Thursday, 8 December 2011

The financial cost of United's CL exit


So it’s London 2 – Manchester nil (enjoy it while you can London, you aren’t going to win the thing).

The way modern football works, not only is being knocked out of the Champions League miserable enough, but the financial consequences aren’t great either, especially when you’re up to your eyes in debt.

Lots of people have asked me about the cost of United’s CL exit, so here’s a quick run through of the figures. The bottom line is that due to the way UEFA makes its payments, with a big element relating to the last season’s domestic rankings, United will not lose a huge amount of cash compared to last year.

What two wins, three draws and a defeat in one of the easiest of groups says about the club is another matter.....

Last season
I’ll make financial comparisons with last season when of course United were (well) beaten finalists. UEFA publish the TV cash distribution and its shows MUFC received €53,197,000 (c. £46m) in Champions League income.

This season
There are several elements to the CL TV payments:

1. Participation and “match bonus”
All clubs in the group stages receive a €3.9m “participation” payment and a €550,000 per game played “match bonus” (nonsensical since everyone is guaranteed six matches!). So every club gets €3.9m + (6 x €0.55m)  = €7.2m.

Difference versus 2010/11: ZERO

2. Group performance bonus
For every win in the group stages, a club gets €800,000 and for every draw €400,000. The table below shows the number of each for the four English clubs this season:


Difference versus 2010/11: DOWN €1.2m

Bringing these elements together we can calculate how much the basic group stage payments are:


3. Last season's knockout round payments
Participation in each round means another payment of the following amounts:


Last season United earned €16.1m as losing finalists.

Difference versus 2010/11: DOWN €16.1m

4. The “market pool”
The market pool represents around 45% of the CL money UEFA distributes to clubs. Each country has its own pool amount (reflecting the relative size of the advertising markets). The English pool is c. €84m, around 25% of the total.

Each market pool is distributed based on two formulae, 50% by the relative domestic league position of the clubs from the relevant country  and 50% by how far in the CL each club progress.

4a. Market Pool - PL finish element
As Champions, United receive 40% of the Premier League finish element of the English market pool, Chelsea (2nd in the league) receive 30%, City (3rd) 20% and Arsenal (4th) 10%.


This means that United receive c. €16.8m this season vs. the €12.5m they received last season (when Chelsea were the reigning champions).

Difference versus 2010/11: UP €4.3m

4b. Market Pool - progress in the CL element
The 50% of the market pool determined by the relative progress of the clubs cannot be calculated for certain until we know how far through the competition Chelsea and Arsenal progress. The split is determined on the number of games played (maximum of thirteen for finalists). The minimum the London clubs could play is eight (if they go out in the next round).


The difference for United and City between the best and worse case is not huge (around €2m).


Difference versus 2010/11: DOWN €4.4-6.8m

5. Total UEFA CL payments
Adding up the group stage payments, and the market pool, the most United can earn from the CL this year is around €36.5m, the least is €33.4m.

Total difference versus 2010/11: DOWN €17.4-19.8m (£15-17m)



Europa League cash
United and City will both get the dubious honour of being parachuted into the Europa League in the new year.

The UEFA distribution for this beaten up tournament is less than 20% of what is paid out for the Champions League. There is a market pool and payments for progressing through each of the five(!) rounds up to and including the final. Winning the competition could add around €10m (there is a market pool here too).

Gate receipts
There are potentially four home games in the Europa league vs. three in the Champions League, so the impact on gate receipts depends on a few factors, primarily how far through the EL United progress. The club’s website does not have ticket prices for the Europa League yet, and we do not yet know whether the club will enforce the ludicrous “automatic cup scheme” that compels Old Trafford season ticket holders to buy tickets for all cup games (with an opt out only for the League Cup). If United enforce the ACS, if prices are set close to those for the Champions League and if United get to the quarter finals or beyond, there will be no impact on revenue.

A nice club would waive the ACS obligation to buy Europa Cup tickets and would cut prices too (as Spurs have this season). Don’t hold your breath.....

Conclusion
Because of the big market pool boost from being champions last season, United will only lose a maximum of £17m in TV cash from the early exit. Some of this can even be recovered from the Europa league. The club don’t budget to progress beyond the last sixteen in any season, so recent success has been a financial bonus. To put this loss into context, it represents a maximum of 15% of last year's EBITDA.

The fact that a club who have reached three finals in four years can get eliminated from one of the easiest groups points to wider problems....

LUHG








28 comments:

Frank said...

Hello Anders, this is my first time posting on your blog. Congratulations on being so quick off the mark with this analysis of the financial consequences of last night's catastrophe.

There is one part of your analysis which may not be spot on, namely, where you say "The minimum the London clubs could play is seven (if they go out in the next round)".

