28th November 2016


10th October 2019

Time and time again during work with clients, our opinion regarding the financial and economic health of Manchester United is often sought given our well-known coverage of England’s Premier League clubs.

Football is often thought to be cyclical with clubs phasing through periods of success and relative failure. It happens to most of them including the biggest. Indeed, Manchester United endured torrid times following its first European Cup success in 1968. An ageing team, misguided transfers, a faltering youth set-up, insipid leadership at board level and three managerial changes all combined to deliver an eventual relegation from the old first division in 1973.

Yet crowds remained high, the money continued to flow in and a relatively ‘normal’ service was resumed with an instant promotion back to the top division the following year.

Whilst the above description may have the feel of familiarity given recent events, most of the media commentary aside from the inevitable inquests regarding form focus on the business side of the club which is largely influenced by the scale of the revenue number. Thus, the resulting assumption is that the club, relative to its peers, is a financial juggernaut and when viewed through that lens it undoubtedly is.  The club generated £4.72bn in revenue between 2009-19 whereas Arsenal, the club ranking 2nd in the Premier League revenue table since 2009 would have to earn a total of £1.5bn in revenue in 2018-19 alone just to catch up.

Certainly, Manchester United’s income from commercial activities is impressive and may go some way to protecting it from the uncertainties related to future broadcasting deals although it can also be argued that the interdependency between commercial and broadcasting activities may prove problematic in the future given the male first team’s poor form on the pitch and a consequential shrinkage in media exposure off it (see later).  Missing out on Champions League football can be expensive.

However we caution, as we have done previously, against judging the health of any organisation on the basis of revenue alone. The demise of Thomas Cook with revenues of £9.6bn in the year to 30 September 2018 serves as a timely reminder that revenue is not the be all and end all as an indicator of financial wellbeing. 

It is for this reason that our preferred metric regarding business performance is economic profit – a metric that includes all of the costs of doing business and which avoids many of the problems with the deeply flawed accounting metrics such as Earnings Per Share (EPS) and Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA).

So in order to assess the club’s financial wellbeing, we have to ask four simple questions:

  1. How has the club performed as an investment on the capital markets?
  2. What has been the recent economic performance of the club?
  3. What has been the economic movement between 2013 and 2019?
  4. What is the economic movement between 2018 and 2019?

How has the club performed as an investment on the capital markets?

Although the NASDAQ has seen strong growth (86.67%) during the period illustrated, Manchester United’s share price performance has barely moved overall. Perhaps it is a ‘pass’ for the pension plan given the static share performance. Notably, the share price has been in decline since the mid-2018 following heightened (and brief) speculation that Saudi Arabian interests were seeking to purchase the club.

What has been the recent economic performance of the club?

In terms of economic performance, the club has declined particularly following Sir Alex Ferguson’s retirement in 2013 when it last achieved an economic profit. The trend from 2009 is illustrated below.

In condensing the view down to 2013-19, the decline in economic performance becomes more apparent.

What has been the economic movement between 2013 and 2019?

The 2013 NOPAT was £62.80m. It has declined to £47.31m (-24.5%) in 2019 despite revenues rising 72% from £363.19m in 2013 to £627.12m in 2019.  Overall economic profit in 2013 stood at £7.68m falling to an economic loss of £38.40m in 2019 which reflects the significant increases in the club’s cost base and the rising charge for capital used in business operations.

Notably, the cost of sales has increased by almost £30m more than revenue over the period and is only partially offset by the profit on player disposals which has resulted in a negative movement of -£12.03m in operating profit.

The economic profit movement is negative to the tune of -£42.48m as a result of declining NOPAT performance and higher capital charges as the business increasingly utilises such capital in its day-to-day operations.

What is the economic movement between 2018 and 2019?

Year-on-year, the club has actually improved its position but is still achieving economic losses despite rising revenues. Again, costs are rising faster than revenue and the improvement is principally due to a higher and potentially “one-off” profit on disposal of players balance.

