There were just five days between the two announcements – one that Manchester United expected profits “at the high end” of projections between £145 and £160m, the other that they would be taking their total cuts to the workforce to 39 per cent.
Less than a week after another bullish financial report full of revenue growth and profit warnings, United told staff at the club that there would be no more free hot lunches, and another 200 of their colleagues would be made redundant, joining 250 already dispensed with last year.
It was the latest in a long line of cuts on which Ineos billionaire Sir Jim Ratcliffe has led the charge in the first year of his minority ownership of the club.
He had already taken away Sir Alex Ferguson’s £2m-a-year job as an ambassador, relocated United’s London office, and removed decades of experience from the scouting department.
The £50 bonuses for matchday stewards were then scrapped and adhesive tape was removed from a stationery order after it was considered unnecessary.
So how did United manage to tell, truthfully, their shareholders that they were expecting massive profits while at the same time using a track record of losses to justify cuts across the club?
United’s secret formula
The secret is “Ebitda”, an accounting acronym that stands for earnings before interest, taxes, depreciation, and amortisation – which essentially measures a company’s profitability and cash flow before taking into account certain expenses.
When United issued that profit projection in November, it was the adjusted Ebitda figure that was given. The results for the second quarter came out last month and they were even more optimistic and closer to the figure of £160m.
“I’m not a huge fan of Ebitda in football terms, it’s also got its critics in general business actually,” Dr Dan Plumley, an expert in football finance at Sheffield Hallam University, tells The i Paper.
“It’s not a false measure – that’s the wrong way to view it – but it’s very much a clean measure that people will use to say, ‘Well, we’re generating fairly significant profits here’.”
United, which is floated on the New York Stock Exchange, say Ebitda “provides useful information to investors regarding the group’s financial condition and results of operations”.
However, in the acronym, the biggest letters for United are I and A: interest and amortisation, factors that are not included in that £145m to £160m profit projection.
Net interest payments in their last full financial year reached £61m and are already on pace to reach similar levels this time around. But the really big one is amortisation, which refers to the way football clubs account for transfer fees. The money paid for a player is spread over the length of their contract.
“What they do is they divide the the transfer fee by the number of years of the contract, and that then becomes the amortisation charge for that player,” Plumley adds.
“And of course, then you’ve got multiple players, multiple-year deals. So what that means then is the amortisation cost for a football club is higher than a lot of other industries.”
How United can still spend on transfer funds
United, having not been shy of spending, are still accounting for some big-money transfers going back years. Their most recent full set of accounts, covering the 2023-24 season, showed an amortisation charge of £187m, more than enough to wipe out their Ebitda profit for the period.
Along with their interest payments, they posted a loss for the fifth consecutive year, this time of £113m.
“There’s not many ways you can get yourself out of a loss-making position, other than to grow revenue or to cut costs, or you try and do a little bit of both,” says Plumley.
“And that’s the balance that all these clubs are in: they are trying to grow revenue, but they’re also having to squeeze costs a little bit as well, which has implications.”
In this case, those implications are redundancies, which after the announcement of the latest round of cuts could end up numbering as many as 450 from the start of Ratcliffe’s shake-up of the club.
Cost-cutting has also hit things like ticket discounts for pensioners and children, funding the former players’ association and £50 bonuses for “Steward of the Week” at Old Trafford.
“In terms of what they have to do, it is very much back to business principles and being quite cutthroat. And we’ve certainly seen Ineos do that in everything they’ve done,” Plumley adds.
“It’s that uber-commercial world. It’s cut-throat. Organisations go through this pain all the time. It’s just heightened because, one, because it’s football, and two, because it’s Manchester United.”
Just how strong are United’s finances?
And it is hard for the club to be making those cutbacks on the one hand while on the other painting a strong underlying financial picture with their Ebitda profits thanks to a relatively “lean” wage structure and increasing revenue.
“It is always going to come back to haunt them [from a PR perspective]: their wages-to-revenue ratio is quite lean, their revenue is increasing, they spent a lot on players and we know there’s players on big salaries.
“But when you put that into context, and the people that they are looking at getting rid of and those redundancies, it’s the people that are not on mega money.”
United have the third-lowest wages to revenue ratio in the Premier League, but their headcount is much higher than rivals.
Before the redundancies started, United had 1,140 employees. That is significantly above the league average and more than comparable clubs like Arsenal and Liverpool, which fluctuate around the 700 or 800 mark.
As well as creating a misleading PR picture, the Ebitda projections also act as a smokescreen behind which a possible spending cap issue hides.
Their September outlook insisted that “the club remains committed to, and in compliance with, both the Premier League’s Profit and Sustainability Rules [PSR] and Uefa’s Financial Fair Play [FFP] regulations”.
However, a letter to fan groups The 1958 and Fan Coalition 58 in January, in which the club defended hiking the lowest ticket prices from £40 to £66, admitted there was a risk of a breach.
The club wrote: “If we do not act now we are in danger of failing to comply with PSR/FFP requirements in future years and significantly impacting our ability to compete on the pitch.”
What comes next?
The next Premier League PSR window will look at the previous three seasons: 2022-23, 23-24 and 24-25. (Notably, this is the first assessment period that will not include allowances made for losses during the Covid pandemic.)
Clubs are allowed to lose a maximum of £105m in that three-year period, and United are already well over that threshold.
However, they can claim allowances for costs incurred by the partial sale of the club to Ratcliffe, as well as spending on things like women’s football and youth development, which could cover some improvements to the training ground, for example.
And United did avoid a breach for the previous period despite losses of more than £300m, which would suggest that they can pull it off again.
But significant costs could come further down the line – one estimate has put the cost of the stadium project at £2bn.
“There’s been a lack of investment in infrastructure, certainly at Old Trafford, but further down the line, that’s going to need to be sorted out,” Plumley explains.
“So to be able to do some of that stuff, you’ve perhaps got to cut first.”
from Football - The i Paper https://ift.tt/sTimfjR
Post a Comment
EmoticonClick to see the code!
To insert emoticon you must added at least one space before the code.