Surely, this should be eight not seven, as the KO stages are over two legs, home and away.

Sunny said...

Unless the final has magically turned into a two-legged affair, its 7. Try counting next time.


Round of 16 x 2
QF X 2
Semi. X 2
Final x 1

..Its not hard

andersred said...

Quick off the mark Frank.

Have now corrected it - which is a blog policy by the way!

anders

andersred said...

He's talking about the minimum (6 group and 2 knockout)

Anonymous said...

How much do you estimate the club will 'save' (if any) on CL player bonuses?

andersred said...

Not much. As far as I know the main bonuses relate to winning the CL and PL not getting to finals (rightly so).

Anonymous said...

Anders thanks for this. However I'm very surprised you missed the opportunity in your conclusion to slam the club/Glazers for not splashing at on top quality CM! ;-)

Regards,

Greville.

Anonymous said...

Okey, I was just thinking there might be some step by step program for player bonuses in CL. Because I remember I've this in the old JPM document:
"Player contracts include a bonus related to qualification for Champions League, if it does not qualify the company will save ‘high single digit millions’ in player costs."

ja said...

Greville,
The art of all great storytelling is show not tell!

GCHQ said...

Anon 16.48:

That bonus is related to qualification to the group stages, not the knock-out stages.

Anders, the only thing I'd add is that there was an unspecified amount received from Uefa for gate receipts from the final against Barca last season.

Anyway, isn't it lucky that the success of the Glazer inspired commercial division will protect the club financially against the poor performance on the pitch? Of course this comes after Fergie spent over £45m net in the Summer.

Anonymous said...

BOF

Stainingred said...

Anders, well done for being off the mark so quick against the leeches who own our club.As for GCHQ the commercial side is the massive success story and has comfortably taken over from the football team - how ironic. thats what we are getting from the Glazers, results from down in London courtesy of the new H.O. well they are making the money, crap from Old Trafford. Expect nothing from the F A Cup, nothing from the Premier league in terms of winning it. There is of course a small problem with the global economy on the edge and the Glazers still up to their eyeballs in debt. Sorry I forget they will be launching a successful IPO in Singapore

Frank said...

A reduction in TV money by some £17m, even after allowing for Europa League TV money, is a hell of a lot.

As it happens, it will be more than covered by the increase in commercial revenues generated by the Glazers.

If this commercial success is sustained and increased, as seems likely, the club could be free of debt in five or six years time.

As it is, the club has no problem complying with UEFA's FFP rules, unlike City and Chelsea.

It will be very interesting to see if UEFA have the cojones to live up to their own words and ban FFP non-compliant clubs from Europe.

Frank said...

Oh Anders, if only you had replied to my launch post a couple of minutes before you did, Sunny wouldn't have landed himself/herself in such embarrassing hot water!

Anonymous said...

GCHQ /
Yes, I do understand that. But I was just wondering if there might be more steps for bonuses than:
1. Qualify for CL
2. Win CL

Vladimir said...

Anders,

good analysis with all the numbers. The one I'd disagree with is €16.1m for reaching the final. This years final will be Barca V Real (after UEFA rig the draw of course).

Even if United did qualify from second, this teams prospects of reaching the next round would not be great - only 1 or 2 first placed teams that they could actually beat.

So I'd have the knock-out rounds loss at 3-6 m, not 16

So, as you say, financially it is not that big a deal

Frank said...

I must say that I agree with GCHQ as regards Utd's phenomenal success on the commercial side in recent years.

The extra revenue earned by this incredible commercial success, compared to what it had been pre-Glazers, is worth a hell of a lot of money.

I used to think that the Glazers were bad for Utd but, as things have panned out, I have changed my mind and,nowadays, I regard the Glazers as a benefit.

As SAF is reported to have said regarding the Glazers, "they're great owners - I don't bother them and they don't bother me"!

Their self-interest in Utd's continued success on the field is the best possible reason for them to allow SAF full rein.

Continued on-field success is of great commercial advantage to the Glazers. Therefore, the Glazers will sanction any spending which SAF feels is necessary - and all the time, staying totally within FFP rules.

As regards City and the so-called 'Group of Death', the actual reality is that both Napoli and City were CL virgins!

Even so, it was Napoli who rose to the occasion, so to speak, and it was City who recoiled!

Diem said...

I think it's being rather optimistic to couch this as a "loss" - whilst I'd love to think that we'd have made / won the final, getting there again would have been a fantastic achievement, even without out recent poor form / run of injuries.

If we'd gone out in the quarter finals would you have called it a "loss of £10m"?

I went to the bookies yesterday, lost £20. Well, I actually won £30, but the day before I won £50.... :-)

Fantastic analysis as ever, nice to see it being widely quoted / referred to.