An ‘interim’ conclusion based on our four questions might state the following:

  1. Revenue continues to grow at an impressive rate
  2. NOPAT between 2009-19 is £663.67m
  3. Based on NOPAT and revenue performance, the financial position of Manchester United looks very healthy. 

However, our view is somewhat tempered by the overall economic performance of the club and some of the wider factors which can influence the financial position.

Consider the following….

Ed Woodward’s commercial revolution at Old Trafford has served the club well but as the above graphic clearly illustrates, commercial growth has stalled since 2015. Despite his proclamations regarding on-pitch performance and its lack of influence in attaining greater commercial revenues, the data strongly suggests the opposite.

Manchester United’s increasing reliance on TV money is perhaps surprising in that it highlights the importance of Champions League participation. With both Liverpool and Tottenham Hotspur likely to earn a combined £190m-plus from last season’s campaign, the potential lack of opportunity in this area in future seasons could be financially painful with increasing pressure on those flat-lining commercial contracts as the other clubs participating in Europe’s premier cup competition hoover up those increasingly lucrative deals.

The matchday revenue take is static and is generally overlooked as part of the overall financial story. However, with Liverpool and Tottenham Hotspur significantly increasing matchday revenues, Manchester United’s profile by comparison is somewhat concerning.

With the largest stadium in the Premier League at almost 75,000 seats which is full to capacity during most home league games, some may ask ‘what is the problem?’

For starters, the potential lack of top-flight European competition reduces matchday income given that there are less games. Even Europa League participation does not fill Old Trafford on a wet Thursday night.

Secondly, there is a perception that the club owners do not see investment in the stadium as a priority whilst competitive clubs are expanding and improving their own grounds. Tottenham Hotspur’s temporary accommodation at Wembley increased matchday revenue by £25.41m in 2017-18 to £70.95m. We can expect an even higher matchday revenue take as a result of the new stadium in 2018-19.

In this regard, Manchester United could be accused of complacency as it begins to fall behind certain clubs in terms of facilities. The standard between the new Tottenham Hotspur stadium and Old Trafford is vast. Unlike London’s West End theatres, the Theatre of Dreams does not charge a restoration levy. Perhaps it should.

The obvious position for the club is that the team requires continual investment over and above the stadium. This has some merit until on-pitch performance and its costs are examined in detail. And this is where it gets really interesting.

Since 2009, Manchester United has had the highest staff costs in the Premier League on  just three occasions – 2013-14, 2015-16 and 2017-18. All post-Ferguson seasons/years. With a 12.29% year-on-year increase to a total of £332.3m for 2018-19, it is more than likely that the club will lead this particular ranking once again. (Some may argue that a proportion of Manchester City’s staff costs are sitting within the accounts of the City Football Group but we have to run with the official published accounts.)

Nevertheless, £332.3m in staff costs achieved a 6th place finish in the Premier League. Not a good return given the high cost of labour. What is of more concern is that the club broke through what appears to be its own limit in terms of wage control ie 50% of revenue. See below:

And this was in a year when the club’s net transfer spend was just 5.84% of revenue at £36.6m. This is one of the lowest net spending years for transfers given recent activity yet with the highest staff cost total ever, the club still achieved a not-insignificant economic loss of -£38.4m. Maybe Alexis Sanchez had more impact off the pitch than we are led to believe.

Of course, the accountants will amortise (spread the cost) of transfer fees and other items over a period of years but the economic profit data shows that costs are rising faster than revenue and that the club’s capital charge is not getting any smaller.

On 2018-19 numbers, the club is achieving an economic loss of £5.55 for every £100 of revenue. However, the declining long-term trend is of more concern. The virtuous circle of winning trophies and feeding the financials which in turn fuels the desire to improve the team against heightening levels of competition in order to win more trophies is, in our opinion, in danger of fragmenting at Old Trafford.

As we have seen in other markets, revenue alone is not a saviour. Ed Woodward’s focus on the commercial aspect is fine as long as the tangible end-product is delivering for those commercial investors and partners. However, the ‘herd’ can and does change sentiment and when considered against the club’s flat commercial performance, the continuing and poor on-pitch performance can only impede the club’s ability to maintain its commercial superiority.

