The Analysis of Manchester United F.C - Case Study Example

Manchester United FINANCIAL ANALYSIS OF MANCHESTER UNITED The last financial report released for Manchester United Limited (Man U) was on 31st December 2013. The company registered an increment in revenue from the previous quarter. The commercial revenue rose by 18.8% to reach £ 42.3 million for that quarter. This was an increment of £6.7 million from the prior quarter. This is a positive trend with the club given that for the progressive year as at 13th of February 2014, the club had realized a growth of 30% in its commercial revenue. This demonstrates the commitment by the club stakeholders especially the fans in supporting the club. The growth is attributed to not only the local fans but also the sponsorship deals that the company has been able to get from outside sponsors. In the second quarter, Man U successfully activated six new sponsorship deals with companies like SPOTV Korea, STC, Fuji TV, Banif Bank, Unilever, and Hong Kong Jockey Club. Unilever engaged in the sponsorship for personal care and laundry sponsor while Denizbank was to be the financial sponsor. It is also apparent that the previous sponsorships got renewed. The resultant for the second quarter was an overall growth in the sponsorship revenue to £ 29 million up from £ 20.8 million in the previous quarter; this demonstrates that that there was a 39.4% (£ 8.2 million) increase. The Broadcasting revenues have too surged during the second quarter. The increase has been by 18.7%, which is a £ 7.4 million increase from the previous quarter. This second quarter reached all high broadcasting revenue of £.46.9 million. This has been attributed to the FAPL TV rights agreements that have been established for both local as well international media. While commenting on these increments, the Executive Vice Chairman noted that the commercial as well as the broadcasting revenues had increased despite the league position an aspect that might derail future profits. However, he was very optimistic that the club would get back on track with acquisition of key players such as Juan Mata. The broadcasting position in the financial matters is also attributable to the ability of the company to make it to the number one position in the 2012/2013 as opposed to the second place in the previous season. The flop in revenue generation was experienced in the retail, merchandising, apparel, as well as product licensing. In this area, the sales declined by £ 0.4 million getting down to £ 9.1 million for the second quarter. However, According to the financial report released on 12th of February 2014, the company has been able to achieve a minimal profit of £ 0.9 million, which translates to a 4.8% increase. Another area of failure was in the mobile and new media revenue, this registered a £ 1.1 million drop to reach at £ 4.2 million. This has been highly attributed to the termination as well as expiry of some of the partnerships entered with other companies. The company is projecting an increment in its revenues in the 2014 fiscal year. The total revenue is expected to be between £ 420 million and £ 430 million while the adjusted EBITDA is being averaged at £ 128 million and £ 133 million. The adjusted EBIDTA is actually the profit that is realized before other factors such as depreciation, player’s registrations, amortization, and profit on disposal are put into the financial picture. However, there are situations in which the company has failed to reach the anticipated financial targets. For example, concerning the ‘matchday’ revenue, Man U has declined in sales to get to £ 33.7 million, which is a 3.7% decline or a £ 1.3 million reduction. This can be attributed to the poor performance that the club has exhibited in the near past under the new manager, David Moyes. The loyalty of some fans has also dwindled due to the sudden deterioration of the team from top two to position seven in the league. The deterioration in the matchday revenues that is also attributable to the fact that the club has played one less home game in the premiership. Another factor that has contributed to the financial position is the rate of spending. It is obvious that every quarter comes with its unique needs, the same as the season. Being one of the toughest seasons, the company made an historic purchase of Juan Mata from Chelsea FC at a record fee of £ 37.1 million. In total, the operating expenses reached £ 87.7 million, which is a 19.8% increase; this is an increase with a margin of £ 14.5 million over the previous quarter. There was also an increase in the staffing cost by a 16.7%, which translates to £ 7.4 million; this increment has seen the costs increase to reach £ 51.6 million. The high increment in staffing costs is a result of acquisition of new players as well as negotiation of the contracts for the preexisting players. An increase in domestic cup gate shares as well as loss of foreign exchange has resulted to an increase in other operating expenses by a whole 29.3%. This means that the second quarter registered a £ 20.3 million which means that the increment in the expenses were by a margin of £ 4.6 million. The financial position of the club indicates that there has not been a significant change as a result of the change in the team manager