|anchester UnIted's start to the season has been exemplary.

Not only are they top of the

league after wInnIng theIr fIrst three games, but they have also scored an ImpressIve 1J goals
In the process. They have already put North London to the sword, brushIng asIde Spurs J0
before spankIng Arsenal 82 In one of the most extraordInary matches that the PremIer
League has ever seen.
f there was any hangover from theIr demoralIsIng defeat to 8arcelona In the ChampIons
League fInal, when the Catalan sIde thoroughly outclassed UnIted, It was dIffIcult to dIscern.
n faIrness, 2010/11 was stIll a fantastIc season for the Feds, as they won the league for the
19th tIme, a sIgnIfIcant mIlestone that took them past the 18 tItles gaIned by bItter rIvals
LIverpool, and reached the semIfInals of the FA Cup.
That wIly old fox, SIr Alex Ferguson, then wasted no tIme In rebuIldIng and rejuvenatIng hIs
agIng squad, when he paId out more than f50 mIllIon to brIng In the excItIng Ashley Young
from Aston 7Illa plus two U21 InternatIonals, PhIl Jones from 8lackburn Fovers and 0avId de
Cea from AtletIco |adrId. Although the SpanIsh goalkeeper has had some flaky moments,
these purchases look lIke really good busIness, especIally as It was concluded early In the
summer, thus avoIdIng the InsanIty of transfer deadlIne day.

lL was also a greaL season off Lhe plLch as unlLed announced a 16 rlse ln revenue Lo 331 mllllon Lhe
hlghesL ever reporLed by an Lngllsh fooLball club whlch helped boosL operaLlng proflLs Lo a record 111
mllllon up 10 from Lhe prevlous year 1hls produced a fanLasLlc Lurnaround ln Lhe boLLom llne as lasL
year's preLax loss of 80 mllllon became a 30 mllllon proflL Lhls year an lncredlble lmprovemenL of
110 mllllon ln [usL 12 monLhs
Creat stuff, but not quIte the mIraculous achIevement It mIght seem at fIrst glance. n
realIty, there are three factors behInd thIs recovery: (a) accountIng adjustments; (b)
exceptIonal Items relatIng to last year's bond Issue; (c) and real growth.
The fIrst two reasons are horrIbly technIcal, but seasoned followers of UnIted's fInancIals are
no strangers to fancy footwork In the accounts, and these need to be explaIned If we are to
understand what Is really happenIng to the busIness.
ThIs year, the club has decIded to swItch from UK CAAP (Cenerally Accepted AccountIng
PrIncIples) to FFS (nternatIonal FInancIal FeportIng Standards) and so has restated the 2010
results on thIs basIs to gIve a valId lIkeforlIke comparIson. ThIs has reduced the prIor year
loss to f15 mIllIon, an Improvement of f65 mIllIon, whIch largely comes from two sIzeable
adjustments.

?oung glfLed and back
llrsL Lhe goodwlll amorLlsaLlon of 33 mllllon resulLlng from Lhe acqulslLlon of Lhe club has been
ellmlnaLed When Lhe Clazers' purchased Lhe club for 790 mllllon Lhe falr value" on Lhe balance sheeL
was only 260 mllllon wlLh Lhe dlfference of 330 mllllon represenLlng brand value and fuLure earnlngs
poLenLlal 1hls ls known as goodwlll ln accounLlng Lerms and ls amorLlsed on a sLralghLllne basls over lLs
esLlmaLed economlc llfe (13 years ln Lhls case) le 33 mllllon per annum
Second, the onceoff charge for the termInatIon of Interest rate swap agreements was
reduced by f29 mIllIon from f41 mIllIon to f12 mIllIon. ThIs swap was a derIvatIve used to
hedge agaInst movements In Interest rates, but the club dId not antIcIpate that they would
fall as far as they dId In the recessIon. The loss was crystallIsed on the swItch from bank loans
to the bond, though the club claImed that thIs was stIll a prIce worth payIng, as the bond
would provIde them wIth more fInancIal stabIlIty.
There Is nothIng untoward about thIs change In accountIng polIcy, even If the mechanIcs are
faIrly tedIous, wIth the key poInt here beIng that there Is no Impact In the real world, as
there are no cash movements.

