coming from the secondary partners. These figures pre-date the £10m pa DHL training kit deal and Mister Potato(!).

The club remain as bullish as ever on the scale of the Commercial opportunity, with significant costs being added in the new (Stratton Street) London office. The expectation being pushed to the media by the club is a doubling of the Nike and Aon deals when they are renewed in the next two to three years. Add DHL and further secondary partner growth and a 2015 Commercial income number of c. £190m looks achievable.

The price of success on the pitch can be seen in the sharp rise in costs during 2010/11. Staff costs rose £21.2m  or 16.1% to £153m. The club splits this increase between additional bonus payments of £9.7m and "normal" increases of £11.5m. So the "normal" inflation in wages was around 8.7%.

Other operating costs increased at an even faster rate than the wage bill, rising 26.4% year on year or £14m. Around £2.3m of this increase relates to higher pre-season tour costs and the costs of taking the club and its sponsors to Wembley for the Champions League final. The rest is largely related to continued spending on the club's commercial operations, on MUTV and on charitable donations to the Foundation (we will have to wait for the report and accounts for that number).

EBITDA and below
With revenue up 15.7% and costs up 19.1%, EBITDA rose 9.6% to £110.9m, a margin of 33.5%. Although the margin was down 1.8% on 2009/10, it remains well within the normal range seen since 1991.

The club has moved from UK GAAP to IFRS, eliminating the goodwill amortisation charge. The player amortisation charge was down 2% (reflecting a quiet year for transfers). Depreciation fell sharply (no explanation given). There was a £4.7m exceptional charge largely related to a bad lease in Ireland.

Cash flow, interest and debt
With EBITDA of over £110m and a positive working capital movement of £14.3m (pre-payments), operating cash flow was again very strong at £125.1m (up from £103.5m).

The major cash outflow was of course interest of £51.7m which must include some residual swap loss payments as flagged in the bond prospectus (although they are not identified separately).

Cash flow after interest and tax was c. £74m and the club chose to use the majority of this to reduce debt, buying back c. £64m (face value) of bonds and making its small regular payment on the Alderley property loan.

Investment in the squad (£11.4m) was low compared to recent years and infrastructure spending (£7.2m) was in-line with recent years. As stated above, the summer spending on De Gea, Young and Jones falls into the current year's accounts.

Taking all these items into account, the club's year end cash balance fell slightly to £150.6m, very much in line with the average year end balance (£155m) since the sale of Ronaldo. Around £45m will have been spent since the year end on new players, and a bond coupon payment of c. £20m was made on 1st August. The club therefore has a current balance of around £85-90m.

The bond buyback left gross debt at £458.9m and net debt at £308.3m. This is debt secured on United and excludes any family debt that may or may not be hidden in the US. The graph below shows how the club's debt position (net of any cash) has changed since the takeover. The key event is of course the vanishing of the PIKs in November 2010....

These are very strong operating results, but then they "should" be given the success of Fergie and his players on the pitch. Seasons don't get much better than 2009/10 and therefore the Matchday and Media income streams are very close to being as good as they can be. The performance of the commercial operations remains excellent, although the thing that really shows how strong they are is the DHL training kit deal which doesn't even appear in these figures.

The club thus remains a prodigious cash machine attached to a lot of debt. The £51.7m spent on interest takes the total spent on interest and fees since 2005 to £373m. Another £105m has been spent repaying debts taken on by the Glazers. The total of £478m is equivalent to 67% of the money spent on wages since the takeover or more than 7.5x the net transfer spend of the club.

It is hard to pronounce on the future until we know more about the proposed IPO. At the moment, surplus cash is being used to repay debt, a prudent waste of our club's money....  With net debt (at 30th June) down close to £300m, a debt free club is not unimaginable. That would be a huge improvement on the position in early 2010, but would have come at the cost of almost half a billion pounds of unasked for expense over the last five years.

You can read the results and see the club's presentation to investors here.



Mark said...

"cost of almost half a billion pounds of unasked for expense over the last five years"

Just wondering, had United remained a PLC with no takeover (and assuming no other on-pitch or commercial differences) what kind of figure would we be looking at in terms of dividend payments? Effectively, taken in isolation how much more expensive has the Glazer debt been compared to dividends (and any other relevant outward payments)? Using a figure of half a billion seems a little disingenuous as it appears to imply the figure would be zero had they not taken over.

andersred said...

Hi Mark,

The final dividend payments in 2004/05 (extrapolating the interim/final split) cost £7.4m (£6.9m in 2003/04).

Dividends grew c.9% per annum from 2001 to 2005. At that growth rate, the 2006-11 dividend payments would have totalled £60.6m....

Hope that helps,


Anonymous said...

Great work Andy, as always.

How were the the dividends calculated during PLC years?

andersred said...

There wasn't a formula for dividends, it was what the plc board felt the club could afford (with the hope of increasing them over time).

In the five years up to the takeover, dividends cost £31.5m.

By way of comparison, EBITDA over that period was £203m and net transfer spending £89m.


Mark said...

Thanks for the reply anders.

