Manchester United Club’s Financial Performance

Manchester United Football Club (MUFC) is a soccer club based in England and competes in England’s leading tournament, the Premier League. This soccer team’s origin can be traced back to 1878, although it had a different name (Wilson, 2018, p. 6). Previously known as Newton Heath Lancashire and Yorkshire Railway, this corporation waited until 1892 to join the Division One level but was later demoted to Division Two after two seasons (Wilson, 2018, p. 6). At the beginning of the 20^th century, it faced several financial problems as it was almost dissolved as a soccer team. In the 2000s, Manchester United initiated the new decade in a normal pioneering fashion, entering a brand-new competition referred to as the FIFA (Fédération Internationale de Football Association) Club World Championship in Brazil (Wilson, 2018, p. 7). The club has witnessed several transformations and emerged as one of the best in the world. This paper explores the strategic landscape of Manchester United, discusses its sources of competitive advantage, and offers recommendations for improving its financial performance.

Financial Analysis and Interpretation of Main Financial Report

Manchester United is considered one of the leading football clubs in the world. According to a survey, it is the third most valuable soccer team, with a brand value of approximately $1.65 billion (Statista, 2021). Through sponsorship, the English club monetizes its international brand’s value by promoting and having sponsorship deals with prominent global and regional organizations. Therefore, its sponsorship approaches generate approximately 173 million GBP as of June 2019 (Statista, 2021). The figure below shows its position among the leading football clubs in the world.

Table 1. Manchester United Balance Sheets as of June 30, 2020

This financial statement is used to analyze the financial position of a corporation. In Manchester United’s case, its total assets amounted to approximately £320,659,000 in the year 2020, which is considered an increase of £170,000 from the previous year (Statista, 2021). Share capital refers to the value of money that stockholders have invested in an organization. In the case of Manchester United, it has a share capital of £53,000, while its share premium, the sum of money received by a corporation for a stock issue surpassing its face value, amounted to £68 882,000. By the end of its 2020 financial year, Manchester United reported retained earnings of £311,852,000. In total, the football club’s equity and liabilities amounted to £320,659,000. From its financial statement, several financial ratios can be used to analyze the soccer team’s financial performance.

Current Ratio

Table 2. The current ratio of Manchester United

A current ratio refers to a percentage expression of the current assets divided by the current liabilities. It evaluates the liquidity of a firm, and a higher ratio represents a higher chance of liquidity (Suddaby et al., 2020, p. 530). Manchester United’s current ratio 0f 0.8049 is considered low, and it implies that this football club has inadequate current assets to cover its debts in the current liabilities. Therefore, the soccer team can consider selling its underutilized assets, raising its shareholder’s fund, or paying its current liabilities.

Debt to Equity Ratio (D/E)

A debt-to-Equity ratio is a financial tool used to express the relative proportion of stockholders’ equity and debt used to support a corporation’s assets. Manchester United’s financial statements recorded a long-term $1.30 billion accompanied by a shareholder’s equity of approximately $0.44 billion as of June 30, 2020 (Statista, 2021). Therefore, considering the above figures, the football club reported a debt-to-equity ratio of about 2.94. Firms with a ratio above one are considered less risky in their financial operation than Manchester United’s D/E ratio.

Return on Assets (ROA)

It is a metric used by financial managers to compute how profitable a corporation is in regard to its total assets. It is calculated by dividing the net income of a company by the value of its total assets. Manchester United recorded a net income of approximately -$0.01 billion and total assets of $1.74 billion (Statista, 2021). Computing its ROA, the football club’s return on assets equates to -1.72%. These financial figures mean the football club experienced a financial loss, or the shareholders recorded a loss in the value of their investments.

Return on Equity (ROE)

Financial managers use ROE to compute the profitability of a firm over its shareholders’ equity. Manchester United recorded a net income of about $-0.03 billion and a shareholder’s equity of approximately $0.44 billion (Statista, 2021). Therefore, calculating its ROE, Manchester United had a return on equity of -5.79%. Generally, when a corporation records a loss in its financial year, the resultant value impacts its shareholders’ equity (Suddaby et al., 2020, p. 550). Therefore, in the English club’s case, its return on equity is negative, implying that it can use free cash flow to gain insight into its financial situation.