in terms of income and expenditure. However, there is a slight alteration from the trend in the previous quarter. The overall amount that the club generated from its operations in the second quarter was at £ 1,893 million which is a decline compared to the same period in the previous year. A spectacular feature that has resulted to this figure is the amount that is attributable to the ‘decrease in provisions’. While in 2012, the same period registered a £ 90 million decrease, the same period in 2013 registered a whooping £ 1,315 million. The same case applied to the ‘decrease in trade and other payable and deferred revenue’, which registered almost a double figure. However, despite the increased expenditure there was an overall rise in the profits comparing the two periods. In 2013, the second quarter registered a net profit of £ 19,040 million while 2012 registered £ 16, 218. However, when you compare the overall profits for the last 6 months for the periods ending 31st December 2012 and 31st December 2013, the year 2012 performed exceptionally better compared to 2013. In 2012, the profit for the six months was £. 36,686 million, the preceding year made a profit of only £ 18,747 million during the same period. The trend in the equity and liabilities shows inconsistency from the previous accounting periods. As of 31st December 2012, the total asset and liabilities of the company stood at £ 963,390 million. The following period, which was as at June 30 showed that there, was increment to reach at £ 1, 118, 311 million. This increment was generally facilitated by the increment in the equities as compared to the minimal increment in liabilities. For example, the retained earnings as well as the hedging reserve shot resulting to an overall increase in equities. On the other hand, parameters such as the current tax liabilities and borrowings declined from the previous period. The preceding period whose results were released on the February of 2014 featuring the last quarter of 2013 shows that the total equity and liabilities declined by £ 17, 949 million to reach £ 1,100,362 million. This increase can be attributed to an increase in the current liabilities while the equity remained almost unchanged despite a sharp increase in the hedging reserve. When considering the total revenue, there has been a steady increase over the accounting periods. For the financial period ended 31st December 2013, the total revenue was at £ 122,927 million, an increment compared to the similar period as at 2012 which registered a £ 110,056 million. However, the operating expenses over the two periods have significantly changed. The operating profits were also different based on the finance costs, which were much higher in 2012, compared to 2013 for the period ending 31st December. The main reason there was profitability in the period ended 31st December 2013 was that the owners decision not to control the profits. In addition, the earnings per share has increased from £ 9.85 million to £ 11.62 million in 2013. Another financial aspect that should be considered is the staff costs as a percentage of the revenue. There has been an increase in this percentage through the 2012 and 2013 periods ending 31st December. The 2.3% increase in revenue that caters for the employees costs is a huge increase, this can be an indicator that the profitability of the company may decline. Recommended Improvements In order to stabilize the company’s accounts the investor confidence is very vital. This can only be achieved through building an excellent team that will spearhead the winning of trophies by Man U. In order to build the team one aspect should be put into perspective, the root cause of the club’s decline. It is clear that the new manager has not performed despite having the same team that had previously won the European premier League. There is a strong message that is sent to the world and especially to other clubs, that Manchester United can also be defeated. The season has seen clubs that have never defeated Man U defeat them even at their own home ground. In order to revert this psychological effect, there needs to be a change in the manager. This spectacular mind game can be able to change not only the attitude of the players but also the perception of the club to other clubs. It is obvious that the signal that has been sent will have to influence a change. Another approach is reconsidered restructuring the team by spending on new signings. This again evokes a feeling that the team is undergoing modifications. Some of the expensive players such as Nani can be sold in order to generate more income for new signings. Under a new management and a rebranded team, the fans as well as the players can be very enthusiastic to work hard for the team. If the team depicts signs of progress, then the share price is likely to rise as well as the chances of winning trophies will increase. These factors are expected to cause an increase in the broadcasting, commercial as well as matchday revenues. However, to achieve this objective the company has to focus on a medium term strategic plan. MANCHESTER UNITED PEST ANALYSIS Political Various political factors come into play affecting Manchester United in one way or another. Firstly, the world football governing body, FIFA as