1he nanl sLaLe
Slmllarly Lhe movemenL beLween Lhe excepLlonal lLems relaLlng Lo lasL year's bond lssue has no effecL
on Lhe club's cash resources 1here was a (revlsed) loss of 38 mllllon for Lhese lLems ln 2010 buL a 9
mllllon proflL ln 2011 produclng an lmprovemenL of 47 mllllon
|ost of thIs relates to foreIgn exchange movements on the dollar denomInated element of the
bonds (S425 mIllIon). Last year, thIs was a f19 mIllIon loss as the dollar strengthened agaInst
sterlIng, but thIs was reversed In 2011 wIth a f16 mIllIon gaIn, as the dollar weakened
relatIve to sterlIng. Such FX movements wIll only be realIsed In 2017 when the bond Is due for
repayment. n addItIon, 2010 Included the onceoff (revIsed) f12 mIllIon charge relatIng to
the Interest rate swap.
So, If we deduct the f65 mIllIon FFS accountIng adjustments and f47 mIllIon movement In
exceptIonal Items from the yearonyear Improvement of f110 mIllIon, we are left wIth no
real growth. n fact, there's a small declIne of f2 mIllIon compared to 2010. Although revenue
grew by a strIkIng f45 mIllIon, thIs has largely been eaten up by fJ5 mIllIon of cost growth
and a fJ mIllIon Increase In the Interest paId. f the f9 mIllIon fall In profIt on player sales Is
then taken Into consIderatIon, UnIted's pretax profIts actually fell by f2 mIllIon In 2011.

lalr enough mosL companles Lend Lo accenLuaLe Lhe poslLlves when Lhey announce Lhelr flnanclal
resulLs Lhough l do wlsh LhaL unlLed would drop Lhelr Llresome hablL of referrlng Lo operaLlng proflLs"
of 111 mllllon ln Lhelr press releases when Lhey are really descrlblng L8l1uA (Larnlngs 8efore lnLeresL
1axaLlon uepreclaLlon and AmorLlsaLlon) Lhus excludlng 31 mllllon of cosLs
ThIs measure Is only really relevant If you belIeve that buyIng footballers Is not part of the
normal busIness of a football club. As legendary Investor Warren 8uffett cautIoned,
"Feferences to E8T0A make us shudder. t makes sense only If you thInk that capItal
expendIture Is funded by the tooth faIry."
t's also unnecessary for the club to spIn these results, as the operatIng profIt before player
sales Is a more than respectable f60 mIllIon, an Increase of f10 mIllIon (21) on the prIor year
wIth the profIt margIn rIsIng 0.7 to 18.1. Df course, most of that Is needed to pay f4J
mIllIon of Interest, though f4 mIllIon profIt from player sales and f9 mIllIon of exceptIonal
Items (maInly the unrealIsed foreIgn exchange loss) produced the fJ0 mIllIon profIt before
tax.

1haL should noL be snlffed aL as only four remler League clubs were proflLable ln Lhe prevlous season
and Lhree of Lhose clubs only reporLed small proflLs (WolverhampLon Wanderers 9 mllllon W8A 03
mllllon and 8lrmlngham ClLy 01 mllllon) ln facL unlLed's 2010/11 proflL before Lax of 30 mllllon was
only surpassed lasL year by Arsenal's 36 mllllon whlch was lnflaLed by properLy developmenL and hefLy
player sales
UnIted's profIt after tax comes down to f10 mIllIon after tax charges of f20 mIllIon, but thIs
Is not really an Issue, as most of these are used to offset losses elsewhere In the group.
nterestIngly, player sales have not had a major Impact on UnIted's fIgures wIth the exceptIon
of 2009 when the mega transfer of CrIstIano Fonaldo to Feal |adrId produced profIt on player
sales of f81 mIllIon. SInce then, the club has only booked profIts from thIs actIvIty of f1J
mIllIon In 2010 and f4 mIllIon In 2011.
The fans clearly dId not welcome Fonaldo's sale, but It dId at least lead to a profItable year
for the club, whIch was very much the exceptIon to the rule, as UnIted have reported large
losses every other year sInce the Clazers' arrIval.

Powever lf we sLrlp ouL Lhe accounLlng funnles" namely Lhe goodwlll amorLlsaLlon and excepLlonal
lLems Lhen a dlfferenL plcLure emerges wlLh Lhe club showlng large proflLs for Lhe lasL flve years (2007
11 mllllon 2008 14 mllllon 2009 84 mllllon 2010 23 mllllon and 2011 21 mllllon) even
afLer conslderlng Lhe slgnlflcanL lnLeresL pald Lo servlce Lhe club's subsLanLlal loans
Df course, the amount of Interest paId Is stIll hIghly damagIng, whIch has been the case ever
sInce the Clazer famIly bought the club In 2005 In a leveraged buyout that loaded debt onto
the club. They only paId f250m themselves, borrowIng the remaInIng f540m from banks and
hedge funds, whIch sIgnIfIcantly Increased UnIted's Interest burden. EssentIally, the club's
hIghly ImpressIve operatIng profIts are greatly reduced by the massIve Interest payments.
n fact, net Interest payable actually Increased In 2011 by fJ.5 mIllIon to f4J.5 mIllIon, as the
Interest rate on the bonds Is hIgher than the bank loans they replaced.

