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Deloitte Money League & Manchester United share price

Here are some notes on Manchester United’s revenues and share price.

Deloitte Football Money League 2014

During the week, the international accounting firm released the 2014 version of its Football Money League (FML) report, which compares the revenues generated in the 2012/2013 financial year (ie year ending 30 June 2013) by the top 20 money earning football clubs in the world. The following table summarises the estimated revenues of those clubs, as reported by Deloitte:

Manchester United received significant coverage in the English press due to the fact that it slipped from 3rd to 4th place for the first time in years. While this outcome would not be particularly pleasurable for United’s executive and marketing team, it is also not quite the disaster that it has been portrayed as in media reports. The club’s estimated revenues actually grew significantly from 396m euros to 424 m euros – an increase of 7%. Compare this to the revenue growth achieved by the top 2 clubs, Real Madrid (1.2%) and FC Barcelona (0%).

Manchester United’s drop in the FML to 4th place was not due to a drop in its own revenues, but instead was caused by the explosive revenue growth experienced by Bayern Munich, from 368m euros to 431m euros ie an increase of 17%. Bayern’s revenue growth was fueled by a combination of increased revenues from UEFA as a result of winning the Champions League, increased broadcast revenues (up by an astonishing 31%), along with an 18% increase in commercial revenues.

Meanwhile, Manchester United’s commercial revenues grew 30% and match-day revenues grew 11%. Broadcast revenues dropped 2% due to United finishing as runner’s up in the previous season’s Premier League.

Deloitte have explained in their report that Manchester United’s revenues, when measured in British pounds sterling (which is United’s so-called “functional currency” ie its primary currency for operating purposes), were up by 13% – however, when translating to euros in order to ensure consistency with European clubs, unfavourable exchange movements shaved the growth to 7%. This arises because the GBP/EUR exchange rate at 30 June 2013 (the date used for the notional currency translation for the 2014 report) was less favourable than the rate on 30 June 2012 (the date used for the previous report). There’s a theoretical argument that United should in fact still have kept 3rd place, but in a sense the point is moot as the FML has no real-world impact in any case. In other words, nobody actually cares which club is 3rd and which club is 4th in this table.

Deloitte also mention that MUFC can expect revenues to grow in future as a result of the new Premier League broadcast rights deal, the Chevrolet sponsorship deal and a new kit deal with Nike.

A few other points of interest:

  • The FML only measures revenues, and does not cover either the expense or profitability side of the equation. So, for example, Manchester City is listed as the 6th ‘richest’ club in the world in the FML despite the fact that it will record a significant loss for the 2012/13 financial year.
  • It’s notable that of the top 8 clubs in the FML, the top two are under investigation for potentially having received illegal state aid from Spanish government agencies, while the 5th through 7th clubs benefit from massive financial doping. It’s arguable that of these eight clubs, only 3 (Bayern Munich, Manchester United and Arsenal) are operated on a commercial basis and entirely clean from financial prospective.
  • The Qatari owned Paris Saint-German, which is the only French club in the top 20, leapt up the table from 10th to 5th spot, thanks largely to a growth of commercial revenues which is largely attributable to the controversial Qatar Tourism Authority “sponsorship” deal, that was back-dated and which essentially obligated PSG to do almost nothing apart from “co-operate” with the QTA.

Both the full report and a slide-show summary are available on the Deloitte website.

While the drop from 3rd to 4th spot has been widely reported in the English press, I personally don’t find the drop particularly worrying. This is simply one observation, in the same way that one loss in a match doesn’t necessarily reflect on a whole season, and provided that there is no trend in future years of Manchester United being consistently overtaken in revenues by more and more other clubs, there should be no real issue.

The main things to be concerned about, in my view, are ensuring that Manchester United does not become complacent about maximising commercial revenues, and also whether the team’s relatively poor on-pitch performances this season may have future revenue impacts, either as a result of dropping out of the UEFA Champions League, or due to reluctance by potential sponsors to continue paying eye-watering sums to be associated with a relatively unsuccessful team.

Manchester United’s share price

January continues to be a month to forget for the Glazers in relation to the stock market’s valuation of Manchester United. As at the time of writing, the last quote for the MUFC stock price (NYSE ticker: MANU) was US$15.02 at close of trading on Friday, 24 January 2014, which is down 3.2% from the closing price as at 31 December 2013 of US$15.53.

Sentiment towards the stock continues to be poor, despite the signing of new sponsor Aperol. Poor on-pitch results during the month give little reason for investors to be positive about the outlook for the stock.

As reported by leading financial news service Bloomberg in their section on 23 January, MANU is now on the most “shorted” US listed stocks on the exchange:

What that means is that stock traders are punting that the MANU stock price will drop in the near future, and have shorted the stock accordingly.

For readers who are not familiar with how short selling works, here’s a simple explanation. A trader will borrow MANU shares from an existing shareholder (likely to be an institutional investor or a hedge fund) and will then sell those shares at the prevailing market price (say US$15.02), using the borrow shares to settle the trade. The trader will then wait for the share price to drop, and if the price drops to a level to which the trader is happy to close out the trade, the trader will go into the market and buy stock at the level prevailing at the time (say US$14.70, for argument’s sake) to then return to the lender of the original borrowed stock. Assuming the trader can sell on Day 11 for US$15.02 and then buy a week later at US$14.70, the trader will have made a hypothetical profit of £0.32 per share.

Understanding the logic of short selling, the traders who are shorting MANU stock are clearly gambling on the stock price falling, because if the stock price rises after the original short-sale, they will lose money on the later purchase, which is required in order to close out the stock loan.

Short-selling is a highly risky practice for traders as the potential losses on short-selling trades is theoretically infinite – if they have punted wrongly and the stock price rises, they continue to be exposed to risk of losses as the stock price goes up. Short-selling is usually done based on a high degree of confidence, and for MANU stock to be one of the most highly-shorted stocks around indicates a high expectation that the outlook for the share price continues to be negative.

Manchester United’s financial results for the 6 months to 31 December 2013 will be issued in early February, and the Glazers will be hoping for some good financial news to boost the share price. It will be interesting to see how any new transfer business, like the 37m pound purchase of Juan Mata, impacts on the club financially. While the Mata acquisition is a fantastic piece of business from a footballing perspective, the cost of the deal, based on the reported purchase price and his rumoured wages of 150,000 pounds a week for the next 4 and a half years, represents an annual charge to the accounts of approximately 16m pounds. Given that United is forecasting an expected earnings before interest, taxes, depreciation and amortisation (EBITDA) of approximately 130m pounds for this current financial year, even an 8m charge (ie for the half year from January to June 2014) for amortisation of Mata’s transfer fee plus wages, represents an expense equal to 6% of that EBITDA.

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