Apologies if this is a naive question, but without the debt repayments wouldn't the tax on profits factor in to make the final discrepancy lower?

Are there other factors to take into consideration with the comparison of £478m to £60.6m, or is it fairly true to say that United are >£400m worse off today than they would under the PLC? If not, what would be your rough guesstimate of the true cost of the Glazer's ownership to the club?

I should say that I'm not trying to gain evidence in support of the Glazers, I'm merely curious to get an understanding of the relative (or 'true') cost of the debt, rather than the absolute cost which I find to be somewhat meaningless without comparison.

s7_rocks said...

£29m profit before tax doesn't look too bad but we don't have much room for investment into squad and if we include the transfer made during summer we could easily end up in red. £29m pbt also includes £16m gains on exchange rate.How does this place us in terms of UEFA Financial Fair Play rules and our ability to compete in the market for top players?

andersred said...


There has been a saving in corporation tax of around £80m so if you want to do a "cost-benefit" analysis that needs including too.


The PBT is a bit meaningless. I prefer the cash flow before transfers for a better idea of our "firepower". That number was £62m last year and £66m this year.

On my calculations the club would have reported a FFP profit of around £45m for 2010/11.


Anonymous said...

Anders - You calculated a FFP profit of £42m for 2009/10, surely it would be much more than £45m for 2010/11?


Anonymous said...


I noticed in the published accounts that trade creditors had increased very significantly (£13m to £60m).

Does this suggest that the cash balance is being maintained at the expense of longer payment periods for creditors?

LSD_Eindhoven said...

Hi Anders
Fine analysis as ever.
Just a few points on the former PLC's dividend policy:
It was designed to be progressive; to set an expectation for investors that the base increase (around 6% per year) would continue. It was conservative in that it lagged profitability, meaning the club could be pretty assured that it could maintain such a policy (and expectation).

There was an additional rebasing in 2003 after the Nike deal which pushed up the base by an extra 13%. Special bonuses were paid in 2002 and 2003 (3m to 4m) but were not repeated in 2004. Excluding the special bonus, the smoothed increase in dividends over the period 1998 to 2004 was around 7.2% pa (by my calculations).

Data from 2000 to 2004 inclusive saw corporation tax and dividends (combined) average 53% of profitability and around 32% of EBITDA. Assuming the trend continued (and assuming EBITDA growth as per the Glazers), then a shadow plc would have paid out about 165m (32% of 510m) in corporation tax and dividends in the 6 Glazer years. Though Ebitda growth during the plc years (from inception onwards) averaged 16% pa -equivalent to the growth under the Glazers- you could argue that a shadow plc would not have chased revenues as aggressively and that the Glazers have brought in extra EBITDA, thus reducing the cost of their ownership. Of course, the shadow plc would have paid less in tax and dividends consequently.

Whatever way you look at it, their ownership has cost the club more than the plc alternative.

One final request: Is it possible for you to detail the 478m in costs? Can you email me a spread sheet?


dave said...

just a quick one, apologies if I missed it, the club made a 16 million unrealised gain on FX, (19 million loss last year) what exactly does this relate to? I know its related to foreign currencies, but what assets do the club holds outside of pounds that have grown so much? thanks and sorry if I missed the answer already

andersred said...

Thanks for the comments


The reason the FFP position doesn't strengthen that much is the fall in the volatile "profit from player sales" from £13.4m to £4.5m... There is still a very comfortable FFP buffer vs. most clubs.

Anonymous at 18.25,

I can't think of a good reason for a large move in trade creditors. The report and accounts will tell us more. It could be transfer related.


Top stuff as ever. The counterfactual plc becomes less relevant as time goes on but your point is well made, the Glazers have been a NET cost to the club. Happy to email you my running costs total, email me your email address (do I have it already?)...

The FX "gain" relates to the fall in £ of those bonds denominated in $. There's a gain or loss every quarter depending on whether Sterling has risen or fallen vs. the dollar.


Anonymous said...

Am I right in thinking the move to IFRS is designed to make the results look better for FFP purposes?

For instance the 2010 loss under UK GAAP was £83.6m but becomes "only" £26.4m ubder IFRS.

The Goodwill of £35m goes away.

Do we know why the termination of the swap agreement changed from £40.7m under UK GAAP to £11.9m under IFRS?

Is it all just cosmetics?

mansuy said...


I truly respect and admire the time and effort you put into analyzing United's financal welfare, explaining things in a way that the average fan may understand.

However, I find it hard to get past the LUHG at the bottom of your posts. You're intentionally tainting your work with bias, therefore putting your credibility into question.

That said, I would like to reiterate my appreciate of your work. Long may it continue!

Anonymous said...

Goodwill amort. would not be treated as a relevant expense under FFP.
You might be right in thinking that "the move to IFRS is designed to make the results look better for 'IPO' purposes." The IPO prospectus will probably carry prior year accounts prepared according to IFRS.

Stephan said...