WhaL a dlfference a uavld makes
unlLed's chlef execuLlve uavld Clll has argued LhaL Lhls ls noL a problem We have a longLerm
flnanclng sLrucLure ln place excellenL revenues LhaL are growlng we are conLrolllng our cosLs and we
can afford Lhe lnLeresL on our longLerm flnance" As we have seen Lhls ls undoubLedly Lrue buL when
glvlng evldence Lo Lhe Pouse of Commons selecL commlLLee lnqulry lnLo Lhe governance of fooLball
even he admlLLed LhaL lL would be beLLer" lf Lhe club dld noL have Lo pay such hlgh lnLeresL
Df course, all of the above fIgures have come from the Fed Football LImIted accounts, so
exclude the crIpplIng Interest on the PK loans, whIch were booked In the club's holdIng
company, Fed Football JoInt 7enture LImIted. n 2010 thIs brought the total Interest up to a
staggerIng f7J mIllIon and the pretax loss to f109 mIllIon. The club has always InsIsted that
these loans are the responsIbIlIty of the owners and nothIng to do wIth the club, even though
the PKs were secured on the club's assets. n any case, thIs may be a moot poInt now, as thIs
debt was cleared last November.
ncIdentally, UnIted wIll have no problem copIng wIth UEFA's FInancIal FaIr Play regulatIons,
whIch aIm to force clubs to lIve wIthIn theIr means. The breakeven calculatIon takes the fJ0
mIllIon pretax profIt as a startIng poInt, then excludes deprecIatIon f7 mIllIon, net profIt
from exceptIonal Items f4 mIllIon and expenses for youth and communIty development
(assume f12 mIllIon), gIvIng a comfortable breakeven result of f45 mIllIon.

1hls ls largely drlven by unlLed's vasL revenue whlch has reached 331 mllllon followlng Lhe 43 mllllon
growLh ln 2011 ln facL unlLed's revenue growLh of 163 mllllon ln Lhe Clazer era has been mlghLy
lmpresslve doubllng Lhe club's Lurnover
Although you could argue that much of thIs Is down to centrally negotIated televIsIon deals
and the Dld Trafford expansIon that was approved by the former board, It would be churlIsh
not to gIve the Clazers some credIt for the rIse In revenue, not least the ImpressIve progress
made In the commercIal arena. TheIr revenue growth has certaInly been better than Chelsea
and LIverpool, whIle only Arsenal (of the 8Ig Four) have kept pace, largely due to the move to
a new stadIum.

Lven so lasL year unlLed's revenue of 286 mllllon was a long way ahead of Arsenal's 224 mllllon whlle
oLher clubs are even furLher behlnd Chelsea 206 mllllon Llverpool 183 mllllon and ManchesLer ClLy
123 mllllon
ThIs placed UnIted thIrd In the most recent 0eloItte |oney League (based on 2010 results),
only behInd the SpanIsh gIants, Feal |adrId fJ59 mIllIon and 8arcelona fJ26 mIllIon. They wIll
almost certaInly remaIn In that posItIon when the next |oney League Is publIshed, though the
gap to Feal |adrId (up to f425 mIllIon In 2011) and 8arcelona (fJ81 mIllIon) Is actually
wIdenIng, though that partIally depends on the vagarIes of the exchange rate.
UnIted's revenue has gone from strength to strength over the past few years, leadIng to an
almost perfectly balanced revenue mIx wIth no sIngle stream domInatIng. The revenue splIt Is
now a very healthy J6 medIa (f119 mIllIon), JJ match day (f109 mIllIon) and J1
commercIal (f10J mIllIon). ThIs Is In marked contrast to the majorIty of clubs In the PremIer
League who have a dangerous relIance on televIsIon revenue.

1haL sald 1v has sLlll grown Lhe mosL slnce 2003 by 71 mllllon (or 147) Lhough Lhe oLher caLegorles
have been no slouches elLher commerclal 33 mllllon (112) and maLch day 39 mllllon (37) ln facL
ln more recenL Llmes deflned as Lhe lasL Lwo seasons nearly LwoLhlrds of unlLed's revenue growLh has
been due Lo Lhe commerclal arm of Lhe buslness
The dazzlIng progress made In leveragIng the global appeal of UnIted's brand Is perhaps the
most strIkIng aspect about the club's fInancIals, whIch was demonstrated by the f22 mIllIon
(27) growth In 2011. Even |UST (the |anchester UnIted Supporters' Trust) conceded, "The
commercIal team at UnIted are clearly smart operators."
As commercIal dIrector FIchard Arnold explaIned, "The world's number one game Is football.
|anchester UnIted Is the number one club and we are offerIng the number one marketIng
platform to fantastIc partners."
There's a lot to thIs argument: the PremIer League Is televIsed In 212 countrIes, whIle
research undertaken by the club estImated that UnIted has more than JJ0 mIllIon followers
worldwIde. t Is dIffIcult to know whether these fIgures are accurate, but conclusIve evIdence
of UnIted's popularIty Is provIded by the sales fIgures from NIke and AdIdas, whIch poInt to
UnIted (along wIth Feal |adrId) sellIng more shIrts globally than any other club. Furthermore,
Wayne Fooney tops the PremIer League sales of replIca shIrts, accordIng to the PL Season
FevIew.

