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Accounts show Manchester United will likely have to sell to buy big this summer

https://theathletic.com/1634690/2020/02/25/woodward-pogba-manchester-united-accounts/

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There were plenty of indications about how many millions Manchester United may spend this summer in the club’s latest quarterly call to investors. Perhaps the key quote came at the end of Ed Woodward’s opening address, reflecting on what Ole Gunnar Solskjaer has done so far and what he may be able to do in future.

“This season is one of rebuild, with many changes to the squad,” Woodward said. “In terms of players who have left or gone out on loan; new players who we have brought into the club; and academy graduates that we have brought through to the first team.

“This process will continue as we implement our footballing vision under Ole and his coaching staff.

“Despite being linked in the media to 111 players in January, our acquisition of just one of them – Bruno Fernandes – is an important step in that direction, demonstrating our commitment to adding experienced, world-class recruits to the exciting crop of academy graduates that are at the heart of this developing team.

“We will take the same planned, disciplined approach this coming summer.”

Setting aside that The Athletic noted 113 players, Woodward’s point that only one came in on a permanent basis from a large pool of potential recruits is pertinent, as is his emphasis on “planning” and “discipline”.

United will commit funds but only for players of quality and only at a price Woodward deems appropriate. United’s executive vice-chairman was criticised for the time it took to complete the Bruno deal and, while only Doc Brown’s DeLorean would allow us to see whether the Portugal midfielder would have made a difference against, say, Burnley at Old Trafford, it is the case that initially Sporting Lisbon wanted €80 million (£68 million) guaranteed and ultimately United are obligated to pay just €55 million (£47 million). Only if Bruno wins the Ballon d’Or will Sporting get the full €80 million and should that happen, United will be happy to pay.

Woodward’s public words and private negotiations must also be seen in context of United’s cash levels, which are down to £100.9 million — the lowest since March 2015.

In June 2019 that figure stood at £308 million but United paid out £187 million on transfer fees in the next six months, recouping £22 million in sales. While much of the outgoings related to previous signings, a sizeable amount was also accounted for in the £80 million purchase of Harry Maguire, with Leicester demanding the full fee up front — confirmed for the first time in these accounts. Usually transfer spending is spread over a number of years, as is the case with Bruno and, evidently, Romelu Lukaku’s move to Inter.

The knock-on effect is that United are at least free from needing to budget for too many add-ons this summer.

Cliff Baty, United’s chief financial officer, projects United’s capital expenditure for the fiscal year (July 1 2019 to June 30 2020) to be £190 million — so a modest increase on the cash already spent.

In response to a question from Laurie Davison, a director at Deutsche Bank, about future transfer budgets, Baty said: “We don’t guide on what that will be, for obvious reasons. What I will say, is that the level of capex spend [capital expenditure] we’ve got this year does reflect the accelerated payment of and deferred receipt profile of last summer’s activity.”

This was in reference to upfront payments for Maguire, Aaron Wan-Bissaka and Daniel James, as well as some historical staggered spending.

“That does mean our future commitments liabilities are in a very good place, compared to where we might be in more typical years,” Baty added.

Still, it doesn’t mean that United will be liberal with their spending. That £100.9 million cash figure hardly makes United paupers, but nor does it classify as what the headline writers love to call a “war chest”, especially in the market Solskjaer will be shopping.

That cash coming down meant United’s net debt rose to £391.3 million — an increase of £73.6 million over the year — and only sales or increased revenue will take the line on that particular chart back up. (United’s gross debt remains unchanged at $650 million — down in sterling terms to £492.4 million from £508.2 million because of fluctuating currency rates.)

The effect of Champions League qualification to revenue was laid bare in the announcement. Broadcasting revenue for the quarter was £64.7 million, a decrease of £39 million (37.6 per cent) over the prior year quarter, “primarily due to non-participation in the UEFA Champions League.”

United do pass some of this reduction on to players in terms of salary cuts. Their wages for this quarter were £70 million, a decrease of £7 million from last year, again “as a result of non-participation in the UEFA Champions League.”