The concluding statement and the answers to our four questions may therefore also include the following:

The charge for capital deployed by the club during 2009-19 comes to £757.26m.

Since 2009 revenue has risen from £278.48m to £627.12m, an increase of £348.64m (125%)

“Cost of sales” which includes the staff costs of the players and fees to agents has risen from £235.13m in 2009 to £602.94m in 2019, an increase of 156%

There is a clear risk to future revenue with faltering team performances and possible non-participation in European competitions notwithstanding increasing vulnerability to declining UK media values.

And finally,

Manchester United is enduring a period of significant underperformance when compared to previous years which in turn is challenging the capabilities of the executive management team.

The current strategy appears to be one of increased spending (especially wages) in order to try to attract the best talent. However, this approach does not appear to be working when measured against Premier League position and European competitive performance.

There are also increasing risks to the business given improving commercial acumen within the club’s peer group and its own apparent inability to increase commercial revenues in recent years. The club’s economic profit performance highlights the financial pressures therein with costs rising faster than revenue.

Trying times indeed.


17th September 2019

Perhaps the recent relegation of M&S from the FTSE 100 is in part a reflection of how much the shape and composition of the UK economy has changed over the last 30 years. At one time the fortunes of the company were often viewed as a barometer for the wider health of the UK economy. The long-lamented “The Money Programme” once ran an extended feature on the opening of an M&S store in Paris and how “sophisticated Parisians” were expected to react to a more mainstream “British” retail offer.

At the time, the company almost seemed imperious in the British high street. Unaccepting of credit cards other than its own, with a seemingly comprehensive understanding of the competitive environment and a reputation for quality at an acceptable and affordable price. In business schools around the world, MBA lecturers and students looked upon M&S as a model case study in how a company can get it right. 

Against this background one might think that ejection from the FTSE 100 is a development largely as a result of the hyper-competitive and fast-changing environment which has engulfed British retailing, the force of which no management team could possibly withstand.  Indeed, some might argue that this is nothing more remarkable than Schumpeter’s “creative destruction” whereby the composition of the FTSE 100 changes as the marketplace and business environment moves on and transforms.

Work published by Schroders (How the FTSE 100 has changed over 33 years – David Brett, 30 June 2017) reveals the following;

“From the time of its inception in 1984 at 1,000 points, just 28 of the original 100 remain listed on the index. UK-focused businesses and conglomerates have been replaced by international juggernauts.”

In other words, 72 of the UK’s largest companies back in 1984 are no longer part of the FTSE 100 index which, incidentally, is 2.6x the number of original constituent companies remaining within the FTSE 100. Notable ejections across a variety of sectors include:

  • Boots
  • The Burton Group
  • Cable & Wireless
  • Cadbury Schweppes
  • British Home Stores
  • Grand Metropolitan
  • Hanson Trust
  • Hawker Siddeley Group
  • Northern Foods
  • Scottish and Newcastle
  • Trafalger House
  • United Biscuits
  • George Wimpey

Some of the companies leaving the FTSE 100 have been removed due to mergers, de-mergers or an acquisition. For example, Boots which was founded in Nottingham in 1849 was taken private in 2007 when it was bought by a Swiss Private Equity organisation (Kohlberg Kravis Roberts) and Stefano Pessina. 

However, there is a danger that when viewed through this perspective, one might conclude that there is a degree of inevitability regarding continuing participation in the FTSE 100.

It should be emphasized that some companies have come out of the FTSE 100 due to poor management and strategy implementation.

The performance of M&S in terms of shareholder returns and profits is revealing. For example, a view of the company’s Total Shareholder Return (TSR) performance against the FTSE 100 index and Next plc reveals its sub-par trend vs the FTSE 100.

Since the end of 2014, the M&S TSR has lagged the FTSE 100 whilst in recent months Next plc, arguably a competitor, has forged ahead.  Given the length of time that M&S has lagged the FTSE 100, ejection from the index is neither a surprise nor particularly sudden.