unlLed's largesL sponsorshlp conLracL ls wlLh longLerm klL suppller nlke whlch runs unLll 2013 and
lncreased from 233 mllllon Lo 234 mllllon ln 2011 ln llne wlLh a conLracLual sLepup nlke also
manage Lhe club's merchandlslng llcenslng and reLall operaLlons sharlng Lhe neL proflLs equally wlLh
unlLed 1hls klL deal remalns Lhe hlghesL ln Lngland sllghLly ahead of Llverpool's new Warrlor deal 23
mllllon and Chelsea's lmproved Adldas conLracL 20 mllllon Lhough ls a llLLle lower Lhan Lhe deals aL
8eal Madrld and 8arcelona
Fevenue from shIrt sponsorshIp also Increased by f6 mIllIon In 2011 as the club replaced AC
wIth another Insurance company Aon, who wIll pay f20 mIllIon a year untIl 2014. Dnly
LIverpool's f20 mIllIon deal wIth Standard Chartered can match thIs, though the shIrt
sponsorshIp element of |anchester CIty's EtIhad deal has also been estImated at the same
amount. Dther EnglIsh clubs' deals are far behInd (Chelsea - Samsung f14 mIllIon, Spurs -
Autonomy f10 mIllIon and Arsenal - EmIrates f5.5 mIllIon), though better deals have been
secured on the contInent: 8arcelona - Qatar FoundatIon f26 mIllIon, 8ayern |unIch -
0eutsche Telekom f24 mIllIon.
n addItIon, UnIted have many secondary sponsors, IncludIng the lIkes of 8etfaIr, Thomas
Cook, TurkIsh AIrlInes, AIrtel, Epson, AudI and SIngha 8eer. |ost of these brIng In around f1.5
mIllIon per annum. ThIs Is an example of the endurIng power of the UnIted brand globally and
the club's abIlIty to attract new partners, despIte the negatIve headlInes arIsIng from the
Clazers' ownershIp.

vldlc leadlng by example
1he good news does noL sLop Lhere as more parLners are belng added Lo Lhe rosLer all Lhe Llme MosL
specLacularly Lhe 2011 flgures do noL lnclude Lhe amazlng uPL deal Lo sponsor Lralnlng klL for 10
mllllon a season whlch uavld Clll sald breaks new ground ln Lhe Lngllsh game" lncredlbly Lhe conLracL
only covers domesLlc use so excludes Lhe Champlons League where broadcasLers geL more access Lo
Lralnlng lL acLually exceeds Lhe value of all buL four of Lhe maln shlrL sponsorshlp deals ln Lhe remler
League
0HL may have been convInced of the upsIde of beIng assocIated wIth UnIted by theIr
sponsorshIp of thIs summer's US preseason tour, whIch attracted a notable total of 290,000
spectators. As a further example of UnIted's global appeal, two more deals have recently
been sIgned In AsIa, wIth the leadIng 7Ietnamese mobIle phone company, 8eelIne, and a
|alaysIan snack food manufacturer, |Ister Potato.
Under chIef of staff Edward Woodward, UnIted's commercIal team has no IntentIon of restIng
on Its laurels and expects to secure much hIgher sums when the shIrt sponsorshIp and kIt
deals are up for renewal In 2J years tIme. The bar has been raIsed by some of the deals
sIgned elsewhere, partIcularly CIty's InnovatIve EtIhad partnershIp and the French natIonal
team's deal wIth NIke, whIch Is worth 6J20 mIllIon over 7 years, workIng out to about fJ8
mIllIon a year for just a handful of matches. Consequently, UnIted are In dIscussIons to
extend theIr deal wIth NIke for a record f450 mIllIon, whIch would be worth fJ5 mIllIon a
year, I.e. a f10 mIllIon Increase.

