Thesis

Topic 8 – Analysis and Evaluation of the business
and financial performance of Manchester United
plc for the period 1/7/11- 30/6/2014
By Eoin Hanson, ACCA Id: 2625553

Business & Financial Performance of Manchester United plc 2011 - 2014 2
Table of Contents
Content Page Number
Project Introduction 3
Aims, Methodology & Summary 4
Industry Profile 9
Financial Analysis 10
SWOT Analysis 32
PEST Analysis 33
Conclusions 35
Recommendations 37

Project Introduction
I have chosen topic 8; the business and financial performance of an organisation
over a three year period.
Reasons for choosing Topic 8
Throughout my studies with the ACCA, I have encountered situations where analysis
of business and financial performance is crucial. I feel that by improving my
analytical skills throughout the duration of the project that I will have a better
understanding of business and accounting techniques that will enable report users to
make informed decisions. Analysis of historical performance of a company is vital
and I wish to develop my practical skills in this area.
Reasons for industry selection
I have chosen the football industry in England as it is one of the most well-known,
publicised industries in Europe. Although many know about the operational level of
the businesses in the industry, I feel it would be beneficial to investigate the overall
performance of one of the leading brand names. I have chosen Manchester United
FC (MUFC) to base my RAP on.
With new legislation, the Financial Fair Play Act (FFP) introduced by regulatory body
Union des Associations Européennes de Football (UEFA) regarding finance
limitations of each business, I want to know about challenges facing the business in
meeting financial requirements in order to avoid penalties such as fines and transfer
embargoes.
Until 2012, the business was privately owned. The owners then decided to float the
business of the New York Stock Exchange. I am interested to see how it is
performing as a plc.

Executive Summary
From my findings, Manchester United now have a solid financial model consisting of
equity and debt. Their brand is recognised worldwide and this drives revenue. They
are a high risk business because of their high level of debt and dependency on
players to perform in order to maintain their revenue levels, running the risk of these
players getting injured. I do have concerns about their wage bill and how
underperforming players are earning more than market value. The club must assess
these players and decide whether to cash in on them now, and invest the proceeds
into youth development to remain competitive in the long term.
Aims & ResearchMethodology
My objectives are split into two headings; Financial & Business Review.
Financial Review
I aim to:
 Analyse financial performance to ascertain how successful the business has
been in generating profits during management changes
 Evaluate the result of floating the company on the NYSE
 Gain a better understanding of how the company raises and manages capital
Business Review
 Investigate any external issues facing the business
 Examine the growing level of competition facing the business
 Assess the impact of the FFP legislation on the business

ResearchQuestions
1. What sources of information will be sufficient to complete my analysis?
2. Is the information readily available?
3. Which methods of performance measurement will be appropriate?
4. Which ratios are suitable for the industry?
5. Which business models should I use for analysis?
6. Will I face any ethical issues throughout the RAP?
ResearchApproach
When conducting my research I will need to gain an understanding of the industry,
considering factors that may affect the future of the market, such as the FFP.
Researching the company itself will require ratio analysis based on audited financial
statements for the three years. Using knowledge gained from previous ACCA
papers, I will investigate the ratios to obtain reasons for any fluctuations and/or
significant differences from a close competitor, Arsenal.
I will apply certain business models to review any external factors facing the
company, and further investigate these through my sources of information.
After evaluating their performance, I will then make recommendations as to how the
company could improve.
InformationSources
I am going to use secondary information for the project.
As the business is a listed football club, there are plenty of sources of information
available to review such as:
 Annual Reports
 MUFC Press Release website
 Financial analyst’s opinions, including Forbes and Bloomberg
 Business press articles, such as the Telegraph and The Guardian
 Industry specific media outlets, including Sky Sports and BBC
 ACCA textbooks, to refresh my knowledge on accounting concepts
 UEFA Financial Fair Play Act, 2009

Limits of Information Sources
Using sources such as media pages can be unreliable at times, due to speculation.
This made it more difficult to find relevant, reliable information from the sports
websites.
Analysts can have different interpretations of financial data because they can be
judging from the viewpoint of different stakeholders. This meant that I had to spend
more time evaluating each of their opinions to find the most accurate ones.
The annual report will disclose all relevant information for the business year, but it
may not emphasise the negative aspects of the company’s performance. I had to
critically evaluate the entire report, and find alternative sources to better explain
some of the underperforming parts of the business.
Ethical Issues
We are required by the ACCA code of ethics to not disclose any confidential
information and to act with integrity. As the company is listed, all of the financial data
used in the RAP is publicly available so there was no risk of breaching the code of
ethics.
I am required to maintain professional competence, so when undertaking any
research I constantly referred back to the ACCA website for any updates in
accounting legislation.
Business Models Used
Ratio Analysis
This is a form of Financial Statement Analysis that is used to obtain a quick
indication of a firm's financial performance in several key areas. The ratios are
categorized as Short-term Solvency Ratios, Debt Management Ratios, Asset
Management Ratios, Profitability Ratios, and Market Value Ratios.
Advantages
 Simplifies financial statements
 Allows comparison of companies that are different sizes
 Helps with trend analysis
 Highlights important information in simple form. A user can judge a company
by reviewing reduced numbers instead of reading the whole financial
statements.

