In a stark contrast that has raised eyebrows, Manchester United recently made two significant announcements just five days apart. The first revealed the club’s expectation of profits projected to reach between £145 million and £160 million, while the second disclosed plans to cut workforce totals by an alarming 39 percent. This came shortly after a financial report boasting revenue growth, yet it was accompanied by sobering profit warnings. In an unsettling development, United informed its staff that free hot lunches would be discontinued, and an additional 200 employees would join the ranks of those already laid off, bringing the total to 450 redundancy announcements since last year.
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This latest wave of cuts is part of a broader trend spearheaded by Ineos billionaire Sir Jim Ratcliffe, who has been at the helm of the club’s minority ownership for just over a year. His tenure has already seen the termination of Sir Alex Ferguson’s £2 million annual ambassadorship, the relocation of United’s London office, and a significant reduction in the scouting department’s veteran expertise. Moreover, the £50 bonuses awarded to matchday stewards were also eliminated, and even adhesive tape was deemed excessive and removed from stationery supplies.
Understanding United’s Financial Strategy
So, how can Manchester United assert to its shareholders that they anticipate substantial profits while simultaneously employing a strategy of extensive cuts? The answer lies in the accounting term “Ebitda,” which stands for earnings before interest, taxes, depreciation, and amortisation. This accounting measure essentially gauges a company’s profitability and cash flow before accounting for certain expenses. When the club issued its profit projections in November, it was the adjusted Ebitda figure being touted. The subsequent quarterly results released last month were even more optimistic, edging closer to the £160 million mark.
Dr. Dan Plumley, a leading expert in football finance from Sheffield Hallam University, offers his insights: “I’m not a huge fan of Ebitda in football terms; it has its critics even in general business. It’s not a false measure, but rather a clean one that people use to assert, ‘We’re generating fairly significant profits here.’” Manchester United, listed on the New York Stock Exchange, claims that Ebitda provides valuable information to investors regarding its financial health and operational results.
However, the most significant letters in the acronym “Ebitda” for Manchester United are “I” and “A”: interest and amortisation, both of which are excluded from the profit projections of £145 million to £160 million. Net interest payments for the last financial year hit £61 million and are projected to remain similarly high this year. The more substantial concern is amortisation, which pertains to how football clubs account for transfer fees. The transfer fee paid for a player is allocated over the duration of their contract. “What they do is divide the transfer fee by the number of years of the contract, and that becomes the amortisation charge for that player,” Plumley explains. “Given that there are multiple players with multi-year deals, the amortisation costs for a football club typically surpass those of many other industries.”
Transfer Spending amidst Financial Strain
Despite these financial challenges, Manchester United has not shied away from significant spending on player transfers. Their most recent financial accounts for the 2023-24 season reported an amortisation charge of £187 million, more than sufficient to negate their Ebitda profits for that period. Coupled with their interest payments, the club reported a loss for the fifth consecutive year, this time to the tune of £113 million.
“There are few ways to escape a loss-making situation other than increasing revenue or cutting costs, or attempting a combination of both,” Plumley notes. “Clubs find themselves in this balancing act: striving to grow revenue while also needing to tighten costs, which inevitably has its consequences.” The latest round of redundancies could see the total number reach as high as 450 since Ratcliffe initiated his overhaul of the club.
Cost-cutting measures have further affected ticket discounts for pensioners and children, funding for the former players’ association, and the £50 bonuses for the “Steward of the Week” at Old Trafford. Plumley emphasizes, “This approach is rooted in business principles and has a rather ruthless edge. Ineos has consistently demonstrated this in all its ventures. It’s a fiercely competitive environment; organizations often face this kind of tough reality. It’s simply exacerbated in this case because of the club’s stature and its football context.”
Evaluating Manchester United’s Financial Health
It becomes increasingly difficult for the club to enact these cost-cutting measures while simultaneously presenting a robust financial narrative to its stakeholders through Ebitda profits. “This will undoubtedly come back to haunt them from a public relations standpoint: their wages-to-revenue ratio is relatively lean, their revenue is on the rise, and they have invested heavily in players with substantial salaries. However, when you consider the context, the redundancies impact those who are not among the highest earners,” Plumley adds.
Even though United possesses the third-lowest wages-to-revenue ratio in the Premier League, their employee count significantly exceeds that of many rivals. Prior to the layoffs, United employed 1,140 individuals, a figure that is considerably higher than the league average and more than comparable clubs like Arsenal and Liverpool, which operate with employee numbers around 700 to 800.
Moreover, the Ebitda projections serve as a smokescreen for potential issues related to spending caps. In September, the club maintained that it remained committed to complying with the Premier League’s Profit and Sustainability Rules (PSR) and Uefa’s Financial Fair Play (FFP) regulations. However, a letter sent to fan groups The 1958 and Fan Coalition 58 in January acknowledged the risk of non-compliance resulting from raising the lowest ticket prices from £40 to £66. The club stated, “If we do not act now, we risk failing to meet PSR/FFP requirements in future years, significantly impacting our competitive edge on the pitch.”
What Lies Ahead?
The upcoming PSR assessment will evaluate the previous three seasons: 2022-23, 2023-24, and 2024-25. Notably, this will be the first evaluation period that excludes allowances for losses incurred during the Covid pandemic. Clubs are permitted a maximum loss of £105 million over this three-year span, and Manchester United has already exceeded that limit. However, allowances can be claimed for costs associated with the partial sale of the club to Ratcliffe, as well as expenditures on women’s football and youth development, which could offset some infrastructural improvements.
Despite losses exceeding £300 million in the previous period, United avoided breaching compliance, suggesting they may be able to navigate this challenge once again. However, significant expenditures loom on the horizon, with estimates for the stadium project reaching £2 billion. Plumley notes, “There’s been a longstanding neglect of infrastructure investment, particularly at Old Trafford. Addressing these issues will require considerable funding, which may necessitate initial cost-cutting measures.”