1hey mlghL also conslder namlng rlghLs Lhough noL for Lhelr sLadlum buL Lhelr Lralnlng ground aL
CarrlngLon Slr 8obby CharlLon now a dlrecLor aL Lhe club asserLed lL's noL our pollcy Lo change Lhe
name aL Cld 1rafford lL's Loo lmporLanL" Powever fans would be less reslsLanL Lo glvlng a corporaLe
name Lo CarrlngLon especlally lf lL funded Lhe arrlval of a quallLy new player
There's certaInly some room for growth, as UnIted were stIll a faIr way behInd the
commercIal Income generated by some leadIng contInental clubs, at least last season, when
theIr f81 mIllIon compared to 8ayern |unIch's extraordInary f142 mIllIon, Feal |adrId's f124
mIllIon and 8arcelona's f100 mIllIon. DbvIously, the 2011 fIgure of f10J mIllIon has overtaken
8arcelona, but that Is before the new Qatar shIrt sponsorshIp Is Included. n faIrness, UnIted's
merchandIsIng operatIon Is outsourced to NIke, so commercIal revenue (and operatIng
expenses) would be hIgher, If It were brought back Inhouse.
NotwIthstandIng the commercIal boom, televIsIon remaIns the largest revenue category at
f119 mIllIon, up f14 mIllIon (or 14) from the prevIous year, whIch maInly comprIses f60
mIllIon from the PremIer League and f47 mIllIon from the ChampIons League, plus around f10
mIllIon from |UT7 and |U nteractIve.

1he remler League dlsLrlbuLlon lncreased 7 mllllon almosL enLlrely due Lo Lhe subsLanLlal lncrease ln
overseas rlghLs for Lhe new Lhreeyear deal LhaL commenced ln 2010/11 Lach club geLs an equal share
of 30 of Lhe domesLlc rlghLs (138 mllllon) and 100 of Lhe overseas rlghLs (179 mllllon) Powever
faclllLy fees (23 of domesLlc rlghLs) depend on how many Llmes each club ls broadcasL llve whlch
beneflLs unlLed as Lhey were shown Lhe maxlmum 26 Llmes more Lhan any oLher club whlch was
worLh 133 mllllon llnally merlL paymenLs (23 of domesLlc rlghLs) are worLh 737000 per place ln
Lhe Lable wlLh LhaL amounL golng Lo Lhe boLLom club and 131 mllllon Lo Lhe Lop club whlch was
obvlously unlLed
ChampIons League revenue was f6 mIllIon hIgher, maInly because UnIted reached the fInal
compared to the quarterfInals the year before. The dIstrIbutIon from UEFA of 65J mIllIon
(f47 mIllIon) comprIsed 67.2 mIllIon partIcIpatIon fees (same for each team), 620.1 mIllIon
prIze money and 625.9 mIllIon from the market (T7) pool.

lnLeresLlngly unlLed acLually recelved more money Lhan Lhe wlnners 8arcelona as Lhelr 1v money ls
hlgher due Lo Lngland's 1v markeL belng blgger Powever Lhey recelved less 1v money Lhan Lhe
prevlous year as Lhls allocaLlon ls spllL 30 beLween progress ln Lhe Champlons League and 30 based
on Lhe club's flnlsh ln Lhe prevlous season's remler League 1herefore flnlshlng second Lo Chelsea ln
Lhe 2009/10 remler League reduced unlLed's share of Lhe Champlons League 1v pool ln 2010/11
Df course, UnIted's medIa revenue Is stIll far below the SpanIsh gIants, Feal |adrId and
8arcelona, as they are allowed to negotIate IndIvIdual televIsIon deals. Whether thIs
arrangement endures Is another questIon, gIven the pressure from other clubs In SpaIn to
move to a collectIve agreement (as they have done In taly thIs season).
|atch day revenue remaIns a core part of UnIted's strategy, though It Is probably reachIng
saturatIon poInt. Although It rose f8 mIllIon thIs year to f109 mIllIon, thIs was only back up to
the same level as 2009. EssentIally, It now depends on the number of home games played,
whIch Increased from 28 to 29, though the club also receIved a share of gate receIpts from
the ChampIons League fInal and FA Cup semIfInal.

1hls ls Lhe hlghesL maLch day revenue ln Lngland wlLh only Arsenal (94 mllllon) comlng anywhere close
unlLed generaLe 60 more Lhan Chelsea (67 mllllon) and Lwo and a half Llmes as much as Llverpool
(43 mllllon) Lach home maLch earns 37 mllllon so Lwo maLches brlng ln more Lhan an enLlre
season's gaLe recelpLs aL 8lackburn 8overs 8olLon Wanderers and Wlgan ALhleLlc ln facL lL's probably
Lhe hlghesL of any Luropean club as only 8eal Madrld were ln Lhe same ballpark lasL season aL 106
mllllon
Even though there has been some weakenIng In season tIcket demand, UnIted have stIll
achIeved 99 capacIty utIlIsatIon and theIr average attendance of 75,000 Is the thIrd hIghest
In Europe, only behInd 8arcelona and 8orussIa 0ortmund. Dld Trafford's capacIty of 76,000
has 16,000 more seats than the next largest EnglIsh ground, The EmIrates. There has been
some talk of an even bIgger "Theatre of 0reams" by expandIng the South Stand, but the
logIstIcs would be quIte trIcky.
The other drIver for the growth In match day revenue has been deeply unpopular, namely
tIcket prIces, whIch |UST claIm have rIsen by 55 under the Clazers' ownershIp. Df course,
other clubs have also raIsed theIr prIces, most notably Arsenal wIth a 6.5 Increase thIs
season, and the fact Is that UnIted's cheapest season tIckets actually cost less than those at
Arsenal, Chelsea, LIverpool and Spurs.