Limitations
 Different companies operate in different industries each having different
environmental conditions such as regulation, market structure, etc. Such
factors are so significant that a comparison of two companies from different
industries might be misleading
 Financial accounting information is affected by estimates and assumptions.
Accounting standards allow different accounting policies, which impairs
comparability and hence ratio analysis is less useful in such situations
 Ratio analysis explains relationships between past information while users are
more concerned about current and future information
(Prentice Hall Inc., 2001)
SWOT Analysis
SWOT, which stands for Strengths, Weaknesses, Opportunities and Threats, is an
analytical framework that can help your company face its greatest challenges and
find its most promising new markets. (Goodrich, R. 2015)
Advantages
 Understand your business better
 Deter threats
 Address weaknesses
 Capitalise on opportunities
 Take advantage of strengths
Limitations
 Does not prioritise issues
 Does not provide solutions
 Can generate too many ideas without choosing the best one
 Can provide a long list of information, not all of which is useful
(Queensland Government, 2014)

PEST Analysis
A PEST analysis is a framework or tool used by marketers to analyse and monitor
the macro-environmental factors that have an impact on an organisation. The result
of which is used to identify threats and weaknesses which is used in a SWOT
analysis.
(Professional Academy, n.d)
Advantages
 Provides a simple and easy tool to use for analysis
 Involves cross functional skills and expertise
 Helps to reduce impacts of political threats
 Aids and encourages the development of strategic thinking
 Assesses implications of entering new markets
Limitations
 Users can oversimplify the information that is used for decision making
 The process must be conducted regularly to be effective
 User’s access to external information is often limited due to time and cost of
obtaining
 Assumptions often form the basis for most of data used, making decisions
subjective
(Free Management ebooks, 2014)

Industry Informationand Company Profile
The Premier League (PL) football industry in England is a globally recognised
market, and is experiencing rapid growth. In 2014, the market was worth £3.2 billion.
(Eurosport, 2014)
One of the key factors behind the growth is the increased level of broadcasting
income. All 20 clubs in the PL reported record revenue figures for 2014, placing them
all on the top 40 of the Deloitte Football Money League for the first time. (Deloitte,
2015)
Through broadcasting revenue alone, a total of £1.56 billion was shared on a pro
rata basis between the 20 clubs. MUFC received £89 million (8%) of this. (Premier
League, 2014)
PL clubs contributed £1.3 billion (0.2%) to the UK tax receipts in 2013. (Imran, P.
2013) Commercial sponsorship revenue is higher than any other league in the world,
with a value of £216.35 million. MUFC account for £47 million of this. (Harris, N.
2014)
Despite these record figures, the majority of clubs in the industry are in debt. For the
year ended 2013, League revenue stood at £2.7 billion, but clubs had made a
collective loss of £291 million. This is due mainly to the increasing cost of player
wages, which hit a record high of £1.8 billion. (Conn, D. 2014)
To try and regulate this issue, UEFA have introduced the Financial Fair Play ruling
(FFP)

Financial Analysis
Profitability
Operating Margin:
2014 2013 2012
%
MUFC 15.7 17 14.1
Arsenal 5.8 7 20.4
(Manchester United, 2014) & (Arsenal, 2013 & 2014)
There have been slight changes in this since 2012. Although revenue has seen a
huge increase of 19.3% in 2014, operating costs have risen in line with it.
The PL signed a new broadcasting deal in 2013, which would be distributed among
the 20 clubs on the basis of live matches shown domestically and overseas. In 2013,
MUFC received £31.9 million directly from the PL for broadcasting, whereas in 2014
they received almost £46 million. (Premier League, 2014) Broadcasting revenue
increased by 33% in 2014, due to the new deal in the league, as well as higher fees
received from the club’s participation in the UEFA Champions League. In 2014,
United netted £17.1 million from television rights in the Champions League,
compared to £14 million in 2013. (UEFA, 2014)
0
5
10
15
20
25
%
2014 2013 2012
Operating Margin
MUFC
Arsenal

Since 2012, commercial revenue has improved by 61%. This is largely due to record
breaking sponsorship deals signed by the club. In 2013, the club announced an eight
year deal with Aon which will generate £22.5 million per year. (Ogden, M. 2013) In
2014, the club had raised over £23 million from 38 localised sponsorship deals.
(Repucom, 2014) This figure excludes the deal with Aon, and the shirt sponsorship
deal with Nike, which is worth almost £24 million a year alone. (Skysports, 2014)
MUFC set the benchmark for clubs in terms of sponsorship revenue, and the
importance of their commercial revenue is illustrated below.
(Manchester United, 2014)
The club dominated industry shirt sales in 2014, selling two million replica jerseys,
more than double that of anyone else in the industry. (BBC, 2014a) Despite all of the
increases, operating expenses have also risen in line with the revenue. The major
change has been the growth of employee wages, which is up 18.7% from 2013.
(Manchester United, 2014, p145) Operating expenses have risen by 20% in 2014,
with the main increase coming from employee wages. 2013 saw a 10% rise in
wages, whereas 2014 witnessed a huge 20% rise. (Manchester United, 2014) The
most significant wages rise was that of Wayne Rooney, which accounts for an
additional £5.2 million annually. (Think Football, 2014) Employee numbers are up
25% from 2012. In 2014 alone, an additional 126 employees were taken on, which
explains the growth in staff costs.
Included in operating expenses is the amortisation of players’ registrations. In
football, the useful life of a player’s registration is amortised on a straight line basis,
with the length of their contract taken as useful life. (Geey, D. 2014) MUFC’s
amortisation charge was £55 million in 2014, up 34% on 2013. This is due to
189,315
135,746
108,103
Revenue Breakdown 2014 (£'000)
Commercial
Broadcasting
Matchday