Anonymous said...

Reminds me of my club Leeds United in 2002. Huge amounts of borrowed money could only be recouped by consistent qualification for the Champions League. They failed to qualify for the CL and down came the house of cards.
Relishing this prospect at the Theatre of Prawns.

Anonymous said...

Who cares.
On that note there are 15 other teams who lost 15-30m Euros.
We don't see 'loss reports' or discussions of them do we.
The entitlement attitude of teams like these and their followers is baffling.
Hey ManU, you didn't lose anything seeing as it wasn't yours to begin with. Move on.

s7_rocks said...

Will SAF have any money to spend on january? According to our recent accounts we have around £60m cash but we may need that money because usually have negative cash flow during q3 and our revenue will not be higher than last seasons but our costs have increased.As things stand I don't expect any £30m signing during january and we don't have any money to go on a spending spree during summer.On the bright side this may put pressure on Glazers to go through with the IPO because we are in serious decline and it wont be long before we finish outside the top 4.Is reselling the bonds already bought back an option for the club?

andersred said...

Thanks for the comments. I do appreciate that not getting to the final of the CL doesn't = "losing money" in the sense that it was never there to be lost.

I do think the comparison with previous years is important however. United got to the semis in 2007, won it in 2008, were runners up in 2009 and 2011. That's a lot of income the club became "used to" that won't be there this year.

Now they've done the decent thing on the ACS that will also have an impact. Football is about largely fixed costs (wages) and variable income (TV money). This year will see TV income decline and judging from Q1, wages rise again.

anders

Anonymous said...

@ Frank and GCHQ

Any semi-competent marketer would/could have shifted our schemes to regional partnership deals absent the Glazers.

So we would have had all that extra cash anyway and without having 600m taken out the club and a continued demand to service debts.

So on balance, the Glazers remain a cancer on this club.

Anonymous said...

There's another factor that you haven't mentioned. Don't most shirt/kit/etc sponshorship deals now include performance clauses? Might be hard to get specifics on the contracts, and the club probably doesn't break them down separately when releasing their earnings reports. Not going to receive any of those bonuses this year.

Match day revenue is going to fall quite a bit now that United has declared that Europa matches are not mandatory for season-ticket holders. Manchester United averaged £3.7 million in revenue per match last season. I would expect most Europa games to be half-full unless United draws some of the better teams (Valencia, Atl. Madrid, etc), and that's even though they're almost certainly going to cut ticket prices substantially. Look at how empty the Crystal Palace Carling Cup match was.

Which brings up my last point. I doubt United will get far in the competition if SAF plays mostly youngsters. There are better teams than Crystal Palace in the Europa League.

Anonymous said...

anders

Are you able to do a comparison of how the finances will compare based on how far we get in the EL vs the CL. So, for example, if we got to the final of the EL would that earn us more than if we'd stayed in the CL and gone out in the second round?

Obviously that will require some extrapolation for matchday revenue, but if we assume the club gets 2/3 of the revenue of a standard match in the EL I'd have thought a strong run in the EL would be more preferable financially than a quick exit in the CL knockout rounds. After all, the way we've played in Europe this season we'd probably have gone straight out in the second round if we were drawn against Barca, Real, Bayern or even Inter.

Frank said...

Anonymous 08.35, You were right to mention the importance of the draw and getting an attractive tie.

As it happens, getting drawn against Ajax is a good attraction. Ajax have won the European Cup more times than Utd. This should keep the attendance high for the home leg.

In addition,travelling to and from Holland for the away leg is far less time-consuming than some god-forsaken hellhole in deepest darkest Russia.

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Frank said...

Overall, despite going out in the group stage instead of making it to the final, as in three of the four previous years, Utd's revenue only fell by £10m.

Despite this fall in revenue, Utd splashed the cash this summer. RVP has paid back a good chunk of his transfer fee already, as so have Kagawa, Buttner and Powell.

Clearly, the Glazers understand that to maximise the value of the club they must spend money - and they have done just that.

In the financials just announced today, the increase in Utd's commercial revenues went a long way to compensating for not making it to the UEFA final.

As a result, overall revenues only fell £10m. As SAF is unlikely to be as complacent in this year's group stage, it is likely that both matchday and TV revenues will increase compared with last year.

When you add to that the huge increase in commercial revenues, this year's revenues will probably hit the £350m mark.

Next year,the hugely increased Premiership revenues will kick in and will add some £35m a year to revenues.

When you add the continuing increase in commercial revenues, it is likely that next year's revenues will be approaching £400m!

The year after that the Chevrolet deal will kick in and revenues will be boosted by a further £25m per year to approximately £430m or more, depending on other developments on the commercial side.