Sponsorship revenue for the quarter was £45.1 million, an increase of £4.8 million over the prior year quarter, due to new deals, and United trumpeted their new global partnership with Mondelez International — the multinational group behind Cadbury, Oreo and belVita. But a second year out of the Champions League would bite in the summer with penalty clauses included in the club’s Adidas contract.

Selling players would be one way to make up the deficit and sanctioning a transfer for Paul Pogba could fund the signings of two players in one go. United put a £150 million price on Pogba’s head last summer but industry sources have told The Athletic the club may have to accept about £80 million given the way things have gone this season. It is to be seen if there are clubs willing to pay that.

Even so, that would cover the expected cost to buy Jack Grealish, described as United’s No 1 target. Should Aston Villa get relegated, Grealish’s price would drop further, given their need to comply with profit and sustainability rules in the Championship.

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Financial Fair Play of a different level was mentioned in Woodward’s conference call, when Randy Connick of Jefferies asked whether the Manchester City case demonstrated UEFA’s “teeth”.

There is zero chance of United spending beyond the rules and Woodward, speaking for the first time since the announcement of City’s two-year Champions League ban, is clearly an advocate.

“I’m not gonna comment on City or any other clubs, relating to those events,” Woodward said. “But what I will say is I go to a lot of UEFA related meetings being on the ECA board [European Club Association] and deputy chairman of UCCSA, which is a joint venture between the ECA and UEFA, and I see a strong commitment from UEFA to ensure Financial Fair Play continues to deliver the benefits that it clearly has in the industry.

“And if you look at the last five years, the overall operating profits across the top leagues — then in the 50, 55 countries in Europe — they’ve gone from pretty large losses all the way up to break even and small operating profits. So, I think it’s been beneficial overall. Clearly, it’s up to the regulators to manage that.”

City’s ban, should it be upheld during their appeal to the Court of Arbitration for Sport, would allow the team finishing fifth in the Premier League to qualify for next season’s Champions League.

It has escaped nobody’s attention that United occupy fifth position and there would be a certain vicious irony about a club loaded with debt taking the place of their nation-state funded city rivals, punished for spending too much. It would certainly alter the picture for United’s transfer prospects.

There is a view, though, that City will likely be allowed to compete in next season’s Champions League while their appeal to CAS is considered. That is the belief of David Seligman, an associate lawyer with Brandsmiths — a London and Manchester firm specialising in sports law.

Seligman has experience of CAS, as well as FIFA and FA arbitrations, and thinks the sheer weight of evidence required for such a major case will see many months of preparation, rather than an expedited process.

“The Court of Arbitration for Sport is fairly fluid in how they deal with cases,” Seligman told The Athletic. “They can do them quite quickly or slowly, but when City appeal, the Court of Arbitration for Sport will postpone any ban until the outcome of the hearing.

“Then City will be able to try to delay it, because these things take time, lots of documents, lots of witnesses. It will go well beyond the start of next season’s Champions League. I would be surprised if City are not in it. I don’t think any Premier League teams will benefit from finishing fifth this season.”

Seligman, who has assisted Moussa Dembele, the Lyon forward, on his last two transfers, believes City’s wealth could prove consequential. “The CAS have jurisdiction to make an order as to the payment of legal costs, it is usually the case that the loser pays, and if UEFA were left with a £10 million bill because of the cost of City’s lawyers that could prove financially catastrophic.

“It could take years to get through this case, UEFA could be swamped in paperwork. Whereas a delay could suit City and in truth, an adverse costs order against them is manageable due to their owners’ wealth.

“The risk of a large adverse costs order to UEFA will give City leverage, even if the risk is low. In that scenario City could offer some kind of deal where UEFA double the fine but leave the ban. It would though make a mockery of the process.

“I do think City will ultimately get banned, albeit dropped down to one year. However as that sanction is lower than what has been given by UEFA, that could be classified as a ‘City win’ which could aid in their costs recovery.”

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