expensive players bought over the transfer windows in 2014 including Juan Mata
and Marouane Fellaini. Amortisation charges were £8.25 million for Mata (BBC,
2014b) and £5.4 million for Fellaini. (Ogden & Bascombe, 2013)
Therefore, despite the large increases in revenue, operating margin has reduced due
to an increase in operating expenses, due to player wages.
Competitor Comparison
MUFC have performed well in comparison to one of their closest competitors,
Arsenal. Revenue has been consistently higher than Arsenal’s, but Arsenal’s
operating margin has declined since 2012. The unusually high margin in 2012 was
due to a profit of £65million made on sales of high end players. (Transfermarkt,
2012) Increases in operating costs in 2013 including disposal costs related to
property and wages increase of £10million was a key factor in the decline.(Arsenal,
2014, p45) Another factor was the increased investment in new players such as
Mesut Ozil and Santi Cazorla which led to a significant reduction in profit on disposal
of players’ registrations. (Transfer League, 2015)

Net Profit Margin
2014 2013 2012
%
MUFC 5.5 40.2 7.2
Arsenal 2.4 2.1 12
There was a huge decrease of 34% in 2014. This was mainly due to a tax credit
received in 2013, as stated by analysts;
“Manchester United said its 2013 net income was distorted by a one-off tax credit of
£153.317m, which it received from “US deferred tax assets”. Had it not received that,
the club would have made a loss of £8.8m in 2013.” (World Soccer, 2014)
The club were floated on the NYSE in 2012, and due to reorganisation transactions
related to the Initial Public Offering (IPO), the club inherited over £96 million carried
forward US tax bases of Red Football Limited Partnership. (Manchester United,
2014, p162) This was the company name that they traded under prior to the IPO.
Worryingly for the club, 2012 resulted in a loss, rescued only by the tax credits
received. (Manchester United, 2012, p110) This resulted from interest charges that
the club were paying, and was becoming a major issue for their financial health. The
directors had to act quickly, before the club started to plunge into annual debt.
0
5
10
15
20
25
30
35
40
45
%
2014 2013 2012
%
Net Profit Margin
MUFC
Arsenal

They decided to redeem the high interest bonds, funded by a new, low rate term
loan. This reduced finance costs by 61% in 2014. Interest rates from July 2013
onwards are around 2.78% which is saving the company £10 million annually on
interest payments. (The Guardian, 2013) The cost of refinancing the debt was £22
million in premiums paid, which was attributed to total finance costs for 2013. (Conn,
D. 2013) Bonds totalling £177.8 million were repaid with the new loan. These bonds
had an interest rate of 8.75%, contributing to the huge decrease in finance costs in
2014. Finance income fluctuated due to the varying levels of cash levels, as this is
interest received from bank deposits. (Manchester United, 2014, p144)
Similar to GP margin, Arsenal’s NP margin in 2012 was mainly due to the large
profits made on disposal of player registrations. (Transfermarkt, 2012) MUFC
performed poorly in comparison due to the high finance costs in 2012, but excelled in
2013 as a direct result of the tax credit received on US tax bases. (Manchester
United, 2014, p162) Arsenal’s finance costs have remained relatively constant over
the 3 year period, but their revenue growth (7.8%) was not as strong as MUFC’s
(19.3%) in 2014. In conclusion, MUFC had a stronger NP margin due to the
refinancing of their loan and higher revenue growth.

Return on Capital Employed(ROCE)
2014 2013 2012
%
MUFC 7.4 7 6.3
Arsenal 2.8 3 8.1
MUFC’s ROCE has improved slightly by 1% since 2012. With the IPO in August
2012, the club raised $233million (£150 million) (Farrel, M. & Pagliery, J. 2012)
which eliminated the deficit reserves account on the balance sheet. Steady
increases in overall assets, as well as significant repayments on the loans have
improved the ratio. The club’s assets have increased by 28.2% since 2012, and with
the IPO contributing to an additional £150 million in equity in 2013, the ROCE has
seen a huge improvement. (Manchester United, 2014, p123) & (Manchester United,
2013, p121)
MUFC are performing well in ROCE terms against Arsenal. Arsenal’s ratio has been
on a decline since 2012 because of the decrease in profit. This, again, is largely due
to the club making smaller profits on disposal of players because they have had a
heavier investment on players since 2012. (Arsenal Report, 2015) Arsenal’s assets
have only risen by 8.86% since 2012,(Arsenal, 2014) & (Arsenal, 2013) in
comparison to MUFC’s rise of 28.2%.
Wages/Revenue %
2014 2013 2012
0
1
2
3
4
5
6
7
8
9
%
2014 2013 2012
%
ROCE
MUFC
Arsenal