Cn Lhe cosLs slde Lhere ls no slgn of growLh slowlng down as Lhe wage blll rose 21 mllllon (16) Lo
133 mllllon Lhe lncrease belng spllL almosL evenly beLween salarles and successrelaLed bonus
paymenLs LasL year unlLed's wage blll of 132 mllllon was Lhe Lhlrd hlghesL ln Lhe league buL Lhls year lL
ls llkely LhaL ManchesLer ClLy wlll also slgnlflcanLly grow Lhelr 133 mllllon whlle Chelsea may come
down from Lhelr 173 mllllon followlng a few ma[or deparLures so Lhere may well be Lhree clubs all
around Lhe 130 mllllon level Wages were even hlgher on Lhe conLlnenL ln 2010 8arcelona 233
mllllon lnLer 207 mllllon 8eal Madrld 166 mllllon and Mllan 132 mllllon
The wages to turnover ratIo remaIned unchanged at 46, whIch Is the lowest In the PremIer
League. To place that Into context, over half of the PremIer League clubs are strugglIng wIth
ratIos above UEFA's recommended upper lImIt of 70 wIth |anchester CIty "leadIng the way"
wIth 107. UnIted's huge turnover has helped them maIntaIn thIs ratIo In a very healthy range
of 4447 for the last fIve years.

Pow long unlLed can compeLe wlLhouL spendlng more on salarles ls open Lo debaLe ln Lhe bond
prospecLus Lhe club warned lL may be dlfflculL Lo malnLaln Lhls raLlo aL hlsLorlc levels wlLhouL
negaLlvely lmpacLlng our ablllLy Lo acqulre and reLaln Lhe besL players" 1hls lssue was hlghllghLed Lhls
summer wlLh Lhe frulLless pursulL of Wesley Snel[der
Two conflIctIng factors wIll affect next year's wage bIll. Dn the one hand, It wIll Increase
followIng numerous contract extensIons, IncludIng NanI, Nemanja 7IdIc, AntonIo 7alencIa,
Park JISung and Infamously Wayne Fooney's bumper new deal, whIch wIll cost an addItIonal
f45 mIllIon on Its own. Dn the other hand, several hIgh earners have been offloaded,
IncludIng EdwIn 7an der Sar, Cary NevIlle, Paul Scholes, Wes 8rown, John D'Shea and Dwen
Hargreaves, whIch should save at least f20 mIllIon, though thIs wIll be offset by the arrIval of
younger replacements.
Dther operatIng expenses have rIsen at an even faster rate than the wage bIll wIth a 26 (f14
mIllIon) Increase to f68 mIllIon. ThIs Is due to costs assocIated wIth the growth of the
commercIal busIness, the US tour, the ChampIons League fInal and the sale of |UT7
InternatIonal rIghts.

Me and Mr !ones
ln addlLlon Lhere were 3 mllllon of excepLlonal cosLs namely a 27 mllllon provlslon for professlonal
advlsor fees and a 2 mllllon lmpalrmenL charge ln respecL of lnvesLmenL properLy
Player amortIsatIon, whIch Is the cost of wrItIng down new players, has actually fallen 2 to
fJ9 mIllIon. ThIs concept Is not always clear to football fans, but the example of thIs
summer's purchases should help explaIn the mechanIcs. 8oth PhIl Jones and Ashley Young
were sIgned for f17 mIllIon on fIveyear contracts, but those transfers are only reflected In
the profIt and loss account vIa amortIsatIon, whIch Is booked evenly over the lIfe of hIs
contract, I.e. fJ.4 mIllIon a year for each player (17 mIllIon dIvIded by fIve years).
n 2011, any acquIsItIons durIng the year were offset by the Impact of the many contract
extensIons, where any remaInIng amortIsatIon Is wrItten off over the revIsed contract, thus
reducIng the annual expense. UnIted's amortIsatIon Is much lower than those sIdes that have
spent bIg In the transfer market, such as |anchester CIty f71 mIllIon, 8arcelona f6J mIllIon
and Feal |adrId f57 mIllIon.