Resources and Capabilities

Table 3. Manchester United Resources and Capabilities

Value, Rarity, Imitable, Non-substitutability analysis of Manchester United

Manchester United’s core competencies ensure its success regardless of the presence of other soccer clubs. In the resource and capability analysis, these capabilities reflect the soccer clubs’ resources and capacities that support long-term competitive advantage. For example, Manchester United’s value chain utilizes these resources and competencies to ensure smooth operations in its domestic and international markets (Wilson, 2018, p. 6). As a dominant football club in the English Premier League, MUFC’s value chain maintains a competitive power against significant soccer teams in England and other leagues. Therefore, this VRIN analysis identifies the sources of sustained competitive advantage for Manchester United.

Table 4. VRION analysis of Manchester United

Regardless of the brand recognition of MUFC, it is limited by its competitive disadvantage. For example, the football club has suffered from the detrimental effects of the coronavirus pandemic, leading to a £70m drop in its revenue as of June 2020 (Stedman et al., 2020). However, the English club has some sources of competitive advantages similar to other teams. Sponsorship deals have played a vital role in the growth of soccer teams. Manchester United’s kit sponsorship is backed by General Motors’ subsidiary, Chevrolet automobiles (Wilson, 2018, p. 10). Previously, firms such as AON and American International Group (AIG) have supported MUFC’s jersey segment. Moreover, the football club also has a partnership deal with Germany’s renowned sports brand Adidas to supply MUFC kits (Baena, 2019, p. 660). Ticket sales are a vital source of revenue for football teams. However, it is considered a competitive parity because other soccer clubs also generate revenue from selling tickets.

Manchester United also has several untapped sources of competitive advantages. For example, due to its financial performance and brand equity, the football brand can sign excellent players from other leagues (Vamplew, 2017). While such soccer stars may come at a cost, the soccer club will benefit in the long run. In addition, MUFC has not exploited global fan bases in the world. According to a Telegraph report, the football club discovered that they have an estimated 659 million supporters across the globe (Guzmán, Zhang, and Ahmed, 2021, p. 71). Therefore, the soccer team should consider exploiting such markets to increase its global presence. The primary sources of competitive advantages for Manchester United stem from its brand equity, awareness, and recognition. According to Statista, the English team has a brand valuation of about US$ 1.65 billion, making it one of the most valuable brands in the sports industry (Statista, 2021). The Theatre of Dreams is also famously known for former footballers such as Gary Neville, Rio Ferdinand, Ruud van Nistelrooy, Peter Schmeichel, Bobby Charlton, and the legendary Sir Alex Fergusson (Wilson, 2018, p. 12). In essence, these players and the club’s accolades have developed its brand loyalty over the years.

Lastly, Manchester United’s sources of sustained competitive advantages stem from its excellent marketing, distribution channel, and Old Trafford. Its marketing approaches have incorporated elements of endorsements from star players such as Wayne Rooney and Ryan Giggs (Baena, 2019, p. 670). The English club also has a reliable distribution channel, such as e-commerce stores and wholesale intermediaries. Lastly, its official stadium, dubbed “The Theatre of Dreams,” has a capacity of 76,000 and is considered a source of a competitive edge because it is one of the largest sports grounds in the world (Wilson, 2018, p. 12). In essence, the sports corporation is considered one of the best due to its sustained competitive advantages.

Human Resources Analytical Tools

Manchester United primarily uses one significant human resource tool to improve its sustainable competitive advantage. In particular, it incorporates player development projects to improve the overall physical form, stamina, and performance of its soccer players. Its talent program was established to increase engagement with local learning institutions and grassroots clubs across its geographical vicinity. The talent development is led by the club’s industry-leading scouting network to acquire potential talents from around the world. The English team has successfully acquired and raised some talents who have been promoted to its first teams, such as Mason Greenwood, Marcus Rashford, Scott McTominay, Axel Tuanzebe, and Paul Pogba. As such, Manchester United has been able to continuously improve its competitive advantage through its staff and player development programs.