%
MUFC 43.6 43.5 44.7
Arsenal 47.7 47.7 50.2
This is a major key performance indicator (KPI) for football clubs in the modern day.
Wages are clubs’ single biggest outlay annually and the trend has been increasing in
the PL by 9% every year until 2014. (Zeenews, 2015) MUFC have performed
reasonably well in this area, as they have managed to lower the ratio slightly over
the 3 year period. MUFC had the largest wage bill in the industry in 2013/2014
(Ziegler, M. 2015), but this expense is growing at an unhealthy rate. Wages have
increased by 40% since 2011, whereas revenue has increased by 30%. (Manchester
United, 2014, p120) & (Manchester United, 2012, p110) If this continues, it will
become a concern for the club and it is certainly a factor that will need to be
monitored by management.
40
42
44
46
48
50
52
%
2014 2013 2012
%
Wages/Revenue
MUFC
Arsenal

Although this may become an issue for MUFC, Arsenal are in a more worrying
position. The ratio has declined slightly since 2012, but the wage bill has grown by
33% with the signing of new players, in comparison to the growth in revenue of only
18%. (Arsenal, 2014, p46) & (Arsenal, 2012, p47)
0
50
100
150
200
250
2014 2013 2012
Wage Bill (£m)
MUFC
Arsenal

Liquidity
Current Ratio
2014 2013 2012
Times
MUFC 0.6 0.7 0.6
Arsenal 1.1 1.3 1.3
MUFC’s current ratio has remained largely unchanged since 2012. The club have an
aggressive working capital management policy, but a major contributor to this is the
club’s recognition of deferred revenue. This is split into the same 3 categories as
normal revenue; commercial, matchday and broadcasting. For example, the club sell
55,000 season tickets annually prior to the season kicking off; this is then recognised
as deferred revenue. (Bernstein, J. 2014)
Assets have fluctuated over the 3 year period due to a number of factors. Cashflow
received a substantial injection of £70 million in 2013 from the IPO. (Manchester
United, 2013, p124) The new loan that the club took out in 2013 also provided a
large injection of cash, although a lot of it was used to redeem bonds previously in
issue. (Miecamp, J. 2013) The extra cash that was released from cheaper finance
was put towards player investment, which more than doubled. (Soccerbase.com,
2015) This ultimately led to payables rising at the same rate that cash dropped, with
£38 million left outstanding to be paid on player registrations in 2014, 4 times the
amount of what was owed in 2013. (Manchester United, 2014, p158) The club’s
receivables increased by 83% in 2014, with most of this being attributable to
deferred revenue.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Times
2014 2013 2012
T
i
m
e
s
Current Ratio
MUFC
Arsenal

World record sponsorship deals have been signed by the club, including a £53
million a year contract with Chevrolet (Ogden, M. 2014) which contributes to the
huge increase. Although the club’s short term liabilities are rising, the large rise in
current assets is more than compensating for it.
Arsenal’s current ratio has remained healthy throughout the 3 year period, with an
increase in payables in 2014 being the reason for the ratio declining slightly. This
was due to an element of the £42.5 million paid for Ozil (Soccerbase.com, 2014)
being spread out over more than one payment. Arsenal are renowned in the industry
for their liquidity and availability of cash (Ran, E. 2014) and their current ratio backs
up this claim. MUFC’s large amount of deferred revenue (£180 million in 2014) has
adversely affected their current ratio. This represents future income which is £50
million more than Arsenal’s deferred income. (Arsenal, 2014, p53) Nevertheless,
Arsenal’s more conservative approach towards working capital management has
allowed them to have healthier liquidity ratios.
Cash Ratio
2014 2013 2012
Times
MUFC 0.2 0.4 0.3
Arsenal 0.8 0.7 0.7
As neither club hold inventory, I felt it would be appropriate to calculate cash ratios.
MUFC’s cash ratio has changed only slightly over the 3 years, with the highest value
inevitably coming in 2013 as a result of the share issue proceeds and increased
cashflow from operations. Also, in 2012 the club paid dividends of £10 million,
(Manchester United, 2014, p126) an expense that has not been repeated since.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Times
2014 2013 2012
T
i
m
e
s
Cash Ratio
MUFC
Arsenal

There has been a trend of growing cashflow annually for the club, which was
expected to continue with the reduction in interest being paid from 2014 onwards
from the refinancing of the loan. (Ozanian, M. 2013) The change of management
from Sir Alex Ferguson to David Moyes left the club in a transition period, with new
manager Moyes stating;
“there is a rebuilding job to do at Manchester United.” (Adamson, M, 2014)
This rebuilding job saw the directors sanction £120 million of expenditure on player
registrations for Mata, Fellaini, Luke Shaw and Ander Herrera during 2014.
(Soccerbase.com, 2015) Although some of this cost will be spread out to future
accounting periods, almost £93 million was deducted from the club’s cash balance.
(Manchester United, 2014, p126) The club hold offices in USA and Ireland, and all
profits related to these offices are translated back into £GBP from local currencies.
The strength of the Euro and the US Dollar increased in 2014, which the club
suffered cash expense of over £6 million on. (Manchester United, 2014, p126)
Arsenal have enjoyed a higher cash ratio than MUFC over the past 3 years.
Arsenal’s CEO Ivan Gazidis has a different approach to cash management than
MUFC. He ensures that there is a reasonably large stockpile of cash in reserve.
(Harris, N. 2014a) The policy upheld by Arsenal is that they must have minimum
amounts of cash on hand in order to cover the principal and interest payable on their
bonds. They also aim to maximise the interest receivable by using short term
treasury deposits in the bank. (Arsenal, 2014, p53) MUFC have a more aggressive
0
50
100
150
200
250
2014 2013 2012
Cash Balance (£m)
MUFC
Arsenal