1hls ls a reflecLlon of unlLed's resLralned spendlng on new players ln Lhe pasL few years ln Lhe era of
forelgn ownershlp slnce 8oman Abramovlch's arrlval purchase of Chelsea ln 2003 unlLed's neL spend ls
less Lhan 100 mllllon (accordlng Lo Lhe 1ransfer League webslLe) whlch ls much less Lhan Lhelr peers
wlLh Lhe obvlous excepLlon of Arsenal ln Lhe same perlod boLh Chelsea and ManchesLer ClLy's neL
spend ls over 400 mllllon Clearly unlLed's neL spend ls reduced by Lhe 8onaldo proceeds buL even so
LhaL's a Lelllng comparlson
That saId, UnIted's 2011 net spend of f4J mIllIon Is not far behInd CIty f57 mIllIon and
Chelsea f48 mIllIon and Is actually hIgher than LIverpool fJ6 mIllIon, so maybe the purse
strIngs are beIng loosened just a shade. Nevertheless, Ferguson's claIm that the reason that
he has not made any marquee sIgnIngs Is that he cannot fInd any value In the transfer market
really does stretch fans' credulIty to breakIng poInt when the lIkes of |esut DzIl move to Feal
|adrId for f1J mIllIon and Fafael van der 7aart to Spurs for f8 mIllIon. ndeed, when Fooney
agItated for a transfer, he openly questIoned the club's ambItIon and abIlIty to compete for
worldclass players.

1he susplclon ls LhaL Lhe debL mounLaln has lnfluenced Lhe club's Lransfer pollcy so lL ls a promlslng slgn
LhaL Lhe neL debL has been cuL from 377 mllllon Lo 308 mllllon (439 mllllon gross debL less 131
mllllon cash) as Lhe club has boughL back 64 mllllon of lLs bonds 1hls ls down from a peak of 474
mllllon ln 2008
Last year the club raIsed around f500 mIllIon of funds vIa a bond Issue, so that they could
repay the prevIous bank loans, In order to fIx the club's annual Interest payments for a longer
perIod (up to 2017), thus ensurIng more fInancIal stabIlIty. However, there was a prIce to be
paId, whIch can be seen wIth a comparIson to Arsenal's bonds, as the debt has to be repaId
quIcker (7 years vs. 21 years) and the Interest rate Is hIgher (8.5 vs. 5.75).
The really annoyIng thIng for UnIted fans Is that thIs Is stIll unproductIve debt. WhIle clubs
lIke Chelsea and |anchester CIty have used theIr debt to fund the purchase of better players
and Arsenal used theIrs to buIld a new stadIum, UnIted's debt was only used to enable the
Clazers to buy the company.

8yan Clggs sLlll llfe ln Lhe old dog
AL leasL Lhe Clazers managed Lo flnd 249 mllllon lasL november Lo pay off Lhe prohlblLlvely expenslve
lkS Lhough lL ls unclear how Lhey funded Lhls repaymenL Many observers belleved LhaL Lhe club's cash
would be used especlally afLer Lhe bond prospecLus expllclLly allowed Lhe paymenL of a 93 mllllon
dlvldend for general corporaLe purposes lncludlng repaylng exlsLlng lndebLedness" and fuLure
dlvldends of up Lo 30 of neL cash proflLs (as long as Lhe club's lnLeresL ls covered Lwlce by L8l1uA)
However, the board confIrmed that no club cash had been used, though It remaIns unclear
whether thIs was always the plan or whether thIs was In response to supporter protests. The
chances are that the PK debt has sImply been replaced by another loan, whIch would mean
that the threat of usIng club cash for repayment remaIns, but at the very least any new loan
would surely be at a lower rate of Interest than the 16.25 PKs, thus advantageous to the
club.
ncluded wIthIn the net debt are astoundIng cash balances of f151 mIllIon, though thIs has
been boosted by cashIng the f80 mIllIon Fonaldo cheque and the fJ6 mIllIon upfront payment
from the shIrt sponsor. The seasonalIty of the cash flow also needs to be understood, as most
of the season tIcket money Is receIved before the end of June and used to pay operatIonal
expenses over the next few months.

Pard 1lmes for 8lo
1he board has argued LhaL lL llkes Lo reLaln so much cash Lo provlde flexlblllLy" buL Lhls seems a sLrange
declslon when Lhey have Lo pay 83 lnLeresL on Lhe bonds whlle cash balances are unllkely Lo aLLracL
more Lhan 2 lnLeresL
0avId CIll has always InsIsted that the money can be spent on ImprovIng the squad, "The
Clazers have retaIned that money In the bank and It's there for SIr Alex If he needs It for
players", addIng that "there Is no pressure at all to sell any star player." n faIrness, over f50
mIllIon of thIs was used thIs summer to brIng In new players.
However, thIs has not really been the case In the last three years, when the large operatIonal
cash flows of around f100 mIllIon have been prImarIly used to servIce the club's debt, as
opposed to buyIng players, e.g. In 2010 the club spent f120 mIllIon on payIng Interest (f52
mIllIon) and repayIng loans (f68 mIllIon), whIch was ten tImes as much as player regIstratIons
(f11 mIllIon).

