Football finance is often associated solely to the revenue that clubs generate, with particular emphasis on the value of broadcasting and media rights, as these are typically the largest revenue sources. For over 25 years, Deloitte, one of the world’s “Big Four” accounting firms, has published the prestigious Football Money League report. This publication profiles the football clubs with the highest revenues globally and is considered the most reliable independent analysis of clubs’ financial performance. However, the report primarily focuses on the clubs’ top-line financials, offering limited insight into their overall financial health.

These views overlook crucial aspects that are fundamental to evaluating the financial performance of any business or industry. Key questions such as: Does the club make a profit? How does it finance player acquisitions? What is the return on equity? What is the debt level? Does the club generate cash from its operations?—are essential to understanding a club’s true financial health.

In recent years, there has been increased focus on the financial sustainability of European football clubs, driven by efforts from leagues and competitions. These initiatives aim to enhance competitive balance and regulate financial fair play, ensuring that clubs operate within their means while promoting long-term financial stability across the football ecosystem.

Financial sustainability has become a critical focus, even without intervention from football leagues. The entry of new participants, such as institutional investors and private funds, has heightened the demand for more efficient operations and greater professionalization of both management and day-to-day operations. These investors expect clubs to be run with a higher level of financial discipline and strategic oversight.

Manchester United, regarded as one of the biggest and most successful sports teams globally, presents a fascinating case study. In recent years, the club’s trajectory has been marked by a stark contrast between its commercial success and underperformance on the pitch. Despite its impressive commercial achievements, this success has not translated into full financial stability. The club faces persistent operating losses, a weakened balance sheet, and negative free cash flow, that highlight the financial challenges that remain despite its strong brand and ability to generate revenue.

Last month, Manchester United released its financial results for the 2023/24 season. In this report, we take an in-depth look at the club’s financial performance, examining key areas such as profitability, total debt, debt service ratio, Free Cash Flow (FCF), management efficiency, and stock performance. 

Revenue

For the 2023/24 season, Manchester United reported total revenue of £662 million, representing a 2% increase compared to the previous year. This slight growth was primarily driven by higher broadcasting revenue, as the men’s first team participated in the UEFA Champions League. Both commercial and matchday revenues remained flat year-on-year.

Looking at the long-term trends, total revenue has grown at an average rate of 6% per year since 2010. However, in the last five years, this growth has slowed considerably, with an average increase of just 1%. Commercial revenue has been the main driver, with an impressive 10% average annual growth since 2010, while broadcasting and matchday revenues have grown at average rates of 6% and 2%, respectively.

The numbers highlight the success of Manchester United’s commercial and marketing strategy, demonstrating how the club continues to capitalize on the strength of its brand, even as its on-pitch performance has faltered.

Last season, Manchester United’s men’s first team finished eighth in the Premier League, the club’s lowest position since the 1989/90 season. The team’s performance fell to just 48.5% of available points in the 2023/24 season, including Premier League and European competitions. Since 2014, United has averaged 50.3% of total points, a sharp decline from the 72% average points percentage achieved between 2009 and 2013.

Profitability

Profitability has been a significant challenge for the club. In the fiscal year 2023/24, Manchester United reported a net loss of £113 million, reflecting an increase of 295% or £84 million compared to the previous fiscal year. This marks the fifth consecutive year of losses for the club. Since 2018, United has accumulated total net losses of £504 million, with only one profitable year, which was in 2018/19.

Analyzing EBIT (excluding exceptional items), the outlook remains not much different. In the 2023/24 fiscal year, the operating loss was £59 million, representing an 87% increase compared to the previous year. Acquiring top-quality players is vital for a club like Manchester United, as it not only strengthens the squad but also helps generate and maximize revenue, ultimately enhancing the brand’s value. Since the cost of player registrations is amortized over the length of their contracts, EBITDA provides an unreliable and misleading indication of the club’s financial performance.

Free Cash Flow (FCF) offers a clearer picture of the club’s financial health. In the 2023/24 fiscal year, Manchester United reported negative FCF of £123 million, a decline from -£76 million the previous year. Since 2018, the club has generated positive FCF in only one year, which was 2018/19. This highlights the club’s worsening ability to generate cash and meet its debt obligations. In 2023/24, a capital injection of £159 million enabled the club to continue investing in the squad and fulfill its financial commitments. However, further capital injections may be necessary in the near term to support business growth and other investments.

Debt

Total debt decreased to £547 million from £613 million in the 2023/24 fiscal year. This decline resulted from a reduction in the revolving credit facility from £100 million to £30 million. Historically, Manchester United has relied on high levels of debt to finance its assets. In the 2023/24 season, the debt-to-equity ratio improved to 3.8, down from 5.9 in the previous year. This change can be largely attributed to the capital injection of £159 million mentioned previously.

The high level of debt along with operating losses can create a burden for the club to meet its short term financial obligations. The latest Debt Service Coverage ratio results in 0.8 which indicates net operating income is not sufficient to service the debt.

Management Efficiency

Assessing the performance of the management team requires analyzing both operational and financial metrics. Operating metrics may include the number of new customers, average selling price, retention rate, or, in the context of a football club, the numbers of wins or the achievement of specific league positions. Financial metrics, on the other hand, typically involves metrics such as are revenues, EBITDA, ROE, earnings per share, and market capitalization, among others. Performance is evaluated against previous year’s results and/or the achievement of predefined goals or guidance.