approach to cash management and have generally used receivables as a preferred
method of financing than holding high levels of cash. This can be a riskier approach
as the receivables are not guaranteed and they stand to lose out on maximising
interest receivable on cash deposits. MUFC are using excess cash to make strategic
investments on players to generate future returns. Arsenal are holding high levels of
cash, which is resented by fans who are essentially, customers and a major
stakeholder in the business. Surveys have shown that the general opinion is that
Arsenal are too conservative when it comes to investing their cash surplus. (Todd, T.
2014)
The clubs are using different methods of cash control, and given MUFC’s success in
generating higher revenue, the aggressive approach seems to be the more effective
one.

Solvency
Gearing
2014 2013 2012
%
MUFC 68.5 86.8 185.8
Arsenal 77.9 82 85.6
At year ending 30th June 2012, MUFC’s debt was almost double their equity. The
flotation of the club on the NYSE in August 2012 reduced the level of gearing to
86%. They raised £150 million in new equity, but the overall feeling from the IPO was
disappointment as the club had expected to trade at $16 - $20 per share but ended
up trading at $14. This was only a third of what the club expected to raise. (BBC,
2012) In terms of debt, they secured a loan of £209 million which was used to
redeem the higher interest bearing bonds that were in issue. (Fujimoto, S. 2013) This
did not reduce the overall debt; it was purely a strategic decision to lower interest
rates. (Nicholson, P. 2013) The financial year 2012/13 was a significant one for the
club, as they managed to restructure their debt and raise capital through equity, the
first time in 7 years that the business was publicly traded. (Grierson, J. 2012)
2014 saw further reductions in gearing as the club continued to improve their capital
structure. Hedge fund reserves increased by £25 million as the club benefitted from
fair value movements, providing a boost to retained earnings. (Manchester United,
2014, p148) The club’s decision to cut the interest costs, along with the deals signed
with AON and Chevrolet, contributed to a decent profit. (Sheen, T. 2014) The
0
20
40
60
80
100
120
140
160
180
200
%
2014 2013 2012
%
Gearing
MUFC
Arsenal

decision not to pay dividends has also increased the amount of profit retained in the
club, further improving gearing levels.
Arsenal have increased their equity gradually since 2012 through steady growth in
profits. They are also lowering their level of debt as no new loans have been taken
out. Their capital structure is monitored with far more control than MUFC’s. The view
of one of their major shareholders Alisher Usmanov, is that;
“you invest your own funds into your assets” (Wilson, J. 2014)
which indicates Arsenal’s hesitancy to invite debt to the club. Although MUFC’s level
of gearing spiralled out of control before the IPO, they have now managed to regain
control of their capital structure as a result of increased equity. Provided that they
maintain profit growth, their gearing level will continue to drop, decreasing financial
risk.

Interest Cover
2014 2013 2012
Times
MUFC 2.5 0.9 0.9
Arsenal 1.4 1.5 3.7
MUFC’s finance costs have been well documented over the years, with the high
rates on bonds attracting over £31 million of interest payable annually. (Skysports,
2013) With the decision to redeem the bonds with a new loan, total finance costs
were reduced by 61% in 2014. There was a £22 million premium paid to redeem the
bonds in 2013, (Manchester United, 2014, p144) but the club will benefit in the long
term from less expensive finance. This has helped interest coverage change from
0.9 in 2012 and 2013 to a much healthier 2.5 in 2014. The club are starting to make
dramatic strides towards decreasing their overall financial risk, improving the stability
of the business.
0
0.5
1
1.5
2
2.5
3
3.5
4
Times
2014 2013 2012
T
i
m
e
s
Interest Cover
MUFC
Arsenal

Arsenal have maintained interest payments at around £13 million as a result of not
drawing anymore debt over the past 3 years. The reason for the decline in the ratio
in 2013 was the abnormal profit in 2012, from profits on selling players as mentioned
before. Their interest coverage has stabilised in the last 2 years. MUFC have a
preferable ratio in 2014 because of higher operating profits and reduced finance
costs, a direct result of the refinance. Arsenal are a good benchmark for MUFC to
compare solvency against, as they have a solid capital structure in place and debt
management is more consistent and not as erratic as MUFC’s has been.
0
10
20
30
40
50
60
70
80
2014 2013 2012
Interest Payments (£m)
MUFC
Arsenal

