Heresy: Manchester United Shows Why Debt Is Good for Football
Manchester United, perhaps the biggest sports brand on the planet (although Real Madrid and F.C. Barcelona might have something to say about that), showed 16 percent revenue growth to £331.4 million in the fiscal year ending in June 2011, and profits of £10 million after tax and financing.
The profits are irrelevant. Through financing, player sales and purchases, and a host of other maneuvers, soccer clubs would be fools to show taxable profits. Why pay the taxman when you can buy another winger?
What is relevant is the increasingly significant role of debt in the leveraging of football clubs into global media brands. The owners of Man. Utd. (and Liverpool F.C. and Barcelona and a host of other clubs with astronomical debts) have been excoriated by their fans for loading up their clubs with loans. The interest payments, fans say, hurt the clubs by wasting money on banks that could be spent on players.
Yet the Man. Utd. 2011 finances put paid to that argument. The club still has gross debt of £458.9 million, which was reduced by nearly £82 million from the year before. Interest payments totaled £51.7 million in 2011. But revenues increased 15.7 percent to £331.4 million last year, more than taking care of the problem. Here's a snapshot of the income statement (click image to enlarge the whole thing):
Total revenue
Up 15.7% to £331.4m- Matchday ticket revenues Up 8.4% to £108.6m
- TV Media revenues Up 13.9% £119.4m
- Commercial/sponsor revenues
Up 27% to £103.4m - Player salaries
Up from £131.7m to £152.9m - Net profit/(loss) from player trades:
Down from (£30.4m) to (£11.4m) - Interest payments Up from £21.3m to £51.7
Manchester United isn't really a football team that charges people to watch games. It's a media brand that sells time to sponsors and TV companies. More significantly, it's the type of traditional media company that has the ability to take on debt and leverage that loan cash into player acquisitions that create victories, and thus more revenues.
In fact, the report begins by noting that Man. Utd.'s extra TV appearances from going (most of) the distance in the F.A. Cup and the Champions League generated extra revenue. It won't console their fans, but losing those contests in the semi- and final rounds was almost as lucrative as winning them.
There is no sign that hated American owner Malcolm Glazer faces any kind of fiscal crisis that may portend his exit any time soon. Man. Utd. is expected to float shares on the Singapore stock exchange, raising £600 million in free cash -- more than enough to extinguish its debt. And more than enough to offer a challenge to the Reals and Barcas of the world.
Non-Man. Utd. fans willing to read the financial statements should consider themselves warned.
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