To assess the efficiency of the management team, it’s essential to consider additional metrics. Return on Assets (ROA) indicates how effectively a company utilizes its assets to generate returns. While analyzing profitability is crucial, comparing profits to the level of invested assets reveals the organization’s capability to maximize returns relative to its asset base.

In the 2023/24 season, Manchester United reported ROA of -8.5%. This marks the fifth consecutive year that the club has posted a negative ROA. Since 2011, United’s ROA has fluctuated between -9.0% and 2.6%, with the exception of 2013. While this may not surprise many fans, this metric highlights the club’s inefficiency in managing and allocating its resources. In contrast, Manchester City recorded ROAs of 5.7% and 3.4% in 2023 and 2022, respectively.

From an operational standpoint, one intriguing metric for evaluating management efficiency is the cost per match won—how much Manchester United spends for each victory on the pitch. In professional football, there is a well-known strong correlation between spending and success, with clubs that offer the highest wages often finishing in top positions and winning the most trophies. However, given the need for financial sustainability and the fact that resources are limited, simply increasing spending can become a flawed strategy. Instead, balancing costs while maximizing on-pitch performance is essential for long-term success.

During the 2023/24 season, Manchester United’s men’s first team achieved a total of 25 victories across all competitions (including the Premier League, UEFA tournaments, and domestic cups), which is 16 wins fewer than the previous season. These 25 wins came at a cost of £31 million, nearly double the expenditure on wins from the 2022/23 season. This outcome reflects a 39% drop in the number of matches won while spending increased by 13% compared to the previous year. Even after excluding exceptional items, wages plus amortisation costs increased by 10%.

For comparison, Manchester City, who has the highest squad cost in the Premier League according to The Swiss Ramble, spent in average £16.6m for each win in the 2022/23 season. Between 2020 – 2023, Manchester City’s average cost per win was £15m, with an average of 43 wins per season across all competitions. This demonstrates a much efficient operational model compared to Manchester United.

Stock Performance

By analyzing key financial ratios related to profitability, capital structure, and liquidity, we gain a clear understanding of the club’s financial health. Additionally, since Manchester United is publicly traded on the New York Stock Exchange (MANU), we can assess its stock performance from a market perspective. The club has two types of ordinary shares outstanding: Class A and Class B, which differ in voting rights. Only the Class A shares are publicly listed and traded, but it is important to note they carry 10 times less voting power compared to the Class B shares.

The following chart shows the cumulative value of €100 invested in Manchester United Class A stock from January 2013 to August 2024, compared to similar football stocks such as Borussia Dortmund, FC Porto, and Juventus, with the MSCI World Media & Entertainment Index serving as the benchmark. This comparison highlights the relative performance of Manchester United against its football peers and the broader media and entertainment industry.

Manchester United’s stock has significantly underperformed both the MSCI World Media & Entertainment benchmark and FC Porto’s stock. From January 2013 to August 2024, Manchester United’s stock returned 2.0%, while FC Porto and the MSCI Index achieved returns of 13.6% and 11.9%, respectively (excluding dividends).

The stock price can be seen as a reflection of the club’s underlying performance over the recent years. However, a closer examination of other financial ratios suggests that Manchester United may be overvalued by the market. As of June 30th, its Price-to-Book ratio was 14.7, significantly higher than the MSCI World Media & Entertainment Index, which stood at 5.2.

Conclusion and Opportunities

Manchester United is currently undergoing a major business transformation following the agreement for Sir Jim Ratcliffe to acquire a non-controlling stake in the club. This agreement includes the delegation of football operations management to Ratcliffe’s team. As part of this transformation, the club has already implemented leadership changes, streamlined its organizational structure, and initiated cost-saving measures. 

These steps are aimed at improving operational efficiency and better position the club to achieve financial sustainability and long-term growth. While these actions target some of the club’s current issues and underperforming areas outlined in this report, it will take time for the new management team to fully reverse the club’s trajectory and deliver a positive impact, both financially and on the football side.

In addition to the club’s ongoing initiatives focused on cost reduction, organizational restructuring, and the creation of the Old Trafford Regeneration Task Force, here are other proposals intended to add value and promote financial sustainability;

• Create a Framework for Guiding Player’s acquisitions: Implement a comprehensive framework to guide players acquisitions. This guide should be the basis for signing players, scouting, developing and promoting youth talent, and optimize the length of contracts.
• Establish Wages Parameters: Introduce a wage structure that prioritize performance-based compensation. Define wage ranges per football position across all club levels. Integrate financial metrics to performance-based compensation for all football staff.
• Integrate Finance Strategy at the Core of Football Operations: Embed financial planning and modelling into the football-decision making process. Along with football data analysis, integrate finance strategy to develop a coherent group strategy, reduce noise and emotional judgment, and foster a cohesive environment towards football and business decisions.

This transformation will take time and requires not only execution and focus but long-term thinking and commitment while the club navigates through this critical period. Like any industry, financial sustainability and strong financials are essential for a football club’s survival and future growth. Football clubs possess other valuable aspects, particularly the social and cultural impact, that might justify the investment. However, until the club can revert the current trajectory; maximize revenue, improve asset allocation and deliver consistent returns, the investment has not proved to be a winning strategy.

Manchester United has fallen behind other top football clubs in several key areas, and the situation may get worst before any tangible progress is made. Despite this, the expectation remains high for a full turnaround.