Efficiency
Asset Turnover
2014 2013 2012
Times
MUFC 0.37 0.35 0.33
Arsenal 0.37 0.36 0.33
MUFC’s asset turnover has improved since 2012 because of growing revenue. The
club’s asset base has been growing at a phenomenal rate, and now sits at over £1.2
billion. In order to maintain or improve the ratio, revenue will have to grow in line with
the rise in assets. The deferred tax asset has been unwinding, but investment in high
profile player registrations since 2012 have seen the club’s playing staff value rise by
£93 million. (Manchester United, 2014, p122) Bringing in players such as Robin van
Persie and David De Gea has helped the club in operations, consolidating their
earnings from broadcasting deals and rewards from merit Premier League
payments. (Harris, N. 2013) The club’s high level of goodwill (£421 million) has
adversely affected the asset turnover.
Arsenal have also seen a steady growth in revenue and assets and although both
clubs are making less than £1 per asset annually, it seems to be the norm for the
industry. Arsenal have only recognised goodwill in 2014. MUFC went through a
takeover in 2005 and goodwill has been recognised since then,(Manchester United,
2014, p152) but Arsenal have never gone through a takeover, resulting in the large
difference. MUFC are performing on par with Arsenal in the respect of utilising
assets.
0.31
0.32
0.33
0.34
0.35
0.36
0.37
Times
2014 2013 2012
T
i
m
e
s
AssetTurnover
MUFC
Arsenal

Player Registration Turnover
2014 2013 2012
Times
MUFC 2.67 3.13 2.64
Arsenal 2.85 3.08 3.44
Considering that a football club’s fundamental assets are their players, I have
modified the asset turnover ratio. It’s calculated in the same method that asset
turnover is, but focuses on player registrations as the asset. This is a KPI for football
clubs, because they invest heavily on player transfers annually.
With player values down by £17 million in 2012, revenue suffered by £11 million.
This was a result of the amortization charge, because player spending had more
than doubled in that transfer window. (Transfer League, 2015a) The spending trend
continued in 2013, with transfer fees doubling again. (Soccerbase.com, 2015) The
additional expenditure helped MUFC win the PL in 2013, which further strengthens
the club’s brand, attracting more sponsorship and commercial revenue. In 2014,
although the club finished 7th in the league, they still earned almost £90 million from
the PL merit payments alone. Incredibly, this is an additional £30 million on the
payment received for winning the league in the prior season. This is a direct result of
the new broadcasting deal signed by the PL with broadcasters including Sky, BT and
foreign sources. (Sporting Intelligence, 2014)
0
0.5
1
1.5
2
2.5
3
3.5
Times
2014 2013 2012
T
i
m
e
s
Player Registration Turnover
MUFC
Arsenal

Transfer Fees Paid (£m)
2014 2013 2012
MUFC 120.6 53.4 22.9
Arsenal 42.5 47.5 48.5
Arsenal’s turnover ratio has been on a decline since 2012 because their revenue is
growing in line with the increase in player values. Although there has been steady
growth, MUFC’s earnings are simply much higher. Arsenal’s level of spending has
stayed relatively constant around the £40 million mark, whereas MUFC’s gross
spend is rapidly increasing. Due to the level of prize money and broadcasting
revenue available to clubs finishing higher in the league, MUFC are investing heavily
to ensure that they maximise their potential earnings. Arsenal have had a more
conservative approach, but have still earned £206 million since 2012 in PL payments
compared to MUFC’s £210 million. (Sporting Intelligence, 2014) Both clubs place an
emphasis on developing youth players internally, which reduces the need to
purchase players, but given MUFC’s erratic spending levels, Arsenal are doing a
better job of managing transfer expenditure.
0
20
40
60
80
100
120
140
2014 2013 2012
Transfer Fees Paid (£m)
MUFC
Arsenal

Investor Ratios
Manchester United
2014 2013 2012
Earningsper Share (pence) 14.55 89.78 14.8
Share Price (£) 17.45 15.92 N/A*
P/E Ratio(Times) 119.9 17.73 N/A*
*Note that MUFC were not publicly traded until August 2012, which is the financial
year ending 2013.
Earnings per Share (EPS)
In August 2012, the club issued 8.3 million shares in the IPO, accounting for about
5% of total shares in the business. (Manchester United, 2013, p153) There was a
huge jump in the EPS due to the US tax credit of £153 million driving net profit for
the year. (World Soccer, 2014) As there were no new shares issued in financial year
2014, the change in EPS is down to profits levelling back out.
0
20
40
60
80
100
120
Earnings per
Share
(pence)
Share Price
(£)
P/E Ratio
(Times)
Manchester United 2014

Arsenal
2014 2013 2012
£
EPS 116.87 93.9 475.64
(Arsenal
2013 &
2014)
Arsenal have a very high EPS due to the manner in which they are traded. They
have only got 62,217 shares in issue (MUFC have over 163 million) and are primarily
owned by two shareholders, Stan Kroenke and Alisher Usmanov who own 97% of
the club between them. (Gibson, O. 2014) As no new shares have been issued over
the past 3 years, the change in EPS is solely due to the fluctuation in profit. The
reason that Arsenal’s EPS is over 100 times the value of MUFC’s is the much lower
level of shares in issue. Incidentally, the last time that Arsenal issued new shares
was back in 2010, when they allowed fans to invest in the club for a fraction of the
market value of the shares.
0
100
200
300
400
500
£
2014 2013 2012
Arsenal
EPS
EPS