Indeed, various profit measures reinforce the gloom.

Despite the falls in PBIT and Pre-Tax profits, the company is just on the right side of the line as defined by both measures albeit on much reduced scales. The picture changes significantly when all the costs of business are taken into consideration via the Economic Profit measure.

Economic Profit = Net Operating Profit After Tax (NOPAT) less a charge for ALL of the capital used by the business.

This is a more worrying picture of performance. Over the last four years, the company is not covering all of the costs of doing business.  Economic Profit (EP) has fallen from a position of value creation in 2010 with an economic profit of £217m to an economic loss of £380.3m in 2019.  Since 2016, the business has not been covering all of its costs of doing business.

From experience, we suspect that there are value creators and value destroyers within the portfolio, which do require different strategic remedies.  In fact, applying the same strategic agenda for the value-creating part of the portfolio to the value destroying elements would in all likelihood make the economic position even more challenged.  

If the management team is viewing performance through the inferior PBIT lens, there is a high likelihood that any strategic remedies or alternatives would either be wrong or at best be counter-productive.

Therefore, clarity of value creation and destruction using the correct metrics across the portfolio is vitally important to the successful development of the company’s strategic agenda. For a variety of reasons, we believe that economic profit, when applied to all of the company’s activities over time, provides that clarity.

In the graphic below, we observe a relationship between the rolling three-year economic profit performance between 2014 and 2019 and the total shareholder return (TSR) of the company on the capital markets.  This graphic strongly suggests to us that the capital markets are using current or recent performance as a base for their future expectations.

Given the decline in economic profit and TSR performance, one might expect a significant fall in gross margin over the period.

Not necessarily so. The gross margin level would appear to be reasonably steady.

Given the above, it is therefore fair to conclude that the decline in the company’s economic performance is not due to any pernicious fall in gross margin, certainly when using 2010 as a benchmark.  However, revenue in 2019 totalled £10.4bn against £9.5bn in 2010.  The economic profit performance of the business from 2015 is illustrated below.

Economic Profit movement is a not-so-insignificant £507.6m in the wrong direction, due to movement in Cost of sales and ‘Adjusted items’ values.

From the annual reports, it is difficult to uncover the reasons for the indicated “Cost of sales” increase totalling £221.3m between 2015 and 2019.  However, there is excellent disclosure regarding the “Adjusted items” line whereby expenditure has exceeded £400m in each of the last three years and over the last five years has reached £1,652.1m (£1.65bn). We have also included 2014 in the graphic below to give a sense of perspective with regard to the growth in such ‘items’.

The breakdown of ‘Adjusted items’ reveals some expensive strategic (re)programming (£1.21bn, 2014-2019) alongside other charges.

Like most things in life there is an issue of balance. Having expended £1.21bn over the last 6 years on “Strategic programmes” as part of the overall £1.69bn spend on “Adjusted items”, it would be difficult to accuse the management team of not taking the challenge ahead seriously.  Furthermore, they could be looking to “clear the decks,” and get the hard strategic choices over and done with whilst leaving the economic performance to improve over the coming years. 

We certainly hope so. The most recent Annual Report (2019) points towards change and improvement, as stated by M&S Chairman Archie Norman.

Highly capable management teams have come and gone with perfectly sensible plans and the long-term downward trajectory of the business has continued. Our failure to adapt, despite rapidly changing markets, means M&S now stands on a burning platform. So we are aiming to transform all the pieces of the jigsaw: the way we are organised, the way we work, our technology, our store base, our product, our supply chains and our value in the market.”

Whether the advice or the progress made is effective will ultimately be a judgement call for both the customer and the capital markets over time.  Hitherto the initial signals are not as positive as perhaps the senior management team would like:

Using the reported equity base as per the most recently released balance sheet, £1 of book equity is worth £1.17 at the end of August 2019 – 31% down from the position at the end of March 2019 of £1.69.  One might conclude that the capital markets are not expressing their unbridled enthusiasm for the current strategy by acquiring M&S equity capital.