well as its equivalent in Europe, UEFA together with the local English Football Association (FA) has a political hand in the developments at Manchester United. These bodies regulate how the club does its transfers, new signings, as well as influencing activities in the field of play. They set and amend football rules and provide guidelines on how the affairs of football are to be run. UEFA has proposals to limit the amount of debts that clubs should carry, being one of the clubs with huge debts, Manchester United may find itself in trouble if the regulation sails through. This has a potential of collapsing the club. Another political factor that may affect Manchester United Ltd is the decision by the Board to sack the current manager. This can have a bad reputation for the club that has been known for excellence and perseverance. Social Watching football has been one of the main social activities of the century. Manchester United prides in the largest fan base in the world today. If the Club does not register good results, as it has been the trend in the near past, then it means some of the fans may decide to shift to other clubs. It is frustrating from the fans view to see their team drop to number seven from its previous number one position in the league in the 2012/2013 season. There is a threat that the fan base that had been created may feel disappointed and opt for other teams. Economic Manchester United prides in being one of the richest clubs in the world. However, according to a recent report that was released in January 2014, the company has dropped one place to become the fourth richest club in the world. This occurs amidst the drop in the share price of the company an aspect that could present financial crisis to Manchester United Ltd (CNN, 2014). The growth in revenue has also not been as high compared to the previous years. However, the company is relying on investor confidence since it has been able to secure commercial deals. Another economic factor that is likely to affect the club is worsening economic conditions that may deter fans from getting to watch the games, an aspect that boosts the company revenue. Technological Broadcasting has been a key method of generation of revenue by Manchester United courtesy of the use of new technology. Further adoption of technology translates to increased revenue generation. The company can also capitalize on the rise in internet use. The technology gives a platform for wide reach of people hence the capacity to establish a broader fan base. MANCHESTER UNITED SWOT ANALYSIS Strengths The club has been a force to reckon with having won various trophies. The Company prides in having won the largest number of trophies than any other club in England. They have won twenty premier league titles, eleven FA cups, for league cups, twenty community shields, and one intercontinental cup among others. The company is the current number four wealthiest club in the world and has the biggest fan base. These strengths have helped the company generate revenue through sale of merchandise, sponsorships, as well as broadcasting deals. In addition, they have some of the best players in the world such as Juan Mata, Wayne Rooney, and Robin Van Persie among others. They have a teenager player who is one of the most promising players in the world, Adnan Januzaj. This means that the future of the club has much potential. Weaknesses Manchester has experienced a poor 2013/2014 season by consistently retaining number seven in the league. They have also been eliminated from the FA cup while their inconsistency casts doubt on their position in the UEFA championships. Some of the teams that have not defeated it in history have defeated the team. The exit of Sir Alex Ferguson has left a void in the management of the team with David Moyes unable to maintain the teams winning trend. Another major weakness in the club is that it has huge debts. The debts have emanated from acquisition of bonds as well as ‘payment in kind’ loans. Opportunities The company has been able to attract large number of sponsors that will most likely contribute to the amount of revenue that the company makes. In addition, Manchester United Ltd has a huge number of fans who can be made to contribute in kind or through sale of merchandise to ensure that more revenue is generated by the company. The broadcasting rights have the company a great fortune and it is expected to add more to the company’s accounts. Technology is advancing at a high rate hence the company can capitalize on it to generate more revenue through aspects such as online betting. Threats Manchester United Ltd has threats. Firstly, the slide in the league position is likely to be a demotivation factor to a number of fans hence resulting in shifting clubs. If the fan base reduces then the popularity as well as the income of the club can reduce tremendously. Secondly, having several debts, the company is threatened by the interest rates. The interest rates ensure that the funders get some substantial amount out of the club’s revenue. This greatly affects the clubs profitability. It is therefore apparent that if the club continues having debts, its profitability is likely to go down. PORTERS FIVE FORCE ANASLYSIS OF MANCHESTER UNITED LTD Buyers Manchester United Ltd is a