Players and Their Values/Contract

Manchester United competes in the English Premier League and has a number of promising players. The soccer team’s number one goalkeeper, David De Gea, is a Spaniard having a market value of approximately 22.00 million Euros, and his contract runs until June 20, 2023 (Transfermarkt.com, 2021). The recently acquired central back from Leicester City, Harry Maguire, was bought in a deal worth 80 million Euros, and the leading Manchester United defender is currently valued at half the price of his purchasing price (Transfermarkt.com, 2021). Moreover, the center-back’s contract runs until June 30, 2025. Another central back is Victor Lindelöf, a Swedish professional soccer player currently valued at 24 million Euros, and his contractual agreement with the club expires on June 30, 2024 (Transfermarkt.com, 2021). However, several other MUFC defenders are mentioned in table 1.

The football club is among the soccer teams which have made significant signings in the past. For example, in 2016, the English club made a world-record transfer of Paul Pogba from Juventus in a deal close to 103.8 million Euros (Transfermarkt.com, 2021). Currently, the French professional player is valued at 60 million Euros, and his contract expires on June 30, 2022 (Transfermarkt.com, 2021). In addition, Manchester United also confirmed that they had signed the former Sporting Lisbon midfielder Bruno Fernandes in a deal worth 80 million Euros. The Portuguese’s current market value is approximately 90 million Euros, and his contract expires on June 30, 2025 (Transfermarkt.com, 2021). Another addition to the squad was the Dutch prospect, Donny Van de Beek, who was signed by Ajax. His current market value is about 35 million Euros, and his contract runs until June 30, 2025. Marcus Rashford is one of the Manchester United players with the highest market value, approximately 85 million Euros, and his contract runs until June 30, 2023 (Transfermarkt.com, 2021). The table below indicates other Manchester United players, their contracts, and market value.

Table 5. Manchester United Players, Contract Expiry, and Market Value

Players Out On Loan

Table 6. Manchester United Loaned Players

Revenue Streams

As one of the most successful English clubs, Manchester United has multiple sources of revenue. Its primary source of income comes from its commercial segment, whereas the rest of the revenue is generated from broadcasting and match day, as indicated in the pie chart below (Statista, 2021). However, Figure 2 illustrates that the commercial segment has not been a significant revenue generator for MUFC. Since 2012, it has emerged as its primary revenue source due to its ability to sign profitable sponsorship deals with big companies (Wilson, 2018, p. 15). The English club’s most visible sponsorship deals are with the sports apparel and footwear giant Adidas and jersey sponsor Chevrolet, in which both the corporation’s logos are appearing football club’s official kits. According to Forbes, when MUFC signed the deal in 2015 with the German syndicate, it became a world record in the sports industry, a contract worth 1 billion Euros (Wilson, 2018, p. 16). Moreover, the club’s former sponsor purchased the naming rights for the team’s famous training ground, Carrington, accompanied by a sponsorship deal for training wear.

Irrespective of the sponsorship deals, MUFC has other sources of commercial revenue. For example, its retail, merchandising, apparel, product licensing, and mobile content categories are two of the English club’s most income-generating segments. In 2016, MUFC amassed a total revenue of 133 million Euros from these respective revenue segments (Wilson, 2018, p. 19). Its mobile and content archetypes involve mobile telecommunications partnerships in several countries that the club has invested in due to its brand recognition and strength. Another source of revenue for MUFC is its broadcasting segment. As illustrated in the pie chart, broadcasting proceeds account for 27% of Manchester United’s total revenues (Statista, 2021). It is majorly associated with the broadcasting deals that Premier League has negotiated. Moreover, due to the high interest from international levels, the English League has managed to sign local and global broadcasting rights that other football tournaments have not acquired.