P/E Ratio
MUFC’s EPS in 2013 was inflated due to the tax credit, thus resulting in a low P/E
ratio. As this was a one off income, 2014 represents a more accurate view of their
true P/E ratio. As EPS smoothed out in 2014, an increase in earnings contributed to
a higher share price and a much higher P/E ratio. With the confirmation of new
sponsorship deals (Ogden, M. 2013) as well as increased investment in the playing
squad, investors clearly expect the revenues to continue rising. Investor confidence
grew when manager David Moyes was sacked in April 2014 after a disappointing
season on the pitch. (Beech, R. 2014) With no dividends paid since 2012,
(Manchester United, 2014, p149) all that the investors can expect are capital gains.
2014 2013 2012
Times
MUFC 119.9 17.73 N/A
Arsenal 139 174.2 34.2
Due to the unique nature of Arsenal’s ownership, their share price is extraordinarily
high. The last time that shares were traded, the price was at £16,500. (Sale, C.
2012) Their EPS was a massive £475 in 2012 as a result of the abnormal earnings
for the year, but this came back down to a more modest £93 in 2013. (Arsenal, 2013,
p37) Share price has remained constant as no trading has occurred so the variation
in P/E ratio is down to the changing levels of profit. Given the value of Arsenal’s
share in comparison to MUFC’s, the club can be reasonably happy with their
0
20
40
60
80
100
120
140
160
180
Times
2014 2013 2012
T
i
m
e
s
P/E Ratio
MUFC
Arsenal

performance in relation to Arsenal’s. With MUFC’s growing share price, the market
feels that the club will continue to prosper which could open the door for further
share issues to boost capital in the club.

SWOT Analysis
Strengths
 Strong brand loyalty & industry
leader in revenue
 Record breaking sponsorship
partners
 Ability to attract best players in the
world
 Waiting list for season tickets,
guaranteed future revenue
Weaknesses
 Debt of £380 million (McDonnell,
D. 2015)
 Highest wage bill in the industry
(Handlr, P. 2015)
 Lower cash balance than
competitor, affecting liquidity
 Player power is increasing,
demanding higher wages
Opportunities
 New Premier League
broadcasting deal promises larger
payments for televised matches
 USA market is emerging, MUFC
are American owned and can take
full advantage (Lee Rigg, Z. 2011)
 Reduced finance costs enable
surplus cash to be invested
 Invest in youth academy and take
advantage of home grown talent
available to the club
Threats
 League is now more competitive
than ever. Chelsea, Man City,
Arsenal & Liverpool are all
capable of attracting top players
and challenging MUFC
 Transfer fees are increasing,
MUFC may not have the same
purchasing power as before
 Other clubs will benefit from
additional revenue from the
broadcasting deal
 New local fans may choose to
support Manchester City, given
their recent success

PEST Analysis
Political
Political factors include government legislation and rules set out by governing body
UEFA.
The major factor that will affect the club from 2013 onwards is the introduction of the
FFP. In order to comply with the legislation, the club must not make a loss greater
than €45 million (£36 million) over the space of three seasons. This limit can be
reduced to €5 million if the club’s owners are unwilling to invest in the club to reduce
the deficit. (Thompson, E. 2013) From MUFC’s position, this would mean that they
would have to issue more shares to reduce the loss. The FFP will have a huge
impact of transfer fees paid as the total cost of players will be amortised over the
duration of the player’s contract. (Thompson, E. 2013) The annual figure amortised
will contribute to an overall loss and the club will need to have sufficient revenue to
cover the cost. Wages can only rise by £4 million per year, which will affect the ability
of clubs to make big name signings unless they sell other high earners to
compensate for the additional rise. (Jacobson, M. 2014)
Economic
Economic factors are those affected by the economic environment that the club
operates in.
With the recession in the UK now over (Hall, M. 2014), a pledge has been made by
the government that there will be no increases in taxes for 5 years, which will benefit
MUFC. In 2014, the club made a £4 million loss on foreign exchange rates and with
the £GBP getting slightly weaker against the $USD (Duncan, H. 2015) they will have
to hedge against this risk as the club’s loan is repayable in $USD. Another factor is
the amount of money being invested in the PL from BT & Sky’s broadcasting deals.
This will allow more teams to invest in quality talent and could result in the club
losing part of its market share.
Social
Social factors are affected by trends of the country’s population.
Although the club has been a dominant force in the football world in recent history,
other clubs are becoming as competitive as MUFC. Chelsea, Arsenal and
Manchester City have won the league over the past 10 years and a recent
resurgence from Liverpool will mean that these clubs will increase their fan base in
the country. There is a risk that if MUFC don’t continue to be successful, revenue will
drop as fans will start to support their competitors’ brands.