Archie Norman was appointed as M&S Chairman in September 2017. He is undoubtedly an industry “big hitter” with an enviable and successful track record of corporate turnarounds.   In reading the 2019 Annual Report, there can be little doubt that there is an awareness of the need to change the business and move it forward.  In our experience, “the fish rots from the head” so the renewed focus from the Chairman is encouraging. 

However, as we have seen with Tesco (and is no doubt prevalent in other retail businesses), seeing the need for change and implementing it effectively are not always natural bedfellows. The Board and the management team will need to:

  • Re-focus the objective of the business in driving returns to shareholders; as well as considering a broader range of stakeholders
  • Understand more clearly what drives their share price on the capital markets
  • Have better visibility of the where’s and why’s of value creation and destruction in and across their businesses
  • Adopt a strategy process that works effectively
  • Align management reward more closely with driving returns to shareholders
  • Make large investments in developing senior managers to demonstrate sufficient “skill and will” to manage the value in the business.

Easy to say and difficult to do. We do hope that the business is successful.


29th August 2019Telling It Like It Is… – What really happened when we talked to the English Football League

5th July 2019Chopping Board – Knives out for former Tesco chief

25th May 2019 – Repeat Prescription – Few believed us the first time around regarding football’s financial plight…

19th March 2019Stuff and ‘Nonsense’ – Why the Economic Profit metric is the most transparent measure of business performance

13th March 2019Financial Fair Play – Guilty as Charged? – Our thoughts on FFP schemes and their key weakness

18th December 2018Long Division – The Post-Ferguson years at Old Trafford have come at the expense of declining economic and on-pitch performance

20th November 2018The Relegation Game – Tales of woe and economic performance at the wrong end of the Premier League table

9th October 2018A Different View – Why fans ought to be acutely aware of football’s financial dynamics

17th August 2018The End of the Beginning – La Liga heads west to conquer new worlds

9th August 2018Reaching for Sky – the sequel – Latest offer price for satellite TV company is good for shareholders, less so for prospective owners.

8th August 2018American Dreams – English Premier League economic dynamics and American money – is a Euro Super League the next step?

3rd August 2018Mall Administration – Retail Property Co. bonus payouts at odds with increasing shareholder value.

20th April 2018Goonernomics Part Deux – The departure of Arsene Wenger…

18th April 2018The Price of Everything – Tesco’s latest numbers offer little in value.

12th April 2018Say What? – WPP’s very mixed message.

14th February 2018In Case of Emergency – Premier League’s UK TV rights auction comes up short.

7th February 2018 – Lost in Transmission – Top Premier League clubs look beyond domestic TV rights.

4th December 2017A Billion here, a Billion there… – The Premier League reaches a major milestone, quietly…

25th November 2017Getting out of Toon. – Is Mike Ashley pitching the sale price of Newcastle United at the right level?

16th October 2017 – Goonernomics. How the ‘Bank of England’ club falls short of its North London neighbour.

25th September 2017 – Highlights. More record-breaking numbers from the biggest football club in the land, but no economic profit…

23rd September 2017Football’s Economic Back Pass. A guest blog for the Soccernomics website.

12th September 2017 – Crystal Balls-up. Changing strategic direction is not a good idea when you haven’t looked at the economics.

27th July 2017Football’s Summer of Money and the £65 pint of beer. The sport that just can’t spend enough.

11th July 2017Football Special. Observations following the launch of ‘We’re So Rich…’

9th May 2017Illuminating, non? Political energy lacks vision and power.

2nd March 2017Claudio’s Burden. The price of failure outweighs the price of success.

12th January 2017Shopping for Godot.A never-ending quest for value in Retail.

27th December 2016Reaching for Sky. Is Rupert Murdoch’s £10.75 per share a fair price?

6th December 2016Auld Lang Syne. A reminder from history of the damage that poor financial planning can cause.

1st December 2016Fork Handles? Four Candles? Tesco’s blurred strategic vision.

27th November 2016Football’s Instant Replay. Financial warning signals for the top English Premier League clubs.