ln facL slnce Lhe Clazers' arrlval Lhe club has pald ouL around half a bllllon pounds for Lhe prlvllege of
havlng Lhem as owners elLher ln lnLeresL professlonal fees or repaylng debLs Cbvlously lf Lhe club had
remalned a LC Lhen lL would have had Lo pay ouL dlvldends buL lL ls unllkely LhaL Lhey would have
rlsen Lo Lhls level 1he currenL sLrucLure also produces Lax savlngs compared Lo Lhe LC buL Lhe neL
lmpacL of Lhe Clazers' ownershlp ls surely negaLlve Lqually plauslbly unlLed could lnsLead have been
boughL by a benefacLor llke 8oman Abramovlch who has provlded Chelsea wlLh masslve lnLeresLfree
loans
Even though Ferguson has been supportIve of the owners, "They don't have any crItIcIsm from
me or anyone In the club", It Is easy to see why many fans have protested. All of the money
paId to the Clazers could have been made avaIlable to strengthen the squad or keep tIcket
prIces down, but has Instead dIsappeared Into the fInancIal ether.
The latest fInancIal engIneerIng from the Clazers Is the decIsIon to float a mInorIty stake of
the club vIa an PD (nItIal PublIc DfferIng) on the SIngapore Stock Exchange. t Is
understandable why AsIa was selected, as thIs Is an obvIous regIon for future growth, but It Is
less clear why they went for SIngapore Instead of Hong Kong, though some belIeve that thIs Is
due to the less onerous regulatory requIrements.

1he Clazers laughlng all Lhe way Lo Lhe bank
Whlspers suggesL LhaL Lhe board ls seeklng Lo ralse 600 mllllon for a 30 sLake whlch would value Lhe
club aL 2 bllllon 1haL seems a very rlch" valuaLlon especlally lf Lhey opL for a LwoLler share sLrucLure
wlLh one nonvoLlng share for every voLlng share 1hls may have Lhe advanLage Lo Lhe Clazers of
proLecLlng Lhelr conLrol of Lhe club buL lL ls less aLLracLlve Lo lnvesLors
Stephen Schechter of the eponymous Investment bank suggested, "They are bettIng they wIll
get a hIgher valuatIon In AsIa based on smoke and mIrrors rather than facts. thInk It's worth
probably half of what they're lookIng for." ndeed, the Fed KnIghts, a group of wealthy fans
Interested In buyIng the club, suggested that the club was not worth more than f1 bIllIon.
The rIsk Is that If the targeted valuatIon Is too hIgh, then the offer wIll faIl to get off the
ground. n fact, you have to wonder why the Clazers are pushIng the PD at a tIme when the
equIty markets are lower than they have been for some tIme, whIch begs the questIon of
what they wIll do wIth the proceeds.

LlLLle 8lack Lyed ea
1here are effecLlvely Lhree posslblllLles (a) repay some of Lhe club's debL (b) use Lhe cash elsewhere ln
Lhe buslness eg a Lransfer/wages fund (c) pass lL Lo Lhe Clazers poLenLlally Lo pay off any famlly loans
Lhey may sLlll have eg from repaylng Lhe lks Cr a mlxLure of all Lhree
f they repaId some of the club's debt, as the club has apparently brIefed journalIsts, then
UnIted would benefIt from lower Interest payments, though thIs would not be much use If
they were then replaced by dIvIdends to the new shareholders. We shall see.
Some have suggested that thIs PD Is the fIrst step In the Clazers' exIt from the club, but It
has been reported that the owners have already rejected several offers above f1 bIllIon,
IncludIng one of f1.5 bIllIon from Qatar. f that were not clear enough, the board stated,
"The owners remaIn fully commItted to theIr longterm ownershIp of the club. |anchester
UnIted Is not for sale and the owners wIll not entertaIn any offers."

Cheer up Alex youre Lop of Lhe league
Lven so ManchesLer unlLed dlrecLor Mlchael Ldelson sald lL ls lnevlLable LhaL aL some Llme Lhey wlll
sell" Lhough he added 1haL wlll be a long way down Lhe llne" Clearly everyLhlng has lLs prlce and
lnvesLors LhaL employ Lhe L8C model usually sell when Lhey feel LhaL Lhey have maxlmlzed value so LhaL
could be any Llme
At the rIght prIce, UnIted are an exceedIngly attractIve Investment proposItIon, as they are a
verItable cash machIne. Even though the profIts are currently largely sIphoned off by the
enormous Interest payments, the fInancIals look great at an operatIng level.
However, perhaps the club's bIggest asset durIng the Clazers' reIgn has been SIr Alex
Ferguson. t Is doubtful whether any other manager could have operated so successfully under
the constraInts Imposed by these owners. ndeed, one of the greatest challenges facIng
|anchester UnIted Is how effectIvely he Is replaced when he eventually retIres. Whoever It Is
wIll have a tough act to follow.