Great stuff, as always. One question not specifically related to this but one I've been curious about: With transfer fees amortized by the purchasing club over the length of the player's contract, is whatever remaining amount re-calculated and amortized if said player signs an extension to his contract? For example, if De Gea's fee of around 20m is booked at 4m/year over a five-year deal, and then he signs a two-year extension after three years, is the remaining 8m then re-booked at 2m per year for the four years he is then under contract for? Or is still booked at 4m/year for the last two years and then booked at zero value for any subsequent year?

s7_rocks said...

The transfers of Ashley Young and Phil Jones were confirmed before July 30.Do you think this has anything to do with increase in trade payables?

Anonymous said...

Stephan. Yes, amortisation adjusts after contract renewal.

Per the accounts:

"Increases due to the acquisitions
during the year (mainly Hernandez and Bebe) have been offset by reductions due to contract extensions
(mainly Nani, Rooney and Vidic) and disposals (mainly Tosic)."


Big Norm said...

Hi Anders!

Im in no way a financial expert. But I do care alot about our club, been a big fan since since the 80ths.

Anyway, I have av question for you. For exemple, IF vi didnt have to pay any cost of the debt (intrest and by-back bonds) and just looked at the clubs profits for this year as an example. Can you tell me how much it would be, dont have to be exactly figures?

From what I understand it looks like we have:

- 51 milj to bondholders for the whole year (10/11)

- Bougth back 64 milj of bonds(10/11)

- Made a profit before tax of almost 30 milj (10/11)

Is it to simple to add those sums (51+64+30 = "profit before tax"?) together and make that the profit it would have been without all the cost that the bonds inflicts.

Im just talking about profit before tax.

Thanks for an terrific blog and your work for helping Utdfans around the world to understand some very important things about our club.

PS: Excuse my spellning.

Julian said...

Is the IPO in anyway linked to settling the PIK debt? Someone said there was a thing called "pre IPO finance" which might have been used to settle the PIK debt and now has to be settled itself.

This would mean that the bulk of the 360m (30% of 1.2bn say)they are hoping to raise in the IPO would not be available to buy back bonds.

Any comment ?

Anonymous said...

Julian - The Glazers are looking to float 30% of the club on the Singapore market to raise £614m. I am hoping this goes towards clearing our net debt and getting rid of the refinanced PIKs. If they did this the Glazers are likely to take out monster dividends from the club every year which will keep their businesses in America ticking over nicely. That is how I see it anyway, but it is the Glazers and nothing could go towards the clubs debt.

What does Anders think will happen?


Stephan said...

Paul - Thanks. That's what I figured. Wonder if that ability will have a positive effect on the ability of clubs like City and Chelsea to more easily pass FFP, as if they sign their young attackers to extensions in a couple years, it'll dramatically decrease their yearly costs associated with transfers.

DaveJ said...

Anders Red, your analysis is thorough. Well done. However, I think your estimates of the opportunity cost of Glazer's takeover of the club (from the club's POV) are naive. Shareholders in the old PLC derived their return both from dividends AND appreciation in the share price. This is called the "cost of equity", which for any given company, is nearly always higher than the cost of debt. What your analysis omits is any sensible estimate of the cost of equity for Manchester United, which for such a risky business is almost certainly very high. Had profits failed to grow enough under the old PLC format, the shareholders would've demanded a far higher dividend pay-out in order to compensate. Therre is no such thing as a free lunch. Capital, of whatever kind, seeks its rewards. Equity capital, sooner or later, demands a far higher return than debt. Once the debt has been paid down, Glazer, or whoever it is that owns the club when time comes, will start extract very chunky dividends from the club as the interest payments disappear.

DaveJ said...

Just and after-thought. The FTSE 100 index of the UK's 100 biggest companies currently pays a dividend yield of 3.22%. Assuming, as we keep being told, that the equity in a notionally debt-free MUFC is worth £1.5 billion, a similar dividend payout rate would imply current dividend pyments by MUFC of £48.3 million per annum--almost exactly the same as the cash cost of the club's bond coupons. Given that MUFC is subject to far greater potential event risk than most FTSE companies (e.g. SAF bursting a major blood vessel during an interview with the BBC), most equity investors would probably demand an even higher pay-out.

Anonymous said...

I see we have about £150m in the bank.

There was talk previously of developing the South Stand to bring capacity to about 90-95,000.

Any chance (even without the planning difficulties) that this could why there are such high cash reserves?

Anonymous said...

I would love that to be the case, I was told that it would cost around £90m to build up the rest of the South stand and the capacity would be 97,000. But in order for this to fill every game we would have to see the back of the Glazers. One of the obstacles for doing this is sunlight issues to the houses behind the railway track. We have already bought four properties and knocked them down, that can be seen on Google maps.


Anonymous said...

Interesting piece in FT about IPO. Roughly says that Glazers are doing ok with the club for themselves but that it's a terrible investment if you're thinking of buying shares

ja said...

Another problem Mike is actually building over the railway line as the land belongs to network rail (or some other post privatisation rail company). As I understand it, the plc had bought property around OT with a view to future expansion, that the Glazers then sold off.

JoRed said...

Excellent piece on Swiss Ramble:

Qazi Mohsin Qureshi said...

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Tips For Excel said...

great use of data and charts to make a compelling argument. This, coming from a hammers fan.