MUFC’s match revenue is an alternative source of income that comes from ticket sales. In the introductory stages of the 21^st century, this revenue source was the biggest of all. Therefore, Manchester United’s significant match-day revenue emanates from its flagship stadium, nicknamed “The Theatre of Dreams” by Bobby Charlton (Wilson, 2018, p. 20). The sports ground is among the largest stadiums in England, with a capacity of 75,643, and for the last decade, the average attendance has been 99% (Wilson, 2018, p. 20). Figure 2 illustrates a comparative overview of MUFC’s revenue streams.

Social Media and Merchandising Potential

Manchester United has effectively used social media platforms to improve its brand. Its Facebook page has over 73 million likes considering it has at least 71 million followers (Guzmán, Zhang, and Ahmed, 2021, p. 83). The football club tailors its promotional content based on various regional audiences’ needs, making them feel as though they are part of the club. Moreover, its Twitter account has approximately 12.1 million followers (Guzmán, Zhang, and Ahmed, 2021, p. 71). In essence, its social media strategies have the potential to grow considering its current user engagement, improved website user experience, and leveraging on key players such as Paul Pogba to drive content.

Strategic Options for Sustainable Competitive Advantage

Manchester United has several strategic options for improving its financial performance, club ranking, and other aspects of its operations. Considering the strengths and opportunities for MUFC, the football club can incorporate some useful strategies to enhance its core competencies. The football corporation can capitalize on its existing resources and capabilities in three significant ways. For example, MUFC can consider selling Old Trafford’s naming rights. Second, the soccer club can participate in diversifying its operations by acquiring another football team. Lastly, Manchester United can increase its presence in emerging markets such as China, India, and the United States.

Justification for Strategic Recommendations

Old Trafford’s Naming Rights

In marketing, companies can purchase naming rights to promote their corporate name in front of millions of sports enthusiasts. In Manchester United’s case, the club can consider selling its naming rights to corporate brands for promotional purposes. This strategy can become one of the most reliable ways of generating income for the English club, with the potential to accumulate over £500m in ten years (Baena, 2019, p. 671). In return, MUFC will be able to reduce its financial debts while also earning more income.

Private Hire, Concerts, and Other Events

Since Old Trafford is a potential venue for concerts, Manchester United can consider increasing its capacity to accommodate more visitors. By utilizing its financial capabilities and access to advanced technologies such as a fully-fledged 5G network, Old Trafford’s capacity can be improved, translating to more ticket sales and match day revenues. Moreover, the augmentation will also be accompanied by an increase in hospitality suites.

Market Penetration and Acquiring Another Football Club

Considering its global awareness, MUFC can exploit the opportunities available in emerging markets such as China, India, and the United States. The football club can accomplish this initiative by establishing a megastore in these developing economies. In return, the football giant will increase its revenues and brand awareness. It is also recommended that MUFC should consider expanding its corporate businesses by purchasing another football club from various continents since UEFA does not permit ownership of two clubs within Europe (Bullough, 2018, p. 139). In return, the football club will develop synergies by transferring competencies between the parent organization and the acquired club. Moreover, MUFC will be able to generate profits and revenues by exchanging effective branding expertise.

Conclusion

This paper has explored the strategic environment of Manchester United and has offered some recommendations for improving its financial performance. MUFC is one of the most successful English teams with various accolades, such as the UEFA champions cup, Premier League, and the Football Association (FA) trophies. Considering its sources of competitive advantage, MUFC can utilize some strategies such as selling Old Trafford’s naming rights, upgrading its stadium capacity, market expansion, and purchasing another football club to address its financial problems. Although it is one of the leading football corporations globally, its rising monetary discrepancies are affecting its performance, and as such, it should consider the recommendations. As a result, it will address its commercial problems and increase profits, revenues, and market presence in the world.

Reference List

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Wilson, P., 2018. Manchester United. Calgary: Weigl Publishers, pp.1-32.