Technological
These factors are affected by the availability of technology in the country.
Advances in technology can help clubs to gain a competitive advantage by being
able to monitor training progress and health of players more effectively than before.
The top clubs have built state of the art training facilities, with MUFC’s being
regarded as one of the world’s best. Their training complex has been improved over
the past year, with sleeping pods now being introduced as recent studies have
shown the effectiveness of allowing players to sleep between double training
sessions. MUFC will have to keep up to date on technological advances in sport
science in order to remain competitive.

Conclusions
MUFC have been a financially dominating force in the PL in the Sir Alex Ferguson
era, and with the recent changes in management, the club faces the challenge of
replicating that success.
In terms of profitability, the club is the industry leader in revenue as huge
sponsorship deals are signed annually. Despite the club’s poor performance on the
pitch in 2014, they still managed to sign a world record deal with Chevrolet. Their
profit margins are consistently healthier than those of their competitor, Arsenal.
Revenue has increased by 30% since 2012, and with the new lower interest rates on
the loan, I expect these margins to continue to grow if they continue to produce
results on the pitch. One of the only issues for the club at the moment is the ever
increasing wage bill. In 2014, they finished 7th in the league, which resulted in
missing out on Champions League football in 2015 and they will suffer the financial
consequences of not qualifying. If this trend continues, they will struggle to pay the
wages currently being paid. There has been a 40% increase in this cost since 2012.
The outstanding strategic decision by the club has been to refinance their debt
structure. Finance costs have been an issue for the club since the takeover in 2005,
and with the refinancing of the debt they have managed to reduce the interest rates
significantly. This will allow the club more flexibility in player investment, as there will
be more cash available. This financial freedom was demonstrated in 2014 with a
record level of expenditure on players. Shareholders will regain confidence in the
club’s financial health as a direct result of this decision.
The club’s short term liquidity has been at higher risk than Arsenal’s. I feel that this is
because MUFC have a more aggressive approach towards working capital, but it is a
system that is working for them. They hold far less cash than Arsenal, because they
are constantly investing it in ways to improve the business. It can be argued that the
club’s higher league position in 2012 and 2013 proves that MUFC have had more
success using this approach.
Long term liquidity had been an issue in 2012 and 2013, but as they restructured
their debt they now have a lower gearing level than Arsenal, which is a phenomenal
achievement considering that Arsenal are widely recognised for having such a strong
capital structure. The level of interest cover also reflects the strength of MUFC’s
financial structure at the moment.
Although the IPO was deemed as a disappointment by finance analysts due to the
actual share price compared with expected, investor confidence is high. MUFC’s P/E
ratio reflects the expectation of shareholders that the club will continue to make
higher earnings. Their decision to not pay dividends has not affected the opinion of
the market yet. Arsenal’s share price has always been much higher, but this is
because they are not traded publicly. If MUFC were to issue more shares to raise
equity, their P/E ratio indicates that the market would not hesitate to purchase.

MUFC’s brand is recognised worldwide because of their success, but the rise of
other clubs in the industry is becoming a serious threat. Winning the league has
never been so profitable because of the huge amounts invested by broadcasting
companies, and with the additional cash from cheaper interest costs, the club needs
to continue investing in the playing squad in order to remain competitive, while they
still have the financial muscle that other clubs have not yet got. The football fan base
in the USA is growing as a result of the national team’s moderate success in the
World Cup, and with American owners, MUFC need to try and capitalise on this
emerging market.
As the FFP is now fully in effect, there are new guidelines that the club must adhere
to. Although the loss making threshold shouldn’t affect MUFC because of their high
profits, the effective salary cap is going to become an issue for the club. Wages are
at an all-time high, and they may have to offload some of their less effective players
if they want to continue signing the best players in the world. The FFP disregards
youth academy investment as expenditure, and since this is not counted towards the
allowable threshold I feel that the club should look at recruiting and training young,
local talent in order to have the freedom to purchase a big name player when
desired. Arsenal have paid much less in transfer fees, and in recent years are
producing higher quality players from their youth system than MUFC.
Another element of the FFP which does not count towards the loss threshold is
capital expenditure in the stadium. MUFC have one of the biggest stadiums in
Europe, and it is almost a full sell out for every home match. If the stadium was to be
expanded, they could further enhance revenue. This would strengthen their position
within the FFP, provide more earnings and increase the overall stature of the club
from a global viewpoint.
In conclusion, the business model of MUFC has been an enormously successful
one, but with issues such as changes in management, a season of poor
performances on the pitch, the high level of debt, and the enforcement of FFP
restrictions, the club will have to review some of their policies and explore potential
markets such as the US. The club need to get back to winning ways in order to keep
attracting the level of sponsorship and broadcasting income that they currently get to
maintain their position of one of the biggest sports teams in the world.

Recommendations
 Propose a rights issue of shares to pay off more of the large debt, this will
decrease financial risk and increase goodwill amongst shareholders
 Focus on the youth academy. MUFC have made only £4m more than Arsenal
in prize money since 2012, while they have invested £58m more than Arsenal
on player transfers
 Hedge against currency risk, as the $USD is becoming stronger against the
£GBP, with the €EUR also gaining strength
 Evaluate player wages and decide which big earners must leave to make
room in the ‘salary cap’ for new players and raise finance for investment in the
youth academy
 Review dividend policy, the club should reward shareholders for investing in
the business when they were highly geared

Thesis

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