I have been crunching the numbers over the last few weeks to answer the simple question – How well are Manchester United positioned to deal with the complications of COVID-19?
The short answer is not at all, and the Glazers will need to take drastic measures to improve the liquidity of the club, which will have significant impacts on everything from the front office staff to the players on the pitch.
Before I jump into the analysis and key highlights, I wanted to lay out the assumptions for my financial model as there are multiple moving parts with the uncertainty created by the global pandemic.
In my financial projections I made the following assumptions:
- Manchester United is not able to host fans at Old Trafford until January 1st, 2020 and when they start to host fans it will be done at 25% of capacity through June 2021.
- Manchester United does not take a significant hit to sponsorship and merchandising revenue. I believe this assumption to be conservative as they surely will not earn as much sponsorship income due to a lack of match day events.
- Manchester United do not layoff significant portions of their staff and maintain a similar level of operating expenses as FY2019
- Manchester United pay out a £20 million dividend as is tradition
- Manchester United do not raise additional debt
- Manchester United does not sell any players
No Champions League, Big Problems
Qualifying for the Champions League through either the English Premier League or Europa League competitions this season is the single most important obstacle facing the club since Sir Alex retired. Broadcasting revenue from Champions League could be worth upwards of ~£85 million and with the loss of matchday income, the club is desperate for revenue to offset their operating expenses.
Looking at my financial forecast for Operating Profit through FY2020 and assuming Manchester United qualifies for UCL football (earning £85 million from UCL broadcast revenue) they are still set to lose £60 million over the next 5 quarters. This is terrible news for a club that has consistently generated £25-£50 million in operating profit over that last three seasons and depends on that cashflow to complete transfers.
If Manchester United does not make the Champions League, Eddy and Co won’t see a profitable quarter through 4Q FY2020 (June 2021). This is the ultimate worst-case scenario as the club is starved for cash and won’t be able to depend on strong matchday revenues to bail them out. I estimate without UCL broadcast revenues the club will lose £120 million over the next 5 quarters. This would put Manchester United in such a bad position the Glazers will have to make drastic moves to shore up their cash position and save the club from bankruptcy.
So How Much Cash Does Manchester United Have?
Over the last 15 years, the Glazers have completely bled this club of its cash reserves, you know the ones for a rainy day like today, pulling out an estimated £1.5 billion in dividends and interest payments.
Ending the 3Q Manchester United reported £90 million in cash on their balance sheet, which is mere pocket lint for the club that boasts a $3 billion+ enterprise valuation. This is a dangerously low cash balance for the club and an insufficient amount to deal with the ramifications of COVID-19.
Wait, Didn’t They Just Raise £140M?
In response to the global pandemic, Manchester United pulled down £140 million in cash from its £150 million revolving credit facility. This together with its £90 million would give them ~£240 million in cash which solves all their problems right? WRONG!
With the elimination of matchday revenue and a broadcast rebate for 2019/2020 of ~£20 million, most of that cash is to offset operating expenses. Per my financial analysis, Manchester United will burn an estimated £13 million a quarter if they make the UCL and £24 million if they do not. This results in that £140 million and existing cash being chewed up relatively quickly.
One huge driver of the club’s cash crunch is their £184 million in purchase obligations due in the next 12 months. These include delayed transfer payments and recognized transfer milestones. Again this pandemic could not have come at a worse time for the club whose owners have been playing russian roulette with the balance sheet.
So what does the cash forecast look like? Well, the short answer is if they make Champions League they won’t necessarily run out of money, but I think you can make the case they will come very close. Remember, the financial model does not forecast any reduction in sponsorship revenue and it has fans (25% capacity) back at Old Trafford in January 2021. If reality is much harsher, even if the club qualifies for UCL, that extra £85 million won’t matter. Additionally, a club of Manchester United’s size realistically cannot operate with £50 million in cash given the seasonality and working capital requirements for their business.
So what does it look like if we don’t qualify for the Champions League? Well, the club looks to be out of cash by the beginning of 2021. This shows you how careless the Glazers and Woodward have been. The bookies have Manchester United at +175 (or 36.4%) to qualify for UCL via the English Premier League and a 28% chance to win the Europa league – are those the odds you want to bet the future of this club on?
What Will The Glazers Do?
Now we have clearly established the pickle our shitty ownership is in, what are their options to free up cash. Here is a hint, they all suck.