football club whose product is football. The customers are the fans who consume football as a social activity. The pressure by the fans has consequences. The fans have not been satisfied by the performance of the club in the 2013/2014 season. Their bargaining power may be to call for the sack of the coach. This can affect the decisions of the management because they may be forced to bow to the pressure in the need to retain their customers. The Suppliers The shareholders are the suppliers of the financial resources of the company and they want something in return. In case, Manchester United does not win any title, then its position will begin to go down resulting to withdrawal of some of their shareholders. This can result to the collapse of the club. They would like to see the fan base increasing, the club getting to win trophies as well as revenue increasing. The New Entrants The new clubs that have come up such as Everton, Arsenal, and Totenham provide a challenge to Manchester United in the title race. In addition, clubs such as Swansea and West Brom Albioch have made history in defeating Manchester United at old Trafford. These new entrants are not only posing a challenge to Manchester United but also they are proving that they are also equal to the challenge. These new entrants pose the threat of taking the position of Manchester United in winning cups. However, the new entrants provide an opportunity for a change in strategy by Manchester United. Substitute Products Despite the fact that there is a likelihood of the consumers of football focusing on another game, the chances are minimal. Manchester united can enhance fan loyalty through having interesting games as well as players that are capable of entertaining the viewers. For fans switching games is a difficult affair hence the likelihood of fans shifting to another sport I highly unlikely. This acts as a strength for Manchester United because some of their fans cam remain dormant based on the prevailing performance but are Unlikely to consider another sport. Competitive Rivalry within the Industry Competition is stiff for Manchester United for Manchester at the English level as well as the European. The fact that they have not been able to deliver good performance in the local cup is a motivation for the regional teams to defeat them. The rivalry between Manchester United and arsenal has always been in favor of Manchester United that has won more time; the same case applies to Liverpool. Contrarily, the Rivalry with Manchester City has seen United humiliated even at their home ground. MACRO AND MICROENVIRONMENT ANALYSIS OF MANCHESTER UNITED LTD Macroenvironment Manchester United Ltd has major issues that affect it. Firstly, the revenues are part and puzzle of their operations. Without enough financial resources the club cannot proceed with its operations. The company has established global partners that support and sponsor the team in various ways. This has facilitated the increase in the Clubs revenue base. Another environmental factor is the leadership, the company is under the able leadership of the Board as well as the chief executive officer, Edward Woodword. The other aspect is the football regulations and requirements as stipulated by the rules of FIFA. The regional (UEFA) as well as FA have also their own rules and regulations that Manchester United has to adhere to. Microenvironment The team is composed of 82 players that are paid at the end of the week. Apart from the players there are other employees who include 72 technical coaching staff, 69 media staff, 125 commercials, and 391 administrative staff among others. The team is hosted at Old Trafford and is guided by rules that are set by the club. At the playground the team is led by the coach, David Moyes is the current coach assisted by several technical coaches. References CNN (2014).Real Madrid top soccer’s rich list as Manchester United drop out of top three. Retrieved from http://edition.cnn.com/2014/01/22/sport/football/football-money-manchester-united-real/ Official Manchester United website. (2012). Manchester united plc 2013 first quarter results. MANCHESTER, U.K: MANCHESTER UNITED LTD. Retrieved from http://ir.manutd.com/phoenix.zhtml?c=133303&p=quarterlyEarnings Official Manchester United website. (2013). Manchester united plc 2013 first quarter results. MANCHESTER, U.K: MANCHESTER UNITED LTD. Retrieved from http://ir.manutd.com/phoenix.zhtml?c=133303&p=quarterlyEarnings Official Manchester United website. (2013). Manchester united plc interim report (unaudited) for the three and nine months ended 31 march 2013. MANCHESTER, U.K: MANCHESTER UNITED LTD. Retrieved from http://ir.manutd.com/phoenix.zhtml?c=133303&p=quarterlyEarnings Official Manchester United website. (2013). Manchester united plc interim report (unaudited) for the three and six months ended 31 december 2012. MANCHESTER, U.K: MANCHESTER UNITED LTD. Retrieved from http://ir.manutd.com/phoenix.zhtml?c=133303&p=quarterlyEarnings Official Manchester United website. (n.d.). Retrieved from http://www.manutd.com/ Manchester united pe ratio (ttm). (2014, January 19). Retrieved from https://ycharts.com/companies/MANU/pe_ratio Market watch manu stock. (2014, January 19). Retrieved from http://www.marketwatch.com/investing/stock/manu Read More