Sir Alex Ferguson - A Financial Perspective

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Manchester United shares floated on the London Stock Exchange in May 1991 when the company had a market capitalisation of £47m. Today their value (quoted in New York) is nearer £2bn - Apple may have grown nearly twice as fast, but few others can match this record.

How much of this is down to Alex Ferguson? He has clearly has been the most successful club manager ever, and he has certainly been a brilliant steward of Manchester United’s resources, of late often constrained by the Glazer’s imposition of heavy debts. But in our view, while Manchester United has benefited both from excellent commercial management and outstanding team management, its financial performance owes as much to escalating TV income and the development of Premier League football into a global entertainment brand as to the club’s careful husbandry of its resources.

The chart illustrates how the sums have escalated over the years and how Ferguson switched between investment mode (red bars to the left indicating a net spend on players) and cash conservation mode (for example in 2009, when he sold Ronaldo and player trading brought in net cash).

Manchester United topped our Premier Profit League in 2011; the League as a whole made just over £100m, all of it by Manchester United as the rest of the league in aggregate broke even. Little has changed in the last 25 years as the First Division made little money back then, also.

Revenues have rocketed, up some 30 fold, we estimate, but players’ wages have grown even faster. Man Utd has been unable to escape the trend with a wage bill up a staggering 50-odd times.  Sir Alex’s wages may have kept pace – press reports of a £7.5m contract would be 60x the top paid employee in 1989 and 1990 who took home £125k.

The cost of competing increases significantly as you move up the league; hence Man Utd comes in the bottom quarter on most of our cost per point measures , alongside Arsenal, but of the top 6 clubs, only Tottenham beats Man Utd.

Manchester United has a big payroll and its staff costs per point compares favourably with its rivals. Note how well Everton performs on this measure also.

We use the real profit or loss on player trading as a critical measure of a manager’s financial success. On this basis, Sir Alex has done well, and much better than the club’s main competitors. Even so, in the last decade, Man Utd has lost money on player trading, notwithstanding the £60m profit on Ronaldo. But even parsimonious Arsenal lost more; and interestingly, Everton under David Moyes came very close, losing only a fraction more than Man U, although on a much smaller budget – we estimate that Man United’s average team investment was double that of Everton.

Moyes is unlikely to do as well as Ferguson on the pitch but we expect the financial performance to continue to improve. The chart of the 2011 league positions shows how well Everton performed on a limited wage budget and that Man U managed to win the League in spite of being comfortably out-spent by Chelsea and Man City. Two canny Scots thinking alike?

Even if Moyes is allowed to get the cheque book out as the Glazer debts start to get paid down, there is little doubt that Manchester United’s finances will continue to improve. New sponsorship deals have already been signed with Chevrolet and Aon, while the Nike contract is up for renewal and should result in a significant boost. Meanwhile TV revenues for the League are set to increase significantly.

Stockmarket analysts forecast that the club’s EBITDA should double over the next couple of years. Certainly the revenues to deliver that are already in the bag; the question is whether David Moyes will be able to keep the reins on the spending. His record at Everton suggests he will.

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