- Layoff Staff – they have already probably been cutting operating expenses, but the majority of these expenses are player wages so they can’t really move the needle too much here without selling players.
- Sell Players – this is a great way to raise cash through upfront transfer fees, but unfortunately in the COVID-19 environment transfer fees will be depressed and there are only a few players that will move the needle to the tune of £50 million+ that they need.
- Raise more debt – with the recent pulldown of the £140 million revolver, Manchester United’s debt on the balance sheet is maxed out at £660 million and an eye-watering 13.8x debt to EBITDA ratio. Even at these levels, I am sure they can find more debt but at what cost to the club? The club’s assets are already secured against the senior secured notes – so any new loan would have higher interest further restricting the club going forward.
- Stop Paying Dividends – Not the dividends! The Glazers are in such dire straights at Old Trafford they most likely will have to stop lining their pockets with dividend payments to themselves in order to limit the impact to cash. How much would this save? Only £20 million per year
- Sponsor the Stadium – of all the ideas this one seems to be the most likely. Sponsoring Old Trafford could net huge sponsorship revenue (£100 million+) even during a pandemic and would mean the club would not need additional debt. Could we be seeing “Maui Jim Stadium at Old Trafford” soon? There is precedent here as the Glazer’s NFL team has their stadium sponsored in the United States as “Raymond James Stadium”.
Lower Those Transfer Expectations
Let’s be clear, Manchester United will not run out of money but their current cash position will affect how this club operates. For one, in my financial projections, UCL or no UCL, there is no room for significant upfront transfer fees. With cash running so low and debt maxed out there is little wiggle room in the next two transfer windows. Looking at the numbers, I personally think Manchester United can’t make any signings without significantly delaying these fees until FY2022, which would be a big ask for other clubs in a cash crunch from COVID-19.
My original position was that if we qualify for UCL we might be able to get Sancho done but after running the analysis there is little to no room for a deal of this size. Would Dortmund take a £20 million upfront free with an £80 million+ delayed payment deal through 2022 for one of the hottest commodities in European football? The most realistic answer is Manchester United will wait for the summer 2021 window when they can understand what Matchday revenue and the UCL picture look like.
Great Club, Shit Ownership
In some sadistic fashion, I do enjoy going through the financials of Manchester United. I guess the reason is I am always surprised at what I find, and I mean really surprised. Having done this work on countless public companies, I have never seen such a nightmare as the current state of Manchester United. Ed Woodward and the Glazers have stripped every ounce of cash out of the club with no care at all for the fans or results on the pitch. The amazing part is that it took a global pandemic to catch them with their pants down.
It is time for us fans to come together and demand new ownership. From what I have seen the Glazers treat this club worse than a run-down used car dealership and it will only get worse! Their actions will continue to affect the performance of the greatest team in world football for many years to come – its time to get these clowns out of our club.
Glory Glory Man United
Really interesting stuff here, John. Good presentation of the info; it’s easy to digest. It’s clear to see you have experience in the world of financial analysis! I am passionate about this kind of stuff too, and in fact I am working on switching fields to do this sort of thing for a living!
13.8x debt to EBITDA sure is sorry. Doesn’t that mean it would take us almost 14 years to pay off all our debt if we didn’t spend money on anything else (not even looking at interest and taxes owed each year)? And the future sure looks bleak if the Covid-19 matter gets worse or if we don’t make Champions league! It’s a sad reality that the stadium name would need to get sponsored to bail us out. You guys are always talking about Glazers out, and now I really get it because this illustrates it well. It’s hard to see us getting Sancho at this time, which is a pity. He would kill it for us!
Anyway! I’m looking forward to the rapid fire games coming our way as well as your accompanying podcasts! You guys always have interesting content and thoughtful perspectives – please keep it up. And tell your wives they are saints for what is to come the next few months! LOL!
Great work! I recently also created a (probably not so good) model on MANU, but at y-o-y basis. I struggle to reach the same conclusions as you, but perhaps that is due to the intra-year variation, or more likely I just haven’t put enough time into my modelling (my background from equity research btw).
I wonder though, have you done anything on the takeover in 2005? I would love to do an in-depth investigation of the takeover, but I really struggle to find detailed information. I found the andersred blog (http://andersred.blogspot.com/) written by Andy Green, investment director at London based PE firm, that has done a brilliant job covering MUFC finances up to 2015, but I would still love more information on it.